The Agricultural Trade Agenda: The TPP and Why it Matters 9 January 2016 1 jason.hafemeister@fas.usda.gov
Agenda U.S. Agriculture and Trade Where are the Markets? What are the Barriers? Trans Pacific Partnership Summary 2
3
The Big U.S. Ag Story: Productivity Increases Index: 1948 = 1.0 3.0 $million (2006 dollars) $12,000 2.5 2.0 $R&D Output Input TFP $10,000 $8,000 $6,000 1.5 Weed and pest resistant biotech $4,000 1.0 # tractors > # horses + mules 0.5 1948 1953 1958 1963 1968 1973 1978 1983 1988 1993 1998 2003 2008 2013 Source: USDA-ERS. No till becomes starts to become popular Satellites used for precision ag Big data applications? $2,000 $0 4
Real commodity prices have been trending down for the past 60+ years 2005=100 600 500 400 300 Corn Soybeans Rice Wheat 2005=100 600 500 400 300 200 200 100 100 0 0 Source: USDA Agricultural Projections to 2024 and OCE, February 2015 5
Where are the Markets? Population: Global Middle Class is Expected to Increase to1 Billion Households by 2022 Middle class in developing countries projected to increase over 120% by 2022 vs. just 11% in developed countries. 1200 Households w/real PPP incomes greater than $20,000 a year Millions of Households 1000 800 600 400 200 0 Developing Countries Developed Countries Source: Global Insight s Global Consumer Markets 6
Additional Dollar of Income: How Is It Spent? Lower income countries spend much of that additional income on food 100% 90% 80% Where are the Markets? Other Education 70% 60% 50% 40% 30% 20% 10% Recreation Transport & communication Health Furnishings Housing 0% Congo, Dem. Rep. Niger Gambia, The Zambia Ghana Nigeria India China Morocco Namibia Paraguay Jordan Peru Brazil Bosnia Kazakhstan Mexico Macao Israel Malta Italy Australia Canada United States Source: USDA, Economic Research Service using International Comparison Program 2005 data. Clothing Food 7
U.S. Agriculture Relies on Exports. Exports support higher prices and expanding production. 450 400 U.S. Ag Cash Receipts 350 300 250 200 150 U.S. Ag Exports 100 50 0 Source: USDA: ERS, Farm Income and Wealth Statistics. USDA: FAS, GATS, all agriculture. CY data. 8
U.S. Ag Exports as a Share of Production. Exports are a critical source of income for a wide range of ag products (2013/14). 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Source: USDA/FAS/GATS PSD database. Crop year data. 9
The United States is an export powerhouse. All sectors export, most have a trade surplus. While we are big importers, most imports are complementary. 40 35 30 25 20 15 Billion$ 14 12 10 Agriculture Trade is Important in the United States 8 6 4 U.S. Ag Exports and Imports 2014 10 5 0 2 0 Oilseeds & Products Corn Tree Nuts Wheat Dairy Vegetables Fruit Beef Pork Misc Hort Poultry Cotton Rice Sugar/confec Cocoa/choc Wine Tobacco Coffee Beer Rubber U.S. Exports USDA/FAS/GATS FATUS categories. CY data. U.S. Imports 10
Top 10 Ag Markets 2014 Our top 10 markets account for over 70% of exports. Successful negotiations with the EU and Japan will ensure low tariff access in most of these markets for most of our products China Canada Mexico Japan EU South Korea Hong Kong Taiwan Indonesia Philippines FTA Countries FTAs under Negotiation China/HK/Taiwan 0 5 10 15 20 25 30 USDA/FAS/GATS. CY data. Billion $ 11
U.S. Ag Markets over $100 million 2013 FTA Countries FTAs under Negotiation Greater China But there are a number of other important markets also of interest, to be addressed bilaterally, regionally or multilaterally. $ long tail distribution Source: USDA/FAS/GATS. CY data. 12
120 100 80 60 40 20 0 Simple Average MFN Applied Ag Tariff Korea USA Malaysia EU China Vietnam Canada Mexico Japan Hong Kong, China Singapore New Zealand Peru Mongolia Chile Kyrgyz Republic Haiti Bahrain, Kingdom of Botswana Swaziland Guatemala Paraguay Honduras Croatia Montenegro Bosnia and Herzegovina Tonga El Salvador Seychelles FYR of Macedonia Guinea Nepal Burundi Madagascar Senegal Venezuela, Bolivarian Rep. of Colombia China Saint Lucia Chinese Taipei Pakistan Malawi Grenada Jordan Ecuador Zambia Uganda Belize Cameroon Congo Ethiopia Japan Sri Lanka Sudan Morocco Korea, Republic of Myanmar % Norway India Source: WTO Tariff Profiles. 2012 13
As WTO Stalls, Countries Turn to FTAs for Market Access. U.S. Falling Behind. 300 Global Preferential Trade Agreements 250 200 150 Total WTO-Notified PTAs U.S. WTO-Notified PTAs 100 50 0 1961 1977 1986 1993 1997 2001 2005 2009 2013 14 Source: WTO
