We’re now just weeks away from the signing of the Trans-Pacific Partnership, from which President Trump pulled America out in 2017. The pressure is coming from out west to avoid a serious fallout due to this decision. Here’s what I mean…
Canada, Mexico, Chile, Japan, and seven other nations will finalize their membership.
Each year, the Pacific Northwest region of the U.S. shipped about 800 MT of soft white wheat to Japan, their top customer by far. The U.S. also ships a lot of hard red winter and hard red spring wheat to Japan and other customers.
But the decision to exit the TPP will leave the U.S. with a steep competitive curve to face. Canada will not be able to ship wheat to Japan and avoid the $65 per tonne tariff into Japan. The U.S. still faces these costs, and will so in other countries as well.
The Washington Grain Commission is already preparing for the worst. They anticipate that the U.S. will see a downturn in demand, and thus a downturn in local prices. They argue that the industry will lose about $500 million a year to competitors as a result of the U.S. decision to back out of TPP.
They project that this would whipsaw down the supply chain. They project a loss of up to 62.5 million bushels in wheat exports, 19,000 fewer rail cars, and about 70 fewer bulk vessels each year.
These numbers are eye-popping, but it speaks to the worst-case scenario of what would happen if the TPP leads to a dramatic and immediate downturn in U.S. exports. Japan has been hesitant about engaging in bilateral talks with the U.S. after the departure from TPP.
These results will not be immediate. There will be a phase-in period, but it’s uncertain how quickly Japan will aim to establish trade relationships with its new partners.
We certainly will be looking to make another deal shortly, perhaps when we start to get clues into the quality of the U.S. crop when the wheat begins to emerge from the ground.
Wheat industry seeks to re-enter TPP
If the United States doesn’t re-enter the Trans-Pacific Partnership, Northwest wheat exports to Japan could drop by half within a few years, says the leader of the Washington Grain Commission.
The Pacific Northwest currently exports roughly 800,000 metric tons of Western white wheat, a popular blend of soft white wheat and subclass club wheat, to Japan each year, commission CEO Glen Squires said.
Hard red winter and hard red spring wheat exports would also be impacted, affecting Montana and North Dakota, and other states exporting off the West Coast, Squires said.
Japan wants the U.S. in TPP, and is not interested in bilateral agreements, Squires said.
Wheat industry representatives met in Washington D.C. last week. Many legislators are aware of the concerns about the Trans-Pacific Partnership proceeding without the United States, Squires said. It will essentially amount to a tariff on U.S. wheat, putting the country at a price disadvantage in key markets compared to competing wheat-producing countries that remain in the trade pact.
Changes under TPP will occur over nine years, but Squires said the impact on shipments could be much faster.
“This is a massively big deal,” he said.
Reduced demand would result in lower wheat prices, Squires said.
A national coalition of agricultural commodities is forming to address the situation, Squires said.
The industry will appeal to the Trump administration to rejoin the trade deal.
“President Trump is the guy who can negotiate, and get us back involved,” Squires said. “It’s clearly a big impact: It’s the equivalent of handing our competitors a $500 million check per year.”
“It’s the administration that’s got to determine how important this trade relationship is,” said Blaine Jacobson, executive director of the Idaho Wheat Commission.
The industry is working to educate people who have contact with the administration, he said, in hopes of reaching “critical mass,” recognizing TPP as a beneficial trade arrangement for the U.S.
“There’s widespread support for getting back into it, but whether or not we have reached the right people yet is still unknown,” Jacobson said.
Asian customers want soft white wheat from the Pacific Northwest, Jacobson said.
“They might be willing to pay a minor premium,” he said. “As time goes on, those customers will probably find a way to make use of wheat other than PNW wheat. In the short-term, a modest impact, but in the long-term, probably a major impact on markets.”
Squires warned of “ripple effects” throughout the industry, which could happen as soon as U.S. wheat becomes uncompetitive in overseas markets, he said
Without exports to Japan, the grain commission estimates volume would drop by 62.5 million bushels. That equals 19,000 fewer rail cars and nearly 70 bulk vessels each year. The impact would be felt by port facilities, barges, elevator longshoremen, ship handlers, and other industry members, Squires said.
Every $1 billion in farm exports supports more than 8,000 jobs in 2016. Wheat export losses of $500 million per year would lead to reductions in the workforce across the supply chain, Squires said.
Squires is encouraged that people are beginning to realize that the situation is imminent.
“I think it can be done if the president puts his mind to it,” he said. “The bottom line is, we are heavily dependent on trade and trade is a benefit. We just want to be part of that trade. We believe the president can make that happen.”