NAFTA AND AMERICAN AGRICULTURE – PART I

NAFTA AND U.S. WHEAT FARMERS

“This last year [2016], Mexico was actually our number one export market. … So we feel connected to NAFTA and very protective of it.”

Molly O’Connor
May 25, 2017

CONTEXT

Molly O’Connor is a Government Relations Advisor at OFW Law and a spokesperson for the National Wheat Growers Association. Last Thursday she was one of several speakers at GBD’s two-panel event, “NAFTA, FROM CARS TO CARROTS,” which looked at the role of NAFTA in U.S. automobile and agricultural production.
There was a faint echo in her remarks of a line in Macbeth, namely, the mention of “a farmer that hanged himself on the expectation of plenty.”  While the situation she described was not so dire, the basic irony was there – a strong harvest leading to low prices. And for producers who export roughly half of their production, as America’s wheat farmers do, that irony only underscores the importance of strong export markets, starting with Mexico.

Ms. O’Connor talked about the product. “We have six different classes of wheat here in the U.S.,” she said, “and those different classes all have different purposes.” Three of those classes of wheat are Hard Red Winter, Durum, and Soft White. The Soft White is good for cake flour, and they grow a lot of it in the beautiful (and heavily export dependent) region of Eastern Washington, Idaho, and Oregon known as the Palouse.

American wheat, Ms. O’Connor said, is grown in the Pacific Northwest, in the states that border Canada, in the Eastern states, and on the Great Plains. And NAFTA has clearly changed things. “NAFTA has been a great benefit these past few years,” Ms. O’Connor said, “… the U.S. wheat that has been imported into Mexico has increased 40 percent, which is significant.”

That does not mean that U.S. wheat producers will have nothing to say when it comes to renegotiating NAFTA. There may be merit, she suggested, in including in an up-graded NAFTA some of the sanitary and phytosanitary provisions of TPP. And there are other outstanding issues as well. Ms. O’Connor mentioned, for example, a “grain grading issue with Canada.” She added quickly, however, that America’s wheat growers very much hope that issue can be dealt with separately from the NAFTA renegotiation.

COMMENT

The event at which Ms. O’Connor spoke took place on Thursday, May 25. Two days earlier on Tuesday, May 23, the House Committee on Ways and Means held a hearing centered on trade and the Committee’s proposal for an overhaul of the U.S. tax system. Key to that proposal are lower rates, a move toward a territorial system, and a border adjustable tax. Almost certainly, we will return to that hearing later with a focus specifically on the proposal for a border adjustable tax. Here we simply want to share some comments made about American agriculture.

One of the witnesses was Juan Luciano, the Chairman, President, and CEO of Archer Daniels Midland Company. Your editor’s essential (that is to say emotional) understanding of American agriculture was formed in the 1960s, 70s, and 80s, which, among other things, included headline sales of enormous quantities of grain to the Soviet Union. So for us, listening to Mr. Luciano was a rude, Rip van Winkle awakening. Here is some of what he said.

JUAN LUCIANO
The U.S. share of global exports has fallen precipitously in major commodities over the past five decades….

We have lost market share. We used to be the breadbasket of the world. We have lost in wheat to Russia. We have lost it in soybeans to Brazil. We are hanging on to corn but not for long. What happened in this period is that acreage in the United States has been reduced 12 percent over the last 20 years, while in Russia production in corn has improved 61 percent. The planted area of soybeans has increased by three times.

America’s advantages in terms of such things as weather and the fertility of the soil are not unique, Mr. Luciano said. What he asked the Members of the Ways and Means Committee to focus on was this: the countries that have those kinds of advantages have put in place “policies [including border adjustable taxes] that actually are helping [their] farmers to take market share from the U.S.”

And it gets worse. As Ms. O’Connor pointed out, “Since 2010, Mexico has lifted tariffs [on wheat imports] from non-NAFTA countries, with the result that an increasing proportion of Mexico’s wheat imports are from outside North America.”

Against that background – and the fear that things could get even worse if the NAFTA renegotiation turns sour – Ms. O’Connor ended her presentation with a plea: “From [North American Wheat Growers] standpoint, our biggest priority is, ‘Do no harm.’”

SOURCES AND LINKS

NAFTA and U.S. Agriculture from GBD is a link to the YouTube video of this panel presentation. Ms. O’Connor’s remarks start at roughly the 23:50 minute mark.

Classes of Wheat takes you to a page on the website of U.S. Wheat Associates that includes the six main classes of wheat, where they are produced, and the products in which they are used.

At Ways and Means is the C-Span video of the May 23 Ways and Means hearing U.S. taxes and competitiveness. The comments from Mr. Luciano above can be found, roughly, at the 1:07:25 mark.