22 Agricultural Trade and Policy

Jana Russell

Guiding Question

How do local, national, and global policies enacted by governments and other organizations affect agricultural production and the distribution of food and natural resources?

 

Learning Objectives

  • At the completion of the chapter, students will be able to:
  • Identify fundamental characteristics of global and domestic trade policies.
  • Describe characteristics of influential trade agreements.
  • Describe the impact of trade policies and regulation on global and domestic food security.

 

Definitions

 

  • Tariff: “A tax imposed on commodity imports by a government. A tariff may be a fixed charge per unit of product imported (specific tariff), a fixed percentage of value (ad valorem tariff), or some combination of both” (Gibson et al., 2003). Tariffs raise the price of imported goods, which may encourage the consumption of domestically produced alternatives.
  • Subsidy: Some form of monetary intervention by a government aimed at reducing the cost of production. While tariffs make imports artificially more expensive, subsidies can make a country’s commodities cheaper than the market would normally allow. A subsidy can both reduce imports (as they become relatively more expensive) and increase exports (as subsidized goods become relatively cheaper in other markets).
  • Exports: “Goods and services that are produced domestically, but then sold to customers residing in other countries” (Corporate Finance Institute, 2021).
  • Imports: “Goods and services that are purchased from the rest of the world by a country’s residents, rather than buying domestically produced items” (Corporate Finance Institute, 2021).
  • Commodities: Raw goods such as food, energy, and materials; “staple crops and animals [that are] produced or raised on farms or plantations. Most agricultural commodities such as grains, livestock, and dairy provide a source of food for people and animals across the globe. However, some agricultural commodities have purely industrial applications. The building and furniture industries use lumber from trees, while manufacturers in several sectors use latex from the rubber tree” (Pines, 2021).
  • Regulations: Regulations may include import quotas that limit the amount of a specific good allowed into a country, standards (like the U.S. Food and Drug Administration’s food safety standards), sourcing requirements, or even the extent of paperwork and procedures needed to move goods across borders.
  • Natural Barriers: Barriers to trade that cannot be mitigated by trade agreements. Transportation costs owing to distance or terrain, language barriers, or other transactions costs are good examples. Some of these barriers can be quite high. Landlocked countries may have exceptionally high transportation costs, for example.
  • Dumping: The export of a product at a price that is lower in the foreign importing market than it is in the exporter’s domestic market.
  • Value-Added Product: Products that have been altered or produced in a way that adds economic value. These can include processed goods, organics, and “any agricultural commodity or product that is used to produce renewable energy on a farm or ranch” (Nebraska Cooperative Development Center, 2021).
  • Trade Agreement: “Contractual arrangement between states concerning their trade relationships. Trade agreements may be bilateral or multilateral—that is, between two states or more than two states” (Encyclopedia Britannica, 2019).

 

Introduction

 

International agricultural trade is a complex, vast, and often confusing topic that is ever changing thanks to a multitude of factors, including “price volatility in agricultural markets, food insecurity, undernourishment, [and the] shortage of land and water resources used in agricultural activities” (Erdeiné & Fenyvesi, 2012). However complicated the field may be, international agricultural trade is essential and impacts the everyday lives of all peoples around the world. The United States is one of the world’s largest agricultural exporters, with on average 20% of its production exported. International agricultural trade encompasses but is not limited to “many different areas of international and domestic law, including international treaties and agreements, domestic trade laws, and general policy decisions” (National Ag Law Center, 2018).

 

Foreign and Domestic Trade Policies

 

U.S. Trade Policies (Import and Export)

The Office of the United States Trade Representative (USTR) coordinates all trade policies for the United States, but overall policy is driven by Congressional law. Likewise, the U.S. Department of Agriculture (USDA), through the Foreign Agricultural Service (FAS), is charged with promoting trade in agricultural products for the United States, but other U.S. agencies and stakeholders wield influence. In 2018, U.S. agricultural exports were valued at $140 billion and imports were valued at $129 billion, giving the United States a trade surplus. The two largest countries supplying goods for import into the United States are Canada and Mexico. East Asia and North America are the two largest export markets for the United States. In order for these trade relationships to continue and function at the necessary levels, numerous regulations and policies must be managed. Some of the key groups and issues influencing trade policy in the United States include:

 

Domestic Trade Laws. Domestic trade laws are regulations, rules, or laws put in place by the home country that can and often do have an impact on the international trade industry. Laws may pertain to labeling, packaging, chemical residue, food safety, quotas, or tariffs (National Ag Law Center, 2018). For example, the U.S. Food and Drug Administration has governance over food safety issues, while the U.S. Environmental Protection Agency’s rules on pesticide residue in food can influence trade in agricultural goods.

