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Mexico Stands as a Leading U.S. Wheat Buyer

By Steve Mercer, USW Vice President of Communications

U.S. Wheat Associates (USW) represents the interests of U.S. wheat farmers in international markets. The organization is grateful to all its overseas wheat buyers, flour millers and wheat food processors for their strong preference for U.S. wheat and for their friendship. At a time when new circumstances have generated some uncertainty about trade, USW believes it is important to provide perspective on the long-standing, loyal relationship U.S. wheat farmers have with one of those customers: our neighbor to the south, Mexico.

Simply put, Mexico is one of the largest U.S. wheat buyers in the world, importing just under 3.0 million metric tons (MMT) on average going back many years. Mexico’s U.S. wheat imports typically only fall just short of the volume Japan imports. Not this year, however. In the first 7 months of marketing year 2016/17 through Feb. 2, Mexico’s flour millers have imported 2.4 MMT of U.S. wheat, which is more than any other country. That volume is up 5 percent over last year at the same time.

Breaking down their purchases by class, flour millers in Mexico generate strong demand for U.S. hard red winter (HRW) wheat. In 2015/16, they were the leading HRW importers and are taking advantage of the favorable prices and high quality of the 2016/17 HRW crop. At a current volume of about 1.4 MMT, they have imported 71 percent more HRW this year and again lead buyers of that class. A rising number of industrial bakeries, along with traditional artisanal bakeries, account for about 70 percent of wheat consumption according to CANIMOLT, the association representing Mexican millers. That puts HRW producers in a good position to meet that demand. Being closer to HRW production and having a highly functioning ability to import a large share of HRW directly via rail from the Plains states is an advantage for Mexico’s buyers.

In addition, Mexico is home to Bimbo, the world’s largest baked goods company, and an increasing number of cookie and cracker companies. The low protein content, soft endosperm and weaker gluten of U.S. soft red winter wheat (SRW) is well suited to the production of cookies, crackers and pastries, and serves as an excellent blending wheat. Millers supplying this growing market imported an average of 1.2 MMT of SRW between 2011/12 and 2015/16. With imports from the Gulf of more than 730,000 MT of SRW so far in 2016/17, Mexico is the top buyer of SRW again. USW and state wheat commissions from the PNW are also helping demonstrate how millers and bakers can reduce input costs by blending with U.S. soft white (SW).

As it does with all U.S. wheat importing customers, USW focuses on helping Mexico’s buyers, millers and food processors solve problems or increase their business opportunities with U.S. wheat classes. This effort, supported by wheat farmers and the partnership with USDA’s Foreign Agricultural Service, has fostered a productive relationship that has endured for decades through many challenges. More than 22 years of duty free access to the Mexican market under the North American Free Trade Agreement (NAFTA) certainly helped build the relationship.

Yet our customers there have many other sources of milling wheat to which they can turn. In response to rising world grain prices in 2008, Mexico lifted a 67 percent import tariff on wheat from outside the United States and Canada. In 2009/10, France made the first non-NAFTA origin wheat sale to Mexico since the trade agreement was implemented in 1995. Russian and Ukrainian wheat has been imported, too. To date, the tariff has not been reapplied and the Mexican import market is currently tariff-free for wheat from all qualified origins. Just this week, the leaders of Brazil and Argentina, both large grain exporting nations, said they would pursue closer ties with Mexico and other Latin American nations.

Looking ahead, NAFTA will likely be renegotiated. USW and wheat farmers understand that there are a number of elements of the trade agreement that need to be re-examined and modernized. The successful story of how U.S. wheat farmers and their customers in Mexico have worked together in a mutually beneficial way must be shared as part of the effort to update NAFTA. For now, U.S. wheat continues to flow to our customers in Mexico. During upcoming trade negotiations and beyond the eventual outcomes, wheat farmers, through USW, will continue to help and support the buyers from Mexico, as they would help and support their own neighbors.

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New Trade Policies Generate Some Whiplash

As promised, on the first working day of his presidency, Donald J. Trump fulfilled his campaign promise to withdraw from the Trans-Pacific Partnership (TPP), and gave notice to Mexico and Canada that the United States intends to renegotiate some parts of the North American Free Trade Agreement (NAFTA).

For decades, U.S. presidents of both parties have been largely consistent in their views on trade agreements. The TPP vision began under President George W. Bush, and was almost fulfilled under President Barack Obama — two presidents who agreed on few other policy areas. They both believed that opening borders to (mostly) free flow of trade in goods and services would benefit its TPP partners in the Asia-Pacific region and, in turn, U.S. industries.

