McDonnell to DC: Trade should include COOL | TSLN.com

McDonnell to DC: Trade should include COOL

Leo McDonnell,
Director Emeritus US Cattlemen’s Association

November 20, 2019

President of the United States, U.S. Senate Ag Committee, U.S. Senate Finance Committee, U.S. House Ag Committee, U.S. House Ways and Means Sub-Committee on Trade:

As you prepare for final approval of USMCA (U.S.- Mexico-Canada Trade Agreement), there are a few things from the U.S. cattle producers’ perspective that need clarification.

While some in our industry have said NAFTA has been a positive for U.S. ranchers, this is not correct. Even members of the U.S. International Trade Commission pointed out some real problems with both Canada and Mexico in 1999 at the USITC hearing on unfair trade practices with cattle concerning Canada and Mexico.

Also, while some have said that NAFTA has had a positive impact on U.S. cattle producers that again is not correct. NAFTA was an extension of the 1988 Canada-United States Free Trade Agreement (CUSFTA) to include Mexico, and superseded the previous Free Trade Agreement with Canada. So as one looks at the impact of Free Trade Agreements in North America you need to go back to 1988 to study prior trade flows with Canada and 1993 with Mexico, as the two Free Trade Agreement went into force January1, 1988 and January 1, 1994 respectfully.

In doing so.as you look at three-year average prior to CUSFTA (1985, 1986, 1987), on just live cattle, Canada was exporting on average 280,000 cattle to the U.S.; however, during the last three years (2016, 2017, 2018) exports from Canada have averaged 1,200,000.

US-Canada Trade in Beef and cattle prior to and since CUSFTA

US – Canada cattle and beef trade ave. 1985, 1986, 1987 ave. 2016, 2017, 2018

Canadian live cattle imports 280,000 head 1,200,000

US Cattle exports to Canada 22,000 163,000

Canadian Beef imports 210,000 lbs. carcass equivalent 750,000 1,000 lbs. carcass equivalency

US Beef exports to Canada 27,000 305,000

When one looks at cattle and beef/live cattle equivalent combined, then the U.S. Trade Deficit with Canada has expanded by the equivalent of nearly 1.59 million head.

US-Mexico Trade in Beef and cattle prior to and since NAFTA

Ave. 1991,1992,1993 Ave. 2016,2017,2018

Mexican live cattle imports 1,125,000 head 1,120,000

US cattle exports 170,000 26,000

Mexican Beef Imports 1,700 lbs carcass equivalent 525,000 1,000 lbs. carcass equivalency

US Beef exports 163,000 421,000

Given this, since NAFTA was implemented, the U.S. trade deficit in cattle and beef/cattle equivalency with Mexico has expanded from 724,600 head to 1,220,700 head.

The combined U.S. trade deficit of cattle/cattle equivalency since free trade agreements were first implemented with Canada and then Mexico has grown by over 1.5 million cattle, with a total trade deficit of 2.8 million ( percent of US cattle slaughter or beef production) – hardly a success story for U.S. cattle producers as too many US ranchers, feeders, and the rural communities that supported them have been replaced and impacted. Just the increase represents 4.5 percent and would be equivalent to 4.5 percent of US slaughter with overall deficit being equivalent to 8.5 percent of US slaughter

Putting this into perspective:

USDA and cattle industry analysts most often use the figure that a 1 percent change in supply impacts price 1.5 to 2 percent. Given that, then just the increase in the Trade Deficit in cattle and beef with Canada and Mexico of a little over 4 percent, has impacted prices 6-8 percent and this is in an industry that operates on a very narrow margins that historically has trouble maintaining a 3-4 percent ROI. This is then compounded by what the USITC Chairmen in 1999 stated in her report, ‘packers can and do use imports to suppress domestic prices’ and the Republican Commissioners on the U.S. Senate Trade Deficit Commission Report in 2000, “Easy availability of imports can limit price increases either by expanding available supply or reducing the ability of businesses to raise prices in order to pass on increases in their costs.”

