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There is renewed hope this week that the United States and Japan are making good progress toward a trade agreement that we hope will ensure U.S. wheat can continue competing with Canadian and Australian wheat based on quality, variety and value. Currently, under the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), Japan’s effective tariffs on Canadian and Australian wheat imports are discounted and will continue being discounted to the tariff on U.S. wheat imports. U.S. Wheat Associates (USW) has every confidence that our agricultural trade negotiators working with Japan fully understand the need to mitigate the risk to U.S. wheat farmers in an agreement. We thank them for their efforts.

As the talks move forward, USW thinks it is important to review the indelible link between the Japanese people and U.S. wheat producers. It began when the Oregon Wheat Growers League (OWGL) organized a trade delegation to investigate opportunities for expanding U.S. wheat sales to Japan in 1949. In 1956, with a vision to the future, OWGL opened an office in Tokyo to share information the wholesome goodness of wheat foods. The success of this endeavor helped encourage wheat farmer organizations in the state of Washington and Oregon to join OWGL in forming Western Wheat Associates (WWA), which merged with Great Plains Wheat in 1980 to become USW.

In the early years, USW’s legacy organization focused on acquainting the Japanese people with the nutritional value of wheat foods. Perhaps the most famous were “Kitchens on Wheels” traveling through rural Japan to promote wheat foods to Japanese consumers, conducted jointly by OWGL and the Japan Nutrition Association with financial assistance from USDA’s Foreign Agricultural Service (FAS), which has remained an essential partner with USW and our Japanese customers. Eventually, management of these programs transitioned to eight key prefectures. Another early program involved the introduction of bread to school lunch programs.

Kitchen buses helped introduce the Japanese people to the nutritional value of wheat foods. This project started in 1956 was the first of many successful wheat promotion programs sponsored by U.S. wheat farmers in close cooperation with the Japanese government, millers, bakers and the grain trade over the last 60 years.

 

Starting with bread donations, the U.S. wheat industry continued to help introduce bread to school lunch programs allowing Japanese children to enjoy the taste and nutrition of a new type of food.

As market conditions changed, the wheat industry’s Tokyo office contracted with the Japan Institute of Baking to conduct functional and quality testing offering proof that flour products milled from U.S. hard red spring and hard red winter wheat classes could compete with Canadian spring wheat. Those early efforts continued to expand and change as Japan’s milling and baking industries advanced in sophistication and automation to set global standards of cleanliness, uniformity and variety of products for consumers.

Working to Increase Confidence. For example, Japanese flour mills and their customers demand very high standards of cleanliness and uniformity in addition to the variety of wheat classes to make the wide range of flour products for hundreds of different wheat food products — and U.S. wheat producers consistently meet those standards. Recognizing that our customers in Japan needed the confidence they could contract for and receive wheat of the highest quality, USW took action. Managers worked closely with the Ministry of Agriculture, Fisheries, and Forestry (MAFF), Japan’s grain trade and flour millers to refine specifications in tenders for U.S. wheat. At the same time, USW and its state wheat commission members worked with the U.S. grain trade to respond to these specifications. Partly as a result, Pacific Northwest export elevators changed their processes to improve segregation and installed cleaners. That commitment to reliability and customer service combined with the high quality and end-use performance is why Japanese flour mills prefer and choose to source 50 percent of their annual needs – almost 3 million metric tons per year on average – of wheat from the United States.

In 2016, U.S. wheat farmers and U.S. Wheat Associates traveled to Tokyo to celebrate the founding of a U.S. wheat export office in Japan in 1956. Here is that delegation at the offices of the Japan Flour Millers Association. Bringing Japanese millers and U.S. wheat farmers together builds a closer working relationship. The result is greater trust and a big reason why Japanese millers keep producing flour from U.S. wheat.

Over the years, a strong trust had grown between U.S. wheat farmers, state wheat commissions, USW, MAFF, millers and bakers, as well as the Japanese grain trade and their quality assurance partners. USW and the farmers we represent take this opportunity to renew our commitment to producing the highest quality, highest value wheat for our customers in Japan and around the world.

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Headlines on the trade front this week have direct bearing on the U.S. wheat industry’s desire to reaffirm our trade relationship with long-standing customers in Japan and Mexico, and to renew our relationship with customers in China. For now, at least, the news is positive.

