FARE Blog

Food, Agriculture, and Resource Economics

Market Facilitation Program: What is available to cover my marketing losses from trade tariffs?

By Yangxuan Liu

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U.S. Department of Agriculture releases details about the spending plans for $12 billion in trade aid package for farmers. The main component of the aid package is the Market Facilitation Program (MFP). MFP is authorized under the Commodity Credit Corporation (CCC) and administered by Farm Service Agency (FSA). MFP provides a direct payment to help producers who have been negatively impacted by foreign governments imposing tariffs on U.S. agricultural products.

MFP payment rates will consist of two announced payment rates. The first rate is announced on September 4, 2018 for the first payment rate and applies to 50% of the producer’s 2018 actual harvest production. On or near December 3, 2018, if applicable, the second payment rate will be announced and will apply to the remaining 50% of the producer’s 2018 production. For each commodity covered, USDA has set the first payment rates for the 50% of the producer’s 2018 actual harvested production as follows:

  • Cotton – $.06 per pound, estimate total payments of $277 million
  • Corn – $.01 per bushel, estimated total payments of $96 million
  • Soybeans – $1.65 per bushel, estimated total payments of $3.6 billion
  • Sorghum – $.86 per bushel, estimated total payments of $157 million
  • Wheat – $.14 per bushel, estimated payments of $119 million
  • Hogs – $8 a head, estimated payments of $290 million
  • Milk – $.12 a hundredweight, estimated payments of $127 million

The signup started on Tuesday, September 4, 2018 until Tuesday, January 15, 2019. For cotton producers, you can sign up with FSA now and update later to FSA with your production record, e.g. ginning records.

MFP payments are capped per person or legal entity at a combined $125,000 for corn, cotton, sorghum, soybeans and wheat, and another $125,000 for dairy and hogs. This payment cap applies to MFP only. The $125,000 payment cap for Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC) payments is a separate cap. Eligible applicants must have an ownership interest in the commodity, be actively engaged in farming and have an average adjusted gross income (AGI) for tax years 2014, 2015 and 2016 of less than $900,000. Producers will have the option to submit CCC-910’s and report production in person, by mail, or electronically to FSA.

The Impact of China’s Potential Cotton Tariffs on U.S. Cotton Exports

By Yangxuan Liu, John R. C. Robinson, and Don Shurley

On April 4th, 2018, China announced a potential 25 percent increase in import tariffs on major U.S. origin agricultural commodities in retaliation to a series of tariffs proposed by the United States. United States upland cotton is one of the commodities affected by this proposed increase in import tariffs. The export market is an important source of demand for the U.S. cotton industry. The United States is the largest cotton exporting country with around 71.3% of cotton produced in the U.S. exported last year. China is the second largest trading partner with the U.S. for cotton in 2017 and buys 16.7% of the U.S. cotton exports. The total value of cotton exported to China was worth approximately $976 million last year, which is the second highest value among all the other row crops after soybean.

If Chinese tariffs are imposed on U.S. cotton, global cotton suppliers like India, Australia, and Brazil may experience a near-term opportunity to supply more cotton to China. In the short run, the market disruption could be a shock to the U.S. cotton futures market, particularly if hedge fund speculators sell off their long positions. However, the longer-term situation could see more U.S. exports rerouted to other cotton importing countries. This recent history of the change in China’s internal cotton policy suggests a similar reshuffling effect from a bilateral Chinese tariff on imported U.S. cotton. Chinese raw cotton import tariffs would continue to stimulate imports of duty-free yarn from Vietnam, Indonesia, and the Indian subcontinent.

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China’s Tariff Impact on Georgia Pecan Industry

By Dr. Esendugue Greg Fonsah

The U.S. and Chinese Trade War will have a negative impact on the Georgia pecan industry if not resolved.  The United States produces 80% of the world’s pecans and Georgia remains the number one producer of pecans with a record 50-70% exported to China for almost a decade (Hargreaves, 2013). The high demand for pecans has also triggered a market distortion from the traditional distribution channel (grower-processor-consumer) to direct marketing and sales.  An additional 15% tariff on nuts and fruits will create a major impact to the Georgia pecan industry as it will increase the cost of pecans, thus reducing the quantity exported to China. That would in turn increase domestic quantities since the bulk of Georgia pecans that were destined to China will be floating in the domestic market.  So far, China remains the main market for U.S. pecans although a small quantity goes to India, South Korea, Turkey and Vietnam (Andrew, 2017).   Although the U.S. might successfully look for alternative markets, it will be difficult for these new/emerging markets to absorb the large volume of stock created by the possible reduction in export to China.  With the large pecan production and acreage expansion currently going on, the domestic market might be flooded and eventually dampen prices.

