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U.S. Trade Policy and its Impact on the Agricultural Sector Ian - - PowerPoint PPT Presentation

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U.S. Trade Policy and its Impact on the Agricultural Sector Ian Sheldon Department of Agricultural, Environmental, and Development Economics Portage SWCD, Ravenna, OH, September 13, 2018 What is Driving U.S. Trade Policy? Members of

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U.S. Trade Policy and its Impact on the Agricultural Sector

Ian Sheldon Department of Agricultural, Environmental, and Development Economics Portage SWCD, Ravenna, OH, September 13, 2018

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What is Driving U.S. Trade Policy?

  • Members of Administration have expressed view

international trade is a zero-sum game

  • Form of 21st Century mercantilism - i.e., imports

are bad and exports are good

  • Implies no net benefits from open trading system
  • U.S. trade deficit seen as evidence that U.S. is

losing and other countries must be winning

  • View that reducing U.S. trade deficit will promote

economic growth

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Key Trade Policy Actions

  • Trans-Pacific Partnership (TPP) not ratified
  • Renegotiation of NAFTA
  • Implementation of tariffs on steel and aluminum

imports on grounds of national security

  • Allies (Canada/EU/Mexico) not given exemptions
  • n steel and aluminum tariffs – retaliation
  • Steady escalation of trade war with China
  • Suggestion U.S. could leave WTO
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Agriculture Caught in Crossfire……..

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U.S. Corn vs. Soybean Use

47% 50% 3%

Percentages of U.S. Soybean Use

Biodiesel, Food, and Feed Exports Seed and Residual

Data: World Outlook Board

37% 10% 38% 15%

Percentages of U.S. Corn Use

Feed and Residual Food, Seed, and Industry Ethanol Exports

Data: World Outlook Board

Top Five Markets for U.S. Corn

  • 1. Mexico
  • 2. Japan
  • 3. Colombia
  • 4. South Korea
  • 5. Peru

Top Five Markets for U.S. Soybeans

  • 1. China
  • 2. Mexico
  • 3. Japan
  • 4. Indonesia
  • 5. Netherlands
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Chinese Soybean Consumption and Imports

36.8 45.3 10 20 30 40 50 60 70 80 90 100 Million Metric Tons

Chinese Soybean Imports

United States Brazil Argentina Others

Data: World Trade Atlas

  • 20

40 60 80 100 120 140 Million Metric ton Marketing Year

Chinese Consumption of Soybeans

 Chinese Consumption of Soybeans continues to increase  Mostly for feedstock to pork production  Some for soybean oil  Since 2012, Brazil has been the second largest supplier of soybeans to China  Partially due to the drought of 2012

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How dependent are we?- Soybeans

18% 14% 13% 54%

U.S. Soybean Export Portfolio: Average Annual Percentages 1998-2002

China Mexico Japan ROW 39% 13% 11% 38%

U.S. Soybean Export Portfolio: Average Annual Percentages 2003-2007

China Mexico Japan ROW 59% 8% 5% 27%

U.S. Soybean Export Portfolio: Average Annual Percentages 2008-2012

China Mexico Japan ROW 61% 7% 4% 29%

U.S. Soybean Export Portfolio: Average Annual Percentages 2013-2017

China Mexico Japan ROW

Data Source: USDA-FAS; author calculation

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Total Agricultural Trade- Ohio

$- $500 $1,000 $1,500 Value in Million U.S. Dollars

Ohio Agricultural Exports by Destination Country

Brazil Canada China Japan Mexico European Union

Data: U.S. Census Bureau

 Canada Remains

  • ur largest

consumer  China becomes

  • ur second

largest  NAFTA makes up 49% of Ohio’s agricultural trade

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Ohio Agricultural Trade to Just China

$0 $200,000 $400,000 $600,000 $800,000 $1,000,000 $1,200,000 $1,400,000 $0 $500 $1,000 $1,500 $2,000 $2,500 $3,000 $3,500 $4,000 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 1,000 (USD) Soybeans) 1,000 (USD) Corn & Pork

Ohio Agricultural Exports to China

Corn Pork Soybeans

Data: U.S. Census Bureau

 Soybeans are the predominant agricultural export to China  High corn processing and trade with Mexico limit quantity available for trade to China  Mexico also consumes most of

  • ur pork
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Can World Soybeans just be Reallocated?

