(Editor’s note: This is the third in a new series of Agri-Pulse in-depth stories, “Export or Bust,” dealing with the challenges and opportunities for U.S. agriculture when it comes to selling more commodities and value-added products to overseas customers.)
Prospects for U.S. farm exports can change suddenly and dramatically.
Breaking into foreign markets takes decades of persistent hard work and hefty investments in building infrastructure, relationships and, ultimately, sales.
Augusto Bassanini, chief operating officer for United Grain Corp., knows firsthand the challenges of building all three. This experienced grain exporter tells Agri-Pulse that after taking years to build trust and a reputation for reliability, “any interference with that trust, that reliability, is going to have an immediate impact … So, you spend years building that rapport and everything could change overnight.”
“It takes years, especially in Asia, to build that rapport,” he says, “and you have to build it face-to-face.”
Bassanini says he’s seen major new export markets developed in South America, Asia and elsewhere thanks to vital funding from farmers’ checkoff dollars and USDA’s export promotion programs. But he warns that current concerns over U.S. trade agreements and tariff battles with China “create an environment of uncertainty,” forcing buyers and end-users to scramble to find new sources for the grain, soybeans, or other commodities they need to stay in business.
Vancouver, Wash.-based, United Grain operates grain terminals in Oregon, Montana, and North and South Dakota where, Bassanini says, “small farming communities are dependent upon grain exports for providing crucial revenue to those remote locations.” So, any threat to export growth will have a disproportionate impact on these farming areas. And he says that threat is already here.
“We continue to lose market share in terms of volume to competing major export hubs like South America, Brazil, Argentina, Russia and the Black Sea region,” he says. “If we are going to compete with them on a yield basis, I don’t think we are going to win that fight.”
Still, he says that despite headwinds, “we continue to expand our share in regions like Southeast Asia because competing countries are not able to deliver quality products on a consistent, reliable basis.” Maintaining these gains, he says, depends on the U.S. investing in improving supply chain efficiencies, upgrading the infrastructure needed to deliver product reliably, and avoiding even rumors about trade disruptions.
USW demonstrating wheat quality to Filipino bakers. Source: U.S. Wheat Associates
Since taking office, the Trump administration has made several gains on the export front for agricultural products.
“We’ve had some success over the last year. Most notable, obviously, is beef back into China after 13 years. We just announced pork back into Argentina since 1992,” Secretary Perdue testified during a recent Senate Agriculture Committee hearing.
“We’ve negotiated U.S. rice into China for the first time ever. We’ve still got some technical details to work out there. Lifted South Korea’s ban on poultry imports. We’ve eased the regulations on U.S. citrus in the E.U., and we’ve resumed distiller’s grains back into Vietnam.”
However, the administration has also unnerved trading partners by renegotiating the North American Free Trade Agreement (NAFTA), pulling out of the Trans-Pacific Partnership (TPP) and announcing tariffs on steel, aluminum and a variety of other products – prompting retaliatory threats from the Chinese and other countries.
President Trump sent some of his key staff and cabinet members on a trade mission to China this week, including White House advisers Peter Navarro and Larry Kudlow, U.S. Trade Representative Robert Lighthizer and Treasury secretary Steven Mnuchin. The foursome is expected to discuss a wide variety of concerns with Chinese leaders, including the pending tariffs, better access for U.S. products, and concerns over alleged intellectual property theft.
In response, Chinese President Xi Jinping is expected to offer plans to cut tariffs on some products and ease regulations. However, it’s not clear that these concessions will avoid a looming trade war.
Several U.S. agricultural groups say that one of the best ways to keep pressure on the Chinese and counter the Asian giant’s influence is for the U.S. to rejoin what used to be called the Trans-Pacific Partnership (TPP).
Just three days into his presidency, Donald Trump carried out his 2016 campaign promise to withdraw the U.S. from the negotiations for a trade pact among a dozen Pacific Rim nations. The agreement’s other parties were shocked. But they recovered quickly by finalizing their negotiations and turning the TPP into the 11-nation Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). The new agreement raises the specter that – rather than the U.S. remaining the dominant player in Asia – the lead instead could default to China.
On April 11, however, Trump delivered new orders to Lighthizer and National Economic Council Director Kudlow. He asked them to find ways to reverse his abrupt January 2017 withdrawal from the TPP negotiations.
Trump’s apparent reversal was celebrated by the farm sector as well as farmer-focused and free-trader members of Congress who had warned that abandoning the TPP not only risked devastating the already struggling rural economy but risked a self-inflicted surrender to China. But then, just a few days later, Trump seemed to signal that he really likes bilateral deals – like one he has been pushing for with Japan – rather than multilateral agreements like the TPP. Trump tweeted on April 17 that the TPP provided no way out for the U.S. if it doesn’t work. “I don’t like the deal for the United States,” he said.
