NCBA's president, Craig Uden, has been one of those 'hands on' manager types who just naturally succeeds at what he wants to do. A work ethic teetering on the ragged edge of overdrive probably helps. When I wanted to interview him about NAFTA and TPP, it took several days chasing him around the country to finally link up. I found him on one of the two or three days he was actually at home last month, probably just to get a quick change of clothes before he hit the road again.
The subject we discussed was uncertainty of international trade agreements and the effect on the American ag industry, especially the cattle business. The problem that must be faced? Ag income has fallen by 50% during the last 10 years. To boost profits - news bulletin for the general public: farming and ranching is a for-profit business - we rely on a strong export market and international demand for many products that we don't consume to boost margins. That boost can often mean the difference between a positive and a negative bank balance for big and little ag.
With the overwhelming vote advantage President Trump enjoyed from farm states, a reasonable expectation would be a returned favor. His decisions should have generally been in agriculture's best interests. When it came to two major trade agreements, they did not. Walking away from the Trans Pacific Partnership (TPP) which is the largest single trading bloc in the world, far surpassing the E.C. put a serious crimp in the future of beef exports and handed a major piece of business to a rebounding Australian herd.
And then there was the North American Free Trade Agreement (NAFTA), always a controversial agreement in its broadest terms. Negotiations were begun by George H. W. Bush who signed the initial draft in 1992. Bill Clinton signed off on the final version a year later, after strong Republican party backing helped pass it with veto proof numbers in the House (234-200) and in the Senate (61-38).
Today, with every page and line of NAFTA on the table for review, the heads of the major cattle organizations in Canada, the U.S. and Mexico co-signed a letter aimed at the leaders of all three countries asking that the parts of the agreement governing cattle be left as-is, no changes, hands off.
It was a bold political move that should put the negotiation teams on notice. I wanted more details about the letter from Uden as well as his thoughts on the death of the TPP. No doubt, leaving TPP and seriously altering NAFTA could damage the beef business, just how much is the critical question.
Q. Craig, a few weeks ago you, Dan Darling, president of the Canadian Cattlemen’s Association, and Oswaldo Chazaro Montalvo, president of the Confederación Nacional de Organizaciones Ganaderas jointly signed a letter to the leaders of all three signatory nations asking them to “Don’t Jeopardize Our Success Under NAFTA." Let's get into the details. During the nearly quarter of a century since NAFTA was first signed, it has been controversial in many quarters with some groups claiming damages and others lauding marketplace advantages. What are the successes enjoyed by the cattle industry?
A. The success is that NAFTA eliminated tariffs on U.S. beef exports to Canada and Mexico and allowed us to create $1 billion export markets to both Canada and Mexico with zero duties. This has been very helpful with adding value to the cattle producer, particularly in Mexico, as they take import and add value to lower consumed products, such as end meats and offal product that we don't typically have a big demand for in the U.S.
Plus the small percentage of cattle we import (compared to the overall U.S. herd size) helps our feedlots and processing facilities run at optimal levels, particularly when we had our herd reduction due to the drought as it maintains production capacity and helps keep up with our beef demand when numbers are short. NAFTA has positioned the U.S. beef industry to capitalize on beef sales across North America and around the world.
Q. There are three men who will have the most immediate and direct effect on the negotiations: Mexican President Enrique Pena Nieto, Canadian Prime Minister Justin Trudeau, and U.S. President Donald Trump. What can we expect from each of them?
A. All three men are intelligent and understand the position that their country plays globally, but also understand that NAFTA is politically sensitive in each of their countries. However, without NAFTA, they know their economies won't be as strong as they are. We should expect each country to voice support for resolving outstanding issues that impact them individually, but at the end of the day, they will call for a new and improved version of NAFTA that addresses current and future needs.
Q. Your ad hoc group asked that no changes be made but MCOOL has been a bone of contention among some members of the North American cattle industry. R-CALF, in particular, was a vocal proponent. Has it been put to rest or will it be a key issue that could disrupt negotiations?
A. Canada and Mexico have been firm in their opposition of MCOOL and have stated many times that they will not concede their WTO victory on MCOOL. So far, U.S. leaders have listened to the vast majority of the U.S. beef industry that opposes MCOOL and have not voiced support for bringing MCOOL to the table as part of NAFTA negotiations.
If the Trump Administration decides to move forward with MCOOL as part of NAFTA, it will be nearly impossible to move negotiations forward with Canada, Mexico, and certainly without the support of a majority of the U.S. Congress. So it is in the best interest of all parties to keep MCOOL out of the conversation! NCBA will continue to strongly oppose any effort to resurrect MCOOL.
Q. Terms like 'dissolution' and 'serious renegotiation' have been published by news sources and discussed in editorials. Will the U.S. beef industry be able to be as competitive as it currently is of either of those two things come to pass?
A. The U.S. beef industry stands to lose more than it can gain from renegotiating NAFTA, as it is hard to improve on duty-free, unlimited access for our product to Canada and Mexico. Any disruption to the North American supply chain will have a negative impact on the U.S. beef industry.
We have already seen this happen with the disruption caused by the implementation of MCOOL and how it forced more consolidation of the U.S. beef industry by closing feedlots and processing facilities that didn't have the cattle to stay in the game when our numbers were low. Now that the herd is growing we cannot afford any undue challenges within our beef production model in the U.S., whether it be processing limitations or backing up product due to trade disruptions.
Q. Although NAFTA is just undergoing a 'review' of sorts, another unsigned negotiation has the potential to create international trade problems. President Trump walked away for the Trans Pacific Partnership. There were some bold expectations tied to TPP. How much damage will it cause?
A. Walking away from TPP without a meaningful alternative trade agreement places the U.S. beef industry at great risk. Japan is our greatest export market accounting for $1.5 billion in beef sales in 2016 and growing in 2017. TPP would have taken the 38.5% tariff on our beef down to 9% which prior to the EU agreement last week - The EU reached terms with Japan on a new trade deal that mirrored TPP - would have been the greatest agreement ever negotiated with Japan.
Also as of August 1, because we have surpassed our volume quota of frozen beef shipped to Japan in their first quarter and do not have a free trade agreement with Japan and have moved away from TPP, our tariff rate will increase to 50% until next spring and we could also see this happen for chilled product if we reach that volume quota in their second quarter of the year.
We have made significant gains in the Japan market as I have just stated with the quota issue, but those gains will be short lived once the Australian cattle herd recovers from drought and becomes competitive in 2018/2019. The Australians have a 27% tariff rate, as they have a free trade agreement, which was 12% better than us before our quota issue, now they will have a 23% advantage for the remainder of the year over U.S. product.
What this all means is that we are further behind two major competitors in OUR largest export market. We need the Trump Administration to prioritize trade with Japan immediately so that we don't fall further behind in our greatest export market.
Q. Did you get any responses to the letter? Positive or negative?
A. The letter we submitted with CCA and CNOG was strongly received by the Trump Administration and by Congress. The Trump Administration is taking a "DO NO HARM" approach to agriculture provisions in NAFTA, and we are certainly going to hold them to their word.