 China accounts for 63% of world soybean trade  Mathematically if China sources all their soybeans from Non-U.S. suppliers and U.S. backfills, there would be little world trade change  In the short-run this is almost impossible and local prices in Brazil, China and U.S. will adjust 2017/18 Trade (Million Metric Tons) China’s Soybean Imports 96 All Other Countries Imports 57 U.S. Soybean Exports 57 Non-U.S. Soybean Exports 95 Brazil Exports 75 Other Soy Exporters 20 Data Source: WASDE August Update

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Change in Chinese Producer/ Consumer Behavior

Chinese Soybean Behavior

(Million Metric Tons)

2017/18 2018/19 % Δ Production 14.2 14.5 2% Imports 96.0 95.0

  • 1%

Ending Stocks 23.5 20.78

  • 12%

Data Source: WASDE August Update  While the production and import changes from 2017 are small, what is the potential in future years?  All else equal, we can expect U.S. crush to increase and Chinese crush to decrease  Will China change their production policies?

 Away from subsidies for corn and wheat to soybean production

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U.S. Weekly Soybean Exports

500,000 1,000,000 1,500,000 2,000,000 2,500,000 3,000,000 3,500,000 Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Metric Tons/ Week

Weekly Soybean Exports

2013/14 2014/15 2015/16 2016/17 2017/18

 USDA increased their 2017/18 export number 25 mil. bu. in August to 2,110 mil. bu.  Need to average 26.5 mil bu./ week  Last few weeks: 20.3 mil bu.  Outstanding sales for 2018/19 down 30% from this point last year

Data Source: USDA-FAS

Emerging Markets- Volume (Percentage Change from 2016/17)

Egypt: +1.6 million metric tons (213%) Pakistan: +877,395 metric tons (148%) Mexico: +430,986 metric tons (12%) Netherlands: +505,878 metric tons (26%)

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Price and Supply Shocks from Tariffs

Source: GTAP- Purdue University

Price Changes: Soybeans Decrease of 3.8% and 4.9% Corn Decrease of 1.1% and 1.6%

Table 1. Changes in Bilateral Trade of Soybeans Due to 25% Chinese Tariff on U.S. Soybeans (%) Importers Exporters European Union China Rest of the World Global Case 1: Standard GTAP trade elasticities United States 13.2

  • 47.7

15.3

  • 24.1

Brazil

  • 16.9

18

  • 13.1

14.7 Rest of South America

  • 14

22.4

  • 9.9

15.8 Global 7.5

  • 5.3

4.7

  • 2.5

Exporters European Union China Rest of the World Global Case 2: Elevated trade elasticities for soybeans United States 38.6

  • 90.6

64.1

  • 34.2

Brazil

  • 80

36.1

  • 73.3

24.8 Rest of South America

  • 76.6

62.3

  • 64.2

36.6 Global 15.3

  • 5.3

13.4

  • 0.2
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$10.19 $8.50 $8.00 $8.50 $9.00 $9.50 $10.00 $10.50 $11.00 $11.50 $12.00 $12.50 $13.00 04/01/2016 09/28/2016 03/30/2017 09/28/2017 04/04/2018 USD/bushel

Soybean Export Spot Prices

Paranagua (BR) Price U.S. Golf Price Data Source: Cepea and USDA-Agricultural Marketing Service

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Impact on Agriculture

  • Farmers facing increased uncertainty
  • Potential for significant reduction in farm incomes
  • Potential for lost market share
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U.S. announces aluminum and steel import tariffs

Corn and Soybean Prices: Trade Timeline

U.S. Announces Import Tariffs of $50 B Chinese Goods China Implements Tariffs on $38 B (including pork) China Proposes Tariffs on Additional $50 B U.S. Products U.S. Implements Steel and Aluminum Tariffs on Allies Mexico Implements Tariffs on U.S. goods U.S. and China add Tariffs on $50 B each $7.00 $7.50 $8.00 $8.50 $9.00 $9.50 $10.00 $10.50 $11.00 $3.00 $3.20 $3.40 $3.60 $3.80 $4.00 $4.20 3/1/2018 4/1/2018 5/1/2018 6/1/2018 7/1/2018 8/1/2018