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The Impacts of Chinese Tariff on Georgia Agriculture

By Yangxuan Liu, Esendugue Greg Fonsah, Levi Russell, Adam N. Rabinowitz, and Don Shurley

The uncertainty in trade policy between China and the U.S. creates concerns among the agricultural community. We recently released an extension publication, named The Impacts of China and United States Trade and Tariff Actions on Georgia Agriculture: the Perspectives of UGA Agricultural Economists. Georgia agriculture produces many of the items targeted by Chinese tariffs, including nuts, fruits, soybean, corn, wheat, sorghum, cotton, pork, beef, and tobacco. The Chinese retaliatory trade tariff on products of U.S. origin would have a negative impact on Georgia’s agriculture and economy. However, the magnitude of the impact of these new tariffs on Georgia’s agricultural industry is unclear.  In this extension publication, we discussed in detail about the Chinese tariff and its potential impact on pecan, cotton, soybean, corn, wheat, sorghum, and livestock industry.

Click here to download the full publication.

 

Tariff Retaliation Already Hitting the Pork and Dairy Industries

by Levi Russell

Recent tariffs imposed on steel and aluminum imports to the U.S. from Canada, Mexico, and the European Union (EU) have resulted in retaliation in the form of tariffs on a range of U.S. exports to those countries. Incomplete lists can be found here, but the biggest concerns in terms of agricultural trade are Mexican tariffs on pork and cheese.  Mexico is responsible for a significant portion of all U.S. exports of pork (32% in 2017) and cheese (up to 28% annually), but the full effect of these tariffs is currently unknown.

New Mexican tariffs on cheese include a 15% duty on fresh cheese and a 10% duty on shredded or powdered cheeses. These duties increase to 25% and 20%, respectively, after July 5th. The new tariffs on pork include a 20% tariff on all chilled or frozen pork as well as cooked ham and shoulder products and a 15% tariff on pork sausages. The U.S. is still allowed to export pork to Mexico duty free under their 350,000 metric ton quota. However, this limit is only 43% of U.S. pork export volume in 2017 and the U.S. must compete with other exporting countries for this quota. To put it simply, the 350,000 metric ton quota is “first come, first served.”

The higher tariffs will likely have a severe impact on the dairy industry. U.S. Dairy Export Council President and CEO Tom Vilsack has indicated that the tariffs will make it very difficult for the U.S. to compete with other countries for exports to Mexico, putting $391 million worth of exports at risk.

The tariffs on pork will likely be prohibitive, meaning that pork otherwise exported to Mexico will have to find a new home. Wherever that pork is exported, it will likely receive a somewhat lower price. Given the demand-driven markets for pork, chicken, and beef this year (due mostly to significant supply side growth the past few years) make this especially concerning.

The Impacts of China Trade Tariff on Georgia Livestock Industry

By Levi Russell

China implemented a 25 percent increase in import tariffs on United States pork and is expected to increase import tariffs on United States beef products by 25 percent. However, unlike many row crops and other agricultural products, China is not a primary destination for United States meat products. Beef exports to China only resumed recently and there is not yet a significant amount of beef being produced in the United States that is exported to China. In 2017, the United States was the second largest pork producer after China, and the largest pork exporting country (USDA FAS, 2018b). Twenty-two percent of pork produced in the United States enters the export market (USDA FAS, 2018b). From January 2013 to January 2018, the USDA ERS reports that mainland China made up 7.5% of total United States pork exports, coming behind Mexico (29.3%), Japan (25.1%), Canada (10.4%), and South Korea (8.1%). Pork production is mainly concentrated in the Midwest and North Carolina, and Georgia is not in the major pork producing regions. The impact of the tariffs on pork will be minimal on Georgia’s agricultural industry. However, the reductions in pork prices could hurt some of the pork producers in Georgia. For beef and pork (and other meats), the NAFTA trade discussions are a far bigger concern than Chinese tariffs.