U.S. Trade Representative (USTR) Ambassador Robert Lighthizer this week told members of Congress that the Trump Administration hopes to “wrap up” an agricultural trade agreement with Japan “later this year.” That is good news for flour millers in Japan, who do not want to continue paying incremental effective tariffs for U.S. soft white (SW), hard red spring (HRS) and hard red winter (HRW) relative to Canadian and Australian wheat under the new TPP-11 agreement. Repairing this potential breach with Japan is essential for wheat farmers who, with their partnership with the USDA Foreign Agricultural Service have invested countless resources for more than 60 years to serve the demanding Japanese flour and wheat foods industries.

Amb. Lighthizer also reached out to members of Congress who have expressed concerns about the new U.S. Mexico Canada Agreement on Trade (USMCA). In a description of his remarks, Agri-Pulse reported that the USTR “bent over backwards to assure Democrats on the Senate Finance Committee that he was hearing and addressing their concerns, both about enforcing labor rules in Mexico and about whether the trade pact would hamstring efforts to lower pharmaceutical prices.” At the U.S. Wheat Associates (USW) 2019 Mexico Wheat Trade Conference early this month, our colleagues and our customers in Mexico identified that supporting the USMCA will be our shared focus. They took another big step today with news that Mexico’s Senate on Wednesday passed the USMCA, making it the first country to ratify the new trade pact. Mexico’s imports are the foundation of farm family incomes throughout the southern and central U.S. Plains. Losing it because of trade policies beyond their control is unthinkable.

On June 18, President Trump raised expectations for some positive trade outcome from his planned meeting with Chinese President Xi Jinping at the upcoming G-20 summit. He said he had a “long talk” with Pres. Xi and, according to news reports, said “China very much wants to discuss the future and so do we.” In this case, “we” definitely includes U.S. wheat farmers who have been all but shut out of exporting wheat to China following the imposition of retaliatory tariffs in March 2018. Before then, Chinese flour millers and their baking customers were demanding more high-quality U.S. wheat to blend with domestic wheat. Now, China has replaced our wheat with competing supplies of Canadian spring wheat.

As Amb. Lighthizer said during his congressional testimony on negotiations with Japan, “I think we are making headway and we’re in a situation where we if we don’t make headway quickly, people will lose market share and never get those customers back.”

USW continues to support the need to enforce commitments made in multi- and bilateral trade agreements and, given this week’s upbeat news, look forward to a speedy resolution of these challenging situations.

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By Ben Conner, USW Vice President of Policy

The United States and Japan kicked off negotiations this week on a potential trade agreement between these two Pacific Rim economic giants. While the path forward for these negotiations is not yet clear, the pace is likely to speed up with a schedule of additional meetings between these traditional trading partners.

With the knowledge that U.S. farmers and their Japanese customers face significant challenges in the coming years, we were glad to see agriculture mentioned prominently in the U.S. Trade Representative (USTR) statement about the meetings.

USTR also reported that it raised the “very large trade deficit” with Japan as a primary area of concern. For U.S. agriculture, the concern is that the U.S. trade deficit with Japan seems poised to increase due to the disadvantage of being outside the Trans-Pacific Partnership (all other economic factors such as Japan’s significantly higher savings rate being equal). This month, in fact, Japan lowered its trade barriers further to imported agricultural products from many of the world’s major suppliers, but not the United States. Consequently, U.S. products, including wheat, are more expensive for Japanese importers.

U.S. Secretary of Agriculture Sonny Perdue has noted that there are two ways for other countries to shrink their deficit with the United States: buying more or selling less. His priority for overseas customers to buy more U.S. agriculture products. Here at U.S. Wheat Associates (USW), we strongly support that, but right now, in Japan, it is U.S. agriculture that is selling less.

The Trump Administration has described several trade policy problems facing U.S. industry. USW agrees with many and questions some, but we have strong hopes for an improved global trading system following the disruption that many see as necessary to rebalance trade relationships.

The Administration clearly has not forgotten U.S. agriculture, as the USTR statement proves. Concluding an agreement with Japan to offset the effects of withdrawing from TPP would be a crucial and welcome step toward demonstrating to U.S. farmers that their interests still matter.

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In much of the Western World, on April 1 people go sometimes to great lengths to create mostly harmless “April Fools’ Day” hoaxes. There are many theories about how this odd “celebration” came to be, including an association with the first day of spring in the Northern Hemisphere, when Mother Nature fooled people with changing, unpredictable weather.

