After over a year of negotiations, in late September the United States, Canada and Mexico struck a new trade deal. Often referred to as a “new NAFTA” what does the new agreement mean for U.S. agriculture?
Also, what is the status of a new farm bill?
Looking for answers, Delta Farm Press spoke with Pat Westhoff on Oct. 2. Westhoff is the director of the Food and Agricultural Policy Research Institute (FAPRI http://www.fapri.org/) at the University of Missouri. Among his comments:
On the status of a new farm bill…
“I’ve been surprised there has continued to be disagreement about many of the titles. I thought we’d be able to get a lot sorted out fairly easily with the exception of SNAP, which I figured would be tough.
“Right now, it appears (a new farm bill) won’t happen before the elections (in November). The question is whether something could be accomplished in the lame duck session to have a new bill on the president’s desk before the first of the year. That’s still a possibility, but if it doesn’t work then you’ll either see an extension (of the current farm bill) or bad things start happening on Jan. 1 and dairy provisions revert to the 1949 act.
“If a new farm bill goes to the new Congress, who knows if they’ll stick with where we left off or start all over again.”
More on farm bill title disputes…
“I don’t know all the disputes going on but have heard (Texas Rep. Mike) Conaway (chairman of the House Agriculture Committee) and other principals say really none of the titles of the bill have been resolved. That’s true for things like credit, which you’d think would be relatively noncontroversial.
“There are differences in the Commodity Title about unplanted base should have to be given up. That’s what the House wants to do so they have money to spend on some of their priorities, but the Senate is reluctant to do that. There are differences on payment limitation rules.
“On conservation, they started pretty far apart. The House bill would have eliminated the Conservation Stewardship Program and rechanneled a lot of that money to other existing conservation program. The Senate bill doesn’t do that. I don’t know where those dollars stand but gather the situation hasn’t been fully resolved.”
On the “new NAFTA” trade deal just struck…
“There are two major changes for dairy in the new agreement. First, there’s additional access for U.S. dairy products into the Canadian market. That’s a very good thing for U.S. producers. It’s important to keep it in context, remembering we’re talking about a couple of additional percentage points worth of access to the Canadian market, which is about a ninth the size of the market in the United States. But every little bit helps, obviously.
“The second change is harder to understand fully. It means Canada will have to give up on their existing ‘Class 7’ pricing scheme. Under that scheme, they’ve been able to make certain products from Canada competitive that normally wouldn’t be.
“We’d been exporting a product called ‘ultra-filtered, high-protein milk’ — a product that hadn’t been envisioned when the first trade agreement was struck 30 years ago. Since there were no limitations on that product we were selling quite a bit of it to Canada for use as a starting point to make cheeses and other things. The Canadians said, ‘Wait a minute, that’s undercutting our existing programs here. So, we need to find a way to stop those imports from happening.’ And they created the pricing scheme to make them no longer attractive.
“I understand they’ve agreed to change that program. Until I understand better how it’s to be changed I don’t feel confident saying exactly what will happen.
“All of this is a positive for U.S. dairy producers. The question is how big a positive it’ll be.”
On other commodities…
“The other big change that wasn’t in previous agreements is additional access to Canadian poultry markets. So, we’ll be able to export more chicken and eggs.
“Beyond that, my understanding is the main things we’ve done is kept existing agreements in place. So, we won’t have to worry about Mexico wanting to reinstate high tariffs on U.S. corn. That won’t be allowed and we’ll go back to where things were before the past year, or so.
“Something I’m unclear on is where the U.S. steel and aluminum tariffs stand. Those are on a separate track of negotiation. That may have implications for the countervailing tariffs the Mexico put in place, for example, on U.S. pork. I think when the dust settles there’s a good chance there will be no more tariffs on steel and aluminum and that’ll mean there’s no reason for U.S. products to be charged.”
Has FAPRI looked at what’s going on with China?
“We’ve done some work but nothing that’s been published. We’ve worked with some people at the USDA and in Congress.
“A lot of our conclusions are similar to others’ findings. The main effect of existing tariffs is to rearrange trade patterns in major ways. That means the United States will sell much less soybeans than it did previously. Meanwhile, Brazil and Argentina and other exporting countries will sell almost all their beans to China for the foreseeable future.
“Because China is so large, even in rearranging the trade patterns, the numbers don’t add up for them — so they’ll probably still import some U.S. soybeans. That’s one of the many reasons we’ve seen the drop in U.S. prices, especially relative to the price of South American beans. That’ll probably continue to be the case for some time.
“The USDA has indicated, and I agree, that China has every incentive to increase their domestic production and, more importantly, decrease their domestic consumption of soybeans. So, there appears to be an overall slowdown on Chinese purchases of soybeans this year.
“If there are no new developments, we expect to see a shift in U.S. acreage in 2019. We’ll probably see more corn and wheat planted and fewer soybeans. The fact we’ll probably do that means we’ll have more corn in the market and those prices won’t be as they would have been otherwise.”
“It’s important for your readers to know this deal still has to be approved by Congress and the legislative bodies in both Canada and Mexico. I won’t make any predictions about how that’ll go but I don’t think it’ll be possible to get the paperwork and a vote done by the current Congress.
“That means the new Congress elected in November will be facing this deal in early 2019.”