Grain Bins


Trade Deals Need Full Attention

Posted on October 02, 2019

When the United States and Japan signed a trade agreement in late September, it was welcome news for agriculture. What would be even better news is if this is followed by additional trade agreements with other nations, particularly Mexico, Canada and China.

Congress has had more than enough time to thoroughly review the United States-Mexico-Canada Agreement (USMCA). Passage of this agreement needs to be a priority this fall. Congress can’t let impeachment proceedings against President Trump delay action on the USMCA.

The trilateral agreement would benefit U.S. farmers, ranchers and agribusinesses by modernizing and strengthening food and agriculture trade in North America. It would solidify a $4.56 billion export market and provide some certainty for farmers who are weathering a perfect storm of challenges. Canada and Mexico are the top export markets for U.S. agriculture, with more than 29% of all U.S. farm and food exports going to these two countries last year.

The USMCA is an updated version of the North American Free Trade Agreement (NAFTA). Since NAFTA went into effect in 1994, U.S. ag exports have tripled to Canada and quintupled to Mexico. Mexico is the No. 1 buyer of U.S. corn, dried distillers grains and pork and the No. 3 buyer of beef. There are also expectations that Mexico will increase its purchases of U.S. ethanol.

Canada is the No. 2 buyer of U.S. ethanol and a top five buyer of corn, beef and pork. That shows how vital these two markets are to U.S. agriculture–so important that five former U.S. secretaries of agriculture–Republicans and Democrats–have announced their support of the USMCA.

“Trade is extremely vital to the livelihood of American farmers and the U.S. food industry. U.S. farm production exceeds domestic demand by 25 percent. In addition, agricultural exports account for 20 percent of farm income and support more than 1 million jobs,” the secretaries wrote in a letter to Congress. “USMCA will provide certainty in the North American market for the U.S. farm sector and rural economy.”

$3.6 billion in SD ag exports

South Dakota’s annual agricultural exports are valued at $3.6 billion. More than 30,000 jobs are supported by those exports, according to data compiled by the USDA’s Economic Research Service. Most of South Dakota’s corn and soybeans that aren’t used in-state are transported by rail to the Pacific Northwest and exported overseas. For South Dakota farmers, Asian trade partners are particularly important.

The agreement with Japan is extremely significant, opening up markets to an estimated $7 billion worth of U.S. products. That nation was the No. 1 buyer of U.S. beef and second-largest buyer of corn and sorghum last year. In addition, a recent upgrade of Japan’s energy policy will lead to increased imports of U.S. ethanol.

“Japan is a valuable trade partner, and this agreement will enable us to maintain our strong relationship and also increase our ag exports there,” said Travis Strasser, a Wilmot farmer who serves on the South Dakota Corn Growers Association and is a delegate to the U.S. Grains Council. “Other Asian countries also offer exciting export opportunities if we can take advantage of free trade.”

U.S.-China agreement important

One of the world’s most significant trade relationships is in limbo as a U.S.-China trade war drags on. At the heart of America’s justifiable concerns are a huge trade imbalance and China’s theft of U.S. intellectual property. Convincing China to give ground in those areas has proven to be a colossal challenge.

The prolonged trade war has taken an economic toll on both countries. The U.S. agricultural industry has been among the hardest hit through the loss of exports at a time when commodity prices are low and farmers have had to deal with unprecedented weather extremes. Unfortunately, agriculture is an easy target during a trade war.

Talks between the U.S. and China are scheduled to resume October 10. Some analysts are optimistic there could be a breakthrough. Others warn that an agreement isn’t likely. The best-case scenario is that the two sides will reach a good, fair agreement. That would open up markets for U.S. agricultural exports–soybeans, corn, meat and much more. China currently has a mandate to expand use of E10 fuel throughout the entire country by 2020. To meet that goal, China would have to import a large amount of ethanol, which would provide a great opportunity for the U.S. ethanol industry. A U.S.-China agreement is what we need. The time is right.

The U.S. Grains Council says there are other promising trade partners in that part of the world, including the Southeast Asia countries of Indonesia, Vietnam and the Philippines. The U.S. needs to continue to maintain and expand trade with those countries and others.

To get an idea what types of opportunities free trade agreements have made, we don’t need to look any further than South America, where Colombia and Peru have grown to become the No. 3 and No. 5 buyers of U.S. corn.

With 95% of the world’s population living outside of the U.S., free trade is more important than ever for the United States. And for South Dakota.

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