As producers of high quality wheat classes, U.S. wheat farmers are oriented towards international markets. Through decades of experience, the industry also recognizes that free trade agreements like TPP and NAFTA are good for our customers looking to expand their milling and wheat foods enterprises in part with U.S. wheat quality and value. For exporters and importers, these agreements also offer rules to ensure that the resulting “free trade” is also “fair trade” or close to it.

It is clear that the Trump Administration does see some value in the existing trade agreements. Its next action on trade was to request a panel at the World Trade Organization (WTO) dispute settlement body in the U.S. trade enforcement case about excessive Chinese subsidies. This request, made on January 25, starts the official litigation process under WTO rules.

One could be forgiven for experiencing a bit of trade policy “whiplash.” On Day 1, President Trump withdrew from TPP alleging it is not strong enough for American workers; on Day 3 his Administration used WTO rules to act on behalf of American farmers. The new trade enforcement rules under TPP would have been much stronger than WTO rules in most respects. Now that TPP is gone, the United States must work within rather cumbersome WTO rules across most of the Asia-Pacific, at least until new trade deals are negotiated.

The statement directing the Office of the U.S. Trade Representative to withdraw from TPP also directed it “to begin pursuing, wherever possible, bilateral trade negotiations to promote American industry, protect American workers, and raise American wages.” USW continues to support new agreements that expand free, rules-based trade, as TPP would have done, and encourage that agricultural interests be able to continue to provide input into those negotiations.

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USW Submits Annual Report on Trade Barriers to U.S. Trade Representative

By Elizabeth Westendorf, USW Policy Specialist

Every year, the U.S. Congress requires the Office of the U.S. Trade Representative (USTR) to submit a comprehensive report detailing the trade barriers and policy challenges facing exported U.S. goods and services. The annual National Trade Estimate (NTE), which came in at more than 450 pages last year, takes months of collaborative work to pull together. That is why each year, USTR asks industry stakeholders to provide input on their key trade barriers. Last week, USW submitted comments on the NTE to USTR.

Many of the trade challenges our industry faces are ongoing, unresolved issues. One topic that has been part of USW’s NTE submissions for several years is that of China’s domestic wheat subsidies. USW has shared the results of its investigation of this issue, including through the NTE, to USTR and that work finally came to fruition when the United States government announced it was taking a World Trade Organization (WTO) case against China. In its 2016 submission, USW specifically stated that it “strongly supports the dispute launched by USTR against China’s market price support programs on Sept. 13, 2016. The action is the most significant taken by the U.S. government to date in addressing the imbalances caused by subsidies that violate WTO commitments.”

In the report, USW also identified policy barriers in four broad issue areas: market access; domestic subsidies; export subsidies; and sanitary and phytosanitary (SPS) barriers. Regarding SPS barriers, USW focuses on policies that attempt to protect domestic producers from imported competition without scientifically justified reasons. Consistent USW submissions to the NTE have also facilitated U.S. government activities related to market access efforts in Canada, Brazil and Morocco. USW submitted additional comments on the EU, India, Japan, Kenya, South Korea, Mexico, Taiwan and Turkey.

The NTE submission provides a good overview of the key issues that USW’s policy team works on every year. Submitting our NTE comments annually allows us to assess global progress on these barriers and bring up any new issues we face. It also gives USTR up-to-date information on ongoing problems.

With the national rhetoric on trade turning more and more protectionist, it is important to remember that trade agreements work for American agriculture and its overseas customers, especially when they are enforced. The NTE serves a vital purpose to the enforcement function of the U.S. trade agenda. It is important that all countries play by the rules, and the USTR NTE is one important way to hold other countries accountable. USW is grateful for the continued efforts of the U.S. government on these issues.

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Welcome Progress on Trans-Pacific Partnership

By submitting the draft “Statement of Administrative Action” (SAA) to the U.S. Congress on Aug. 12, 2016, the U.S. Trade Representative moved one step closer to the final consideration of the Trans-Pacific Partnership (TPP). The SAA describes actions necessary to implement the provisions of TPP and contains details about how U.S. law would need to change to adopt TPP. The Trade Promotion Authority (TPA) bill passed in 2015 requires this submission before Congress can consider the agreement.

Under TPA, the President has the authority to conclude trade agreements and submit them to Congress for an up or down vote. This pre-empts legislative amendments from derailing the careful balance struck in trade agreement negotiations. Less well-known TPA provisions allow Congress to establish priorities in negotiations, specify necessary reports and provide timelines for consideration of agreements. TPA states that a draft SAA must be submitted to Congress at least 30 days before submitting the draft legislation that implements a trade agreement, setting up a potential vote on TPP this fall.