The U.S. Wheat Associates (USW) and the National Association of Wheat Growers (NAWG) welcomed the possibility of reviving the full 12-nation pact. “If the United States joins TPP, U.S. wheat should be able to compete on a level playing field with Canadian and Australian wheat,” said USW Chairman Michael Miller, a wheat farmer from Ritzville, Wash. He added that rejoining “would keep U.S. wheat sales that currently represent 50 percent of Japan’s total wheat imports competitive in this crucial market.”
Representing 140,000 American wheat farmers, USW and NAWG wrote USTR’s Lighthizer in March, warning that “Lost market share is incredibly difficult to regain.” They pointed out that under new CPTPP rules, Japan will cut its tariffs on imported Canadian and Australian wheat to $85 per ton but keep the current $150 per ton tariff in place for U.S. wheat. While the change will phase in over nine years, the wheat groups said the “loss in market share and its negative effect on farm-gate prices are likely to come much sooner, as Japanese millers reformulate their product mix to avoid the need to purchase artificially expensive U.S. wheat.”
Sen. Ben Sasse, R-Neb., also cheered Trump’s apparent TPP turnaround. With the U.S. and China busy threatening each other with retaliatory tariffs, he said the best recourse for the U.S. against Chinese cheating “is to lead the other 11 Pacific nations that believe in free trade and the rule of law.”
Also, before Trump’s latest tweet on the TPP, there was a sense that the White House was noting the political and economic importance of rural America and the disproportionate significance of the farm sector’s record of consistently generating ag trade surpluses that benefit the U.S. trade balance.
Hopes were also raised that the farm sector’s major role in the U.S. economy would translate into White House support for increasing rather than flat-lining or reducing funding for the two USDA cost-share programs that, in partnership with farmer-funded checkoff dollars, have played a vital role in expanding U.S. farm sales abroad: the Market Access Program (MAP) and the Foreign Market Development (FMD) Program.
Export promotion legislation
To support these programs, last September Sen. Angus King, I-Maine, introduced S. 1839, the “Cultivating Revitalization by Expanding American Agricultural Trade and Exports Act.” Along with the companion House bill, H.R. 2321, King’s CREAATE bill would steadily raise MAP funding from $200 million for 2018 to $400 million for 2023. FMD funding would also double from $34.5 million for 2018 to $69 million for 2023. Under current legislation, combined MAP and FMD funding has stalled around $200 million for years, coming in at $200.1 million for FY 2017 and $200.3 million for FY 2018.
King and his five bipartisan co-sponsors – Joni Ernst, R-Iowa; Joe Donnelly, D-Ind.; Susan Collins, R-Maine; Tammy Duckworth, D-Ill.; and Kamala Harris, D-Calif. – note in the bill that “foreign competitors have expanded agricultural export promotion programs at a far faster rate than the United States, placing United States agricultural producers at a competitive disadvantage in international markets.”
The bill also states that between 1997 and 2014, the annual $200 million in MAP and FMD funds “added an average each year of $8.15 billion to the value of United States agricultural exports, a total of $309.7 billion in export revenue, or 15.3 percent of the total value of United States agricultural exports during that period.”
The House version of the new farm bill takes a different approach. USDA’s trade programs, including the MAP and FMD, would be combined under a new International Market Development Program funded at $255 million per year. The bill would guarantee $200 million in annual funding for MAP and no less than $34.5 million for FMD, $10 million for the Emerging Markets Program and $9 million for Technical Assistance for Specialty Crops Program.
Under current law, only MAP would have funding after this year under the expiring 2014 farm bill. Combining the programs would ensure all the programs have a permanent funding baseline.
Boosting both ag exports and export promotion funding has become vital to both the rural and the national economy now that export sales represent 70 percent of U.S. cotton and tree nut production, about 50 percent of wheat, rice and soybeans, and almost 20 percent of U.S. meat and dairy production.
Asia’s growth markets
One export promoter pushing hard for the TPP is Manuel Sanchez, U.S. Grains Council regional director for South and Southeast Asia. In a phone interview from Ho Chi Minh City in Vietnam where he’s running an outreach program to large swine producers to promote sales of U.S. DDGS (distiller’s dried grains with solubles), Sanchez tells Agri-Pulse that the current tension over TPP, NAFTA and the tit-for-tat tariff threats with China “puts us at a disadvantage.”
USGC Regional Director Manuel Sanchez, in white shirt, with customers in Southeast Asia. Source: U.S. Grains Council
Sanchez explains that the grain buyers and end-users he’s meeting with across Asia ask questions about “trade conflicts with China” and how it might undermine the U.S. reputation as a reliable supplier. He says one result is that it’s now “harder for me to serve my customers and let them know that our farmers back home care about their business and care about their profitability.”
