[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]
RENEGOTIATING NAFTA: OPPORTUNITIES FOR AGRICULTURE
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HEARING
BEFORE THE
COMMITTEE ON AGRICULTURE
HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTEENTH CONGRESS
FIRST SESSION
__________
JULY 26, 2017
__________
Serial No. 115-11
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Printed for the use of the Committee on Agriculture
agriculture.house.gov
__________
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26-495 PDF WASHINGTON : 2017
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COMMITTEE ON AGRICULTURE
K. MICHAEL CONAWAY, Texas, Chairman
GLENN THOMPSON, Pennsylvania COLLIN C. PETERSON, Minnesota,
Vice Chairman Ranking Minority Member
BOB GOODLATTE, Virginia, DAVID SCOTT, Georgia
FRANK D. LUCAS, Oklahoma JIM COSTA, California
STEVE KING, Iowa TIMOTHY J. WALZ, Minnesota
MIKE ROGERS, Alabama MARCIA L. FUDGE, Ohio
BOB GIBBS, Ohio JAMES P. McGOVERN, Massachusetts
AUSTIN SCOTT, Georgia FILEMON VELA, Texas, Vice Ranking
ERIC A. ``RICK'' CRAWFORD, Arkansas Minority Member
SCOTT DesJARLAIS, Tennessee MICHELLE LUJAN GRISHAM, New Mexico
VICKY HARTZLER, Missouri ANN M. KUSTER, New Hampshire
JEFF DENHAM, California RICHARD M. NOLAN, Minnesota
DOUG LaMALFA, California CHERI BUSTOS, Illinois
RODNEY DAVIS, Illinois SEAN PATRICK MALONEY, New York
TED S. YOHO, Florida STACEY E. PLASKETT, Virgin Islands
RICK W. ALLEN, Georgia ALMA S. ADAMS, North Carolina
MIKE BOST, Illinois DWIGHT EVANS, Pennsylvania
DAVID ROUZER, North Carolina AL LAWSON, Jr., Florida
RALPH LEE ABRAHAM, Louisiana TOM O'HALLERAN, Arizona
TRENT KELLY, Mississippi JIMMY PANETTA, California
JAMES COMER, Kentucky DARREN SOTO, Florida
ROGER W. MARSHALL, Kansas LISA BLUNT ROCHESTER, Delaware
DON BACON, Nebraska
JOHN J. FASO, New York
NEAL P. DUNN, Florida
JODEY C. ARRINGTON, Texas
______
Matthew S. Schertz, Staff Director
Anne Simmons, Minority Staff Director
(ii)
C O N T E N T S
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Page
Conaway, Hon. K. Michael, a Representative in Congress from
Texas, opening statement....................................... 1
Prepared statement........................................... 2
Peterson, Hon. Collin C., a Representative in Congress from
Minnesota, opening statement................................... 3
Witnesses
Vilsack, Hon. Thomas ``Tom'' J., President and Chief Executive
Officer, U.S. Dairy Export Council, Arlington, VA.............. 4
Prepared statement........................................... 5
Frazier, Kendal, Chief Executive Officer, National Cattlemen's
Beef Association, Centennial, CO............................... 15
Prepared statement........................................... 16
Brosch, J.D., Kevin J., Principal, BroschTrade LLC, Woodville,
VA; on behalf of National Chicken Council; National Turkey
Federation; USA Poultry & Egg Export Council................... 25
Prepared statement........................................... 26
Gaibler, Floyd D., Director, Trade Policy and Biotechnology, U.S.
Grains Council, Washington, D.C................................ 30
Prepared statement........................................... 32
Hammer, Thomas A., President, National Oilseed Processors
Association, Washington, D.C................................... 36
Prepared statement........................................... 38
Brown, Reginald L., Executive Vice President, Florida Tomato
Exchange, Maitland, FL; on behalf of Florida Fruit and
Vegetable Association.......................................... 42
Prepared statement........................................... 44
RENEGOTIATING NAFTA: OPPORTUNITIES FOR AGRICULTURE
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WEDNESDAY, JULY 26, 2017
House of Representatives,
Committee on Agriculture,
Washington, D.C.
The Committee met, pursuant to call, at 10:00 a.m., in Room
1300 of the Longworth House Office Building, Hon. K. Michael
Conaway [Chairman of the Committee] presiding.
Members present: Representatives Conaway, Thompson, Lucas,
Gibbs, Austin Scott of Georgia, Crawford, DesJarlais, LaMalfa,
Davis, Yoho, Allen, Bost, Rouzer, Kelly, Comer, Marshall, Faso,
Dunn, Arrington, Peterson, David Scott of Georgia, Costa, Walz,
Fudge, McGovern, Vela, Lujan Grisham, Kuster, Nolan, Bustos,
Plaskett, Adams, Evans, Lawson, O'Halleran, Panetta, and Soto.
Staff present: Bart Fischer, Darryl Blakey, Jackie Barber,
Matthew S. Schertz, Rachel Millard, Stephanie Addison, Anne
Simmons, Liz Friedlander, Mary Knigge, Matthew MacKenzie, Mike
Stranz, John Konya, Nicole Scott, and Carly Reedholm.
OPENING STATEMENT OF HON. K. MICHAEL CONAWAY, A REPRESENTATIVE
IN CONGRESS FROM TEXAS
The Chairman. Good morning. This hearing of the Committee
on Agriculture entitled, Renegotiating NAFTA: Opportunities for
Agriculture, will come to order. I have asked G.T. Thompson to
offer up the prayer. G.T.?
Mr. Thompson. Thank you, Mr. Chairman.
Heavenly Father, we just thank You for this blessed day,
the rest of the night, and this new day. Lord, we come together
as individuals who share a passion and commitment for
agriculture, for rural America, and what rural America provides
to all of America and much of the world. And so Lord, we just
ask Your blessings over these proceedings. We gather here to
celebrate all the blessings that You have given us in terms of
access to bountiful, affordable food and clothing materials and
building materials and energy, all of the resources that you
have blessed us with and charged us to utilize. We just ask
your blessings over these proceedings, and I ask this in the
name of my savior, Jesus Christ. Amen.
The Chairman. Thank you, G.T.
I want to start by welcoming our witnesses today. Thank you
for taking time out of your schedules to share your thoughts
with us today.
As we have noted often, American farmers and ranchers are
the most efficient, productive and competitive producers in the
world. Their ability to meet the rapidly-growing and ever-
changing demands both at home and abroad has allowed our
country to become one of the world's most open agricultural
economies, supplying our trading partners with a safe and
affordable food and fiber supply.
These trade relationships have become an essential part of
the U.S. agricultural industry, and nowhere is trade more
important than in our relationships with our neighbors to the
north and south.
For more than 20 years, NAFTA has governed trade among our
three countries, and in that time U.S. agricultural exports to
Canada and Mexico have nearly quadrupled. Both countries have
remained essential trading partners for the U.S., accounting
for roughly 28 percent of total U.S. agricultural trade.
While Canada and Mexico regularly are two of our top three
export destinations for agricultural products, they also remain
the United States' largest suppliers of agricultural inputs. In
2016, while the U.S. continued to run an overall trade surplus
in agriculture, we managed to run a trade imbalance with both
Canada and Mexico, totaling over $6 billion.
A lot has changed since the 1994 agreement was signed. All
three economies are much larger and production agriculture has
evolved and improved, growing to meet ever-changing consumer
demands and technological advances. And it is against this
backdrop that the Trump Administration prepares to renegotiate
the terms of NAFTA.
I recognize there is a certain level of angst about
renegotiating the terms of our agreement. But let me reiterate,
we have no interest in reversing any of production
agriculture's hard-fought gains, and the Administration has
made clear that it doesn't either. In fact, the recently-
published renegotiation objectives affirmed the importance of
maintaining existing reciprocal duty-free market access for
agricultural goods.
Whether you are focused on maintaining current market
access or you are eager for prospects of expanded trade
opportunities, production agriculture stands to benefit from a
modernized trade agreement with our neighbors to the north and
south. As always, we must stay vigilant and all work together
to ensure we achieve the best deal possible for American
agriculture.
[The prepared statement of Mr. Conaway follows:]
Prepared Statement of Hon. K. Michael Conaway, a Representative in
Congress from Texas
I want to start by welcoming all of our witnesses. Thank you for
taking time out of your busy schedules to share your thoughts with us
today.
As we have noted time and again, America's farmers and ranchers are
the most efficient, productive and competitive producers in the world.
Their ability to meet the rapidly-growing and ever-changing demands
both at home and abroad has allowed our country to become one of the
world's most open agricultural economies, supplying our trading
partners with a safe and affordable food and fiber supply.
These trade relationships have become an essential part of the U.S.
agricultural industry, and nowhere is trade more important than in our
relationship with our neighbors to the north and south.
For more than 20 years, NAFTA has governed trade among our three
countries, and in that time has nearly quadrupled U.S. agricultural
exports to Canada and Mexico. Both countries have remained essential
trading partners for the U.S., accounting for roughly 28 percent of
total U.S. agricultural exports in 2016.
While Canada and Mexico regularly are two of our top three export
destinations for agricultural products, they also remain the United
States' largest suppliers of agricultural inputs. In 2016, while the
U.S. continued to run an overall trade surplus in agriculture, we
managed to run a trade imbalance with both Canada and Mexico, totaling
over $6 billion.
So, a lot has changed since the 1994 agreement was signed. All
three economies are much larger and production agriculture has evolved
and improved, growing to meet changing consumer demands and
technological advances. And it's against this backdrop that the Trump
Administration prepares to renegotiate the terms of NAFTA.
I recognize there is a certain level of angst about renegotiating
the terms of our agreement. But let me reiterate, we have no interest
in reversing any of production agriculture's hard-fought gains, and the
Administration has made it clear that it doesn't either. In fact, the
recently-published renegotiation objectives affirmed the importance of
maintaining existing reciprocal duty-free market access for
agricultural goods.
Whether you're focused on maintaining current market access or you
are eager for the prospects of expanded trade opportunities, production
agriculture stands to benefit from a modernized trade agreement with
our neighbors to the north and south. As always, we must stay vigilant
and all work together to ensure we achieve the best deal possible for
American agriculture.
With that, I yield to the Ranking Member for any opening remarks he
would like to make.
The Chairman. And with that, I yield to the Ranking Member
for any comments he would like to make.
OPENING STATEMENT OF HON. COLLIN C. PETERSON, A REPRESENTATIVE
IN CONGRESS FROM MINNESOTA
Mr. Peterson. Thank you, Mr. Chairman, and I also want to
welcome the witnesses to today's hearing. We have a diverse
group of industry representatives, and they will share their
opinions on changes in NAFTA.
I am supportive of efforts to renegotiate NAFTA, but we
need to make sure that the end result will work for
agriculture. As well, my producers have said just make sure we
do no harm with whatever we end up doing.
I am concerned about some of the issues arising with
respect to the agriculture exports from Mexico as a result of
some of the rhetoric and uncertainty around this negotiation,
but the biggest issue that I have had with NAFTA is the fact
that Canada has been allowed to continue their supply
management system for dairy and poultry. When they did the
original negotiation, they did not have ultra-filtered milk and
that was not protected under the agreement, and this Class VII
was established and the market was shopped around to some of
our producers, and even though it was a month-to-month thing,
and then Canada figured out this is undermining their situation
and they stopped it. It is part of the problem we have when
dealing with them with their supply management system.
The biggest problem, though, is the number three and number
five largest dairy companies in the United States are now owned
by Canadians, and one of those is actually a Canadian co-op. We
have a Canadian co-op that is bigger than Land O'Lakes and DFA
and our co-ops, which I am not sure is a good thing for the
long-term in the United States.
This is an issue that I have raised with the USTR
Ambassador, with Secretary Ross. They are both aware of what is
going on, and they said they would work to address it; but, in
the last couple of months, I have met with the Canadians, both
government higher officials and some of the Agriculture
Committee people, and given their response, I am not holding my
breath. I hope that in this negotiation we can get some kind of
path to get this supply management thing so that we have a
level playing field with the Canadians.
Our farmers need a good deal, and that is why we are here
to listen to testimony today. I hope that everybody is
listening, especially the Administration, as we begin
renegotiating NAFTA and that, again, whatever we end up doing,
we don't do any harm to the markets that we have been able to
establish.
I yield back.
The Chairman. I thank the gentleman.
I would like to now welcome our witnesses to the hearing
this morning.
First off, we have the Honorable Tom Vilsack, President and
CEO of U.S. Dairy Export Council, Arlington, Virginia. Mr.
Secretary, welcome back. It should be a little bit different
for you this morning than we have been to you in the past.
Mr. Kendal Frazier, who is Chief Executive Officer of the
National Cattlemen's Beef Association, Centennial, Colorado.
Mr. Kevin Brosch, who is the Principal of BroschTrade, LLC,
Woodville, Virginia. He is here on behalf of the National
Chicken Council, the National Turkey Federation, and the U.S.
Poultry and Egg Export Council.
Mr. Floyd Gaibler, Director, Trade Policy and
Biotechnology, U.S. Grains Council here in Washington.
Mr. Thomas Hammer, who is the President, National Oilseed
Producers Association in DC.
And Mr. Reggie Brown, who is the Executive Vice President,
Florida Tomato Growers Exchange, Maitland, Florida, on behalf
of the Florida Fruit and Vegetable Association.
Again, gentlemen, thank you for being here. Secretary
Vilsack, when you are ready.
STATEMENT OF HON. THOMAS ``TOM'' J. VILSACK, PRESIDENT AND
CHIEF EXECUTIVE OFFICER, U.S. DAIRY EXPORT
COUNCIL, ARLINGTON, VA
Mr. Vilsack. Mr. Chairman, I want to thank you and the
Ranking Member of the Committee for the opportunity to be here
today on behalf of the nearly 42,000 dairy operators in the
United States, the 1,300 plants that process dairy products,
and over 100,000 employees that are employed as a result of ag
exports, providing a safe, stable, and sustainably produced
supply of dairy products.
Mr. Chairman, I want to emphasize the importance of exports
to the dairy industry. Since 1994, we have seen an increase of
$36 billion to the bottom line for producers and processors as
a result of exports. It has added about $1.25 per
hundredweight, and one out of every seven tankers today on the
road is headed to an export market. It is important for us to
focus on trade, and we appreciate the opportunity to comment
about the renegotiation and modernization of NAFTA.
We think this offers an opportunity to preserve what is
working in NAFTA, to strengthen what can be better, and to fix
what is currently not working with our trade relationships with
Mexico and Canada. Let me talk briefly about all three.
We need to preserve the reciprocal duty free market access
and opportunity that is presented as a result of NAFTA. We have
seen the benefit of that, particularly in the Mexican market.
Nearly \1/3\ of all of our dairy exports go to Mexico. It now
represents 73 percent of all of the imported dairy products
that go into Mexico come from the U.S. It is an amazing
opportunity for us that can grow over time.
We need to strengthen the SPS provisions of NAFTA to ensure
that science-based rules continue to be established in a
transparent way. We need to focus on rules of origin, and we
need to strengthen the geographic indications provisions
protecting the use of common names, particularly for cheese
products.
Finally, we need to fix, Mr. Chairman, the trade distorting
practices that have been implemented by Canada to protect their
supply management and their market opportunities. This offers
an opportunity and the capacity to enact policies and
regulations that will encourage and not inhibit imports from
the U.S. The most recent example of Canadian action is the
adoption of Class VI and Class VII, which has created a serious
problem in our dairy industry.
Mr. Chairman, I appreciate the opportunity to be back here.
I look forward to the questions from the Committee, and I yield
back the balance of my time.
[The prepared statement of Mr. Vilsack follows:]
Prepared Statement of Hon. Thomas ``Tom'' J. Vilsack, President and
Chief Executive Officer, U.S. Dairy Export Council, Arlington, VA
Hearing on the North American Free Trade Agreement
I am Secretary Thomas Vilsack, President and CEO of the U.S. Dairy
Export Council (USDEC). USDEC is a nonprofit, independent membership
organization that represents the export trade interests of U.S. milk
producers, proprietary processors, dairy cooperatives, and export
traders. The Council's mission is to build global demand for U.S. dairy
products and assist the industry in increasing the volume and value of
exports.
I very much appreciate the opportunity to testify before this
Committee today about the importance of the North American Free Trade
Agreement (NAFTA), its benefits to the U.S. dairy industry, and key
areas in urgent need of improvement. Today I will share my perspectives
as someone who has worked within the parameters of NAFTA almost since
its inception. This important agreement has created both opportunities
and challenges for myself and the people I have represented as a two-
term farm state Governor, during 8 years as U.S. Secretary of
Agriculture, and today as leader of a dairy export organization that
counts Mexico as its largest export trade partner.
Vibrant growth in dairy exports over the last 10 to 15 years has
had a net impact of about a $1.25 per hundredweight increased price on
milk produced in the U.S. That's an additional $36 billion our nation's
42,000 dairy farmers have received thanks to growth in dairy exports,
and is further compounded when one accounts for value-added processing
at our nation's 1,300 dairy processing facilities. More than 100,000
Americans livelihoods depend on jobs created by expanding markets for
U.S. dairy exports, which now account for about 15 percent of all U.S.
milk produced.
Executive Summary of Testimony
Within the agricultural sector the three NAFTA partners each have a
unique set of needs and expectations. We operate under different
economic systems. Yet we all serve consumers who look to the
agricultural sectors of their own nations and NAFTA partners to meet
their food, fiber and fuel needs as efficiently as possible. Dynamic
duty-free North American trade under NAFTA has helped better satisfy
North American consumer needs since the agreement's inception and that
has resulted in increased demand for dairy products throughout North
America. But NAFTA can be made so much better, for the betterment of
all.
Within the U.S. dairy sector, NAFTA has been enormously beneficial
in liberalizing dairy trade with Mexico. Under NAFTA, Mexico has grown
to become the largest export market for U.S. dairy exports. Through
close cooperation, the U.S. and Mexican dairy industries have grown
together in a mutually beneficial manner. They are our brethren in a
cross-border effort to grow both primary dairy product production and
consumption, as well as value-added food production for export.
Canada unfortunately has created a dairy trade relationship with
the United States that can best be described as heavily strained.
Whenever the U.S. begins to create a small foothold in Canada's dairy
market, the Canadian Government creates new classifications, categories
or standards to make U.S. dairy exports non-competitive with domestic
product. The most recent manifestation of this practice was witnessed
earlier this year with Canada's new pricing scheme that essentially
wiped out an export market for ultra-filtered milk that U.S. processors
had developed and for which many U.S. dairy farmers had come to rely
upon as a market for their milk?
Canada argues that they import large quantities of U.S. dairy
product. However, what Canada is not transparent about is how these
imports are coming under a report program that forces the equivalent
amount of dairy coming into Canada to be re-exported in many cases back
to the United States. Canada's special class [VII], intended to promote
their own production of milk powders, goes against any common sense
discussion. How come a country that has supply management, and has one
of the highest farm gate dairy prices manages to export product at the
lowest prices in the world?
Furthermore, Canada undermine the intellectual property laws of
their own country as well as international agreements like NAFTA
through the acceptance of trade-limiting geographic cheese names. In
short, the United States has a tremendous amount of unfinished business
with Canada with respect to NAFTA.
While this hearing will deal with improvements needed to make NAFTA
more of a true North American Free Trade Agreement with respect to the
agricultural sector, I cannot overstate both the urgency and importance
negotiating NAFTA language that addresses the EU's global attempt to
win further acceptance of geographic indicators. Canada already
recognizes GIs. The EU is talking to Mexico about GIs. And, just
recently, Japan struck an agreement with the EU that recognizes
Geographic Indicators. Geographical indications can and should be used
when they bring value to the consumer to better define a product, but
not when they exist solely as a tool for exporters in one country or
region to create monopolies and price-setting cartels on what are
otherwise common types of cheeses and dairy goods.
The U.S. dairy industry is united in its desire to preserve what is
working under NAFTA with Mexico and to address what is not working with
Canada. We appreciate the Administration's support for our key
priorities, as reflected in the recently released NAFTA trade
objectives, and we look forward to working closely with this Committee
to help ensure that the United States achieves its stated objectives in
a renegotiated NAFTA.
Benefits of Trade and NAFTA to U.S. Dairy Industry
Trade is critical to the U.S. dairy sector. The equivalent of 1
day's worth of milk production each week now gets turned into products
that are exported all around the world. The expansion of U.S. dairy
exports since 2004 has increased our farmers' milk prices by an average
of $1.25 a hundredweight. In other words, rising exports have increased
farmers' milk sales income by roughly $36 billion over what they would
have gotten in that period if exports had held steady from 2004.
Just as importantly, U.S. dairy exports support up to 100,000
American jobs and cover every state of the Union. Impairing our export
sales would therefore deliver a devastating employment hit not only to
farmers, but also to workers in companies supplying inputs and
services, and downstream processing plant jobs, as well as cities with
large port facilities heavily dependent on trade.
As we look at how to ensure we can continue a positive track record
of export sales supporting farms and good jobs back here at home,
NAFTA, and the ongoing discussions pertaining to modernizing it, is
essential to that goal. Mexico is by far the leading export market for
U.S. dairy products while Canada clocks in at number two, although a
sizable portion of U.S. product shipped to Canada is for further
processing and ultimate re-export outside of Canada, including back to
the United States.
Last year the U.S. shipped $1.2 billion worth of dairy products to
Mexico, up from just $124 million in 1995. For much, if not all, of
this we have NAFTA to thank. Mexico now is the U.S.'s largest export
customer, by far. Sales to Mexico are roughly triple those to China,
our third largest export market, demonstrating just how irreplaceable
the Mexican market is. For example, in 2016 Mexico accounted for 47% of
U.S. exports of nonfat dry milk, 31% of cheese, and 38% of butterfat.
Before NAFTA and before Mexico joined the predecessor to the WTO (the
GATT) the only dairy-related U.S. exports to Mexico were some non-fat
dry milk shipments for government feeding programs and a small number
of breeding cattle.
NAFTA has been the driving force behind this remarkable growth and
is the reason the U.S. share of Mexico's total dairy imports is 73%
today. As mentioned earlier, total U.S. dairy exports support some
100,000 jobs in the U.S.; our exports to Mexico support roughly a
quarter of them. Preserving those sales is therefore essential not only
to American dairy farmers, but also to the workers in companies
supplying inputs and services, and downstream processing plant jobs all
across this country.
Without NAFTA, the duty-free access U.S. companies enjoy into
Mexico could evaporate and be replaced by WTO Most-Favored Nation (MFN)
tariff levels. These are the rates that other major dairy exporters are
currently required to pay. On an applied basis, Mexico's over-quota MFN
tariffs can currently reach as much as 45% for skim milk powder and 60%
for cheese (with even in-quota rates for cheese applied at 45%). Mexico
has the right, however, to raise its MFN rates to considerably higher
over-quota tariff levels of 125% for both powder and cheese.
Changes to that preferential tariff situation would dramatically
undermine a core advantage of U.S. suppliers as the only major dairy
supplier to Mexico currently benefiting from free trade. As we speak,
Mexico is negotiating with the European Union (EU) which is actively
working to secure its own preferential access to the Mexican market
while New Zealand and Australia discuss with Mexico how to move forward
with the Trans-Pacific Partnership with the remaining countries.
Conceivably, all three of our major competitors could see improved
access to the Mexican market in the coming years.
That is what makes NAFTA absolutely essential for our industry--it
currently provides U.S. exporters with uniquely preferential access to
the Mexican dairy market and, looking forward, is the vehicle the U.S.
will need to ensure that we remain competitive in that market should
Mexico decide to use its ongoing FTA discussions with major dairy
exporting nations to open up new inroads to its market for them.
Because of NAFTA and Mexico's commitment to a mutually beneficial
trading relationship, we currently have very few trade problems with
Mexico in dairy--it is our goal to use these discussions to help keep
it that way. NAFTA has enabled the development of a partnership with
Mexico that's benefited not only the U.S. dairy industry, but also the
Mexican dairy sector.
Since 1994, Mexican milk production has increased by 58% which has
helped meet the ever-increasing demand of Mexican consumers and
visitors to Mexico while at the same time continuing to provide market
opportunities for American producers as well. Together, Mexico and the
U.S. have collectively grown consumption for a large variety of
products offered at affordable prices for both the Mexican and U.S.
consumer.
Areas for Improvement
NAFTA has accomplished a great deal over the past 2+ decades, but
it has also been overtaken by new, unanticipated forms of trade and
trade problems. Our industry looks forward to working with this
Committee and with the Administration to explore ways to preserve and
strengthen NAFTA to address those issues.
As noted above, NAFTA achieved substantial liberalization in dairy
trade between the United States and Mexico, and our aim is to ensure
that that open trade remains in place--both with respect to tariffs and
non-tariff measures. At the same time, NAFTA left sizable barriers on
trade between the U.S. and Canada largely untouched. With Canada's
restrictions already in place, reflected in much higher tariffs facing
U.S. dairy exports, an imbalance in market access obligations in the
sector has existed for over 2 decades. Moreover, Canada has taken
additional steps over the years to limit imports whenever Canada's
already highly restrictive import restrictions were deemed to be
insufficiently limiting.
Here below, I would like to spotlight a few areas on our trading
relationships with Mexico and Canada that would benefit from
improvement as we update this critically important trade agreement.
Canada: Removing Trade-Distorting Policies and Opening a Sheltered
Market
Canada's exorbitant dairy tariffs are well known. Over-quota
tariffs top the charts at 241% for fluid milk, 201% for skim milk
powder, 298% for butter and 245% for cheese. Among the developed world,
only the island nation of Japan in addition to countries such as Norway
and Switzerland have maintained similar dairy fortress walls with the
U.S. Under NAFTA many are aware of the unfortunate fact that U.S. dairy
exports are one of the very few sectors that do not enjoy duty-free
access to the Canadian market.
What may be less well known by all Members of this Committee is a
more recent threat that has emerged as a result of Canadian policies
trialed in Ontario last spring and instituted across Canada this
February: Classes [VI] and [VII] respectively. These classes are part
of the new Canadian National Ingredients Pricing Strategy.
NAFTA modernization discussions are an unmissable opportunity to
address just that type of unfinished business in order to truly open up
the North American market and put our dairy exports to Canada on par
with the vast majority of the rest of the U.S. economy.
Canada, as a high price country that has refused to enter into the
global markets with milk prices at global levels, adopted a new pricing
scheme (Class [VII]) to effectively subsidize protein commodity exports
without compromising the internal farm price of milk. These new pricing
regulations and the broader Pricing Strategy have already negatively
impacted bilateral trade with Canada. Most concerning, however, they
are poised to unfairly take away the global markets that are our
industry's lifeblood.
The new Canadian policies effectively subsidize exports and are
already being used to undercut U.S. dairy exports of milk proteins not
just to Canada but even more importantly to a number of other export
markets around the world. Because the U.S. dairy industry depends on a
healthy global export market, Canada's strategy poses a very grave
threat to America's dairy farmers by unfairly underbidding world market
prices.
The shift in Canadian pricing tools has been driven by an uptick in
Canadian demand for butter and cream. Rather than meeting this new
domestic-demand growth through imports in order to keep its so-called
supply management system in balance, Canada has used its government-
dictated milk production system to encourage more of its own milk
production, therefore supplying more butterfat, while simultaneously
creating a surplus of skim milk, as milk contains both products.
Since Canada had to find a way to ``solve'' this surplus problem of
its own creation and rid itself of the excess milk proteins, it has
been using its government-controlled system to keep domestic milk
prices at almost double the world and comparable U.S. prices, while
creating a new scheme to push surplus milk proteins onto world markets
and push out competition in its domestic market.
Canada implemented the new Class [VII] pricing system in February
2017. The Class [VII] establishes a protein price based on the lowest
of U.S., EU, and Oceania skim milk prices, and then subtracts a very
generous processor margin. In recent months, this means that Canada has
priced milk proteins available to its processors under Class [VII] for
export at approximately 15% less than what U.S. processors typically
pay. That incentivizes processors to utilize subsidized Canadian milk
proteins to modernize and expand their protein business.
Reports to date from various markets around the world indicate that
product is being offered even below the lowest world market price. This
below cost pricing avenue applies to the manufacture of skim milk
powder (SMP), whole milk powder (WMP), milk protein concentrate (MPC),
ultra-filtered milk (UFM) and similar dairy protein products.
This recently introduced provision of below market price milk to
produce the listed dairy products provides an incentive to substitute
those products for their imported counterparts in Canada while enabling
the export of Canada's structural surplus of SMP at below the cost of
production. It flies in the face of common sense that a country with
one of the world's highest milk prices would be offering a commodity
product at levels far below those offered by all other major dairy
suppliers.
As a result, these pricing schemes have already harmed U.S. exports
to Canada of ultra-filtered milk and have begun facilitating the
dumping of milk powder onto the commercial global markets on which the
U.S. so strongly relies. This is the latest in a series of narrowly
targeted milk classes that have been created over the past few years
specifically to displace imports, with the added harm of now also
displacing U.S. exports to other markets.
Canada is not alone in having different classes for milk usage and
the mere existence of milk classes is not an inherent problem. However,
the way Canada has utilized its milk class system is unique and very
problematic. Canada's milk class system is regularly evolving in order
to constrain imports and--in the latest case--provide an incentive to
export. The new Class [VII] pricing allows processors of non-fluid
domestic products to allocate or use a proportion of their milk protein
to the new Class [VII] pricing. That effectively ensures processors
will now use some of the lower priced skim in lieu of imported U.S.
milk proteins. We expect that the balance not used internally will
likely be used to process a reduced-price exportable surplus of
subsidized protein products such as skim milk powder and dried milk
protein concentrates.
These special pricing classes are put in place by the Canadian Milk
Supply Management Committee (CMSMC), whose voting members are
provincial boards and provincial governments and which is responsible
for policy determination and supervision of the provisions of the
National Milk Marketing Plan. The way in which Canada is operating its
milk class pricing system indicates a government policy intention to
erect trade barriers and distort global markets.
The production and sales data underscore what a pressing concern
this program poses to the international milk powder market that is so
critical to U.S. dairy farmers and companies. The full size and scope
of the threat to the U.S. dairy industry is not reflected only in what
Canada is doing today through its new pricing programs but rather is
seen in the sharp surge in production, exports and utilization of the
new Class [VII] pricing scheme.
For years, Canada's milk production was relatively stable, a
situation that should not be surprising for a country that claims to
manage its supply to meet internal demand. From 2000 to 2010 for
instance, Canadian milk production rose only 2.5% over that decade.
However, a distinct upward trend line has more recently emerged with 4%
growth per year over the last 2 years.
In some areas this has spiked even further: five leading provincial
marketing boards in the East of Canada, working in concert, have
collectively increased their government-dictated milk production quotas
by an astronomical 12% between August 2016 and July 2017 with the
latest hike this month being 5%. Were these responses to normal
commercial market signals--as is the case in the U.S. and in most other
major dairy producing countries--these may not be problematic.
In contrast to this, typical milk production growth in the U.S. is
in a range of 1-2%, even in years with highest prices. In addition to
its magnitude on a percentage basis, the dramatic Canadian expansion is
so problematic because it is the direct result of government-run
programs in a supply management system with some of the highest milk
prices in the world.
Likewise, trade data demonstrates a large basis for concern as
well. Canadian milk powder exports have surged in recent times.
Canada's 2016 SMP exports set a record at approximately 24,000 MTs, a
jump of roughly 75% over the prior year's total. (Reminder: Ontario's
Class [VI], effectively a pilot program for the national Class [VII],
was put in place in the spring of 2016.) The first 5 months of 2017
showed a further year-on-year increase in Canadian SMP exports of 271%
to almost 20,000 MT with over 8,000 taking place in May alone--a new
monthly record for Canada.
Those SMP exports are going to various markets around the world
including Algeria, Mexico, Egypt, Malaysia and Bangladesh, top markets
for the U.S. dairy industry. In addition to the substantial increase in
SMP exports, Canada is also seeing a spike in milk protein concentrate
(MPC) exports with January to May 2017 sales of MPC up 48% over the
same period in 2016.
Despite limited information provided by Canada about the Class
[VII] program, since the February 7 implementation of the pricing
scheme, the volume of high-priced milk used to make domestic non-fluid
products has declined, whereas the volume of milk protein going into
Class [VII] has risen. During February-April 2017, Canada reported that
24% of the milk volume and 31% of the protein is now allocated to Class
[VII]. Not surprisingly, the farm price of milk between last year and
this year (since Class [VII] has been implemented) dropped less than
one percent despite that sizable shift towards the new lower-priced
Class [VII]. That's because other prices under Canada's strict
government-calculated class prices have been raised. This still works
to the net benefit of Canada's dairy farmers given the surging milk
quotas the government is granting (thereby permitting that 1% lower
price to be paid on a much larger volume of milk and so generate
greater total returns to farmers).
As a result of the new Class [VII] pricing scheme and a 5%
expansion in the milk production quota in 2017 to date, Canada is
poised to create an even more significant exportable surplus of milk
proteins than we've seen take place to date. Furthermore, taking into
account not only Class [VII]'s export disposal goal of moving the
remaining excess protein product onto world markets at cut-rate prices,
but also its twin goal of import substitution through the displacement
of U.S. protein exports from its market, the total impact to the rest
of the world's protein markets will be even greater still.
What is most concerning here is the trend line, with a harmful
situation creating greater damage to our producers over time and a
trend line expected to get even worse as time goes on. That's
particularly the case if milk quotas continue to be permitted to
similarly grow over time.
It is this escalating threat to global dairy markets that united
ten of the world's leading dairy associations, including USDEC, from
around the world last month to collectively write to their six
respective Trade Ministers, including Ambassador Lighthizer, urging
prompt action to exhaust all available options to put a stop to Class
[VI] & [VII] in light of their violation of Canada's international
commitments. As the joint industries letter noted: ``Canada's
increasingly protectionist policies are diverting trade with attendant
global price-depressing impacts, and are in conflict with the
principles of free markets and fair and transparent trade.'' (See
attached.)
Examples cited in that letter of united international concern
included the following:
``In December of 2015 at Nairobi, Kenya, Canada became a
signatory to the Export Competition Ministerial Decision,
thereby undertaking to terminate all scheduled export subsidies
by the end of 2020, maintain a quantity standstill at 2003-05
levels until then, and refrain from applying export subsidies
to new products or new markets. The 2016 Canadian exports of
23.7 thousand tonnes, noted above, is an amount in excess of
the Nairobi standstill agreement amount.''
``As part of the 2003 resolution of the WTO dispute
settlement case brought by the United States and New Zealand
against Canada's special milk class for exports, Canada agreed
`that, for the marketing year beginning 1 August 2003, and
thereafter, Canada's exports of dairy products for which export
subsidies have been granted will not exceed the quantities and
budgetary outlays specified in its WTO Schedule. The upward
trend in Canada's exports of SMP, reported above, is rapidly
approaching the 44.9 thousand tonnes Uruguay Round annual
quantity commitment.' ''
Canada's National Ingredient Strategy and Class [VI]/[VII]
contravene the spirit of Canada's World Trade Organization and NAFTA
trade commitments. After all, does it make sense that a high-priced
milk producer with a closed domestic market using a government-
sanctioned export program should take market share from countries with
a commercially-based and lower cost of production, like the U.S.? The
answer is no.
We must see a repeal of Classes [VI] and [VII] and steps taken to
ensure similar programs do not spring up in their place. If Canada
wishes to retain a government-run system of micro-managing its milk
supply, that is its prerogative but that does not give it the right to
use the high returns from that system to disrupt the commercial dairy
markets on which competitors in the U.S. and elsewhere rely. If left
unchecked, these Canadian programs will grow to become bigger and
bigger threats to U.S. exports around the world.
These latest actions are most concerning because they represent a
shift by Canada from using policy tools to impede imports into Canada
to now also disrupting export markets. Altogether, however, Canada has
for years intentionally tried to shirk its dairy commitments, using one
policy or regulatory tool after another to chip away at access granted.
Another example of this consistent trade-distorting pattern was
Canada's decision in its FTA with the EU to impose new restrictions on
the use of a number of generic cheese terms (i.e., asiago, feta,
fontina, gorgonzola and muenster). Canada provided direct protection to
a number of European GIs that have been common names (in order words,
generic) in Canada and the United States for decades. By taking this
action, Canada abandoned any pretense of due process and the integrity
of its own intellectual property system. NAFTA would offer a prime
chance to press Canada to hold U.S. companies harmless from this
unwarranted non-tariff barrier on U.S. cheese exports.
