What would the TPP mean for Southern rice producers?

What would the TPP mean for Southern rice producers?

Long-grain rice and the TPP trade pact. A look at how rice would do under the pending trade deal.

When U.S. trade ambassador Darci Vetter set foot in Arkansas, there was no doubt she would be confronted by folks unhappy with the role of long-grain rice in free-trade deals. And so she was.

With Congress ready to take up the Trans-Pacific Partnership (TPP), Vetter, the chief U.S. agriculture negotiator for the deal, spoke at the William H. Bowen School of Law in Little Rock on March 29. With her main presentation in support of the deal complete, most of the question-and-answer session that followed dealt with rice sector worries.

The worries are hardly new. Some were outlined a few weeks earlier by Carl Brothers, Riceland Foods senior vice president and CEO, at his Mid-South Farm and Gin Show talk. The Trans-Pacific Partnership provides Mexico with “a 40 percent duty on Vietnamese rice that would see a 10-year phase-out,” said Brothers. “That’s very concerning and we expressed that to the (Obama) administration. It really bothers me that Vietnam is not only cheating on their domestic supports but is being rewarded in this case.”

Domestic supports and nations cheating on existing trade deals were also burrs under Brothers’ saddle. “I thought the WTO would establish some baseline supports for farmers and they’d be taken down over time. Well, the only one that’s playing by the rules is the United States. I say everyone else is cheating.

“A U.S. International Trade Commission (ITC) study says that’s exactly what is happening. These people don’t even make reports (to the WTO). They haven’t reported in years.

“We had quite a discussion with the U.S. trade ambassador while we were in D.C. recently. I think we finally got their attention. They talked about bringing a WTO against one of those countries. We’d love for (the case to center on) rice but it could be any U.S. commodity.”

In 2007/08, there was a huge run up in prices. India and Vietnam cut down on rice exports out of concern they’d run out of rice in their countries. “Prices went up really high and they supported their farmers even more in an effort to feed their own populations. That fed into the whole domestic support issue.”

Japan, Q and A

Jumping ahead, the part of Vetter’s presentation that dealt with rice mostly gave the good news on medium-grain. “For Japan, rice is the most sacred and politically sensitive product. For the first time ever, Japan has put rice on the table in a free-trade agreement. The quota says U.S. rice can go to Japan starting at 50,000 tons and then will go up to 70,000 tons. Every ton can be sold as ‘table rice.’

“Right now, under WTO commitments, Japan often takes imported rice and puts it in the warehouse or use it for processing – maybe for crackers or cookies – but it probably doesn’t end up on the table.”

With the floor open for questions, a man identifying as an Arkansas farmer’s son, allowed that Vetter could be correct and the TPP will be great for California rice producers. “But what is in the TPP for Arkansas long-grain rice producers?”

Vetter: “You’re right that with the Japan deal California is best situated to take advantage. Their shipping costs are much less since they’re on the West Coast and Japan tends to be a medium-grain market.

“Of course, the South is starting to produce more medium grain and bring up the quality. So, I wouldn’t close the door on the thinking that Japan could be a good market for (Mid-South producers)…

“Obviously, Vietnam is a rice producer and competitor. Malaysia is a big rice importer but there are other rice exporters right in their neighborhood.”

Vetter shifted to new rules the TPP nations would adhere to. “I want to focus a bit on the rules – particularly SPS (sanitary/phytosanitary) but also subsidy rules. And how are the agreements adjudicated? We talk lots about the tariffs piece, the rules piece but not a lot about the actual structure of the agreement.

“The 12 countries in the TPP create a trade commission, for example, where the trade officials meet every year. ‘Is everyone meeting their commitments? How is this working? Are we trading with each other fairly?’”

On SPS, “there have been continuing battles for U.S. rice exports. In Japan, it’s pesticide residue issues. Obviously, we’ve been trying to sign a deal with China.

“The higher the standard is in the TPP region for the scientific underpinnings to justify how rice moves, the more the markets will be affected along with the people doing business with us. That’s because of how we set our rules. So, influence will expand and when new countries join they’ll have to meet those (higher) standards.”

TPP countries also pledge to immediately stop using export subsidies. “We stopped using those when our last farm bill canceled out the last authority for dairy export subsidies. (Under TPP), we’ll not only have the commitment (for no export subsidies) but will also be able to hold others accountable for the meetings of the trade commission.”

The world is a more competitive place for rice today than it was a decade ago, said Vetter. “Thailand, Vietnam and other countries have become quite competitive. But the (United States) has a very high-quality product and good logistics to deliver it on time. If we can hold others accountable we have a very good shot at that region and becoming a key supplier of choice. TPP builds the infrastructure to hold them to those commitments and being fair.”