On this April Fools’ Day, however, it is no hoax that today the effective tariff applied to U.S. wheat imported by Japan is nearly $20 per metric ton (or 50 cents per bushel) more than the tariff applied Canadian and Australian wheat. That is because the United States is not a member of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership or CPTPP. In fact, the effective internal tariff on wheat from those CPTPP member countries will drop again on April 1 in 2020 and drop again every April 1 until 2026.

There is no hard evidence that U.S. wheat sales to Japan have gone down because of this harmful situation. Eventually, however, this reduction will be about $70 per metric ton, or 45 percent below the current effective tariff applied to U.S. wheat. Japan has no obligation to change this tariff reduction schedule so that difference will likely shut a major portion of U.S. wheat exports out of the Japanese market and undo decades of market development work.

“We have spent countless hours and millions of hard-earned farmer dollars building demand for U.S. wheat in this market,” said U.S. Wheat Associates (USW) President Vince Peterson last December in testimony to the Office of the U.S. Trade Representative about trade negotiations with Japan.

He continued by saying that achieving a satisfactory outcome in negotiations between the United States and Japan matters a great deal to U.S. wheat farmers who have long ties with Japan.

“That legacy is on the verge of disappearing due to CPTPP,” Peterson said.

USW and U.S. farmers have urged the Trump Administration to act quickly to prevent such losses. Hopefully that will happen long before the next April Fools’ Day.

 

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By Ben Conner, USW Vice President of Policy

On February 19, 2019, the World Trade Organization (WTO) released the final report of the panel in the U.S. case alleging that China has not complied with its domestic support commitments on wheat and rice. While the panel disagreed with a few arguments, it agreed with the accusation that China was far out of compliance due to the operation of the market price support (MPS) program for certain commodities.

U.S. Wheat Associates (USW) believes it is important for its overseas customers and the farmers it represents to better understand why the United States brought this case to the WTO and how the panel reached its conclusion.

Most countries with sizable agriculture sectors provide some domestic support (subsidies or safety net programs) for farmers. The countries that negotiated the WTO Agreement on Agriculture (AoA) established disciplines for domestic support because they had experienced the price suppressing effects of foreign or, in some cases, domestic agricultural subsidies. The WTO members agreed to set limits on the types of support that could impact farmer’s production decisions and, thus, distort trade. A government subsidy that incentivizes the farmer to plant more wheat than barley is one example. On a large enough scale (such as across a country), that additional production can significantly suppress wheat prices for other wheat farmers who are not eligible for these subsidies.

Developed countries like the United States, Japan, and European states provided most agricultural subsidies at the time the AoA was negotiated. Over time, these countries either reformed their programs or have stayed within their limits. However, within the past decade, trade distorting domestic support has shifted significantly to developing countries, with China and India leading the way. Those countries are, in many cases, far out of compliance with their WTO commitments.

The U.S. government recognized that if any countries are allowed to flout WTO rules consistently, the incentive for others to follow the rules collapses. It also kills the potential for productive negotiations, since negotiating partners must be convinced that others will uphold their end of the bargain. Therefore, in 2016, the U.S. launched this case against China both to address the particular concerns in China and to demonstrate that the rules apply to all countries (Australia, Brazil, and Guatemala recently launched similar cases against India over its support for sugar production).

In the China domestic support case, the U.S. legal team chose to focus specifically on a measure called market price support (MPS) to demonstrate that China had breached its commitment on aggregate measurement of support (AMS). MPS sets a commodity’s floor price at which a farmer can sell to a government buyer instead of to a private buyer. This keeps internal prices artificially high and signals farmers to produce more of the supported commodity.

The AoA has a specific formula to calculate how MPS contributes to AMS: the quantity of eligible production multiplied by the difference between the annual support price and a fixed reference price established in the AoA. This was a legal case, so there were arguments about everything, but the most important question was what constitutes eligible production.

China’s argument was that eligible production is only the amount procured by the government. But the panel agreed with the United States, saying eligible production is the “amount of product which qualifies to be purchased from producers,” not the amount that is, in fact, purchased. The only limitations in Chinese rules were that the price supports only applied in six provinces (covering approximately 80 percent of production) and to wheat that met basic quality standards (99 percent of production in those provinces). In 2015, this was 103 MMT out of the 130 MMT produced. In its notification to the WTO for that year, China claimed only 21 MMT. Under that notification, China claimed it was complying; under the panel’s methodology, this quantity put China far out of compliance.