Given Canada's deliberate creation of an environment of policy
uncertainty, there can be no clarity on whether or not current dairy
sales to Canada--nor new sales established under the NAFTA
modernization process--will be allowed by Canada to take place in the
future without addressing this underlying problem of Canada's habitual
use of policy tools to distort trade.
We greatly welcomed the Administration's NAFTA Objectives'
recognition of the importance of these issues in its Agricultural Goods
area in particular.
Mexico: Preventing New Barriers to Trade: Geographical Indications
(GIs) and Common Names (CNs)
As I have stressed above, with respect to Mexico our charge is
largely to do no harm to market access opportunities. That's relevant
not only on the tariff side of the equation but particularly important
on the non-tariff barrier portions as well.
The latter is a particularly timely concern given ongoing FTA
extension negotiations between Mexico, the U.S.'s largest and most
diverse cheese export market, and the EU.
As it seeks to do through all its FTAs, the EU has been attempting
to use that process to impose de facto barriers to trade and
competition on various common name products that the EU falsely claims
as GIs.
It is essential that ongoing engagement with Mexico and NAFTA
modernization discussions make it clear that the U.S. is vehemently
opposed to the imposition of any new restrictions on the market access
opportunities for U.S. products relying on common names. We must
require that Mexico uphold the letter and spirit of its NAFTA market
access commitments in order to ensure it does not impair the value of
its prior market concessions to the U.S.
In parallel to these FTA negotiations, Mexico is also dealing with
GIs that impact the use of common name products in other avenues as
well such as through domestic legislation and ongoing court cases. Each
of these venues is an important forum for shaping how Mexico will
uphold its market access commitments to the United States.
Mexico & Canada: Improving NAFTA Rules in Key Areas
Improving Upon the WTO-Plus Sanitary & Phytosanitary (SPS) Agreement
To ensure for predictability of trading conditions moving forward
and a science-based approach to the development of new regulations
impacting trade, NAFTA modernization efforts should incorporate work
done in this area within TPP and build further upon that base of ``WTO
SPS-Plus'' commitments. This is needed to guard against the prospect of
future problems and also to ensure that the updated NAFTA text can
serve as a strong model for future U.S. bilateral FTAs as well.
Stronger SPS provisions may have prevented a barrier to the export of
U.S. raw milk for pasteurization that Mexico erected a few years ago
despite a food safety basis for concern with those exports. We look
forward to seeing this issue as well as others that arise from
unscientific foreign requirements addressed through the negotiations.
Improving upon the existing WTO SPS rules was cited as a key Trade
Promotion Authority (TPA) priority for negotiations and would help to
address concerns by agricultural organizations across the board about
spotlighting the importance of transparency, predictability and
science-based decision-making on SPS matters. We believe this remains a
critical area and were glad to see it highlighted accordingly in the
Administration's recently published NAFTA objectives document.
Establishing Fair Due Process Systems and Market Access Safeguards for
Common Names Through Text on Geographical Indications (GIs)
As noted above, there are unique situations on GIs and Common Names
issues with both Mexico and Canada that need to be dealt with
appropriately on a bilateral basis. In addition to those efforts,
however, NAFTA modernization efforts should incorporate text on the
issue of GIs and common names, in keeping with the TPA directive to
address this issue. In order to build upon the progress made to date
with our trading partners on this issue, the TPP text on GIs should be
used as a starting point and further improved upon to effectively
preserve U.S. market access opportunities for common name products
despite foreign governments' efforts to misuse GIs to erect barriers to
those products.
This area too benefited from a clear intended focus in the
published NAFTA objectives developed by the Administration; we see this
as a very welcome acknowledgement of the critical importance of this
issue.
Preserving Dairy Rules of Origin (ROO) Approach to Uphold Integrity of
NAFTA Benefits
The driving goal in NAFTA dairy-specific ROO with Mexico for most
dairy products was to seek to ensure that high dairy-content products
traded under the agreement were being produced from milk from the
exporting country. As such, for instance, the U.S. cannot import milk
powder from Europe to make cheese and ship that to Mexico, and vice
versa. Likewise, Mexico should not be able to import concentrated
butterfat from outside the NAFTA region, add sugar or cocoa to it, and
sell it into the U.S. as a food preparation. The open trade is intended
to be between and to benefit the dairy sectors that have opened their
markets under the agreement--a goal that is particularly important for
a product that is easily traded in various ingredient forms.
Given that the lines most clearly associated as dairy such as those
for cheese, butter and yogurt, all require the product to be made from
dairy from the exporting country, it is reasonable to insist that other
processed food lines also should be subject to these same provisions in
cases where they contain a very high level of dairy content. It is
important to ensure that Mexico is not a platform for other major dairy
exporters to ship butterfat simply as a conduit to inappropriately
access the U.S. market. Based on customs rulings and trade data with
Mexico and New Zealand this is a reasonable cause for concern.
In addition to the need for movement towards greater consistency in
the dairy ROO, we would also encourage negotiators to examine how to
improve the process for investigating potential ROO violations to make
it easier to chase down potential violations of the ROO. In our view,
these measures are a critical element of the agreement and ensuring
that the effectiveness of the ROO in concentrating the agreement's
benefits on its Parties that have chosen to open their markets to one
another is a vital part of ensuring that NAFTA remains such a strongly
successful FTA.
We believe that the goals articulated in the Administration's NAFTA
objectives document would help to address these concerns.
In Closing
NAFTA is indisputably the most important U.S. FTA. An agreement
that has done this much good and that supports tens of thousands of
jobs in the dairy sector alone must be preserved. That is why we
believe we must ensure that no new trade restrictions arise through the
NAFTA modernization discussions and that talks are instead focused on
pursuing improvements to the agreement that preserve our open trade
relationship with Mexico and address Canada's flouting of its trade
commitments.
Even as the U.S. negotiates improvements to this critical FTA,
however, we believe it's also essential to move forward on other fronts
as well. Our competitors are very active all around the world in
negotiating their own agreement. This month's news of the EU-Japan
agreement in principle is a fresh reminder that the world is not
standing still. Given that, if the U.S. stands still, we will slip
behind.
We urgently need a proactive trade policy agenda with key
agriculture-importing countries in Asia such as Japan, Vietnam and
others in order to keep pace in that growing area of the world. In
order to ensure that U.S. negotiating time is best concentrated on
agreements likely to yield net agricultural benefits for the U.S. with
ag-importing countries, we would also strongly caution against sinking
scarce U.S. resources into negotiations with countries unlikely to lead
to net dairy and agricultural export gains for the United States. There
are only so many staff at our government agencies and only so much time
in the day; we need to focus it where it can yield the most benefits to
American agriculture.
As we stand poised to commence NAFTA modernization discussions in
the very near future, the U.S. Dairy Export Council looks forward to
working closely with this Committee and with the Administration to make
improvements to this beneficial FTA so that we can continue to deepen
our trade relationships throughout North America.
Thank you for the opportunity to testify before this Committee.
Attachment
June 27, 2017
Hon. Steven Ciobo MP, Cecilia Malmstrom,
Minister for Trade, Tourism and EU Commissioner for Trade,
Investment, European Commission,
Parliament House, Brussels, Belgium;
Canberra ACT;
Hon. Ildefonso Guajardo, Hon. Todd McClay,
Mexico Secretary of Economy, Minister of Trade,
Col. Juarez, Del. Cuauhtemoc, Parliament Buildings,
Ciudad de Mexico. C.P.; Wellington;
Hon. Robert Lighthizer, Hon. Miguel Braun,
United States Trade Representative, Secretary of Trade,
Washington, D.C.; CABA, Argentina.
Dear Secretary Braun, Minister Ciobo, Commissioner Malmstrom,
Secretary Guajardo, Minister McClay, and Ambassador Lighthizer:
Canada: Access for Dairy Products
Last September the undersigned representatives of the dairy
industries of Australia, the EU, Mexico, New Zealand and the U.S. wrote
to you (or your predecessor) to express our concern at Canadian dairy
policy developments. Specifically, we were concerned that the
``Agreement in Principle'' that had recently been reached between
Canada's dairy producers and processors was designed to incentivize the
substitution of Canadian domestic origin dairy ingredients for dairy
ingredients imported from our countries, and to position the export of
Canadian dairy products to unfairly compete against our products in
third country markets. With Canada's adoption of the new special milk
Class [VII], that Agreement has become reality; and so too have the
substitution of Canadian ingredients for our imports and the
undercutting by Canadian protein exports of our exports in third
country markets.
We are now writing, joined by a representative of the dairy
industry of Argentina, to ask the authorities in Argentina, Australia,
the EU, Mexico, New Zealand and the U.S. to pursue all avenues
available to challenge these measures, including WTO dispute settlement
and bilateral trade agreement relationships. In the absence of such
efforts Canada's Class [VII] policy will seriously further distort and
disrupt international dairy trade, causing harm to our fa[r]mers.
Background
The present structure of Canada's supply managed dairy industry
dates from the early 1970s. As we noted in our earlier correspondence,
the system operates by allocating production quotas, setting prices
that vary through a range of milk classes, and controlling imports with
tariff rate quotas on imports varying between 200% and 300%. Canadian
milk production levels were maintained between 74.8 million hectoliters
in 2000 and 76.7 million hectoliters in 2010, with no discernible trend
line. However, a distinct upward trend line has now emerged with 4%
growth per annum over the last 2 years, and 2016 production of 84.7
million hectoliters being the highest in Canadian history. This might
not be problematic if there was a market for this additional milk in
Canada, but that is not the case. The upward trend in milk production
is the result of production quotas being set on estimated butter
consumption, which has been growing rapidly. However, the coproduct of
butter production--milk protein--has not seen a similar increase in
demand. This has resulted in a structural surplus of milk protein,
exemplified by excess production of skim milk powder (SMP), ballooning
to over 100,000 MT per annum.
Canada's Response
To address this structural surplus a new ingredient milk class--
initially Ontario Class [VI] and now National Class [VII]--was created,
with milk priced to processors at the lowest world price to produce
dairy protein ingredients. The impact has been two-fold: first, the
substitution of Canadian dairy ingredients for imported milk proteins,
and second, an increase in non-WTO-compliant Canadian exports of milk
protein. The first is evidenced by the widely reported cancellation of
contracts by Canadian cheese makers for U.S. sourced ultra-filtered
(UF) milk. The second, by a review of Canadian exports of skim milk
powder (SMP), the most easily produced milk protein product.
Between 2009 and 2014 Canadian exports of SMP increased irregularly
from 10.1 thousand tonnes to 12.7 thousand tonnes, and again modestly
to 13.6 thousand tonnes in 2015. The adoption of Ontario's Class [VI]
in April of 2016 saw 2016 SMP exports jump 74% to 23.7 thousand tonnes.
The first 4 months of 2017 showed a further year on year increase of
273% to 11.9 thousand tonnes. Moving this protein onto the thinly
traded global market of around 2 million MT of SMP per annum will add
to the already swelling global supply of milk protein and depress
market prices for farmers around the world.
Canada's Obligations
The adoption of Class [VII] (and Ontario Class [VI] before it) is a
measure which is inconsistent with a number of commitments that Canada
has undertaken. For example:
In December of 2015 at Nairobi, Kenya, Canada became a
signatory to the Export Competition Ministerial Decision,
thereby undertaking to terminate all scheduled export subsidies
by the end of 2020, maintain a quantity standstill at 2003-05
levels until then, and refrain from applying export subsidies
to new products or new markets. The 2016 Canadian exports of
23.7 thousand tonnes, noted above, is an amount in excess of
the Nairobi standstill agreement amount.
As part of the 2003 resolution of the WTO dispute settlement
case brought by the United States and New Zealand against
Canada's special milk class for exports, Canada agreed ``that,
for the marketing year beginning 1 August 2003, and thereafter,
Canada's exports of dairy products for which export subsidies
have been granted will not exceed the quantities and budgetary
outlays specified in its WTO Schedule. The upward trend in
Canada's exports of SMP, reported above, is rapidly approaching
the 44.9 thousand tonnes Uruguay Round annual quantity
commitment.''
Conclusion
Our respective dairy industries are firmly of the view that the
operation of Ontario's Class [VI] and Canada's Class [VII] contravene
Canada's international commitments. Canada's increasingly protectionist
policies are diverting trade with attendant global price-depressing
impacts, and are in conflict with the principles of free markets and
fair and transparent trade. We therefore request the authorities of
Argentina, Australia, the EU, Mexico, New Zealand, and the U.S. to take
all steps available to them to resolve this issue and ensure that
Canada complies with its international obligations.
With best regards,
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
[Terry Richardson,] [Alexander Anton,]
President, Secretary General,
Australian Dairy Industry Council European Dairy Association (EDA);
(ADIC);
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
[Benedicte Masure,] [Jukka Likitalo,]
Secretary General, Secretary General,
European Whey Products Association European Association of Dairy Trade
(EWPA); (Eucolait);
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
[Kimberly Crewther,] [Matt McKnight,]
Executive Director, Chief Operating Officer,
Dairy Companies Association of New U.S. Dairy Export Council (USDEC);
Zealand (DCANZ);
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
[Michael Dykes, D.V.M.,] [Jim Mulhern,]
President & CEO, President & CEO,
International Dairy Foods National Milk Producers Federation
Association Federation (IDFA); (NMPF);
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
[Rene Fonseca Medina,] [Miguel Paulon,]
General Director, President,
Camara Nacional De Industriales de Centro De La Industria Lechera
la Leche (Canilec) (Mexico (CIL) (Centre of the Argentine
National Chamber of Industrial Dairy Processing Industry).
Milk);
CC:
The Honorable Barnaby Joyce MP, Deputy Prime Minister, Minister for
Agriculture and Water Resources, Australia;
Mr. Phil Hogan, EU Commissioner for Agriculture & Rural
Development, European Commission;
Mr. Jean-Luc Demarty, Director-General for Trade, European
Commission;
Mr. Jerzy Bogdan Plewa, Director-General for Agriculture & Rural
Development, European Commission;
The Honorable Nathan Guy, Minister of Primary Industries, New
Zealand;
Mr. Martyn Dunne, Director General, Ministry for Primary
Industries, New Zealand;
Mr. Vangelis Vitalis, Deputy Secretary Trade and Economic, Ministry
of Foreign Affairs & Trade, New Zealand;
The Honorable Sonny Perdue, Secretary, U.S. Department of
Agriculture;
The Honorable Juan Carlos Baker, Deputy Secretary of Trade, Mexico.
The Chairman. Well thank you, Mr. Secretary.
Mr. Frazier, 5 minutes.
STATEMENT OF KENDAL FRAZIER, CHIEF EXECUTIVE
OFFICER, NATIONAL CATTLEMEN'S BEEF ASSOCIATION, CENTENNIAL, CO
Mr. Frazier. Good morning. My name is Kendal Frazier and I
am the CEO of the National Cattlemen's Beef Association, the
oldest and largest national association of cattlemen. I am
honored to provide you with our perspective on the importance
of the North American Free Trade Agreement, and the risk we
face if the U.S. beef industry is saddled with changes to NAFTA
that may jeopardize our current access to Canada and Mexico.
According to USDA, the U.S. beef industry consists today of
around 900,000 cattle and calf operations, a national herd size
of about 100 million head of cattle, accounting for roughly
$67.5 billion in annual farm gate receipts. In 2016, our
industry sold over $6.3 billion in beef products around the
world, with exports alone accounting for over $300 per head for
every fed steer and heifer.
NCBA strongly supports NAFTA because the terms of NAFTA
developed Canada and Mexico into two very important export
markets for U.S. beef. While there may be cause from other
segments of agriculture and other industries to update or
renegotiate the terms of NAFTA, we strongly encourage our
negotiators to focus their efforts on those specific areas and
leave alone the terms of NAFTA that have greatly benefitted the
U.S. beef and cattle industry. Quite frankly, it is difficult
to improve upon duty free, unlimited access to Canada and
Mexico, and we are pleased to see that USTR announced its
support for continued reciprocal duty free access.
Even still, our message remains the same. Please do no harm
and do not jeopardize our access.
On average, Canada and Mexico have been two of our top five
export markets, with approximately $1 billion each in annual
sales. While Canada has been a high value market for muscle
cuts, Mexico has proven to be an excellent market for things
like skirts, tongues, and other cuts that Americans find less
desirable.
Now opponents to NAFTA try to paint a dark picture of
uneven beef trade, saying NAFTA has been our downfall for over
20 years. Opponents pin all our problems on NAFTA, but they
fail to acknowledge other key factors that our industry has
faced, like a BSE case in 2003, severe drought that caused beef
and cattle shortages, the strength of the U.S. dollar, and
continuation of tax policies that encourage the break up of
multi-generational cattle operations. Simply put, opponents
view NAFTA as a zero sum game and fail to consider important
factors such as our incredible growth in global exports and the
value that exports bring to all segments of our industry. This
view is a great disservice to all producers.
In addition, the NCBA strongly opposes any attempts to use
NAFTA as a vehicle to resurrect failed policies of the past,
such as mandatory Country-of-Origin Labeling, also known as
COOL. COOL was a U.S. law for over 6 years, and failed to
deliver on its promises to build consumer confidence and add
value to our products. Instead, COOL resulted in long battle
with the World Trade Organization with the United States facing
the promise of more than $1 billion in retaliatory tariffs from
Mexico and Canada unless COOL was repealed. Canada and Mexico
still have the authority to retaliate against the United States
if COOL is brought back into effect, and rest assured, they
will retaliate against us if necessary.
We encourage you to build on the success that current NAFTA
provisions have given U.S. beef producers. I thank you for
asking me to appear this morning.
[The prepared statement of Mr. Frazier follows:]
Prepared Statement of Kendal Frazier, Chief Executive Officer, National
Cattlemen's Beef Association, Centennial, CO
On behalf of the National Cattlemen's Beef Association (NCBA), I
submit to you the following comments regarding the North American Free
Trade Agreement.
Comments of the National Cattlemen's Beef Association Regarding
Negotiating Objectives Regarding Modernization of the North
American Free Trade Agreement With Canada and Mexico
The National Cattlemen's Beef Association (NCBA) has represented
America's cattlemen and women since 1898, preserving the heritage and
strength of the industry through education and public policy. As the
largest and oldest national association of cattle producers, NCBA
represents a very diverse beef industry that strives to meet demand in
emerging markets and increase demand for beef. NCBA appreciates the
opportunity to provide comments for the Office of the United States
Trade Representative (USTR) regarding USTR-2017-0006, ``Negotiating
Objectives Regarding Modernization of the North American Free Trade
Agreement With Canada and Mexico''.
Brief Summary of U.S. Beef Industry's Position on ``NAFTA
Negotiations''
NCBA strongly supports the North American Free Trade Agreement
(NAFTA) because the terms of NAFTA have made it possible for the U.S.
beef and cattle industry to develop two very important export markets
in Canada and Mexico as well as allowing all sectors of the U.S. beef
and cattle industry to compete and operate at optimal levels when
trade-restrictive policies were eliminated and repealed. While we
understand that there may be calls from other segments of the
agriculture industry and other industries to update or renegotiate the
terms of NAFTA, NCBA strongly encourages you to focus and contain your
efforts on those areas and leave alone the terms of NAFTA that have
greatly benefitted the U.S. beef and cattle industry. Quite frankly, it
is difficult to improve upon duty-free, unlimited access to Canada and
Mexico--two of the top five export markets for U.S. beef. Furthermore,
NCBA strongly opposes any attempt to use NAFTA as a vehicle to
resurrect failed protectionist policies of the past including mandatory
Country-of-Origin Labeling (MCOOL). MCOOL was U.S. law for over 6 years
and failed to deliver on its promises to build consumer confidence and
add value to our producers. Instead, MCOOL resulted in a long battle in
the World Trade Organization with the United States facing the promise
of $1 billion in retaliatory tariffs from Mexico and Canada unless
MCOOL was repealed by Congress. We must learn from the mistakes of the
past and not repeat them. NCBA hopes that negotiations with Canada and
Mexico will be swift and successful and will build upon the success
that current NAFTA provisions have given U.S. beef producers.
Overview of Imports and Exports in Beef and Cattle Trade
Over the past 7 years we have seen a significant growth in U.S.
beef exports due to the implementation of free trade agreements and the
lifting of non-science based restrictions on U.S. beef specifically in
countries in Asia and Latin America. While Canada and Mexico have
traditionally battled for first and second place among U.S. beef export
markets, they have been surpassed by growing demand in Japan and Korea
who currently top the list as top export markets for U.S. beef.
According to the U.S. Census Bureau the total world population is
estimated at nearly 7.4 billion people. Of that total the United States
accounts for 325 million people, Mexico's population is estimated at
130 million people, and Canada surpassed 35 million people in 2016.
While North America represents a small fraction of the global
population, it also represents a strong consumer base for beef.
Throughout its lifetime, NAFTA has developed all of North America into
a premium market for U.S. beef sales. Another benefit of NAFTA has been
the development of an efficient and competitive supply chain that
allows each sector of the supply chain, from cow/calf producer to feed
yard to retail, to capitalize U.S. beef sales to the 96 percent of the
global consumers who reside outside our borders, especially those
consumers who will pay a premium for U.S. beef products that are
undervalued in our domestic market. For U.S. beef producers, the value
of exports alone accounted for $339 per head in the first quarter of
2017.
Beef and Offal Exports (U.S.$/Hd)
According to the U.S. Meat Export Federation (USMEF), the top five
export markets for U.S. beef in 2016:
------------------------------------------------------------------------
Country Sales Volume (metric tons)
------------------------------------------------------------------------
(1) Japan $1.5 billion 258,653 MT
(2) Korea $1.06 billion 179,280 MT
(3) Mexico $975 million 242,373 MT
(4) Canada $758 million 116,266 MT
(5) Hong Kong $684 million 112,770 MT
------------------------------------------------------------------------
Beef Industry Export Values
Annual
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Data Source: USDA-FAS, Compiled & Analysis by LMIC; I-N-70,
3-22-17.
Livestock Marketing Information Center.
The United States is also one of the top beef importers in the
world. The common misconception is that we import the same ``beef''
that we export, but the truth is we export higher-value cuts like
tongues and other offals while we import grass-finished beef trimmings
to mix with our fattier trimmings to meet U.S. ground beef demand in
commercial markets. Without beef imports we could not meet domestic
demand for commercial ground beef and would likely lose those consumers
to other lesser-value proteins.
Beef Industry Imports Values
Annual
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Data Source: USDA-FAS, Compiled & Analysis by LMIC; I-N-71,
3-22-17.
Livestock Marketing Information Center.
Summary of Beef Trade with Canada and Mexico
Without question, the North American Free Trade Agreement (NAFTA)
has given U.S. beef a strong advantage over other countries in
competition for North American consumers. Today, Mexico and Canada are
two of the leading export markets for U.S. beef. Duty-free access,
close proximity, and our vast transportation infrastructure system are
a few of the main reasons why Canada and Mexico are such strong markets
for U.S. beef. According to the U.S. Department of Agriculture's
Foreign Agriculture Service, the 1993 pre-NAFTA level of U.S. beef
exports to Mexico was 39,000 tons valued at $116 million. As a result
of NAFTA, Mexico eliminated its 15 percent tariff on live slaughter
cattle, its 20 percent tariff on chilled beef and its 25 percent tariff
on frozen beef. According to USMEF, Mexican consumers purchased 242,373
metric tons of U.S. beef at a total of $975 million in 2016. Likewise,
Canadian consumers purchased 116,266 metric tons of U.S. beef at a
value of $758 million.
The United States has a significantly larger human population and
work force, cattle herd, beef-production industrial complex, and a
vastly superior transportation infrastructure system that allows U.S.
beef and cattle to move freely and efficiently to meet beef demand all
across North America. These are a few reasons why approximately 85
percent of U.S. beef production is destined for the U.S. market. The
U.S. customer likes our grain-finished flavor profile and is willing to
pay some of the best prices in the world for U.S. beef. American
consumers prefer higher value cuts such as tenderloins and ribeyes, and
we have found that while Canadian customers have similar preferences,
Mexico has become a high-volume high-value market for cuts like rounds,
skirts, tongues, intestines, and other cuts that Americans find less
desirable.
In 2016 the United States became a net importer of beef from Canada
and Mexico, one of the rare occasions under NAFTA.
2016 Beef Export Sales to Canada = $758 million
2016 Beef Imports from Canada = $1.23 billion
2016 Beef Export Sales to Mexico = $975 million
2016 Beef Imports from Mexico = $1.05 billion
While opponents of NAFTA will point to the recent decline in sales
as another reason to put in place trade barriers to restrict imports it
is important to remember that Americans will not absorb the exports we
would lose to Canada and Mexico. If Americans wanted to purchase these
cuts it would be evident in the market. Who else will absorb that
volume and value of beef we export to Canada and Mexico? Furthermore,
restricting imports from Mexico and Canada would also result in those
markets becoming restricted for U.S. pork and poultry exports which
would ultimately come back on the U.S. market and depress protein
prices even further. Is it worthwhile to jeopardize our access to
Canada and Mexico? Absolutely not.
Imposing tariffs or quotas will do nothing to offset the power of
the U.S. dollar in cross-border trade with Mexico or Canada. It's a
simple fact that having cheaper currency value makes a country's
exports more competitive. This is the case for Canada and Mexican beef
exports to the United States. Restricting trade will only have negative
repercussions on the U.S. beef industry because it will either lead to
the imposition of restrictive tariffs or quotas on U.S. beef exports
and it will encourage Canada and Mexico to trade with other countries
who may have cheaper currencies than the United States.
Perhaps we should pay closer attention to the investments that
Canada and Mexico are making in their cattle feeding and packing
sectors to become more competitive with the United States. In recent
years there has been an increased effort in Mexico to transition
packing facilities from municipally inspected facilities to federally
inspected facilities. Beef that is produced in Mexico and is packaged
in a federally inspected facility is eligible for export. The Mexican
beef industry has invested heavily in building its packing sector and
expanding feedyard operations in Northern Mexico. The goal is to
transition from being a low-cost supplier of cattle to the United
States and develop the feedyard and packing sectors to capitalize on
higher valued beef exports to U.S. consumers. We cannot afford to have
protectionist policies that encourage the market consolidation of the
U.S. feedyard and packing sectors, or we very well may become the low-
cost suppliers of cattle to Canada and Mexico.
U.S. Beef Trade: Mexico
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Source: USDA-FAS.
Monthly Average Exchange Rates: Mexican Pesos per U.S. Dollar
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Source: Pacific Exchange Rate Services.
Exchange Rate
U.S. Dollar Base, Monthly
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Data Source: Pacific Exchange Rate Service[s], Univ. of B.C.,
Compiled by LMIC; 06/02/17.
Livestock Marketing Information Center.
Exchange Rate
U.S. Dollar Base, Monthly
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Data Source: Pacific Exchange Rate Service[s], Univ. of B.C.,
Compiled by LMIC; 06/02/17.
Livestock Marketing Information Center.
Summary of Cattle Trade with Canada and Mexico
The United States has been trading live cattle with Mexico and
Canada for hundreds of years. In fact, most of our western traditions
are deeply rooted in the traditions of the vaqueros coupled with
English and American technology and innovation. According to USDA, in
January 2017 the United States cattle herd totaled 93.5 million head
while Mexico's cattle herd totaled 16.5 million head and Canada's herd
totaled 12.1 million head. On average, we import about two million head
of cattle from Mexico and Canada. This small number of cattle has been
the source of contention within the U.S. beef industry for decades, but
before we discuss that, we should consider why we import cattle into
the United States.
Simply put, we import cattle from Mexico and Canada to supplement
shortages in our herds and to help our feed yards and packing
facilities run at optimal levels. We import these cattle, invest
American resources in these cattle, and they are slaughtered as
American cattle, returning value to the U.S. producers who invested in
them. For example, in 2016 there were 943,043 head of cattle imported
from Canada at a value of $1,033,960,257. During the same time there
were 764,970 head of cattle imported from Mexico at a value of
$584,858,261.
Top 5 Destinations for Canadian Cattle Imports
------------------------------------------------------------------------
------------------------------------------------------------------------
(1) Washington $341 million
(2) Pennsylvania $162 million
(3) Utah $162 million
(4) Minnesota $102 million
(5) Nebraska $97 million
------------------------------------------------------------------------
Top 5 Destinations for Mexican Cattle Imports
------------------------------------------------------------------------
(1) Texas $396 million
(2) Arizona $138 million
(3) New Mexico $35 million
(4) Nevada $10 million
(5) California $4.2 million
------------------------------------------------------------------------
Some of the opponents of NAFTA claim that NAFTA created a massive
deficit in North American Cattle trade, but if you look at the annual
imports the total numbers have not changed much since before NAFTA was
implemented.
Cattle Imports from Canada and Mexico
Annual
Data Source: USDA-ERS & USDA-FAS, Compiled by LMIC; I-N-13,
3/22/17.
Livestock Marketing Information Center.
One of the oldest internal battles within the U.S. beef industry is
rooted in live cattle trade between the United States, Canada, and
Mexico. For many years there have been small segments of the U.S. beef
industry who have supported trade-restrictive policies on live cattle
trade with the argument that restricting cattle imports would somehow
yield higher prices for U.S. cattle. These protectionists claimed that
cattle born in Canada or Mexico that enter the United States were
flooding the market and driving down the cost of live cattle. It was
there hope that putting in trade-restrictive policies such as MCOOL
would result in the U.S. beef producer seeing greater prices in the
long run. MCOOL was also a ruse that was sold to consumer groups as a
food safety crisis to garner their support and deep pockets. These
short-sighted efforts did not result in higher values for producers or
a safer food supply, in some cases their efforts backfired by forcing
feedyards and some packing facilities to close down permanently,
leading to further consolidation in the U.S. beef industry and job loss
in the beef industry. Feedyards and packing facilities are expensive
ventures that cannot be easily restored once they have been moth-
balled. When they close it means there are fewer people competing for
our cattle and this consolidation makes it less competitive for the
cow/calf and stocker sectors. Furthermore, feedyards and packing
facilities are major employers in rural communities across America, and
when they are forced to close some communities have a difficult time
recovering from the negative economic impact.
Learning from Past Mistakes: NAFTA 2.0 Has No Place for MCOOL 2.0
The proponents of MCOOL see the renegotiation of NAFTA as another
opportunity to restore a failed law and a failed government marketing
program that was a waste of taxpayer dollars and a waste of valuable
time of USTR and USDA staff. MCOOL was neither a measure of food safety
nor a food safety nor a consumer information program, but rather a
failed government marketing program that failed to encourage the
purchase of U.S. beef. The United States has a robust food safety
system in place to ensure that all beef sold in America, regardless of
where the animal originated, is safe. Here are a few reminders why
MCOOL has no place in NAFTA.
MCOOL was a mandatory, government-run program which required all
beef sold in grocery stores to be labeled to show where the animal
(from which the roast below was cut) was born, raised, and slaughtered.
Grocery stores had the option of using the word ``harvested'' in lieu
of ``slaughtered''.
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Proponents of MCOOL claimed that adding this label to cuts of beef
would drive consumers to only buy beef from the United States and, in
turn, provide a premium price for our product that would be passed back
to the producer. After 6 years of implementation, that was not the case
and Congress repealed MCOOL in December 2015. In hindsight, MCOOL was a
failed government marketing program.
We believe in the power of the marketplace, therefore we remain
opposed to mandatory, government-run MCOOL. In fact, the beef industry
currently has many voluntary, consumer-driven and industry-led
marketing programs. These programs focus on the fundamentals of
marketing by creating the specifications for the type of beef they want
to sell (breed-specific, natural, organic, guaranteed tender, born and
raised in the USA, etc.). Then, they build a label specific to that
program which ``brands'' the meat and provides an eye-catching symbol
recognizable by the consumer, thus building loyalty and demand for that
brand. Ultimately, the success of that brand results in financial
premiums paid back to producers who supply the animals.
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
The proponents of a mandatory, government-run MCOOL program claim
that consumers want to know where their beef comes from. We don't
dispute that. We agree that a random poll asking people if they want to
know where their meat comes from would show that the majority of them
would like to know. Polls, however, can show many things depending on
how the question is asked. Therefore, you can't look at polls alone to
falsely assume that all Americans want a mandatory, government-run
MCOOL program. Kansas State University took the study of MCOOL beyond
just a simple poll. They used several different approaches to determine
what the consumer actually considers when they go to the grocery store
to purchase meat. The results were clear, consumers placed quality,
appearance, and value at greater priority than country-of-origin. And
another unfortunate blow to the proponents of MCOOL, the Kansas State
University study ultimately found that demand for meat products had not
increased since the implementation of MCOOL, and typical Americans are
unaware of MCOOL and don't look for meat origin information when they
make their purchase.
Ultimately, this means that our industry has spent millions of
dollars complying with a MCOOL law that, after 6 years, the consumer
doesn't even look for. Cost without benefit is not a smart business
plan, but it is exactly what you expect from a mandatory, government-
run program.
The argument that consumers have a right to know where their food
comes from is an argument that proponents of MCOOL are using to try to
save MCOOL, but it is a red herring once you consider the exemptions to
MCOOL. MCOOL only applies to beef sold in grocery stores. It does not
apply to beef sold in food service, restaurants, or beef that has been
processed. How can you say it is a consumer's right to know only in the
grocery store and not when they go out to eat? That argument doesn't
hold up. In fact, most of the beef imported into the U.S. is sold in
food service and not in grocery stores. If consumers want to know more
about their food we have private marketing labels that already address
their concerns.
Finally, MCOOL violated international trade laws and led to a WTO
dispute that nearly resulted in a trade war with Mexico and Canada.
After implementation of MCOOL, both Canada and Mexico claimed MCOOL
violated our trade agreements and filed a case against the United
States with the World Trade Organization (WTO). The WTO found in favor
of Canada and Mexico. The WTO found in their favor again after the
United States appealed the first decision. Because of the ruling and
appeal, the United States was instructed by the WTO to change MCOOL in
order to come into compliance. The United States failed at multiple
appeals efforts and ultimately Canada and Mexico were given the
approval to assess $1 billion in retaliatory tariffs against the United
States if Congress did not repeal the MCOOL law. The risk of starting a
trade war with Canada and Mexico compelled Congress to finally repeal
MCOOL and allowed us to narrowly avoid retaliation. Canada and Mexico
still have the authority to retaliate against the United States if
MCOOL is brought back into effect.
Conclusion
Opponents of NAFTA try to paint a very dark picture of
disproportionate beef trade as the cause of many wrongdoings faced by
U.S. beef producers over the past 25 years. Unfortunately many of these
anti-trade advocates use the same misguided logic and over-simplified
arguments to push these unsupported claims on an audience that is
looking for simple answers to complex economic realities. They want you
to think that we should export more cattle and more beef to Mexico and
Canada year after year in order for NAFTA to be viewed as a success.
But to view NAFTA as a zero-sum game does the U.S. beef and cattle
industry a great disservice because it discounts all the vast benefits
our producers receive from both exports and imports from Canada and
Mexico and the role they play in helping us meet global beef demand.
The opponents of NAFTA fail to realize that walking away from or
compromising the beef and cattle terms of NAFTA will place U.S. beef
producers at significant disadvantage to competitors who are currently
trying to take U.S. market share in the beef markets of Canada and
Mexico. Canada and Mexico are negotiating trade agreements with our
competitors in South America and Europe, not to mention the Australian
and New Zealand producers who are trying to move multi-lateral trade
agreements without the United States.
For these reasons, NCBA encourages the U.S. Government to keep the
renegotiation of NAFTA to a narrow scope of issues that will not
jeopardize the beneficial parts of NAFTA, especially the beef and
cattle terms of trade.
Should you have any questions or desire any further information
please contact Kent Bacus, NCBA's Director of International Trade and
Market Access at (202) 347-0228.
Sincerely,
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Kendal Frazier,
Chief Executive Officer,
National Cattlemen's Beef Association,
Denver, Colorado.
The Chairman. Thank you, Mr. Frazier.
Mr. Brosch, did I mispronounce your name, or is that close?
Mr. Brosch. That is just fine.
The Chairman. All right, 5 minutes.
