Vilsack Talks Smack on China

U.S. ag exports are reaching new highs and simultaneously getting the side-eye as Ag Secretary Tom Vilsack contemplates the contentious relationship with China.

In totality, ag exports are projected to be up 21% to $164B in 2021, soaring above the USDA’s initial February forecast. Dairy, poultry, and livestock products lead the way in expected increases.

Some growth can also be credited to China and its record-breaking expected $35B in purchases. Nearly a fifth of U.S. ag exports are headed to China, and over-reliance on a singular country is on Secretary Vilsack’s mind.

A soundbite: “Obviously, we’re much better off without a trade war than we were in a trade war with China in terms of agriculture. But that’s a complicated relationship, and anything can disrupt it at any point in time. Which is why I think it is going to be important, at the appropriate time, for the administration to take a look at where there are new partnerships, new arrangements, new connections,” Vilsack said.

Easier said than done: Without Europe seeing eye-to-eye with the U.S. on sensitive production practices (read: GMO, growth stimulants, etc.), new trade arrangements are unlikely. Other opportunities may exist in Southeast Asia and Africa, as well as with the Trans-Pacific Partnership successor.

Where this goes: Vilsack notes he’s confident about the future of the relationship with China so long as it’s centered on trade. But the relationship is too complex to say if today’s trend will hold firm.

The Trade Truce

A trade squabble between the U.S. and the EU years in the making is finally coming to a close — and U.S. agriculture is stoked.

Refresher: The quarrel began nearly 17 years ago over a disagreement regarding subsidies given to aircraft manufacturers Boeing (U.S.) and Airbus (France).

More recently, in 2019, the World Trade Organization (WTO) told the U.S. that it could slap the EU with tariffs because of its Airbus subsidies. And the U.S. did just that — on a variety of unrelated products, including French wine and German cookies.

Not to be outdone, back in November the EU said, “Well, we’ll show you…” and it hit the U.S. with retaliatory tariffs. And because those tariffs focused on commodities, fruit, tractors, and other products, U.S. ag took a big hit.

Calling a truce: The two trade giants agreed to a temporary tariff suspension back in March. But this week, they officially buried the hatchet.

Soundbite: The truce “will certainly be good news for American agriculture. We will continue to … look for opportunities to expand more new and better markets,” said Ag Secretary Tom Vilsack.

Those earlier 15-25% tariffs had hit U.S. producers hard. Wheat exporters, in particular, were basically sucker-punched. Being a high-volume, low-margin crop, wheat sales to the EU were pretty much red-lighted by the 25% tariff. But now that everyone is playing nice again, hard red spring wheat is on its way, skipping back across the pond.

Where this goes: With the ag tap of food products/machinery once again flowing freely, companies such as John Deere, Caterpillar, Hershey, and Ocean Spray are poised to reap the benefits.

China Is Slackin’

While U.S. farm exports are anticipated to break the glass ceiling this year, China isn’t holding up its end of the bargain.

This year the U.S. will see farm exports hit $164 billion, shattering the previous record of $152.3 billion set in 2014.

Why the boom? A global pandemic recovery mission plus China’s growing economy. Both of which are boosting export numbers and commodity prices.

China, the number one agricultural importer, spent $133.1 billion on ag imports in 2019. And their growing economy will increase by 189 million middle-class households in the next decade.

It all sounds like a #winning situation, but China is still slacking when it comes to its trade commitments.

Back in January 2020, pre-COVID-global-pandemic, they signed the Phase One Agreement with the U.S. to purchase a minimum of $200 billion more in U.S. goods from 2020 to 2021 in comparison to 2017 imports.

Progress meter: Purchases were only 73% of the year-to-date target as of April and 60% of the total two-year agreement. Ag-specific imports were hovering at 79% at the end of 2020.

In better news, upwards of 4,000 plants can now ship products to China versus the 1,500 that could before the trade deal. China now accepts The U.S. Food and Safety Inspection Service certifications for meat and poultry plants.

Bottom line: China will need to ramp up its trade spending ASAP to uphold its end of the Phase One Agreement.

U.S. Ag Watching TPP Trade Going Down…

While eleven countries are swapping goodies via the Comprehensive and Progress Agreement for Trans-Pacific Partnership (CPTPP), several U.S. ag groups are longingly looking across the pond and saying, take us back.”

Refresher: Yep, it’s that TPP. When the U.S. withdrew from the trade agreement in early 2017, the other partnering nations basically said, “Fine, be that way,” and plowed ahead, creating a longer acronym just for kicks.

But now, some groups, including the International Dairy Foods Association (IDFA), are saying that U.S. farmers are missing out.

Michael Dykes, IDFA’s CEO, put it this way: “Members of that TPP, or CPTPP…are enjoying ratcheting down tariffs. We’re not enjoying those.

