Category: Trade

Rising U.S. agricultural imports, especially fruits and vegetables (F&V), have recently captured the attention of domestic producers. Between 2014 and 2023, U.S. agricultural exports increased from $152 billion to $179 billion, while imports grew to $195 billion from $109 billion (USDA Agricultural Trade Outlook, December 2014 and November 2023). During the same period, F&V exports remained stagnant ($24 billion), but their imports nearly doubled ($27 billion to $50 billion). Volume growth has been higher than the growth in value, e.g., the volume of blueberry and bell pepper imports increased by 194 and 110 percent, respectively, between 2011 and 2022. The import volume growth in the last decade has increasingly occurred during the harvesting windows for U.S. fresh produce (April through September, see Exhibit 1 for the case of blueberries).

While American consumers enjoy a healthy diet and lower prices from the growth of F&V imports, domestic growers are challenged in protecting revenues already stressed by labor costs and weather events. In response to U.S. Trade Representative’s request in 2021, the U.S. International Trade Commission (USITC) examined import competition in specific F&V industries but provided mixed results. In the case of cucumbers and squash, the USITC reported that American growers could actually do better if imports were lower than current levels. However, in blueberries and spring table grapes, the USITC found that imports did not harm the domestic industry. 

A recent study at the University of Georgia (UGA) examined the impact of imports on American growers’ revenue for four fresh produce: asparagus, bell peppers, blueberries, and strawberries. The study used an economic framework similar to that in USITC’s cucumber and squash investigations. Unlike the USITC, the UGA study tracked additional revenues from lowering imports between 2011 and 2021/22 for all four commodities by state and harvesting seasons.

Turns out, growers could have made quite a bit more revenue if above-average import growth of fresh produce did not occur. Exhibit 2 shows that the additional revenues ranged from 1.7% (strawberries) to 28% (asparagus) of actual grower revenues, totaling $134 million, in 2021/22. The results did not change much when using prices at different marketing stages (farm-gate, terminal markets and shipping points). 

The U.S. trade laws do not offer remedies to regional injuries, especially in the Southeastern states.  The F&V industry is critical to state and rural economies since it supports millions of jobs and raises a significant amount of revenue through crops produced and sold. American produce growers critically need risk management strategies such as revenue protection offered to program commodities in the Farm Bill and new technologies to stay competitive.

Exhibit 1: Monthly Blueberry Imports, 2011-2022

Exhibit 2: Actual and Counterfactual Revenues for 2021/22

Commodity	Actual Revenue (mil $)	Counterfactual Revenue* (mil $)	Share of Additional Revenue in Actual Revenue (%)
Asparagus (2022)	45.78	58.79	28.42
Bell Peppers (2022)	612.57	658.72	7.53
Blueberries (2021)	604.47	631.58	4.48
Strawberries (2022)	2781.69	2829.83	1.73

*Revenue when above-average growth in imports is removed.

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Munisamy, Gopinath, Ajit Khanal, and Dixit Poudel. “Creeping Imports and Hidden Costs to U.S. Fresh Produce Growers.” Southern Ag Today 4(6.4). February 8, 2024. Permalink

The sudden disruption in the Red Sea, one of the world’s most critical maritime passageways, has sent shockwaves through global trade, having the potential to harm agricultural exports from the Southern U.S. We delve into the manifold implications of this blockade, examining its direct impact on trade flows, freight rates, and the challenges posed by the limited capacity at the Panama Canal for Southern agricultural exports.

The Red Sea blockage, precipitated by heightened military tensions and attacks on commercial vessels by the Houthi terrorist organization, has led to a dramatic decrease in shipping activities through this critical route. As Figure 1 shows, about 500 cargo vessels were diverted via the Cape of Good Hope due to the attacks in the Red Sea. This diversion implies that the volume of container traffic in the Red Sea experienced a more than 50 percent decline in December, with the current volume almost 70 percent below normal as of January 18, 2024. This decline is a stunning indication of the magnitude of disruption faced by global shipping lines, including those serving agricultural exporters in the Southern U.S.

The Southern U.S., a powerhouse of agricultural exports of grains, soybeans, cotton, and forest products, could be negatively affected by this disruption. The rerouting of vessels around the Cape of Good Hope, necessitated by the Red Sea blockage, has added up to 20 days to shipping times and increased freight rates. These delays could considerably impact perishable agricultural products, risking product spoilage and financial losses. Furthermore, the automotive sector, akin to the agricultural industry, has already started experiencing production adjustments due to the maritime delays. This parallel suggests that agricultural exporters from the Southern U.S. could face similar operational and logistical challenges, further compounding the adverse effects of the Red Sea crisis on the region’s agricultural economy.

A direct consequence of the blockage has been the surge in ocean freight rates. Figure 2 illustrates an increase in the average cost of transporting a standard container (measured as a twenty-foot equivalent unit, TEU) from about USD 700 in November 2023 to over USD 1,900 in January 2024. On some routes, this increase is even more substantial. For instance, the freight rate from China to Northern Europe rose from nearly USD 750 to over USD 2,000 as of January 18, 2024. Although these figures are specific to the Europe-Asia route, they reflect a global trend in rising freight costs, which inevitably impacts the cost of exporting agricultural products from the Southern U.S. to international markets.

