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Welcome to Episode 31 of The Spokesman Speaks podcast. In this episode, USDA Foreign Agricultural Service Administrator Ken Isley and Iowa Farm Bureau Senior Economist Dr. Sam Funk analyze the United States' Phase 1 trade agreement with China. Isley and Funk also discuss other recent trade agreements (USMCA and Japan) and potential future agreements.
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Narrator: Since 1934 Iowa's farmers have turned to the Iowa Farm Bureau Spokesman as their trusted news source. Now, The Spokesman Speaks. Listen in and hear from leading experts on topics important to farmers and agriculture. Now, here's your host.
Zach Bader: Welcome to The Spokesman Speaks Podcast. I'm Zach Bader and I'll be your host for this, our January 27th edition of the podcast. Today's episode features a couple of expert perspectives on the recently signed phase one trade agreement with China. We'll start with Ken Isley, who's the Administrator of USDA's Foreign Ag Service. The Foreign Ag Service promotes U.S. ag trade through trade policy promotion, data gathering and analysis. Spokesman writer Tom Block caught up with Isley at the Land Investment Expo, which was January 14th in Des Moines. It also just so happened to be the day before President Trump signed the phase one trade agreement with China. What was Isley's reaction to the trade agreement and what's on the horizon when it comes to other trade agreements? Tom Block has the story.
Tom Block: We're on the eve of the China deal here and what is this going to mean for agriculture in terms of the big picture, you know, how this is really going to improve the trading relationship and help farmers?
Ken Isley: Well, this is as you know, the end of phase one, if you will. There's a negotiated agreement that's set to be signed in the White House. We're very excited about it. It represents both numbers in terms of expectations and trade coming out of U.S. agricultural products as well as some reforms that provide ongoing market access for our farmers and ranchers for many commodities. So the headline number is $40 to $50 billion in sales that we're expecting over the next couple of years with China. And then as I indicated, a lot of different market access issues being addressed as well as part of the trade deal. It's very diverse, so it should have a good positive impact across U.S. agriculture very broadly and for sure here in Iowa. A lot of attention is paid to soybeans given the significance of the China market for soybeans. But also, should provide great opportunities for corn, for beef, for pork, for other commodities.
Tom Block: You know long-term why were these negotiations so important? The short-term boost here we expect to happen, but I think our farmers have been very supportive, but you know, we needed to get some things fixed here.
Ken Isley: Absolutely. And that's why it's important. Obviously, the China market's important given the population in China and the recent trends from the economy in China and the ability to be a long-term good trading partner. So making sure that trade relationship is balanced. It's been unbalanced in the past as reflected by some of the trade data in terms of how much we import from China. Not specifically in food, in ag, but across other industries in the United States. So critical not just for specific purchase commitments, but for those lasting long-term market access issues to put our farmers and ranchers on equal terms with other countries around the world on being able to compete for sales in China.
Tom Block: And switching gears a little bit, a lot of the attention here has been on China, Canada, Mexico, three huge trading partners. But you talked about a little, there's been a lot of other work that the Foreign Ag Service does with some other countries that are pretty encouraging.
Ken Isley: Absolutely. Yeah. We're very focused on outcomes. So our trading partners in Mexico, Canada, China, like you mentioned, are very important. They're typically one, two and three and depending on which order. A very key event happened into the year with the agreement with Japan on putting us back at virtually equal to other countries in CPETPP and that U.S. - Japan trade agreement, the first round of that, was signed late in the year and of course went into effect January 1 of this year. That represents our number four export market and extraordinarily important, again across a broad set of commodities, particularly beef and pork. So regaining that access on equal terms with some of the countries we compete for sales in Japan was very important. But we also get outcomes maybe outside of the scope of specific trade agreements that are extraordinarily important to our farmers and ranchers. I cited a couple of those with the EU beef TRQ as well as getting the sustainability acknowledgement for our soybean farmers to be able to sell soybeans into biofuels, biodiesel into Europe as well. We're looking at other markets and trying to address trade barriers there. I mentioned Southeast Asia is a key focus and we've had some really significant outcomes in Vietnam, in Thailand, in Indonesia and other countries. So, we'll continue to work so we have a diverse set of export markets available to our farmers.