First things first: To get to the TPP, all routes must pass through the TPA. The Trade Promotion Authority law gives the executive branch carte blanche authority to negotiate trade deals, requiring only an up or down vote from Congress. The problem? TPA expires on July 1.

Friends in high places: At a recent trade conference, Ag Secretary Tom Vilsack gave TPA the nod — urging Congress to “get serious about resuming and extending” the legislation.

Oh, and this: Vilsack also noted that U.S. ag would benefit from and should consider joining the CPTPP (**and the crowd goes wild**).

Where this goes: There’s a long road ahead, but noting Vilsack’s positive relationship with U.S. Trade Rep Katherine Tai, fingers are crossed that American agriculture gets an invite back to the club.

Not So Neighborly…

The North American block party might be a bit awkward this summer as trade pact tiffs continue between the U.S., Mexico, and Canada.

Eight months after the activation of the USMCA [the new North American Free Trade Agreement, NAFTA], the U.S. is raising concerns on some hot trade topics with its neighbors to the north and south. And it’s not just the burnt brisket at the neighborhood barbeque.

Mexico

Very recent bans of glyphosate and GMO corn have the U.S. up in arms. The goals to eliminate genetically-modified varieties by 2024 left Mexico with some explaining to do to its #1 corn provider.

With 15 billion tonnes of corn worth $2.7 billion on the line, Secretary of Agriculture Tom Vilsack assured friendly ag relations were still in place:

I expressed the concern about the Mexican attitude about genetically engineered crops and the need of being able to get those crops into that market without barriers or interference. I received assurances from a feed perspective that that will be the case and there will be continued access to that incredible market and a chance to grow that market.”  

But don’t count on Mexico for the potato salad, though: Mexico’s Supreme Court is in the process of determining if fresh U.S. potatoes can be sold in the country, a market opportunity of $200 million per year.

Canada

And Canada’s burger isn’t topped with American cheese: Trade complaints are still in process as U.S. dairy groups hurl criticism at Canada for shaking hands on the USMCA with their fingers crossed behind their back.

Tariff-rate quotas [TRQs] that would enable a flow of new U.S. dairy exports and expand supply options to Canadian retailers and distributors aren’t being implemented as agreed upon.

Long story short… The value-add U.S. dairy products that sell for big bucks aren’t getting the light of day in Canadian channels. 85% of exports to Canada are lower-value milk products sent to processors. Put in context by Krysta Harden, CEO of the U.S. Dairy Export Council,

Canada needs to stop manipulating its dairy TRQs; its actions have not only negatively impacted U.S. dairy farmers and manufacturers, but also constrained many Canadian companies from being able to make use of these new TRQs to expand their supply options.”

The Mess in Mexico

Mexico is saying “adios” to GMO corn while its government has a knock-down, drag-out fight ahead of it to make it all but official.

Refresher: On the eve of 2021, Mexico President Andrés Manuel López Obrador issued a decree banning the production, consumption, and import of bioengineered corn, effective in 2024.

But he didn’t stop with maize. The ban included the use of glyphosate, the active ingredient in Roundup, which many producers use to control weeds.

Organic producers praised the move as a “huge victory,” but not everyone is joining the fiesta.

Mexico’s corn industry chamber shot it straight: “This decree is completely divorced from reality.

Mexicans grow nearly all of the white corn they need to roll out their staple tortillas. But their livestock relies on GMO yellow dent corn, almost all imported from the U.S.

By the numbers:

→ 40%: The livestock sector’s share of the Mexican farm economy.
→ 95%: The portion of imported GMO corn supplied by the U.S.

And with Mexico being U.S. corn farmers’ biggest customer, the industry is concerned. To be noted, China is forecasted to increase its U.S. corn imports, but Mexico has traditionally been our most predictable and loyal amigo. Until now…

Where this goes: With concerns over the action being anti-USMCA (as in, illegal) and detrimental to Mexican corn and livestock producers, this fight will be duked out in the courts.

China Driving Demand for… Empty Containers

Seemingly nothing should shock us anymore, but trying to understand the current shipping container shortage is mind-boggling.

Ag exporters around the world are watching stockpiles grow as they struggle to find containers to get products moving.

The reason? China.

Faster pandemic recovery has led to increased manufacturing in the Asian nation. And Chinese exporters are paying a premium to get their hands on shipping containers to move their goods around the globe.

Those premiums have led to global shipping giants rejecting opportunities to deliver U.S. agricultural products so they can ship empty containers to be filled in China.

Worth repeating… U.S. ag commodities are literally missing the boat as shippers can make more money sending empty cargo bins back to China.

But it’s not just a problem in the United States. International grain sellers are struggling to secure container space. Left unchecked, some experts are concerned consumers could start seeing higher food prices as a result.

+ While we’re here: Remember that whole U.S.-China trade war thing? Well, Phase One didn’t entirely live up to expectations. The USDA reported that while China agreed to buy $36.5 billion worth of ag products in Phase One, only $28.75 billion was actually sold.