Author: Andrew Muhammad

In 2021, beef and beef products were the third highest exports for the U.S. ($10.6 bill.), behind soybeans ($27.4 bill.) and corn ($18.7 bill.) (USDA, 2022a). A key trading partner for the U.S. beef sector is Japan ($2.4 bill. in 2021), which was the leading foreign market for U.S. beef by volume. Through existing trade agreements (e.g., U.S.-Japan Trade Agreement [USJTA], Comprehensive and Progressive Agreement for Trans-Pacific Partnership [CPTPP]), the U.S. and major competitors like Australia face lower beef tariffs in Japan relative to the Most Favored Nation (MFN) rate of 38.5%. The tariff rate for the U.S. and Australian beef in Japan (excluding offal and processed products) is currently 24.1% and is continually declining to 9% by 2033. However, both USJTA and CPTPP allow the Japanese government to increase tariffs on beef products when imports from the U.S. or CPTPP countries exceed a certain volume during a specified period. This specified volume is often referred to as a safeguard. In general, safeguard measures are used to limit excessive import growth by allowing governments to increase tariffs on a product when imports exceed a certain level during a specified period.

U.S. beef faced a particularly restrictive safeguard in Japan of 242,000 metric tons (MT) when USJTA was enforced in 2020 and in 2021 (Japanese fiscal years: April-March). Japan’s beef safeguard for CPTPP countries was 625,400 MT during this period. The CPTPP safeguard was predominantly applied to Australian beef given Japan’s limited beef imports from other CPTPP countries, and unlike the U.S. safeguard, significantly higher than actual imports from all non-U.S. countries, let alone Australia (See Figure 1). This safeguard difference put U.S. beef at a significant disadvantage relative to Australian beef in the Japanese market because U.S. exports to Japan averaged more than 245,000 MT per year between 2017–2021. Thus, it was no surprise that the safeguard was triggered after the first year of USJTA’s enforcement, leading Japan to raise tariffs on U.S. beef to 38.5% for one month. Consequently, the U.S. government was able to negotiate a new three-trigger safeguard mechanism for U.S. beef in Japan this year. Moving forward, the Japanese government can increase tariffs on U.S. beef only if all the following occur: 1) Imports of U.S. beef exceed the USJTA beef safeguard; 2) The total volume of beef from the U.S. and original CPTPP countries exceed the CPTPP beef safeguard; and 3) imports of U.S. beef exceed imports from the previous year (USDA 2022b). The most important aspect of this change is that the U.S. and Australia are now essentially sharing the CPTPP safeguard. That is, even if Japan’s imports of U.S. beef increase and exceed the USJTA 2022 safeguard (246,900 MT), the Japanese government can raise tariffs on U.S. beef only if total beef imports from the U.S. and CPTPP countries exceed 637,200 MT (CPTPP safeguard for 2022), which is not likely to occur.

Figure 1. Japan’s Beef Imports (2017 –2021) and Respective CPTPP and USJTA Safeguard Triggers for 2022

References

Muhammad, A., Griffith, A., Martinez, C., and Thompson, J. (2021). Safeguard Measures and US Beef Exports to Japan. UT Extension Publication W1023. https://ageconsearch.umn.edu/record/313523

Trade Data Monitor® (2022). https://www.tradedatamonitor.com/

U.S. Department of Agriculture (USDA), Foreign Agricultural Service (2022a). Global Agricultural Trade System. https://apps.fas.usda.gov/gats/default.aspx

U.S. Department of Agriculture (USDA), Foreign Agricultural Service (2022b). U.S., Japan Reach Deal on Beef Tariff Safeguard. FAS Press Release. https://www.fas.usda.gov/newsroom/us-japan-reach-deal-beef-tariff-safeguard

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Muhammad, Andrew, and Charley Martinez. “Understanding the New Safeguard Policy for U.S. Beef in Japan.” Southern Ag Today 2(27.4). June 30, 2022. Permalink

The Foreign Agricultural Service (FAS) of USDA sponsors international trade missions (to as many as six countries per year), opening doors for U.S. exporters and giving them the opportunity to forge relationships with potential customers, gather market intelligence, and generate sales in foreign markets. Since the pandemic, all trade missions have been canceled or postponed. Last week (February 15, 2022), FAS launched its first trade mission since November 2019 to the United Arab Emirates (U.A.E.). The delegation to the U.A.E. included nearly 40 representatives from agribusinesses, farm organizations, and state departments of agriculture interested in exploring export opportunities across the Middle East. Both the FAS Administrator, Daniel Whitley, and Secretary of Agriculture, Tom Vilsack were a part of the delegation kicking off the first USDA trade mission in over two years.

