Rice industry: Caught in the middle over support for TPP

WASHINGTON, July 6, 2016 - Soybean, corn, beef, pork and dairy producers can mostly agree that the Trans-Pacific Partnership would be good for business, but that’s not the case for rice farmers.

What’s good for corn in Illinois is generally good for corn in Iowa or any other state. But the rice industry is far more segmented. California farmers, who produce almost exclusively medium and short grain rice, stand to benefit from TPP provisions that create new market access in Japan, but long grain farmers in Southern states stand to lose big from new competition for sales to Mexico.

It’s a situation that leaves the USA Rice Federation, which represents both California and Southern farmers, in a bind and unable to declare support or opposition to TPP, the 12-country trade pact among the U.S., Japan, Mexico, Vietnam, Chile, Peru, Singapore, Canada, Australia, New Zealand, Brunei and Malaysia.

Studies predict the TPP would produce billions of dollars in new farm income from increased exports. But when it comes to rice, the picture is far less clear. The only rice Japan buys from the U.S. is the medium grain variety from California, and U.S. negotiators carved out what could be a lucrative deal for Golden State growers. Japan agreed in the TPP deal to several measures including a 50,000-ton duty-free quota for U.S. rice that would rise to 70,000 tons in 13 years, according to a USDA analysis.

Meanwhile, Mexico buys mostly long grain rice from Southern farmers in states like Arkansas and Louisiana, and a separate TPP provision is expected to cut into that trade, according to USA Rice officials.

Vietnam, a major global rice exporter, currently doesn’t sell to Mexico because of a 20 percent tariff that doesn’t apply to U.S. shipments. It’s an arrangement that assures that the U.S. keeps its market share in Mexico, but a TPP provision would change all of that.

Mexico agreed during TPP negotiations to gradually lift the tariff on Vietnam, and that will hurt U.S. exporters, according to an analysis by the U.S. International Trade Commission.

“This is of great concern because Mexico is our number-one export market,” USA Rice Chairman Dow Brantley said in a recent blog posting. “As Mexico increases imports of milled rice, Vietnam is our number-one competitive threat.”

The ITC report concluded the potential losses in exports to Mexico outweigh the expected gains from increased sales to Japan.

“U.S. rice production is expected to be marginally lower under TPP than without it in response to lower exports,” the report said. “Exports would decline because the U.S. rice industry may find that gains in access to the Japanese market are more than offset by lost sales to … Mexico, where the United States would lose its current tariff advantage over Vietnam.”

But Michael Klein, a spokesman for USA Rice, said it’s still not so simple.

“Gains in Japan all come out of California and losses in Mexico are all pretty much borne by the South,” he said. “We’re one industry, but it does present a challenge to look and say: ‘Are the gains offset by the losses?’ The ITC says they aren’t and the USTR (U.S. Trade Representative) says they are and we’re caught in the middle.”

Even California’s rice farmers aren’t certain yet how much they would gain from the TPP deal.

“We are still analyzing how the details of the proposed agreement might be implemented before we determine our support,” said Jim Morris, spokesman for the California Rice Commission. “Our growers are appreciative of any new market opportunities for their rice.”

It’s still unclear whether the projected losses in sales to Mexico outweigh the expected gains with Japan, Klein said, but USA Rice is certain that Vietnam is not playing fair.

On a level playing field, the U.S. could beat out Vietnam for the Mexican market, he said, because the quality of U.S. rice is superior and shipping costs are far less expensive. But Vietnam subsidizes its rice farmers, allowing its exporters to sell at below market prices, he said.

“When a country we believe is not playing by the rules, then gets a leg up on us as a result of a trade agreement, it’s like kicking us while we’re down,” Klein said.

An ITC report released in April 2015 backs up USA Rice’s complaints that Vietnam does indeed support its rice industry and props up exports.

“Of all the U.S. rice types, long grain rice exports face the most competition internationally,” the report said. “Low-priced Asian rice, particularly from India and Vietnam, has gained market share in several traditional U.S. export markets. Owing to the structure of U.S. rice production and its growing regions, producers in the Southern growing region are disproportionately affected by this competition.”

For now the Mexican tariff on Vietnamese rice continues to assure the U.S. market share, but that won’t last if TPP is ratified, Klein said. The tariff will gradually drop, and it’s unclear when Vietnamese rice will become a viable competitor for the largest and most highly-prized foreign market for U.S. farmers.

The U.S. exported about 806,000 tons of rice to Mexico in 2015, up from 739,000 tons in 2014, according to USDA.

 “They’re going to phase it (the tariff) out over 10 years,” Klein said about Mexico. “There’s going to be a break point before the 10 years are up when suddenly, even though there is a tariff, it will make economic sense for Mexico to buy the Vietnamese rice.”

Meanwhile, Klein said, USA Rice is continuing to work with the U.S. government in the hopes that the Obama administration will consider challenging Vietnam’s rice support policies.

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