The 2015 support price was 2360 renminbi (RMB) per metric ton (MT) and the panel confirmed that the fixed reference price was 1698 RMB/MT. The difference between the two times the 103 MMT of eligible production equals 68 billion RMB, or 22.4 percent of the value of production. Since China’s WTO limit is 8.5 percent, China’s AMS for wheat in 2015 was nearly triple its allowed limit. This AMS figure only accounts for MPS – the panel did not review a suite of other subsidies available to Chinese wheat farmers that would likely increase the size of China’s AMS violation. The panel made a similar finding for rice and did not make calculations for corn due to technical reasons.

The United States and other countries have been arguing for years that China has a responsibility to bring its programs into compliance so that its farm production decisions are no longer based on artificial price signals or other incentives that violate China’s WTO commitments.

Now they – and thousands of wheat farmers outside China – have a WTO panel decision to back them up.

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By Ben Conner, USW Vice President of Policy

If there is anything we learned from 2018, it is that the trade policy landscape is unpredictable. While many upcoming or ongoing issues are known, there are a range of possible outcomes within each, some of which could drastically alter the trade landscape in the future.

Let us start with China. This week, U.S. and Chinese negotiators met in Beijing to work toward resolving the current trade dispute, which has seen tariffs slapped on over $300 billion in trade. According to the U.S. Trade Representative, there is a hard deadline of Mar. 1 to reach a deal that will at least prevent further imposition of tariffs. U.S. wheat farmers have been shut out of China since March 2018, leaving their Chinese customers scrambling for other sources. The next couple months could reveal if trade will resume this year, or if the conflict will continue.

The United States has also initiated formal processes for trade negotiations with Japan, the European Union, and the United Kingdom (U.S. Wheat Associates will submit comments on the UK negotiations next week). However, there are still a number of unknowns, such as the scope and length of negotiations with Japan, the inclusion of agriculture in negotiations with the EU and the nature of the UK’s post-Brexit relationship with the EU.

The new U.S.-Mexico-Canada Agreement (USMCA) will likely be submitted to Congress this year to replace the North American Free Trade Agreement (NAFTA), but shifting political dynamics in the United States complicate Congressional approval and implementation of the agreement.

There is the threat of new tariffs on automobiles under Section 232 authority, potentially covering hundreds of billions in trade. While this is mitigated somewhat due to side letters negotiated alongside USMCA and the promise to avoid imposing tariffs on Japan and the EU while negotiations are ongoing, declaring automobile imports to be a national security threat has the potential to enrage U.S. trading partners and lead to new retaliatory measures.

Finally, there is the possibility that the World Trade Organization (WTO) Appellate Body will cease to function by December 2019. This is the culmination of over a decade of complaints by the United States about the way the Appellate Body functions. It is important for other countries to engage the United States to find a solution, because if a solution is not reached, it will mean the effective end of the WTO’s dispute settlement function and the ability of countries to enforce trade commitments.

In other words, based on the uncertainty these trade issues represent, we cannot expect 2019 to be less exciting than 2018.

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Following is a transcript of oral testimony by U.S. Wheat Associates President Vince Peterson at a public hearing held Dec. 10, 2018, by the U.S. Trade Representative (USTR) on potential trade negotiations with Japan.

“Thank you for the opportunity to speak on behalf of U.S. wheat farmers about trade negotiations with Japan.“Our mission is to develop, maintain, and expand international markets for U.S. wheat farmers, and one of our most critical markets is Japan.

“Given its demographic and consumption trends, Japan is generally a market where we seek to maintain our strong 53 percent market share, but today we face an imminent collapse. Frankly, this is because of provisions negotiated by [a previous administration] for our benefit under the Trans-Pacific Partnership. Our competitors in Australia and Canada will now benefit from those provisions, as U.S. farmers watch helplessly.

“Over the immediate past 5 years, Japan is our largest, most reliable and valuable market. The importer is Japan’s Ministry of Agriculture, Forestry, and Fisheries or MAFF. MAFF is the only entity that can import duty-free; all others must pay a prohibitive tariff. After MAFF imports, it resells wheat to flour millers with a significant mark-up; currently in excess of $150 per ton. This is the equivalent of a 60 to 70 percent ad valorem tariff at today’s prices.

