As the first quarter of 2022 rolls along, the supply chain, markets, and shipping continue to be major areas of concern for both consumers and farmers. These issues are nothing new, as the broader economy has struggled with these issues since the start of COVID, and the agriculture industry has done its best to remain flexible. However, 2022 has brought new challenges and concerns with the midterm election season looming, war in Eastern Europe, and new disruptions impacting the supply chain and markets. This article will summarize a few trade and market-related factors with the potential to impact your operation.
U.S. – UK Agricultural Trade Relations
Back in March, 2018, the United States imposed a 25% tariff on EU steel exports and a 10% tariff on aluminum exports. In retaliation, the UK imposed tariffs on approximately $500 million worth of annual imports from the United States, including important Virginia agricultural commodities like wheat, corn, whiskey, wines, and other products. In January 2020, the UK finalized “Brexit” and left the European Union; clearing the path for the UK to strike its own trade deals with international partners. However, these U.S.-UK trade tariffs remained.
This month, the U.S. and UK have resolved their steel and aluminum dispute with a tariff-rate quota for UK steel and aluminum products. In exchange, the UK will terminate the retaliatory tariffs it has imposed on U.S. agricultural products, reopening an extremely important overseas market for American farmers.
Right to Repair & Farm Equipment
The in ability to secure parts and labor has been an ongoing frustration on the farm for years, but the past couple years have elevated this issue to a boiling point. Far too often we hear about a farmer who was unable to plant or harvest a crop due to software issues, waiting on a part or technician to make a repair. Right to Repair legislation has been introduced repeatedly but has not advanced, as the various stakeholders continue to work out language and possible non-legislative solutions.
In a major move, John Deere has announced starting in May, their diagnostic service tool “Customer Service ADVISOR” will be made available directly to customers and independent repair shops. The tool will continue to be available through John Deere dealerships. Access to this software will unlock deeper system levels to allow those with the expertise and desire to tackle nearly all repairs themselves – giving farmers the ability to keep equipment maintained and repaired on the farm. While not a cure-all to Right to Repair issues, it shows equipment manufacturers are becoming more flexible and heading in the right direction.
Growing Opportunity for Corn Ethanol Sales to Brazil
This month, Brazil has suspended their 18% tariff on imports of ethanol for the remainder of 2022. The import tariff dates to December 2020 when the U.S. and Brazil were not able to reach an agreement to extend the tariff-free treatment for imports of U.S. ethanol, and oil was less than $50 a barrel.
Brazil’s goal is to fight inflation and increase competitiveness of the Brazilian economy by reducing domestic fuel costs. The suspension of the tariffs will likely mean more U.S. ethanol exports to Brazil, and drive the domestic corn market. A bushel of corn generates roughly 2.7 gallons of ethanol, along with other coproducts, so access to Brazil’s roughly 8 billion gallon per year market is significant.
It is important that U.S. agricultural trade negotiators keep working to pursue a long-term, tariff-free ethanol trading relationship with Brazil to avoid returning to the 18-20% tariffs we have seen in the past.
Ocean Shipping Reform Act
Virginia is blessed with naturally deep-water ports, located smackdab in the middle of the East Coast. Last year, while other ports around the country were riddled with supply chain issues, the Port of Virginia had its most productive fiscal year yet, processing more than 3.2 million twenty-foot equivalent units. By volume, agricultural and forestry exports account for more than half of these containerized exports.
However, port congestion and related logistical obstacles around the county and world threaten the ability of Virginia’s farmers to meet much-welcome increases in foreign demand for our products. Record shipping costs and harmful surcharges have further limited access to export containers, and significantly impacted the ability of farmers and ranchers to fulfill overseas contracts, with some estimations exceeding $4.2 billion in lost agricultural exports.
The ocean shipping industry has changed significantly in recent years to the detriment of U.S. exporters. The Ocean Shipping Reform Act (S. 3580) would take key steps to resolve these supply chain obstacles.
The Senate Commerce Committee approved the bill by voice vote, and the House version (H.R. 4996) passed by a bipartisan vote (364–60) in December. While the Senate version of the bill is not identical to the House-passed version, Farm Bureau supports both pieces of legislation in the hopes that both bills can be quickly conferenced. The legislation is the first major update of federal regulations for the global ocean shipping industry since 1998, and would:
- Require ocean carriers to certify that late fees —known in maritime parlance as “detention and demurrage” charges—comply with federal regulations or face penalties;
- Shift burden of proof regarding the reasonableness of “detention or demurrage” charges from the invoiced party to the ocean carrier;
- Prohibit ocean carriers from unreasonably declining shipping opportunities for U.S. exports, as determined by the FMC in new required rulemaking;
- Require ocean common carriers to report to the FMC each calendar quarter on total import/export tonnage and 20-foot equivalent units (loaded/empty) per vessel that makes port in the United States;
- Authorize the FMC to self-initiate investigations of ocean common carrier’s business practices and apply enforcement measures, as appropriate; and
- Establish new authority for the FMC to register shipping exchanges.
As the Senate bill heads to the floor, we urge the Senate to follow the House and the Commerce Committee’s lead and pass the Ocean Shipping Reform Act to ensure America’s farmers can continue to meet the needs of families at home and abroad, and Virginia can take full advantage of our ports.
**UPDATED 4/1/22: The Senate has unanimously passed the Ocean Shipping Reform Act. We encourage lawmakers from both chambers to work quickly to reconcile differences in each version of the legislation and get it to the president for his signature**