Our Common Future Production Process Methods and Labeling Requirements Become Trade Issues New technology Hormones Halal slaughter Sustainability Beta Agonists Unknown Unknown Antibiotics Known Unknown Animal welfare Geographic Indications Health/nutrition standards Organic Antimicrobial treatments 15
BLUE: new U.S. FTA partners Trans Pacific Partnership Population GDP GDP/per cap Agricultural Imports from World from US from TPP (millions) (billion US$) (US$) (thou US$) (thou US$) percent (thou US$) percent Australia 22.7 1,532.0 67,537 11,771.6 1,391.4 12% 5,444.4 46% Brunei 0.4 17.0 41,124 464.6 9.5 2% 324.0 70% Canada 34.9 1,821.4 52,220 33,226.4 20,459.8 62% 23,665.4 71% Chile 17.5 269.9 15,454 5,814.8 692.0 12% 1,192.7 21% Japan 127.6 5,960.0 46,723 66,251.6 16,874.8 25% 32,060.2 48% Malaysia 29.2 305.0 10,431 16,785.6 949.1 6% 4,202.4 25% Mexico 120.8 1,178.0 9,747 24,650.8 18,158.6 74% 20,906.3 85% New Zealand 4.4 167.3 37,749 4,041.5 452.1 11% 2,577.2 64% Peru 30.0 203.8 6,796 4,451.8 650.1 15% 1,426.5 32% Singapore 5.3 274.7 51,709 12,327.8 844.4 7% 4,997.6 41% USA 313.9 16,240.0 51,734 113,214.5 52,439.1 46% Vietnam 88.8 155.8 1,755 10,087.8 1,253.3 12% 3,527.3 35% Total 795.5 28,124.9 35,354 303,088.8 61,735.3 20% 152,763.2 50% Source: Wainio USDA/ER. From World Bank (http://data.worldbank.org/country/) and the United Nations Comtrade database. 16
800 Trans Pacific Partnership Japan U.S. Tariff Comparison 700 600 % 500 400 300 200 100 0 Japan U.S. Simple average, using DDA ad valorem equivalents 17
Japan s Approach to Sensitive Products in Prior FTAs Most are completely excluded. Singapore scores access for pork and sugar (not a producer) Some limited TRQs but no real tariff cuts Brunei Chile India Indones Malays Mexico Peru Philippines Singapore Switzerl Thailand Vietnam ASEAN Beef X TRQ X X X TRQ X X X X X X X Pork X TRQ X X X TRQ X X Immediate Zero X X X X Dairy Wheat X X X X X X X X X X X X X Lots of Exclusions X X X X X X X X X X X X Rice Sugar X X X X X X X X X X X X X X X X X X X X TRQ Immediate Zero X X X X 18
TPP Illustration (Japan Beef Tariff) 50 Japan s Beef (Chilled/Frozen) Import Tariffs WTO Bound 45 Tariff Rate (%) 40 35 30 25 20 15 10 5 MFN Applied Australia EPA for frozen beef Failed WTO result TPP 0 0 1 2 3 4 5 6 7 8 9 101112131415 Implementation Year 19
Other Issues Sanitary and Phytosanitary Measures Geographic Indications Biotech Etc. Detailed Information: http://www.fas.usda.gov/tpp Summary of Agreement Key points for Agriculture Commodity Highlights State Information https://ustr.gov/ Text of Agreement General Information Non Ag Information 20
Trade Promotion Authority Congress and the Executive Branch each have roles with regard to trade agreements: The Administration is in charge of negotiating with other countries; and then Congress must enact new laws or make any necessary changes to statutes resulting from negotiations, including changes to tariffs or enacting new rules. After Congress re opened the Kennedy Round agreement and made changes to the final deal, the United States resorted to Fast Track authority to clarify negotiating objectives for the Executive branch and handling of proposed deals by Congress. Key elements: Congress identifies trade objectives and scope of negotiations Procedures established for Administration to consult and share information Congress agrees to an up or down vote no amendments or delays 21
500 House Trade Votes 450 400 350 300 250 200 150 100 50 0 22
Did not vote TPA 2015 Vote of AG Congressional Districts resigned, no vote Voted no, then yes. Yes on TPA 2015 No on TPA 2015 Top 230 Congressional Districts ranked by value of ag production ($200 million or greater) 23
Conclusion Trade is an important element of U.S. and global economic growth, which creates demand for farm products and supports farm income Trade agreements expand purchasing power for our customers and remove barriers to our exports Trade policy focus is currently on bilateral negotiations, particularly tariff reductions The TPP is important for commercial and for strategic reasons: it opens important markets and increases our leverage in other negotiations. All of U.S. agriculture is better off with TPP than without. The agreement still needs to be finalized and then sent to Congress for approval. 24