Tom Block: And you talked a little bit, what are some of the biggest challenges, you know, in trade negotiations no matter what, you know, technology and items like that and those non-tariff trade barriers?
Ken Isley: You're, you're exactly right. So tariffs often get a lot of the headlines. We're very focused on those sanitary phytosanitary import restrictions that we feel are done for reasons other than sound science and sound data. So we are constantly working bilaterally with countries, also in international organizations like codex to set reasonable standards for allowing access for products to flow. We're very confident that the U.S. has state of the art agricultural production practices in very safe food safety laws that apply both for domestic consumption as well as our products that get exported overseas. So, we're constantly addressing those issues in trade agreement negotiations and also in bilateral discussions with countries in terms of getting market access for our products.
Tom Block: And we just found China approved, I think maybe 10 GMO products. And I know that's always an uncertain thing and maybe separate from the trade agreement, but those GMO approvals, we'd like to have a consistent path.
Ken Isley: You're exactly right. And we're very focused on that. The dialogue has been very direct with China and those issues and that will continue. You know, we're strong believers in biotechnology, in new breeding techniques, the gene editing and what the benefits that has for U.S. agriculture. Not just in productivity in terms of increasing yields, but also in terms of the sustainability of our farming practices. We believe a lot of those technologies are safe. They result in safe, consistent food. But they also provide much needed tools for our farmers to address, weeds, insects, crop diseases that impact their ability to maximize their production and effectively run their operations.
Tom Block: You mentioned sustainability and that's where I was going to go next with you. It's important you talked about we need to help define sustainable and what it is cause everybody's got a different definition right now. And how was that important in the trade market?
Ken Isley: Oh, it's vitally important as countries are paying more and more intention to not just the food they import, but also how it is grown and how it is produced. We need to get more engaged in that dialogue and help shape the narrative because I'm confident that the practices that our farmers employ are among the safest and most environmentally friendly around the world. And we need to ensure that that sustainability definition, that index, is accurate and is balanced. It takes into effect all of the various issues impacting technology, how it's used and what the impacts are. So, we are upping our game and also in the area of communication to ensure that our voice is heard, and our leadership is seen and felt, on the global stage related to the sustainability of agriculture.
Zach Bader: $40 billion dollars in ag exports to China. Now that's the kind of good news that farmers have been waiting for. But what does this phase one agreement with China mean for Iowa farmers and the commodities they grow? For that perspective, we went to Dr. Sam Funk, who's Iowa Farm Bureau's Senior Economist. Spokesman Editor Dirck Steimel sat down with Dr. Sam Funk to talk about China, USMCA, Japan and other potential trade agreements.
Dirck Steimel: Sam, the United States and China have just the phase one of the new trade deal. What does the deal offer for Iowa crop and livestock farmers?
Dr. Sam Funk: You know, I think the biggest thing about what it offers for Iowa crop and livestock farmers is promise and hope. We've had a lot of back and forth when we've been talking about what's going to happen with this China agreement now for a long period of time. Ever since really we started to have these tariffs and come back and forth and play. But what this gives us is we've got a framework now to move forward. And so from that we hope that we'll be able to move forward with the promise of these, which is to export more agricultural goods. When you think about this $40 billion on average for the next couple of years, there's hope in that one, that it won't be down to this lower level, which we've reached with our trade with China. But now we can expand upon that and in light of not just China, but the fact that we've got our Japanese agreement that's in place and now we had USMCA passed by the Senate and we're building one on top of another for a lot of potential for our Iowa products to be able to move into export markets.
Dirck Steimel: Which commodities do you think will benefit from phase one of the China deal?