 

Farm Bill. According to the National Sustainable Agriculture Coalition (2020), “The farm bill is a package of legislation passed roughly once every five years that has a tremendous impact on farming livelihoods, how food is grown, and what kinds of foods are grown.” The Farm Bill expires every five years, which allows for extensive evaluation and adjustment to ensure that it is having the best possible impact on domestic stakeholders while also benefitting the entire international community when possible, specifically in relation to long-term environmental impact. The 2018 Farm Bill (which will expire in 2023) contains an entire title, or section, specifically on trade (U.S. Department of Agriculture, 2021).

 

More information on the Farm Bill can be found at Sustainable Agriculture and on the USDA website.

 

Key Trade Organizations and Agreements

 

World Trade Organization

Countries have been trading for hundreds if not thousands of years, but it wasn’t until World War II that governments agreed to create a framework to govern trade. During the dark days of World War II, Winston Churchill and Franklin D. Roosevelt agreed upon the Atlantic Charter, which included provisions for what would in 1948 become the General Agreement on Tariffs and Trade (GATT). The GATT governed trade in goods for almost 50 years until the creation of the World Trade Organization (WTO). The WTO institutionalized the GATT, added trade in services, and created dispute mechanisms. The goal of the WTO is to “ensure that trade flows as smoothly, predictably and freely as possible.” Looking specifically at the agricultural industry, the WTO focuses on subsidies and high trade barriers in order to attempt to create a fair trading market that will allow for greater access to goods and improve the livelihoods of farmers globally. Today 154 countries are members of the WTO.

 

One division of the WTO is the Agricultural Agreement, which is a long-term outline and framework used to meet the aforementioned goals of the WTO. Within this agreement are major sections on market access, domestic support, and export competition, all of which are regulated by limitations and allowances. The Agriculture Committee is the governing body overseeing the implementation and management of the provisions of the Agricultural Agreement.

 

United States–Mexico–Canada Agreement

The United States–Mexico–Canada Agreement (USMCA), formerly known as the North American Free Trade Agreement (NAFTA), was renegotiated, rebalanced, and updated in summer 2020. This agreement focuses on creating beneficial trade negotiations among workers, farmer, ranchers, and businesses in the United States, Mexico, and Canada. In addition to considering the automobile industry, intellectual property rights, and trade regulations, the USMCA places a sizable emphasis on the agricultural industry (USTR, 2021).

 

The current USMCA was predicted to bring an increase of about “$2 billion in agricultural exports and overall increase of $65 billion in gross domestic product” (Farm Bureau, 2020). The agreement was said to highly benefit the U.S. dairy industry by raising quotas on Canada’s side while requiring equal treatment of wheat imports. Mexico was also expected to increase fair trading standards. The successor to NAFTA, the USMCA is not an overall solution to the challenges faced by the agricultural industries in all three countries. Rather, it is a working agreement to continue to best negotiate the needs of all parties (Farm Bureau, 2020).

 

Other Trade Agreements

The United States has one other multilateral trade agreement among several parties: the Dominican Republic–Central America–United States Free Trade Agreement. All other U.S. free trade agreements are bilateral, meaning they are agreements between the United States and a single other country. A list of the 20 free trade agreements can be found here on the USTR website.

 

Case Study

 

 

While global agriculture, food, and natural resources trade and policy can be hard to grasp, it plays a vital role in our everyday lives. This vignette showcases how Pennsylvania agriculture and the Pennsylvania Department of Agriculture are impacted by global trade and policy.

 

The following is a summary of a discussion with two members of the Pennsylvania Department of Agriculture’s Bureau of Market Development, Deputy Secretary for Market Development Cheryl Cook and Bureau of Market Development Director Laura England.

 

  1. Explain a little about how Pennsylvania agriculture and the Department of Agriculture interact on the global scale (trade and policy, how do they impact directly)? 

 

Looking specifically at the previous administration (2016–2020), several trade policies at the federal level had a direct impact on Pennsylvania workers and residents. The United States placed tariffs on steel and aluminum as imported goods from other countries, which directly impacted the Pennsylvania agricultural industry because Pennsylvania works a lot with manufacturing agricultural machinery and equipment with imported steel. The countries that the tariffs were placed on retaliated by reducing their purchasing of soybeans and other commodities from the United States. This didn’t really impact Pennsylvania too much, but it did impact the United States enough that the U.S. Department of Agriculture (USDA) responded by purchasing goods that would typically be exported, which then benefitted Pennsylvania farmers and consumers.