STATEMENT OF KEVIN J. BROSCH, J.D., PRINCIPAL, BroschTrade LLC,
WOODVILLE, VA; ON BEHALF OF
NATIONAL CHICKEN COUNCIL; NATIONAL TURKEY
FEDERATION; USA POULTRY & EGG EXPORT COUNCIL
Mr. Brosch. Thank you. Thank you, Mr. Chairman, and Members
of the Committee. My name is Kevin Brosch. I am a lawyer here
who has been practicing international trade law in Washington
with a concentration in agricultural products for about 35
years. From 1989 to 1997, I was the Deputy Assistant General
Counsel at the Department of Agriculture, and I served as
USDA's legal advisor during the GATT Uruguay Round negotiations
in the formation of the World Trade Organization. I also
supervised the legal work and participated in the original
NAFTA negotiations in the early 1990s. In 1997-1998, I served
as special trade counsel for the Senate Agriculture Committee
and its Chairman, Dick Lugar of Indiana. I am here today on
behalf of the National Chicken Council, the National Turkey
Federation, and USA Poultry and Egg Export Council. Between
these three organizations, they represent more than 95 percent
of all the poultry produced and exported from the United
States.
I want to make the point initially that poultry is the most
world competitive product that we have here in U.S.
agriculture. We have no government programs. We have no
government subsidies. We are number one in the world in the
production of poultry. We have about 20 percent of the world's
poultry production. We exceed China, which is number two. We
are currently number one in exports of poultry. Last year, we
pushed ahead of Brazil once again. We export to more than 100
countries. We have 300,000 jobs in agriculture, and there are
1.4 million related industry jobs that are tied to poultry
production and poultry export. We also are one of the biggest
exporters of soybeans and corn. Every time we export a 6 pound
chicken, we are exporting 12 pounds of soybeans and corns with
feathers on it. We are a great value-added export that assists
not only the poultry producers and the poultry processors, but
also, our grain and the soybean people.
NAFTA has been a godsend for U.S. poultry. We went from
almost no exports to Mexico--that is hard to believe, but
before NAFTA, we had almost no exports. We now have more than 1
million metric tons of exports, if you count all the poultry
products, chicken, turkey, eggs, duck, together.
For broiler chicken exports, Mexico is our number one
market, Canada is our number two market. For turkey, Mexico is
our number one market, Canada is our number three market.
Mexico now represents 24 percent of our exports of broiler
chicken and related chicken products, Canada, 16 percent. We
have had good cooperation and relationships with both the
Canadian and Mexican industries, and with their governments. We
have had ups and downs over the time, but we have managed to
work through those and NAFTA has provided us with the
mechanisms to do so.
Our message is the same as our colleagues from the beef
industry. Please, do no harm. This is a critical industry for
United States agriculture, not only for the poultry producers,
but for our grain suppliers. We have lots of jobs in states
that you are familiar with: Arkansas and Georgia, Mississippi,
North Carolina, Iowa, Minnesota. I could go on and on. Those
jobs depend upon the continued prosperity of these companies
and their ability to export to markets, and Mexico and Canada
are the most important ones.
Thank you.
[The prepared statement of Mr. Brosch follows:]
Prepared Statement of Kevin J. Brosch, J.D., Principal, BroschTrade
LLC, Woodville, VA; on Behalf of National Chicken Council; National
Turkey Federation; USA Poultry & Egg Export Council
Mr. Chairman and Members of the Committee:
Thank you for your invitation to appear here today and provide
testimony on behalf of USA Poultry & Egg Export Council (USAPEEC), the
National Turkey Federation (NTF), and National Chicken Council (NCC),
in anticipation of the proposed renegotiations of the North American
Free Trade Agreement (NAFTA). My name is Kevin J. Brosch. I have been
practicing international trade law, with almost exclusive emphasis on
trade in agricultural products, for the past 35 years here in
Washington. I have done so both in private practice and in government
service. I began my practice in 1981 at the Washington, D.C. law firm
of Steptoe & Johnson. From 1989 to 1997, I served as Deputy Assistant
General Counsel for International Trade at the U.S. Department of
Agriculture (USDA), and was USDA's legal advisor during the GATT
Uruguay Round negotiations that concluded in the formation of the World
Trade Organization. I also supervised USDA's legal work for, and
participated in, the NAFTA negotiations in the early 1990's. In 1997-
98, I served as special trade counsel to the Senate Committee on
Agriculture, Nutrition and Forestry and its Chairman, Senator Dick
Lugar of Indiana. For 12 years, I was a partner in DTB Associates, a
specialty law and consulting firm concentrating on agricultural trade.
I currently am the principal in my own law and consulting business,
BroschTrade, LLC and advise a number of agricultural and horticultural
clients on matters of international trade and agricultural law.
NCC is the national association based in Washington, D.C. that
represents the broiler chicken production industry of the United
States. NCC member companies include chicken producer/processors,
poultry distributors, and allied industry firms that account for
approximately 95 percent of the chickens produced in the United States.
NTF, also headquartered in Washington, D.C. represents nearly 100
percent of all turkey processors, growers, breeders, hatchery owners
and allied companies. It is the only national trade association
representing the turkey industry exclusively
USAPEEC is the national association based in Stone Mountain,
Georgia that represents the export interests of the U.S. chicken,
turkey, eggs and duck industries. USAPEEC has more than 200 members
companies--poultry producers, processors, export trading companies,
cold storage operators, freight forwarders and other associated
businesses--who account for approximately 95% of our country's very
significant poultry and egg export trade. The United States exports
poultry products to more than 100 foreign countries.
When the term ``poultry'' is used in these comments, it refers to
all of these products.
The U.S. poultry industry has perennially been among America's most
important and successful production and export sectors. In 2015, the
U.S. industry produced almost nine billion broiler chickens, weighing
53 billion pounds, live-weight; and more than 40 billion pounds of
chicken product were marketed. In addition, U.S. poultry production
includes nearly 5.76 billion pounds of turkey, approximately 100
billion eggs, and nearly 220 Million pounds of duck. The poultry
industry employs more than 300,000 U.S. workers directly, and more than
1.4 million jobs in the U.S. economy are related to poultry.
Poultry is vital to our farm economy. Annually, U.S. poultry
consumes more than 49 million MT of the U.S. corn crop, and more than
26 million MT of U.S. soybean production. In 2014, U.S. broiler chicken
production, wholesale value, was an estimated $90 billion; table eggs,
$10.4 billion; turkey $6.7 billion; and duck, $158 million. The United
States has one of the most efficient poultry industries in the world.
The U.S. is the largest producer of poultry meat with about 20% of the
world's production (China is second with approximately 17%).
The United States is also one of the two leading poultry exporting
nations. The United States and Brazil each account for about \1/3\ of
the world's broiler exports. Poultry exports are among the most
important of all U.S. agricultural exports. In the most recent year for
which full data is available, the U.S. exported approximately 3.7
million metric tons of chicken products, with a value of nearly $4.6
billion, to more than 100 counties; and exports of turkey valued at
almost $500 million. While the situation in different markets varies
from year to year, over the past decade two of our five most important
poultry export markets have been Mexico and Canada.
In a recent letter to the current Administration, the North
American Agriculture and Trade Coalition referred to the North American
Free Trade Agreement (``NAFTA'') as a ``bonanza for American
Agriculture.'' NCC, NTF and USAPEEC agree with that assessment. NAFTA
has been particularly important for U.S. poultry exports. NAFTA, of
course, began as an initiative during the Administration of President
Ronald Reagan when talks with Canada were first launched in 1984. The
U.S.-Canada Free Trade Agreement was signed at the end of President
Reagan's second term in 1988. Talks with Mexico to expand that
agreement to the entire North American continent began during the term
of his successor, President George H.W. Bush, and were successfully
concluded by the end of his term in 1992. The policy of pursuing free
trade began under President Reagan has been continually pursued during
the ensuing four Administrations.
Initially, we must emphasize that with respect to poultry trade,
there is no trade deficit. The United States is the most efficient
producer of poultry products in the world. Our comparative advantage in
producing and marketing these products derives from both our access to
America's abundant production of high quality feed grain and soybean
products which are used to feed our chicken and turkey flocks; and from
America's technological leadership in poultry genetics and breeding,
feed compounding, and animal health practices. Because of our
significant comparative advantage in this product, the United States
exports poultry to more than 100 countries, and imports very little
poultry products.
Second, free trade agreements have been the mechanisms that have
helped to sustain U.S. world leadership in poultry exports. Of the 120
countries to which we export our products, 20 are nations who are free
trade partners with the United States. Those 20 countries now represent
more than \1/2\ of all the sales value of U.S. exports of poultry
products. As recently as 2007, we had export sales to these 20
countries of approximately $1 billion--about 28% of our total exports
sales, which was then nearly $3.6 billion. By 2016, sales to the 20
free trade partner countries has increased to nearly $2 billion, even
though our total exports sales had increased more modestly.
When NAFTA first came into force, the United States had only
limited exports to Mexico despite that country's immediate proximity on
our southern border. Although there were initial concerns on the part
of the Mexican industry regarding free trade with the U.S., we were
able to bridge that gap by beginning to open trade through an initial
78,000 MT tariff-rate quota for chicken products; and to gain duty-free
access to the Mexican market for turkey. Exports to Mexico have grown
ever since, and it is today by far our largest market for U.S. poultry
products. [See Figures 1 and 2.] For the most recent year for which
data is available, U.S. chicken exports to Mexico were 637,888 MT at a
value of $515 million; egg exports $27 million; and turkey exports were
152,404 MT at a value of $348 million. Also, Mexico is currently the
largest export market for U.S. fowl meat, with exports in the most
recent year of 50,101 MT at a value of $57 million.
So, as one can see, Mexico is the U.S. poultry industry's most
important market with an export value of approximately $1 billion
annually. Our success in the Mexican market is a key component of the
profitability of our industry, and means many thousands of U.S. jobs.
The majority of turkey exports go into Mexico for further processing,
creating jobs on both sides of the border.
The United States has never obtained totally free access to the
Canadian market for poultry. Initially when the United States and
Canada negotiated the U.S. Canada-Free Trade Agreement in the mid-
1980's, Canada reserved its rights, as it had under the General
Agreement on Tariffs and Trade (GATT), to limit imports of certain
types of poultry products, including chicken leg quarters, to protect
its domestic supply control program for those products. When NAFTA came
into force, the U.S. industry believed that those limits would
eventually be eliminated, but discovered subsequently that Canada would
continue to impose its supply-control limitations. The U.S. industry
has been disappointed that, while virtually all other product sectors
enjoy totally free trade under NAFTA, poultry remains the exception.
Nonetheless, NAFTA has also been valuable for the U.S. industry and has
helped to grow exports to Canada. While certain poultry product lines,
including turkey, broilers, eggs and egg products are restricted to set
import quotas (Canada currently limits certain tariff lines of our
exports to 7.5% of their domestic market plus whatever can be done via
their re-export program), other types of poultry products--e.g., fowl
meat and breeding stock--can access the Canadian market duty free.
Canada is currently the U.S.'s second largest market for poultry
exports. In the most recent year, U.S. chicken exports to Canada were
162,777 MT at a value of $436 million; egg exports were $46 million;
and turkey exports were 5,439 MT at a value of $22 million. Canada is
currently the second largest export market for U.S. fowl meat with
exports in the most recent year of were 12,954 MT at a value of $42
million.
The benefits of NAFTA to the U.S. poultry industry stand in stark
contrast to our experiences in other countries where comparable
agreements were never achieved. U.S. exports to those other markets
have often been much less successful in the longer run. For example, in
the 1990's and early 2000's Russia was by far the U.S.'s largest export
market for U.S. poultry. However, over the past decade, the Russian
market has virtually disappeared. At the highest point in 2001, the
U.S. exported 1,119,182 MT to Russia, which represented 36% of total
exports. In recent years, however, the market has disappeared as the
current Russian Administration began to subsidize its domestic
industry, providing government money for a limited number of insiders
who could profit, and by cutting off imports that might present any
competition. By 2014, U.S. exports of chicken to Russia were about \1/
10\ of what they had been in 2001. Since 2015, U.S. exports have
dropped to zero.
While our Russian export market was beginning to decline in the
2000's, our market in China was increasing. Our poultry exports to
China had been just 2,575 MT in 1990; by 2008 we were shipping China
797,161 MT, at a value of $679 million. Then, in response to U.S.
safeguard duties on certain tires made in China to afford protection
for the U.S. tire industry, China imposed high antidumping duties on
U.S. poultry exports, and the U.S. industry immediately lost its most
important market, which at that time was approaching $700 million
annually.
The U.S. has also been unsuccessful in gaining access to other
large and potentially valuable markets where there are no free trade
arrangements. For example, we have no real access to either the
Indonesian or Indian markets. Indonesia currently has a population of
260 million, and has the world's fourth largest middle class with 17.3
million households as of 2014. Middle class purchasing power in
Indonesia is rising strongly and is projected to reach U.S.$11,300 per
household by the end of the decade, up from U.S.$6,300 per household in
2014. India currently has a population of 1.2 billion, and is on track
to pass China and become the globe's most populous country. India
currently has nearly 80 million middle class households and both middle
class numbers and purchasing power are on the increase. These are
markets with overwhelming potential for a quality, low-cost sources of
protein like U.S. chicken, eggs and turkey. But there are no free trade
agreements, and virtually no access.
The success of U.S. exports of poultry in the markets to which we
have fair access has been based on the fundamental principle of
comparative advantage. But it has become clear that U.S. poultry cannot
succeed even with its significant comparative economic advantages in
many markets because we do not have the free trade agreements. NAFTA
has allowed us to be highly successful in Mexico; and has provided
predictable, even if more limited, market access to the Canadian
market. Free trade agreements, while not always perfect, are highly
preferable because they result more often in cooperative and
predictable trade relations
Modernization of the NAFTA
As mentioned above, after the United States and Canada entered the
NAFTA partnership in 1994, it became apparent that one area of
misunderstanding was the degree to which trade in dairy and poultry
products would be liberalized. While the United States Government, and
the U.S. dairy and poultry industries, believed that there would be
free trade under NAFTA in virtually all products, Canada considered
that NAFTA allowed Canada to restrict imports in these products to
accommodate its domestic supply control regimes. As a result, the U.S.
poultry industry has enjoyed much more limited access to the Canadian
market over the past 2 decades than most all other sectors.
Nonetheless, also as outlined above, U.S. exports to Canada have been
significant in some poultry products, and the U.S. poultry industry
sees the NAFTA modernization effort as a potential avenue for further
improvement.
In our view, the recent preliminary negotiations between the United
States and Canada in the context of the proposed Trans-Pacific
Partnership (TPP) agreement has provided indications where those
improvements could occur. Despite the decision of the current
Administration to withdraw from the TPP negotiations, the poultry
industry considers the progress on poultry trade that had been
envisioned in those preliminary TPP negotiations as potentially
important components in modernizing the NAFTA in several ways.
First, Canada and the United States had reached preliminary
agreement on increasing the quotas for U.S. chicken into Canada. This
would represent modest improvements in trade liberalization, but would
not represent threats to current domestic policies or create market
disruptions. The U.S. poultry industry sees these increases as helpful
and politically possible on both sides of the border. The U.S. industry
also believes that there should be similar increases in the market
access for U.S. turkey and turkey products. Access to the Canadian
market for U.S. turkey products is currently very small and increased
market liberalization is warranted.
Second, significant progress was made in the course of TPP
negotiations to improve and update the Sanitary and Phytosanitary (SPS)
rules applicable to free trade agreements. This important work should
not be lost. The poultry industry joins its fellow agricultural
industries in urging the United States, Canada and Mexico to consider
adopting improved SPS provision as a replacement to the SPS chapter
currently in the NAFTA text.
Respectfully submitted,
Kevin J. Brosch,
On behalf of USA Poultry & Egg Export Council, National Chicken
Council, and National Turkey Federation.
Figure 1--U.S. Broiler Exports to Mexico
(In Million U.S. Dollars)
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Figure 2--U.S. Turkey Exports to Mexico
(In Million U.S. Dollars)
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
The Chairman. The gentleman yields back.
Mr. Gaibler, 5 minutes.
STATEMENT OF FLOYD D. GAIBLER, DIRECTOR, TRADE
POLICY AND BIOTECHNOLOGY, U.S. GRAINS COUNCIL, WASHINGTON, D.C.
Mr. Gaibler. Good morning, Chairman Conaway, Ranking
Minority Member Peterson, Committee Members. On behalf of the
U.S. Grains Council, I appreciate the opportunity to appear
before this panel to provide our perspectives on the economic
impacts and importance of the modernization of NAFTA.
The U.S. grain sector has significantly benefitted from
localized trade in the past 30 years, and the Council believes
in expanding access to export markets will continue to drive
growth in American agriculture for years to come. In no case
has that been more apparent than in our trade relationship with
Canada and Mexico. NAFTA has provided a trade policy basis for
the most efficient and effective interregional grain and
livestock value chain in the world. Rising demand for feed and
food has created new opportunities for grain exports in our
hemisphere, which are tariff free, thanks to NAFTA. Due to the
proximity and natural logistical advantages, Mexican feed
millers and livestock producers have expanded and gained
significant efficiencies by utilizing a just-in-time inventory
management system based on our reliable supply of U.S. grain.
Because our economies have grown and become so intertwined,
this trade agreement is in particular critical to our members'
business and during the last several months, it has highlighted
how important it is to maintain our relationships if we are
going to continue to grow. Since March, our CEO and Chairman
has traveled twice to Mexico to meet with their customer and
government officials. We also invited those same customers to
the U.S. in May to meet with U.S. industry and Members of U.S.
Congress, including this Committee. And in fact, in June, our
Board of Directors went to Mexico in June as well. I can tell
you from firsthand knowledge, in those meetings both here and
there, the concerns and resulting impacts are real and
tangible. They are obviously extremely concerned about what is
going on, and confirmed that they are looking for alternative
sources of supply.
While we have worked to reassure and advocate for our
customers, we have strong but unconfirmed evidence that Mexico
is slated to purchase corn from South America beginning in
August and September, and given the political uncertainty, our
customers have told us that rather than continue taking future
positions for grain purchases, they could resort to more
volatile and risky spot markets. This may sound minor, but as a
sea change for our industry happening now and that will change
how the Mexican industry invests in infrastructure and impact
our demand for years to come, as well as through our value
chain. This angst is translated into actual impacts with U.S.
corn exports down seven percent since the 1st of the year.
Keeping in mind the substantial gains we have experienced
from NAFTA and the close relationships we have built with our
customers, both Canada and Mexico, again, I will repeat it is
imperative that all parties make every effort to do no harm to
our existing markets as modernization talks begin. Given these
overriding concerns, though, the Council did recently contract
to conduct some economic analyses to measure the impacts of
both improving NAFTA, and if negotiations fail.
In short, improvements that could help facilitate trade and
remove non-trade barriers will indeed help yield increased U.S.
corn production and exports. Conversely, though, we can see
that if we resort to pre-NAFTA most favored nation tariffs, we
could see impacts in terms of lower commodity prices, reduced
profit margins, lower U.S. corn and grain production, higher
farm program payments, and lower U.S. GDP.
In addition, we hope that whatever negotiations are
conducted here that agriculture doesn't end up being caught up
as a retaliation target. Moving forward, we believe NAFTA
modernization should build on the provisions and objectives of
the Trans-Pacific Partnership. TPP included several important
provisions that would be well-suited for this agreement.
Obviously, the industry has changed since the early 1990s, and
we believe NAFTA can evolve with it, and so we support several
of the provisions I have outlined in my testimony.
Finally, it is critical for this process, and again, the
discussion around NAFTA has caused significant uncertainty in
the market. We need to get that resolved.
In closing, I would emphasize that U.S. producers pride
themselves on being the supplier of choice. To continue that
over time, we must have strong policy across the globe,
particularly with our closest neighbors and customers. Our
relationships with Canada and Mexico are telling to the rest of
the world. If we cannot satisfy our top markets, what does that
say?
Thank you again for the opportunity, and I appreciate the
opportunity to be here.
[The prepared statement of Mr. Gaibler follows:]
Prepared Statement of Floyd D. Gaibler, Director, Trade Policy and
Biotechnology, U.S. Grains Council, Washington, D.C.
Statement on the Economic Impacts Regarding the Modernization of the
North American Free Trade Agreement with Canada and Mexico
Chairman Conaway, Ranking Minority Member Peterson, Members of the
House Agriculture Committee, my name is Floyd Gaibler. I am the
Director of Trade Policy & Biotechnology for the U.S. Grains Council.
The Council is a private, nonprofit organization representing U.S.
producers of corn, sorghum, barley and co-products such as ethanol,
distiller's dried grains with solubles (DDGS), and corn gluten feed and
meal, and as well as associated agribusinesses.
Founded in 1960, the Council now has ten international offices,
representatives in an additional 15 locations and a network of
consultants and partnerships that support programs in more than 50
countries. Our members, leadership and staff fundamentally believe
exports are vital to global economic development and to U.S.
agriculture's profitability.
On behalf of the Council, I appreciate the opportunity to appear
before the Committee and provide our perspective on the economic
implications with respect to the modernization of the North American
Free Trade Agreement (NAFTA).
Importance of NAFTA to U.S. Grains and Ethanol Sectors
NAFTA has had a profound effect on many aspects of North American
agriculture. With a few exceptions, intraregional agricultural trade is
now completely free of tariff and quota restrictions, and the
agricultural sectors of NAFTA's member countries--Canada, Mexico and
the United States--have become far more integrated, as is evidenced by
rising trade in a wider range of agricultural products and substantial
levels of cross-border investment.
The U.S. feed grains industry has benefitted substantially from
NAFTA. Rising demand for feed and food has created new opportunities
for intraregional trade in grains and oilseeds. Poultry and hog
producers in Mexico, for instance, rely heavily on imported feedstuffs
to meet their country's growing demand for meat. Due to the proximity
and natural logistics advantages, Mexican feed millers and livestock
producers have expanded and gained significant efficiencies by
utilizing a ``just-in-time'' inventory management system based on U.S.
reliability of supply.
Mexico is the top market for U.S. corn while Canada ranks as the
ninth largest customer. Mexico and Canada ranked as the top two markets
for U.S. barley in marketing year 2015/2016. Mexico is the second
largest market for U.S. sorghum. Mexico and Canada have become the
second and seventh largest markets, respectively, for distiller's dried
grains with solubles (DDGS). In the recent marketing year, Canada
remained the top market for U.S. ethanol while Mexico was the eighth
largest customer.
The United States exported more than 29.3 million metric tons of
feed grains in all forms to Canada and Mexico in marketing year 2015/
2016, valued at $9.9 billion. The feed grain in all forms variable
accounts for feed grains exported by the United States in either
unprocessed or value-added forms, which offers a holistic look at
demand from global customers being met by U.S. farmers.
Preserve and Protect Market Access
In our communications with the Executive Branch, we exhorted that
all efforts should be expended to maintaining all existing commitments
in a ``do no harm'' manner and expanding upon current market access and
other provisions that enhance U.S. market share in both the Canadian
and Mexican markets, and that promote economic integration and support
farm incomes. In addition, it is imperative that other negotiating
objectives or independent trade policy actions that could result in
retaliation should be avoided at all costs. Agriculture has
traditionally been the first target in response to disruptions in
trading relationships. The 2009 trucking dispute with Mexico and the
threat of retaliatory duties on U.S. agricultural products as a result
of U.S. Country-of-Origin Labeling provisions are prime examples of our
vulnerability.
Moreover, the recent furor of the proposed Executive Order to
withdraw from NAFTA has prompted the Mexican Government to look to
Brazil and Argentina for alternatives sources of corn and other grain
products. We have strong but unconfirmed evidence that Mexico is slated
to purchase between seven and eight cargoes of corn from South America
beginning in August and September. Given the political uncertainty, our
customers have told us that rather than continue to future positions
for grain purchase, a strategy key to mitigating price risk to purchase
corn and co-products, they will resort to the more volatile and risky
spot market. Those decisions have resulted in a 4% decline in corn
exports (seven percent in terms of value) since the beginning of the
year when compared to 2016. We expect further erosion if the shipments
from South America materialize as we anticipate.
Since March, our President and CEO Tom Sleight and Chairman Chip
Councell have traveled twice to Mexico to meet with our customers and
government officials. The Council also invited our top feed and
livestock customers to the United States in May to meet with U.S.
industry as well as Members of the U.S. Congress and the U.S.
Department of Agriculture. In addition, our board of directors traveled
to Mexico in June to meet with our customers and government officials.
We can tell you from firsthand knowledge in participating in the
meetings both in Mexico and here at home, that the concerns and
resultant impacts are real and tangible.
Economic Implications of NAFTA Negotiations
To more concretely understand both the risks of ending NAFTA, and
the potential improvements from a successful modernization of NAFTA,
the Council, along with the U.S. Soybean Export Council and U.S. Wheat
Associates commissioned an econometric analysis led by World
Perspectives, Inc. and the assistance of Perdue University.
With zero tariffs for U.S. feed grains and co-products under the
current NAFTA agreement increased market access depends on facilitating
trade and the reduction of non-tariff barriers. There is no good
quantitative measure of the levels of non-tariff protections or trade
costs that can be reduced via negotiating structures, but it is
feasible to examine the impact of expanded market access at the margin.
For example, it is possible to experiment with the impact of increasing
intra-NAFTA market access by a 1% ad valorem tariff equivalent. In
other words, take the negative economic impact of Canada and Mexico
both imposing a 1% tariff on imports of U.S. feed grains and then
assume the positive equivalent of that economic impact from improving
the technical terms of trade (rules of origin, customs clearance, SPS,
etc.).
The results demonstrate that the U.S. feed grain industry has the
potential to realize gains from improved terms in a modernization of
NAFTA, with Mexico a more significant contributor to those benefits
than Canada. U.S. corn production increases in value by $80 million,
but less than \1/4\ of that goes into direct export to Mexico and
Canada. The majority of the increase in U.S. corn exports to Canada and
Mexico is in the form of value-added products from livestock and other
foods. So the increase in U.S. feed grain production it utilized under
an improved NAFTA demonstrated there is the potential for gains from
further reduced barriers to trade, and particularly for expanding U.S.
feed grain and grain derived product exports to Mexico.
Conversely, if the negotiations fail and we quit NAFTA, it is
unclear what specific future polices would be chosen. But one
assumption is that all three North American countries would end all
North American preferences. This potentially means that each country
reverts to applying their respective most favored nation (MFN) duties.
The MFN rates are the maximum tariffs that can be imposed based on
World Trade Organization (WTO) obligations and they vary from country
to country. Mexico's MFN duty rates range from 20-40%; versus 1-10% for
the U.S. and Canada.
The results of the analysis finds that the negative price impact on
U.S. corn (^$0.02/bushel) is relatively small since exports to Mexico
are a very small share (0.0012% of total world utilization. U.S. corn
production falls by an average of 150 million bushels annually, which
equates to around $800 million in value or about $6/acre. Total U.S.
grain production falls by $1.2 billion.
While the changes in U.S. per profit margins appear modest, (2-3
percent), this is because the model assumes a partial offset from the
shock in the near term by an annual average of $1.2 billion in farm
program payments. More pronounced is the large macroeconomic impact
with U.S. GDP falling by $13 billion.
Obviously, commodities are fungible and markets adjust over time.
In addition, impacts extend to other farm product with interlocking
relationships, such as livestock products. A drop in overall farm
income can have spillover effects that could lead to changes in farm
structure, the idling of land or its conversion to alternative uses--
further lowering corn profitability.
Negotiation Objectives and Priorities
In our formal comments to the Administration, we advocated that
this negotiation should build on and strengthen the objectives under
the Trans Pacific Partnership (TPP) that was developed to represent a
21st century high level agreement that serves as a template for all
future trade negotiating architectures. At the same time, there were
positive elements under the Trans-Atlantic Trade and Investment
Partnership (T-TIP) as well as recent U.S. free trade agreements (e.g.,
Korea-U.S. FTA) that should be considered when developing U.S.
negotiating objectives. The Council is a member of the U.S. Food and Ag
Dialogue for Trade and our supportive of their views with respect to
negotiating objectives.
National Treatment and Market Access for Goods
The Council urged the Administration for the continued elimination
of all tariff preferences and/or quotas for corn, corn-co-products
(corn gluten feed, corn gluten meal, grain sorghum, barley and malt;
ethanol and dried distiller grains).
TPP also provided important provisions that addressed major policy
issues and merit inclusion in a modernized NAFTA agreement including:
Export Subsidies; Export Guarantees or Insurance Programs; Agricultural
Export State Trading Enterprises; Export Restrictions--Food Security;
and Agricultural Safeguards.
Sanitary and Phytosanitary (SPS) Measures
The NAFTA agreement included provisions to establish a framework of
rules and disciplines to guide the development, adoption and
enforcement of sanitary and phytosanitary measures. While perhaps
suitable at that time, subsequent free trade agreements have made
significant improvements over the foundational SPS language of NAFTA.
Protectionist sanitary and phytosanitary measures that lack a
scientific basis and are not based on a risk assessment continue to
unjustifiably restrict access for U.S. food and agricultural exports in
numerous foreign markets. While the WTO Sanitary and Phytosanitary
Agreement established important science-based principles to challenge
such restrictions, enhanced provisions are needed to ensure that SPS
issues are resolved in a timely manner and do not result in significant
unnecessary delays to our sector's perishable exports.
TPP provided a strong Sanitary and PhytoSanitary (SPS) Chapter that
builds on the WTO's 1994 SPS agreement rather than simply reaffirming
commitments to the WTO SPS agreement. We would support improving these
provisions, in particular the following areas: Equivalence; Science and
Risk Analysis; Import Checks; Transparency: Cooperative Technical
Consultations; and when the CTC mechanism does not resolve a matter,
parties may use provision's dispute settlement mechanism to enforce
most of the SPS commitments. In particular the creation of a rapid
response mechanism, including tighter standards and deadlines for
adverse import checks will be critical in addressing future SPS issues.
Biotechnology
While products derived from agricultural biotechnology are grown in
28 countries and are traded widely, there remains a lack of
synchronicity between countries, particularly countries that approve
these products and countries who import them. This unpredictable
regulatory and trade environment has resulted in trade disruptions that
have caused economic impacts and delayed opportunities for farmers to
have access to new technologies.
The North American Free Trade Agreement (NAFTA) came into force 2
years prior to the commercialization of the first biotech crops in
1996. Since that time, biotech acreage across multiple crops has grown
rapidly because of the increased productivity and, environmental
benefits associated with this technology.
Since the NAFTA entered into force, the global regulatory framework
for biotech crops has expanded, sometimes resulting in redundant
measures, leading to an unpredictable, and time-consuming global
regulatory environment, which in turn has imposed high barriers to
efficient trade. Corn and soybean products often are evaluated for
their safety by 20 or more governments, all generally following the
same standards for assessment and evaluating the same data. The timing
of approval of these products affects the entire crop value chain. If a
product is commercialized in one plant crop in the absence of globally
synchronized regulatory approvals, trade disruption may occur in
multiple crops and processed products used for food, feed and further
processing, even though the product has completed a risk assessment and
been approved in one or more countries. Similarly, asynchronous
approvals have contributed to the delayed introduction of new
technologies for use by agricultural producers, resulting in lost
opportunities for farmers and product developers, as well as other
participants in the value-chain, to capitalize on the introduction of
new biotech traits.
Under a modernized NAFTA, the Council advocated efforts that the
U.S. Government: (1) enter a mutual recognition agreement with Canada
and Mexico on the safety determination of biotech crops intended for
food, feed and for further processing, and (2) develop a consistent
approach to managing low-level presence (LLP) of products that have
undergone a complete safety assessment and are approved for use in a
third country (ies) but not yet approved by a NAFTA member. The Council
is also a member of the U.S. Biotech Crops Alliance and supports their
position on this issue.
Coherent National Renewable Fuel Standards
Since NAFTA went into effect in 1994, the U.S. ethanol industry has
grown dramatically, expanding production more than eleven-fold from a
modest 1.2 billion gallons in 1994. Today, the U.S. is now the most
reliable and affordable source for clean-burning, high-octane ethanol
in the world. Our industry supports more than 340,000 jobs and promotes
the growth of rural America and the farm economy through the use of
more than 5 billion bushels of U.S. corn to make ethanol and associated
coproducts. In 2016, our industry produced more than 15 billion gallons
of ethanol and 47 million metric tons of distiller's grains,
contributing more than $30 billion to our nation's economy. In
addition, we exported over 1.2 billion gallons of ethanol at a value of
more than $2 billion and 11.3 million metric tons of DDGS.
Today, Canada and Mexico are two of the U.S. ethanol industry's
strongest trading partners, with Canada emerging as the destination for
more than 25 percent of all U.S. ethanol exports, and Mexico recently
emerging as the top destination for U.S. DDGS exports. Our industry's
successful entry and trade into the Canadian and Mexican markets are a
direct result of NAFTA's elimination of tariffs on goods such as
ethanol and distillers grains.
NAFTA modernization provides an excellent opportunity to recognize
and support modernized energy policy, we recommended to the
Administration that they maintain the current policy of zero tariffs on
ethanol amongst the three countries. We would also encouraged them to
work to prevent the introduction of any potential technical barriers to
trade. Currently, while the transportation fuel markets and ethanol
blend dynamics differ in Canada, Mexico, and even within the U.S.,
there appear to be few, if any, true barriers to trade. We would not
want any such barriers to be introduced in the future, as we would like
to keep these fuel markets as open and as workable as possible for our
U.S. producers.
Conclusion
In conclusion, the U.S. grains sector has significantly benefited
from more liberalized trade in the past 30 years, and the Council
believes expanding access to export markets will continue to drive the
success of American agriculture for years to come.
In no case has this been more apparent than in our trade
relationship with Canada and Mexico. NAFTA has provided the trade
underpinnings that has resulted in the most efficient and effective
interregional grain and livestock value chain in the world.
But to take advantage of this and other emerging export
opportunities--and to maintain our competitiveness in the global
marketplace--trade liberalization must continue at all levels,
bilateral, regional and multilateral. Trade agreements hold the key to
opening markets and resolving tariff and non-tariff barriers to allow
the movement of coarse grains, co-products in all forms and other
agricultural exports to where they are demanded. With effective
policies in place and followed, trade works--and the world wins.
U.S. Exports of Corn In All Forms to Mexico and Canada
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Source: USDA FAS GATS/USGC.
The Chairman. Thank you, sir.
Mr. Hammer, 5 minutes.
STATEMENT OF THOMAS A. HAMMER, PRESIDENT, NATIONAL OILSEED
PROCESSORS ASSOCIATION, WASHINGTON, D.C.
Mr. Hammer. All right. Good morning, Chairman Conaway,
Ranking Member Peterson, and Members of the Committee. Thank
you for calling this important hearing today to discuss
renegotiating the North American Free Trade Agreement, and the
opportunities to achieve the best deal possible for American
agriculture.
My name is Tom Hammer. I am President of the National
Oilseed Processors Association. NOPA is a national trade
association representing 13 members engaged in the production
of food, feed, and renewable fuels from oilseeds. It is
noteworthy that our members process over 95 percent of the U.S.
soybean crush annually.
My comments will focus on the U.S. soybean sector, but also
on our most important customer group, the domestic meat and
poultry sectors.
Agriculture today represents NAFTA's biggest success story.
We stand ready, however, to work with the Members of Congress
and the Administration in identifying ways to renegotiate NAFTA
to create new opportunities for agriculture.
NAFTA benefits the U.S. soy sector in two ways. First, by
increased exports of soybeans, soy meal, and soy oil, but as
said earlier, also increased exports of meat and poultry
products that use soy meal as a primary feed ingredient. NAFTA
has created significant market opportunities for U.S. exports
of soybeans and soy products. Mexico is our number one export
market for soy meal, our number one market for soy oil. It is
our number two market for soybeans, behind China. Canada ranks
as our number three market for U.S. exports of soy meal, and
our number nine or ten market for soybean oil.
However, unlike the tremendous success stories for U.S.
soy, we are aware that there are some major unresolved market
access issues for exports of dairy, poultry, and eggs to
Canada, and I would like to comment on several of the key
negotiating objectives that are important to NOPA.
