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To the Editor:
The incoming Biden administration has an opportunity in the first days of the administration to lay a marker on their basic trade philosophy -- continue the past administration's protectionism or allow markets to actually work.
This initial test case comes in the United States International Trade Commission's (USITC) decision regarding countervailing duties on phosphate fertilizer imports. Last June, the USITC initiated a preliminary countervailing duty investigation on phosphate fertilizer imports from Morocco and Russia, based on a petition filed by Mosaic Company. The USITC is expected to make a final decision on whether or not to impose massive taxes on imported phosphate fertilizer by late March.
If the ITC implements the taxes, one giant U.S. corporation will rise, but all American farmers already struggling to stay afloat amidst the current economic turmoil will face a massive spike in fertilizer prices. Thus, the Biden administration must act quickly to avoid another unnecessary trade skirmish that will ultimately punish our farmers.
Some background is always helpful at this point. There is a big difference between the production of phosphate and phosphate reserves on a global basis. By a large margin, Morocco holds the world's most substantial phosphate reserves, yet China outproduced Morocco by a roughly 3 to 1 ratio in 2019. Over much of the last several years, global production exceeded demand, placing downside pressure on prices and returns to companies mining phosphates. The largest producer of phosphate fertilizer in the United States is Mosaic, with 90% of domestic capacity and 60% of U.S. sales (https://www.promote-trade.org/…).
The phosphate industry as a whole did not fare well in 2019. The wettest weather in 50 years prevented a record number of acres from being planted and thus led to a decline in fertilizer application and a dramatic reduction in demand. Mosaic noted these very factors in a press release (https://www.businesswire.com/…) issued on Dec. 29, 2019, regarding its plans to reduce phosphate production, "A third consecutive disappointing application season in North America has led to continuing high inventories and price weakness."
Mosaic filed countervailing duty charges against Russia and Morocco on June 26, 2020. Market prices for phosphate fertilizers did not start climbing immediately, but have shown significant moves this fall -- up on average more than $100/ton or more than 25% depending on the specific fertilizer type (https://www.promote-trade.org/…). With strong global demand, the price rise has a broad global basis, not being limited to the United States. However, on a relative basis prices in the U.S. are more expensive than in other countries in which the U.S. competes for global agricultural export market share. With Mosaic holding a near stranglehold on U.S. production and also marketing and exporting phosphate fertilizer to about 40 countries around the world, not surprisingly, Mosaic's market capitalization improved. In the doldrums of March, Mosaic's value was $15 billion. Recently their cap is over $30 billion, with hats off to the company's management.
But what about the farmers who buy this fertilizer? The Juday Group estimates these higher fertilizer prices will raise typical corn and wheat producers costs by more than $7 per acre and soybean farmers by $5 per acre. Recognizing we plant about 210 million acres to these three crops suggests a cost boost of $1-$1.5 billion for these producers alone for the coming crop year.
Thus, one giant corporation's market cap has doubled at the prospect of massive countervailing duties, while fertilizer prices for thousands of farmers has already skyrocketed and will only continue to increase. The Biden administration can either continue down the road of protectionist trade policy or act swiftly to stop this effort to inflate one company's market capitalization.
-- Bob Young is the former chief economist for the American Farm Bureau Federation, co-director of the Food and Agricultural Policy Research Institute and faculty member of the University of Missouri and past chief economist for the United States Senate Committee on Agriculture, Nutrition and Forestry.
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