“While we certainly wouldn’t hold up this system as an example, it has historically worked for us in Japan. Wheat is higher priced than elsewhere, but MAFF still imports enormous quantities of high quality American wheat. Since the wheat market in Japan is relatively stable, there tends to be little variation in quantity of imports from the US, Canada, and Australia, the three principal suppliers.

“This will start changing in 2019 as the CPTPP (Comprehensive and Progressive Trans-Pacific Partnership) takes effect.

“There will be an immediate seven percent drop in the mark-up for Canadian and Australian wheat. By April it will have gone down by 12 percent. In very real terms, as of April 1, 2019, U.S. wheat will face a 40 cent per bushel, or $14 per metric ton, resale price disadvantage to Australia and Canada.

“After 9 years the U.S. will face an automatic premium of 70 dollars per ton. But by that, time most of the market will be long gone.

“Japanese food processors are looking at ways to reduce their exposure to U.S. wheat right now. They will reformulate products to adapt to wheat from different origins because they will have to. If they don’t, their competitors will.

“We are relieved that this Administration is prioritizing negotiations with Japan. We urgently need a solution that will fix the enormous vulnerability created by CPTPP.

“There are other improvements that can be made, such as ‘WTO Plus” sanitary and phytosanitary rules, but for us, nothing is more important than fixing the mark-up disparity.

“American farmers have been travelling to Japan promoting U.S. wheat since shortly after World War Two. We have had an office in Tokyo for over six decades. We have spent countless hours and millions of farmers’ hard-earned dollars building this market.

“During that time the Japanese milling industry has become an indispensable partner for U.S. wheat, particularly for farmers whose wheat is exported out of the Pacific Northwest. All of that is at risk without a quick U.S.-Japan agreement.

“U.S. wheat farmers and Japan’s flour milling industry hope that we can maintain provisional equivalence for U.S. wheat imports while our two countries conduct ongoing, good faith negotiations.

“We thank you for understanding the plight of these farmers, who are already facing severe trade disruptions in other markets. As you are well aware, the United States has not sold one kernel of wheat to China, our fifth largest export market, since March 1, 2018.

“We urge you to act quickly to save our market in Japan. Thank you.”

For more information about what is at stake for U.S. wheat farmers under the CPTPP agreement, visit the USW website at https://www.uswheat.org/policy/trade-negotiations/ and click on “Trans-Pacific Partnership (TPP).” Use this link to access USW’s written submission to the USTR on trade negotiations with Japan.

Vince Peterson, President, U.S. Wheat Associates

 

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By Ben Conner, USW Vice President of Policy

U.S. trade policy has been going through a wild ride recently. The current U.S. administration believes that the existing trade architecture is outdated or constricting, and new forms of leverage are needed to achieve its goals. Meanwhile, they have correctly pointed out that some countries seem to interpret trade commitments as rules to ignore until caught, and then to be circumvented. In the words of President Trump, “they have been taking advantage of us.”

In our view, this perspective has a ring of truth but understates the major benefits of international trade institutions to the United States and may have long-term costs. However, using the space such leverage creates has certainly produced results in trade talks, including an updated U.S.-Korea agreement, a completed North American Free Trade Agreement (NAFTA) renegotiation, renewed efforts to address longstanding U.S. complaints at the World Trade Organization (WTO) and agreements to begin negotiations with Japan and the European Union.

This situation has even allowed U.S. Wheat Associates (USW) to make progress on some longstanding issues, so we certainly appreciate the effort to use the tools available in ways that can help U.S. wheat farmers and their customers.

Overall, these tactics have shifted the U.S. role from a bulwark of the global trading system to a major disruptor. The Trump Administration is making a case that the rules-based system has been inadequate in disciplining policies of countries like China that have pursued state-led economic growth at the expense of once-vibrant industries in the United States and elsewhere. Regardless of one’s views on the approach, this case does deserve consideration and new rules will likely be needed to keep the rules-based system relevant.

Of course, we do not know fully what the cost of these tactics will be. The most obvious cost to U.S. wheat farmers is being shut out of the growing Chinese wheat market, uncertainty during the NAFTA negotiations and vulnerability created by the withdrawal from the Trans-Pacific Partnership (TPP). The imposition or threat of unilateral tariff barriers is particularly worrisome and has damaged crucial trade relationships.