Sitting alongside Vetter, Little Rock Mayor Mark Stodola said research shows in 2014 “there was $1.4 billion in cash receipts for rice. That’s expected to increase by $25.3 million per year once TPP is passed. It’ll also eliminate the Vietnamese issue – as high as a 40 percent tariff on rice. That’s a substantial impact.”

And there’s the chance of getting more rice into processed food products. “It’s important to note that, for the most part, tariffs for those products are going to zero” said Vetter.

“One of the products we fought hard for was pet food in Japan. That’s a growing market and tariffs for pet food containing rice are eliminated immediately. We don’t talk about that often but there are some important tariff benefits and incentives for U.S. processors to use U.S. rice.”

Cuts both ways

With so many nations already flouting trade deal rules, Vetter’s playing up of the new TPP rules cut both ways. A questioner pointed that out: “One of the concerns overall with TPP are standards and rules. We already have those in other trade agreements and countries don’t play by them.

“The rice industry watches everyone come and do nice PowerPoint presentations but when we go to activate the deals (other countries) don’t stick to the rules on the books. And when that happens, whoever cut the deal has moved on because (presidential) administrations change. That leaves us with a bad situation and our government is off trying to cut the next deal rather than try to protect our industry through the rules already in force.

“How will you enforce the rules on the books today for companies using illegal subsidies and trade procedures? You obviously were aware of those because you tried to place mechanisms in the TPP to address them.”

Vetter put those worries in two categories. “One deals with tariffs, SPS and the TPP mechanisms while the other deals with subsidies. Typically, we don’t negotiate domestic support in a regional or bilateral free trade agreement but leave that to the WTO. … That said, there are already commitments there and we must look at how they’re being used or not being lived up to.

“In TPP, you see a clear commitment to establish a country-specific quota – Japan, for example – and clear tariff phase-outs from other countries. Under the WTO, Japan lets in about 682,000 tons of rice annually and U.S. rice fills half of that. But it isn’t easy since they have a rather non-transparent tendering process. You don’t know what the high or low bid is, how they calculate it in a given year. There’s no set date for providing a tender and if you win a tender you only have so long to get the rice in. That creates a system that’s hard for players who aren’t the ‘big guys’ to have realistic and consistent access to that market.”

Through TPP “we negotiated 10 things Japan will do to both increase transparency and expand the ability to participate in the WTO tariff,” said Vetter. “It also makes sure the brand new quota they’re creating for the United States will operate under the same system. So, it should be easier for us to gain access and participate in the current access we have. It will also be easier to utilize the new access under the TPP.”

For the first time the United States “negotiated a TPP mechanism that requires Japan to take steps to ensure 100 percent quota-fill. I know of no other trade agreement across the globe – multilateral or bilateral – where there’s a standard that countries must take measures if there’s not 100 percent quota-fill. You’ll often find those at 65 percent, or so, and countries might have to open the tender locker.”

What about the domestic support side?

“We’re working with the rice industry – USA Rice is doing some new analytical work and we’re doing government work on our own – to look very specifically at how countries are implementing (subsidy) policies and whether those remain consistent with international obligations. How can we encourage them, with whatever tools necessary, to follow the rules. That’s a high priority and we’re actively engaged in that, in concert, with our rice producers.”

A rice farmer – who said he’d taken time off from field work in order to attend the meeting -- pivoted back to concerns about Mexico and Vietnam. “We send 700,000 tons of U.S. rice to Mexico every year. One of our concerns is Vietnamese rice going into Mexico (under TPP). The Vietnamese rice is better than it used to be but still isn’t great quality.

“Yesterday, rice closed at $9.70 a cwt. That figures out to $4.36 per bushel. But that’s with the Mexican market imports. If we lose that it’ll be harder to pay the bills.”

Vetter then turned to quality issues and building on a mutually beneficial history between Mexico and the United States. “What we export is a different quality altogether than what Vietnam exports. We have some experience with a zero tariff in Mexico – there was a six-year stretch and we did pretty well.

“You’re right: we’ve enjoyed a very privileged position with Mexico who has been a great customer for U.S. rice. … Remember, though, that from 2008 to 2014, Mexico dropped its tariff on rice to zero. During that period, when rice prices were still quite high and Vietnam and other countries were exporting a lot, the United States maintained between 82 and 100 percent of the import market into Mexico. We have a good track record of being able to compete with cheaper rice.”

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