Dr. Sam Funk: You know, so a lot of the agreement and a lot of the information we've got from this agreement talks about what could happen, what kind of access they expect could be out through here. The real aspect is that's still an unknown. While they've made a commitment to on average reach $40 billion per year, we don't really know where that's going to be and it's going to depend on what the marketplace has in through there. We're hopeful for more access for DDGs. We're hope for those distillers dry grains will be able to be supporting ethanol from Iowa. You think of Iowa being the number one ethanol producing state in the U.S. We're hopeful that we'll be able to get that accrue back to corn producers to have that stronger market for ethanol, ethanol byproducts. But do we really know exactly where all of this is going to shape out and where's it going to come to? The answer is no. We've got expectations. We've got where we believe that it could occur, but I think a big portion of this one is going to be where does the marketplace realign itself and where do we find that laying out and that's going to be a changing landscape as we go through the next couple of years and I don't think we've got a certainty for anything. We know they need more animal products. We know that there's a shortage of pork, but there's a lot of opportunity for us to be able to ship more higher value pork products through there. We know that there's a very strong likelihood for beef products to enhance value exports over to China. Do we know exactly how this is going to play that this agreement will result in X? No. What we know is it gives us more access for whichever marketplace is able to take a hold of the opportunities which come through there. It will be, if you will, a market oriented aspect, not necessarily a policy oriented aspect. The policy oriented aspect is to provide that access to the marketplace. Not to necessarily direct which commodities are going to be advanced.
Dirck Steimel: There's been some concerns expressed that China may not be willing or able to buy, fulfill the commitments it's made to buy all the ag products it's agreed to buy. Do you share those concerns?
Dr. Sam Funk: You know, concerns probably, I think there's a concern through there with some of the conditions that are put into this. But the U.S. trade representative’s office didn't go into this one with a blindfold on. They knew very well what was possible out through here. And if you read some of the statements that have made by the administration on the agreements, these are very feasible numbers to be able to get into these export amounts. The conditions are what happens with the marketplace once we get these to take place. When are they going to make these purchases? And it's not all going to be even that you get $40 billion one year and $40 billion in the next, it's back-loaded if you will. You're likely to see higher exports from the U.S. to China in this regard later on in the year out rather than this immediate next year. So are there concerns? I think with any of these you can have agreements and sometimes agreements go forward and it's great and strong and it happens immediately. Sometimes it takes a little bit to get in through here. What this gives us is a framework to utilize and what we expect to go forward from this. It's not a promise, it's an agreement and in this case we're still going to wait to see what these market conditions are going to bring on. But again, I think it does seem meant that framework for the hope for tomorrow.
Dirck Steimel: Has the trade friction that we've gone through with China over the past two years altered the global competitive landscape that U.S. farmers are facing?
Dr. Sam Funk: I think the answer to that one is yes, because if you think about what's gone on -- and it's actually been decades that they've been buying more products out of Brazil for instance -- and when you look at what happened with them paying more for the soybeans coming out of Brazil, when they switched their market focus from the United States to Brazil, they paid more for a metric ton of soybeans coming out of Brazil then what they might've needed to because they could have bought it from the United States instead. It did change the amount of investment in Brazil. It changed what's going on and it changed it for a lot of other products, not just for soybeans. If you think about obviously on the pork side, so we've had this African swine fever that has now taken such a hold in the news and in China and you've had a destruction of a large portion of their swine herd without a doubt, major market mover. Yet we've seen more impact in the export and the export marketplace for European Union than we have from the United States. They've started to export more product from the United States to China, but at the same time we've seen more of the price movement actually in the European Union. What we hope for now is that we start to see those price movements take place in the market to benefit Iowa producers so that we gain some of that impact and more able to see the positives from it accrued our producers here.
Dirck Steimel: Longer term, do you see the United States and China making progress in other key trade issues such as biotech approvals and intellectual property protection?