We are still in our initial review process and may have
more to say on some of the negotiating objectives later, such
as the retention of investor state dispute settlement and
dispute settlement chapters. Any renegotiating of the NAFTA
must preserve current market access levels for U.S. agriculture
commodities and products, including all tariff and duty
preferences, and in simple terms, as you have heard already, do
no harm to our current excellent export positions in Mexico and
Canada. Resolving the longstanding Canadian policies designed
to negatively impact exports of U.S. dairy, poultry, and eggs
would be another top objective for NOPA.
Also, implementing an expanded sanitary phytosanitary SPS
plus and rapid response mechanism consistent with and improving
on the TPP text to ensure that science-based SPS measures are
developed and implemented in a transparent, predictable, and
non-discriminatory manner is another objective for NOPA.
Moreover, adding a new NAFTA chapter on biotechnology,
which again, was included in the final TPP text, is a major
objective for my organization. Under a modernized NAFTA, NOPA
requests that the U.S. Government enter into a mutual
recognition agreement with Canada and Mexico on the safety
determination of biotech crops intended for food, feed, and
further processing, and also to develop a consistent approach
to managing low level presence of products that have undergone
a complete safety assessment and are approved for use in other
countries, but not necessarily in all NAFTA member countries.
In summary, NOPA welcomes this opportunity to provide the
Committee with testimony to identify ways to renegotiate the
NAFTA while preserving the core benefits of this important
agreement. NAFTA has led to tremendous expansion of the U.S.
oilseed processing sector with ripple effects that have
benefitted the broader U.S. economy. Our business sectors have
grown. People have been hired, and strong supply chains have
been built based upon the current agreement. As I said, do no
harm must be the guiding overarching objective of this
renegotiation. Moreover, a renegotiation of NAFTA should first
and foremost preserve the current market access, including the
tariff and duty preferences, but additionally, we ask our
negotiators to fiercely protect the gains achieved in NAFTA to
date to ensure that these gains are not eroded and tradeoffs
for gains to be achieved in other non-agricultural sectors of
the American economy.
Thank you again for this opportunity to testify, and NOPA,
as I said, stands ready to work with the Members of Congress
and the Administration as we commence this critically important
renegotiation of NAFTA with our Canadian and Mexican trading
partners. Thank you.
[The prepared statement of Mr. Hammer follows:]
Prepared Statement of Thomas A. Hammer, President, National Oilseed
Processors Association, Washington, D.C.
Good morning, Chairman Conaway, Ranking Member Peterson, and
Members of the Committee. Thank you for calling this important hearing
today to discuss renegotiating the North American Free Trade Agreement
(NAFTA) and the opportunities to achieve the best deal possible for
American Agriculture.
My name is Tom Hammer, President of the National Oilseed Processors
Association (NOPA). NOPA is a national trade association that
represents 13 companies engaged in the production of food, feed, and
renewable fuels from oilseeds. NOPA's members process soybean,
sunflower seed, canola, flaxseed and safflower seed. Our member
companies process more than 1.8 billion bushels of oilseeds annually at
64 plants located throughout the country, including 58 soybean
processing facilities that ``crush'' over 95% of the U.S. soybean crop.
My comments will focus on the U.S. soybean sector; and, on our most
important customer group, the domestic meat and poultry sectors.
Agriculture Represents One of NAFTA's Biggest Success Stories
Agriculture represents one of NAFTA's biggest success stories.
Since the agreement was enacted, U.S. food and agricultural exports to
Canada and Mexico have more than quadrupled--growing from $8.9 billion
in 1993 to over $38 billion in 2016. We recognize that NAFTA is now
over 23 years old and improvements to the agreement can be made. We
stand ready to work with Members of Congress and the Administration to
identify ways to renegotiate NAFTA. However, in so doing, it is
critical that the core benefits of the Agreement that have greatly
expanded U.S. food and agricultural trade within North America must be
preserved.
The U.S. food and agriculture sector is heavily dependent on our
current level of access to Mexico and Canada. NAFTA has played a
significant role in boosting incomes for millions of U.S. farmers,
ranchers, and allied manufacturers--and continues to provide important
and profitable markets for our nation's rural agriculture-based
communities. As the Administration and Congress work together to
identify constructive opportunities to modernize NAFTA, it is critical
to preserve what has worked well in the current agreement as a ``base
line'' and then build upon this base by expanding the market access,
tariff, and non-tariff provisions.
NOPA looks forward to working with Members of Congress and the
Administration to develop and implement a modernized trade policy that
will promote and expand America's food and agriculture producers' and
exporters' interests in the important North American market.
NAFTA Benefits the U.S. Soy Sector in Two Ways:
1. Increased exports of soybeans, soy meal, and soybean oil.
2. Increased exports of meat and poultry products that use soy meal
as animal feed.
NAFTA: U.S. Soy and Soy Product Exports
Thanks to trade agreements with our North American partners, U.S.
soy exports have grown significantly over the past 23 years. These
agreements reduced tariffs and further integrated the North American
market for soybeans and related products. This improved market access
allowed the U.S. soy industry to meet Mexico's growing demand for
proteins.
In 2016, the U.S. exported $415 million and $2.5 billion of
soybeans and soy products to Canada and Mexico, respectively. Mexico
saw the greatest growth, nearly tripling their imports of U.S. soybeans
and soy products since the implementation of NAFTA.
U.S. Soy & Soy Product Exports--2016 (CY) Value in Thousands *
------------------------------------------------------------------------
Mexico Canada
Products ---------------------------------------------------------------
Value ($) Metric Tons Value ($) Metric Tons
------------------------------------------------------------------------
Soybeans 1,462,600 3,639,647 115,869 304,089
Soybean 800,501 2,128,983 280,865 755,182
Meal
Soybean 226,820 257,374 18,341 16,369
Oil
---------------------------------------------------------------
Total $2,498,921 6,026,004 $415,075 1,075,640
Soy
Expor
ts
------------------------------------------------------------------------
* Source: USDA/FAS/GATS.
U.S. Soy & Soy Product Exports--1993 (CY) Value in Thousands *
------------------------------------------------------------------------
Mexico Canada
Products ---------------------------------------------------------------
Value ($) Metric Tons Value ($) Metric Tons
------------------------------------------------------------------------
Soybeans 415,723 1,758,386 58,227 231,709
Soybean 58,514 251,641 162,973 655,706
Meal
Soybean 14,854 33,130 11,345 20,650
Oil
---------------------------------------------------------------
Total $489,091 2,043,157 $232,545 908,065
Soy
Expor
ts
------------------------------------------------------------------------
* Source: USDA/FAS/GATS.
NAFTA has led to Enormous U.S. Soy Export Gains:
b Increase in Value of all U.S. Soy and Soy Products Exports to
Canada and Mexico from 1993 to 2016: $2.19 Billion.
b Increase in Volume of all U.S. Soy and Soy Products Exports to
Canada and Mexico from 1993 to 2016: 4.15 Billion Metric Tons.
NAFTA: U.S. Meat and Poultry Product Exports
Because of trade agreements with our North American partners, U.S.
meat and poultry exports have also grown significantly over the past 23
years. NAFTA has reduced tariffs and further integrated the North
American market for meat and poultry products. This improved market
access allowed the U.S. meat and poultry industries to meet the demands
for quality food and feed products from Mexico, which are essential to
meet Mexico's growing demand for proteins.
In 2016, the U.S. exported $3.25 billion of meat and poultry
products to Mexico. Exports to Canada of meat products and poultry have
also grown, totaling In 2016, total exports of meat and poultry
products were $2.07 billion in 2016. Yet, exports of U.S. dairy and
poultry products could be higher--this will be discussed later in my
comments.
U.S. Meat Product Exports--2016 (CY) Value in Thousands *
------------------------------------------------------------------------
Mexico Canada
Products ---------------------------------------------------------------
Value ($) Metric Tons Value ($) Metric Tons
------------------------------------------------------------------------
Pork & 1,355,028 730,314 798,518 205,372
Pork
Product
s
Beef & 974,903 242,374 758,117 116,265
Beef
Product
s
Poultry 924,649 841,940 509,172 184,637
&
Poultry
Product
s
---------------------------------------------------------------
Total $3,254,580 1,814,628 $2,065,807 506,274
Meat
Expor
ts
------------------------------------------------------------------------
* Source: USDA/FAS/GATS.
U.S. Meat Product Exports--1993 (CY) Value in Thousands *
------------------------------------------------------------------------
Mexico Canada
Products ---------------------------------------------------------------
Value ($) Metric Tons Value ($) Metric Tons
------------------------------------------------------------------------
Pork & 112,103 95,345 36,717 15,250
Pork
Product
s
Beef & 163,803 80,314 361,096 94,429
Beef
Product
s
Poultry 204,965 171,091 164,439 65,521
&
Poultry
Product
s
---------------------------------------------------------------
Total $480,871 346,750 $562,252 175,200
Meat
Expor
ts
------------------------------------------------------------------------
* Source: USDA/FAS/GATS.
NAFTA has led to Enormous U.S. Meat Product Export Gains:
b Increase in Value of all U.S. Meat and Poultry Exports to Canada
and Mexico from 1993 to 2016: $4.27 Billion.
b Increase in Volume of all Meat and Poultry Exports to Canada and
Mexico from 1993 to 2016: 1.79 Billion M/T.
Animal Agriculture is the Single Largest User of U.S. Soybean Meal
------------------------------------------------------------------------
------------------------------------------------------------------------
Conversion Rates = Pounds of Soybean Meal used to Produce One (1) Metric
Ton of Meat
------------------------------------------------------------------------
Turkey 1,618
Pork 1,508
Chicken 1,156
Beef 568
------------------------------------------------------------------------
NAFTA Objectives: Trade in Soybean and Soybean Products
Since NAFTA was signed over 23 years ago and during that time,
virtually all tariff barriers for trade in oilseeds and oilseed
products have been eliminated--creating a seamless North American
market for such products as soybeans, soybean meal and soy oil.
As I have stated, NAFTA has created significant market
opportunities for U.S. exports of soybeans and soy products. For the
past calendar year (Jan.-Dec. 2016), Mexico ranked number two (2) for
our exports of soybeans, and number one (1) for both soybean meal and
soy oil. This has been the case for several years running. For the past
calendar year, Canada ranks number three (3) for U.S. exports of
soybean meal and number ten (10) for our exports of soybean oil. This
also has been the case for several years.
In anticipation of the renegotiation of NAFTA, we recently polled
NOPA's members to determine if they have experienced any trade
irritants or non-tariff trade barriers with either Mexico or Canada. At
this point in time, our members have not identified any major issues or
disputes that could not be handled between U.S. exporters and their
importing customers. Thus, it appears that the North American supply
chain for trade in soybeans and soybean products is operating in an
efficient and seamless manner.
Since Mexico and Canada have become our leading export markets for
soybean meal and soy oil under NAFTA, NOPA's top priority must be to
``do no harm'' to the positive trading terms we currently enjoy.
Nevertheless, there are several major opportunities to modernize and
improve the Agreement.
NAFTA Objectives: Trade in Meat and Poultry Products
NOPA's members have benefited from the NAFTA in two major ways.
First, from the greatly expanded trade in soybean meal and soy oil.
But, also due to the significant growth in U.S. exports to both Mexico
and Canada of meat and poultry product exports over the past 23 years.
This is important to NOPA members because American poultry, pork, beef
and dairy producers and exporters are our principal customers. When
these customers sell more meat products to Mexico and Canada, by
definition, they consume more U.S. soybean meal.
However, unlike the tremendous ``success stories'' that we hear
from NOPA members about unfettered exports of soymeal and soy oil to
Mexico and Canada, we are aware that there are still some major
unresolved market access issues for U.S. exports of dairy, poultry and
eggs to Canada. These trade barriers stand in sharp contrast to nearly
all other U.S. agricultural exports which enjoy duty-free and quota-
free access to Mexican and Canadian consumers.
For U.S. dairy exports, Canada continues to use a variety of
unfair trade policies, including the use of trade restricting
tariffs and limited in-quota volumes, which impede access to
their market and impair the value of the concessions Canada has
granted to the U.S. dairy industry.
While U.S. poultry exports to Canada have been significant
and Canada is the U.S. poultry industry's second largest export
market, the U.S. poultry industry has had more limited access
to the Canadian market than most other sectors. Market access
to Canada for highly competitive U.S. chicken, turkey and eggs
is limited by restrictive quotas.
The renegotiation, or modernization, of the NAFTA represents a most
important opportunity for the further expansion of U.S. dairy, poultry
and egg product exports, particularly to Canada.
Therefore, fully liberalizing access to the Canadian market for
these important agricultural products is a key negotiating objective
for NOPA.
Specific Negotiating Objectives for the Initiation of NAFTA
Negotiations
On July 17, 2017, the Office of the United States Trade
Representative (USTR) provided a summary of the Administration's
specific objectives with respect to the NAFTA negotiations.
I would like to comment on several of the key negotiating
objectives that are of importance to NOPA. As these specific
negotiating objectives have just been made available to the Congress
and to the public, NOPA is still in its internal review process and may
have more to say on these negotiating objectives later.
Trade in Agricultural Goods
Maintaining existing reciprocal duty-free market access for
agricultural goods is our number one objective; any
renegotiation of NAFTA must preserve current market access,
including all tariff and duty preferences. In simple terms,
``do no harm'' to our current excellent export positions in
Mexico and Canada is NOPA's main objective.
Eliminating non-tariff barriers to U.S. agricultural exports
including discriminatory barriers, restrictive administration
of tariff rate quotas, other unjustified measures that unfairly
limit access to markets for U.S. goods is another major
objective for NOPA. Particularly, resolving the long-standing
Canadian policies designed to negatively impact dairy, poultry
and egg trade, and obtaining significantly greater market
access for U.S. dairy and poultry exports to Canada, is a top
objective.
Promoting greater regulatory cooperation to reduce burden
associated with unnecessary differences should be an
overarching goal of NAFTA renegotiation which embraces
provisions to foster an open, fair and predictable regulatory
environment. This objective will be achieved by promoting the
use of widely-accepted good regulatory practices including core
principles such as science-based risk assessment, transparency,
impartiality and due process paired with coordination across
governments to ensure a coherent regulatory approach.
Sanitary and Phytosanitary Measures (SPS)
Implementing an expanded ``Sanitary Phytosanitary (SPS)-Plus
and Rapid Response Mechanism'' consistent with, but improving
on the Trans-Pacific Partnership (TPP) text, to ensure that
science-based SPS measures are developed and implemented in a
transparent, predictable, and non-discriminatory manner is a
major objective for NOPA. At the same time, it is important to
preserve the ability of NAFTA partner regulatory agencies to
take necessary steps to ensure food safety and protect plant
and animal health.
Adoption of expanded WTO SPS-Plus standards should include:
Creation of a Rapid Response Mechanism, including
tighter standards and deadlines for adverse import checks.
Adoption of cooperative technical consultations and
increased reporting, transparency and record keeping.
Creation of a more robust single inquiry point
standard for SPS contacts (including increased transparency
of SPS requirements, databases for SPS regulations etc.).
High standards for risk assessment and risk
management, including language that elaborates on current
WTO provisions.
Adopt trade facilitative residue levels and
adventitious presence mechanisms.
Include low level tolerance principles.
Enhance enforcement mechanisms for unjustified SPS
barriers, including potential compensation, three strikes
policy or retroactive damages to help enforce and hold
trading partners accountable to persistent and unscientific
SPS measures.
Biotechnology
Adding a new NAFTA Chapter on Biotechnology is also a major
objective for NOPA.
Under a modernized NAFTA, NOPA requests that the U.S.
Government:
Enter a mutual recognition agreement with Canada and
Mexico on the safety determination of biotech crops
intended for food, feed and for further processing.
Develop a consistent approach to managing low-level
presence (LLP) of products that have undergone a complete
safety assessment and are approved for use in another
country/ies but not yet approved by a NAFTA member.
Other NAFTA Chapters
Improved and modernized Chapters dealing with such important trade
issues as: (1) Rules of Origin, (2) Technical Barriers to Trade (TBT),
(3) Good Regulatory Practices, (4) Transparency, and (5) Dispute
Settlement are also important objectives for NOPA.
We will have more to say about these Chapters, and possibly others,
once NOPA's Committees and its Board of Directors have had adequate
time to evaluate these important elements of a renegotiated NAFTA.
Summary
In summary, NOPA recognizes that NAFTA has become outdated and that
improvements to the Agreement can be made. We welcome this opportunity
to identify ways to renegotiate the NAFTA while preserving the core
benefits of the Agreement. NAFTA has led to an expansion of the U.S.
oilseed processing sector and our domestic meat and poultry customers
during the past 2+ decades, with ripple effects that have benefitted
the broader U.S. economy. Our business sectors have grown, people have
been hired, and strong supply chains have been built based upon the
current Agreement, so ``do no harm'' should be a guiding, overarching
objective in the negotiations. A renegotiation of NAFTA should, first
and foremost, preserve current market access, including all tariff and
duty preferences. Additionally, we ask that our negotiators fiercely
protect the gains achieved in NAFTA to date to ensure these gains are
not eroded in tradeoffs for gains to be achieved in other sectors of
the American economy.
Thank you again for the opportunity to testify before this
Committee. NOPA stands ready to work with the Members of Congress and
the Administration as we commence this critically important
renegotiation of NAFTA with our Canadian and Mexican trading partners.
The Chairman. Thank you, sir.
Mr. Brown, 5 minutes.
STATEMENT OF REGINALD L. BROWN, EXECUTIVE VICE PRESIDENT,
FLORIDA TOMATO EXCHANGE, MAITLAND, FL; ON BEHALF OF FLORIDA
FRUIT AND VEGETABLE
ASSOCIATION
Mr. Brown. Thank you, sir, and I appreciate the opportunity
to testify before the Committee this morning. I am Reggie
Brown. I work for the Florida tomato industry, and I am here
also on behalf of the Florida Fruit and Vegetable Association,
producers of fruits and vegetables in Florida.
Florida and the U.S. specialty crops producers are high-
quality, competitive producers, and we can, in fact, compete on
a free and fair trade enterprise. We are not opposed to fair
trade. But we are having a problem in the specialty crop
industry in this country, and that problem is not limited to
Florida. It is happening in states like Georgia, with crops
like blueberries and broccoli. It is happening in Texas with
crops like watermelons. It is happening in California with the
desert grape industry. It is happening to the asparagus
industry in California. All the specialty crop producers in
this country are having a problem with the current NAFTA trade
relationship.
As you have heard this morning, there have been a number of
folks testify about the positive side of NAFTA. We have a $5.3
billion trade deficit with NAFTA. That $5.3 billion is
specialty crops, fruits and vegetables, coming into this
country. While our friends in the grain and the meat industry
have fared well with NAFTA, the fresh fruit and vegetable
industry has been taking it on the cuff from the standpoint of
unfair competition coming into the country.
For instance, when we started down the path of NAFTA, the
tomato industry in the United States produced two out of every
three tomatoes in this country. We now produce approximately
one of every three tomatoes in this country. The tomato
industry has shrunk by some 40 percent in volume. This is
nationally, not just Florida's problem. And we have had 25
percent reduction in the acreage of the tomato industry in this
country, fresh tomatoes. We are the canary in the coal mine. We
are an example of what is going to happen to many of the
specialty crops that compete with Mexico, and part of that
problem is being driven by the fact that the Mexican Government
has been subsidizing and providing incentives for expansion of
that industry in Mexico. They also have been trading in product
prices into this country that would constitute dumping in
competition with producers in the United States. And they also
have a tremendous advantage in wage rate. The wage rate in
Mexico is approximately \1/10\ what the American producer is
paying for wages in this country.
The NAFTA renegotiation objectives of the Administration's
that were shared back on the 17th of this month on improving
the trade balance and reducing trade deficit within the NAFTA
countries is a very positive one for us. We are very concerned
about the provisions for a perishable and seasonable
application of dumping and countervailing duty cases that would
allow some of these commodities that are being targeted to be
competed against, to defend themselves against unfair trade
practices. We would like to see the trade laws in the United
States, as does the Administration, for anti-dumping and
countervailing duty and safeguards being strongly enforced,
because we are basically an industry under assault. We do
appreciate the support of the Members of this Committee, as
well as the Florida delegation in their support letters to
Secretary Ross concerning these issues, but the reality is the
expansion of the specialty crop industry in Mexico, for
instance, in just the last 16 years, strawberry production has
gone from 16 million pounds to 260 million pounds of
strawberries. The bell pepper industry, when NAFTA was signed,
two out of every three bell peppers was produced in the United
States. Today, one to one, and it is progressively getting
worse. We have family farmers being forced out of business by
unfair trade practices coming from our competitors to the south
with a $5.3 billion deficit in trade of agricultural products
with this country, and those individuals, once they are gone,
they will never come back. We are basically witnessing the
disassembling of the fruit and vegetable industry that competes
in the environment of the season that Mexico produces product
from this country. And when those family farms are sold and
when those businesses are broken up, there will be no capacity
to grow those fruits and vegetables within the borders of the
United States of America.
I thank you for the opportunity to be here this morning.
[The prepared statement of Mr. Brown follows:]
Prepared Statement of Reginald L. Brown, Executive Vice President,
Florida Tomato Exchange, Maitland, FL; on Behalf of Florida Fruit and
Vegetable Association
Thank you for the opportunity to testify before the House Committee
on Agriculture concerning Renegotiating NAFTA: Opportunities for
Agriculture. I am Reggie Brown, Executive Vice President of the Florida
Tomato Exchange, representing tomato growers in Florida, one of the
major fresh tomato producing regions in the United States, as well as
other tomato-growing areas of the country. The Florida Fruit and
Vegetable Association has also asked that I speak to the concerns of
Florida's other fruit and vegetable sectors, which are encountering
issues similar to those confronting Florida's tomato sector. As a
member of the U.S. Government's Agricultural Technical Advisory
Committee for Fruits and Vegetables, I have been conveying many of
these concerns to the U.S. Government since the North American Free
Trade Agreement (NAFTA) first took effect.
Mr. Chairman, while a number of our nation's farmers and ranchers
have benefitted from NAFTA, the same has not been true for Florida's
fruit and vegetable sector. U.S. Secretary of Agriculture Sonny Perdue
summed it up well in stating to this Committee in May that--
``Certainly I think our vegetables and our produce sectors of
agriculture have maybe been the ones that have not benefited as
much under NAFTA. Regarding NAFTA negotiations, it is my hope .
. . [that] one area we can improve our position vis a vis
Mexico is in regards to vegetables.'' \1\
---------------------------------------------------------------------------
\1\ May 17, 2017, testimony before the House Committee on
Agriculture.
Florida and U.S. specialty crop producers grow the highest quality
agricultural commodities in the world, and can successfully compete in
a fair market environment. We are not opposed to free trade--however it
must be fair trade. Unfortunately, the current trade environment under
NAFTA has not fared as well for many U.S. fruit and vegetable
producers, as we have heard concerns from many regions around the
country including growers of Georgia blueberries and broccoli, Texas
watermelon, California grapes and asparagus and other specialty crop
producers impacted under NAFTA throughout the nation.
Even before NAFTA entered into force, the original negotiators
forecasted that NAFTA could negatively affect Florida and other
specialty crop regions. Florida and Mexico produce a number of the same
specialty crops and share a similar growing season. Mexico's known
unfair advantages made NAFTA a concern. True to forecast, most of the
growth in Mexico's agricultural shipments to the United States since
the turn of the millennium has been in the fresh fruit and vegetable
sector. Mexico's growth in these sectors has resulted in a loss of
agricultural cash receipts of between $1-$3 billion a year to Florida
alone.
Tomatoes are a vivid example of Mexico's explosive growth in
specialty crops. U.S. imports of tomatoes from Mexico increased from
1.2 billion pounds in 2000 to 3.2 billion pounds in 2016, a 166%
increase. By comparison, U.S. tomato production shrank from 27 billion
pounds in 2000 to 1.7 billion pounds in 2016, a nearly 40% decrease.\2\
Despite U.S. trade remedy measures and a long-standing Suspension
Agreement, Mexican tomatoes continue to surge into the U.S. market at
unfairly low prices.
---------------------------------------------------------------------------
\2\ Data from Florida Department of Agriculture and Consumer
Services.
---------------------------------------------------------------------------
Other Florida specialty crops have encountered similar adverse
trends under NAFTA. Since 2000, for example, U.S. imports of Mexican
strawberries have almost tripled. Imports of Mexican bell peppers have
grown by 163%.
Although the United States is one of the world's major agricultural
producers, Mexico's extraordinary expansion in fruit and vegetable
shipments to the United States is creating a growing trade deficit in
U.S.-Mexico agricultural trade. As of 2016, that deficit exceeded $5.3
billion.
Agricultural Imports from Mexico--Fresh Fruits and Vegetables Growing
Faster than other Agriculture and Livestock Products
With Florida's fruit and vegetable industry a growing casualty to
this rising deficit, our industry is in dire need of government help.
Florida's specialty crop sectors were therefore encouraged by the
Administration's July 17, 2017, Summary of Objectives for the NAFTA
Renegotiation, which expressed the Administration's intention to[:]
``improve the U.S. trade balance and reduce the trade
deficit with the NAFTA countries;''
``seek a separate domestic industry provision for perishable
and seasonal products in AD/CVD proceedings;''
``preserve the ability of the United States to enforce
vigorously its trade laws, including the antidumping,
countervailing duty, and safeguard laws;'' and
``require NAFTA countries to have laws governing acceptable
conditions of work with respect to minimum wages, hours of
work, and occupational safety and health.''
Our industry is also grateful to the Florida Members of this
Committee who joined with numerous other Colleagues in calling on the
Secretary of Commerce to address Mexico's unfair trading practices,
which are displacing Florida's production. Their letter to Commerce
stated that[:]
``Florida produces the highest-quality agricultural
commodities in the world and can successfully compete in a
global market, if it's operating on a level playing field,
[but] the current trade environment created under NAFTA is
anything but fair, particularly when it comes to policies
impacting Florida's specialty crop growers and producers.''
(Letter attached for Record).
As the many Members signing that letter correctly stated, Mexico's
specialty crops have only been able to achieve their extraordinary U.S.
growth with the help of sales prices significantly below costs of
production, unfair subsidies, and dramatically lower labor costs. The
U.S. tomato sector again drives home the point. Despite years and years
of U.S. trade remedy proceedings and a long-standing Suspension
Agreement, tomato imports from Mexico are still bypassing the
Suspension Agreement at unreasonably low prices and at volume levels
that are stronger than ever.
Tomatoes--Domestic Production and Imports from Mexico (USDA)
Source: Florida Department of Agriculture and Consumer
Service.
As Mexican volumes have soared, and prices fallen, U.S. fresh
tomato growers have been unable to keep up with rising farm costs.
Florida farmers have been forced to leave tomato fields unharvested.
Numerous producers, especially smaller farms, have filed for
bankruptcy. As confirmed by USDA figures, U.S. fresh tomato production
is in serious decline, having lost almost 25% of total acreage since
the inception of NAFTA.\3\
---------------------------------------------------------------------------
\3\ See USDA National Statistics Service, Annual Survey Data,
available at https://quickstats.nass.usda.gov/.
---------------------------------------------------------------------------
Compounding Mexico's unfair pricing practices is a web of unfair
Mexican subsidy schemes for specialty crops. Those subsidies are aimed
at increasing yields for ``protected'' specialty crops (greenhouses,
shade-houses, and on tunnel farms), not only during the winter months
(November-March), but throughout the year. In 2009 and 2010, Mexico
spent $189.2 million on 2,500 ha of protected agriculture: 65% for
greenhouses, 25% for shade-houses, 7% for macro-tunnels, and 3% for
micro-tunnels. Those Mexican Gove[r]nment programs supported 859 ha of
tomatoes (41%), 428 ha of cucumbers (20%), 347 ha of bell peppers
(16%), 274 ha of berries (13%), and additional plantings of zucchini,
grapes, brussels sprouts, habanero and green peppers, and ornamental
plants, among other specialty products. Not surprisingly, Mexico's
productivity improved markedly during this period, even as overall
planted areas decreased.\4\
---------------------------------------------------------------------------
\4\ See Wageningen University and Research, ``Mexican Protected
Horticulture: Production and Market of Mexican Protected Horticulture
Described and Analyzed,'' (Report GTB-1126, 2011); USDA Foreign
Agricultural Service, 2012 Tomato Annual, GAIN Report No. MX2036 (June
4, 2012), at 6.
---------------------------------------------------------------------------
For FY 2017, Mexico has established at least nine programs and 43
``components'' to support agriculture.\5\ Its regulations specifically
authorize greenhouse ``incentives'' of up to $48,000 per hectare.\6\
Other reports have found that subsidies for new greenhouse
installations are as high as $162,000 per agricultural project.\7\
Those greenhouse funds can be used in Mexico for the purchase of
materials, equipment, and infrastructure, and for the management,
conservation, and processing of greenhouse products.\8\ They can cover
up to 50% of the cost of investments.\9\ As noted, these benefits,
which are aimed at promoting year-round production for Mexican fresh
fruits and vegetables, have already put Florida producers at serious
risk and in time will compromise all U.S. fruit and vegetable
production if corrections are not made.
---------------------------------------------------------------------------
\5\ Government of Mexico website, ``SAGARPA has the Support You
Need,'' January 14, 2016.
\6\ Official Diary of the Government of Mexico, ``Rules of
Operation for the Program for the Promotion of Agriculture of the
Secretariat of Agriculture, Livestock Rural Development, Fisheries and
Food for the 2017 Fiscal Year,'' December 31, 2016, Article 12.
\7\ Id.
\8\ Id.
\9\ Id., at Article 10.
---------------------------------------------------------------------------
The Mexican industry's considerable labor wage disparities only add
to its unfair advantages. The estimated annual Mexican wage advantage
in the agricultural sector is $1 billion.\10\ Mexico's farm laborers
are paid about 10% of what U.S. farm laborers are paid for similar
work.\11\
---------------------------------------------------------------------------
\10\ Florida Department of Agriculture and Consumer Services, ``An
Examination of International Competitive Impacts on Florida
Agriculture'' (March 2017), at 11.
\11\ Farmworkers in Mexico typically earn approximately the
equivalent of $8 per day, while U.S. farmworkers earn approximately
$10-$12 per hour. Thus, assuming an 8 hour day, a farmworker in the
United States would earn at a minimum $80, while a Mexican farmworker
would earn $8, i.e., 10%.
---------------------------------------------------------------------------
In line with the staggering losses faced by Florida tomato growers
under these unfair Mexican practices, numerous other Florida specialty
crops are sustaining growing losses as well. U.S. imports of
strawberries from Mexico have risen from 76.1 million pounds in 2000 to
216 million pounds in 2016 (a 184% increase).\12\ That expansion has
compromised absolute growth and market share for domestic producers.
---------------------------------------------------------------------------
\12\ Data from Florida Department of Agriculture and Consumer
Services.
Strawberry Market Share--Volume Strawberry Market Share--Volume
November 2000-February 2001 November 2016-February 2017
Source: Florida Department of Agriculture and Consumer
Services.
Note: ``Others'' (gray) is primarily California production
that appears to be shifting to Mexico.
Imports of bell peppers from Mexico have grown from 326.53 million
pounds in 2000 to 859.77 million pounds in 2016, a 163% increase.
Bell Peppers--Domestic Production and Imports from Mexico (USDA)
Source: Florida Department of Agriculture and Consumer
Services.
As the Committee knows, the Trade Priorities and Accountability Act
of 2015 (TPAA) took careful note of the market pressures being faced by
Florida's fruit and vegetable sectors and established several FTA
objectives specific to specialty crops, the primary ones being the
following:
(J) eliminating practices that adversely affect trade in
perishable or cyclical products, while improving import relief
mechanisms to recognize the unique characteristics of
perishable and cyclical agriculture;
(K) ensuring that import relief mechanisms for perishable and
cyclical agriculture are as accessible and timely to growers in
the United States as those mechanisms that are used by other
countries; . . . [and]
(R) seeking to develop an international consensus on the
treatment of seasonal or perishable agricultural products in
investigations relating to dumping and safeguards and in any
other relevant area.\13\
---------------------------------------------------------------------------
\13\ Bipartisan Congressional Trade Priorities and Accountability
Act of 2015, Pub. L. No. 114-26, 102(b)(3), 129 Stat. 320, 322-23
(2015) (``2015 TPAA'').
The Florida industry hopes these TPAA objectives, together with the
objectives in the Administration's Summary of Objectives for the NAFTA
Renegotiation referenced above, will help deliver a substantially
revised NAFTA that finally enables Florida's fruit and vegetable
sectors to endure and thrive. We will coordinate closely with the
Committee, Congress, and the Administration to help achieve that
result.
In the meantime, given the extraordinary market pressures Mexican
suppliers are now creating for our specialty corps, the Florida fruit
and vegetable industry is also asking the Administration to pursue
various other near-term remedial and political steps to help reverse
Mexico's unfair practices as quickly as possible. As these near-term
solutions take shape, the Florida fruit and vegetable industry looks
forward to working with this Committee, Congress, and the
Administration on aligning its near-term solutions with longer-term
NAFTA specialty crop and trade enforcement reforms. Our aim is to
achieve all measures necessary--both near- and long-term--that can
provide the Florida industry with the timely, effective protections it
critically needs.
We greatly appreciate this Committee's continuing support for a
strong Florida fruit and vegetable sector and stand ready to coordinate
with the Committee on NAFTA and bilateral strategies to achieve that
result.
Attachment [1]
May 9, 2017
via regulations.gov
Hon. Wilbur L. Ross, Jr.
Secretary of Commerce,
U.S. Department of Commerce,
Washington, D.C.
Hon. Stephen Vaughn,
Acting U.S. Trade Representative,
Office of the U.S. Trade Representative,
Washington, D.C.
Re: Docket No. DOC-2017-0003: Omnibus Report on Significant Trade
Deficits, Comments Regarding Causes of Significant Trade
Deficits for 2016
Country of Interests: Mexico
Harmonized System (HS) Categories of Interest: 0702_Tomatoes; fresh
or chilled
The Florida Tomato Exchange (``FTE'') and the Florida Tomato
Growers Exchange (``FTGE'') appreciate this opportunity to submit
comments to assist the Department of Commerce and the United States
Trade Representative in preparing an Omnibus Report on Significant
Trade Deficits for the President.\1\ The FTE and FTGE represent tomato
growers in Florida, one of the major tomato producing regions in the
United States.
---------------------------------------------------------------------------
\1\ These comments are submitted in response to the request in 82
Fed. Reg. 18110-11 (April 17, 2017).
---------------------------------------------------------------------------
Florida tomato growers are particularly concerned with one area of
trade that has contributed to the United States' trade deficit with
Mexico: fresh tomatoes.\2\ Florida tomato growers and other fresh
tomato producers throughout the United States have been seriously
challenged for decades with an ever-increasing trade deficit with
Mexico. The Mexican Government provides significant financial support
for the production of tomatoes with the foremost purpose of pushing
them into the U.S. market, to the detriment of the U.S. fresh tomato
industry. U.S. tomato growers' struggle with unbalanced Mexican imports
has been prolonged by weak enforcement of U.S. trade laws by prior
Administrations; even though the Department of Commerce has previously
determined that Mexican tomato exports to the United States are dumped
at unfair prices.
---------------------------------------------------------------------------
\2\ If identifying a particular sector, commenters were requested
to indicate the relevant HS category. 82 Fed. Reg. at 18111. Fresh
tomatoes fall under category 0702, with various subcategories based on
the season of importation and the growing environment and type of the
tomato (greenhouse, cherry, roma, etc.).
---------------------------------------------------------------------------
The Trade Deficit with Mexico in Fresh Tomatoes
The United States runs a large and growing trade deficit with
Mexico on this major crop. As shown in the trade statistics in
Attachment 1 to these comments, in 2016 the deficit on fresh tomatoes
with Mexico surpassed $1.9 billion. This is virtually all one-way
trade: with Mexican tomato production mainly focused on exporting to
the United States while U.S. exports of tomatoes to Mexico have
remained comparatively non-existent. Further, as shown in the graph
below, apart from the substantial and growing deficit with Mexico,
other trade in fresh tomatoes is relatively balanced.
U.S. Trade Balance--Fresh [Tomatoes]
Sources: trade data from the U.S. International Trade
Commission.