USW will continue to question certain approaches that we believe could disrupt the hard-won, mutually beneficial trade between the wheat farmers we represent and their overseas customers. But we will also strongly support the Administration when its approach can help strengthen the international trading system and make trade freer. If that is the ultimate outcome perhaps the ride will have been worth it.

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Overall, U.S. wheat farmers are certain they produce some of the highest quality milling wheat in the world and want to compete on that basis freely and fairly. That desire is being challenged in unique ways right now by trade policies and global reactions that have never been a part of the world wheat market. To express the challenges of these policies on farmers and the rural community, the National Association of Wheat Growers (NAWG) this week arranged for one of their members to testify before the U.S. House of Representatives Ways and Means Committee’s Trade Subcommittee. We want to share that testimony here:

Mr. Chairman and Members of the Committee. My name is Michelle Erickson-Jones and I am the Co-Owner of Gooseneck Land and Cattle from Broadview, Montana. I also currently serve as the President of the Montana Grain Growers Association, am on the Board of Directors of the National Association of Wheat Growers and a member of Farmers for Free Trade. As a fourth generation farmer, it is my honor to testify today on the impacts of tariffs on my farm, my industry and most importantly my community that depends on trade for its livelihood.

American agriculture is a tremendous global marketing success story. We export 50 percent of our wheat and soybeans, 70 percent of fruit nuts, and more than 25 percent of our pork. We are also the top exporter of corn in the world. Exports account for 20 percent of all U.S. farm revenue and we rely on strong commercial relationships in key markets including Canada, Mexico, Japan, the European Union and, of course, China – the second largest market for U.S. agriculture, accounting for nearly $19 billion in exports in 2017. U.S. agriculture exports also support over 1,000,000 American jobs. As such, trade is critically important to the U.S. economy and our rural communities.

Rep. Dave Reichert (R-WA) and Michelle Erickson-Jones.

Farmers across the country depend heavily on the ability to sell our commodities to foreign consumers. We are painfully aware of the prevalence of unfair trading practices used by some countries and we support the Administration’s interest in finding solutions to tariff and non-tariff barriers that impede fair trade. But what I’d like to share with you today are some examples of the impact of tariffs imposed by our own Administration and by the retaliatory tariffs levied by our trading partners. These impacts are felt by farmers such as myself throughout our supply chain, from higher input costs to reduced exports and lower market prices.

In May, I testified at Section 301 hearing at the International Trade Commission. As I said then and believe more strongly than ever now, “while many rural American families are optimistic about economic growth under the current Administration, there is mounting concern among farmers about trade policies that would reduce access to the export markets they depend on.”

There have been very few issues in my career as a farmer that have caused me to lose sleep. But these tariffs are one of them. I’d like to share some of the effects that have directly impacted my farm and family.

The first wave started at the time the Administration imposed tariffs on steel and aluminum. For me and farmers across the country that translates into increased costs of capital investments. For example, earlier this year we priced a new 25,000-bushel grain bin to increase grain storage capacity on our farm. The price was 12 percent higher than an identical bin we had built in 2017.

As we weighed our options, the bid on bin #2 expired, so we sought a second bid. This bid was 8 percent higher than the one we received just a few weeks prior – a 20 percent increase total in the cost of the same steel product in just one year.

The bin company attributed the difference in the final bin cost to a significant increase in their cost of steel. I learned that their domestically sourced steel suppliers had increased their prices to match the price of imported steel which was subject to an additional 25 percent duty when imported. As a result of this dramatic cost increase and volatility in the market, we abandoned our grain storage expansion project. The implications of that decision not only harmed my operation, it also hurt my community: a small local construction company lost a project, a U.S. grain bin company missed a sale, and a domestic steel company had one less shipment to send out of their factory.

Another unexpected outcome is something we are living through right now. Back in January, we built cattle guards for several capital improvement projects we had planned for later in the fall. A neighbor saw the finished product and asked to buy several from us. We agreed because we thought we would be able to utilize the profits for other investments. Last week I priced the steel needed to replace the cattle guards I had sold. To my shock, the price of steel had increased 38 percent – evaporating our profits. To make matters worse, now we will no longer break even on the project.

These scenarios are playing out across the nation, particularly the states that depend on agriculture. These states depend on healthy agricultural commerce for a robust economy. As our profits evaporate and our ability to spend on rural main street businesses or take weekends away decreases, our other top economies, including tourism and manufacturing, are negatively impacted as well.