Dr. Sam Funk: You know, those are actually part of phase one. If you think about this framework, it's not just about what directly happens with the quantity or volume of product to be exported it's also about what is their impact and how will they look at sound science, which is used for these products what are they going to be able to approve in the biotechnology realm and also expand that one to start thinking about these intellectual property rights. This agreement seems very positive for agriculture, but it's much broader than just agriculture. It impacts energy, it impacts manufacturing. There's a lot of gains that are to be had for the U.S. as a whole, which may not accrue directly at agriculture, but they will accrue to the United States as a whole and hopefully even strengthen our domestic markets to be able to find more room for us to move product even domestically as we're able to increase the wealth of this country. Now if you think about some of these other frameworks, again going forward, this is phase one. There's still phase two and the president emphasized in the signing ceremony phase two and there's still carrots out there for China to be able to move forward with the phase two. We're very hopeful to be able to think about the additional gains that we can make for the United States in regard to this trade situation because I think there's not just a win for us, there's a win also for China and they would like to have that access to sell their products back here as well as to get the lower priced market products that we're able to offer to them. There is a game for both sides in this to be able to have this agreement go forward.
Dirck Steimel: What do we know about phase two of the China agreement?
Dr. Sam Funk: You know, that's a very good question. One of the things that President Trump has said is that we will have a carrot still left for them because we're going to be able to keep, or we are expected to keep part of these additional constraints on Chinese imports in the United States in place. So as they still have tariffs in place for their products being exported to the United States, it's kind of that carrot, if we go forward with phase two, then we'll start to look at reducing some of these tariffs. So when will it happen? Well, it took us a while to get this, phase one into place. I'm not going to say this is absolutely when I think we'll have phase two in place. I think it can be a little bit longer drawn out. Even Secretary of Agriculture Sonny Perdue said it took the Chinese a while to recognize that the president meant what he said and for them to come around to it. So again, it could take a while. As we see where this agreement leads us with phase one and then to see what actually happens to bring us into phase two. I'm still hopeful that we'll be able to digest a lot of what phase one actually means and to come in through here, but I do think it's going to be a little bit of watch the marketplace. We've been expecting the market to make moves for several reasons over the last several months and it hasn't necessarily occurred the way we hoped that it would. Now what we're going to do is really follow these markets to make sure that we're gaining the access and we're finding these products moving because $40 billion, I mean absolutely for agriculture, if you're going to take $40 billion, you should be able to see a large portion of these markets move. Part of the products and we can look again at soybeans particular if we see a large portion of that market move with them, if you will, lower value soybeans, if we can just clear out some of the surplus that we've got in the United States, that'll be a big market gain for us because we still use a lot of soybeans here as well, and the world is still going to call for a lot of that soy protein. So, let's look at what those changes could mean as we go forward through here and keep a very close eye on these market changes.
Dirck Steimel: You mentioned USMCA earlier. What does that mean for Iowa farmers?
Dr. Sam Funk: You know, if you think about Canada and Mexico, they have been two of our strongest and most secure trading partners for so long. They represent enormous markets, that those are logistical strengths for where they're located in relation to the United States. And obviously we share common borders and it's important for us to have these agreements in place. Again, not just for trade, but also for and how we will interact with each other. It's very important. The rest of the world looks at the United States and they look at Mexico and they look at Canada and they almost see us as one because we have such extensive borders. We need to be able to move forward with sound science that we're all going forward together, not just to benefit, just exports between our countries, but also to benefit us looking out to the rest of the world. So, I think it's only gonna do great things for us being able to move forward with these agreements that will strengthen our relationship going forward.
Dirck Steimel: You've also mentioned the trade agreement with Japan that's kicking in. Why is that important for farmers?