With annual agricultural exports averaging more than $1.2 billion during the last five years, the U.S. is the UAE’s fourth-largest supplier of food and farm products and is poised for further export growth according to USDA. How important is the U.A.E. to U.S. exports, particularly exports from the South? In 2021, agricultural exports from the Southern region to the U.A.E. were $357 million, which was an increase of nearly 50% when compared to the previous year (Table 1). Although this is relatively low when compared to countries like China (China purchased $15 billion in agricultural exports from the U.S. South in 2021), the U.A.E. was the South’s 41^st largest market out of more than 200 countries (USDA-FAS, 2022). Interestingly, the South’s leading agricultural export to the U.A.E. in 2021 was distilled spirits ($74 million), mostly due to exports of spirits from distilled grapes (e.g., brandy) from Texas and whiskey from Tennessee. Other leading exports in 2021 included poultry products ($47 million), soups and other prepared foods ($26 million), corn ($24 million), and dairy products ($ 24 million). See Figure 1 for the top-15 exports from the U.S. South to the U.A.E. 

U.S. Department of Agriculture, Foreign Agricultural Service (USDA-FAS) (2022). Global Agricultural Trade System. https://apps.fas.usda.gov/gats/default.aspx

Table 1. U.S. and Regional Agricultural Exports to the United Arab Emirates (U.A.E): 2019-2021

	2019	2020	2021	% Growth(2021-20)
	Export Value ($ million)
United States	$1,309	$970	$1,201	23.8%
Regions
Western	$707	$513	$564	9.9%
Southern	332	241	357	48.1%
Northeast	168	131	163	24.4%
Midwest	101	84	116	38.1%

Figure 1. Top-15 Exports from the Southern U.S. to the United Arab Emirates (U.A.E): 2021 

Muhammad, Andrew. “United Arab Emirates Shows Promise for U.S. Agricultural Exports According to USDA“. Southern Ag Today 2(9.4). February 24, 2022. Permalink

Last November, I wrote an article for Southern Ag Today about the spike in fertilizer prices. Since that time, import prices have continued to rise. As mentioned in the previous article, U.S. fertilizer imports have averaged nearly $6 billion over the last five years (around 25 million metric tons), accounting for a significant share of total U.S. fertilizer use (USDA-ERS, 2019). Additionally, the global fertilizer market had already been tightening before plants were forced to cut production given the rise in the cost of natural gas, a key feedstock (Larkin, 2021). Given the continued rise in U.S. fertilizer prices, a more detailed look at imports could help explain why the price of some fertilizers have increased more than others.

In 2020, the U.S. imported about $6.5 billion in fertilizer. That year, the top imports included potassium chloride ($2.7 billion), urea ($1.3 billion), monoammonium phosphate ($590 million), urea-ammonium ($400 million), and diammonium phosphate ($400 million). In January 2020, import prices ranged from as low as $130 per metric ton (MT) for urea-ammonium to about $267/MT for and diammonium phosphate. In 2021, diammonium phosphate increased to over $1000/MT and monoammonium phosphate increased to over $700/MT; urea increased to over $500/MT. Interestingly, the price of imported diammonium phosphate fell in November 2021 to $625/MT, which was a significant decline from the $1,008/MT high the previous month. Other trends, however, suggest that fertilizer import prices will continue to increase.

U.S. Fertilizer Import Prices Significantly Higher in 2021 Due to Global Supply and Demand Issues

References

Larkin, N. (October 15, 2021) Supply Lines Fertilizer Crisis Piles More Pressure on World’s Future Food Supply. Bloomberg. https://www.bloomberg.com/news/newsletters/2021-10-15/supply-chain-latest-warnings-mount-over-fertilizer-crisis

U.S. Department of Agriculture, Economic Research Service (USDA-ERS) (2019). Fertilizer Use and Price. https://www.ers.usda.gov/data-products/fertilizer-use-and-price.aspx  

