Pacific trade deal looks to be dead in Congress’s lame duck session

Jan Shepel

Washington, D.C. — If the presidential election had gone the other way, there were signs that the Obama Administration may have taken a run at passage of the Trans-Pacific Partnership (TPP) trade deal. Many farm groups had encouraged passage of the deal in the lame-duck session of Congress. The deal had been a political football in the presidential campaign on both sides of the aisle, starting with the primaries.

Trans-Pacific Partnership

As late as Thursday after the election, some ag groups were still pushing for passage of the TPP in the next two months, before Trump takes office. Gina Tumbarello, director of International Policy and Trade for the American Feed Industry Association, said that even as the dust settles from Tuesday’s election, “it is important to not turn a blind eye to pending agricultural issues, specifically those affected by the Trans-Pacific Partnership.

“AFIA encourages Congress to work together in the lame-duck session to pass this agreement, which is vital to expanding economic opportunities for numerous U.S. industries.

Tumbarello said that the future growth of the feed industry -- both direct feed and ingredient exports and the increased overseas sale of U.S. livestock, poultry and dairy products – “greatly depends on international trade. Free trade agreements like TPP can reduce barriers to trade, thereby opening international markets and allowing for a level playing field, and expand U.S. job opportunities here at home.”

She said the deal could make a difference for the U.S. feed industry and agriculture as a whole, and for U.S. businesses across the board. “AFIA cannot urge Congress and the Obama administration enough; finalize TPP to ensure that the United States is leading the global trade agenda, can compete internationally and does not continue to lose market share to competition."

But with the election of Donald Trump last week, and after Obama officials took the temperature of Congress, the administration signaled its surrender on the trade deal, saying that they would not try to get it passed in the waning months of this session of Congress, but would leave disposition of the trade deal to the Trump Administration.

Also going down with the Obama Administration is the Transatlantic Trade and Investment Partnership (TTIP.) Trump has voiced his displeasure with most trade deals and during his campaign even called for re-negotiating the North American Free Trade Agreement (NAFTA.)

The surrender on trade comes in marked contrast to what the White House and several agencies were saying a few weeks ago when the U.S. Department of Agriculture (USDA) released a new report touting the benefits that the TPP would provide for American dairy farmers. The report, issued by the USDA’s Office of the Chief Economist, stated that continued growth in the U.S. dairy sector is largely contingent on foreign trade; in their analysis, ratification of TPP would increase American dairy exports by $150- $275 million per year – as it opens new markets for U.S. dairy farmers across the Asia-Pacific region and allows the U.S. industry to compete with dairy export powerhouse New Zealand.

Three different projections for how the TPP would affect U.S. dairy exports varied widely. That USDA’s OCE estimate was an increase in dairy exports of butter, cheese, whey and powder valued at from $150-275 million. The American Farm Bureau Federation’s prediction for increased exports was more modest at an increase of $131 million per year.

The U.S. International Trade Commission had a much higher estimate of $1.6 billion per year, but it covered all dairy products.

The official report followed up an appearance at World Dairy Expo in Madison in early October by Sharon Sydow, senior economist with the OCE at the USDA, who rolled out some of the rosy predictions for dairy trade that were later included in the report. Facts like the following were pointed out.

The United States is now the third largest exporter of dairy products in the world and trade experts inside the government and among dairy groups have said that having access to more market opportunities would mean more exports. Disastrous milk prices being seen by dairy farmers today would be even worse, they say, if we didn’t have international markets for our products.

“The Trans-Pacific Partnership (TPP) would open a valve that will let milk flow more freely to new markets in the Asia Pacific,” said USTR Michael Froman, in commenting on the report (prior to the election.) “The International Trade Commission (ITC) found that the dairy industry would see net exports to TPP partners – subtracting any increase in imports from New Zealand, Australia and Canada – grow by $1.6 billion.”

The report from USDA’s economists notes that the U.S. dairy industry has experienced export growth of 430 percent over the last 15 years; from less than $1 billion in exports in 2000 to $5.3 billion in 2015. They had maintained that the (now all-but-dead) TPP would have increased that margin even further.

According to the report, the share of U.S. milk production that is exported has tripled since 2000 to around 14-15 percent of today’s total production. Economists who wrote the report stated that the U.S. market is “mature” and per-capita consumption is not expected to expand significantly, while overseas markets are increasingly important for U.S. dairy products.

