Category: Trade

Recent years have seen several high-profile outbreaks of transboundary animal disease. On average, approximately 0.01% of the world’s cattle population, 0.05% of the world’s swine population, and 0.03% of the world’s poultry population die each year due to global animal disease outbreaks.

These disruptions cause losses not only in the animal production industry but also in other related industries, such as the feed grain markets. One such upstream industry which is important for Southern U.S. agriculture is the international soybean market. Soybeans are the predominant source of protein in animal feed, and over 95% of global soybean meal production is destined for animal feeding (about 76% of total crush by weight) (Economic Research Service, 2024). Between 2005 to 2020, the U.S. was the second largest exporter of soybeans in the world behind Brazil. U.S. exports account for more than 30% of global soybean trade. The top five destination markets for U.S. soybeans have historically been China, Mexico, Japan, Indonesia, and Germany (Figure 1).

Figure 1: U.S. Soybean Exports, by Destination Market

In a recent study, we use a statistical model to examine the losses to global soybean trade due to animal disease (Lwin, Schaefer and Hagerman, 2024). A significant amount of animal deaths within a short period represents a demand-side shock in the feed market, where soymeal is a primary protein source. Our analysis suggests that—on average—more than $96 million in export potential is lost annually due to animal disease outbreaks (Figure 2).

Figure 2: Annual losses in U.S. soybean export potential due to animal diseases 

These results should be of interest to policymakers. Historically, animal health policies have focused primarily on compensation to producers of affected livestock, which may include indemnity for animals that die or are depopulated for disease control. Few policies address the risk animal diseases pose to upstream suppliers. Crop insurance programs, if available, may protect grain producers against price declines. However, crop insurance is unlikely to address additional costs of storage or quality loss for grain that must be stored for longer periods of time. Policy efforts to enhance supply chain resilience should consider the ripple effects of animal disease-related disruptions on related industries. 

References 

Economic Research Service, USDA. 2024. “International Baseline Projections.” Accessed: 2024-02-02. 

Lwin, Wuit Yi, K. Aleks Schaefer, and Amy D. Hagerman. 2024. “Animal Disease Outbreaks and Upstream Soybean Trade.” Food Policy, 127: 102685.

In a previous article titled Challenges for U.S. Fruits and Vegetables we discussed some of the challenges that the U.S. fruit and vegetable industry faces. Labor cost and availability is identified as the main challenge that the U.S. fruits and vegetable industry faces. Dependance on foreign-born farm labor is around 70 percent. Therefore, in order to address the shortage of farm labor, the H-2A Temporary Agricultural Program—often called the H-2A visa program— was created in 1986.

The H-2A provides a legal means to bring foreign-born workers to the United States to perform seasonal farm labor on a temporary basis, for a period of up to 10 months. Employers in the H-2A program must demonstrate, and the U.S. Department of Labor must certify, that efforts to recruit U.S. workers were not successful. Employers must also pay a State-specific minimum wage rate, which may not be lower than the average wage rate for crop and livestock workers surveyed in the Farm Labor Survey (FLS) in that region in the prior year, known as the Adverse Effect Wage Rate (AEWR). Figure 1 shows the AEWR by state and it is obvious that those rates are much higher than the federal minimum wage as well as any state minimum wage. In addition, H-2A employers must provide transportation, housing, food, insurance, and visa application fees, among other expenses that could add between 35% to 40% of the AEWR rate, i.e., $21.77 in Texas, $20.68 in Florida and $27.65 in California. Industry experts shared that agricultural wage rates in Mexico averages around $20.59 in Colima and $23.53 in Sonora per day, or $2.57 and $2.94 per hour for an 8-hour workday, respectively. Finally, as the labor shortage keeps getting worse, producers could be getting into wage bidding wars to secure farm labor during peak season, increasing their labor cost even more.