 

Working in collaboration with the National Association for States Departments of Agriculture, the Pennsylvania Department of Agriculture attends the Tri-National Accord (which includes Canada and Mexico, the countries most important to trade for Pennsylvania agriculture). Most recently, this meeting had been held virtually, which has actually been beneficial as more people have able to attend and participate. The majority of discussion at these meeting is related to policies among the three countries. For example, the signing of the USMCA led this past year’s discussion. These countries also meet in the spring to discuss international trade policy issues and opportunities. These meetings are extremely beneficial, as they allow for conversation among provinces of Canada, states of the United States, and states of Mexico, in addition to conversation on larger national issues.

 

The snack food industry has been the largest success for Pennsylvania as far as exports, such as Hershey’s products or potato chips. On the other hand, dairy is the area that poses the largest challenge for export, specifically to Canada. Pennsylvania typically exports majority value-added products rather than commodities. As is the case, the Pennsylvania Department of Agriculture works closely with the U.S. Department of Agriculture’s Foreign Agriculture Service, which funds Food Export USA, specifically Food Export North East. Together, they work with value-added products and companies to make sure that they are meeting the regulations. They also help fund trade show activities to assist companies and states working to sell their products globally. Typically, the Pennsylvania Department of Agriculture works less on the policy side, as that is more regulated at the federal level.

 

  1. What are some challenges to Pennsylvania agriculture at the global level? 

 

One challenge that has been worked on over the past couple years is the port of Philadelphia, which is not deep enough to allow for large trade ships. Therefore, $300 million has been allocated to allow for the deepening of the port, which will open up both import and export markets directly into Pennsylvania rather than neighboring states. This will assist the hardwood industry as an export and will allow for an increase of imports, mainly fruit. Another challenge is competing with cheap produce imports entering the port. Looking directly at the Pennsylvania livestock and dairy industries, consumers are calling for organic feed grain, which is difficult to find, but the biggest source of this is the European Union.

 

  1. What does the future of Pennsylvania agriculture look like at the global level? 

 

Pennsylvania agriculture has the opportunity to continue to grow, looking specifically at the U.S. Commercial Service and the potential for a wine industry to develop in Pennsylvania as an export. Snack foods, value added, will continue to grow. Continued interest in exporting, which will be supported by the U.S. Commericial Service and the USDA’s FAS. Climate will have an impact, which will be seen in an increase in organic and soil health practices in the next farm bill. Trade with Canada and Mexico should move up again.

 

  1. What are some pieces of advice for a student studying international agriculture? 

 

  • Take some Spanish or foreign-language courses as workforce issues will only continue to grow and develop.
  • Snack foods will continue to lead the way in Pennsylvania in the world of agricultural exports, so food science knowledge is always a bonus.
  • Interns are welcome to learn about companies and businesses that are involved in exporting by working with Pennsylvania Department of Agriculture and the U.S. Commercial Service.
  • International business courses are highly encouraged for students so that they have a basic understanding of the global economy and how different stakeholders interact with one another.

 

 

Trade Policy and the Greater Effects

 

While international agricultural trade impacts our everyday lives in terms of the foods and goods we consume and use, the establishment of a fair trading system has a much larger impact than simply ensuring an available supply for consumers. Looking at the world as a whole, global agricultural trade contributes to food security, economics, and the environment.

 

  • Food Security Impact:

One specific focus of the WHO is its new Trade Dialogues on Food, which is aimed at creating conversations regarding the relationship between food insecurity and international trade. These conversations include government officials, nongovernmental organizations, businesses, academics, and foundations. The dialogues focus on the proper distribution of food supplies, proper growing techniques (including fertilizer distribution), and climate change (WTO, 2021).

 

 

  • Environmental Impact:

While touched on in the climate change-focused Trade Dialogues on Food, the larger environmental impacts of international trade merit thorough discussion, as potential negative long-term effects on environmental health are a very real risk (Balogh & Jámbor, 2020). Several of the key issues seen due to the increase in international agricultural trade are “environmental externalities (increasing pollution or degradation of natural resources) and . . . production growth, transboundary pollution, resource trade, transportation and production relocation avoiding environmental standards” (Balogh & Jámbor, 2020). That being said, many countries do focus their efforts on promoting environmentally friendly trade practices in addition to environmentally friendly production and farming practices.