The Mexican Government's Support of Production for Export in Mexico
In Mexico, fresh tomato growers benefit from numerous support
programs made available by the Mexican Government. Many of these
programs are aimed at increasing the productivity of Mexican
production, particularly through the establishment of protected
agriculture (greenhouses and shade-houses), which dramatically increase
per-acre production of tomatoes. A 2012 U.S. Department of Agriculture
(``USDA'') report stated that Mexican Government support programs
available to Mexican producers can provide as much as 45 to 60 percent
of the cost of improvements.\3\
---------------------------------------------------------------------------
\3\ See USDA Foreign Agricultural Service, 2012 Tomato Annual, GAIN
Report No. MX2036 (June 4, 2012) at 6, included in Attachment 4.
---------------------------------------------------------------------------
The push for tomato production in Mexico is aimed at exporting the
product to the United States. The 2012 USDA report explains that in
Mexico, ``domestic consumption is a residual after exporting.'' \4\
Mexican growers do not grow tomatoes for Mexican consumers; they grow
them to send to the U.S. market. The Mexican Government's support
programs have the same goal. The USDA report states the ``increase (in
protected-agriculture production capacity) is largely attributable to
recent success in exporting to the United States.'' \5\
---------------------------------------------------------------------------
\4\ Id.
\5\ Id.
---------------------------------------------------------------------------
The Mexican Government's programs have distorted trade. The
government' push for increased production and capacity has led to a
glut of capacity in Mexico, with many green- and shade-houses sitting
empty in some areas. One report found that 30 percent of greenhouses in
major producing areas in Mexico ``were not operating.'' \6\ With
significant overcapacity and an industry aimed at exporting to a single
foreign market, the increasing flood of Mexican tomatoes in the U.S.
market is unsurprising.
---------------------------------------------------------------------------
\6\ Id. at 4.
---------------------------------------------------------------------------
From a broader perspective, the devaluation of the Peso since the
signing of the NAFTA agreement from 3.1 Pesos to the dollar to
currently 18.5 to 22 has also significantly disadvantaged U.S. growers.
In real terms (adjusted for inflation), the Peso has lost nearly \1/3\
of its value in that time.\7\ This is a particular advantage to an
export-oriented industry such as the Mexican tomato growers, who are
able to receive dollars for their goods but in turn pay Peso-
denominated costs. U.S. growers are competitive, but this absolute
advantage by currency devaluation strongly advantages the Mexican
industry in their effort to dominate the market.
---------------------------------------------------------------------------
\7\ Based on Real Effective Exchange Rate data from the IMF, http:/
/data.imf.org.
---------------------------------------------------------------------------
The Impact of the Deficit on the U.S. Fresh Tomato Industry
Tomato growers in Florida are particularly impacted by Mexican
tomato exports because the Florida and Mexico growing seasons align:
perishable tomatoes from both regions enter the market at the same
times of the year and compete directly. As shown in Attachment 2, since
1996 the volume of Mexican fresh tomato imports has more than doubled.
Over this period, the U.S. fresh tomato industry has continually lost
market share to Mexican product. As shown in the chart below, based on
USDA production data, Mexican imports have overtaken U.S. production in
recent years, and in 2016 accounted for over \1/2\ of U.S. consumption.
As shown in the second chart, for the January-April period, the months
when Florida and Mexican tomatoes are both most heavily competing in
the market, the impact of imports has been even more pronounced.
U.S. Market Share
Source: USDA Economic Research Service, Vegetables and Pulses
Yearbook Data 2017, excerpt included in Attachment 3.
U.S. Market Share: Jan.-April period
Source: USDA Agricultural Marketing Service, Market News
Report Data (Movement Report), https://www.marketnews.usda.gov/
mnp/fv-home.
The ever-increasing wave of tomatoes crossing the border has
devastated the U.S. industry. U.S. fresh tomatoes growers have
struggled as prices, depressed by escalating import competition, have
failed to keep up with raising farming costs. In the bad years, many
fields planted in tomatoes have been left unharvested, as market prices
were too low to sustain even that final step. Many producers,
especially smaller and family farms, have been forced into bankruptcy.
Figures reported by the USDA show that U.S. production, shown in
the number of acres in fresh tomatoes that are harvested, remains in
serious decline, having lost almost a quarter of the total acreage
since 1996.
U.S. Fresh Tomatoes--Acres Harvested
Source: USDA National Statistics Service, Annual Survey Data
(data available at https://quickstats.nass.usda.gov/).
The United States' 20 Year Failure to Respond to Dumped Mexican
Tomatoes
Following the surge of low-priced Mexican tomatoes and the
disastrous effect on U.S. producers in the years following the
signature of NAFTA, FTE and FTGE were among the domestic parties that
sought relief from the Department of Commerce and the International
Trade Commission (``ITC'') by submitting an antidumping petition on
fresh tomatoes from Mexico in 1996. The ITC preliminary found that
there was a reasonable indication that Mexican tomatoes were a material
cause of injury to the U.S. industry.\8\ The Department's investigation
confirmed that Mexican exporters were dumping their product on the U.S.
market at unfair prices. The Department preliminarily found dumping
margins ranging from 4.16 to 188.45 percent.\9\
---------------------------------------------------------------------------
\8\ See Fresh Tomatoes from Mexico, Inv. No. 731-TA-747, USITC Pub.
2967 (May 1996) (making a positive preliminary injury determination).
\9\ Notice of Preliminary Determination of Sales at Less Than Fair
Value and Postponement of Final Determination: Fresh Tomatoes From
Mexico, 61 Fed. Reg. 56608, 56615 (Dep't Commerce Nov. 1, 1996).
---------------------------------------------------------------------------
However, rather than continuing the investigation and ordering
final duties on Mexican tomatoes, the Department entered into a
suspension agreement with Mexican tomato growers (concurrently with its
preliminary determination).\10\ Suspension agreements are allowed under
U.S. trade law \11\ but only if foreign exporters agree to terms that
will prevent injury to the U.S. industry and if most of the unfair
dumping is eliminated. The type of suspension agreement the Department
used in this case required that Mexican tomatoes could not be sold to
the U.S. market at less than an established reference price.\12\
---------------------------------------------------------------------------
\10\ Suspension of Antidumping Investigation: Fresh Tomatoes From
Mexico, 61 Fed. Reg. 56618 (Dep't Commerce Nov. 1, 1996).
\11\ 19 U.S.C. 1673c.
\12\ In the 1996 agreement, only on reference price was
established. In later agreements, the different reference prices were
set for the winter and summer seasons and then for tomatoes grown in
different production environments.
---------------------------------------------------------------------------
While the statute permits suspension agreements, Congress made
clear that it was highly distrustful of such agreements, which it saw
could be used for political purposes to the detriment of the U.S.
industry the trade law was intended to protect from unfair trade. The
statute therefore only allows these agreements in ``extraordinary
circumstances'', where the Department of Commerce can determine that
both all injury caused by the imports along and all underselling or
price suppression in the U.S. market will be eliminated. Additionally,
in the type of agreement here, 85 percent of the dumping found in the
investigation must be eliminated for every entry of the product. The
continued ability of every suspension agreement to meet these stringent
requirements was intended to be reviewed by the Department at least
every 5 years in a sunset review.
In 1996, domestic growers did not oppose the suspension. The
Department set the 1996 reference price based on market prices from
earlier years where Mexican tomatoes were not having a detrimental
effect on the market. The Department did not address how the reference
price eliminated 85 percent of the dumping, however. But when the time
came for the sunset review however, the Department did not complete its
review of whether the agreement continued to meet statutory
requirements. Instead, in order to avoid these questions, the Mexican
growers withdrew from the 1996 agreement, terminating it. Those growers
and the Department then entered into a substantially identical ``new''
2002 agreement. To accommodate this, the Department resumed the
investigation temporarily, terminated the sunset review, and then
resumed suspension upon concluding the new agreement.\13\ The same
process occurred again when the next sunset review was due, resulting
in a 2008 agreement.\14\
---------------------------------------------------------------------------
\13\ See Suspension of Antidumping Investigation: Fresh Tomatoes
From Mexico, 67 Fed. Reg. 77044 (Dep't Commerce Dec. 16, 2002).
\14\ See Suspension of Antidumping Investigation: Fresh Tomatoes
From Mexico, 73 Fed. Reg. 4831 (Dep't Commerce Jan. 28, 2008).
---------------------------------------------------------------------------
In 2012, following a disastrous season in which a flood of Mexican
tomatoes forced many U.S. producers, including the largest U.S.
greenhouse producer, into bankruptcy, domestic producers sought to end
this cycle.\15\ The domestic petitioners filed notice with the
Department that they were withdrawing their petition, seeking to
terminate the investigation and hence the suspension of the
investigation. However, the Department declined to recognize the
withdrawal and instead initiated a ``changed circumstances'' review to
consider the termination of the suspended investigation.\16\ The
Department can terminate an investigation or antidumping duty order
through a changed circumstances review if substantially all of the
domestic industry (defined as those producers accounting for over 85
percent of domestic production) declare they have no interests in its
continuation.
---------------------------------------------------------------------------
\15\ Between the 1996 and 2008 suspension agreements, the reference
prices had increased less than five percent. This failed to keep any
kind of pace with raising costs of production, and allowed prices to
fall to the unsustainable levels for the U.S. industry.
\16\ See Fresh Tomatoes From Mexico: Notice of Initiation of
Changed Circumstances Review and Consideration of Termination of
Suspended Investigation, 77 Fed. Reg. 50553 (Dep't Commerce Aug. 21,
2012).
---------------------------------------------------------------------------
In the changed circumstances review, U.S. growers who accounted for
over 90 percent of U.S. fresh tomato production submitted letters to
the Department seeking to have the investigation terminated.\17\
Domestic producers also submitted information, including cost studies
from the Mexican Government, that showed costs to produce in Mexico had
risen significantly from 1996 and were well above the suspension
agreement reference prices, so that the suspension agreement would
allow significant dumping by Mexican exporters even at those reference
prices. During this period, the Department also initiated a sunset
review of the 2008 agreement.
---------------------------------------------------------------------------
\17\ See Fresh Tomatoes From Mexico: Notice of Preliminary Results
of Changed Circumstances Review and Intent To Terminate the Suspended
Antidumping Investigation, 77 Fed. Reg. 60103, 60104 (Dep't Commerce
Oct. 2, 2012).
---------------------------------------------------------------------------
But once again, the Department allowed the foreign exporters to
determine how they would be treated under U.S. antidumping law. The
Mexican producers again withdrew from the suspension agreement,
terminating that sunset review.\18\ At the Mexican producers' request,
in February of 2013, the Department entered into yet another suspension
agreement with the Mexican growers.\19\ The Department never completed
the changed circumstance review or honored the domestic industry's
repeated request to end the repetitive suspension. Also, despite 2
decades having passed since it collected dumping data in its
preliminary investigation, the Department again did not collect any
updated information that would allow it to determine what the fair
market value of Mexican tomatoes would be in 2013, including even basic
Mexican growing costs. Instead, the Department argued that the Mexican
exporters would self-monitor their level of dumping. The Department
then set the new reference prices at the price levels that were on the
market in the 2012 winter season, a period where the price levels
devastated to the U.S. industry and lead directly to the U.S.
producers' attempts to have the suspended investigation terminated.
---------------------------------------------------------------------------
\18\ See Fresh Tomatoes From Mexico: Intent To Terminate Suspension
Agreement and Resume Antidumping Investigation and Intent To Terminate
Sunset Review, 78 Fed. Reg. 9366 (Dep't Commerce Feb. 8, 2013).
\19\ See Fresh Tomatoes From Mexico: Suspension of Antidumping
Investigation, 78 Fed. Reg. 14967-79 (Dep't Commerce March 8, 2013).
---------------------------------------------------------------------------
Because the Department made no effort with the 2013 agreement to
determine if the reference prices would in fact eliminate dumping and
set those prices at levels that would not prevent injury to the U.S.
industry, FTE has appealed the suspension to the Court of International
Trade (``CIT'').\20\ Four years later, there has still been no final
court decision on FTE's claims. The CIT remanded the issue to the
Department in 2015,\21\ but the Department maintained the suspension
agreement with no changes and returned the agreement to the CIT.
Following an additional hearing before the CIT in February of 2017, the
domestic growers await the Court's further decision.\22\
---------------------------------------------------------------------------
\20\ CIT Case. No. 13-00148, FTE v. United States.
\21\ The CIT remanded to the Department of Commerce because
Commerce had failed to disclose certain information regarding its views
of the suspension agreement to domestic producers before it entered the
agreement, as required by law. The Court remanded with instructions for
the Department to properly allow domestic producers to comment on the
late-disclosed information, but did not address FTE's substantive
challenges to the agreement at that time. Because the Department made
no changes to the agreement during the remand, FTE maintained those
substantive challenges.
\22\ Additionally, despite continued efforts by the Department of
Commerce to enforce those reference prices it did put in place in 2013,
Florida tomato growers remain concerned that importers and sellers of
Mexican tomatoes have implemented various schemes to circumvent even
the limited terms of that agreement.
---------------------------------------------------------------------------
Conclusion
The U.S. fresh tomato industry has repeatedly sought the
protections intended for U.S. industries under U.S. trade laws against
dumped products such as Mexican tomatoes. Due to a continued lack of
strong enforcement of those laws and the Mexican growers' repeated
gaming of the system to avoid a review of the suspension agreements
that they have found favorable, nothing has stemmed the mounting flow
of under-priced tomatoes coming from Mexico.
The Mexican Government has continued to encourage over-production
of fresh tomatoes through subsidization of Mexican growers and simply
pushed the resulting over-production north to land on the U.S. market.
The result has been a ballooning deficit in trade between the U.S. and
Mexico and the continuing evaporation of the U.S. industry. On behalf
of the U.S. tomato growers who have been forced to carry the costs of
the Mexico's production choices, FTE and FTGE urge the Department and
the USTR to strongly enforce the U.S. trade laws that were intended to
prevent exactly this outcome.
Sincerely,
Reggie Brown,
Executive Vice President for the Florida Tomato Exchange and the
Florida Tomato Growers Exchange.
attachment 1
U.S. Balance of Trade in Tomatoes (HS 0702)
Total Exports FAS--General Imports Customs Value 1996-February 2017
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Country 1996 1997 1998 1999 2000 2001 2002
----------------------------------------------------------------------------------------------------------------
Value (U.S.$)
----------------------------------------------------------------------------------------------------------------
Mexico ^578,161,189 ^503,349,419 ^563,174,937 ^484,786,940 ^388,672,545 ^463,492,18 ^540,157,87
6 2
Dominican Rep. ^28,395 ^48,000 ^10,690 ^2,265 ^8,100 0 49,032
Guatemala 0 5,078 0 0 0 26,842 99,082
Netherlands ^42,646,325 ^51,345,257 ^63,684,041 ^56,007,713 ^45,867,130 ^51,054,513 ^44,265,398
New Zealand ^21,660 ^5,743 8,800 ^10,039 0 2,560 0
Spain ^3,835,513 ^7,698,056 ^10,714,837 ^10,531,358 ^10,418,268 ^9,655,822 ^13,735,286
Canada 83,097,358 74,304,047 32,547,532 723,205 ^20,607,971 ^27,861,326 ^27,045,957
All Other ^3,788,700 ^4,534,148 ^6,132,364 657,809 7,724,336 1,949,885 ^779,045
-----------------------------------------------------------------------------------------------
Total......... ^545,384,424 ^492,671,498 ^611,160,537 ^549,957,301 ^457,849,678 ^550,084,56 ^625,835,44
0 4
----------------------------------------------------------------------------------------------------------------
Country 2003 2004 2005 2006 2007 2008 2009
----------------------------------------------------------------------------------------------------------------
Value (U.S.$)
----------------------------------------------------------------------------------------------------------------
Mexico ^752,246,578 ^729,707,733 ^773,028,530 ^897,698,105 ^925,321,200 ^1,093,463, ^1,056,665,
636 676
Dominican Rep. ^10,025 ^530,640 ^1,216,238 ^3,273,789 ^3,122,752 ^2,886,542 ^2,867,832
Guatemala 34,189 0 0 ^4,570 ^283,020 ^1,502,360 ^3,981,051
Netherlands ^29,692,792 ^25,089,736 ^15,524,085 ^17,792,192 ^15,025,096 ^10,987,861 ^12,499,872
New Zealand 3,365 ^13,474 0 0 ^31,844 ^26,220 ^92,688
Spain ^7,011,515 ^6,023,194 ^819,927 ^4,809,619 ^1,474,126 ^2,423,385 ^195,536
Canada ^58,812,731 ^58,458,685 ^63,285,795 ^51,379,448 30,597,018 9,788,702 ^12,247,916
All Other ^7,263,934 ^2,180,122 5,160,951 5,066,339 5,230,597 2,853,962 1,710,503
-----------------------------------------------------------------------------------------------
Total......... ^855,000,021 ^822,003,584 ^848,713,624 ^969,891,384 ^909,430,423 ^1,098,647, ^1,086,840,
340 068
----------------------------------------------------------------------------------------------------------------
Country 2010 2011 2012 2013 2014 2015 2016
----------------------------------------------------------------------------------------------------------------
Value (U.S.$)
----------------------------------------------------------------------------------------------------------------
Mexico ^1,415,272,3 ^1,758,712,4 ^1,546,445,9 ^1,610,479,0 ^1,625,325,4 ^1,655,362, ^1,962,094,
53 75 11 30 52 740 088
Dominican Rep. ^2,936,463 ^5,490,474 ^4,493,983 ^3,470,008 ^5,122,876 ^5,250,938 ^10,670,845
Guatemala ^6,929,854 ^21,962,207 ^12,135,404 ^15,832,207 ^14,221,450 ^9,144,492 ^8,609,038
Netherlands ^3,399,560 ^2,044,236 ^2,232,569 ^2,412,992 ^1,755,136 ^1,514,062 ^1,479,547
New Zealand ^317,069 ^256,955 ^307,375 ^261,021 ^98,030 ^245,321 ^207,843
Spain 0 0 408,629 0 ^21,390 3,514 ^97,243
Canada ^891,991 ^918,645 ^5,814,019 ^20,532,883 35,423,559 56,713,827 62,543,340
All Other 4,655,366 4,801,896 11,701,449 13,466,623 11,184,528 10,524,758 9,282,429
-----------------------------------------------------------------------------------------------
Total......... ^1,425,091,9 ^1,784,583,0 ^1,559,319,1 ^1,639,521,5 ^1,599,936,2 ^1,604,275, ^1,911,332,
24 96 83 18 47 454 835
----------------------------------------------------------------------------------------------------------------
Country 2016 YTD 2017 YTD Percent Percent Percent Percent
Change 2012- Change 2008- Change 2002- Change 1996-
2016 2016 2016 2016
----------------------------------------------------------------------------------------------------------------
Value (U.S.$)
----------------------------------------------------------------------------------------------------------------
Mexico ^541,427,735 ^354,942,157 26.88% 79.44% 263.24% 239.37%
Dominican Rep. ^2,988,118 ^2,609,263 137.45% 269.68% ^21,863.02% 37,480.01%
Guatemala ^2,237,165 ^2,453,333 ^29.06% 473.03% ^8,788.80%
Netherlands ^373,376 0 ^33.73% ^86.53% ^96.66% ^96.53%
New Zealand ^150,829 ^135,717 ^32.38% 692.69% 859.57%
Spain ^73,040 ^65,736 ^123.80% ^95.99% ^99.29% ^97.46%
Canada 97,295,135 66,363,572 ^1,175.73% 538.93% ^331.25% ^24.73%
All Other 1,613,264 744,532 ^20.67% 225.25% ^1,291.51% ^345.00%
---------------------------------------------------------------------------------
Total....................... ^448,341,864 ^293,098,102 22.57% 73.97% 205.41% 250.46%
----------------------------------------------------------------------------------------------------------------
attachment 2
U.S. Imports of Fresh Tomatoes (HS 0702), 1996-YTD 2017
Tomatoes: for All Countries
U.S. Imports for Consumption
(HTS Number 0702: Tomatoes, Fresh or Chilled)
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Country 1996 1997 1998 1999 2000 2001
----------------------------------------------------------------------------------------------------------------
In Actual Dollars
----------------------------------------------------------------------------------------------------------------
Mexico 580,348,521 517,048,769 567,442,691 489,587,610 411,795,805 484,922,820
Canada 37,408,123 58,965,727 100,507,593 119,690,432 160,939,005 166,836,053
Dominican Rep. 48,395 48,000 35,490 2,265 8,100 0
Guatemala 0 0 0 0 0 0
Netherlands 42,646,325 52,908,527 64,487,481 57,170,545 46,364,566 51,054,513
New Zealand 21,660 5,743 0 10,039 0 0
Spain 3,879,073 7,828,736 10,893,917 10,686,008 10,723,548 9,684,622
Colombia 0 3,875 5,893 0 13,200 5,007
Ecuador 0 0 8,908 7,799 0 10,210
Italy 0 22,800 3,143 0 0 9,011
France 0 0 160,498 230,732 0 0
Gaza Strip 124,740 5,376 20,010 52,970 0 0
Germany 0 17,625 0 0 0 0
Honduras 0 0 0 0 0 0
Israel 3,804,252 6,683,585 8,604,560 8,071,429 7,811,594 7,715,814
All Other 4,187,325 5,128,954 5,725,270 3,811,711 2,624,738 1,377,505
---------------------------------------------------------------------------------------------
Total........... 672,468,414 648,667,717 757,895,454 689,321,540 640,280,556 721,615,555
----------------------------------------------------------------------------------------------------------------
Country 2002 2003 2004 2005 2006 2007
----------------------------------------------------------------------------------------------------------------
In Actual Dollars
----------------------------------------------------------------------------------------------------------------
Mexico 552,241,241 760,756,391 749,963,474 781,234,276 918,754,938 960,046,726
Canada 172,587,391 231,350,010 257,191,469 271,976,608 284,206,268 238,147,767
Dominican Rep. 2,028 10,025 534,990 1,216,238 3,283,785 3,216,947
Guatemala 0 4,260 0 0 4,570 283,020
Netherlands 45,619,918 33,837,082 27,638,236 16,228,725 17,795,731 15,027,895
New Zealand 0 0 13,474 0 0 35,572
Spain 13,735,286 7,011,515 6,023,194 819,927 4,809,619 1,474,126
Colombia 0 0 0 0 0 18,995
Ecuador 0 0 0 0 0 0
Italy 12,655 0 0 3,830 171,586 0
France 0 0 0 0 0 0
Gaza Strip 0 0 0 0 0 0
Germany 0 0 0 0 0 0
Honduras 0 0 0 0 0 0
Israel 9,236,599 12,212,406 7,915,670 1,251,249 1,652,699 872,755
All Other 1,807,131 2,179,440 4,306,459 2,387,962 2,729,214 1,374,007
---------------------------------------------------------------------------------------------
Total........... 795,242,249 1,047,361,129 1,053,586,966 1,075,118,815 1,233,408,410 1,220,497,810
----------------------------------------------------------------------------------------------------------------
Country 2008 2009 2010 2011 2012 2013
----------------------------------------------------------------------------------------------------------------
In Actual Dollars
----------------------------------------------------------------------------------------------------------------
Mexico 1,142,867,790 1,125,527,212 1,487,411,425 1,807,703,157 1,578,590,513 1,637,534,863
Canada 269,235,986 255,521,195 293,775,123 299,935,801 268,633,873 320,075,231
Dominican Rep. 2,941,707 2,879,170 2,942,296 5,549,565 4,597,125 3,518,491
Guatemala 1,502,360 3,981,051 7,384,702 21,962,207 12,135,404 15,839,690
Netherlands 10,991,229 12,499,872 3,399,560 2,044,236 2,336,249 2,415,792
New Zealand 26,220 92,688 317,069 256,955 418,723 261,021
Spain 2,423,385 195,536 0 0 0 0
Colombia 22,253 7,906 0 22,136 26,732 31,331
Ecuador 0 0 0 0 0 0
Italy 0 0 0 3,580 0 0
France 0 0 2,645 0 0 0
Gaza Strip 0 0 0 0 0 0
Germany 0 0 0 0 0 0
Honduras 0 0 0 0 0 13,770
Israel 836,234 569,947 956,724 275,438 775,678 0
All Other 742,320 2,308,132 2,048,560 116,816 90,316 79,418
---------------------------------------------------------------------------------------------
Total........... 1,431,589,484 1,403,582,709 1,798,238,104 2,137,869,891 1,867,604,613 1,979,769,607
----------------------------------------------------------------------------------------------------------------
Country 2014 2015 2016 2016 YTD 2017 YTD
----------------------------------------------------------------------------------------------------------------
In Actual Dollars
----------------------------------------------------------------------------------------------------------------
Mexico 1,660,270,425 1,675,107,907 1,964,305,605 541,599,025 355,990,720
Canada 283,079,581 247,682,869 277,930,732 3,432,904 4,016,876
Dominican Rep. 5,146,069 5,317,858 10,675,438 2,988,118 2,621,177
Guatemala 14,221,450 9,144,492 8,612,145 2,237,165 2,453,333
Netherlands 1,762,230 1,516,662 1,490,009 383,838 0
New Zealand 98,030 245,321 207,843 150,829 135,717
Spain 21,390 26,520 102,256 73,040 65,736
Colombia 46,571 3,089 12,142 0 0
Ecuador 43,925 15,000 11,385 0 7,771
Italy 7,653 4,207 10,261 0 0
France 0 0 0 0 0
Gaza Strip 0 0 0 0 0
Germany 0 2,205 0 0 0
Honduras 6,615 28,755 0 0 0
Israel 148,351 0 0 0 0
All Other 0 0 0 0 0
-----------------------------------------------------------------------------
Total........................... 1,964,852,290 1,939,094,885 2,263,357,816 550,864,919 365,291,330
----------------------------------------------------------------------------------------------------------------
Country Percent Change Percent Percent
1996-2016 Change 2008- Change 2008-
2016 2016
----------------------------------------------------------------------------------------------------------------
Mexico 238.47% 71.88% 24.43%
Canada 642.97% 3.23% 3.46%
Dominican Rep. 21,958.97% 262.90% 132.22%
Guatemala N/A 473.24% ^29.03%
Netherlands ^96.51% ^86.44% ^36.22%
New Zealand 859.57% 692.69% ^50.36%
Spain ^97.36% ^95.78% N/A
Colombia N/A ^45.44% ^54.58%
Ecuador N/A N/A N/A
Italy N/A N/A N/A
France N/A N/A N/A
Gaza Strip ^100.00% N/A N/A
Germany N/A N/A N/A
Honduras N/A N/A N/A
Israel ^100.00% ^100.00% ^100.00%
All Other ^100.00% ^100.00% ^100.00%
---------------------------------------------
Total........................................................... 236.57% 58.10% 21.19%
----------------------------------------------------------------------------------------------------------------
attachment 3
Excerpt
USDA Economic Research Service, Vegetables and Pulses Yearbook Data
(April 6, 2017)
Table 42--U.S. fresh tomatoes: Supply, utilization, & price, farm weight, 1970-2016
--------------------------------------------------------------------------------------------------------------------------------------------------------
Supply Utilization Season-average price
---------------------------------------------------------------------------------------------------------------------------------------
Year Current Constant 2009
Production \1\ Imports \2\ Total Exports \2\ Domestic \3\ Per capita use dollars \1\ dollars \4\
--------------------------------------------------------------------------------------------------------------------------------------------------------
Million pounds Pounds $/cwt
--------------------------------------------------------------------------------------------------------------------------------------------------------
1970 1,933.4 646.7 2,580.1 89.2 2,490.9 12.1 11.20 49.11
1971 1,887.7 575.4 2,463.1 107.6 2,355.5 11.3 13.90 58.00
1972 2,088.5 586.8 2,675.3 136.8 2,538.5 12.1 14.80 59.19
1973 2,043.1 753.1 2,796.2 150.7 2,645.5 12.5 16.00 60.68
1974 2,098.1 595.8 2,693.9 161.2 2,532.7 11.8 17.30 60.21
1975 2,226.4 567.1 2,793.5 202.6 2,590.9 12.0 18.70 59.56
1976 2,296.7 653.3 2,950.0 212.4 2,737.6 12.6 19.10 57.67
1977 2,098.7 791.9 2,890.6 169.1 2,721.5 12.4 20.60 58.57
1978 2,302.3 817.8 3,120.1 215.6 2,904.5 12.9 19.70 52.33
1979 2,361.2 713.3 3,074.5 248.6 2,825.9 12.4 22.50 55.21
1980 2,556.7 651.7 3,208.4 275.3 2,933.1 12.8 20.70 46.60
1981 2,607.0 525.9 3,132.9 269.5 2,863.4 12.3 21.40 44.06
1982 2,676.9 592.6 3,269.5 249.7 3,019.8 12.9 22.50 43.62
1983 2,726.2 738.2 3,464.4 286.0 3,178.4 13.5 24.20 45.13
1984 2,816.3 824.3 3,640.6 263.2 3,377.4 14.2 25.60 46.11
1985 2,974.0 851.0 3,825.0 271.5 3,553.5 14.9 24.20 42.23
1986 3,136.1 981.1 4,117.2 288.1 3,829.1 15.8 25.10 42.94
1987 3,241.4 919.5 4,160.9 284.9 3,876.0 15.8 25.90 43.20
1988 3,588.9 816.8 4,405.7 254.2 4,151.5 16.8 27.10 43.68
1989 3,596.2 867.9 4,464.1 298.0 4,166.1 16.8 33.20 51.50
1990 3,380.0 795.9 4,175.9 293.1 3,882.8 15.5 27.40 40.99
1991 3,398.8 795.5 4,194.3 300.3 3,894.0 15.4 31.70 45.90
1992 3,903.3 432.2 4,335.5 367.5 3,968.0 15.4 35.80 50.68
1993 3,666.3 922.4 4,588.7 345.8 4,242.9 16.3 31.70 43.83
1994 3,738.7 873.0 4,611.7 340.7 4,270.9 16.2 27.40 37.09
1995 3,409.8 1,368.9 4,778.7 289.2 4,489.5 16.8 25.50 33.82
1996 3,363.4 1,625.1 4,988.5 295.4 4,693.1 17.4 28.10 36.60
1997 3,424.8 1,636.8 5,061.7 341.7 4,720.0 17.3 31.70 40.59
1998 3,525.6 1,868.0 5,393.6 286.3 5,107.3 18.5 35.20 44.59
1999 4,026.9 1,633.1 5,660.0 334.3 5,325.6 19.1 25.80 32.22
2000 4,162.0 1,609.4 5,771.4 410.4 5,361.0 19.0 30.70 37.49
2001 4,061.1 1,815.6 5,876.7 397.9 5,478.8 19.2 30.00 35.81
2002 4,289.3 1,894.9 6,184.2 332.3 5,851.8 20.3 31.60 37.15
2003 3,888.4 2,071.1 5,959.5 314.2 5,645.3 19.4 37.50 43.23
2004 4,169.6 2,054.2 6,223.8 369.3 5,854.5 19.9 37.40 41.96
2005 4,196.9 2,098.1 6,295.0 326.5 5,968.5 20.2 41.60 45.22
2006 4,041.1 2,187.9 6,229.0 317.7 5,911.2 19.8 43.70 46.09
2007 3,795.6 2,361.1 6,156.7 355.7 5,801.0 19.2 34.80 35.75
2008 3,554.6 2,460.6 6,015.2 372.3 5,642.9 18.5 45.30 45.65
2009 3,775.5 2,622.6 6,398.1 375.6 6,022.5 19.6 40.40 40.40
2010 3,253.8 3,378.6 6,632.4 266.2 6,366.1 20.6 48.20 47.62
2011 3,508.1 3,287.1 6,795.3 252.6 6,542.7 21.0 36.10 34.98
2012 3,412.8 3,377.8 6,790.7 258.7 6,532.0 20.8 30.50 29.00
2013 3,253.8 3,389.5 6,643.4 241.3 6,402.0 20.2 44.60 41.71
2014 3,386.4 3,418.2 6,804.6 248.7 6,555.8 20.5 41.50 38.18
2015 3,342.6 3,457.0 6,799.7 214.3 6,585.3 20.5 46.30 42.18
2016p 3,129.4 3,938.5 7,067.8 186.9 6,880.9 21.3 40.70 36.52
--------------------------------------------------------------------------------------------------------------------------------------------------------
-- = Not available. p = preliminary.
\1\ Source: USDA, National Agricultural Statistics Service. Production was adjusted by ERS for 1970-81 to account for states not included in NASS
estimates. Includes ERS estimates of domestically-grown hothouse tomatoes after 1996.
\2\ Source: U.S. Department of Commerce, U.S. Census Bureau. From 1978-89, U.S. exports were adjusted using Canadian import data. Imports include
hothouse tomatoes.
\3\ Editor's note: the submitted table did not include information for table note 3.
\4\ Deflated by the GDP implicit price deflator, 2009=100.
Cwt = hundredweight.
Source: USDA Economic Research Service.
attachment 4
GAIN Report Number MX 2036, Mexico Tomato Annual
USDA Foreign Agricultural Service
This report contains assessments of commodity and trade
issues made by USDA staff and not necessarily statements of
official U.S. Government policy.
Required Report--public distribution.
Date: 6/14/2012
GAIN Report Number: MX 2036
Mexico
Tomato Annual
Early 2012 Supply Spike Leads to Low Prices, Exports Expected
Higher in MY 2012/13
Approved By: Erik Hansen
Prepared By: Dulce Flores
Report Highlights: Tomato production for Marketing Year (MY) 2012/
13 is forecast at 2.1 million metric tons (MMT). Production for MY
2011/12 is estimated at an unusually high 2.3 MMT. Tomato exports
for MY 2011/12 are expected to reach 1.5 MMT, lower than expected
as international prices were very low. Exports for MY 2012/13 will
depend on weather conditions and international prices but are
expected to be higher than the year before. Production under
protected agriculture technology is expanding throughout the
country for several horticultural products, particularly tomatoes.
Commodities: Tomato Paste, 28-30% TSS, Basis Fresh Tomatoes.
Production
The tomato production forecast for the MY 2012/13 (Oct/Sept) is 2.1
MMT assuming favorable weather conditions and attractive international
prices. Although there is no official Government of Mexico (GOM)
forecast for overall tomato production for MY2012/13, Post estimates
that tomato production will be lower than the previous marketing year
as producers from the state of Sinaloa seem discouraged by MY 2011/12
production and marketing results. The overall tomato production
estimate for MY 2011/12 is high at about 2.3 MMT as weather was
favorable and more acreage under protected agriculture entered
production. However, according to producers, not all tomatoes reached
the market, as lower international prices resulting from higher
supplies caused Sinaloa producers to bring tomatoes back from the
border for resorting, discarding the ones that did not meet supreme
quality. The spring tomato crop from Baja California and other states
is expected to be normal. The overall tomato production estimate for MY
2010/11 was expected to be around 2.0 MMT but, due to weather problems
and a freeze in Sinaloa that caused a loss of about 30 percent, total
production was lowered to 1.6 MMT based on official information.
Total planted area for tomatoes has been declining but yields have
been increasing due to the establishment of protected agriculture
(greenhouse, shade-house, tunnel) areas. In 1990, planted area devoted
to tomatoes was about 85,500 hectares (ha). In 2000, tomato planted
area was roughly 75,800 ha. In 2011, tomato planted area is expected at
approximately 57,000 ha. Tomato-producing states like Sinaloa and Baja
California switched more area from open field production to greenhouse
production and used less area while increasing yields. Other states
began to build greenhouse/shade-house infrastructure to grow tomatoes,
cucumbers, bell peppers, zucchini, strawberries, and flowers (See
policy section).
Tomato planted area for fresh consumption for MY 2012/13 is
forecast to be lower than MY 2011/12 area, at 52,000 ha, due to a
general tendency to decrease open field tomato plantings in favor of
using different types of protected agriculture. Also, area planted
could be affected depending on water availability. The drought that
Mexico has suffered over the last 2 years has exhausted local dams,
mainly in the northern states. Private sources indicate that dams are
currently (May 2012) closed in Sinaloa for agricultural production with
resources dedicated to human consumption only. Also, overproduction and
the resulting low market prices (domestic and international) in MY
2011/12 could encourage some producers to switch to other products
(peppers, cucumbers) or reduce area planted for MY 2012/13.