The Panama Canal’s limited capacity further complicates the situation. Initially rerouting from the U.S. Atlantic Seaboard and the Gulf of Mexico to Asia via the Suez Canal, many carriers have shifted back to the Panama Canal. This redirection will lead to increased congestion and delays, exacerbating the logistical challenges for Southern U.S. exporters who rely on this route for more efficient access to Asian markets.

The trade dynamics with South and Southeast Asia, an important and growing market for Southern U.S. agricultural exports, could be particularly affected. The extended transit times and shifting shipping routes disrupt the timely delivery of goods. Figure 3 shows that the daily freight capacity in the Red Sea fell by almost 70 percent below the expected level in January 2024. As cargo vessels reroute and face delays, the availability of products in South and Southeast Asian markets is affected, potentially leading to lost sales and strained trade relationships. The ripple effects of these disruptions are evident in increased insurance costs for vessels transiting high-risk areas like the Red Sea. These rising costs, which reached one percent of the vessel’s value, add an extra financial burden on shippers and, by extension, agricultural exporters in the Southern U.S.

In response to these unprecedented challenges, agricultural exporters in the Southern U.S. should explore alternative logistical strategies. These include diversifying port usage, considering air freight for urgent shipments, and re-evaluating supply chain routes to mitigate the impacts of delayed deliveries and increased costs. However, these adjustments come with their own financial and operational complexities.

The Red Sea blockage by the Houthi terrorist organization represents a substantial disruptor in the global trade ecosystem, with potentially profound implications for U.S. agricultural exports to South and Southeast Asia. The escalation of freight costs, extended shipping durations, and the strain on alternative routes, such as the Panama Canal, paint a challenging picture for 2024 agricultural exports from the Southern U.S. As the situation evolves, agricultural stakeholders must remain agile, leveraging data-driven insights and innovative solutions to navigate these turbulent waters while also considering long-term strategies for resilience in an increasingly uncertain global market environment.

Figure 1: Close to 500 cargo vessels diverted due to Houthi attacks on ships in the Red Sea.

Figure 2: Drewry World Container Index increased by 75 percent since December 2023.

Figure 3: Daily freight capacity in the Red Sea falls by 66 percent below the expected level.

Learn More

Hinz, Julian and Mathias Rauck (2024). Cargo volume in the Red Sea collapses. Kiel Institute for the World Economy, Press Release 01/2024.

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Goyal, Raghav, Sandro Steinbach, Yasin Yildirim, and Xiting Zhuang. “Southern U.S. Agriculture Faces Headwinds in Asia Amid Red Sea Shipping Disruptions.” Southern Ag Today 4(4.4). January 25, 2024. Permalink

Historically, U.S. agricultural trade has experienced a trade surplus, where exports are higher than imports (Figure 1.). In fact, since 1989 which is as far back as USDA Foreign Agricultural Service (FAS) Global Agricultural Trade System (GATS) has available data on agricultural trade, there were only two years with agricultural trade deficit, imports higher than exports, 2019 and 2022.  USDA FAS expects that 2023 not only will show a trade deficit, but that the trade deficit will be increasing over time.  The trade deficit was $3.5 billion in 2022 and it is expected to be $16.7 billion and $30.5 billion in 2023 and 2024, respectively (official 2023 numbers will be reported in February 2024).  

However, when U.S. agricultural trade is presented in volume as opposed to value, the story is very different (Figure 2).  The U.S. has never experienced a trade deficit and is very far from experiencing one where exports to imports ratio has been 3.2 over the last 10 years.  The main difference between value and volume in agricultural trade is the agricultural products that the U.S exports and imports.  The main U.S. agricultural products exported are soybeans, corn and wheat and they are sold for the most part in bulk.  On the other hand, the main agricultural products imported by the U.S. are more high value consumer-oriented products, mainly distilled spirits, wine & wine products, and beer, as well as high value fresh produce such as fresh fruits and vegetables.  These imported products are of much higher in value than the exported products and vice versa when volume is used as a measuring unit.

Figure 1.  U.S. Agricultural Trade, Billion Dollars

Figure 2. U.S. Agricultural Trade, Million Metric Tons

Earlier this year (June 29, 2023) I wrote an article about U.S. whiskey exports rising even as agricultural exports declined overall.^[1] The main point of that article was that whiskey sales to foreign markets have been continually increasing, in terms of both volume and value, and that the European Union (EU) stood out as a major destination, accounting for a large share of this recent rise. Currently, the EU accounts for over 50% of total U.S. whiskey exports (Figure 1).^[2] This could have all been wiped away due to the lingering effects of the trade war.

