Kent Lorens, a wheat, corn and cow-calf operator from Stratton, Neb., farms in a semi-arid environment, with 18-20 inches of moisture per year. The most viable crop to raise is wheat, and even wheat ground has to be fallowed to reserve moisture for the next crop.
But when it comes to a market for his wheat, the rest of the world is moving forward and could leave U.S. wheat producers at a severe competitive disadvantage. For Lorens, it could mean the end of his days as a wheat farmer.
On Thursday the 11 countries remaining in the TPP, from which the United States withdrew in early 2017, signed the agreement. Now known as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, it still must be ratified by each of the signatory nations. But once in effect, it will have a devastating impact on the United States ability to remain competitive.
“I know steel tariffs are ruling the news cycle right now, but for wheat farmers, the new TPP, is a real and present danger,” said Steve Mercer, vice president of communications at the U.S. Wheat Associates.
U.S. wheat farmers export 50% of their production each year, and on average slightly more than 10% of total annual U.S. wheat exports go to Japan. On average Japan imports more than 3 million metric tons (MMT), or nearly 114 million bushels of U.S. wheat each year. Once the Trans-Pacific Partnership (TPP) is ratified and in force without the United States, it would steadily discount the effective tariff paid for imported Australian and Canadian milling wheat from about $150 to about $85 per metric ton; but the U.S. import tariff would remain at about $150 per MT. Sources in the Japanese milling industry estimate this disadvantage would eventually force them to cut average total use of U.S. soft white, hard red spring and hard red winter wheat to less than 1.4 MMT per year.
Lorens detailed how if Japan cuts its purchases of U.S. wheat as expected, it could bring a 50 cent/bushel reduction in his farmgate price. “Losing that revenue would be a substantial hit,” he said.
Jobs would be at risk in every business across the supply chain, from country elevators to railroads, barge companies and export elevators, he noted. Once lost to competitors, the work and expense to rebuild that business will be massive.
After only a few years, farmers and the U.S. grain trade will essentially be writing a check for almost $500 million every year to Australian and Canadian farmers — at the average export price Japan has paid the past five years.
For Lorens, there’s a lot of unknowns right now. “There’s definitely a lot of anxiety out there.”
The wheat grower groups have been one of the most vocal in seeking TPP approval, effective NAFTA modernization and the need to maintain strong trading relationships. This week the U.S. Wheat Associates along with the National Association of Wheat Growers (NAWG) and 33 state wheat organizations expressed hope in a letter to U.S. Trade Representative (USTR) Robert Lighthizer that the Administration will immediately prioritize accession to TPP to save the valuable Japanese market for U.S. wheat farmers.
“Unfortunately, the agreement among the TPP members will have a devastating impact in rural communities across the wheat belts of the Great Plains and the Northwest, though it will hurt the income of every American farmer growing wheat,” the letter states. “The President has promised to negotiate great new deals. American agriculture now counts on that promise and American wheat farmers – facing a calamity they would be hard pressed to overcome – now depend on it.”
TPP will give the group trade policy preferences and access to trading rules from which U.S. suppliers will not be able to benefit. While the direct tariff hit for U.S. grains and related products is not as severe as for some other sectors in agriculture, like wheat, the reputational damage has been noticeable, particularly in Southeast Asia, and not being part of the agreement means the United States is not part of the platform for the most modern trade rules, including on issues like biotechnology and sanitary and phytosanitary issues, according to the U.S. Grains Council.
TPP also sets many other commodities at a disadvantage. Canada's beef exporters will have expanded access to Japan. Australia and New Zealand are also set for a major win with more access to sell Mexico wine, dairy, beef and wheat.
The wheat organizations said they welcomed the President’s recent openness to joining TPP if better terms for the United States can be negotiated. They also suggested that Ambassador Lighthizer could include acceding to the TPP as an objective in the Administration’s report to Congress that will outline its request to extend Trade Promotion Authority.
Lorens said there is a little bit of optimism out there with recent comments by the President that he might reconsider joining the TPP. “If we don’t enter TPP, definitely for the agriculture sector and wheat growers, it could be a real downsize on our economy.”
For Lorens it is all about whether you’re staying in or going out of business.
“I haven’t had financial institution saying no to me, but it sure doesn’t make you feel good when you’re going backwards on the cash flow,” he said. “It makes you wonder how long you can last.”