Short-term market fluctuations this year in both cattle and hog markets will almost certainly depend much more on rising supplies, domestic consumption, and exports to other countries than on Chinese tariffs. A recent report by the USDA FAS indicates that the reductions in exports to China will mostly be offset by the increases in shipments to Japan, Mexico, and the Philippines. Exports of both pork and beef from the United States are expected to rise this year, in part due to relatively low United States prices (USDA FAS, 2018a).

In the long term, however, these increased tariffs on pork and beef products constitute a missed opportunity, as China is the number one pork-consuming nation in the world. New sources of demand for United States producers are hard to come by and higher tariffs on beef and pork will likely result in increased production in other countries to fulfill China’s growing demand. This will put the United States at a competitive disadvantage in the long term if the tariff increases are put in place on United States beef and pork products.

 

References

USDA FAS. (2018a). Livestock and poultry: world markets and trade. Washington, D.C. Retrieved from https://apps.fas.usda.gov/psdonline/circulars/livestock_poultry.pdf.

USDA FAS. (2018b). Production, Supply and Distribution Database.  Retrieved April 25, 2018 https://apps.fas.usda.gov/psdonline/app/index.html#/app/advQuery

The Impacts of China Trade Tariff on Georgia Row Crops

By Yangxuan LiuAdam N. Rabinowitz, and Don Shurley

China announced plans to implement a 25 percent increase in import tariffs on major agricultural commodities from the United States, which includes soybeans, corn and corn products, wheat, sorghum, cotton, and tobacco and tobacco products. The overall United States export value for these agricultural commodities to China are worth around 44.7 billion dollars (USDA FAS, 2018a).

United States agriculture relies on the export markets to absorb its excess supply in order to support domestic agricultural prices. The United States is the largest exporting country for corn, cotton, and sorghum, and the second largest exporting country for soybean and wheat (USDA FAS, 2018b). China is the largest trading partner for United States sorghum and soybean, and the second largest trading partner for cotton (USDA FAS, 2018a). In 2017, China bought 81.4% of the United States sorghum exports, 57.3% of the United States soybean exports, 16.7% of the United States cotton exports, 5.7% of the United States wheat export, and 1.6% of the United States corn export (Table 1).

The Chinese tariffs, if implemented, will increase the United States agricultural prices faced by the Chinese consumers relative to other countries. Thus, it will reduce demand for United States agricultural commodities by Chinese consumers. As a result, the United States needs to find alternative foreign markets to export its excess supply in order to sustain current prices. China is the largest importing country for sorghum and soybean (USDA FAS, 2018b). Developing alternative markets for these commodities might be difficult. Although much of the soybeans going to the European Union typically come from Brazil, the European Union (import 14.8% of soybean traded globally) can serve as an alternative market for United States soybeans. Globally, it is a very competitive supply market for soybeans. China could diversify its suppliers in the long run and purchase more soybeans from Brazil (export 39.8% of soybean traded globally) and Argentina (export 17.0% of soybean traded globally) (USDA FAS, 2018b). In the short run, there will not be enough capacity for these countries to increase their production acres. China will still need to buy American soybeans and sorghum to satisfy their domestic consumption.

China is the third largest importing country for cotton, importing 13.1% of cotton traded globally in 2017 (USDA FAS, 2018b). If the Chinese tariffs on U.S. cotton are put into effect, it might provide a near term opportunity for global cotton suppliers like India, Australia, and Brazil to supply more cotton to China. However, the longer term situation could involve more of a re-routing of U.S. exports to other cotton importing countries, like Vietnam, Bangladesh, Indonesia, Pakistan, and India, than a reduction in U.S. cotton production. Recent history of the change in China’s internal cotton policy has shown that the disruptions of Chinese raw cotton imports stimulates the importing of duty free yarn from countries like Vietnam, Indonesia, and the Indian subcontinent (J.R.C. Robinson, personal communication, April 2018; Shurley, 2018).

