China gets the headlines, but Japan might be the hottest prospect today for achieving success in agricultural and dairy trade.
The U.S. dairy trade to Japan is at serious risk due to the new Comprehensive and Progressive Agreement for Trans-Pacific Partnership, among Japan and 10 other countries in the Asia Pacific region, and the new trade agreement between the European Union and Japan. Both lower Japanese producers’ tariffs relative to ours. As of April, our tariff disadvantage grew to 3.8% and accelerates by 1.8% per year until we are completely knocked out.
Japan is the world’s second largest cheese importer at a value of $1.3 billion. It has both a growing consumer demand and shrinking local production, making it a significant growth opportunity for the U.S. as its closest major supply country of high-quality products. A recent study by the U.S. Dairy Export Council estimates that failure to address the growing tariff disadvantage will cost U.S. dairy suppliers $5.4 billion over 21 years.
We are at the tipping point. Imminent action is needed. We’re encouraged by recent negotiation news, and at the same time, we realize how essential it is to close a comprehensive dairy deal in this unique window of opportunity.
This is central to Seattle-based Darigold, given our strategic West Coast location. We export about 40% of our milk to more than 20 countries in the form of dairy ingredients like cheese, whey and milk proteins. In Japan, we’ve earned more than a 50% share of the U.S. trade in American style cheeses like cheddar, Monterey Jack and Gouda, serving a set of customers developed over a long period of time.
Leveling the trading field in agriculture and dairy has many cascading economic benefits. U.S. agriculture is a high-volume activity that generates large quantities of good jobs in transportation, manufacturing, inputs and services. For example, Darigold directly employs approximately 1,700 people in the Northwest and indirectly supports approximately 3,000 on-farm jobs and another 10,000 jobs in direct transportation and services. Agriculture is also a natural trade surplus industry. Nationwide, it has generated a trade surplus as high as $40 billion per year and is responsible for 3 million jobs, many of those good-paying manufacturing jobs.
A critical step close to home is, of course, ratifying the new United States-Mexico-Canada Agreement (USMCA). It has broad and growing bipartisan support but still needs to be brought to the floor of Congress for a formal vote. Not only is it a significant and vital advancement for all of North America, it will assist the administration and U.S. Trade Representative’s office in addressing other trade deals and restoring our competitiveness.
Let’s not forget that our agricultural trade competitors also are rushing to ink advantaged trade deals for themselves. The EU’s deals with Canada, Mexico, Japan and the recently concluded EU-Mercosur deal — with Argentina, Brazil, Paraguay and Uruguay — all aim to substitute EU products for U.S. products. Speed is essential for the U.S. as well as pursuing multiple deals in parallel.
Last but not least is China. The fundamental issues at stake are legitimate and recognized as such around the globe. In agriculture, a prime example is foreign owned seed genetics leaking to domestic companies.
Other examples are faster permit approvals for local companies, forced 50% joint venture partners, and greater government assisted investment support for domestic companies. Foundational issues do not change easily, but the long-term potential for U.S. agricultural trade to China make it equally worthwhile. U.S. global dairy exports could double simply on China alone over 10 years, from $5 billion to $10 billion, if we had a level playing field with New Zealand and the EU. Today, New Zealand enjoys a zero-tariff period at the beginning of each year for dairy, while the U.S. pays full tariff.
With 95% of the world’s population outside of the U.S., American potential is enormous. We have an agricultural trifecta — sustainable practices, cost competitiveness and expandability. Trade deals will either enable us to capitalize on this resource or structurally limit us for decades.
We are in a watershed period for establishing long-term U.S. agricultural and dairy trade competitiveness worldwide. The consequences are massive and will compound for decades. We ask Congress to ratify the USMCA soon and for the administration to continue vigorously pursuing a deal with Japan among others in parallel to the China process.
Clarification: This column has been updated for clarity.