Even though labor cost takes a major toll on the fruits and vegetable industry, it is left with little to no options. Not only is the share of the labor cost higher than other agricultural industries, but also labor is scarce. According to ERS (2023), one of the clearest indicators of the scarcity of farm labor is the fact that the number of H-2A positions requested and approved has increased more than sevenfold in the past 17 years, from just over 48,000 positions certified in fiscal 2005 to around 371,000 in fiscal year 2022. The average duration of an H-2A certification in fiscal 2022 was 5.65 months, implying that the 371,000 positions certified represented around 175,000 full-year equivalents. A certified job does not necessarily result in the issuance of a visa; in fact, in recent years only about 80 percent of jobs certified as H-2A have resulted in visas. Around 300,000 visas were issued in fiscal 2022 by the Department of State.

References

Economic Research Service (ERS). “Farm Labor.” Accessed February 2024. https://www.ers.usda.gov/topics/farm-economy/farm-labor/. Updated August 7, 2023.

Foreign Agricultural Service (FAS). Global Agricultural Trade System (GATS). Online database. https://apps.fas.usda.gov/gats/default.aspx. Online public database accessed February 2024.

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Ribera, Luis, and Landyn Young. “Challenges for U.S. Fruits and Vegetables (Part 2).” Southern Ag Today 4(32.4). August 8, 2024. Permalink

A trade deficit occurs when the value of a country’s imports exceeds its exports. Although we often refer to the overall trade deficit (all goods), there is a growing concern about the rising U.S.  agricultural trade deficit. Recall that the most recent trade outlook report published in May 2024 by the Economic Research Service and Foreign Agricultural Service – agencies of the U.S. Department of Agriculture (USDA) – projected the highest agricultural trade deficit to date in fiscal year (FY) 2024 (October 2023 – September 2024). The FY2024 forecast have has U.S. agricultural exports at $170.5 billion, but imports at $202.5 billion. If these projections hold true, the resulting agricultural trade deficit would be a record $32 billion. To put this in context, U.S. agricultural exports have far exceeded imports in past years. It is only in recent years that U.S. agricultural trade became more balanced. FY2023 was the first year the U.S. experience a significant agricultural trade deficit ($16.7 billion), which is half the projected deficit for FY2024 (Kaufman et al., 2024). In a previous Southern Ag Today article we discussed how declining agricultural exports have contributed to the growing U.S. agricultural trade deficit. In this article we discuss the contribution of rising agricultural imports.

U.S. agricultural imports are very different from exports. U.S. agricultural exports are dominated by bulk commodities like soybeans, corn, cotton and wheat, and minimally processed products like tree nuts, beef, and pork. Even though value added products like dairy products and prepared foods are also among top U.S. agricultural exports, U.S. agricultural imports are overwhelmingly higher value consumer-oriented products. In 2023, for instance, the major U.S. imports included fresh fruits ($18 billion), other vegetable oils ($13 billion), fresh vegetables ($12 billion), distilled spirits ($11 billion), beef products ($9 billion), coffee ($9 billion), soup and other prepared food ($7 billion), wine ($7 billion), and beer ($7 billion). Other than beef and maybe prepared foods, imports of these products greatly exceed their exports. For instance, U.S. imports of beer, wine, and spirits were around $25 billion in 2023, whereas U.S. beer, wine, and spirit exports were less than $4 billion (USDA, 2024).

Figure 1 shows the unit values for U.S. agricultural imports and exports from 2010-2023. On a per-unit basis ($/MT), U.S. imports are significantly more expensive than exports. Since 2010, imports have been two to three times more expensive. In 2023, the import unit value was $2,543/MT versus $919/MT for exports. U.S. agricultural exports were almost 190 million MT in 2023, while imports were only 77 million MT. However, imports were valued at $196 billion, while exports were valued at $174 billion. When considering the period where the U.S. experienced significant price inflation (2020–2022), import prices increased at a much higher rate that export prices, which is to be expected given that imports are made up of higher value consumer goods. During this period, the quantity of imports continued to increase despite rising prices, but the quantity of exports declined. The main takeaways from this article are the following. 1) U.S. agricultural imports are very different than exports; 2) imports are significantly more expensive and more subject to inflationary pressures than exports; and 3) imports have persistently risen despite rising prices in recent years, which was not the case for U.S. agricultural exports.