The planting area estimate for fresh consumption for MY 2011/12 is
54,000 ha and harvested area is 48,900 ha. Low temperatures slowed
fruit ripening in Sinaloa and Nayarit during December 2011. By January
2012, the harvest volume spiked creating a large supply overhang. Low
prices even forced producers to stop sending product to the domestic
market in late February. Oversupply also lowered the international
market price, a situation that forced Sinaloa to recall product from
the border for resorting and reselection with only the supreme quality
exported to the U.S. market. Tomatoes that did not make grade were
discarded. Based on official data, the MY 2010/11 planting area
estimate for fresh consumption is 53,025 ha. However, harvested area
was lower than expected at 38,003 ha due to bad weather and a freeze in
Sinaloa where about 13,457 ha were damaged. The Roma variety now
represents more than 58 percent of total Mexican tomato production as
demand for this type of tomato has surpassed the round tomato.
Yields vary depending on production conditions and inputs. Average
yields have grown from 23 MT/ha in 1990 to 28 MT/ha in 2000 and are
expected to reach 43 MT/ha or more in 2011. Baja California and Sinaloa
growers generally achieve the highest fresh tomato yields, 45 MT/ha or
more, due in part to their pest and disease control programs. In other
areas of Mexico, growers have significantly lower yields averaging from
20 to 30 MT/ha. This is primarily attributable to less intensive use of
inputs. Greenhouse/shade-house yields tend to vary significantly among
producers, variety, and state. These yields generally range from 150
MT/ha to 200 MT/ha depending on the technology used.
Table 1. Mexico: Tomato Production, Area (ha) and Volume (MT)
------------------------------------------------------------------------
Estimate MY Estimate MY Forecast MY
2010/11 2011/12 2012/13
------------------------------------------------------------------------
Total Planted Area (ha) 56,025 57,000 55,000
For fresh 53,025 54,000 52,000
consumption.............
For processing.. 3,000 3,000 3,000
Total Harvested Area (ha) 40,003 49,000 48,000
For fresh 38,003 46,000 45,000
consumption.............
For processing.. 2,000 3,000 3,000
Total production (MT) 1,670,454 2,300,000 2,100,000
For fresh market 1,630,454 2,210,000 2,010,000
For processing.. 40,000 90,000 90,000
------------------------------------------------------------------------
Open-field tomato production area has shown a tendency to decrease
due to pest problems, high costs of production, swings in both
international prices and exchange rates, and limited water
availability. The decrease in open field area is more evident in states
like Sinaloa, Baja California, and Jalisco. In addition, small open
field producers are switching to other products like corn and beans in
search of better financial returns. There has also been a gradual
switch from open field tomato production to protected production.
Greenhouse/shade-house operations are concentrated in the states of
Sinaloa, Baja California and Jalisco, but there are also greenhouse
operations in the states of Colima, Mexico, Hidalgo, Michoacan,
Queretaro, San Luis Potosi, Sonora, and Zacatecas. According to
industry sources, there are currently more than 13,000 ha of protected
agriculture throughout Mexico devoted to tomato production.
According to sources, protected agriculture is growing in Mexico at
about 13 percent a year as producers increasingly become aware of the
benefits in production, quality, pest control, and reduced risk
exposure to climate change. Moreover, there is growth in protected
agriculture as the GOM, at various levels, sees the benefits of
introducing this production method to rural and poorer areas as a form
of social development. According to the Secretariat of Agriculture
(SAGARPA) there are about 20,000 hectares under protected agriculture,
with 12,000 ha of greenhouse type and 8,000 ha of shade-house and
macro-tunnel type. The state of Sinaloa accounts for 22%, Baja
California 14%, Baja California Sur 12%, and Jalisco 10% of protected
agriculture. The main horticultural products produced under this
technology are tomato (70%), bell pepper (16%), cucumber (10%), and the
rest are products like flowers, chili peppers, strawberries and papaya.
In Sinaloa (a winter-cycle tomato producing state) there are about
15,000 ha devoted to tomatoes of which approximately 2,000 ha are under
protected production. About 80% of these hectares are under shade-house
operations as the climate is generally too hot for greenhouse
technology. Due to strong returns, production has trended towards
increased use of shade-houses, mainly for products destined for the
export market. Growers, however, indicate that combining open field and
shade-house production has been useful for marketing their product.
Sources point out that less than ideal levels of agricultural
sophistication (i.e., lack of established marketing channels,
insufficient capital, and ability to manage weather events), means that
sometimes growers abandon protected facilities. Through a recent study
in 2010/11, the Mexican Association of Protected Horticulture (AMHPAC)
found that of the approximately 9,000 ha of greenhouses existing in the
northern states of Sinaloa, Sonora, Baja California Norte, and Baja
California Sur, 30 percent were not operating.
During the October to May winter season, Sinaloa growers are the
main producers and exporters of fresh tomatoes. Other significant
producers include Michoacan, Jalisco, and Baja California Sur. Growers
in Sinaloa are anticipating that the use of improved and extended shelf
varieties, drip irrigation, and plastic mulch will help maintain their
high yield levels. During the summer season (May to October), Baja
California growers are the main producers and exporters of fresh
tomatoes. The states of Michoacan, Jalisco, and Morelos follow Baja
California's production. Producers in Sinaloa and Baja California are
widely considered more technologically advanced than other producing
states. As a result, U.S. California tomatoes face direct competition
from Baja California tomatoes. Tomato growers in Jalisco bridge the
summer-winter cycle and usually export in October, November, and
December after Baja California. The states of Jalisco and Queretaro
have been increasing shade-house planted area. This increase is largely
attributable to recent success in exporting to the United States.
Planting and harvesting of tomatoes for processing is largely a
function of fresh domestic market prices and international tomato paste
prices. Areas that were previously devoted to planting tomatoes for the
processing industry have shifted to fresh market, as demand for
processing tomatoes has declined in the face of high international
fresh market prices. Area planted in both MY 2011/12 and MY 2012/13 to
processed tomatoes is estimated at 3,000 ha. Yields for this type of
tomato range from 30 MT/ha to 40 MT/ha given normal weather conditions.
If the industry needs to process additional tomatoes, it purchases
supplies from the open market. Due to the February 2011 freeze in
Sinaloa, a large portion of the area devoted to industrial tomato use
was damaged.
Tomato production costs remain high across the country. Credit
availability remains a constraining factor for growers since Mexican
banks do not provide loans for tomato production. In a few instances,
producers with export contracts can receive some operating capital from
contracting companies in the United States. According to growers,
imported agrochemicals, seeds, and fertilizers are the most costly
inputs. Current depreciation of the Mexican peso vs. the U.S. dollar
will increase costs of production as the exchange rate reached 13.75
pesos per U.S. $1.00 in December 2011 but has fallen to 14.20 pesos per
U.S. $1.00 in June 2012.
Consumption
The MY 2012/13 final consumption figure will depend on tomato
exports to the United States, as domestic consumption is a residual
after exporting. Consumption for MY 2011/12 is estimated to be higher
compared to the previous marketing year as prices were low due to large
supplies. Consumption for MY 2010/11 was lower than expected due to
lower supplies during the winter season, high export volumes, and high
domestic prices.
Tomato consumption is price sensitive in Mexico. Thus, marginal
changes in prices tend to lead to significant changes in demand.
Although protected production is still limited and tends to be higher
priced, the market now has the option of meeting more of the domestic
demand with greenhouse/shade-house tomatoes.
Local tomato prices tend to rise from March to May because of
increased exports from the state of Sinaloa, which in turn reduces
supply in the domestic market. However, during the supply spike of the
winter season of 2011/12, prices were down more than 50 percent
compared to 2010/11. Tomato exports also tend to increase from June to
August, as this is the international market window for tomatoes from
Baja California. By the end of November and December, tomato prices
usually rise again, due to the increased export volume from the states
of Jalisco and Sinaloa.
The tomato paste industry always buys tomatoes from the fresh
market in addition to buying contracted tomatoes for processing.
However, price competition in the fresh market has become a problem for
the processing industry. Over the past several years, relatively high
fresh tomato prices have diverted product away from the processing
market. Thus, there has been very little industry demand for tomatoes
destined to paste production as it is economically more feasible to
import tomato paste rather than produce it domestically.
Trade
Exports for MY 2012/13 are expected to rebound from MY 2011/12
levels if weather conditions are good and international prices increase
from last year's levels. Tomato exports for MY 2011/12 are estimated at
to reach 1.5 MMT. According to industry sources, tomato exports during
the 2011/12 winter season were lower from Sinaloa as higher supplies
resulted in very low prices for the international market. In fact,
according to traders, prices in January 2012 were selling almost at the
lowest price allowed under the suspension agreement--about U.S.$0.21/
lb. To prevent prices from declining further and to stabilize the
market, producers in Sinaloa agreed to be more selective in the tomato
quality for export resulting in a large quantity of tomatoes being kept
off the market and discarded. However, it is important to note that
other states like Jalisco, Queretaro, and San Luis Potosi are
increasing export volumes during this window, crossing the border
through Texas. Tomato exports for MY 2010/11were lower compared to MY
2009/10 exports or 1.43 MMT, as Sinaloa reduced exports by roughly 30
percent due to the freeze. According to the U.S. Census Bureau, 40
percent of all tomatoes imported into the United States from Mexico
during MY 2010/11 were shade/greenhouse tomatoes.
Fresh tomato imports from the United States represent a small
portion of Mexico's fresh consumption and fluctuate depending on
international prices and domestic availability. Due to weather problems
in Mexico, there was an opportunity for higher imports for MY 2010/11,
where an estimated of 31,058 MT of tomatoes were imported into Mexico
from the United States. Import estimates for MY 2011/12 are expected to
be lower as domestic supplies are higher and prices are lower. Most
imported tomatoes are sold in the northern states of Nuevo Leon,
Sonora, Baja California, and Chihuahua.
Policy
Since 2009, the GOM has operated strategic projects for protected
agriculture where the Federal and state governments participate with
funds through FIRCO, a Mexican trust fund for shared risk
(www.firco.gob.mx/). According to SAGARPA, more than $92.7 million USD
were designated to promote protected agriculture through a Program of
Investment Support for Infrastructure, which encourages production
improvements and climate change mitigation. In 2009 and 2010, $189.2
million USD were destined for the establishment of 2,500 ha of
protected agriculture--65% for greenhouses, 25% shade-houses, 7% macro-
tunnel, 3% micro-tunnel and three Regional Training Centers
(production, post-production, and marketing). Supported production
includes 859 ha of tomatoes (41%), 428 ha of cucumbers (20%), 347 ha of
bell peppers (16%), 274 ha of berries (13%), and the rest are planted
with zucchini, grapes, brussels sprouts, habanero and green peppers,
and ornamental plants. These types of projects have helped to
consolidate development areas for small producers in the states of
Oaxaca, Nuevo Leon, Morelos and Puebla. Some of the projects in
marginal areas are geared first for self consumption within the
communities. Read more about this program at: http://
www.sagarpa.gob.mx/agricultura/Paginas/Agricultura-Protegida2012.aspx.
According to SAGARPA, the program for protected agriculture in 2012
will be very similar, in general, to the 2011 program: support funds
are $18,018 USD/ha for macro-tunnel, $36,036 USD/ha for shade-house and
$108,108 USD/ha for greenhouse technology. Only investments for new
infrastructure and new equipment are supported and funds cannot be used
to buy land or housing. Support could reach up to 60 percent for highly
marginalized areas and up to 45 percent for other producers. For
additional information see the following page: http://
www.sagarpa.gob.mx/agricultura/Documents/
Agricultura%20Protegida%202012/TRIPTICO%202012%20agricultura%20protegida
.pdf.
Both producers and SAGARPA officials are extremely cognizant of the
importance of meeting quality standards for fruits and vegetables and
have implemented programs to comply with U.S. food safety requirements.
The Tomato Suspension Agreement between Mexico and the United
States, signed on December 4, 2002, binds participants in the agreement
to an agreed upon reference price. The reference price for exporting
fresh tomatoes for the summer season (July 1 to October 22) is 17.2
per pound and the reference price for the winter season (October 23 to
June 30) is 21.69 per pound. According to growers, tomato prices for
MY 2011/12 have been close to the reference price. The U.S. Department
of Commerce will soon begin the third sunset review of the agreement
(ending January 2013) to evaluate how well it worked. Low prices over
the last 6 months have lead to complaints by both Mexican and U.S.
growers about the functioning of the agreement, with sellers and
brokers accused of under-cutting the agreement floor price. Producer
associations have exerted considerable effort combating these bad
actors.
Tariffs
Mexico, in general, does not import tomatoes from countries other
than the United States. Mexico's most favored nation (MFN) applied
tariff rate for tomato (HTS 0702) imports is ten percent. Countries
with tariff-free access to Mexico include: the United States, Canada,
Chile, Costa Rica, Nicaragua, Uruguay, Bolivia, the European Union, and
Japan. There is an applied tariff rate of 28% for tomatoes from
Colombia. Fresh tomato exports to the United States as well as imports
have zero duty under NAFTA. The tomato tariff classification numbers
are 0702.0001 and 0702.0099. Mexico does notassess an export tariff.
Marketing
Fresh tomatoes destined for domestic consumption, including
imported tomatoes, pass through wholesale markets and proceed to large
supermarkets and retail stores. A few stores import directly without
going through wholesale marketing channels. This remains somewhat rare,
however, since most retail operations do not have expertise importing
or the labor resources to repack tomatoes based on maturity, size, etc.
before products are showcased to consumers. In the past, promotional
campaigns for U.S. tomatoes focused on proper tomato handling
techniques, point of sale materials, and in-store promotions. Most of
the imported product is destined to border cities and states. Tomatoes
for the export market are shipped directly from the producing area to
the United States border.
Prices and Trade
Table 2. Mexico: Wholesale Round Tomato Prices
Mexico City--Pesos/Kg
------------------------------------------------------------------------
% Change
Month 2010 2011 2012 2012/2011
------------------------------------------------------------------------
January 11.05 8.60 8.85 0.11
February 12.29 15.73 5.12 (67.45)
March 26.03 24.53 9.88 (59.72)
April 17.40 30.63 7.76 (74.66)
May 11.96 14.99 9.64 (35.69)
June 6.09 13.25 N/A N/A
July 7.88 11.80 N/A N/A
August 12.00 12.35 N/A N/A
September 12.69 11.32 N/A N/A
October 14.44 10.92 N/A N/A
November 11.84 10.87 N/A N/A
December 11.59 11.22 N/A N/A
------------------------------------------------------------------------
Table 3. Mexico: Wholesale Roma Tomato Prices
Mexico City--Pesos/Kg
------------------------------------------------------------------------
% Change
Month 2010 2011 2012 2012/2011
------------------------------------------------------------------------
January 5.72 8.20 7.26 (11.46)
February 6.60 9.83 4.96 (49.54)
March 9.42 10.42 6.38 (38.77)
April 5.54 16.06 5.63 (64.94)
May 4.95 7.09 7.72 8.88
June 4.15 5.51 N/A N/A
July 5.76 6.12 N/A N/A
August 6.44 5.39 N/A N/A
September 8.45 6.23 N/A N/A
October 12.19 5.68 N/A N/A
November 11.78 5.12 N/A N/A
December 10.66 8.15 N/A N/A
------------------------------------------------------------------------
Source: Servicio Nacional de Informacion de Mercados.
Note: 2011 Exchange Rate Avg.: U.S. $1.00 = 12.42 pesos.
June 1, 2012 Exchange Rate: U.S. $1.00 = 14.30 pesos
Round Tomato Prices Mexico City Wholesale
Round & Roma Tomato Prices Mexico City Wholesale *
---------------------------------------------------------------------------
* Editor's note: the graphic entitled, Round & Roma Tomato Prices
Mexico City Wholesale, was cutoff in the submitted document. It has
been reproduced herein as is.
Table 4. Mexico: MY2010/11 Tomato Exports and Imports by Volume (MT) and Value ($)
----------------------------------------------------------------------------------------------------------------
Exports for MY 2010/11 (Oct.-Sept.): Imports for MY 2010/11 (Oct.-Sept.):
----------------------------------------------------------------------------------------------------------------
Destination Volume Value 000 Origin Volume Value 000
----------------------------------------------------------------------------------------------------------------
U.S. 1,302,668 $1,732,831.7 U.S. 31,058 $58,714.0
Canada 127,669 179,154.2
Others not 3,621 4,922.9 Others not 0
listed listed
-------------------------------------- -----------------------------------
Grand Total..... 1,433,958 $1,916,908.8 Grand Total 31,058 $58,714.0
----------------------------------------------------------------------------------------------------------------
Source: Global Trade Information Services, Inc. Global Trade Atlas, Mexico Edition, March 2012.
Table 5 Mexico: MY2011/12 * Tomato Exports and Imports by Volume (MT) and Value ($)
----------------------------------------------------------------------------------------------------------------
Exports for MY 2011/12 * (Oct.-Sept.): Imports for MY 2011/12 * (Oct.-Sept.):
----------------------------------------------------------------------------------------------------------------
Destination Volume Value 000 Origin Volume Value 000
----------------------------------------------------------------------------------------------------------------
U.S. 794,827 $1,059,067.8 U.S. 9,166 $13,470.0
Canada 31,710 40,583.6 Chile 0
Others not listed 2,685 3,426.7 Others not listed 0
-------------------------------------- -----------------------------------
Grand Total..... 829,222 $1,059,068, Grand Total 9,166 $13,470.0
----------------------------------------------------------------------------------------------------------------
* Through March 2012.
Source: Global Trade Information Services, Inc. Global Trade Atlas, Mexico Edition, March 2012
Table 6. Mexico: Monthly Exchange Rate Averages 2008-2012
MX Pesos per U.S. $1.00
----------------------------------------------------------------------------------------------------------------
2008 2009 2010 2011 2012
----------------------------------------------------------------------------------------------------------------
January 10.91 13.15 12.80 12.13 13.46
February 10.77 14.55 12.95 12.06 12.79
March 10.74 14.71 12.59 12.00 12.75
April 10.52 13.41 12.23 11.73 13.05
May 10.44 13.19 12.71 11.64 13.60
June 10.33 13.47 12.72 11.80 14.30
July 10.24 13.36 12.82 11.67
August 10.10 13.00 12.74 12.22
September 10.61 13.41 12.82 12.97
October 12.56 13.24 12.44 13.46
November 12.31 13.12 12.33 13.67
December 13.40 12.85 12.39 13.75
---------------------------------------------------------------------------------------------
Annual Avg...... 11.14 12.33 12.62 12.42
----------------------------------------------------------------------------------------------------------------
As of 1er week of June 2012
Source: Mexican Federal Register.
Note: Monthly rates are averages of daily exchange rates from the Banco de Mexico.
FAS/Mexico Web Site: We are available at www.mexico-usda.com or
visit the FAS headquarters' home page at www.fas.usda.gov for a
complete selection of FAS worldwide agricultural reporting.
FAS/Mexico YouTube Channel: Catch the latest videos of FAS Mexico
at work http://www.youtube.com/user/ATOMexicoCity.
Other Relevant Reports Submitted by FAS/Mexico:
------------------------------------------------------------------------
Report Date
Number Subject Submitted
------------------------------------------------------------------------
MX1012 Hard Freeze Damages Sinaloa Corn and Produce 2/14/2011
------------------------------------------------------------------------
Useful Mexican Web Sites: Mexico's equivalent of the U.S.
Department of Agriculture (SAGARPA) can be found at www.sagarpa.gob.mx,
the equivalent of the U.S. Department of Commerce (SE) can be found at
www.economia.gob.mx, and the equivalent of the U.S. Food and Drug
Administration (SALUD) can be found at www.salud.gob.mx. These web
sites are mentioned for the reader's convenience but USDA does not in
any way endorse, guarantee the accuracy of, or necessarily concur with,
the information contained on the mentioned sites.
Attachment [2]
May 4, 2017
Hon. Wilbur L. Ross Jr.,
Secretary,
Department of Commerce,
Washington, D.C.
Dear Secretary Ross,
We are writing today to raise concerns regarding unfair trade
practices with respect to Mexico's exports of produce to the United
States, which are undercutting Florida's specialty crop industry.
Mexican growers in particular have a long history of flooding the U.S.
market with tomatoes at below-market prices, a practice referred to as
dumping. However, it is no longer just tomatoes that are being dumped
into U.S. markets, Mexico's exports of bell peppers, strawberries and
watermelon have soared over the past couple of years--which is
disproportionately impacting the economic vitality of Florida's unique
agriculture industry.
Florida's farmers and ranchers provide an economic impact of over
$120 billion and serve as the foundation for over 2 million jobs.
Furthermore, Florida is the second largest producer of specialty crops
in the United States. Our state's special climate and fertile growing
regions mean Florida is the sole U.S. producer of many fruits and
vegetables during the winter months before most domestic producers
begin their harvests.
Unfortunately, after the implementation of the North American Free
Trade Agreement (NAFTA) in 1994, imports of many agricultural products
from Mexico increased substantially and Mexico began dumping tomatoes
and other specialty crops into the U.S. at below-market prices. Coupled
with Mexico's inexpensive labor force, its favorable growing conditions
and expanding greenhouse production systems, the resulting impact has
been a Mexican growing season that directly competes with Florida's
specialty crop industry.
In 1996, Florida growers filed a complaint with the International
Trade Commission charging that the lower tariff on Mexican tomatoes--a
result of NAFTA--had caused significant harm to domestic producers. In
October of 1996, the Department of Commerce reached an agreement with
Mexican producers and exporters of tomatoes under which Mexican tomato
growers agreed to revise their prices and set a minimum reference price
in order to eliminate the injurious effects of fresh tomato exports to
the U.S. The so-called ``suspension agreement'' remained in place for
years and was renewed in 2002 and 2008. Another agreement established
in 2013 raised the reference prices at which tomatoes can be sold in
the U.S. to better reflect the changes in the marketplace and to
account for winter and summer growing seasons. However, the lack of
enforcement of these agreements has intensified conditions allowing
Mexican produce to once again flood the U.S. market.
Tomatoes are just one example of how high volumes of these
commodities are pouring into the U.S. market at prices significantly
below the cost of production. When the trade framework allows unfairly
subsidized commodities to be dumped into U.S. markets, it results in
negative repercussions on U.S. producers and causes disproportionate
economic injury to Florida's specialty crop industry.
As Members of Congress representing Florida, we know how
instrumental trade is to Florida's economy. Our state exports over $4
billion worth of products to over 170 countries and territories around
the world each year. Florida is uniquely and strategically located in
the Western Hemisphere, boasting state-of-the-art economic
infrastructure, a multilingual workforce and a concentration of
corporate and financial resources. Specifically, Florida has 15
seaports, with Miami recognized as the ``trade and logistics hub of the
Americas.'' Florida produces the highest-quality agricultural
commodities in the world and can successfully compete in a global
market, if it's operating on a level playing field. Unfortunately, the
current trade environment created under NAFTA is anything but fair,
particularly when it comes to policies impacting Florida's specialty
crop growers and producers.
Our country's trade laws provide a variety of avenues to address
unfair and injurious trade practices resulting from foreign government
subsidies, dumping, and surging imports. We need to implement a trade
agenda that will strictly enforce U.S. trade laws and to ensure that a
fair and level playing field exists for America's farmers, ranchers,
and businesses.
We respectfully request that you initiate an investigation into
Mexico's unfair trade practices and its dumping of specialty crops into
U.S. markets. Furthermore, as the U.S.-Mexico trade relationship is
reexamined, we urge the U.S. Commerce Department, the U.S. Trade
Representative, and the U.S. International Trade Commission to develop
a new agreement that will protect Florida's domestic agriculture
industry, a critical pillar of our state's economy, and compel our
Mexican counterparts to compete on a level playing field.
Sincerely,
Hon. Thomas J. Rooney, Hon. Ted S. Yoho,
Member of Congress; Member of Congress;
Hon. Mario Diaz-Balart, Hon. John H. Rutherford,
Member of Congress; Member of Congress;
Hon. Brian J. Mast, Hon. Daniel Webster
Member of Congress; Member of Congress;
Hon. Dennis A. Ross, Hon. Gus M. Bilirakis,
Member of Congress; Member of Congress;
Hon. Darren Soto, Hon. Al Lawson, Jr.,
Member of Congress; Member of Congress;
Hon. Alcee L. Hastings, Hon. Charlie Crist,
Member of Congress; Member of Congress;
Hon. Kathy Castor, Hon. Stephanie N. Murphy,
Member of Congress; Member of Congress;
Hon. Neal P. Dunn, Hon. Lois Frankel,
Member of Congress; Member of Congress;
Hon. Ileana Ros-Lehtinen,
Member of Congress;
The Chairman. Well thank you, gentlemen.
The chair would remind Members they will be recognized for
questioning in the order of seniority of Members who were here
at the start of the hearing. After that, Members will be
recognized in order of arrival. I appreciate Members'
understanding.
I recognize myself for 5 minutes.
Mr. Frazier, NAFTA has appeared to have created a supply
chain between north to south that allows the movement of cattle
across both borders. There is a chart in your testimony that is
U.S. beef trade with Mexico, and it basically shows almost a
break even. Imports and exports to and from Mexico have reached
a common level. Can you walk us through how that has happened
and what did NAFTA do to facilitate that?
Mr. Frazier. Well, first of all, we have a lot of feeder
cattle that come from Mexico that are fed in feedlots in the
United States and then processed in our packing plants. And
yes, that is kind of an equilibrium, but we need to remember
that a lot of that beef that is produced from those Mexican
cattle gets exported around the world and goes into the Asian
markets and all over the world. And it is part of the $6
billion export market that we have around the world, Mr.
Chairman.
The Chairman. Is that balance of trade between the two a
sharp increase in imports from Mexico during the last 5 or 6
years, is that part of the drought that we had?
Mr. Frazier. It is.
The Chairman. But is that necessarily a bad thing?
Mr. Frazier. Well it is, and what they are doing is they
are building infrastructure in northern parts of Mexico. In
parts of Mexico, there are feedlots that are being built in
Mexico, and some packing infrastructure that is going into
Mexico, and that is resolving, and some of that beef coming
into the United States. But we still import a significant
amount of feeder cattle into the United States that are
fattened and then processed and exported around the world.
The Chairman. Secretary Vilsack, geographical indicators
continue to haunt us. Obviously, with the bilateral agreements
where countries decide that they will recognize each other's
geographical indicators, when they try to do a deal with
somebody else it has an impact. Parmesan cheese is a big issue
with dairy. Can you talk to us about the impact that bilateral
deals with other countries may have on NAFTA's negotiations on
GIs?
Mr. Vilsack. Mr. Chairman, the Canadians have entered into
an agreement with the European Union, which essentially
grandfathers in existing utilization of common names for
existing facilities, but prohibits and prevents future
facilities from being able to use certain cheese names.
This obviously is of deep concern to our cheese industry.
If we are going to increase exports and our goal is to try to
get from 15 percent of our volume to 20 percent of our volume,
cheese is going to be incredibly important. If we simply allow
the Europeans to monopolize certain terms of cheeses, that will
create no market competition. That will make it difficult for
us to market much of what we can produce in this country.
Mexico right now is negotiating with the EU for a free
trade agreement, and what we are concerned about is which
negotiation gets completed first, the modernization of NAFTA
that could potentially reinsert the GI protections that were in
the TPP agreement, or will Europe do what they recently did
with Japan, enter into a free trade agreement that basically
restricts Mexican use of GIs? It is a very critically important
issue, and one that prompts us to encourage bilateral
discussions and the modernization discussions to proceed
expeditiously without delay. We can't afford to lose this race
with the EU.
The Chairman. Thank you.
Mr. Brown, on your issue, I am aware that there are certain
U.S. growers who have built facilities in Mexico and that they
are importing those products. Can you get any sense as to what
distortions are actually caused by U.S. producers choosing to
grow in Mexico and bringing those products into the U.S. versus
folks who don't have that kind of opportunity to compete? Can
you break that market down for us?
Mr. Brown. I can't give you absolutely specific details,
but it will actually vary with the particular commodity. In the
case of the tomato industry, there are some U.S. producers that
are participating in production enterprises in Mexico, but to a
large part, the tomato industry in Mexico is driven by Mexican
interest. In the case of strawberries and blueberries and some
of the fruit crops that are exploding in Mexico as we speak,
there is a lot of American interest, relocating from California
into Mexico, in that process. It will vary depending on the
commodity.
The Chairman. Thank you. I yield back.
Mr. Peterson for 5 minutes.
Mr. Peterson. Thank you, Mr. Chairman.
Secretary Vilsack, welcome back to the Committee. It is
good to see you here again.
As I understand, you went down to Mexico and met with some
of the folks down there and I guess you had a good result from
that.
Mr. Vilsack. We went down and Jim Mulhern from National
Milk, Michael Dykes from the IDFA, and I went down to Mexico,
primarily to reinforce the belief that our relationship with
Mexico is not a transactional buy/sell relationship in dairy.
It is a much more of a partnership. We are trying to grow
consumption of dairy products generally in Mexico, which will
create opportunities for Mexican producers but also create
opportunities for us on the export side.
Following our visit, we saw increased sales. Last month we
were at or near record in terms of our exports to Mexico.
Mr. Peterson. Thank you, and my question is have you done a
similar trip to Canada, or do you intend to go up and talk to
those folks?
Mr. Vilsack. We have conversed with Canadian officials. I
haven't gone up to Canada. We have been very clear about our
concerns about Class VI and Class VII, the impact that it is
having, not just on our ability to export into Canada, but also
the impact it is having on powder prices generally. That is why
ten of the leading trade organizations in the dairy industry
globally have expressed deep concern about the Canadian
process.
Our goal here is to make sure that our Administration and
the Canadian Administration understand how serious this problem
is.
Mr. Peterson. As I said in my opening statement, the
Canadians' interest up there continue to buy up our processing,
which I don't know if it is good or bad, but it does seem
curious what happened with this situation with Grassland where
Agropur was involved in buying the surplus milk and as I
understand it, they paid $7 per hundredweight less than the
pool price. Just so you know, this whole situation that is
going on, I told the Canadian Ag Committee, they want to know
if there is anything they can do for me. I said yes. I said get
me a quota to milk 100 cows in Canada, because that is one of
the most profitable things you could ever do, if you could ever
get that quota.
I don't know how we resolve this. They are going to defend
this no matter what, and they make so much money up there, they
can't invest it in their own industry. They are coming down and
buying us up. It can't be good. I don't know what you guys
think about it.
Mr. Vilsack. Well it is not good, and it certainly is
detrimental not only to American producers, but also Canadian
consumers who end up paying a significant amount more for their
dairy products than they would otherwise have to pay if there
was a freer flow of product across the border.
Congressman, I don't know that we have all the answers, but
I would suggest to you that this renegotiation needs to focus
on significant tariff reduction. It needs to focus on greater
transparency in the process. The Canadian Government clearly
manipulates through policy and regulation this market. Whenever
we make an in-road, then the rules change. You can't ask
American companies to invest hundreds of millions of dollars in
a processing facility if there is no expectation that the
market that they are counting on for the payment of that
expansion is going to be present 6 months from now because the
Canadian Government changes the rules. It is clear that this
process has to be more transparent and more predictable.
Mr. Peterson. Thank you.
Mr. Brosch, I was reading your testimony that in spite of
the fact that they have this export supply management and
poultry, and the fact that you are somewhat limited in what you
can export, I guess, but it says in here that Canada is the
number two export market for the United States.
Mr. Brosch. That is correct.
Mr. Peterson. How can that be?
Mr. Brosch. We have a limited quota for certain products,
and we have no quota for other products that the poultry
industry produces. For example, fowl meat, we have a lot of
spent hens in the United States. Canada is a deficit producer
for their own market of poultry, and so certain products they
are going to need no matter what, and those products make it
into Canada; and turkey, we export turkey to Canada. But they
are about 16 percent of our exports right now total, if you
look at all products.
I understand the Secretary's concern. We have those
concerns and have had those concerns for years. We would like
more access to the market. We were hopeful that the
Administration would pursue the TPP because we thought we had
some gains locked up in the TPP in Canada. Of course, TPP also
offered us what we really wanted, which was access to lots of
other markets. Canada is not going to solve the problems of the
U.S. poultry industry, frankly. We need all the markets around
the world to have access, all markets. We would like
improvements in Canada, but the truth is, right now Canada is
our number two market.
Mr. Peterson. Thank you, Mr. Chairman.
The Chairman. The gentleman's time has expired.
Mr. Lucas, 5 minutes.
Mr. Lucas. Thank you, Mr. Chairman.
Mr. Frazier, I think we would all agree that whatever is
done on NAFTA will likely set the tone for future trade deals,
particularly as it affects agriculture. Could you expand for a
moment in this renegotiation process of what would be important
to the beef industry and other sectors that could happen in the
future, say, as it might then apply to other countries, Japan
or China, for instance, as trade deals come together?
Mr. Frazier. Well, first would be that we have no duties on
products going into those countries, no tariffs, no duties.
That would be first. We feel that NAFTA is working for our
industry. It is providing a lot of value-added products that we
are able to sell around the world. It utilizes a lot of grain
products, and we would like to see more of the focus now on
bilateral negotiations with Japan in the absence of TPP, and
bilateral negotiations with other countries around the world,
and replicate some of the things that we think are beneficial
in NAFTA.
Mr. Lucas. Is there anything that potentially would come up
in such renegotiation that you think could be damaging or
harmful to future trade deals, things we should be concerned
about?
Mr. Frazier. I mentioned one, Country-of-Origin Labeling,
if that gets back on the table. We don't need that back on the
table again. I guess that would be our biggest concern, and
anything that would have to do with tradeoffs around duties or
tariffs put on American beef going into Canada and Mexico.
Mr. Lucas. Mr. Gaibler, it is my understanding and it has
been reflected in comments here that as we approach potential
NAFTA renegotiations, Mexican buyers are shifting to short-term
contracts and looking at sources perhaps for grain outside of
North America. That is the way I will word that. And this is
just based on the potential for change in NAFTA. Could you
discuss for a moment what the impact would be if this
renegotiation turns out to be an extended process, what the
effect could be on your folks, and for that matter, agriculture
in general? I am looking for justification to move quickly,
whatever we do.
Mr. Gaibler. Thank you, Congressman Lucas.
Well as I said and as is written in my testimony, we
haven't even gotten to the negotiation, and we have a seven
percent decline in our sales since the beginning of the year.
And we did try and come up with some analyses to try and
measure the potential impacts. I didn't cite them in my oral
testimony; but, we are talking about some real numbers here.
Our total grain production could fall by 1.2 billion. We would
have a loss of about $6 per acre. There would also be increased
costs because the model imputed that there were probably $1.2
billion in farm program payments. So that is just a shot or a
guesstimate of what the potential impacts could be. And if we
are not getting this negotiation done by the end of the year,
we anticipate that this erosion will continue and all of us who
are in the international export business know that once you
lose market share, even with your best customers, it is very
difficult to recover it.
Mr. Lucas. Secretary Vilsack, the last time we went through
the farm bill process, you sat in a different role and you were
responsible for the entirety of agriculture. I know you have
concerns for the entirety, as always. Is it fair to say that as
we approach 2018 and the next farm bill process, that perhaps
just as important as comprehensive farm bill policy is, as what
happens on NAFTA and these trade agreements will make or break
us as an industry? Your observations?
Mr. Vilsack. Well Congressman, Canada and Mexico, Mexico is
our number one market, Canada is our number two market for
dairy products, so clearly what happens here will make a
difference to the nearly 42,000 operations that are producing
product.
Look: We have to fix what is broken in Canada. This is a
market that is far too closed. It is not transparent. The rules
are constantly changing, and there are some serious issues that
have to be dealt with in these negotiations. And to your point,
they need to be dealt with immediately. This is not a situation
where we can have an extended conversation about changes,
because we are facing competition with the EU and their efforts
to get free trade agreements with Mexico, and the one that was
recently done with Japan. It is incredibly important that we
get this done quickly and we get it done right. And to get it
done right, we have to preserve what is working. We have to
strengthen what can be strengthened, and we have to fix what is
broken.
Mr. Lucas. Thank you, Mr. Secretary. Thank you, Mr.
Chairman.
The Chairman. The gentleman's time has expired.
Mr. Scott, 5 minutes.
Mr. David Scott of Georgia. Thank you, Mr. Chairman.