A study conducted at Purdue University found that the prices of United States soybeans would fall by 2 and 5% under the 10 and 30 percent tariff, respectively (Pack, 2018). Similar effects of price reduction are expected to the other agricultural commodities. The tariff impact on the sorghum price is expected to be larger than the impact on the soybean price, while the impact on the cotton price is expected to be smaller than the impact on the soybean price.

The potential 25 percent increment in tariff for corn, cotton, sorghum, soybeans, and wheat could have a negative impact to Georgia’s agricultural industry. Cotton is the largest crop produced in Georgia with more than 1.27 million acres harvested last year, and contributes $794 million to Georgia’s economy (Table 2). Georgia produced 10.6% (2.25 million bales) of the total United States cotton production in 2017, and is the second largest cotton producing state after Texas. It is also the second largest cotton export state after Texas. Last year, Georgia exported $441 million of cotton, of which $26 million of cotton was exported to China (USDA FAS, 2018a). The Chinese tariffs will have a direct impact on the cotton exported from Georgia because tariffs will impact the entire United States cotton market and the prices received by every United States cotton farmer. It will also have an indirect impact through the prices received by Georgia cotton farmers. Even though Georgia does not export corn, sorghum, soybean, and wheat directly to China, the lower price of these commodities due to Chinese tariffs would impact Georgia farmers.

 

References

Pack, D. (Producer). (2018). Study: U.S. soybean production, exports would fall if China imposes tariffs. Purdue University Agriculture News. Retrieved from https://www.purdue.edu/newsroom/releases/2018/Q1/study-u.s.-soybean-production,-exports-would-fall-if-china-imposes-tariffs.html

Shurley, D. (2018). Shurley on Cotton: More Tariff Talk.  Retrieved from http://www.cottongrower.com/market-analysis/shurley-on-cotton-more-tariff-talk/

USDA FAS. (2018a). Global Agricultural Trade System Online Dataset. Retrieved from: https://apps.fas.usda.gov/gats/default.aspx

USDA FAS. (2018b). Production, Supply and Distribution Database.  Retrieved April 25, 2018 https://apps.fas.usda.gov/psdonline/app/index.html#/app/advQuery

 

The Impacts of China Tariff on Georgia Fruits, Nuts, and Vegetables Industry

by Esendugue Greg Fonsah

In 2016, Georgia’s food and fiber production and related industries represented $73.3 billion in output and contributed to more than 383,600 jobs (Center for Agribusiness and Economic Development, 2017). Georgia agriculture produces many of the items targeted by Chinese tariffs including nuts, fruits, soybean, corn, wheat, sorghum, cotton, pork, beef, and tobacco. The Chinese retaliatory trade tariff on United States origin products would have a negative impact on Georgia’s agriculture and economy. However, the magnitude of the impact of these new tariffs on Georgia’s agricultural industry is unclear. Some industries, like the pecan industry, will be impacted more than others.

China implemented a fifteen percent increase in import tariffs on United States origin fruit and nuts. In the past few years, Georgia pecans, one of many nuts grown in the state, became a novelty for the Chinese market, especially due to the health benefits of the crop and the fact that prices for walnuts escalated exponentially in 2007 to an unbearable level.  Pecan exports to China increased by 64% in the same time period. The United States produces 80% of the world’s pecan and Georgia remains the number one producer of pecans with a record 50-70% exported to China for almost a decade. The high demand for pecans has also triggered a market distortion from the traditional distribution channel (grower-processor-consumer), to direct marketing and sales. Chinese buyers are willing to pay a proportion of pecan crops up front and pay the rest at or after delivery. This Chinese business model has provided a cushion and an additional safety buffer to United States pecan growers. An additional 15 percent tariff on nuts and fruits will be a major impact especially to the Georgia Pecan Industry and will definitely reduce the quantity exported to China. That would in turn increase domestic quantities. With the large pecan production and acreage expansion going on, the domestic market might be flooded and eventually dampen prices, if the 15 percent tariff on nuts and fruits is implemented and the trade dispute is not resolved. Note that although the overall U.S. agricultural trade have continuously enjoyed positive balances, the U.S. horticulture trade balances (fruits, vegetable and the green industry) have been negative for the past decade. In 2014, the U.S. imported $40.5 billion and exported $22.5 billion with a negative horticultural trade deficit of $18 billion (Fonsah, 2016; 2017).

