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Trade deal will deliver modest market gains for region’s farmers

by Carolyn Orr ~ December 2018 ~ Stateline Midwest »
During the first 23 years of the North American Free Trade Agreement, U.S. agricultural exports to the country’s northern and southern neighbors nearly tripled, reaching $39.2 billion by 2017. Not only did the overall numbers increase over this time, notes an October study commissioned by the Farm Foundation, but the Canadian and Mexican markets became bigger shares of U.S. agriculture business — nearly 30 percent of exports in 2017 vs. only 14 percent in 1995 (see chart).
And while such exponential growth is not expected under NAFTA’s replacement — the United States-Mexico-Canada Agreement, or USMCA — the deal appears to be a good one for the Midwest’s farmers, says Wally Tyner, a professor of agricultural economics at Purdue University.
“[It] will lead to an expansion of U.S. agricultural exports to Canada by $450 million [a year], mostly in the dairy and poultry sectors,” says Tyner, a co-author of the Farm Foundation study.
Under NAFTA, these two sectors have been an exception to the opening of agricultural trade between the United States and Canada. For example, after a fixed amount of U.S. tariff-free exports of dairy and poultry was reached, Canada has been imposing a tariff of more than 200 percent on milk, cheese, cream and butter.
Under the USMCA, Tyner says, these quotas on U.S. exports are being relaxed. Canada also agreed to raise the domestic price of ultra-filtered milk (a high protein milk concentrate used to make cheese and yogurt), thus giving U.S.-made products a better chance of competing. For poultry trade, about 21 million dozen eggs already are exported to Canada; the new trade agreement allows an increase of 10 million dozen more eggs.
Canadians, meanwhile, won key concessions that expand their peanut and sugar producers’ access to U.S. markets.
For a time, it appeared that the United States might withdraw from NAFTA, without a replacement. Such a move would have resulted in a net decline of U.S. agricultural exports of more than $9 billion, according to a 2017 study done by the C.D. Howe Institute.
The new agreement, if approved by all three countries, should bring a “sigh of relief to U.S. farmers,” Tyner and his co-authors write in their October study. However, they warn that the modest gains for agriculture under the USMCA could be more than offset by the effects of a broader, “volatile trade policy environment.” Canada and Mexico have implemented tariffs against a wide swath of agriculture goods in retaliation for new U.S.-imposed tariffs on steel and aluminum.

 

Article written by Carolyn Orr, CSG Midwest staff liaison to the Midwestern Legislative Conference Agriculture & Natural Resources Committee.