As you look at various impacts of Free Trade Agreements in North America to US cattle producers, in 1996 when U.S. cattle producers experienced a collapse in their market, by what many university economists and market analysts were calling a “normal production cycle with U.S. ranchers simply overproducing again,” quite the opposite was true. Yes, U.S. beef production (which includes live cattle imports) had risen from 23.4 billion pounds in 1987 to 25.1 billion pounds in 1995, but during this same period beef imports from Canada and Mexico had increased by 261 million pounds and live cattle imports by 1.586 million head. The vast majority of the increase was not from U.S. ranchers, but from Canadian and Mexican imports. This supply impact then was further impacted by Mexico’s devaluation of the peso in the mid 1990s, and the added impact of artificially cheap imports into the U.S. market. This was hardly a win for U.S. ranchers who were still recovering from the agriculture collapse of the 1980s.

U.S. cattle producers were promised in past TPAs that cattle and beef would be included for Special Rules for Perishable and Cyclical Ag Products in future trade agreements; however, this does not seem to be the case with USMCA. In fact, In the Bipartisan Congressional Trade Priorities and Accountability Act of 2015, Congress included provisions which dictate the principal negotiating objective for agricultural trade following parameters:Sec. 2(b)(3)(J)(K)“TRADE IN AGRICULTURE.—The principal negotiating objective of the United States with respect to agriculture is to obtain competitive opportunities for United States exports of agricultural commodities in foreign markets by -eliminating practices that adversely affect trade in perishable or cyclical products, while improving import relief mechanisms to recognize the unique characteristics of perishable and cyclical agriculture; and ensuring that import relief mechanisms for perishable and cyclical agriculture are as accessible and timely to growers in the United States as those mechanisms that are used by other countries;”

This Administration promised to “Make America Great Again” but it is becoming evident this does not include U.S. ranchers. The failure to include meaningful Country of Origin Labeling (COOL) for beef in USMCA is disheartening at best. During the few years that the U.S. had COOL for beef, U.S. ranchers experienced one of the greatest cattle markets in history as consumers and retailers were given choices and U.S. ranchers were allowed to compete on a more level playing field by identifying their product for consumers. Certainly, without COOL how can one have a level playing field or even expect to compete? Every poll of consumers and producers has shown an overwhelming support for COOL.

Just as disheartening was the previous Congress and Administration’s failure to stand up to the WTO and for America concerning the COOL rulings. At the same time that Canada, Mexico, and the beef packing industry was seeking support from the WTO to justify repealing COOL because it required segregation and identification of country of origin for beef, they were involved in the same practices to satisfy their customers. In Canada, who was exporting beef to China while the US was still banned from exporting beef to China, they were required by China that the packers be able to segregate and differentiate beef from US origin beef to export their beef to China. Many were the same packers as in the US who had claimed this practice was to expensive and difficult in the US. At the same time , when COOL was in place, Mexico was requiring US packers, to be able to segregate and differentiate US beef from restricted beef or cattle from Canada; that being, live cattle and meats from animals over 30 months of Canadian Origin

And today China is requiring from the US that:

All beef must be derived from cattle that were either (a) born, raised, and slaughtered in the United States, (b) imported from Canada or Mexico and then raised and slaughtered in the United States, or (c) imported from Canada or Mexico for direct slaughter in the United States.

Chinese consumers will be better informed about US produced beef, than American consumers

I appreciate that USMCA may be too far along to address some of these measures, but I feel it is important that, at the minimum, the record needs to be set straight about the impact of NAFTA and The Canadian Free Trade impact to U.S. cattle producers and our disappointment that USMCA has failed to address or, at the minimum, recognize some of the problems it has created for US ranchers.

Respectfully,

Leo McDonnell,

Director Emeritus US Cattlemen’s Association


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