Category: Trade

Trade is very important to production agriculture in the United States. Over the last decade, 2011 to 2020, agricultural exports have accounted for over one-third of U.S. gross farm income, 33.7 percent (USDA ERS and FAS).  U.S. gross farm income ranged from $399.4 billion in 2016 to $470.3 billion in 2014 while U.S. agricultural exports ranged from $137.2 to $154.5 billion in 2015 and 2014 respectively. Total agricultural exports reached a record in 2021 at $177 billion, but gross farm income data for 2021 is not out yet.  Moreover, in terms of volume, U.S agriculture exports over 20 percent of its production.  However, for some commodities that number is considerably higher.  In 2021, 83.6 percent of the U.Ss cotton crop was exported as well as 64.8 percent of U.S. sorghum crop (Table 1).  Soybeans, Wheat, and Rice producers also depend on exports for close to half of their production.  Also, the top five crops in Table 1 are very important crops in the South.

Table 1. U.S. Agricultural Exports as Percentage of Production, 2021

Commodity	Percentage of Production Exported
Cotton	83.6%
Sorghum	64.8%
Soybeans	48.7%
Wheat	48.6%
Rice	43.5%
Pork	25.4%
Poultry	16.5%
Corn	16.2%
Beef	12.3%

U.S. consumers also benefit from agricultural trade as they have year-round supply of food products that either cannot be produced domestically or are highly seasonal such as fruits and vegetables.  Virtually all limes and bananas consumed in the U.S. are imported and over 95 percent of the coffee consumed is not produced domestically (Table 2).  Orange juice and tomatoes are produced in the U.S. commercially, however, U.S. consumers depend heavily on imports for year- round supply of these products.

Table 2. U.S. Agricultural Imports as a Share of Domestic Consumption, 2021

Commodity	Percentage of Consumer Expenditures
Limes	99.9%
Bananas	99.9%
Coffee	95.1%
Orange Juice	57.8%
Tomatoes	41.2%
Beef	12.5%
Pork	7.0%

Regardless of where the agricultural products are produced, domestically or overseas, all U.S. consumers benefit.  Table 3 shows the ranking of the top 10 countries in terms of lowest to highest percentage of disposable income spent on food at home and does not include eating out. U.S. consumers spend on average 7.1 percent of their disposable income on food which makes it the lowest out of 104 countries where data is available.

Table 3. Percent of Consumer Expenditures Spent on Food Consumed at Home, 2020.

	Country/Territory	Share of Consumer Expenditures
1	USA	7.1%
2	Singapore	7.9%
3	United Kingdom	9.4%
4	Austria	9.7%
5	Switzerland	10.2%
6	Ireland	10.3%
7	Canada	10.6%
8	Australia	10.8%
9	South Korea	11.6%
10	Germany	11.7%

Ribera, Luis. “Importance of Agricultural Trade for the U.S.“. Southern Ag Today 2(35.4). August 25, 2022. Permalink

Last month (July 2022), the Foreign Agricultural Service of USDA led a trade mission to the Philippines that included representatives from nearly 30 agribusinesses and farm organizations and 10 state departments of agriculture. The primary purpose of the mission was to help expand agricultural trade, increase collaboration on key issues impacting agriculture in both countries, and strengthen Philippine food security. The trade mission highlights the importance of the Philippines for U.S. agriculture. In 2021, U.S. agricultural exports to the Philippines totaled $3.6 billion making it the 7^th largest foreign destination for U.S. agriculture. Most of these exports were from the Western United States ($2.5 billion in 2021) primarily comprised of wheat, dairy, and soybean meal. 

The Philippines is not as important for agricultural export sales in the U.S. South ($508 million in 2021) (See Table 1), ranking 31^st among destination markets for the region. However, for certain agricultural commodities, the Philippines is very important (USDA, 2022). The major agricultural exports to the Philippines originating from southern states are reported in Figure 1. In 2021, poultry and related products were the leading agricultural export at more than $140 million. This was a significant increase above 2020 during the height of the pandemic. The next leading exports, soybean meal and pork, were valued at $132 million and $59 million, respectively. For all these products, the Philippines was the 7^thlargest destination market for the U.S. South.

Table 1. U.S. agricultural exports to the Philippines, total and by region: 2018-2021

	2018	2019	2020	2021
	$ million	$ million	$ million	$ million
Total U.S.	$3,089.7	$3,004.2	$3,215.5	$3,554.3
U.S. Region
West	2,114.8	2,207.6	2,502.7	2,524.5
South	517.1	375.6	285.6	508.4
Midwest	385.8	351.5	357.2	437.7
Northwest	72.1	69.4	70.0	83.7

Figure 1. Top U.S. exports to the Philippines from the Southern U.S.

Although the Philippines is important for U.S. agricultural trade, there is no trade agreement between the two countries. While this trade mission was an important step in the right direction, MOUs and unofficial promises are not substitutes for official trade liberalization policy. The Philippines is a founding member of the Association of Southeast Asian Nations (ASEAN), which is a political and economic union of 10 member states in Southeast Asia that includes important U.S. trading partners like Vietnam, Indonesia, Singapore, and Thailand. Other than Singapore, the U.S. has no trade agreements with ASEAN countries. This is important because non-tariff barriers (NTM’s) in ASEAN have progressed slowly. NTMs on agri-food trade in ASEAN’s priority sectors rose from 434 measures in 2000 to 1,192 measures in 2010 and to 2,181 measures in 2019, with sanitary and phytosanitary (SPS) measures making up the largest component of NTMs, accounting for about half of total measures (Suvannaphakdy and Kevin, 2021). Officially addressing these NTM’s could increase U.S. and regional agricultural exports to ASEAN countries including the Philippines.