On the brighter side, the trade disputes between the United States and China might help hasten the North American Free Trade Agreement (NAFTA) to come up with amicable solutions to the parties involved. Presently, the Georgia Fruits and Vegetable Industry (excluding Pecans) may not suffer any negative impact of the Chinese tariffs, because most of our fruits and vegetables are shipped domestically or between the NAFTA countries, such as Canada and Mexico.

 

References

Fonsah, E. G. (2017).  “Vegetable” In: 2017 Georgia Ag-Forecast. Farm to Port: Maximizing the global impact of Georgia agriculture, Department of Agriculture and Applied Economics, College of Agriculture and Environmental Sciences, University of Georgia, pg. 17.  www.GeorgiaAgForecast.com

Fonsah, E. G. (2016).  “Vegetable” In: 2016 Georgia Ag-Forecast. Farm to Port: Maximizing the global impact of Georgia agriculture, Department of Agriculture and Applied Economics, College of Agriculture and Environmental Sciences, University of Georgia, pg. 26-27.  www.GeorgiaAgForecast.com

Center for Agribusiness and Economic Development. (2017). 2018 Ag Snapshots. Athens, Georgia: University of Georgia.

What is going on between the United States and China Trade Tariff Negotiation?

By Yangxuan Liu, Adam N. Rabinowitz, Esendugue Greg Fonsah, and Levi Russell

This is a series of posts related to the ongoing trade negotiation between the United States and China and its impact on Georgia agriculture. This post briefly discusses what happened recently in trade policy between the United States and China.

On March 23, 2018, President Trump signed an order to impose non-country specific tariffs with 25 percent tariffs on steel and 10 percent tariffs on aluminum. By the end of March 2018, several countries, with the exception of China, have successfully been granted exemption from the tariff (Shurley, 2018). In response to the steel and aluminum tariffs imposed by the U.S., China suspended tariff reduction obligations on 128 products of United States origin on April 2, 2018, effective immediately. Eighty four products on the list were food and agricultural products (Inouye, 2018). Roughly $2 billion of United States food and agricultural exports to China will be impacted by theses tariffs (Inouye, 2018). There is an additional 25 percent tariff on pork and pork products, and an additional 15 percent tariff on fruit and nut products, wine, ginseng, denatured ethanol (Inouye, 2018). It is important to note that peanuts are not included in the nut products.

On April 3, 2018, the United States formally proposed $50 billion worth of 25 percent tariffs on 1,333 Chinese products. On April 4, 2018, China responded with a list of an additional 25 percent tariff on 106 United States origin products, which are worth $50 billion. Thirty-three products on this list are food and agricultural products, which are worth approximately $16.5 billion (USDA FAS, 2018). These products include soybean, corn and corn products, wheat, sorghum, cotton, beef and beef products, cranberries, orange juice, and tobacco and tobacco products (USDA FAS, 2018). The announcement made on April 4, 2018, by China did not  indicate a specific date of implementation (USDA FAS, 2018). It stated that the date of the Chinese tariff will be announced later, depending on when the United States tariff actions will take effect (USDA FAS, 2018). Meanwhile, the United States allows 60 days for public feedback on the proposed tariffs of 1,333 Chinese products. The fact that these trade tariffs are not carried out immediately indicates there may be room for negotiation.

Exports are an important component of United States agriculture. During fiscal year 2017, the United States exported a total of $140.5 billion worth of agricultural products resulting in a $21.3 billion trade surplus (USDA Press, 2017). Exports are responsible for 20 percent of United States farm income that supports more than one million American jobs; both on and off the farm (USDA Press, 2017). According to the United States Department of Agriculture (USDA) Economic Research Service (ERS) (Foreign Agricultural Trade of the United States (FATUS), 2017), China is the second largest agricultural trading partner with the United States. Last year, around $22 billion of United States agricultural products were exported to China, while the United States only imported $4.5 billion of  agricultural products from China. This resulted in a $17.5 billion United States agricultural trade surplus with China. Soybeans, coarse grains (excluding corn), hides and skins, pork, and cotton are the top five United States agricultural products exported to China (USDA FAS, 2017).