To continue compliance with TPA, the U.S. Trade Representative must still produce three reports detailing the agreement’s impact on key areas such as the environment, labor laws, and U.S. employment, and then work with Congress to submit the draft implementing bill for a vote. As work continues to address congressional concerns about the agreement that are predominately related to non-agricultural issues, the Administration has not yet signaled when the implementing bill will be ready.

President Obama maintains that final consideration and approval of the Trans-Pacific Partnership can and should be accomplished this year, despite increasingly negative rhetoric on trade coming from the U.S. presidential campaigns. TPP and the Asian and Latin American markets it affects are also key priorities for the wheat industry. The agreement stands as the only potential answer from the United States to competitors gaining more favorable trade access for their farmers within the Pacific Rim by continuing to negotiate and implement separate trade agreements. The submission of the SAA this month is a step in the right direction for U.S. farmers and their customers who need a wider variety of wheat classes and quality to meet the growing demand for new wheat foods.

Learn more about how USW supports free trade through multilateral, regional, and bilateral trade agreements. 

By Dalton Henry, Vice President of Policy

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A Diatribe on the Politics of Trade Agreements

By Ben Conner, USW Deputy Director of Policy

Few who followed U.S. politics as recently as last summer would have expected to see presidential candidates from both major parties taking a hard line against new and existing free trade agreements, but that is the world we now wake up to every day.

It has always been relatively easy to make the political case against free trade. Showing a closed factory or bemoaning jobs allegedly outsourced to “cheap foreign labor” gets too much attention compared to the positive, but more complex, story of positive trade benefits. The arguments against trade usually ignore the growth of technology (including the introduction of the personal computer and the Internet that occurred simultaneously with implementation of trade agreements and increased productivity), overlook the fact that manufacturing output in the United States is at record levels, and dismiss the dependence of farmers —especially wheat farmers — on international trade for their survival.

Another endlessly repeated concern is about a “growing trade deficit.” Trade deficits may matter, but not as much as opponents would leave us to believe. The perception that all deficits are bad stems partially from the almost exclusive focus by trade advocates on the benefits of trade agreements to exporting countries and industries. Let us use the elimination of import tariffs on U.S. wheat exports as an example. That situation does not mean that countries that import U.S. wheat are worse off because they decide they can afford to buy more U.S. wheat with lower tariffs. The purchase of U.S. wheat adds to the import side of the balance of trade, but that is only a bad thing if you assume that wheat itself has no value.

Likewise, when a U.S. farmer buys fertilizer that was extracted from foreign deposits, the U.S. trade deficit goes up, but the farmer is more likely to be pleased with improving quality and yields than alarmed by an abstract accounting measure published by the Bureau of Economic Analysis.

Another persistent objection raised by skeptics of free trade agreements is that foreign countries try to tip the scales against U.S. companies. And we know there is some truth in that. Much of USW’s trade policy work is devoted to off-agreement practices. More details about that work can be seen on the policy section on the USW website. The recourse to address such issues is in the enforcement provisions of trade agreements.

Trade agreements have the potential to create a level playing field where individuals, families and companies can make their own decisions about what to buy and sell. The moral response is to allow people to trade with whom they wish, and not tip the scales. The role of trade agreements is to provide that opportunity, and that benefits both U.S. wheat buyers and wheat producers.

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U.S. Wheat Associates and NAWG Joint Committees Meet in Fargo

By Dalton Henry, USW Vice President of Policy

The two joint farmer committees of USW and the National Association of Wheat Growers (NAWG) met last week in Fargo, ND, for a policy update and to consider key issues facing the wheat industry. The joint committees were created more than a decade ago to enable and ensure close collaboration between the two organizations on policy priorities in trade and technology.

The Joint Biotechnology Committee, which has broadened its agenda to include a number of technologies, heard updates from private breeding companies on non-GM products they are rolling out to growers. Many of these companies are working to help increase efficiency and drive additional productivity. Two major updates included the continual development of hybrid wheat and products to produce better seeding rate recommendations.

The committee also heard from a researcher from Cibus, a company that has a process for producing gene-edited plants that do not contain any foreign DNA, but can yield substantial improvements for both growers and end-users. Recently they have focused on flax and canola, but according to the speaker, while they do not any active wheat projects, the technology could be readily applied in the wheat industry.

The Joint International Trade Committee considered a range of updates on several priority trade issues for the wheat industry including foreign country domestic support, the Trans-Pacific Partnership (TPP) and possible future negotiations at the World Trade Organization (WTO).