This is a big issue. It is very important to my State of
Georgia. Under NAFTA, Georgia has a lot to lose if these export
markets shrink due to uncertainty, and that is the big word
here. This uncertainty that is floating. And as we are
considering this issue, I put myself in Mexico and Canada's
shoes, and I ask myself what I would do if my largest trading
partners were thinking of backing out of a deal? I would start
looking at other countries to trade with in case our deal is
broken. And this is why I wasn't surprised, panel, when Mexico
bought five times more corn from Brazil than it imported from
Brazil last year. And in your testimony, Mr. Gaibler, you
showed that it may very well be even worse than I had thought.
And when I hear the Administration saying that they will follow
a first do no harm strategy, I really can't help but wonder if
we have already began to see some harm on America's agriculture
industry? And I also worry about repeating battles.
And especially, Mr. Frazier, last week the Office of the
U.S. Trade Representative announced in its negotiating
objectives in updating and strengthening the rules of origin.
Now we all have fought this fight over and over again, and can
tell great stories on it. To repeat this mandatory Country-of-
Origin Labeling on U.S. beef products as we are all aware of,
Mr. Frazier, can you comment and tell me if you have any
concerns about this objective that U.S. Trade Representative is
offering? Are we in any way having to fight this COOL label all
over again?
Mr. Frazier. Well I hope not. I am not going to speak for
the U.S. Trade Representative, but we feel strongly that
Country-of-Origin Labeling did not work. WTO ruled in favor of
Canada and Mexico, and our conversations with them, it is very
clear that if that is brought back on the table, they will put
in retaliatory tariffs on U.S. beef going into Mexico and
Canada.
Mr. David Scott of Georgia. So your answer to that is that
you are somewhat worried, but you feel we won't have to repeat
it. Is that right?
Mr. Frazier. Yes, we would be concerned if there is any
discussion about it coming back on the table.
Mr. David Scott of Georgia. Okay.
Mr. Frazier. We are against that.
Mr. David Scott of Georgia. All right. Let me go to Mr.
Brosch for a second.
One place where I see a possibility of hope is increasing
the quota access in poultry to Canada. The poultry industry has
a very similar supply management situation in Canada as the
dairy industry does. If a U.S. company decides it wants to do
business in Canada, they first have to build a facility. They
have to build growing barns. They have to get office space,
packing, shipping, and processing. And then they have to have a
purchase quota; however, after all that, they can only purchase
250 kilos or 550 pounds of import quota. This small amount of
production assures that no competition can come into Canada.
Mr. Brosch, can you tell us how was this allowed when NAFTA
was first negotiated?
Mr. Brosch. Well NAFTA was first negotiated as the U.S.-
Canada Free Trade under President Reagan in 1984, and I was,
frankly, a lot younger man than I am today. It actually is
before my time, but the Canadians essentially retained their
reservation under the WTO, which they have had for many, many
years for supply management. And the WTO rules allowed that at
the time.
We thought when NAFTA was negotiated that they couldn't
maintain that, and there was actually a challenge case brought
by the USTR on behalf of the U.S. dairy industry, and we lost
that case. As a legal matter, and frankly, I never quite
understood how we lost that case, but as a legal matter, the
Canadians were upheld in that dispute settlement case.
It all goes back to that original negotiation where they
essentially claimed the right to reservation.
Mr. David Scott of Georgia. Thank you.
The Chairman. The gentleman's time has expired.
Mr. Gibbs, 5 minutes.
Mr. Gibbs. Thank you, Mr. Chairman. Thanks to the panel for
being here.
Secretary Vilsack, you mentioned about the dairy supply
management in Canada, and some of their policies. Ranking
Member Peterson talked about the quota is quite profitable in
the dairy industry up there on your quota, and they are using a
lot of those profits to buy processing here in the United
States. I'm not that familiar with how their quota system works
up there, supply management system works, but is it possible
for dairy producers in Canada to exceed their quota and then
move that milk to the United States to the processing plants
that they own in the United States?
Mr. Vilsack. Let me give you an example of the Canadian
system so that you have a better understanding.
This Class VII, which we have raised concerns about,
essentially what they have done is they have essentially
allowed processors to pay about 15 percent less than what they
would normally pay for a U.S. product to go into their
processing, and that has created, as a result of a significant
increase in butter consumption, has created a lot of powder.
They put the powder basically on the world market at a below
world market price, which drives the price down for everyone.
That also would impact Canadian farmers, but they have allowed
for adjustments on the other classifications of milk products
and dairy products, so Canadian farmers basically break even in
this system. Processors benefit from cheaper supply, and powder
is dumped on the market. And essentially what that has done is
it has created havoc for our producers, and for that matter,
for producers in New Zealand and in the EU.
It is the ability of the Canadian Government to essentially
manipulate the system whenever there appears to be the need or
the U.S. is making in-roads, they manipulate the system, and
that is the problem. And it guarantees a price for Canadian
producers that is significantly greater than what they would
get in a market and the consumers end up paying for it in
Canada.
Mr. Gibbs. They just created a whole new class, this Class
VII, that wasn't part of the agreement?
Mr. Vilsack. Exactly. We were having ultra-filtered milk
going into the Canadian market, creating the opportunity for
processors to use our ultra-filtered milk. When we began to
gain market share, they created a Class VII, allowed the
processors to basically purchase Canadian product for 15
percent less than what they would pay for U.S. product. That
ended the import opportunity for us, the export opportunity for
us. It created opportunities for processors to profit in
Canada, and it didn't hurt the Canadian producers because they
increased in the other classifications so that they could make
up the difference in other classifications. And the losers are
U.S. producers and Canadian consumers.
Mr. Gibbs. Back to the Ranking Member's comments about the
co-ops that producers in Canada are buying the processing here
in the United States. Is that happening and where do you see it
is happening, what is the phenomenon there?
Mr. Vilsack. Well it is happening, and of course, it
happens in a number of other industries. But the bottom line
here is what we really need, and the conversation needs to
focus on creating a system where the Canadian Government can't
manipulate the system to impact and affect. We need
predictability. We need transparency. As I said earlier, you
can't expect American processing facilities to be expanded or
built if they are counting on a Canadian market to change every
2 or 3 months. And this is not the first circumstance. Class
VII or Class VI are not the first circumstance of changes. They
change product standards. They change the way in which they
calculate whether quotas are being met. It makes it incredibly
difficult and unpredictable for our industry, and so our hope
is that this modernization conversation allows us to fix these
problems, because they have been serious----
Mr. Gibbs. Maybe Mr. Brosch might want to comment. I know
it is experience mostly about NAFTA, but with TPP gone,
bilateral agreements that the Administration talks about, it
seemed to me that the two countries that we ought to be having
serious discussions with would be Japan and Great Britain. Am I
correct in that?
Mr. Brosch. For us, Japan was the big win in TPP. The
problem, of course, as you realize, Congressman, I did trade
negotiations for a number of years, is that it is never a one-
way street.
Mr. Gibbs. Yes.
Mr. Brosch. And the problem was in the TPP, which is a
plural-lateral agreement, Japan was getting benefits from open
markets in other countries, and so there was a tradeoff for
them. Whether or not Japan is willing to give us access without
those tradeoffs is going to be the big challenge. And in my
discussions, I think that is going to be a huge challenge. The
Japanese Government is going to have a difficult time having a
benefit in a bilateral agreement.
Mr. Gibbs. Even though that the United States is by far the
largest economy in the world, there are benefits in non-ag that
they would benefit?
Mr. Brosch. You are asking for my speculation. I think that
is going to be a difficult sell.
Mr. Gibbs. Yes, go ahead.
Mr. Gaibler. Well, I have actually had some discussions
with Ministry of Agriculture, Forestry and Fisheries in Japan.
They, clearly, want to keep the TPP alive. They are managing
the TPP 11 process. They would like to actually leave an
opening for the U.S. to come in at some later point, but the
message that we are going to hear from them is that they do not
feel like they can get into a bilateral negotiation, and
particularly from their agricultural standpoint, if they have
to come in and make more severe concessions than they did under
TPP, they would view that as a net loss and politically would
not be able to support that sort of process.
Mr. Brosch. I just would add this, Congressman. I did the
bilateral negotiations with Japan during the Uruguay Round for
4 years, and I can tell you, this is not easy. Their
agricultural sector is pretty sacrosanct. They import about 55
percent of their food needs in Japan, or at least they were at
the time. This is a real critical matter of food security, so
unless there is some big benefit for them, it is a very hard
push to open agricultural markets.
Mr. Gibbs. Thank you. Thank you, Mr. Chairman.
The Chairman. The gentleman's time has expired.
Mr. Costa.
Mr. Costa. Thank you very much, Mr. Chairman. I welcome
this discussion, and I think that the last comments that were
made about trade being a two-way street where you have to have
win/wins is right on point.
NAFTA, I hope, will be modernized and renegotiated, but I
was very frustrated to see the narrative change over the last
18 months or so during the campaign year, because it didn't
accurately reflect the successes of NAFTA, notwithstanding the
fact that we need to modernize it. California leads the country
in agricultural revenue, and our producers are twice as reliant
on foreign trade as the rest of the United States.
Let me give you some numbers. Our NAFTA partners Mexico and
Canada account for 22 percent, 22 percent of California's
agricultural export. In 2015, for that year, Mexico accounted
for $3\1/2\ billion in agricultural trade, Canada, $1.1
billion. And I just think it is inaccurate to say that when you
look over the last 20 years and any objective criteria that you
measure it by, that it has been a disaster. It hasn't. Or the
single worst trade deal that has ever been negotiated. It
hasn't. Yes, it needs to be upgraded and modernized, but we did
that in TPP as was pointed out, and it was a mistake to walk
away from it on the first day without having read it or
examined for what is primarily political purposes.
Notwithstanding the rhetoric, I think that any objective
analysis shows that when you look at job loss--and I am very
sensitive to the job losses and to the situation with our
friends in organized labor on manufacturing. When you contrast
it to where we are in terms of the totality and where we want
to go, the fact is, is that we need to renegotiate this
successfully. I have serious concerns, as do you, whether or
not we can do this in the light of a bilateral.
Let me ask the panel members, is there any chance that a
renegotiated agreement could lead to improved conditions for
migrant agricultural workers, which we have in short supply in
the United States, or is it more likely that the labor force
will relocate in Mexico if the agreement boosts economic
productivity there? Who wants to take a whack at that?
Mr. Vilsack. Congressman, I will just simply say in the
dairy industry, there is a level of concern and anxiety based
on the failure for us to actually solve our immigration issue
in the U.S. We have a broken system, and it is impacting and
affecting dairy production.
Mr. Costa. It is affecting all of agriculture.
Mr. Vilsack. Well, I cannot speak for all agriculture
today, but I can with confidence----
Mr. Costa. I understand that.
Let me go beyond. I mean, we remember clearly in 2010 with
the Mexican truck driver issue, and then last year with the
Country-of-Origin Labeling. Each side has leverage. I remember
it very clearly when tariffs went on table grapes in 2010 and
cheese production in Mexico, and it took us 18 months to get
those tariffs removed. And last year, both Canada and Mexico
were putting the lists together on retaliatory activity if, in
fact, we didn't take action on the Country-of-Origin Labeling.
Is it not true that there is leverage on both sides? I see
head-nodding. Yes?
Mr. Brosch. I will tell you one of our concerns in the
poultry industry.
A number of years ago, one of the companies in Mexico
brought a dumping case in Mexico against our industry. I
actually had gone down and testified in that proceeding. We
were able, through the cooperation of the larger Mexican
poultry industry and the Mexican Government to get that duty
suspended. Essentially, they never applied it, but it is
sitting there. It is sitting there on the books in Mexico, and
it could be applied at any time. And our concern is that
something is going to happen in these negotiations in another
sector----
Mr. Costa. Well, it has to be a win/win. I mean, if it is
we win and you lose no company is going to agree to that.
Mr. Brosch. Right. And we have had experience,
Congressman----
Mr. Costa. I mean, that makes good politics, but that
doesn't make a trade deal, maybe.
Mr. Brosch. Well, I am just telling you our concern right
now is that----
Mr. Costa. I share your concern.
Let me just quickly go because my time is running out.
Who was the big winner, in your opinion, when we walked
away from TPP, and these countries are still trying to go
ahead?
Mr. Frazier. China.
Mr. Costa. China? Do you agree? China? Yes. I think there
is a consensus there. China was the big winner on this.
Mr. Vilsack. The EU also won in the dairy, because they
just recently negotiated an agreement with Japan which gives
them more market access and some protection in terms of GIs.
Mr. Costa. Well my time has expired. Thank you, Mr.
Chairman. Hopefully we will figure out a consistent
agricultural trade policy in the near future.
The Chairman. The gentleman's time has expired.
Mr. Scott?
Mr. Austin Scott of Georgia. Thank you, Mr. Chairman.
Mr. Brown, as you were talking about Florida tomatoes, I
couldn't help but remember some of my Georgia tomato growers
back in 2008 when they had warehouses full of a crop that had
just been picked, and they couldn't sell them because of a
Salmonella outbreak that ended up being Mexican peppers. There
is no telling how many millions upon millions of dollars
farmers lost through my area before I was in Congress, but I
remember quite well some of the long-term families that had
been extremely good farmers and----
Mr. Brown. We estimated $100 million was lost at that point
and there has been no way to recover that in several court
cases where the industry has tried to retrieve that money, but
we failed.
Mr. Austin Scott of Georgia. It probably killed some people
just from the stress, and through no fault of their own, no
fault of their own. People lost, in some cases, things that it
took generations to build, because it was literally just
harvested.
As we talk about renegotiations of NAFTA, it would be more
adjustments to an existing framework, but from the standpoint
of the fruit and vegetable growers, what do the renegotiations
need to contain to address your concerns on trade?
Mr. Brown. One of the big concerns that we have, the U.S.
tomato industries had a dumping case in place for 20 years.
Many of these other commodities, especially where there is
seasonal and perishable producers, are producing, for instance,
our Florida strawberry industry produces about 15 percent of
the fresh strawberries in the country, but they produce them
from the period of December until about the 1st of March. They
cannot avail themselves of U.S. trade law to defend themselves
against the unfair trade practices such as dumping or
countervailing duty subsidization on the Mexican side of the
border. And Mexico has pumped tens of millions of dollars into
protected culture agriculture, which is exploding the
productivity of the Mexican specialty crop industry, and it is
coming back into the U.S. We need to have some way of allowing
those industries to use the tools to defend themselves and
create some kind of a carve-out onto the trade law and onto the
treaty for perishable and seasonable producers to be able to
join together to defend themselves.
Mr. Austin Scott of Georgia. Thank you for that, and as we
go forward, I know we are not here to talk about the farm bill,
but I know specialty crops is going back to that 2008 scenario
where the government made a decision that hurt those people,
basically bankrupted them, and I hope we take a serious look at
what we can for specialty crops that they participate in.
There has been a lot of discussion on the chicken issues
already with regard to Canada, but just one more time. How do
we achieve greater access into Canada while making sure that we
don't disrupt the market access that we currently have in
Mexico, Mr. Brosch?
Mr. Brosch. That is a good question, Congressman. We
thought that the key to this was essentially a plural-lateral
agreement under TPP. We thought that this was our best chance
to make progress in Canada, because Canada wasn't interested in
TPP initially until it saw all the countries that were in
there, and then they realized they had to be at the table or
they were going to be left out. And this really put the
pressure on Canada to do something about poultry access, and it
is unfortunate that we are not in there. We are having a hard
time seeing exactly what the leverage is at the current time,
and as I said, we do have a fairly significant market in
Canada, even though we would like to do better.
Mr. Austin Scott of Georgia. Gentlemen, thank you for your
time. Mr. Chairman, I am going to yield the remainder of my
time.
The Chairman. The gentleman yields back.
Ms. Fudge, 5 minutes.
Ms. Fudge. Thank you very much, Mr. Chairman, and thank you
all for being here today.
We all know that there is no perfect piece of legislation,
so we know that everything should be reviewed. It is time that
we start to talk about reviewing NAFTA. Although, Mr. Chairman,
I am somewhat dismayed that there is no one representing labor
at this table, and I would just say that for the record.
The Administration has decided that it would like to come
to some closure on a new NAFTA agreement by sometime in the
beginning of next year. Now, I mean, that might be good for a
rose garden photo-op, but it is a much more complicated issue
than just a few months, as is healthcare, by the way.
Complicated. It is important that we make sure that the
interests of U.S. producers are protected in whatever agreement
we come up with, and so I am hopeful that you are taking some
time to educate the White House on what you believe should
happen with a new NAFTA.
I think that when we sit and talk about trade, we have to
be sure once again that we protect American interests and not
other country's interests. We could, indeed, come up with a new
plan and have serious damage to U.S. producers. I think all of
you are saying that, and I certainly want to ask you now, what,
if anything, are you prepared to do to make sure that this deal
that your position is heard? Mr. Brown?
Mr. Brown. We are doing everything we can to communicate
throughout the Administration the concerns of the specialty
crop industries out of Florida and other parts of the country.
We have talked with the U.S. Trade Representative's office. We
have talked with the White House. We have worked with our
delegation here from Florida, and we have had the opportunity
to certainly make people aware that all is not well when there
is a $5.3 billion deficit, and it is on the backs of the
specialty crop fruit and vegetable industry in this country.
And it is American farms and American communities that are
going to be destroyed if we don't take steps to ensure that we
have a free and fair trade environment where those enterprises
can continue to feed America here with American products.
Ms. Fudge. Thank you. We are just going to go down the
line.
Mr. Hammer. Thank you. We have been trying to carry the
message to the new Administration from my member companies
through our association and through combined efforts of many
coalitions that we work with.
A message that you heard throughout here today is while
there is opportunity for improvements, the message of do no
harm has been said loudly and clearly from American agriculture
that is benefitting. My industry, the soy processing industry,
our increase in value since the beginning of the NAFTA to
Canada and Mexico, has been over $2 billion in trade this year
versus trade in 1993. Because of free trade agreements that we
have in the Caribbean and Canada and Mexico, we own those
markets. We have them 100 percent of the year. We often are in
a cyclical market share situation in other markets where South
America produces at different times than we do, but by serving
their markets year-round, we are able to keep our processing
plants open year-round. If we were to lose those markets, we
would be closing U.S. processing plants. We already know our
members have gone down there and there is great angst, and we
have seen our sales of soybean meal in the first 6 months of
this year in value drop 21 percent from the same period a year
ago, and in volume drop 13 percent from this period to last
year. They are making adjustments now. They are telling our
member companies that they want their contracts to be on much
shorter contract terms. That is not a good sign for our
business. We need to send this signal to them that we want to
continue this supply chain relationship that we have with both
Canada and Mexico.
Ms. Fudge. Thank you.
Mr. Gaibler. Well the U.S. Grains Council that participates
in this U.S. food and ag trade dialogue, they provided
extensive comments to USTR. We provided our own extensive
comments. As I mentioned in my testimony, we have engaged our
customers, particularly the Mexican livestock and feed
industry. We have gone down there numerous times. Per their
concerns, we thought it made sense to have people in Congress
and the U.S. Department of Agriculture hear those concerns, so
we brought them up to do that. In addition, we continue to have
ongoing dialogue with the Administration.
The Chairman. The gentlelady's time has expired. I will ask
the other three witnesses to submit their answers for the
record.
Ms. Fudge. Which is fine, Mr. Chairman, but everybody else
went over a whole minute, but I thank you very much. I
appreciate it.
The Chairman. Mr. Crawford for 5 minutes.
Mr. Crawford. Thank you, Mr. Chairman. I will try to make
up for some of that and just focus on one question.
Mr. Gaibler, prior to NAFTA, Mexico was a minor importer of
U.S. rice, typically sourced from Asia. Since the
implementation of NAFTA, they have become the largest market
for U.S. rice, particularly important to the mid-South region
medium and long grain production.
In the last few years, there has been a little bit of a
threat that they might revert back to Asian sourcing, and one
of the deals, for example, is a side deal related to TPP where
Vietnam could access the Mexican market duty free.
I guess my question is does the NAFTA renegotiation process
create any problems for that competitive edge that we have in
Mexico with regard to rice that might accelerate their decision
to now start to source from Asia?
Mr. Gaibler. Well I guess my response would be is that we
have seen the growth of the Mexican livestock industry and we
have seen their ability to gain efficiencies, economies, the
size, and scale. A lot of it has to do because of our
arrangement with us by giving them reliable supplies. And part
of what you saw, in the TPP negotiations, was is that Mexico,
like every other country, is looking to be a net exporter of
products, including agricultural products, and they view the
opportunity that they are efficient enough to compete and
actually export some of those products, the value-added
products, outside of their markets, and part of it was that
some of the concessions they gained as part of TPP. But it is
all under-driven and enlightened by the fact that our system
with no tariffs and the ability to create the efficiencies have
made that possible. And I would remind you that Mexico already
is very aggressive. They have 46 FTAs already, so they know how
to negotiate trade agreements and get access.
Mr. Crawford. Thank you. Mr. Chairman, I will yield my
time.
The Chairman. The gentleman yields back.
Mr. Tom O'Halleran, 5 minutes.
Mr. O'Halleran. Thank you, Mr. Chairman.
The Chairman. Is that getting close, Tom?
Mr. O'Halleran. You got it.
Anyway, back in the Depression, my grandmother and
grandfather lost their farm, and it is probably still in
existence, but times have changed. And Mr. Brown, you had
mentioned about the loss of family farms, and that concerns me
a lot. But what concerns me also is the entire process that we
are going through right now. One of you mentioned that you hope
that we have this done by the end of the year. Well as you
know, the timeline for this from the Administration goes way
into next year, and that is without the complexities that have
been mentioned today and the other ones for other industries.
That concerns me probably as much as the loss of family farms,
because it is an ongoing process, and it is going to hurt
agriculture in America.
But I guess what I would like to know from Secretary
Vilsack is you have been down to Mexico, so the political
environment, I would like to hear a little bit about that, and
your ideas about the bilateral needing to be done in a timely
fashion, and if you feel that is going to be accomplished to
make sure agriculture in America stays competitive. And then if
you have time, some discussion on what you have identified
clearly as the EU problem.
Mr. Vilsack. Where there is an election in Mexico next
year, which is prompting the Mexicans to want to conclude
discussions as quickly as possible, but it is correct to say
that this is a very complex set of negotiations. And the
Mexicans are skilled at this, and they understand that they are
on dual tracks. On the one hand, they are negotiating with us
on renegotiation of NAFTA. On the other hand, they are
negotiating with the EU on a free trade agreement, and they are
essentially, in my view, sort of working off each other. In
other words, they are suggesting to us well maybe the EU will
have a better deal for us. Maybe we need to conclude those
negotiations before we conclude NAFTA. They are probably
telling the Europeans the opposite. And they are looking for
the best deal for Mexico.
So it is important and relevant for us to be able to
conclude this agreement, particularly as it relates to things
like the GIs, the geographic indications, that we talked about
earlier. We don't want to give the EU yet another notch, if you
will, in that effort to try to preserve and protect common
names and create a due process system.
We face some serious competition in the dairy industry, and
we also face an incredibly productive industry. We anticipate
and expect by the year 2022 that we will have 14 million more
pounds of dairy product that will need to be exported, or we
will need to find a market above and beyond what we have that
will increase domestic consumption. These export markets, these
trade agreements are incredibly important in order for us to
sustain the family farming operations that are represented in
the dairy industry.
One of the benefits of dairy is that we still have very
small operations, and we have very large operations, and they
are mutually coexisting, if you will, because of exports and
because of increased domestic consumption.
Mr. O'Halleran. I take it the need for expedited activity
on the bilaterals is an important part?
Mr. Vilsack. It absolutely is. I mean, when we took
ourselves out of TPP, it essentially created an urgency in
beginning and concluding bilateral discussions, not just in the
context of NAFTA, but also in the context of some of our Asian
partners.
Mr. O'Halleran. Mr. Chairman, I will yield back.
The Chairman. The gentleman yields back.
Mr. Davis for 5 minutes.
Mr. Davis. Thank you, Mr. Chairman.
Question first, Mr. Gaibler. As in your testimony, you
mentioned the commercialization of biotechnology that occurred
after the U.S. ratified NAFTA. And as the Chairman of the
Subcommittee that has jurisdiction over biotechnology issues, I
am really interested in hearing your opinion on what can be
biotechnology's future role in a possible renegotiation? If you
could expand upon your comments.
Mr. Gaibler. Well yes, as Tom had noted in his testimony,
TPP provided some foundational language on biotechnology, which
was really kind of the first time that I am aware of that
biotechnology was even addressed in any trade agreement,
bilateral or otherwise. And it put----
Mr. Davis. Do you think that is a necessity in future trade
agreements?
Mr. Gaibler. Sure.
Mr. Davis. Lay it out?
Mr. Gaibler. Absolutely, because the markets, particularly
China and the European Union, continue to have asynchronous
biotechnology policies. The other part of what we have proposed
is that we have tried to explain that there have been over 660
products assessed over that 20 years. Each government uses
fairly similar risk assessment processes to do that, and there
has been an effort to try and come up with ways to share that
information in a way that, if a country has already adopted the
proposal and the other country looking to approve it could say,
``Yes, we will review that documentation. If it meets our
scientific rigor, we will do that rather than repeating the
whole process.'' We are trying to get that kind of foundational
language as well into this North American Free Trade Agreement,
because, in my view, this will probably be our foundational
document moving forward on other FTAs, and so we want to build
on that, what we achieved in TPP.
Mr. Davis. Mr. Hammer, did you have any comments you would
like to make?
Mr. Hammer. As we are both in agreement, NOPA works through
a coalition called the U.S. Biotech Crops Alliance, which
represents from the tech company all the way through to the
exporter, the greens and oilseeds. And we are very, very
unified on this point that we need to put biotech agreements in
our trade agreements. This is an excellent example, we wouldn't
have even contemplated this in 1993, of one of the areas where
modernization is so necessary, and it does have so much to do
with the marketability and fungibility of our grain trade
globally. This is high priority for NOPA, and virtually
everyone in our value chain.
Mr. Davis. Well thank you very much for your comments. I
agree, and I hope that we open up more opportunities for
biotechnology and its growth as we move forward and have to
continue to grow more food on less land with a very much
growing population.
Mr. Secretary, welcome back. I am glad to see you here. I
am used to you not being surrounded by anybody and in the
middle of the table. I just wanted to say welcome back. It was
great to work with you, a pleasure to work with you over the
last few years when we sat in different places in this room,
and I look forward to working with you in your new capacity.
Mr. Vilsack. Thank you. It is good to be back.
Mr. Davis. So with that, thank you. I yield back, Mr.
Chairman.
The Chairman. The gentleman yields back.
Mr. Panetta, 5 minutes.
Mr. Panetta. Thank you, Mr. Chairman, and thanks to all of
the witnesses for being here. I thank you for your preparation,
thank you for your testimony.
I represent the central coast of California, 20th
Congressional District. As Mr. Davis knows well, it is called
the salad bowl of the world, based on its number of specialty
crops. I can tell you, when you are driving through Salinas
from pretty much April to October, you want to avoid it because
there is so much production, there is so much traffic going on
there. However, in the other 5 months, it slows down a little
bit and there is not that much production during the winter
months, at least there in Salinas. But let me tell you, there
are family farms that continue to produce and continue to be
successful during those winter months. That is because they
have farms in Mexico, a number of farms in Mexico. And what it
turns out to be is sort of a complimentary relationship, their
farms here and then the other winter months they are able to
produce in Mexico, and so it allows them to continue to be
successful, continue to make money which they can then invest
in their farms here in the United States. In fact, especially
there in the Salinas Valley, which is close to Silicon Valley,
allows them to invest in mechanization, obviously, to deal with
the labor issue or lack of labor issue that we are all facing
here in the United States.
Most of you except one person said that renegotiating
NAFTA, you don't want to do harm. You don't want to do any harm
to the production. And Mr. Brown, you are the only one I didn't
hear say that, and instead, Mr. Brown, I heard you say
specialty crops are an industry under assault. And I can tell
you that in the Salinas Valley, in the salad bowl, they are not
under assault. They are actually taking advantage and
benefitting from farm production in Mexico.
And so I guess my first question to you, Mr. Brown, would
be have you been to the central coast?
Mr. Brown. Yes, sir.
Mr. Panetta. Okay. Have you spoke with family farmers such
as Bruce Taylor?
Mr. Brown. I am fully aware of the expansion that is taking
place, and those expansions, Mr. Panetta, are basically managed
ventures and investment opportunities in Mexico. What we are
concerned about is the wholesale subsidization of Mexican
expansion into other specialty crops that are basically
creating excess capacity that is being basically grown for the
U.S. market, pushed into the U.S. market, and it is price
depressing. Your farmers are managing their supply and making
their enterprises work as good businesses should, but when you
release the capacity that is being built in Mexico in the last
decade and dump it into the U.S. market at whatever price, as
you well know, produce is sold on whatever the price is today
is the price, because we can't store it, and if we all operate
under the premise you either sell it or you smell it, and it
basically depresses prices for many of these other commodities,
but it is a different kind of business than you are referring
to out of the Central Valley.
Mr. Panetta. That is right. And so once again, have you
spoken with the specialty crop farmers there on the central
coast?
Mr. Brown. I have not personally had that conversation with
central coast farmers.
Mr. Panetta. Okay. All right, because they will tell you. I
spoke with Kevin Murphy of Driscoll's Farm, Bruce Taylor at
Taylor Farms, Rick Antle, T&A Farms, Dicky Peixoto, Lakeside
Organics. They will tell you that their production in Mexico is
benefitting them and benefitting your family and my family by
allowing us to eat fresh fruits and vegetables year round.
The question was asked by Mr. Costa, the Mexican production
that is U.S. owned in Mexico, are you familiar with that
percentage?
Mr. Brown. I don't have a percentage and I don't know there
is a percentage anywhere in existence that I have ever been
aware of.
Mr. Panetta. Okay. Does Florida have farmers that have
farms in Mexico as well?
Mr. Brown. Generally speaking, no. We have a very limited
number of farmers that have some tomato operations in Mexico,
but they are basically Florida-based operations.
Mr. Panetta. Understood, understood. Thank you. Thank you,
gentlemen. I yield back.
The Chairman. The gentleman yields back. Mr. Allen, 5
minutes.
Mr. Allen. Thank you, Mr. Chairman, and again, I want to
thank everyone for being here and talking about the importance
of trade, particularly as it relates to agriculture and
obviously, agriculture is the largest industry in my State of
Georgia, and the largest industry in my district. Of course, we
grow a variety of things in my district, the famous Vidalia
onions, and some, obviously, fruits and vegetables, blueberries
and of course cotton, peanuts, and Georgia is the top exporter
of peanuts and poultry, and it is the top five exporter of
cotton, pecans, vegetables, and melons. And according to the
U.S. Census Bureau, since 2004, Georgia's agriculture exports
to Canada and Mexico have more than doubled from just less than
300 million to almost 720 million in 2016.
One of the things that I hear from my constituents, and one
objective that I am happy to see in this package is the
elimination of Chapter 19. While we continue the process of
renegotiating and modernizing the NAFTA, it is essential that
we highlight the benefits to the agriculture sector. We need to
look at the areas which some of our commodities have faced
challenges.
Mr. Brown, you have talked about the dumping issue, and of
course, I was interested in the conversation that we had there
as far as what California is doing versus say, Georgia, we are
becoming a big blueberry grower. And what is your suggestion on
how, as far as if we are talking about NAFTA and we are talking
about how do we fix this issue where we don't affect, say,
California, but obviously, it is good for Georgia and Florida.
Do you have a solution?
Mr. Brown. Right now in the U.S. trade law, in order for a
dumping case to be filed, to have standing, you must have 51
percent of all like product in the country as a petitioner in
that process. This basically handicaps any regional, seasonal,
perishable producing entity. For instance, as an example,
Florida's strawberry industry, which is 15 percent of the
domestic supply. Most of the rest of the domestic supply comes
from California, but in the period of the winter months from
December to March when California is a minor producer, if a
producer at all, to any great extent, we are competing with
Mexican product coming into the country at very low prices, and
it basically is depressing the domestic strawberry market
during that period of time. A redefinition or a modification
that would allow for these very specific seasonal, perishable
products, things that can't be stored, they are going to have
to be sold in a marketplace and compete in a given time period
in that marketplace, for those industries to have what every
other industry in this country has the privilege of having,
which is the right to defend themselves from unfair trade
practices. And we are not saying close the border, we are just
saying if you are dumping stuff in this market at less than
your cost of growing it, that is an unfair trade practice.
Mr. Allen. Right.
Mr. Brown. And without that modification, those pieces of
American agriculture are going to be ground up.
Mr. Allen. Yes, okay. Good.
As far as Mr. Brosch, you mentioned the U.S. poultry
industry has been among America's most important and successful
production and export sectors. Of course, in Georgia we are top
exporter of poultry out of the port of Savannah.
You mentioned in your testimony the past decade two of our
five most important poultry export markets have been Mexico and
Canada; however, Canada has a supply management for poultry.
Can you give us more of an explanation of that, and how to fix
U.S. exports for poultry?
Mr. Brosch. Canada manages the border through limited
quotas. We don't have tariff-free trade into Canada like we do
on all other products, except dairy and poultry. They have been
exempted under their WTO reservation and they have been able to
maintain that, so we only get a small quota. Our quota is
something in the order of 7,000 or 10,000 tons into Canada,
very small. However, we do sell other products into Canada. We
have managed to sell products that aren't limited by that
quota. The big one I was talking about, to give you an example,
is fowl, spent fowl, which goes in the processed product
category into Canada.
Despite that limitation, we still have Canada as our number
two market. It is surprising to most people, but that is the
way it is. We would like more access into Canada. We certainly
would like that, and we thought that we were on that track in
TPP, but unfortunately, we are not there anymore.
Mr. Allen. Okay. Thank you.
The Chairman. The gentleman's time has expired.
Mr. Lawson, 5 minutes.
Mr. Lawson. Thank you very much, Mr. Chairman. Welcome to
the Committee.
Gentlemen, and especially Mr. Brown, I reside in north
Florida, same as Congressman Dunn, and it gets cold up in north
Florida, unlike when we talk about some areas in south Florida
where Mr. Yoho is, central Florida. But we are still able to
get out about two crops a year, our tomato growers. And when I
talk to the tomato growers up there, they are really concerned
about the NAFTA agreement. And so like when Mr. Allen talked
about in Georgia, we are right there on the border. I have some
tomato growers who are growing tomatoes in Florida, and then
they are also growing them on the other side of the line in
Georgia. How would this NAFTA negotiation help or hurt those
tomato growers that we have in north Florida?
Mr. Brown. If we have the ability to improve the capacity
to enforce trade law aggressively in that treaty renegotiating
process, there is a dumping case that has been in place for 20
years for the U.S. tomato industry that was filed a couple of
years after NAFTA was enacted. If that suspension agreement,
which is currently in a suspension agreement from that dumping
case, if there was aggressive enforcement to where we didn't
have a lot of circumvention and price suppression due to that
circumvention, it would improve the well-being of those tomato
growers, and Mr. Williams would enjoy a better marketplace in
his operation there in Quincy.
Mr. Lawson. Okay. You know who I am talking about.
The other thing asked a great deal about is how the
immigration issue is going to affect them, because they won't
be able to get the tomatoes out of the field because we can't
get a lot of the people there to want to go and get these crops
out of the field, and it directly affects them. Immigration: I
know the President talks about it a great deal, but it is very
critical up there in Gadsden County.
Mr. Brown. It is extremely important that we resolve our
issue of an agricultural workforce in this country, because
most all of the fruits and vegetables in this country are hand-
harvested. And without that workforce, which basically puts
food on the table for America, we are going to have problems,
going forward, with those agricultural entities surviving.
Mr. Lawson. Okay, and one other question to the panel, and
I support the NAFTA, but I am concerned about the focus on
education and how education with our 1890 institutions can be
utilized in research to help us attract more individuals into
the agriculture industry, and what kind of research that can be
provided to promote the industry where some of the other people
don't want to go into it, but we need the research in order to
maybe help these institutions attract more people to it. Can
anyone elaborate on that with the time that I have left?
Mr. Brosch. I can tell you one thing that we have done in
the poultry industry, Congressman.
