Next week is going to start off with a thud and not an April Fools' Day joke when Japan further lowers tariffs on wheat and barley from Australia, Canada and European Union countries. Those nations’ exporters are already trying to steal U.S. market share in Japan and, come Apr. 1, Japan will make it even easier for them to do so as it follows through on promises in trade pacts that do not include the U.S.
That pact — the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) — officially started in December and the Japan-EU free trade agreement initiated in February. Japan reduced its tariffs and increased its quotas for barley and wheat immediately under both deals and is set to do so again Apr. 1.
Meanwhile, two years after President Donald Trump pulled the U.S. out of the Pacific Rim trade pact (back then it was just the Trans-Pacific Partnership, or TPP), the promised U.S.-Japan bilateral trade talks still have not begun.
U.S. Trade Representative Robert Lighthizer told lawmakers at a House Ways and Means Committee hearing in late February he planned to kick off Japanese trade talks this month, but that hasn’t happened. What's more, the USTR is heading to Beijing this week for Chinese talks that have already taken longer than expected.
Nothing has been nailed down, but a trade official tells Agri-Pulse that the USTR expects to announce “further guidance on US-Japan trade meetings in the next couple of weeks.”
But time is of the essence. The more of Japan’s agricultural market share the U.S. loses now and in the coming months - or maybe even years - the harder it will be to claw back into the Japanese market, according to U.S. industry officials.
Floyd Gaibler, Grains Council
“We had access commitments expanded for barley under TPP and of course those didn’t go into effect, but they have gone into effect for the remaining CPTPP members and the EU,” said Floyd Gaibler, the trade policy and biotechnology director at the U.S. Grains Council.
Barley boom goes bust
American barley farmers are some of the first to fall victim. Exports have been rising sharply over the past few years, but that’s expected to end now because of the CPTPP, according to a new analysis from the USDA’s Foreign Agricultural Service.
U.S. food or malt barley filled up just roughly 3 percent of Japan’s import needs in the 2015-16 marketing year, but two years later U.S. exports commanded about a 10 percent market share of Japan’s imports, according to Gaibler.
The 2018-19 marketing year was looking to be even bigger for U.S. barley exports. Japanese production was off and the country’s imports are forecast to reach 1.3 million metric tons. In just the first four months of the new marketing year — October through January — U.S. barley exports to Japan had leapt by 18 percent over the same time period in 2017-18.
“However, the recently concluded (CPTPP) and Japan-EU Economic Partnership Agreement (EPA) has improved market access for U.S. competitors,” FAS officials in Tokyo said.
Japan looks elsewhere for Wheat
The same rough weather that set back Japanese barley growers also hit the country’s wheat crop, pushing up demand for foreign wheat. Normally, U.S. exporters, which traditionally supply almost half of all Japanese imports, would be the first to benefit, but now they’re under pressure from countries like Australia and Canada.
And now, with Japanese tariffs on Australian, Canadian and EU wheat scheduled to drop twice this year and once each following year, the U.S. wheat sector is preoccupied with not seeing U.S. exports drop substantially.
After Apr. 1, U.S. wheat will cost about $20 per metric ton more than the grain from CPTPP and European countries, says Ben Conner, vice president for policy at the U.S. Wheat Associates — that’s about 55 cents per bushel — and the ramifications will be severe.
The U.S. sells about 3 million metric tons of wheat to Japan every year and while many Japanese customers will be hesitant to accept substitutes that aren’t quite what U.S. farmers produce, the dramatic price drops are certain to steal away U.S. market share. USW spokesman Steve Mercer said the group expects that U.S. wheat exports to Japan could be cut in half in four or five years.
Of course barley and wheat won’t be the only commodities suffering as the CPTPP and the Japan-EU Economic Partnership Agreement progress. Japan has also agreed to lift tariffs on beef, pork, poultry and other commodities.
The FAS is already predicting that Canadian pork exports will increase by 3 percent this year because of falling Japanese tariffs under the CPTPP.
“The bottom line is that almost every part of the agriculture sector is being negatively impacted by our withdrawal from TPP and the inability to now remain competitive with CPTPP countries and Europe,” USGC’s Gaibler said. “That’s why we need to get this (Japan pact) negotiated.”
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