Staff presented additional detail about the domestic support study that was released earlier this spring. The study focused on wheat support policies in China and their impact on U.S. producers and producers in other exporting countries. In the U.S., the total farm gate losses are now estimated at $653 million, an increase of about $100 million from over a year ago, caused by the continued decline of world wheat prices amid burgeoning Chinese wheat stocks.

NAWG staff discussed TPP and possible windows for Congressional consideration this calendar year. Staff were confident that the U.S. Trade Representative’s (USTR) office has been working closely and making progress with Congressional leadership to prepare for eventual introduction of the legislative text ratifying TPP, even though the negative rhetoric on trade has increased dramatically from many political candidates during the U.S. election season. TPP would lower tariffs and import restrictions on wheat to the benefit of U.S. wheat farmers and their customers overseas.

Committee members also briefly discussed the current negotiating status at the WTO. Though negotiations on agricultural market access have been largely stalled for some time, progress is being made in other sectors including services and environmental goods. Progress in these other areas may provide a template for future agricultural negotiations. The next WTO ministerial, the most likely target for an attempt at agreement on some portion of unresolved issues, will be in December 2018. The WTO remains a key body for liberalizing trade and ensuring a rules-based trading system exists.

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Brazilian Flour Millers Discuss Trade Policy with USW, U.S. Officials

An old adage suggests that two of the biggest influences on a market are weather and governments. Though there is not much that USW can do about the weather, government policies are one key area where we can work with our customers to help achieve beneficial outcomes for both. A leading example of that cooperative work was on display last week as two Brazilian flour millers joined USW staff in a series of meetings in Washington, DC, in hopes of securing more favorable access to U.S. wheat supplies.

Brazil is an agricultural powerhouse, and one of the world’s largest exporters of agricultural commodities. In addition to well-known production success in corn and soybeans, Brazilian farmers also produce between five and six million tons of wheat annually — about half of the 10 million metric tons (MMT) of wheat the Brazilian people consume each year. That leaves Brazilian flour mills in need of significant wheat imports each year.

The relationship between the U.S. wheat and Brazilian milling industries goes back several decades. In the 1980s, Brazil was a regular and large customer of U.S. supplies, purchasing between two and three MMT annually. The 1990s brought the formation of the Southern Common Market or Mercosur trading bloc, allowing wheat from Argentina to enter Brazil duty-free and leading to a subsequent decline in imports from the United States. During that time, Brazil agreed to a 750,000 metric tons (MT) zero-duty tariff rate quota (TRQ), allowing Brazilian millers access to a dedicated amount of wheat from the United States, Canada and other world suppliers on an even basis with Argentine wheat. Unfortunately, Brazil never implemented that TRQ and negotiations on a replacement for it remain open today.

Resolution of the outstanding TRQ could prove to be a win-win scenario for U.S. wheat producers and their Brazilian customers. Current discussions focus on applying a TRQ that will provide Brazilian millers more favorable access to world wheat supplies, while not directly displacing Brazilian wheat production.

The long-outstanding Brazilian wheat TRQ is a prime example that for markets to work we must have the right policies in place and we must collaborate with our customers around the world to influence those policies. USW will continue to seek the best possible outcomes when government policies hinder access to U.S. wheat supplies.

By Dalton Henry, USW Director of Policy

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USW Discusses Changes in Global Wheat Trade

USW President Alan Tracy joined the International Grains Council (IGC) for their 25th annual conference June 14 to present an overview of changes in global wheat trade, trade distorting government policies and the United States’ shift to quality-based wheat markets. More than 200 attendees at the conference in London, United Kingdom, came from grain importing and exporting countries around the world to hear updates on production prospects and discuss major issues facing the grain trade.

One of the biggest shifts in the world wheat market in the last 15 years has been the emergence of Russia as a major wheat exporter, averaging 17.9 MMT from 2011/12 to 2015/16. With that growth, Russia has become a primary supplier of wheat to price-sensitive markets across the Middle East and North Africa, displacing other traditional suppliers including the United States, Canada and the European Union (EU).

USW has narrowed its activities in markets now served mainly by Black Sea suppliers but increased its resources in growing quality-sensitive markets, primarily in Southeast Asia and Latin America. An increasing majority of flour millers and wheat food processors in those markets see wheat as a food ingredient with specific value, rather than as a bulk commodity sourced merely on price. Connecting with these new markets provides more value for overseas customers and, in turn, helps U.S. farmers capture more revenue per acre for the high-quality wheat they produce.

Tracy also discussed government policies that distort trade. Reflecting on previous IGC meetings, he recalled long-past discussions on the harm caused by rival country export subsidy programs — which are largely no longer in use. Today, instead of export subsidies, the biggest market distortion comes from domestic support programs, primarily in several advanced developing countries.