The USDA report appeared to be an opening salvo in a fight to ratify the trade agreement in the lame-duck session after the election. U.S. Agriculture Secretary Tom Vilsack stated as much in the release of the report. It now is clear that isn’t going to happen.

According to the USDA’s economists and dairy industry experts, the average American dairy farmer’s annual income has increased by $7,560 since 2000 because of expanded exports with existing Free Trade Agreement (FTA) partners. The average milk price was $0.34 per cwt higher, they said, as a result of trade with FTA partners.

“By ratifying TPP, which will break down trade barriers in 11 markets across the Asia-Pacific, American farmers will be able to sell more dairy products abroad, rather than letting them go to waste,” read a statement that accompanied the USDA report.

It also noted that even with existing free-trade agreements and burgeoning trade, the U.S. dairy industry still needs to expand export markets to sell more products. The report noted that 43 million gallons of milk produced this year in the United States was unsold on the market and went to waste. It was mostly dumped into slurry pits and disposed of in other ways in regions of high production/low utilization – Michigan and the Northeastern United States.

The USDA economists noted that increased milk supplies and inventories have caused dairy revenues to drop by about 35 percent over the last two years. Their implication was that more trade with Pacific Rim partners would take care of that – increasing exports and helping to raise dairy incomes nationwide.

In her presentation in Madison during World Dairy Expo, USDA economist Sydow noted that U.S. milk production is estimated to increase from 2015 and record production is projected into 2017. Her office projects that dairy exports are projected to rebound while dairy imports into the United States have started to decrease slightly.

With increasingly larger dairy herds and the lower costs of production that go with them, and a well-developed processing sector known for product innovation, the U.S. dairy industry is “increasingly export-oriented and well positioned to respond to increased overseas demand and new market openings” created by Free Trade Agreements (FTAs), Sydow said. Her comments came during a global dairy symposium organized by the state Department of Agriculture, Trade and Consumer Protection.

Sydow noted that increasing cow productivity in the United States is outpacing the U.S. population, meaning that even if cow numbers drop, there’s not enough market for U.S. milk in the domestic market. “One in seven loads of (U.S.) milk ends up in a dairy product that is sold overseas,” she added. “The United States is a mature market; we want to make sure there are places to sell it.”

Back in 2007 and 2008, the U.S. dairy market’s exports began to exceed imports and then dropped down again during the global economic crisis of 2009. But after recovering from that trough, dairy exports have soared above imports, according to figures from Sydow’s office. In 2014, exports were valued at $7.1 billion and imports were valued at $3.4 billion.

According to the U.S. International Trade Commission, U.S. dairy exports are projected to be $1.6 billion higher per year by 2032 if and when TPP is ratified.

Sydow said that trade liberalization matters because the growth of dairy exports to FTA partners has exceeded that for U.S. dairy exports to all markets. According to figures from the National Milk Producers Federation and the U.S. Dairy Export Council, this increased trade from FTAs helped to bring an additional $8.3 billion to the U.S. dairy industry over 10 years.

“Many U.S. FTA partners are developing countries where demand growth is expected to be the strongest,” Sydow said. That demand is expected to grow as incomes rise in those nations.

Some ag trade experts have commented that U.S. farmers are losing market share to competitors in the Asia-Pacific region because other countries are negotiating unilateral trade agreements, with U.S. interests left out of those markets.

Sydow pointed out that most of the FTAs that the United States has in effect are with nations in the Western Hemisphere – NAFTA, the Central American Free Trade Agreement, Colombia, Peru, Panama and Chile. We have only three in the Asian-Pacific regions: Australia, South Korea and Singapore.

Other dairy exporting regions, including Europe have been “very active” in this region, she said. “It’s not only about tariff preferences, it’s about how they write the rules on things like sanitary measures and geographic indicators.”

The TPP agreement covers 12 countries and many of them are new FTA partners, she said, including Japan, Malaysia, Vietnam, Brunei and New Zealand. Sydow said the agreement grants new and enhanced access into these new markets as well as providing new access into Canada, which is and existing FTA partner.

The United States concluded TPP negotiations in October 2015 and signed the agreement in February 2016. All that is left to make it a reality is ratification by Congress. But it looks like that will have to wait.