Agricultural trade has taken a backseat as the Trump administration signed a memorandum to drop out of the Trans Pacific Partnership (TPP) and made plans to renegotiate the North American Free Trade Agreement (NAFTA).
A panel hosted by the Agricultural Business Council of Kansas City expressed the importance of trade to agriculture, especially when it pertains to NAFTA.
“Agriculture is critically dependent on trade,” says Bob Young, chief economist for American Farm Bureau Federation.
Export value the past few years has accounted for roughly 30% of the value of agriculture commodities.
Young points out a climb in export value starting in 2006 when total agriculture exports totaled more than $100 billion. In 2014, approximately $150 billion worth of agriculture goods were exported.
Domestically demand has plateaued Young says as requirements have been met for ethanol, making it vital to continue doing trade with our North American neighbors.
NAFTA has been in existence since 1994, but it could use updates to modernize for changes in the business climate like the rise of ecommerce.
If NAFTA were to be renegotiated it would probably be similar to the updates that were present in TPP, Young says.
Working on his grandfather’s California citrus farm in the 1980’s Neil Herrington saw the impact trade had on the family business as it grew with the aid of more revenue from exports. Herrington now sees the daily impact of trade as the executive director of the Americas for the U.S. Chamber of Commerce.
Herrington points out that all-industry trade with Canada and Mexico has quadrupled since NAFTA was implemented with a combined impact of $1.3 trillion annually.
“For all those who are thinking about renegotiating NAFTA, our request is do no harm first and foremost,” Herrington says.
The U.S. Chamber of Commerce does not encourage doing bilateral trade agreements with Canada and Mexico because of the added costs to businesses versus a trade agreement like NAFTA.
U.S. farmers supply 75% of Mexico’s agriculture imports and 59% of Canada’s share.
“Right now there is a lot of concern with NAFTA and its future,” says Alfonso Navarro-Bernachi, Consulate of Mexico.
Mexico is the third largest agriculture market for the U.S., but several industry sectors benefit greatly from trade across the southern border. The top five traded items to Mexico in 2015:
- Corn, $2.3 billion
- Soybeans, $1.4 billion
- Dairy, $1.3 billion
- Pork, $1.3 billion
- Beef, $1.1 billion
Because of the current political climate, Mexico has been reanalyzing its position with NAFTA and has been looking at alternative trade partners for agriculture goods. Mexico is currently the largest importer of U.S. corn, but is considering Argentina and Brazil.
Navarro-Bernachi says there is a possibility that Mexico looks to “plan B and plan C for different alternatives in a worst case scenario.”
Prior to NAFTA the U.S. was a net pork importer, exporting just 3%. Last year the U.S. was the largest exporter of pork sending more than 30% to other countries, with Mexico being the primary destination. Canada is the fourth largest U.S. pork buyer.
Total pork exports contribute $46 per head to hog producers and NAFTA accounts for $18.
“NAFTA creates continental integration,” says Kevin Smith, assistant vice president of international sales for Seaboard Foods.
Smith points out that Canada raises plenty of hogs on the western side of the country but imports U.S. pork into its more populated eastern side because it makes sense logistically. The surplus pork raised by western Canadian farmers is exported into Asia.
November and December were record months for U.S. pork exports to Mexico despite a weak peso following the election of Donald Trump.
“It just goes to show you that the supply chain is there. They are bringing in that product regardless of the economic factors they face,” Smith says.
Kansas City Southern Railway (KCS Railway) took on the concession of the Mexican railway in 1996 and invested $4 billion in infrastructure to help maintain the capacity, largely for grain export hauling.
KCS Railway executive vice president corporate affair Warren Erdman believes trade is vital to the rural economy.
“We all want to make America great again,” Erdman says. “If you want to make America to be great you better protect your export markets.”