 

  • Economic Impact:

Many economists believe that trade is a way to boost the economies of all countries by encouraging each to specialize in the production of goods for which it has a comparative advantage. These gains in the availability of products result from more efficient production and resource allocation. The gains of trade, however, are only possible if trade is fair and the playing field is level. Trade policies and practices can distort free trade, leaving some countries at a disadvantage. Trade policies will continue to evolve as the population increases, as wealth is redistributed around the world, and as climate change impacts begin to affect transportation options. As the international agricultural trade industry adjusts to these changing circumstances, the economic impacts will continue to vary.

 

Conclusion

As this chapter has shown, the world of international agricultural trade is ever-changing, vast, and complex. It is also essential if all consumers on the world stage are to have access to food, clothing, and other goods. In order to have a basic understanding of the key stakeholders, agreements, and policies, it is key that young adults, specifically those studying agriculture, continue to educate themselves on these evolving topics. The goal of this chapter was to introduce the world of international agricultural policy and to spark curiosity for further exploration and study.

 

 

Further Exploration

 

Organizations working in international trade include:

 

 

Check Your Knowledge

What are the key characteristics of U.S. trade policy?

What are the key characteristics of the USMCA?

What are the long-term goals of the WTO regarding international agricultural trade?

 

Synthesis Questions

What might be some risks or downfalls to a country importing (or exporting) goods that are also grown or manufactured by their home citizens? Check out this article for more information:

 

What is a recent (within the past five years) policy or regulation change that has impacted a good you often consume, wear, or use?

 

References

 

Akhtar, S. I, & Williams, B. R. (2022, March 16). U.S. trade policy: Background and current issues (ver. 20). Congressional Research Service. Retrieved from https://fas.org/sgp/crs/row/IF10156.pdf

 

Balogh, J. M., & Jámbor, A. (2020). The environmental impacts of agricultural trade: A systematic literature review. Sustainability, 12(3), 1152. https://doi.org/10.3390/su12031152

 

Encyclopedia Britannica. (2019, January 11). Trade agreement. In Encyclopedia Britannica. https://www.britannica.com/topic/trade-agreement

 

Corporate Finance Institute. (2021). Imports and exports: Overview, GDP formula, balance of trade. Corporate Finance Institute. https://corporatefinanceinstitute.com/resources/economics/imports-and-exports/

 

Erdeiné, K. G., & Fenyvesi, L. (2012). Tendencies and challenges in global agriculture. Problems of World Agriculture/Problemy Rolnictwa Światowego, 12(27), 47–53.

 

Gibson, P., Wainio, J., Whitley, D., & Bohman, M. (2001). Profiles of tariffs in global agricultural markets. Economic Research Service, U.S. Department of Agriculture. https://www.ers.usda.gov/webdocs/publications/41241/32220_aer796.pdf

 

Glauber, J. (2020, July 29). The current state of agricultural trade and the World Trade Organization. International Food Policy Research Institute. https://www.ifpri.org/news-release/current-state-agricultural-trade-and-world-trade-organization

 

Farm Bureau. (2020, June 30). USMCA takes effect: Welcome news for struggling farmers. Farm Bureau. https://www.fb.org/newsroom/usmca-takes-effect-welcome-news-for-struggling-farmers

 

Foreign Agricultural Service. (2021). About FAS. https://www.fas.usda.gov/about-fas

 

Office of the United States Trade Representative. (2021). United States–Mexico–Canada Agreement. Executive Office of the President. https://ustr.gov/trade-agreements/free-trade-agreements/united-states-mexico-canada-agreement

 

National Ag Law Center. (2018, January 2). International trade overview. https://nationalaglawcenter.org/overview/international-trade/

 

National Sustainable Agriculture Coalition. (2020, November 16). What is the farm bill? https://sustainableagriculture.net/our-work/campaigns/fbcampaign/what-is-the-farm-bill/

 

Nebraska Cooperative Development Center. (2021). Value added agriculture. University of Nebraska–Lincoln. https://ncdc.unl.edu/valueag.shtml

 

Pines, L. (2021). Learn all about agricultural commodities and market trends: The essential guide. Commodity.com. https://commodity.com/soft-agricultural/

 

Porfirio, L. L., Newth, D., Finnigan, J. J., & Cai, Y. (2018). Economic shifts in agricultural production and trade due to climate change. Palgrave Communications, 4(1), Article 111. https://www.nature.com/articles/s41599-018-0164-y

 

U.S. Department of Agriculture. (2021). Farm Bill. https://www.usda.gov/farmbill

 

World Trade Organization. (2021). Agriculture. https://www.wto.org/english/tratop_e/agric_e/agric_e.htm

 

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Everyone Needs to Eat: Introduction to Food Security and Global Agriculture Copyright © by Jana Russell is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License, except where otherwise noted.

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