Between June 2018 and January 2022, the EU imposed a 25% retaliatory tariff on American whiskey in response to the tariffs the Trump Administration imposed on foreign steel and aluminum. Consequently, U.S. whiskey exports to the EU decreased by over 30% between 2018 and 2020 (from $552 million to $368 million). The Biden Administration was able to negotiate a temporary tariff suspension starting in January 2022. Whiskey sales to the EU increased to $565 million that year and are expected to reach nearly a billion dollars by the end of 2023 (USDA, 2023) (Figure 1). The tariff suspension was set to expire this December, and as of January 2024 the EU would have imposed a 50% tariff on imports of U.S. whiskey if the suspension deadline was not extended. Fortunately, on December 19, 2023, the Biden Administration was able to secure an extended suspension of the retaliatory tariffs until March 31, 2025 (DISCUS, 2023).    

This pending 50% tariff raised questions about its potential impact on U.S. whiskey sales to the EU. This question is now academic since the tariff reprieve was extended last week. It is important to note that whiskey is the leading U.S. distilled spirits export, accounting for more than two thirds of all distilled spirits sales to foreign markets in 2022 and 2023. Thus, any decline in whisky exports will have had a significant impact on the U.S. distilled spirits sector overall. If the 25% tariff experience is an indication how the EU market would have responded to an even higher tariff, it is safe to say that U.S. distilled spirits sector dodged a major bullet. Hopefully, all of this will get resolved before March 31, 2025.

Figure 1. U.S. Whiskey Exports to the EU and World: 2018-2023

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References

Distilled Spirits Council of the United States (DISCUS). 2023. Statement on the U.S. and EU Agreement to Extend the Suspension of EU Tariffs on American Whiskey until March 31, 2025

https://www.distilledspirits.org/news/discus-statement-on-the-u-s-and-eu-agreement-to-extend-the-suspension-of-eu-tariffs-on-american-whiskey-until-march-31-2025/

U.S. Department of Agriculture (USDA). 2023. Global Agricultural Trade System (GATS). Foreign Agricultural Service, Washington, DC.

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^[1] Whiskey is the generic term that includes whiskey of all types (e.g., malt, corn, rye) and bourbon.

^[2] The EU-27 countries are Austria, Belgium, Bulgaria, Croatia, Republic of Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain and Sweden.

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Photo by ELEVATE: https://www.pexels.com/photo/brown-wooden-barrel-inline-inside-room-1267311/

Muhammad, Andrew. “American Whiskey Gets Extended Tariff Reprieve in the EU…Just Weeks Before the Deadline.” Southern Ag Today 3(52.4). December 28, 2023. Permalink

The U.S. has established itself as a prominent exporter of agricultural and food products to the Association of Southeast Asian Nations (ASEAN), which includes major U.S. trading partners like Vietnam, the Philippines, and Malaysia. According to USDA, from 2010 to 2022, there was a notable upward trend in agricultural and related products exports to ASEAN, reaching a high of $15.80 billion in 2022. The U.S. consistently holds the position of the second-largest agricultural exporter to ASEAN. The average annual growth rate for U.S. agricultural exports to the region stood at more than 4% over this period, far outpacing the less than 2% percent growth for exports to other regions.

In the present landscape of global trade, the U.S. encounters significant trade barriers in the ASEAN region. The U.S. has a free trade agreement (FTA) with Singapore, but with no other ASEAN country. U.S. agricultural exports are subject to substantial applied average tariff rates in the remaining member states of ASEAN, ranging from 2.7% in Malaysia to 27.7% in Thailand. Notably, the Philippines, Vietnam, Indonesia, and Thailand, which impose import duties exceeding 10% on U.S. agricultural goods, are key export destinations. Specific product categories, such as beverages, tobacco, dairy, fruits and nuts, and sugar products are subjected to effective ad valorem average tariff rates exceeding 10%, thereby diminishing the competitiveness of these U.S. commodities in the ASEAN marketplace. Additionally, the proliferation of non-tariff measures (NTMs) has a substantial impact on U.S. agricultural exports to ASEAN. These NTMs range from import licensing mandates, health and safety regulations, and technical standards, to sanitary and phytosanitary measures, including the complexity of bureaucratic procedures. Such impediments escalate the cost of doing business, thereby hindering U.S. exports to ASEAN.

The network of bilateral and regional FTAs that ASEAN economies have established with their trading partners, such as the Regional Comprehensive Economic Partnership (RCEP), further complicates U.S. competitiveness. ASEAN countries have engaged in extensive FTA networks, offering their partners considerable tariff and non-tariff benefits, which include significant tariff reductions. For instance, Vietnam has enacted various bilateral and regional FTAs, including RCEP and the EU-Vietnam FTA. Indonesia has fortified its trade links with thirteen bilateral and regional FTAs, demonstrating its dedication to global trade. The Philippines (10 FTAs), Thailand (14 FTAs), and Malaysia (16 FTAs) have expanded their global trade relations. These widespread agreements, present challenges for U.S. agricultural exporters as ASEAN countries deepen trade with countries that compete against U.S. exports.

Figure 1. Applied tariffs and U.S. agricultural export to ASEAN

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Hossen, Md Deluair. “Tariff and Non-Tariff Barriers Affect U.S. Agricultural Exports to the ASEAN Market.” Southern Ag Today 3(48.5). December 1, 2023. Permalink