Trade disputes bring uncertainty for farm exports


Issue Date: June 13, 2018
By Ching Lee
Large export containers of California rice are loaded onto a freighter at the Port of Sacramento. The European Union plans new tariffs on rice, part of an ongoing trade dispute with the U.S.
Photo/Port of Sacramento

Ongoing trade tensions between the United States and some of its top trading partners, resulting in U.S. tariffs and subsequent countermeasures, have led to market confusion and uncertainty for California agricultural exporters.

In April, China responded to U.S. tariffs on steel and aluminum imports by placing new tariffs on U.S. goods, including fruit, nuts and wine. Earlier this month, the European Union, Canada and Mexico—initially exempt from the U.S. tariffs—followed suit by announcing plans to enact their own tariffs on a wide range of U.S. exports, including some agricultural products.

More than $3 billion worth of U.S. goods face new EU tariffs starting July 1. Among the farm products on the list are rice, corn, dried kidney beans, cranberries, orange juice, peanut butter, bourbon whiskey and tobacco products, all of which face 25 percent tariffs.

The EU is the largest export market for California farm products. Rice shipments there totaled $35 million in 2016, or about 5 percent of the state's total rice exports. California also shipped $7.9 million in dry beans, though it's unclear how much, if any, were kidney beans.

Mexico's tariff list, released last week, includes farm products such as cheese, pork, apples, potato products, cranberries and orange juice, with duties ranging from 15 to 25 percent. Mexico initially said grapes and blueberries would also be subject to tariffs, but those products are not on the current list.

Dairy products represent California's No. 1 agricultural export to Mexico, valued at $421 million in 2016 , according to the California Department of Food and Agriculture. Of the U.S. cheese shipped to Mexico in 2016, about one-third came from the Golden State, according to the California Milk Advisory Board. None of the other products on the Mexican tariff list appears among the top 32 California farm exports to Mexico, with the exception of potatoes, valued at $5.7 million in 2016.

Marco Albarran Arozarena, the CEO of Imalinx, which promotes California milk and dairy products in Mexico for the advisory board, said a partial tariff of 10 percent for U.S. cheese entering Mexico took effect the day the tariff list was announced. The full tariff of 20 or 25 percent—depending on the type of cheese—will be applied starting July 5. Prior to last week, U.S. dairy products entered duty-free, as part of the North American Free Trade Agreement.

Albarran Arozarena said he expects buyers will stock up on U.S. cheese before the full tariff takes effect.

"It'll be 10 percent more expensive, but switching the supply chain and running out of stock would affect them more," he said.

At the same time, Mexican importers will be looking for alternative suppliers, mainly domestic, though Albarran Arozarena said it would be difficult for Mexico to immediately produce enough product to make up the shortfall. Imposition of the full tariff would reduce Mexico's inventory, driving up prices for its consumers, and that might affect sales, he said.

"I think we're going to lose some buyers," Albarran Arozarena said. "We'll have to go back and recover them, and it may take us longer to do so."

David Ahlem, CEO and president of Hilmar Cheese Co., which exports cheese and other dairy products to Mexico, said his company is monitoring trade negotiations.

"We would like to see the successful negotiation of a modernized NAFTA that would preclude the need for tariffs on Mexico and Canada," he said.

Canada's new tariffs, due to take effect July 1, would include 10 percent duties on farm products including yogurt, ketchup and other tomato sauces, prepared bovine meat and meals, cucumbers, strawberry jam, nut purees and pastes, berry and other fruit purees, orange juice and maple syrup.

Processed tomatoes represent the state's No. 2 farm export to Canada, worth $295 million in 2016. Trudi Hughes, government affairs director for the California League of Food Processors, said she doesn't know how much of those tomato exports leave in the form of ketchup and sauces, but noted the ongoing trade dispute has created "quite a lot of havoc" for the state's food manufacturers. In addition to the retaliatory tariffs, which would make their products more expensive, the U.S. metal tariffs have added cost on the cans used in food manufacturing.

"We only make half of the tinplate steel that we need to make our cans in the United States, so we rely on Canada, Korea and Europe to supply the rest," she said. "Obviously, that's a problem now."

Meanwhile, exporters affected by the Chinese tariffs, which have been in effect for more than two months, said importers remain hesitant to do business.

At the Blue Diamond Growers almond cooperative, Warren Cohen, vice president of sales for the global ingredients division, said buyers aren't ready to make purchasing decisions and are waiting for "visible, concrete agreements" before entering into contracts.

"Reports the tariffs may be lifted as China commits to increasing imports of U.S. ag products are also delaying buyers' purchasing decisions," he said.

China is the state's No. 2 export market for almonds, and Cohen said the country shows potential growth exceeding 10 percent annually.

"If the new tariffs remain in place, we will no longer see an increase in shipments to China and more almonds will need to be exported to other markets," he said.

Jim Zion, managing partner of Meridian Growers in Fresno County, which ships pistachios, almonds, walnuts and pecans, said Chinese importers are "being extremely cautious and not buying much, because they're not sure if this is going to be long term or if we're going to get a resolution on this trade dispute and get back to normal business."

Zion said he hopes U.S. trade conflicts with China will clear up soon, but worries about what the mid- and long-term effect may be if current tariffs stay in place through harvest. Though he's talking to buyers in other markets, he said there's concern the trade disputes will widen.

As someone who's trying to develop new markets in China, Joe Lange, manager of export sales for LangeTwins Family Winery and Vineyards in San Joaquin County, called the U.S.-China trade friction "bad timing" for his business. He recently returned from a wine expo in Hong Kong, where he said buyers were taking a wait-and-see approach or asked for discounts because of the tariffs.

"We were hopeful we were going to come away with new relationships in China, but things are a little bit challenging at the moment," he said. "I don't think it's absolutely stopping all relationships, but it represents a hurdle in front of new business that we have identified as a great market."

(Ching Lee is an assistant editor of Ag Alert. She may be contacted at clee@cfbf.com.)

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