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Asleep at the wheel

Jul 14, 2017

Pete Crow

Export trade is critical for U.S. agriculture. If we don’t get in the game, it could be bad for farms and ranches.

Last week the European Union (EU) and Japan announced a free trade agreement that could have major impact on our ability to trade with Japan. According to the Farm Bureau, “U.S. exports of some products like corn and soybeans probably won’t experience a significant impact. These are not products the EU specializes in, can’t grow enough of, or simply are so far out of price competition with the U.S. that strong competition isn’t likely. For other products like pork, beef, processed foods, wine, and cheese, however, this agreement could lead to significant erosion of U.S. market share. The EU already has a strong presence in the Japanese market that a significant tariff advantage will only improve.”

Tariff reductions are a big deal and the U.S. doesn’t have a great deal going into Japan. The Trans-Pacific Partnership (TPP) would have—over time—reduced tariffs on U.S. beef to just 9 percent from the 38.5 percent we now have. President Donald Trump pulling us out of the TPP was a big deal, and his trade plans are still a bit of a mystery to most of us. We’re supposed to start renegotiating the North American Free Trade Agreement (NAF- TA) soon and the ag industry has emphasized: “Cause no harm.”

The fact remains that we are ramping up beef production to a great degree and exports are essential.

Exports account for about 13 percent of our total beef production right now. The U.S. is currently the leading supplier of beef to Japan, Korea, and Taiwan, according to the U.S. Meat Export Federation.

But we are seriously disadvantaged on tariff issues compared to Australia, New Zealand, and now the EU. For example, pork exports account for 28 percent of total production. U.S. market share for pork in Japan is around 36 percent. The EU isn’t a major beef producer but they produce plenty of pork and if it displaces U.S. market share in Japan, that pork will get sold to American consumers, competing with beef.

If we don’t have robust export markets, we could be in trouble than we already are; farm income is half of what it was in 2012 when farms earned about $120 billion. Our trade negotiators need to get with the program and craft more deals. Trump may like bilateral agreements but I think the rest of us are fine with multilateral deals like TPP and NAFTA.

Trump got China opened and there was a big ceremony in Beijing recently. Ag Secretary Sonny Perdue and members of the National Cattlemen’s Beef Association made the trip to usher in renewed beef trade. It will be great to have access to 1.4 billion new customers, but it will take years for China to start consuming meaningful production. Still, there are a lot more potential consumers of U.S. beef and ag products in general in China But when you look around the world, the beef industry is in a state of flux. India, the largest beef exporter of mainly water buffalo, is having social issues over the sacred cows. Ever since the Bharatiya Janata Party came to power in 2014, Indian society has been showing increasing signs of Hindu nationalism. India’s beef trade historically has avoided offending Hindus by focusing on buffalo. People have been killed because they were suspected of processing cattle.

The inspection scandal has cast a cloud over Brazil’s beef industry. Beef exports are down 10 percent from a year ago. It is going to take some time to get their house in order.

Australia has experienced major drought over the past few years, forcing producers there to liquidate and process more beef. Their inventory is low and they are in the process of rebuilding herds, but as we know, it will take a few years to get production levels back to normal.

Demand for U.S. beef is remarkably strong and there’s a lot of opportunity around the world for U.S. beef producers. But we need to get more trade deals going. We’ve been able to move 900,000 more cattle so far this year. However, we will need more new consumers of U.S. beef products considering the million head of cattle coming to market next year.

The cattle business is doing much better than we expected. Exports are growing, but if we don’t create more free trade deals we could slip away from profitability. — PETE CROW

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