In this episode, NCGA CEO Jon Doggett talks to a pair of the world’s foremost experts in global agricultural trade about what comes next for U.S. ag trade policy.
Ambassador Darci Vetter is the Former USTR Chief Agricultural Negotiator and USDA Deputy Under Secretary and currently works as a consultant at Edelman. And Ryan LeGrand is the CEO of the U.S. Grains Council.
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Transcript
Darci Vetter:
Lots of our competitors are out there concluding bilateral or regional free trade agreements. We can't take our eye off the fact that our competitive position is declining. We're really falling behind here.
Ryan LeGrand:
We have to have a seat at the table. We used to be the dominant player in corn exports to the world, and that has just been chipped away year after year.
Dusty Weis:
Hello, and welcome to Wherever Jon May Roam, the National Corn Growers Association podcast. This is where leaders, growers, and stakeholders in the corn industry can turn for big-picture conversations about the state of the industry and its future. I'm Dusty Weis, and I will be introducing your host, Association CEO Jon Doggett. You can join Jon every month as he travels the country on a mission to advocate for America's corn farmers. From the fields of corn belt to the D.C. Beltway, we'll make sure that the growers who feed America have a say in the issues that are important to them with key leaders who are shaping the future of agriculture.
Dusty Weis:
The passage and adoption of the USMCA trade agreement comes as some relief to the U.S. corn industry where an ongoing trade war has been hitting growers hard, and there are other trends impacting our markets as well. So, in this episode, a look at the global trade stories that you need to be aware of, from two of the world's foremost experts. Former USTR Chief Agricultural Negotiator and USDA Deputy Under Secretary, Ambassador Darci Vetter, and Ryan LeGrand, the CEO of the U.S. Grains Council. If you haven't yet, make sure that you're subscribed to this podcast in your favorite app. That way, you can take us with you in your truck, your tractor, or on your next trip and never miss an update from Jon. Also, make sure you follow the NCGA on Twitter at National Corn and sign up for the National Corn Growers Association email newsletter at ncga.com.
Dusty Weis:
And with that, it's time to once again introduce Jon, Jon Doggett, the CEO of the National Corn Growers Association. Jon, if we hop into the Wayback Machine and time travel back to the heady days of, oh, let's see, about five months ago. Before the coronavirus story stole all the headlines, the USMCA trade agreement was a really important developing story in the news that we were following very closely. That has since passed and taken effect, and we finally get to cover this ground on your podcast.
Jon Doggett:
After eight episodes, we're finally going to talk about trade, and given the importance of this topic to our industry, to our country, it's hard to believe it's taken us this long, but a lot of things got in the way. So, as they say, good things happen to those who wait, and we have a very good podcast in store for us today. We have two outstanding guests, and joining us today is former U.S. Trade Rep/Chief Agricultural Negotiator, and former Deputy Under Secretary of Agriculture Darci Vetter, and U.S. Grains Council CEO Ryan LeGrand. So, welcome to both of you. Suffice to say, I think the two of you probably know just a little bit about global trade. So, with that, Darci, give us a thumbnail bio.
Darci Vetter:
Sure. So, as you already mentioned, I spent much of my career working in government and most recently as your Chief Agriculture Negotiator during the Obama administration at the U.S. Trade Representative, and just before that as Deputy Under Secretary at USDA where I also oversaw the foreign agricultural service. So, a lot of my career has been spent in agriculture trade negotiation and trade promotion. After I left the administration in early 2017, I did some consulting around trade but now work for Edelman, a global communications firm where I work with food and beverage companies and other companies engaged in global trade and help them on public policy issues, on traceability and compliance with sustainability mandates, a number of those issues that will be familiar to your audience as well that are more and more prevalent when we look at markets for food and ag products.
Jon Doggett:
I know that you are not a Washington, D.C. native.
Darci Vetter:
Oh, yes. Important part. I am not. I am a Nebraska farm girl. My folks have a farm, and my extended family actually has a farm about 20 miles east of Grand Island, Nebraska.
Jon Doggett:
Okay, well, certainly glad to have you with us today. So, Ryan, tell us about Ryan.