Sanchez sees immediate opportunities to significantly increase ag exports if the U.S. can resolve its current trade disputes and focus instead on “looking at growth markets like Southeast Asia, with Vietnam number-one in growth, followed by Thailand, the Philippines and Indonesia.” Based in Kuala Lumpur, Malaysia, he expects a large share of the growth to come from his 13-nation territory and its 677 million consumers.
As a success story that shows far greater exports are within reach, Sanchez points out that Vietnam imported 153,000 metric tons of DDGS in January and February this year, nearly half of the DDGS Vietnam imported for all of 2017. He expects Vietnam to import at least 700,000 tons this year. This surge could make Vietnam one of the top importers of DDGS from the U.S. in 2018.
Sanchez says one key to growth is continuing USDA’s FMD and MAP funding to help provide “an active presence on the ground and be able to service the developing market.” This year, Sanchez’s work has included bringing in U.S. experts like South Dakota State University swine specialist Bob Thaler for the seminars his office has hosted recently in in Vietnam and Thailand. These seminars are aimed at “demonstrating the transparency of the U.S. marketing system” and “the long-term U.S. production capacity.”
Calling for more trade agreements, Sanchez says that “whether it’s bilateral or regional, we really need to step up our presence here because as we speak, other countries are taking advantage of us in some of the markets, they’re signing agreements and we’re not being part of those.” Citing the Black Sea region, Argentina and Brazil in particular, he warns: “We have competition, our customers have options. They can originate grains from other parts of the world … We don’t need any additional impediments from not having trade agreements in place.”
Success in the Philippines
Based in Manila, U.S. Wheat Associates (USW) Regional VP for the Philippines and South Korea Joseph Sowers is keenly aware of the aggressive competition. He says it’s an “uphill battle” to convince buyers to opt for premium-priced but better performing U.S. wheat. He also points to significant gains.
In the Philippines, Sowers says, “We have a program here where we invest in increasing consumption of wheat-based foods. And we’ve done it. We can take some credit for helping increase per capita consumption from 23 to 29 kilos per person over the past five years. Multiply those 6 kilograms times 100 million people and that’s a whole lot of wheat.” He adds that almost all the gains benefit the U.S. with its 97 percent market share, proving that “These kinds of investments are paying off.”
Key to this level of market dominance, Sowers insists, is being on-the-ground for decades with regional offices and regular seminars. He says this presence builds trust with buyers and end-users to the point that “Decision makers trust us, they look to us for advice.” He considers checkoff, FMD and MAP funding vital to maintaining USW’s foreign offices and “absolutely essential to everything we do.”
Along with maintaining major current markets like South Korea and the Philippines, Sowers is also focused on boosting sales in the world’s top wheat import market, Indonesia. That’s tough because it’s a very low-price flour market. But he expects to win share by convincing both millers and bakers they can increase their profits by shifting to higher quality wheat. “Even if we maintain a 10 to 15 percent market share, it would be a stellar market for us,” he says.
“Our mandate is twofold,” Sowers says. “One is to create the greatest returns to our farmers, to the people who fund us. The other mandate is to make the local industry here the most profitable they can be, to increase their profits so they will buy from us.”
To make it all happen, Sowers hosts seminars year-round, with upcoming ones set for Manila, Bangkok and Jakarta, “talking to buyers about methods that they can use to decrease their purchasing price or to plan their purchases through the year. And then at the same time, have a mill management seminar showing them how to increase their profitability using, of course, U.S. products.”
Along with working to increase exports to developing markets like Sri Lanka and Malaysia, Sowers says Thailand, Indonesia and Vietnam offer “the most opportunity for huge increases in sales” and that new trade agreements offer the best way to make U.S. products more competitive.
Challenges breed new coalitions
USW’s Sowers and USGC’s Sanchez aren’t alone in stressing the importance of signing new trade agreements. Others include U.S. Wheat Associates (USW) President Vince Peterson and VP of Overseas Operations Mark Fowler. Peterson says with the farm economy struggling in an already down market, the tariff battle with China puts 1.5 million metric tons of U.S. wheat sales at risk just when unsettled NAFTA and TPP issues threaten sales to other major buyers like Mexico and Japan.
To help resolve such threats through trade agreements and the existing World Trade Organization (WTO) rules-based global trading system – and not with escalating tariff threats – USW, USGC and other groups are active in the 75-member Ag Exports Count coalition and the 80-member U.S. Agricultural Export Development Council.
Peterson says the trade battles have “forced us to form coalitions” with other U.S. stakeholders and with “customers overseas worried about their supply relationship with us. They don’t like this any more than we do.” He says the new coalitions aim to alert the Trump administration to escalating impacts on U.S. agriculture from recent policy changes.