References

Suvannaphakdy, Sithanonxay and Neo Guo Wei Kevin. 2021. “Why ASEAN Needs to Reduce Its Non-Tariff Measures on Agri-Food Imports.” The Diplomat (July 02, 2021).

US. Department of Agriculture. 2022. Global Agricultural Trade System (GATS). Foreign Agricultural Service, Washington, DC.

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Muhammad, Andrew. “How important is the Philippines for U.S Agricultural Trade?” Southern Ag Today 2(33.4). August 11, 2022. Permalink

The term inflation is commonly used to describe a general increase of prices.  However, back in the mid-1800s where the term started to emerge in the literature, it was not in reference to something that happens to prices, but as something that happens to a paper currency.  Back in those days “bank notes,” a private paper currency redeemable for a specific amount of metal, were becoming widely used. At times, banks did not have enough gold or silver to satisfy all of their claims, therefore, they “inflated” the number of bank notes in relation to the amount of metal they had.  Therefore, inflation was the fall in value of paper currency or money due to an excessive issuance of paper currency or money.  From March 2020 to February of 2022 the money supply in the US increased by 41.2 percent, or 20.6 percent per year, while average GDP growth over the same period of time was 3.7 percent (FRED, 2022).  As a reference point, money supply over the last decade had increased an average 8.2 percent per year.

On the other hand, rapid changes in commodity prices are very common in agriculture and usually is due to supply shifts.  Good weather, improved technology and political stability are some variables that shift supply to the right causing an increase in supply and a decrease in prices (Graph 1).  On the other hand, bad weather, increase in input prices and political instability or war are variables that shift supply to the left causing a decrease in supply and an increase in prices (Graph 2).  The Russia and Ukraine war has caused a supply shift to the left in many commodities such as wheat, corn, fertilizer, and oil, given that these two countries are major producers.  Therefore, as quantity supplied of those commodities decreased, prices increased.  However, these increased prices caused producers of those commodities around the world to react and produce more and now prices are on a downward trend.  Also, demand for those commodities decreased contributing to the decrease in prices.  These supply shifts happen very often in agricultural commodities without causing inflation to spike.  In fact, Asian economies are experiencing normal levels of inflation as seen in the chart by The Economist.

Dr. Milton Friedman, winner of the 1976 Nobel Prize in Economic Sciences, stated back in 1963 that “Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.”  Dr. Friedman was right then and still is now.

Bryan, Michael F., 1997. “On the Origin and Evolution of the Word Inflation,” Federal Reserve Bank of Cleveland, Economic Commentary, 10.15.1997.

Federal Reserve Economic Data.  https://fred.stlouisfed.org. Accessed July 23, 2022.

Ribera, Luis. “Difference Between Inflation and Changes in Commodity Prices“. Southern Ag Today 2(31.4). July 28, 2022. Permalink

International trade is pivotal to the U.S. meat industry. Yet, firms that engage in international markets differ widely in terms of their foreign market participation. Using transaction-level bills of lading for meat firms in the Southern United States, we calculated the destination and source market concentration in the meat trading industry. We used the number of firms and their meat trade share to measure market concentration in the meat export and import markets from 2010 to 2020.

We find that more than 60 percent of meat exporters and importers are engaged only in a single foreign market, while only a few dominant firms participate in more than ten foreign markets. These firms account for 5 percent of all meat exporting firms while being responsible for more than 80 percent of meat exports. Their trade share has increased by 10 percent from 2010 to 2020. In contrast, the export share of firms exporting to less than four destinations decreased from 20 percent to less than 10 percent in that period. The meat import market is less concentrated and more stable over time. Meat firms importing from only one source market accounted for 9 percent of all meat imports in 2020, while that share is merely 3 percent in the meat export market. The import market concentration is significantly larger than in the export market. Fewer than 2 percent of firms export to 10 or more markets, while they accounted for a considerably smaller share of overall meat imports (47 percent) in 2020.

A potential explanation for the high market concentration in the meat trading market is that firms face fixed costs in serving foreign markets and need to recoup sufficient revenue to cover the high fixed cost of serving multiple markets. Smaller firms that are not profitable enough to cover these fixed costs are less likely to build foreign distribution networks. In comparison, larger firms benefit from economies of scale in their international distribution network. Therefore, the observed market structure is likely a result of the domestic market concentration, which results in larger firms being more active in international markets. The benefits of global logistics operations are easier to reap for larger firms, making meat supply chains more vulnerable to domestic and foreign market shocks than other industries. The current supply chain crisis increased the costs of doing business, making it harder for smaller meat trading firms to stay in the market due to lower international profit margins. Southern meat firms must have access to reliable and economical transportation options to ensure their economic success. 

Heidi Schweizer, Agricultural and Resource Economics, North Carolina State University, email: hschwei@ncsu.edu; Sandro Steinbach, Corresponding Author, Agricultural and Resource Economics, University of Connecticut, phone: 860-486-1923, email: sandro.steinbach@uconn.edu; Xiting Zhuang, Agricultural and Resource Economics, University of Connecticut, email: xiting.zhuang@uconn.edu. We are grateful to IHS Markit for facilitating access to the PIERS database and acknowledge financial support from the Storrs Agricultural Experiment Station for this study.

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Schweizer, Heidi, Sandero Steinbach, and Xiting Zhuang. “International Market Concentration in the Southern Meat Trading Market.” Southern Ag Today 2(29.4). July 14, 2022. Permalink

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