The recent trade tariffs implemented between the United States and China would have a defined impact on overall agricultural trade. According to economic trade theory, there would be no winners for either the United States or Chinese economies. In particular, where United States agriculture runs a significant surplus in trade, there are limited (if any) opportunities to increase the sale of exported goods within the domestic market. If the Chinese tariffs on the major agricultural products stay in place, then we anticipate fewer United States exports which will lead to higher ending stocks, especially for soybeans, pecans, and sorghum. Lower domestic prices for these products will be anticipated in the United States. The loss of a price advantage of United States agricultural products will make global suppliers like the European Union and South America more attractive to Chinese buyers. It also encourages these suppliers to add more acres to meet the demand of Chinese buyers, creating increased supply in the world market and a further reduction in the price that United States farmers can receive for their crop.

United States agriculture has been struggling in recent years due to low prices. According to the USDA ERS (2018), net farm income in 2018 is expected to fall to the lowest level in nominal terms since 2006. This leads to greater risk and vulnerability of the agriculture sector to further price reduction. The uncertainty in trade policy between China and the United States creates concerns among the agricultural community about lengthening the period of stagnant farm incomes.

Meanwhile, President Trump has instructed Secretary of Agriculture Sonny Perdue to implement a plan and assistance to protect United States farmers and ranchers. The United States Department of Agriculture is working on emergency aid programs under the Commodity Credit Corporation to help compensate farmers and ranchers for expected losses due to new Chinese tariffs. In order for the USDA to make payments to farmers, the actual losses need to be evaluated to calculate the amount of assistance. There is still much more information and analysis that is necessary before we can begin to understand what a compensatory program may look like.

References

Foreign Agricultural Trade of the United States (FATUS). (2017). Top 15 U.S. agricultural export destinations, by fiscal year, U.S. value. Retrieved from: https://www.ers.usda.gov/data-products/foreign-agricultural-trade-of-the-united-states-fatus/fiscal-year/

Inouye, A. (2018). China imposes additional tariffs on selected U.S.-origin products. Beijing, China Retrieved from https://gain.fas.usda.gov/Recent%20GAIN%20Publications/China%20Imposes%20Additional%20Tariffs%20on%20Selected%20U.S.-Origin%20Products_Beijing_China%20-%20Peoples%20Republic%20of_4-2-2018.pdf.

Shurley, D. (2018). Shurley on Cotton: More Tariff Talk.  Retrieved from http://www.cottongrower.com/market-analysis/shurley-on-cotton-more-tariff-talk/

USDA ERS. (2018). Highlights from the February 2018 farm income forecast. Washington, D.C. Retrieved from https://www.ers.usda.gov/topics/farm-economy/farm-sector-income-finances/highlights-from-the-farm-income-forecast/.

USDA FAS. (2017). Infographic: U.S. Agricultural Exports to China, 2016. In. Washington, D.C.

USDA FAS. (2018). China responds to U.S. section 301 trade action announcement. Beijing, China Retrieved from https://gain.fas.usda.gov/Recent%20GAIN%20Publications/China%20Responds%20to%20U.S.%20Section%20301%20Trade%20Action%20Announcement_Beijing_China%20-%20Peoples%20Republic%20of_4-4-2018.pdf.

USDA Press. (2017). U.S. farm exports hit third-highest level on record [Press release]. Retrieved from https://www.fas.usda.gov/newsroom/us-farm-exports-hit-third-highest-level-record

Beef Exports to China – Webinar

Many folks in Georgia are interested in hearing about the possibility of exporting beef to China. Now that the first shipment has been made, I feel more comfortable discussing the economic impacts of this new market. The webinar, linked below, gives the details on the restrictions the Chinese government has put on the beef that they will import. As the video indicates, the restrictions are severe enough that the Chinese market will not be a major component of our exports. However, time will tell if those restrictions change or if production practices in the U.S. adapt to serve this market.

Webinar Link