We recently renegotiated our access to South Africa under
the African Growth Opportunity Act. We had trouble getting into
South Africa, and we recently renegotiated. And part of that
renegotiation, we agreed to support students from South Africa
who, especially the historically disadvantaged students in
South Africa, and we are bringing some of them to agriculture
colleges in the United States to train. I think that is a good
model. We could use that model in the future in our NAFTA
negotiations to look for opportunities that are similar.
Mr. Lawson. Okay, thank you very much. One thing I am going
to say, when you are talking about Mr. Williams in Gadsden
County, he told me this a couple weeks ago that we can't do
anything with the dumping that is coming in from Mexico. We
don't have the authority to do anything. I am just going to cut
to Mr. Brown where you can just say something one more time.
Mr. Brown. We have had a dumping case in place for 20 years
and I will give credit to the Mexican Government and the
Mexican industry. They are a fierce, aggressive negotiators and
competitors, and we continue to try to ensure that the domestic
tomato industry survives going into the future.
Mr. Lawson. Okay. Thank you, Mr. Chairman. I yield back.
The Chairman. The gentleman's time has expired.
Mr. Faso, 5 minutes.
Mr. Faso. Mr. Chairman, thank you, and I appreciate the
panel being here. It really has been a very timely and
instructive set of presentations, and I appreciate that.
Governor Vilsack, I wanted to ask you about a topic that
you and I also appreciate having an Albany Law graduate here as
well. There are a lot of people in my marketplace that are
Albany Law folks.
Your testimony, you go into great detail about the Canadian
trade practice on ultra-filtered milk and the barriers,
Canadians don't call them that, but the barriers, in essence,
that the Canadians are putting to the import of ultra-filtered
product from the United States and its impact now on the export
market to countries that we would typically be exporting to as
well. What is incomprehensible to me is how Canada can, with a
straight face, get away with this, and how this doesn't run
afoul of existing trade agreements that they have adopted.
Could you expound on this a bit and give us some advice as to
what you think the Committee should do and what the U.S. Trade
Representative should do about this topic? And I have 3 minutes
and 36 seconds left, and if you could give us that answer in
that time, I would appreciate it.
Mr. Vilsack. Congressman, I would start by saying that if
the Canadians were here, they would say ``Well gee, what is the
problem here? Exports from the U.S. have gone up.'' It is a
little bit misleading for them to use that talking point,
because in essence, what happens is product is exported into
Canada and then re-exported outside of Canada back into the
United States in a value-added proposition. It is not what we
traditionally think of exports where you export a product and
it is consumed in the product that you are exporting to.
This is an issue where the Canadians have essentially
evaluated their market and when they see the U.S. making in-
roads, the rules change. They create a new class, they change a
product specification, they redefine a product so that it will
now qualify for tariffs as opposed to being duty free. It is a
constant battle that we have been engaged in, in trying to open
this market up, and trying to educate the Canadian consumer
that they are really paying a lot more for their products than
they would have to if there was a freer trade arrangement.
It also has an impact because of the incredible increase in
butter consumption, this has created a glut of powder, milk
powder, and normally that milk powder in Canada would have been
fed to livestock, but there is so much of it that what they
should be doing, obviously, is providing an opportunity for the
U.S. to export into their country, import into their country.
Instead, what they have done is they have basically put it on
the open market at a price lower than the world market, which
is depressing overall powder. And that is why the ten leading
dairy global associations have come out and said look, this is
a problem in New Zealand, it is a problem in the EU, it is a
problem in the United States because it is depressing unfairly
the market.
There can be a lot of conversation about the letter of the
law, but clearly the spirit of a number of agreements that
Canada has entered into we think are severely tested by this
approach, agreements that they have made in the past. And that
is why this renegotiation is so critically important. Let us
get a much more predictable, transparent process. Let us get
more stability in the process, and let's open up the markets.
Let's take a look at ridiculous tariffs that are currently in
place in Canada. The over quota tariff for food and milk is 241
percent. For butter, it is 298 percent. For cheese, it is 245
percent. I mean, there are multiple opportunities here for us
to have a much better relationship with Canada as it relates to
dairy. And if we had that, then there would be greater
predictability, there would be greater stability for our
producers, and consumers in Canada would benefit.
Mr. Faso. And what are consumers in Canada paying for fluid
milk as compared to the U.S.?
Mr. Vilsack. Well it is significantly higher, and that is
why you will see in border communities people traveling across
the border to essentially purchase in the U.S. Now what is
interesting about this is there is a quota system, and the
Canadians are basically saying for fluid milk look, our
consumers are coming across the border and purchasing milk in
the U.S., and that satisfies our quota. Well wait. They are not
even tracking that. They are not even keeping track of that, so
how can they say it satisfies the quota?
Mr. Faso. Thank you, Mr. Chairman. I yield back.
The Chairman. The gentleman's time has expired.
Mr. Soto, 5 minutes.
Mr. Soto. Thank you, Mr. Chairman.
We all know the history of NAFTA, filed and passed by a
Republican Congress, signed by a Democratic President in 1991,
and setting aside the manufacturing decline that happened,
agriculture has really been kind of a mixed bag. We have seen
the big guys get bigger, the small guys get smaller, even go
out of business, and a lot of that has to do with the scale
they are operating on or the ability to really withstand unfair
trade practices that have occurred over the years through some
other members of the coalition.
I want to start out with you, Mr. Brown. First of all,
welcome. I am no stranger to Maitland. It is just a few miles
north of our district, and part of that wonderful place we call
central Florida. I want to go through some specifics based upon
your report about things that you think there is already
existing language in NAFTA you could work with, or things that
need to be changed in your mind.
First, with regard to subsidies and incentives provided by
the Mexican Government to their producers, are there sufficient
provisions in NAFTA, or do we need to look at changing areas
with regard to helping out our growers in Florida?
Mr. Brown. One of the important things that needs to be
addressed, as we talked about earlier, is this seasonable
perishable issue to where the Florida industry could defend
itself against those unfair trade subsidies with the
countervailing duty case. If you had to go to a national
countervailing duty case, not only do you have to round up all
the producers, or 51 percent of all the producers of the
product that is defending itself, but you also have to prove
injury to that entire body of producers. And many of these
problems are very specific to time periods of market dumping or
market subsidization of product going into a specific market.
So that would be a major adjustment in that process would be
having the ability to do that, to use those tools that most
everybody else is entitled to in the country.
Mr. Soto. Regional standing, especially with the fact that
we have that window in wintertime that a lot of our fruits and
vegetables really try to hit that mark. What about with labor
costs being at ten percent of what we are paying here in the
United States down in Mexico, and in addition to whether that
is going to be helpful, do we have to make a change, or are
there sufficient laws in the books for NAFTA already?
Mr. Brown. The labor standards that are currently in place
don't really address the real labor issue for fair working
conditions and standards of living and this sort of stuff, and
minimum wages in Mexico like we have here in the U.S., and they
would make some significant adjustment to that. And in
addition, there is also the issue of the evaluation of the peso
over the course of the 20 years to where there is a very strong
pull of product coming into the U.S. simply because it is
trading in dollars and working that workforce for pesos and
buying materials and inputs would devaluate pesos, which is a
very significant advantage as well.
Mr. Soto. We are talking about dumping, labor costs,
currency manipulation, subsidies, these are sort of the nuts
and bolts of what we are facing right now?
Mr. Brown. It makes our business a very challenging
business in Florida.
Mr. Soto. Absolutely.
Secretary Vilsack, I know you have a real global
perspective on all this. Is there a balance we can strike with
a lot of folks who are succeeding under NAFTA and those who are
facing some obstacles?
Mr. Vilsack. There is an instructive example for dairy at
least in Mexico where we see this as a partnership. The Mexican
producers have, at times, felt threatened by the U.S., and
oftentimes there is this belief that somehow U.S. agriculture
is going to come in and essentially overwhelm the domestic
agriculture.
What we have done in dairy is we have said look, we are
here to try to build demand for product in Mexico, which we
know will help your producers, but will also create an export
market for us. And that is precisely what has happened.
Production in the last decade in Mexico has increased by 58
percent in dairy, their own producers, but that has been more
than enough overcome by increases in consumption.
There is a way in which we can continue to find ways to
mutually benefit from trade. It has to be a two-way street;
otherwise, at the end of the day, it is not going to be
particularly effective.
Mr. Soto. Thank you, and just finishing up, Mr. Frazier, do
you think we could strike a balance with cattle as well and
other big product from our district?
Mr. Frazier. Excuse me, someone was whispering. Can you
repeat what you asked?
Mr. Soto. Well, I guess my time has expired, but thank you
though.
Mr. Thompson [presiding.] The gentleman's time has expired,
but I certainly encourage you to maybe submit that for the
record so that you would be able to get a response in writing.
I will take the liberty of my 5 minutes here. Every pun
intended, I am going to continue to milk the dairy issue with
you, Mr. Secretary.
There has been some heated rhetoric on all sides of the
trade debate in the last few years, and it is important for our
trade-dependent sectors of the economy to communicate the
benefits that we have from trade. How do you see the importance
of trade for the next 10 years for the dairy industry, and what
do we need to do as a country to help you achieve your goal?
Mr. Vilsack. In the dairy industry, the U.S. dairy
industry, the image of the industry around the world
historically has been one that has been an industry focused
primarily on the domestic market. Over the last decade or so
that has begun to change, and in many markets, there is now a
recognition that U.S. dairy is in the export game to stay. We
have to continue to increase our presence, both physical
presence, more people, more capacity in some of these export
market opportunities, to send the message that we want to
compete effectively with New Zealand, effectively with the EU.
It is important and necessary that we obviously have trade
agreements that are fair, that are transparent. There is a
classic example here with what is happening in Mexico where we
see nearly a nine to ten times increase in export opportunities
for dairy in Mexico versus what is happening in Canada where
the rules consistently change. If we could get the same kind of
opportunity in Canada that we have in Mexico, obviously that
would be beneficial.
Here is the issue, Congressman, and you know this better
than anybody because of who you represent in central
Pennsylvania. Great dairy producers. They are going to continue
to produce more milk, somewhere between a percent to a percent
and a half more each year. Domestic consumption can increase,
but we want the opportunity also to stabilize markets through
exports. And so if we can increase presence, increase capacity,
and change the image of American dairy globally and get fair
trade agreements, we will do very, very well in the next 10
years.
Mr. Thompson. Keeping with that theme, and you had
mentioned about Mexico, Canada, in terms of the whole, you have
articulated clearly the importance of NAFTA modernization. We
had that conversation when you first came in. Quite frankly,
most of my staff were not alive when NAFTA was negotiated, so
having something that has an element of staying current and
modernization is important, no matter what the trade agreement
is, because the world is changing around us. Certainly the
industry of agriculture changes around us. And you have talked
about the importance of NAFTA modernization for the dairy
industry, as well as the value of seizing the moment,
negotiating additional trade agreements with our potential
partners around the world.
I think the two go hand in hand. Would you agree that NAFTA
modernization process will directly impact our ability to make
good progress in equally critical areas of the world, such as
with Japan, Vietnam, and others?
Mr. Vilsack. Well the hope would be that we would contain
in NAFTA renegotiation and modernization specific provisions
relating to SPS, sanitary and phytosanitary rulemaking, the
ability of making sure that we protect the use of common names
for cheeses, for example. All of that can have an impact on
future bilateral discussions. The more market access we get,
the better off we are to make that case in other, more closed
market opportunities.
Clearly, there is a benefit here, and that is why it is
incredibly important, especially in the absence of the Trans-
Pacific Partnership Agreement. It is incredibly important now
that we engage very aggressively in bilateral discussions and
get this renegotiation completed, because our competitors are
not waiting around for us to act. They are moving forward very
aggressively.
Mr. Thompson. Thank you, Mr. Secretary.
Mr. Hammer, you stated that U.S. soybean exports have grown
significantly over the past 23 years. Where do you see
opportunities for growth and trade with Mexico and/or Canada?
Mr. Hammer. It will be primarily a demand growth, a
population growth. It is basically unfettered now. In Canada we
have indicated some opportunity for some poultry, egg, turkey,
dairy growth. We are growing in the United States' consumption,
and it will continue to grow. For example, as incomes rise in
Mexico, you will see them go from maybe an egg diet to a
poultry diet or on up the line, and you will continue to see
these opportunities grow with the growth and as the economy
grows and as the opportunities for the individuals within our
three countries grow.
Mr. Thompson. Thank you very much. My time has expired.
I am pleased to recognize the gentlelady from North
Carolina for 5 minutes.
Ms. Adams. Thank you, Mr. Chairman, and thank you, Ranking
Member Peterson, for hosting this hearing and thank you all,
gentlemen, for your testimony.
First of all, free trade agreements inevitably create
winners and losers in our economy. Some industries like
agriculture, for example, are able to reap the benefits of
trade through access to new markets and lower prices, and other
sectors, like the textile industry in North Carolina comes to
mind, trade leads to displaced jobs for increased competition
and offshoring. And North Carolina's textile industry lost 82
percent of its workforce since the mid-1980s. In Charlotte
alone, 34,200 jobs were lost in the textile industry since
NAFTA, and NAFTA had a massive negative repercussion on my
state's economy. According to the Economic Policy Institute,
North Carolina was one of the hardest hit states in our
country, sustaining some of the biggest net job losses.
Secretary Vilsack, how can we balance these competing needs
to maximize the benefits for our agriculture sector while
minimizing harm to manufacturers, to small businesses, and to
middle class Americans?
Mr. Vilsack. Well, Congresswoman, one of the hallmarks, at
least from the dairy perspective, and why we have been able to
be competitive and maintain a favorable balance is because of
innovation, the ability of our industry to adapt to the needs
and specifications of customers around the world. Ninety-five
percent of the world's consumers are outside the U.S. There
will be growing populations and growing middle class in many
parts of the world where it plays to the strength of American
agriculture. I would say one strategy for dealing with trade
generally is to make sure that America remains a place of great
innovation, and certainly in agriculture, that has been true.
Ms. Adams. Thank you. I know that agriculture is one of the
few economic bright spots in implementing NAFTA, but I really
cannot ignore the devastating impact that it has had on my
state and my state's middle class.
Of course, this question is to anybody who wants to answer
it, how you think that Congress can ensure that a renegotiation
of NAFTA benefits the majority of middle class Americans?
Anyone can answer this, or all of you.
Mr. Gaibler. Well, we have already identified some areas
where we don't want to do any harm, but where modernization and
improvements are possible. I also think that one of the
important aspects of the NAFTA will be that we develop very
transparent dispute settlement mechanisms. In our part of
agriculture, we worry that Article 19 may be removed because it
is an insurance policy that we don't have to have unfair anti-
dumping or countervailing duty trade cases brought against us,
but we have also heard some areas from testimony today where
our partners on the other side of the border may be using
unfair trade practices.
A really robust dispute settlement mechanism to make sure
that fair competition is taking place is a part of this
agreement, and to that end, we would certainly not want to see
Chapter 11 or Chapter 19 removed. Thank you.
Ms. Adams. Anybody else like to comment?
Okay. Let me ask then, Mr. Brosch, according to the Wall
Street Journal, friction between the U.S. and Mexico over trade
is starting to cut into the sales for U.S. farmers and
agricultural companies. In the past 4 months, Mexican imports,
chicken, meat, fell 11 percent, the biggest decline for the
period since 2003. Do you have faith that the Trump
Administration will be able to renegotiate NAFTA without
causing irreparable harm to our agriculture trading
relationships?
Mr. Brosch. Congresswoman, we had somewhat the same
experience that these gentlemen have talked about when the
President announced he wanted to renegotiate NAFTA. We suddenly
had a number of buyers who were looking to differentiate their
supply. Traditionally, I have been told by the folks I have
dealt with in Mexico that they sort of looked at us as their
big brother. Their sort of pushy big brother, but their big
brother, and I have also been told that since that
announcement, they are not going to look at us the same way
ever again. But they are looking at Brazil. They are looking at
other sources of supply, and unless we move quickly, as
Secretary Vilsack suggested, to get this negotiation closed and
get this improved and get it back on the books, we are going to
have uncertainty in Mexico and we are going to have people
looking at other possible suppliers, even for the things we are
most competitive for.
Ms. Adams. Thank you, sir. I am out of time. I yield back,
Mr. Chairman.
The Chairman [presiding.] The gentlelady's time has
expired.
Mr. Marshall, 5 minutes.
Mr. Marshall. Thank you, Chairman.
My first question is for Mr. Frazier. Mr. Frazier, I have
done about 40 town halls, 20 round tables, been to 30 or 40 ag-
centric operations. And when I went back, I was expecting to
talk about a farm bill. I think we are going to try to get that
sometime this year. But the number one issue has been trade.
Trade, trade, and trade. Nothing more important to my district
than NAFTA. It is our number one revenue generator in an
economy that is 60 percent agriculture-related. What is the
number one concern for the beef industry?
Mr. Frazier. It would be do no harm in these negotiations.
Don't do anything that would disrupt, from our perspective,
trading in beef with Mexico and Canada. Both those markets are
worth $2 billion a year to our U.S. industry, so that would be
my number one concern with NAFTA is do no harm.
Mr. Marshall. But trade in perspective to farm bill--2
years ago, all the farmers and the ag producers talked about
was over-regulation. Do you get a feeling that maybe that NAFTA
is a bigger concern now than even over regulations, your
industry?
Mr. Frazier. I would say there is both, concern about both
of those. Things like WOTUS, some of those types of issues,
there is a lot of concern about land owners, and obviously, our
industry owns a lot of land. But trade is also a big issue, so
I am not going to pick one of those and say one is more
important than the other. They are both important.
Mr. Marshall. Mr. Gaibler testified, I believe, earlier
about that we are actually seeing decreased corn sales already
because of some of the just concern that our markets were
dependent on. Are we seeing any of that yet in the beef
industry with Mexico and Canada?
Mr. Frazier. Not yet, although in conversations with
Canadians and Mexicans, they are concerned about some of the
rhetoric that they hear in the United States about NAFTA.
Mr. Marshall. Okay. My last question, we have had the
pleasure to sit down with three different groups from Mexico,
grain purchasers, meat purchasers. Describe to me again a
little bit the type of cuts of beef that we are sending their
way and coming back and forth.
Mr. Frazier. To Mexico we send a lot of products like
rounds, skirts, tongues, intestines, products that we
traditionally have not consumed a lot in the U.S. To Canada, we
send more of a high quality, ribs, loins, into the Canadian
market.
Mr. Marshall. Okay. Mr. Gaibler, you, at least I saw in
some of your testimony, you talked about the value of the peso
versus the dollar. Was that your testimony, or was in one of
your drafts?
Mr. Gaibler. No, I didn't reference that, though obviously,
it is an important issue. The fact is, it is part of the reason
why it is feasible, or at least potentially feasible for Brazil
to actually potentially export into the Mexican market, because
they don't have duty free access. Their transportation costs
are higher. In fact, they have some internal programs that
subsidize the movement of corn, so I didn't mention it, but it
is clearly an issue for every one of our industries represented
here.
Mr. Marshall. Does anybody want to expand on that a little
bit?
Mr. Brosch. Well after the Administration announced that
there was going to be a renegotiation of NAFTA, the Mexican
peso fell against the dollar about 25 percent, and that had
nothing to do with currency manipulation. That had to do with
the perception of the markets and of what the effect on the
economy is going to be. Well that makes it much more difficult
for Mexicans to buy American chicken or American beef when
their currency falls against the dollar. So yes, that has had a
big impact.
Mr. Marshall. Mr. Gaibler, I will follow up with you. I am
sure you are looking in the future further than I can look into
it. You have experienced a six or eight percent drop in corn
sales, you mentioned. Secretary Purdue has been a proponent, a
strong advocate for trade. Looking into the future, do you feel
like we are stabilizing that situation or does there continue
to be a drop in the future with Mexico and corn purchasing?
Mr. Gaibler. Well, we have done some long-term economic
forecasting with our economists, and looking 10 years down the
road, and Mexico shows up as the one or two, depending on which
assumptions you use of the market, long-term. And so if you
look at the other countries that show up, some of them we have
free trade agreements with, but some of them we don't. In
either instance, for us, our ability to tap into those markets,
whether we have FTAs or we don't, that is going to be the
lynchpin here of our success in continued exports of corn but
also the value-added to products that come from that. Frankly,
Japan, the EU, and others are going to look at these
negotiations very closely and make a determination based on
whether they are successful, or if they go off the rails.
Mr. Marshall. Thank you, Mr. Chairman.
The Chairman. The gentleman's time has expired.
Mr. Dunn, 5 minutes.
Mr. Dunn. Thank you very much, Mr. Chairman.
Mr. Brown, I frequently hear from stakeholders around the
country about the high stakes of losing ground, losing what we
have gained in NAFTA in the course of a renegotiation. I
understand their point; however, the fruit, vegetable and sugar
sectors, sectors that compete directly with Mexico and affect
us in Florida, have competed on an unlevel playing field for a
number of years. And as a matter of fact, some of these are
sort of under an all out assault from Mexico. We share the same
latitude with Mexico, so Florida is at greater risk with
seasonal variation than other states in other parts of the
country would be. Would you share with us some of the special
vulnerabilities that Florida has and how you see that affecting
us?
Mr. Brown. Well that seasonal overlap, Mr. Dunn, is very,
very critical to the fact that Florida was identified 24, 25
years ago when the treaty was originally negotiated as the
state that was going to lose the most in the fruit and
vegetable industry, and I can attest to you that we have.
But the reality is with the investment that has been driven
by the Mexican Government in the last 10 years in protected
culture, greenhouses, tunnels, various kinds of saran shades,
they have simply expanded their season on both edges to where
historically we competed with them from December to March. Now
the competition from Mexican tomatoes, in particular, which I
am very familiar with, is now a year-round competition with all
the tomato producers in the United States. And that is why the
domestic industry has lost 40 percent of its volume that it had
in production when NAFTA was signed, and why we have lost 25
percent of the acreage of fresh tomato production in this
country to that competition. It has basically been supported,
and it is fundamentally targeting the U.S. market with that
product, trying to build up that rural economy in Mexico, and
we are suffering from it.
Mr. Dunn. Thank you very much.
I understand there are portions, and I want all of you to
be thinking about this, portions of the TPP may be a template
for the NAFTA renegotiations, so I want to know in your various
sectors; and we will start with you, Mr. Brown, that what
language in the TPP that might guide the Administration as they
work to address the concerns of first fruits and vegetables and
cattlemen and poultry and whatnot. So take it away, 2\1/2\
minutes.
Mr. Brown. Well basically the directive was basically in
the Trade Parties Accountability Act of 2015 or addressing the
issues and eliminating practices that adversely affected trade
in perishable and cyclical products while improving import
relief mechanisms to recognize the unique characteristics of
perishable and cyclical agriculture. Ensuring that the import
relief mechanisms for perishable and cyclical agriculture are
as accessible and timely to growers in the U.S. as those
mechanisms that are used by other countries, and seeking to
develop an international consensus of the treatment of seasonal
or perishable agricultural products in investigations relating
to dumping and safeguards----
Mr. Dunn. He was prepared for that question, wasn't he?
Let's ask the cattlemen if they have some specific wording in
the TPP over the renegotiation of NAFTA.
Mr. Frazier. From our perspective, TPP, the greatest
benefit to the beef industry in the United States was taking
down tariffs in Japan and letting us be more competitive with
the Australians and New Zealand. We already have zero duties
and tariffs on products going into Mexico and Canada, so I
really can't think of anything.
Mr. Dunn. Very good. Mr. Brosch?
Mr. Brosch. Well, like the beef industry, we were
interested in Japan. Japan was the big win for us. We were also
interested in improvements of the SPS text. We don't think that
the TPP SPS text is perfect. There are a couple of things that
we don't like about it, but overall, we think it has some real
promise for improvements in the NAFTA, and then we thought that
we would have some additional access into Canada as well as a
result of that negotiation, as I have mentioned before, but
that seems to not be an opportunity anymore.
Mr. Dunn. Anybody have, yes, Mr. Secretary?
Mr. Vilsack. Yes, geographic indications was basically
dealt with in the TPP agreement that provided a due process and
a protection for common names. That would be something that we
would like to see placed in this modernized NAFTA agreement.
Mr. Dunn. Thank you very much. Mr. Chairman, I yield back.
The Chairman. The gentleman's time has expired.
Mr. LaMalfa.
Mr. LaMalfa. Well thank you, Mr. Chairman. Thank you,
panelists, for being here today. I wanted to come from another
hearing, as is fairly typical.
So modernizing NAFTA would be very helpful. The ag economy
has prospered pretty well under it, so I hope we can be
optimistic about the discussions underway. So let me go to Mr.
Frazier.
In terms of the benefits, what gains in NAFTA negotiations
would you be looking for, notably important for beef
specifically, that may come from future deals, future
negotiations for open access?
Mr. Frazier. Well as I said in my testimony, Congressman, I
really think that we are in a good place in the beef industry
and NAFTA right now, because we don't have tariffs on products
going into Mexico and Canada. They are two of our top five
markets for beef in the world. We have good relations with both
those countries. We have good relations with importers in those
countries, so in any renegotiation, I just think we are in a
really good place right now.
Mr. LaMalfa. Do you think anything in future negotiations
could be harmful? Do you see much threat of that?
Mr. Frazier. I mentioned one, if there was an effort to
bring Country-of-Origin Labeling back on the table that could
be, because that would result in the Canadians and Mexicans
putting tariffs on our products.
Mr. LaMalfa. Yes, believe me, we have heard all about that.
That was a difficult deal.
Well, I think that pretty much does it. The magnitude of
additional trade and export for the industry, it seems as if it
is just taking off more and more on international trade. Can
you touch on that just a little bit?
Mr. Frazier. Sure. We feel really good about it. Right now,
we are exporting about 13 percent of our production overseas.
Mr. LaMalfa. Fourteen?
Mr. Frazier. Thirteen to fourteen percent. It varies month
to month. We think over the next 5 to 10 years we could move
that over 20 percent, maybe even to 25 percent. China just
opened to U.S. beef. Now there are some restrictions on the
kind of product that we can send to China, which limits some of
that, but we think long-term that is a great market. It has a
lot of potential for us.
Mr. LaMalfa. They have opened up to rice too, so I am
seeing this as a pretty good partnership. We can move those
potato guys aside a little bit.
Mr. Frazier. We just think that there is a growing middle
class around the world that desires U.S. beef. We have a unique
product. It, as we all know, it tastes great. Consumers around
the world, when they get to experience it, they love it. We
just think it is a great opportunity for U.S. cattlemen in the
future.
Mr. LaMalfa. Okay, thank you. Well I hear a lot of talk
about stakeholders, but you are the kinds that I like, so thank
you very much.
I am going to yield back, Mr. Chairman.
Mr. Frazier. Okay, thank you.
The Chairman. The gentleman yields back.
Mr. Yoho, 5 minutes.
Mr. Yoho. Thank you, Mr. Chairman. I appreciate the panel
being here, and your endurance of being able to stay this long.
NAFTA: there have been some wins with that and there have
been some losses with that. And I come from Florida, and we
went down to Homestead, Florida, and we visited the tomato
region. And we used to get two to three crops. We produced
about 60 percent of the tomatoes in the nation, and NAFTA
really hurt the specialty crops. Florida is a specialty crop
state with over 300 different specialty crops. And as we
negotiate NAFTA, and Mr. Brosch, it sounds like you have done a
lot of the negotiations.
I had the opportunity to go down to Mexico and we met with
the finance minister currently that had negotiated NAFTA, and
we were talking about some of the wins and some of the losses.
And what we saw were the losses in the tomato industry where
the farmer's grandson up in America wanted to take over the
business, but there wasn't a business to take over. And we got
in a little bit of a heated debate down there. And the other
thing was the sugar policies where Mexico dumped sugar on it,
and the minister admitted that they did dump and he apologized
for it.
As we go forward and as you negotiate, and Mr. Hammer, you
brought up to have robust reforms in there so that we can
negotiate and settle these disputes, these trade inefficiencies
better. What is your recommendation to put into the new NAFTA
to where we can call people out when we know they are cheating
or doing unfair practices? What would you recommend that we put
in there to make it a lot more efficient so it doesn't drag on
for years?
Mr. Hammer. Well I just think that has to be a focus,
because I think that is going to be the hallmark. I know at one
time there was a group of us that had lunch on a monthly basis,
and we were commodities that had all faced what we thought was
frivolous anti-dumping or countervailing duty cases from
Mexico. They were unsubstantiated, but they were brought
basically because they were trying, it was apples. It was
corn----
Mr. Yoho. Corn syrup.
Mr. Hammer. Corn syrup, right. It was meat. We were being
looked at as soybean meal. And we were kind of a group that
commiserated with one another. We met for lunch monthly and
said what are you doing to stop this? We can look at some of
the history of that and learn from that.
Mr. Yoho. Well, and I have heard over and over again that
Mexico is very astute and very sharp at trade. I hope that we
have those things in place.
I want to go to you, Mr. Brown. We have talked extensively
on the tomato issue. What does it cost you to produce a box of
tomatoes here domestically?
Mr. Brown. Domestically in the Florida production cycle, we
are looking at a cost of about $10 for a 25 pound box.
Mr. Yoho. That is the cost of the box, the labor, the
tomato itself?
Mr. Brown. That is put the box on the back of the truck.
Mr. Yoho. What is Mexico selling a box of tomatoes here
for?
Mr. Brown. Right now under the suspension agreement, they
are not supposed to be selling a 25 pound box for less than
$8.30 at the border.
Mr. Yoho. What are they selling it for?
Mr. Brown. The problem we have is because of circumvention
and erosion of the enforcement process, you will see Mexican
tomatoes in our terminal markets for $5 or $6 at various
periods of times a year.
Mr. Yoho. That is almost under the cost of production,
isn't it?
Mr. Brown. It is significantly less than the cost of
production; however, in addressing the issue of enforcement and
how dumping agreements work, the Commerce Department in the 20
years of the case have never actually collected the cost of
production from the Mexican industry, and the industry has
refused to provide it to the Commerce Department.
Mr. Yoho. And that is a safeguard that needs to be in the
next NAFTA negotiation.
Mr. Brosch, I want to come back to you because as labor,
yes, go ahead.
Mr. Brosch. What he is talking about isn't changes to
NAFTA. He is talking about changes to domestic law. We don't
have a dumping mechanism in NAFTA. What we have is we have a
recognition of the ability of countries to use their domestic
law. What Mr. Brown is really talking about is changing the
domestic dumping law and dumping procedures, not about----
Mr. Yoho. Here domestically?
Mr. Brosch. Yes, I mean, that is the only way you can do
it.
Mr. Yoho. Okay.
Mr. Brosch. I mean, legally that is the only way you can do
it.
Mr. Yoho. And then when we negotiate these, they are
supposed to have fair labor practices and the L.A. Times did a
great expose in 2015 about the slave labor in Mexico, and we
know that is going on. And if we are buying from them and it is
negotiated in NAFTA they are not supposed to use child labor.
Under the age of 14, there are roughly 100,000 in the field
documented. How do we get out of those kind of trade deals?
Mr. Brosch. Well, no one wants to see anything like that
Congressman.
Mr. Yoho. I know.
Mr. Brosch. I agree with you, and I am going to confess
right here, I am no expert in the labor area at all.
Mr. Yoho. Okay. I appreciate your time. I yield back.
The Chairman. The gentleman's time has expired.
Mr. Arrington, 5 minutes.
Mr. Arrington. Thank you, Mr. Chairman. The Chairman tells
me he saves the best for last, and I am going to take him at
his word.
This is a big deal to ag producers all over the country. It
is especially a big deal in terms of our trade partners with
Mexico if you are from Texas. By the way, thank you all for
coming, and Mr. Secretary, thank you for your service to our
country. Also on a side note, Mr. Secretary, thank you for your
support for cotton with the ginning assistance in 2015. We
needed it, and we desperately need more of it to bridge us to
the farm bill and get cotton back in as a title I commodity.
But anyway, I really appreciate that. And any help you can give
us with the current Secretary in this Administration for
ginning assistance to follow, we would appreciate it.
Do you all agree that we can improve on NAFTA,
understanding that the sort of do no harm principle applies
from the outset? But do you agree that for your industry, your
sector of the industry that we could improve on NAFTA, we could
enhance it in some way, some form or fashion? Yes, sir.
Mr. Hammer. Well, as I said earlier, for soybeans, soy
meal, and soy oil, we face no duties or no tariffs of any kind.
It is seamless. But there are always possibilities for
technical barriers to trade, things that can come up, it can be
paperwork, red tape, e-commerce and things like that we weren't
contemplating 23 years ago, and there are definitely areas
where trade is taking place in different ways and different
terms than it did 23 years ago, as it will 10 or 20 years from
now. Yes.
Mr. Arrington. Sure, and Mr. Frazier, the opening the China
market to U.S. beef, that is a big deal, right?
Mr. Frazier. Oh, yes.
Mr. Arrington. I mean----
Mr. Frazier. We have been locked out of the China market
since 2003 when we had our first case in BSE. We believe long-
term that it offers a great opportunity for American cattlemen.
Mr. Arrington. It is a big win for this Administration and
for our negotiator in chief to do that. Fourteen years not
being able to enter that market, the largest market in the
world. I don't know. I mean, I get it. We have to be real
sensitive to how we posture and this President needs to be
sensitive about that, but I have tremendous confidence in our
Administration and in our negotiator in chief to get a better
deal for American producers and manufacturers. I think that is
his heart. I think that is his intent.
Like you said, Mr. Brown, about Mexico. I think you said
it. They are fiercely competitive, and they are fierce at the
negotiating table. I want American negotiators to come and
negotiate from strength. I am very sympathetic to your industry
and the story you have told. I mean, cotton, that resonates
with me because some of the similar dynamics with cotton and
China. I am for all American producers having an even playing
field to compete, because I believe we will win.
I have a few points on where reforms could apply and
enhance the NAFTA deal. One is reducing redundant regulations.
Could you highlight one redundant regulation that would make
the biggest impact on this deal and the positive for your
industry? Anyone? No. Okay. I will have to take that up with
the Farm Bureau then. That is one of theirs that they listed.
What about expediting transit across border? Is that an
area that we could improve on? Anybody want to talk about that?
Mr. Hammer. We did poll our members and ask that question,
and we haven't come up with anything, but we are early in this
stage and we are going to continue to try to drill down and see
if we can find areas where trade could be more seamless. But as
of today, I wasn't able to bring you any examples, Congressman.
Mr. Arrington. Okay. Well, we have to get it right, but
this is a great opportunity. I am very optimistic about it, but
we need to hustle and we need to get it done, and all the
things you all brought up, I really appreciate it. I listened.
I have learned, and I appreciate your time very much.
Mr. Chairman, I yield back.
The Chairman. The gentleman yields back.
Gentlemen, thank you very much for being here this morning.
We appreciate the perspectives you have brought for each of
your organizations and more importantly, the producers and
growers and men and women behind those association titles that
you bring to us are real people, and they are really impacted.
I had a conversation with Secretary Ross before Ambassador
Lighthizer came in. I asked him point blank if the deals that
were negotiated on TPP with respect to those countries, if we
could consider that the floor of any bilateral deals that we do
with each of those countries, from ag's perspective. He said,
``Yes, it would be the floor, and that negotiations from there
would be better than that.'' I know our production agriculture
folks are excited.
We have talked mostly this morning about NAFTA, but the
Administration needs to be going after not only the NAFTA
renegotiations, but also all of those other bilateral deals
that created an opportunity for when the Administration walked
away from TPP. As Mr. Brosch mentioned, bilateral deals are
hard because you don't have trades you can make with other
folks to get a better deal, but we are looking forward to
getting them done.
Time is of the essence. You have heard the comments over
and over about the impact that the anxiety over this deal being
renegotiated, which is an appropriate thing to do, how that
anxiety is affecting our trading partners and potential trading
partners. I encourage the Administration to push forward, not
only on NAFTA, on an expedited timeframe, but as well these
bilateral deals because China is benefitting, the UK is
benefitting, the EU is benefitting from our lack of being in
the markets fulsomely.
With that, I appreciate each of you being here. Under the
Rules of the Committee, the record of today's hearing will
remain open for 10 calendar days to receive additional material
and supplemental written responses from the witnesses to any
question posed by a Member.
This hearing of the Committee on Agriculture is adjourned.
Thank you.
[Whereupon, at 12:28 p.m., the Committee was adjourned.]
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