TPP Deal Struck – And Why It Matters For U.S. Grain Farmers

After years of negotiations, trade ministers from 12 Pacific Rim countries including the United States announced Monday they have struck a Trans-Pacific Partnership (TPP) agreement that aims to standardize trade rules across 40 percent of the world’s economy.

While this news was cheered on by most in agriculture, including the U.S. Grains Council, many in the U.S. political environment have expressed skepticism. Details of the negotiated text are expected to be released in the next 30 days, which will provide the opportunity for further analysis of the deal's specifics and will mark the beginning of the Congressional debate and, hopefully, approval.

Meanwhile, there is plenty to be excited about following this breakthrough. Here are five reasons grain farmers should engage in the coming TPP debate:

1) Simple but powerful: when trade works, the world wins.

More than 95 percent of the world's population lives outside of the United States, primarily in large, emerging markets with meat demand that is rising faster than in the United States. These are the fastest growing economies in the world, with the fastest growing middle classes and will soon require even more meat, dairy and eggs.

According to the U.S. Department of Agriculture (USDA), world ag trade will continue to rise sharply in the coming years, and the United States is well-positioned to fully participate in that growth.

As the most competitive producer of coarse grains, the best strategy that the U.S. industry can have is to remove market barriers and increase access to both new and existing customers. When that happens, the economics of U.S. production will be so compelling that U.S. farmers will win sales – but first they must have market access.

2) U.S. farmers are already growing for a global market.

The U.S. grain industry is already well connected to the global coarse grain market. Accounting for just unprocessed coarse grains, U.S. farmers export about 15 percent of their production. However, accounting for coarse grains in all forms - including raw commodities, distiller's dried grains with solubles (DDGS), corn gluten feed and meal, ethanol and meats - U.S. farmers export 26 percent of their production.

Even in the last few years, the U.S. industry has directly seen the impact of substantial trade liberalization through free trade agreements like the Central America Free Trade Agreement (CAFTA) and deals with Peru and Colombia. This year, while overall corn exports from the United States are down slightly, exports to these markets are up 20 percent. Markets with trade liberalization measures in place are outperforming the rest of the world.

The success of domestic ethanol production in the United States also produced substantial volumes of DDGS. The grain industry and the Council have worked hard to create demand for this new product around the world and, over the last decade, the result has been that DDGS exports have outperformed every other category of agricultural exports. This is a success we hope to duplicate with ethanol export promotion work.

3) TPP will be good for grain exports in all forms.

The TPP agreement will provide new and meaningful commercial market access through elimination or significant reductions in tariffs on some commodities while establishing preferential tariff rate quotas on others. While, corn, corn co-products, barley and sorghum have relatively low or duty-free tariffs to the TPP partner countries, the agreement will ensure these products remain duty-free, locking in preferences going forward. Where there are high tariffs on other products that require corn for production, including meats, dairy and ethanol, they will be phased down or out by TPP in the next decade.

4) TPP will also help address issues that impede trade beyond tariffs.

In addition to tariffs, non-tariff barriers like biotech approval processes and sanitary and phytosanitary (SPS) issues remain major trade obstacles. TPP addresses these, too, building on World Trade Organization rules to ensure transparent, non-discriminatory measures based on science. While full details of the agreement text are not yet available, it’s clear it will provide for public comment on proposed SPS measures; require that these measures be evaluated based on risk, like we do in the United States; and provide for improved information exchange when these issues come up. Importantly, TPP will also create a rapid-response mechanism to quickly resolve SPS issues that emerge.

To address trade in agricultural products derived from biotechnology, the agreement promotes policy that seeks synchronous approval of biotechnology traits in all TPP member countries. The agreement is also expected to encourage information sharing on when the low-level presence of biotech material is detected in a shipment of agricultural commodities or food. It also establishes a working group to discuss these issues further and reduce trade impediments.

5) Other countries are also looking to join the TPP agreement, expanding its impact even further.

Finally, unlike other bilateral or regional agreements, TPP is designed to allow other countries from both Asia and the Americas to join the agreement after it is ratified and entered into force by the original 12 member countries. This offers the ability to include the lion’s share of global trade under a comprehensive, 21st Century trade agreement. Many countries have already signaled interest including South Korea, Taiwan, the Philippines, Colombia and others.

More information about TPP is available from USDA's Foreign Agricultural Service, the Office of the U.S. Trade Representative and the Trade Benefits America Coalition. As additional details of the text becomes available, so will additional analysis of the agreement's anticipated impact, which the Council will provide directly to members and in publications like this one.