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Progress on Trade, Maybe Ethanol, But Not Farm Bill

NAFTA, the North American Free Trade Agreement, is no more. Renaming the trade agreement between the U.S. and its North American trading partners announced Monday the United States-Mexico-Canada Agreement (USMCA), was a smart political move by President Trump, according to U.S. Republican Senator from Iowa Charles Grassley. Grassley made his remarks to reporters during his weekly Capitol Hill Report on Monday.

“He can say he made good on a campaign promise to eliminate NAFTA,” says Grassley, who praised the agreement as good for farmers.

About 70% of the former agreement is still in place. That’s especially good for livestock producers, according to the North American Meat Institute (NAMI).

“Under NAFTA, U.S. meat and poultry exports to Mexico and Canada have thrived as import duties were removed and non-scientific barriers to trade have been significantly reduced,” says NAMI president and CEO Julie Anna Potts. “The North American market for the meat and poultry industry is nearly completely integrated and is essential to its long-term viability.”

According to NAMI figures, since NAFTA was enacted in 1994, beef exports from the U.S. to Canada and Mexico have grown from $656 million to $1.7 billion, now accounting for 30% of all U.S. beef exports. Likewise, pork export values, now 40% of U.S. pork exports, increased from $322 million to $2.3 billion.

The grains sector issued similar accolades. “No trade agreement has had more impact on our sector than NAFTA, which prompted explosive growth in our export sales to both countries as well as the development of a fully-integrated grains and livestock supply chain within North America,” says Jim Stitzlein, chairman of the U.S. Grains Council. “Over the past two decades, this agreement has proven beneficial for the producers, agricultural sectors, and economies of all three countries.”

Canada and Mexico are the two largest customers for U.S. farm exports, providing more than 20¢ for each dollar in farm income.

The new agreement allows for continuation of duty-free entry of ag goods into Canada and Mexico, and offers greater access to Canada for the dairy industry.

“Canada has said all along they would never give on their dairy supply management program,” says Grassley. “This will be a big boost to the U.S. dairy industry.”

Canada is keeping most of its complex system in place, but it is giving greater market share to U.S. dairy farmers. USMCA would grant an expanded 3.6% market access to the domestic dairy market and eliminate competitive dairy classes, a move already unpopular with the Canadian dairy industry.

Changes in dairy access may need approval from Canadian provinces, which by law have a say in agricultural issues, and the entire deal must be approved by the U.S. Congress, as well as Canada’s and Mexico’s legislative bodies.

Mexico signed on to the agreement last month, with Canada agreeing to U.S. terms just last week. In addition to the ag implications, the new agreement promises benefits for the manufacturing sector, particularly auto manufacturing.

The Big Picture

Grassley sited the USMCA as one of a string of trade moves by the Trump administration that benefits agriculture.

On September 24, the U.S. and South Korea signed a revised KORUS trade deal, and this summer significant progress was made on rewriting trade policy between the U.S. and the European Commission.

And a bilateral agreement with Japan is in the works.

All that, according to Grassley, means farmers may see light at the end of the trade war tariff tunnel. “China is about to find North America, Japan, and Europe lined up against them,” says Grassley. “That will help force the Chinese government out of subsidizing exports and stealing trade secrets, and will increase U.S. trade opportunities.”

Ethanol Expansion

In further good news for U.S. farmers, particularly those from Iowa and neighboring Midwest states, President Trump intends to make a “major” E15 announcement at an October 9 campaign stop in Iowa.

He is expected to support allowing year-round use of E15 gasoline and decrease the use of undue hardship waivers to oil refiners. The latter is an issue on which Grassley has been quite vocal in past months.

Experts estimate year-round use of E15 gasoline could increase demand for domestic ethanol by 1.3 billion gallons over the next five years, compared to projected demand losses of 4.6 billion gallons over the next six years if EPA continues handing out hardship waivers to oil refiners.

“This will be a long process to fully accomplish,” says Grassley. “Assuming the changes are not challenged in court, we could have something by early next year. Iowa has 45 ethanol plants, and according to what industry folks are telling me, this is the one thing that will save the industry.”

Farm Bill Update

Grassley says Congress will not likely take any action now until after the November election on a 2018 Farm Bill. Programs, including crop insurance, affecting this year’s crop are still in effect as per the 2014 bill. Even though the bill officially lapsed at the end of September due to Congressional inaction, the 2018 crop is covered.

Grassley questions whether new CRP contracts can be made until Congress passes either a new farm bill or an extension of the old one.

Disagreement between the House and Senate is blamed for failure to come to terms, especially over the issue of work requirements for food stamp benefits.

“The best thing for Congress to do is to pass a new farm bill so farmers can have some certainty,” says Grassley.

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