Fowler adds that uncertainty about TPP risks “losing a 3 million metric ton market in Japan” and is “hugely damaging to the soybean market.” Peterson and Fowler tell Agri-Pulse that the strategy to success is to sign new trade agreements, complete the NAFTA negotiations without harming ag exports, reconsider joining the TPP, use the WTO dispute settlement process, and double funding for USDA’s MAP and FMD programs as Sen. King’s CREAATE legislation proposes.
Trade battles undermine U.S. reputation as a reliable supplier
U.S. Grains Council President and CEO Tom Sleight warns that due to the trade battles launched by the U.S., “our loyal, longtime customers are actively looking at alternative sources of supply … We’re hurting our reputation not only in China, but with other trading partners, with key ones like Japan, Korea, Mexico. Even in places in Southeast Asia that are new and growing markets for the U.S., we’re creating doubt.”
“There are definite consequences if these battles do not get settled expediently and with proper attention to the impact on agriculture,” he says.
USGC Senior Director of Global Programs Cary Sifferath adds that it takes constant work to maintain current markets while also pursuing new ones. This work includes helping the Trump administration understand the importance of resolving issues with China before more export opportunities are lost.
Sifferath points out that “Mexico has overtaken Japan as our largest export market for corn, it’s our largest export market for DDGS, our second-largest market for sorghum exports, our largest barley export market.” So, he says settling NAFTA issues with Mexico and Canada should be another priority.
U.S. Soybean Export Council (USSEC) CEO Jim Sutter also sees Mexico as a very important market. He’s concerned that the “rhetoric” around NAFTA has damaged the U.S. reputation as a reliable supplier. He says this has led some Mexican buyers to consider for the first time “origination from South America, and we’ve seen some of that happen.”
To counter damage from the NAFTA, TPP and China issues, Sutter says that “all of our farm groups need to work together to ensure that our international customers know that we value them as customers and know that we want to continue to be reliable suppliers.”
Sutter regrets opportunities lost due to the U.S. TPP withdrawal. His hope is that America will rejoin and that TPP proves so successful that more countries join, starting with the Philippines and Indonesia. He hopes this could eventually lead China to sign up.
USSEC Southeast Asia Regional Director Tim Loh, based in Singapore, adds that “current concern with China would certainly rank high among the trade disruptions that have occurred.” But he’s hopeful that “the posturing on trade may be resolved sooner than later.”
Faced with China imposing 25 percent retaliatory tariffs on a long list of U.S. ag products including beef and pork, U.S. Meat Export Federation CEO Dan Halstrom is fighting back. “Exports are always important for generating farm income and adding value for producers, but especially when the ag economy is struggling,” he says. “If the U.S. ag sector doesn’t aggressively fight for global market share, many competitors will be more than happy to take it from us.”
U.S. Apple Association President & CEO Jim Bair reacted to China’s new tariffs by charging that “apple growers have been caught in what seems will be a trade war between the White House and the Chinese government.” He added that “Trade is extremely important to the U.S. apple industry. We urge the administration and China to quickly resolve the trade dispute so that our apple exports won’t be disrupted.”
Bair also strongly supports NAFTA, calling it “the best trade deal in history.” With apple export sales at roughly $950 million a year, and half of that business with Mexico and Canada, he says “for a specialty crop like apples, that’s huge. It’s something worth defending, and we are.”
American Farm Bureau Federation Senior Congressional Relations Director David Salmonsen acknowledges trade challenges. But he tells us that the U.S. now exports to “a greater variety and a greater number of countries than in the past” and that “There’s demand around the world, especially in a growing economy like China.”
Salmonsen’s concern is that the Trump administration announced tariffs first on $50 billion in imports from China, then on another $100 billion to pressure China into negotiating. But he warns that with China announcing retaliatory tariffs, the battle could last long enough to lose markets that could take years to rebuild. He says Farm Bureau opposes using tariffs and instead supports resolving trade issues “either with direct negotiations with that country or through a multilateral process.”
National Association of Wheat Growers President Jimmie Musick explains that with his wheat, cattle, alfalfa, cotton and sorghum operation in Sentinel, Okla., “it doesn’t appear like I raise a commodity that China’s not after to include in their tariff trade war.” To help remove this threat, he wants the administration to understand “how important it is that we maintain good trade relationships and how devastating it will be to our farmers when China puts a 25 percent tariff on our commodities.”
Musick’s also at work on getting more support from farm-state members of Congress. He’d like them to persuade the administration to switch from tariffs to negotiations by offering in return to support legislation that’s on Trump’s priority list.
With today’s long list of farm and trade organizations linking arms as never before, Musick and his colleagues are hopeful their concerted pressure on Congress and the White House will pay off in terms of less turbulent waters ahead and continued growth in the U.S. ag export markets that they’ve worked so diligently to build over several decades.
(This story was updated at 8 p.m. May 2 to correct apple export sales figure.)
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