Soybean Price ($/Bushel) Corn Price ($/Bushel)

Corn Soybean Mexican Tariffs go into effect U.S. and China add Tariffs on $34 B each U.S. announces tariffs of additional $200 B U.S. announces $12 aid package

Source: USDA- Agricultural Marketing Service Daily Prices for Cincinnati, Ohio through September 5, 2018

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Representative Ohio Grain Farm

 1,100 acre farm (550 corn and 550 soybeans)  Trend yields of 154 bu./acre corn and 49 bu./acre soybeans  30% of land is owned (cash rent payment of 183/acre)  40% debt on all capital Marketing Year 2018 2019 2020 2021 2022 2023 2024 Baseline Corn $3.65 $3.82 $3.81 $3.80 $3.76 $3.70 $3.68 Soybeans $9.38 $9.75 $9.81 $9.75 $9.63 $9.51 $9.53 Chinese Tariff- Low Elasticity Corn $3.61 $3.68 $3.67 $3.66 $3.62 $3.58 $3.56 Soybean $9.03 $9.17 $9.23 $9.17 $9.05 $8.93 $8.95 Chinese Tariff- High Elasticity Corn $3.59 $3.70 $3.69 $3.68 $3.64 $3.60 $3.58 Soybean $8.92 $9.05 $9.11 $9.05 $8.93 $8.81 $8.83

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Impact Analysis- Ohio Representative Farms

  • The idea is to have representative farms of different sizes and operational design

throughout the state to do Impact Analysis Estimated Net Income per Year 2018 2019 2020 2021 2022 2023 2024 Average Baseline $56,810 $63,423 $68,241 $69,236 $65,483 $59,728 $62,115 $63,577 Chinese Tariff - Low Elasticity $42,711 $32,751 $37,286 $37,998 $33,998 $29,779 $31,902 $35,199 Chinese Tariff- Average $39,963 $22,841 $27,281 $27,897 $23,766 $19,486 $21,513 $26,107 Chinese Tariff- High elasticity $37,216 $12,931 $17,275 $17,796 $13,569 $9,194 $11,125 $17,015

Reduction in 59% of farm income over projection period

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Trade Relief Program

Administration has announced USDA will implement 3 programs totaling no more than $12 billion to offset impact of tariffs:

1. Market Facilitation Program- $4.7 billion  FSA will make payments to producers of soybeans, sorghum, corn, wheat, cotton, dairy and hogs  Payments will be based on actual 2018 production, but only 50% at first  Payment limits: less than $900,000 Adjusted Gross Income and a total payment

  • f $125,000/ active farmer or legal entity.

2. Food Purchase and Distribution Program- $1.2 billion  Agricultural Marketing Service will purchase surplus commodities, such as: beef, blueberries, dairy, grapes, pork and others for distribution through The Emergency Food Assistance Program (TEFAP) and child nutrition programs 3. Agricultural Trade Promotion Program- $0.2 billion  Foreign Agricultural Service will administer program “with the private sector to assist in developing new export markets”  “The ATP is meant to help all sectors of U.S. agriculture, including fish and forest participants in early 2019”

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Dominance of Soybeans in U.S. Exports

0.2 0.4 0.6 0.8 1 1.2 Herfindahl- Hirschman Index

U.S. Commodities (Volume-Based) Annual Herfindahl-Hirschman Index

Soybeans Corn Pork

Data: USDA- FSA; Calculated by Author

 The U.S. soybean market has become more demand concentrated than corn and pork  Did market concentration expose the U.S. soybean industry?  We can assume that the trade war will diversify U.S. soybean exports

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Case Study of Market Share- Beef

Source: Author Calculation using UN COMTRADE Data, but FarmDoc at Illinois presented the idea first

200 400 600 800 1000 1200 1400 Value in US Dollars (Millions)

Japanese Beef Imports

Austrialia U.S. Total

 More than 300 countries banned U.S. beef on scare

  • f BSE, including

Japan, in 2003  U.S. Beef market share in Japan dropped to 0, and 14 years later has gained mostly from total import increases  Market share is hard to regain once lost unless variables change

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Questions/Contact Details

  • Email: sheldon.1@osu.edu
  • Webpage: https://aede.osu.edu/research/andersons-program