U.S. Department of Agriculture, Foreign Agricultural Service (USDA-FAS) (2022). Global Agricultural Trade System. GATSFertilizer Use and Price. https://apps.fas.usda.gov/gats/default.aspx

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Muhammad, Andrew. “U.S. Imports and the Continued Rise in Fertilizer Prices.” Southern Ag Today 2(5.4). January 27, 2022. Permalink

The recent spikes in freight costs are having a significant impact on global trade. The average cost of shipping a standard large container (a 40-foot-equivalent unit) has surpassed $10,000 in recent months, more than four times higher than prices a year ago. Most of this is due to higher freight rates for routes out of China. For instance, container rates for shipments from Shanghai to New York increased from $2,500 to more than $20,000 in September 2021 (Freightos Data, 2021). To put this in context, an east coast buyer that spent $100,000 last year in freight costs when importing goods from China is now paying almost $1,000,000 in freight costs to import the same items. Given the high demand for containers out of China, there has been a shortage of containers at U.S. ports affecting exports. What does all of this mean for U.S. agricultural exports? Once consequence is that the bulk shipping rates have also increased from $1,000 to over $5,000 in October (now around $3,400) (Trading Economics, 2021), which affects commodities like soybeans and corn. 

As we begin our research on the effects of shipping rates on U.S. agricultural exports, it is important to first understand the importance of different modes of shipping for U.S. agriculture. The figure shows the share (volume) of U.S. exports across product categories by different shipping modes (bulk, container, and air). To be expected, bulk commodities like wheat, corn, sorghum, and soybeans are most reliant on bulk carriers (more than 90% of all shipments by volume), whereas many products rely on both container and bulk shipping (e.g., poultry). U.S. exports of livestock products like beef, pork, and cheese are heavily reliant on container shipping (90% of all shipments). These products are likely to be the most affected by the recent spike in container rates and shipping costs.

Share of Commodity Export Volume by Shipping Mode: 2003-2021

Sources: 

Freightos Data (2021) FBX Routes. https://fbx.freightos.com/freight-index/FBX03

Trading Economics (2021) Baltic Exchange Dry Index. https://tradingeconomics.com/commodity/baltic

U.S. Department of Commerce (2021). USA Trade® Online. U.S. Census Bureau. https://usatrade.census.gov/

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Muhammad, Andrew, and Michael Adjemian. “The Rise in Shipping Costs and U.S. Agricultural Exports.” Southern Ag Today 1(51.4). December 16, 2021. Permalink

The recent spike in fertilizer prices will have a significant impact on U.S. crop production moving forward. The global fertilizer market had already been tightening before plants were forced to cut production given the rise in the cost of gas, a key feedstock (Larkin, 2021). In the U.S., this has resulted in a significant increase in fertilizer import prices. Over the last 5 years (2016-2020), U.S. fertilizer imports have averaged nearly $6 billion (around 25 million metric tons), accounting for a significant share of total fertilizer use in the U.S. (USDA-ERS, 2019).

Most U.S. imports are either potassic fertilizer (potash) and nitrogenous fertilizer, as well as mixed fertilizers. Since 2017, potassic import prices have averaged less than $220 per metric ton (MT) but has increased to nearly $300/MT in recent months (August 2021), which is an increase of about 40% when compared to the average from 2017-2020. Nitrogenous fertilizer, which also averaged less than $220/MT over the last four to five years, is now more than $350/MT, an increase of about 71% when compared to 2017-2020. The price of imported mixed fertilizer has increased to nearly $700/MT, up 58% when compared to 2017-2020. Trends suggest that fertilizer import prices will continue to increase, resulting in significant economic strain for U.S. producers.

U.S. fertilizer import prices significantly higher in 2021 due to global supply and demand issues

References

Larkin, N. (October 15, 2021) Supply Lines Fertilizer Crisis Piles More Pressure on World’s Future Food Supply. Bloomberg. https://www.bloomberg.com/news/newsletters/2021-10-15/supply-chain-latest-warnings-mount-over-fertilizer-crisis

U.S. Department of Agriculture, Economic Research Service (USDA-ERS) (2019). Fertilizer Use and Price. https://www.ers.usda.gov/data-products/fertilizer-use-and-price.aspx  

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Muhammad, Andrew. “Global Fertilizer Market Affects U.S. Import Prices.” Southern Ag Today 1(46.4). November 11, 2021. Permalink