While one singular example is a small sum of money in the big picture, adding up those small singular examples shows the real and substantial increase to agriculture and rural main street.

There are countless examples in Montana, where last summer, large portions of my state were on fire. Just imagine the cost or replacing fencing or other equipment with prices increasing by double digits – at a time of record low prices for agriculture commodities. The impacts on our input costs coupled with increased market volatility and lower farmgate prices have further reduced our already slim margins. According to the USDA Economic Research Service net farm income is expected to drop to a 12-year low, down 6.7 percent from 2017.

Now allow me to further illustrate the impact of tariffs on our topline – sales – especially in an industry that exports $450 million in wheat to China annually, $65 million of which was from Montana. China is the world’s largest wheat consumer, with a significant trade opportunity in their market. In market year 2016/2017 China was our fourth largest customer, however when China placed a 25 percent retaliatory tariff against U.S. wheat not one new shipment has been purchased from the United States since March, and the last shipment arrived in June.

Wheat growers also understand that China hasn’t been keeping to their trade obligations they agreed to when they joined the WTO (World Trade Organization), and as such the United States has two cases against China for their domestic support programs and their TRQ (tariff rate quota) requirements for wheat, rice and corn. We applaud the Administration for moving forward with these cases and believe this is the proper course of action to hold our trading partners accountable to their trade commitments. We do not, however, support the tariffs which have already hurt many farmers across the United States through both the tariff retaliation and domestic decisions as I have outlined.

For Montana, other commodities are also being hurt. Our producers are already suffering from the 25 percent import tariff on American pork and are bracing for the impacts on beef. Mexico has also targeted these two sectors in response to the steel tariffs.

In addition, these markets that we’ve been growing for decades could be lost to our competitors who do not have tariffs against their products, a fate that could last for years or decades to come. The same can also be said by not seeking or joining new trade agreements, for example when CPTTP (Comprehensive and Progressive Trans-Pacific Partnership) is implemented our Canadian and Australian wheat competitors will gain a price advantage in Japan against U.S. wheat, potentially losing our largest wheat market.

Currently farmers like me are not only struggling to ensure this year’s crop is profitable, but we are also concerned about the long-term impacts to our valuable export markets. For young and beginning farmers like me the stakes are even higher. We are often highly leveraged, just establishing our operations, as well trying to ensure we have access to enough capital to successfully grow our operations. Increased trade tensions and market uncertainty makes our path forward and our hopes to pass the farm on to our sons less clear. I hope to pass my farm to my sons and as such urge you to consider the tolls these tariffs will have on my operation and how it impacts that possibility, and many other family farms, as outlined in my testimony.

Thank you for the opportunity to testify today.

Image of wheat field to illustrate report on global wheat production

This week marks the 10-year anniversary of the signing of the U.S.-Panama Trade Promotion Agreement and the Korea-U.S. (KORUS) Free Trade Agreement. These were the last free trade agreements completed by the United States. In the decade since, there has been plenty of negotiating, but nothing to show for it.

The Trans-Pacific Partnership (TPP) is on its way to ratification without the United States. The Transatlantic Trade and Investment Partnership (TTIP) is indefinitely on ice. The North American Free Trade Agreement (NAFTA) modernization effort is now likely to slip into 2019. An update to KORUS made only cosmetic changes.

Meanwhile no other country has agreed to sit down at the negotiating table as the United States slaps unilateral tariffs on close allies and strategic competitors alike.

The familiar African proverb says that when elephants fight, it is the grass that suffers. Unfortunately for farmers, that grass is the wheat growing in their fields as the big guys in the United States, China and other countries escalate this trade fight.

In a trade war, agriculture always gets hit first and the effects are likely to force overseas customers who want quality U.S. farm products to compromise or seek alternative supplies and to further erode the incomes of farm families who strongly support addressing the real concerns about trade barriers.

That is why in 2016, U.S. Wheat Associates (USW) and the National Association of Wheat Growers (NAWG) called for World Trade Organization (WTO) cases intended to push China to meet its WTO commitments on domestic support and tariff rate quota management. We are glad the Trump Administration supports and is pursuing those cases. That is also why USW will continue to press for new trade agreements, including U.S. accession to TPP.

USW and NAWG know that farmers still want our organizations to keep fighting for fair trade opportunities because they know they can compete successfully in the world based on the quality and value of what they produce — given the freedom to do so.

We would prefer, however, to see our government do that first within the processes already in place.