What Does USMCA Really Do for Agriculture?

U.S. Farm Report FJR 12/07/19
While USMCA won't create many changes in agriculture, economists say it's what happens if USMCA isn't passed that could be detrimental to agriculture? ( MGN )

It’s crunch time in Washington D.C. to get the U.S. Mexico Canada Agreement (USMCA) passed in 2019, with many agricultural groups and organizations losing patience.

“I know, U.S. Trade Representative and other trade reps are certainly working for those agreements, but we need these things to get done,” says Kevin Ross, president of the Corn Board for National Corn Growers Association (NCGA).

A new wrinkle developed last week over a push for labor provisions, which looks to be resolved. Even before a hand-shake agreement between President Donald Trump and House Speaker Nancy Pelosi was in place, Farm Journal Washington correspondent Jim Wiesemeyer wasn’t crossing of the idea of ratification yet this year.

“After watching trade agreements over 40 years, USTR Bob Lighthizer is very good,” Wiesemeyer says. “Our U.S. trade rep is very good at pulling out what looks to be a defeat into a victory. And he's very creative.”

While a deal could be reached in the 11th hour, Wiesemeyer thinks 2019 isn’t the end of the story for USCMA.

“Let's assume that ratification doesn’t occur in 2019; it looks to me like the votes are there in both chambers,” he says. “So, sometime in the first quarter of 2020 despite all the politics involved, it should be able to get through the first quarter of 2020.”

While the push for USMCA is gaining traction, Wiesemeyer says it’s not a revolutionary deal.

“Overall, there's not much major news out of this for agriculture, except this solidifies the North American market that we have,” Wiesemeyer says.

Economists like American Farm Bureau’s (AFBF) Veronica Nigh say USMCA is needed for agriculture.

“It's because it sets a precedent moving forward, that other countries know the U.S. is open for business, and that we can certainly be relied on to pass trade agreements that we signed,” Nigh says.

Analysts agree the deal improves rules for trading goods, setting the stage for more exports of products like U.S. meat.  

“The fear in meat is if you don't have it, Mexico will not be as big of a meat importer from the U.S., as well as dairy,” said Brown. “I think any trade agreement passed is usually best for the meat sector, because they're getting their margins from exports.”

Economists say while meats could see a boost, the biggest beneficial in the ag sector is dairy.

“I think you can look at the dairy industry as maybe one of the biggest winners when you see USMCA to the finish line,” says University of Missouri economist Scott Brown. “That has a lot to do with Canadian Class VII products and our ability and maybe to gain some additional product going to Canada.”

“According to our estimates, U.S. dairy experts would increase by over $280 million, or around 5% of the total US dairy exports,” says Maksy Chepeliev, a research economist at Purdue University.

He says those estimates are largely based on increases of both U.S. dairy products sent to Canada, and quotas of U.S. products increasing.

Nigh says Canada also agreed to cap its production of those Class VII, which will level the playing field globally for exports.

More than just a boost to some exports, Nigh says USMCA makes the NAFTA trade pact more modern, including with biotechnology.

“This is the first time that Canada, Mexico and the U.S. - in any trade agreement- where we've had more advanced rules regarding the trade and biotechnology and how we trade information as we're starting to approve different biotechnology traits,” she says. “That's a big improvement and certainly will help corn and soybeans as we move into the future and look at bringing on new traits in in those crops.”

From biotechnology to setting phytosanitary provisions, the agreement has updates for various sectors.

“It avoids non-tariff trade barriers for the future if you get into a geopolitical situation where a country can throw off what we call a non-tariff trade barrier,” notes Wiesemeyer regarding the phytosanitary changes.  

Those phytosanitary changes apply to crops like wheat.

“USCMA will eliminate those classing differences that Canada had built into their pricing system for us wheat versus Canadian wheat,” Nigh says.

It will also impact pork.

“The important thing about USMCA is that upgrades the rules around phytosanitary barriers between the three countries which will allow us to strengthen our rules allow us to help keep African Swine Fever out while still trading amongst each other and the important pork sector,” said Nigh.

Wiesemeyer says the biggest issue is what happens if USMCA doesn’t’ get signed.

“Going into an election year, with populist voters still continuing to vote for him [Trump], he would threaten probably to pull out of the underlying NAFTA agreement,” Wiesemeyer says.

Potentially pulling out of NAFTA is a move economists say could spike tariffs on many agricultural products, shooting price slower.

“I think most important is the security of an agreement,” Brown says. “If we didn't have NAFTA, then we would be talking about a much different situation. It's important to have USMCA sitting there to make sure those markets are open and available to us as best they can. Without NAFTA, that's when we get into an issue about what us seems USMCA really means.”

With or without USMCA, Wiesemeyer says Congress’ actions in December set the stage for the year ahead.

“This is what frustrates people when they watch Washington DC,” says Wiesemeyer. “They say they don't have enough time to get it done this year, when they've had since late 2018 when this agreement was signed. So, this is what gives D.C, a very bad name.”