DTN Ag Policy Editor
WASHINGTON (DTN) -- Pork producers can say they are optimistic about the current state of trade, but leaders of the National Pork Producers Council are concerned the U.S. may be falling behind competitors such as the European Union in opening trade markets.
NPPC leaders met Thursday at their Washington office with a group of reporters to talk about the main topics of a fly-in with 110 producers this week. Farmers are facing labor issues, and the livestock industry wants a vaccine bank for foot-and-mouth disease in the farm bill. Still, trade was the dominant topic for the pork producers with more than 26% to 27% of the value of a U.S. market hog coming from exports.
The U.S. remains the largest pork exporter, sending 2.3 million metric tons overseas last year, which equated to about $6 billion in revenue for pork producers.
A few years ago, the pork industry was looking for new packing capacity to meet demand. Now there are five new packing plants starting production or being built, including a new Seaboard Triumph operation in Sioux City, Iowa, that started production at the end of August. These plants were relying somewhat on export growth from the Trans-Pacific Partnership, which the Trump administration withdrew from last January. The prospect of the TPP caused a lot of producers to invest in those packing facilities.
"Now it's very, very concerning to me that we are building all of this capacity on the hope we will have those trade agreements," said Ken Maschhoff, president of NPPC and a producer from Carlyle, Illinois. "We do rely on trade for these new plants and the new production that will come from these plants."
U.S. pork export volume will eventually reach 30% to 33% in the near future to satisfy the larger production volume. Despite the loss of the Pacific trade deal, Jim Heimerl, an Ohio pork producer and president-elect of NPPC, said he and other investors in the new plants need to remain positive.
"We haven't thrown the towel in yet," Heimerl said. "We're still working on a bilateral trade agreement today. TPP might be a thing of the past, but we're still hoping bilateral trade agreements will come."
NPPC leaders said they recognize the value of existing free-trade agreements and partners, as well. While the U.S. may export pork to more than 100 countries, the majority of U.S. pork exports go to the 20 countries that the U.S. has existing free-trade deals with. The North American Free Trade Agreement adds about $12.50 of value to the price of a market hog, and the trade deal with South Korea adds about $4.51 to the value of a hog. The $4.51, incidentally, is about the average estimated profit margin for producers projected for 2018, Maschhoff noted.
"So one trade agreement, one slip, and we would have unprofitable operations in the foreseeable future," he said.
When it comes to NAFTA, pork producers are concerned about repeated comments within the Trump administration about terminating the deal. That would result in agricultural products going from a non-tariff situation to allowing Mexico to implement a variety of tariffs on various pork products. Canada would also put tariffs in place. One point that gets lost in the idea of terminating NAFTA is that U.S. overall tariffs are lower than those Canada and Mexico could impose. NPPC projects withdrawing from NAFTA would cost pork producers $1.5 billion annually.
"We're all up for modernizing NAFTA, but we need to maintain that tariff-free access," said Nick Giordano, vice president of global affairs for NPPC.
While NAFTA and South Korea are important, Japan is the top market for U.S. pork products, valued at about $1.6 billion last year. The EU has reached a trade deal in principle with Japan, though the details have not been hammered out.
"That No. 1 market in Japan, we're afraid that's going to decay and we're going to lose that because the Europeans are now going to have a leg up on us," Maschhoff said.
Nebraska Gov. Pete Ricketts spoke to reporters separately Thursday during a state trade mission in Japan. DTN asked Ricketts about his understanding of the impact of the European Union trade deal with Japan. Ricketts pointed out Nebraska alone exports about $200 million in pork to Japan.
"One of the concerns if that deal moves forward, which it is likely to do, that will put pressure on our exports of pork to Japan, and that's an important market for us," Ricketts told reporters.
President Donald Trump is scheduled to go to Japan in November. NPPC leaders will be hoping the president uses the trip to start talks on a bilateral trade deal with Japan to offset the potential impact of the EU deal.
"Our producers need a home run with Japan," Maschhoff said.
Besides Japan, the EU already has a deal with Canada and is negotiating with Mexico. Dow Jones reported just Thursday that senior EU officials outlined plans to negotiate FTAs with Australia and New Zealand. The EU is essentially reaching out to other countries that were part of TPP.
While perhaps being behind the EU in trade agreements at this point, Maschhoff added, "We have to be positive. Ultimately, calmer heads will prevail and we will get these trade agreements. It makes so much economic sense, not just for us, not just for the United States, but for our trading partners."
Chris Clayton can be reached at Chris.Clayton@dtn.com
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