Figure 1. Import and Export Prices: 2010 – 2023

For more information

Kaufman, James, Hui Jiang, Bart Kenner, Angelica Williams, and Adam Gerval. (2024). Outlook for U.S. Agricultural Trade: May 2024. Report AES-128. U.S. Department of Agriculture. https://www.ers.usda.gov/publications/pub-details/?pubid=109252

U.S. Department of Agriculture (USDA). 2024. Global Agricultural Trade System (GATS). Foreign Agricultural Service. https://apps.fas.usda.gov/gats/default.aspx

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Muhammad, Andrew, and Md Deluair Hossen. “Understanding the Growing U.S. Agricultural Trade Deficit (Part 2): What is Happening with Imports?” Southern Ag Today 4(30.4). July 25, 2024. Permalink

In a previous article title U.S. Fresh Fruit and Vegetable Supply we discussed the increasing importance of fruits and vegetables imports to U.S. demand. Several factors could explain this increase in dependance such as high labor costs and availability relative to other countries, mainly Latin American countries, high cost for technology to help increase labor efficiency (if equipment is even available for the specific crop), longer seasonality and climate more suited for specialty crops, trade agreements, increasing regulatory costs, and subsidies to infrastructure or production in other countries. Labor cost and availability is identified by the literature as the main challenge that the U.S. fruits and vegetable industry faces; therefore, the next couple of articles will focus on this issue.

The average number of hired farmworkers has steadily declined over the last 50 years, from roughly 2.33 million to just over 1 million (Figure 1).  Hired farmworkers make up less than 1 percent of all U.S. wage and salary workers, but they play an essential role in U.S. agriculture.  Labor expenses are a major concern for agricultural producers in general, but even more for fruits and vegetable producers.  Labor expenses for agricultural production accounts for around 10 percent of total operating expenses, however, labor expenses for fruits and vegetables are 38.5 percent and 28.8 percent, respectively.

According to the U.S. Department of Labor’s National Agricultural Workers Survey (NAWS) estimates from data spanning fiscal years 2018–20, just 30 percent of crop farm workers in manual labor occupations were U.S. born, therefore around 70 percent were foreign-born.  Imported labor, primarily from Mexico, seems to be the major source of farm labor for fruits and vegetable production in the U.S.  However, the decline of farm workers from Mexico has caused U.S. farm labor shortages.  The main reasons for the decline are the sharp decline in the Mexican fertility rate, a significant expansion in rural education, and an increase in per-capita income, which is now close to $20,000 per year (adjusted for the cost of living). The good news for U.S. farmers is that there is a great deal of persistence in farm work. If a rural Mexican does farm work for one year, there is more than a 90 percent likelihood that he or she will do farm work the following year. The bad news is that a transition away from farm work is underway. The supply of agricultural workers will not disappear immediately, but U.S. agriculture can expect to see a gradual decline in the availability of Mexican farm workers over time.

This decline in migration along with increasing the state minimum wage, and removal of overtime pay exemptions by some states appear to have increased U.S. farm labor costs.  The federal minimum hourly wage is $7.25 and has not increased since 2009, but some states set their minimum wage higher than the federal one. Also, the Raise the Wage Act of 2023, introduced in the U.S. House of Representatives and U.S. Senate on July 25, 2023, if approved would gradually raise the federal minimum wage to $ 17 an hour by 2028. Nevertheless, farm wages in the U.S. often exceed state minimum wages and are considerably higher than the Mexican minimum wage of $14 per day.

Figure 1. Family and Hired Farmworkers on U.S. Farms, 1950-2000

References

Economic Research Service (ERS). “Farm Labor.” Accessed February 2024. https://www.ers.usda.gov/topics/farm-economy/farm-labor/. Updated August 7, 2023.

Foreign Agricultural Service (FAS). Global Agricultural Trade System (GATS). Online database. https://apps.fas.usda.gov/gats/default.aspx. Online public database accessed February 2024.

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Ribera, Luis, and Landyn Young. “Challenges for U.S. Fruits and Vegetables.” Southern Ag Today 4(28.4). July 11, 2024. Permalink