Every WTO member country has agreed to specific limits and rules on agricultural support programs. However, many countries exceed those limits and fail to report their programs accurately. When an importing country provides a government support price above world market prices, they encourage domestic production. That offsets imports to the detriment of the global trading system and to farmers in other countries.

USW has spent the last five years documenting and quantifying the effects from these programs. The forum presented an ideal place to share and discuss the data as out-of-compliance programs not only harm the United States, but also exporters around the world.

By Dalton Henry, USW Director of Policy

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Trade Negotiation Focus Turns to T-TIP

U.S. trade negotiators are now focusing more and more on the Transatlantic Trade and Investment Partnership (T-TIP), a proposed free trade agreement between the United States and the EU. T-TIP negotiations started in 2013 and maintained a relatively slow pace until last fall when negotiators completed the 12-country Trans-Pacific Partnership (TPP)  now awaiting congressional ratification.

Last week, government representatives met in New York for their thirteenth round of T-TIP negotiations that included stakeholder comments. While both governments praised the progress to date and expressed optimism at possibly finalizing an agreement this year, significant differences remain with increased pressure to complete an agreement before the end of President Obama’s administration. In particular, the two sides seem to have significant gaps to bridge on key agricultural issues.

Due to fears that negotiators could strike a narrower agreement without resolving those agricultural issues, a bipartisan group of 26 senators is calling for agricultural issues to remain a priority. Their recent letter highlighted the need for broad-based tariff elimination, science-based approaches to animal and plant health issues and the improvements to the troublesome EU regulatory framework for approval of biotechnology products.

U.S. wheat exports currently face a complex “margin of preference” program that allows only high protein wheat and durum into the EU duty free, as long as world prices remain above a certain threshold. USW supports a comprehensive T-TIP agreement that eliminates all wheat duties, contains a fully enforceable sanitary and phytosanitary (SPS) chapter and provides for a predictable biotechnology approval process. USW established a full T-TIP priorities document as negotiations began three years ago.

As two large wheat producers and exporters, the United States and the EU are unlikely to see major trade shifts in wheat because of T-TIP. However, the agreement does have the potential to expand access for U.S. producers to the world’s largest agricultural importer and to establish key precedents for future trade agreements.

Agricultural issues are far from the only remaining sticking points. Significant differences remain in automobile market access, the creation of an investor-state dispute settlement (ISDS) mechanism and access to government procurement programs. According to the schedule, negotiators will take stock of progress in late May, with another formal round likely in July.

By Dalton Henry, USW Director of Policy

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Cubans and U.S. Grain Trade Officials Meet to Discuss New Opportunities

By Ben Conner, USW Deputy Director of Policy

This week, a team of Cuban agriculture and trade officials visited the United States to explore the U.S. grain production system at the invitation of the U.S. Grains Council, which asked USW to present information about U.S. wheat trade at a meeting with the officials in Washington, DC.

The Cuban team included representatives from the Ministry of Agriculture, Ministry of International Trade and ALIMPORT, the government agency in charge of grain imports. The group met with wheat farmers from Kansas, Texas and Maryland along with USW staff including Regional Vice President Mitch Skalicky, based in Mexico City. The discussion centered on issues that impede U.S. wheat exports to Cuba. Following meetings in Washington, DC, the Cuban team travelled to Maryland, Missouri and Louisiana to learn more about U.S. grain production, trading and processing.

This was an important opportunity ultimately because trade relationships based on mutual trust may be forged even though political barriers exist. Today, there are still requirements that Cubans must pay cash in advance of receiving U.S. agricultural exports. That requirement does not exist for any other country. In fact, these regulations make all business in the Caribbean more difficult. A baker or miller in a nearby country wanting to sell their products to Cuba pays the shipper more due to of the cost of compliance with U.S. trade laws.

Businesses exporting wheat should be able to make a judgment based on their assessment of political risk. They do it all the time. There needs to be enough trust to ensure the price risk to U.S. exporters is minimized. The arrival of Cuban grain trade officials on U.S. shores demonstrates that Cubans want to reach a position of mutual trust.

Ojalá — hopefully — this U.S. visit by Cuban agriculture and trade officials is a sign of a brighter, more trustworthy future between the people of these two countries that are so close, yet so far apart. If trade and regular interaction with farmers and agribusinesses to the north is given the opportunity to flourish, that day may come sooner

For those interested in more information on the potential of U.S. trade with Cuba, see the U.S. International Trade Commission report released Monday here.

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