Dr. Sam Funk: You know, obviously when you think about Asia, it's not just about China, but Japan has been such a large market, especially when you think about poor. When you think about beef, those animal protein products and our export potential to Japan, we need to have as strong an access to that marketplace as we can. They've got a lot of wealth, they've got a lot of ability and they've got a hunger for U.S. products and we can supply very high quality products to those marketplaces, which in turn allow us to be able to get a very good market price for those products when we export to Japan. You know, I think about South Korea and some of our advantages there, we did not want to be disadvantaged, so we look for these agreements to be able to enhance that trade and to strengthen the marketplace with the CTPP we didn't want to be disadvantaged to other marketplaces having more favorable access to the Japanese market. This gives us as favorable and access over the longer term to be able to get into that Japanese market and continue to strengthen our exports there for a high value product.
Dirck Steimel: Beyond China, Japan, and North America are there other areas that you're looking at that may have a promising future for us exports?
Dr. Sam Funk: Absolutely. When you think about the growth of wealth and you think about the growth of populations, you know actually China is a very large, very wealthy country, it's not necessarily the fastest growing country and so there's a lot of opportunity is we're such a very efficient and effective producer of products from the United States and from Iowa. We need to think about those other large high growth areas where they may be looking for changing products and animal proteins and other areas where we can be able to meet that need with the efficient production that we've got. It helps us to be actually a lower price producer to feed the world. So when we think about those other marketplaces, obviously we're going to think about what could happen in India out through there. We're going to think about what could happen in some of our other countries. You know, obviously you can start picking and choosing from so many other locations out across this world where they've got booming populations. Obviously some of the challenges for some of the primary exporting countries such as the Australian wildfires right now. I mean they've been a very large export of certain products. They're going to face a severe challenge for the next couple of years following this fire. You don't rebuild necessarily in one year, so what could this mean for an advantage for us to be able to help to one, relieve the burden as they're looking for more animal proteins to fill that need around the world and two what can we do to solidify our status to meet more market needs to where we become a preferred provider into those markets? So we aren't going to stop just right after we get the agreement with China. Just right now that we've got USMCA in Japan and Korea, we're going to continue to look for other markets and that's one of the things that we're going to continue to push for and to work with the administration and all of our trading export partners from industry to continue to move it so that the United States and Iowa have great access to great markets for our producers.
Zach Bader: As always, that's good stuff from Dr. Funk. It can be difficult to wrap your mind around what these trade agreements mean for individual farmers, but I think Dr. Funk did a great job of explaining what's known and what we'll have to wait for in the months to come. One thing we do know for sure is that given the opportunity, U.S. ag products will thrive in international market. You know it, we know it and the world will continue to learn it as we open up more markets around the globe. That's all for this episode of The Spokesman Speaks Podcast. Be sure to tune in for our next episode on February 10th. Until next time, we wish you success and satisfaction as you build your family farms legacy one day at a time. Thanks for reading The Spokesman and thanks for listening to The Spokesman Speaks.
Narrator: Thank you for listening to The Spokesman Speaks, a podcast by Iowa Farm Bureau. Check out more podcasts and articles from The Spokesman at IowaFarmBureau.com/Spokesman. You can also find and subscribe to The Spokesman Speaks Podcast in the Apple Podcasts app, Google Play, and other popular podcast apps. We appreciate your ratings and reviews and welcome your feedback at Podcast@ifbf.org.
About The Spokesman Speaks Podcast
Since 1934, The Iowa Farm Bureau Spokesman has been Iowa’s leading agriculture news source, and today it is the largest circulation ag newspaper in Iowa. While the Spokesman newspaper is available exclusively to Iowa Farm Bureau members, The Spokesman Speaks podcast is available publicly, reaching farmers on-the-go with stories that matter to them. You can find episodes of the podcast here or subscribe and listen in your favorite podcast app, such as Apple Podcasts, Google Play, Spotify, iHeartRadio, Stitcher, TuneInRadio, or Radio.com.
We release new podcast episodes every other Monday. Episode 32 will be released on February 10, 2020.