Ryan LeGrand:
Sure. Well, I've been at the Grains Council for five years now, and I come from a background of trading. I traded my whole career, mainly distillers grains and a lot of other ingredients, mainly trading to Mexico and to several Asian destinations. It's been a real change from the trade coming to the Grains Council and having the opportunity to work directly with producers for the first time in my career. Just really enjoy it and feel that there's a great deal of purpose in the work that we carry out to council. So, it's been a nice transition from actually being involved in making the trades, executing the trades, and then coming to this area of market development and policy work. It's been a nice change to my career and really enjoyed it.
Jon Doggett:
Well, thanks, and thanks for being on the podcast. So, Darci, we're going to kick it to you. We talk about these trade negotiations, and I think a lot of us probably assume that they're real easy. Tell us about what's the basic process of getting, trying to get, but getting a new trade agreement in place?
Darci Vetter:
Well, I think when we talk about trade negotiations or negotiating a free trade agreement with other countries, we often think about the "with other countries" part, but these negotiations really happen on several levels, and there's a whole set of negotiation that has to go on domestically before you ever really approach your foreign counterpart, and that's figuring out the analysis. What do we have to gain from trade with a country? What does our current relationship look like? Where do we think we should focus? Which tariffs are most important? Which other barriers are most important to try and address in an agreement? You have to get support, support from the corn growers, support from Congress, support from other sectors of the economy, the Chambers of Commerce, the tech sector, our services providers.
Darci Vetter:
When we do trade negotiations with another country, it really addresses all products and services, and it addresses things like transparency and rulemaking and intellectual property protection and many other areas of policy. So, really understanding your starting point, your priorities and then getting buy-in is the first set of priorities in a negotiation, and from that, understanding what your priorities are, then you think about what is going to be your opening salvo with that other country, and of course, we have in the United States trade promotion authority, so the rules under which we negotiate and that Congress uses to designate authority to negotiate to the executive branch and to USTR.
Darci Vetter:
So, there are a number of notifications that we have to give to Congress. We have to outline our strategy, our priorities in accordance with that. So, launching a negotiation is a multi-month process to really be prepared for that first meeting, and then that first meeting requires getting to know your negotiator on the other side and getting to know their priorities, understanding the process they went through. So, when you hear their first set of demands, what they want from us, you understand what went into that, and you have a sense of their politics and their priorities when you start exchanging that information, and it won't surprise you that when we lay down our priorities, and what they lay down for us, whatever country that maybe, you don't get an agreement that first round.
Darci Vetter:
So, there's a constant set of recalibration where our priority that we want from them might be the hardest thing politically for them to do, and at the end of any negotiation, both the United States and Japan or Brazil or whatever country it might be will have to also pass the agreement through their political process. So, you have to understand their room to maneuver just like you have to understand your own room to maneuver and find the best possible set of solutions in there.
Darci Vetter:
All the while as you learn more about those partners and what's important to them and what you think is doable in their system, then you come back, and you brief groups like the corn growers, and you brief Congress again and say, "Here's the idea we started with. Here's the realm of the possible. How do we proceed to get the outcome that U.S. farmers or U.S. manufacturers of widget X or Y, what could you best use? So, which direction should we push?" So, it's really a multi-level negotiation that you're recalibrating at all times until you get to, yes.
Jon Doggett:
Getting to that endpoint on the art of the possible, always very, very difficult, and it always takes so much longer than you think. So, Darci, what in your experiences... You've had a lot of experience in this area. What surprised you the most about the process?
Darci Vetter:
Well, I think when I just started out negotiating, and this is really just a negotiation and a trust issue. What surprised me a bit about the dynamics of negotiation is sometimes you feel like if you're just really prepared, like you have all the numbers. You think you've built the relationships behind the scenes if you're really prepared that the negotiation will be easier because you'll be able to pull a fast one or to know something they don't know and reach an agreement that's really advantageous for you, and what you learn early on is that it can be tougher in the beginning and more nuanced and perhaps more frustrating when the other side is really prepared, but that when your negotiating counterpart actually understands the room to maneuver and actually understands what will be required to implement the agreement, you're better off.
Darci Vetter:
I think what we're seeing in some of the negotiations we're doing today that working toward a quick win or a short-term result seems advantageous, but when you negotiate trade agreements, you're negotiating the future relationship. It's not what you sell tomorrow. It's what are the terms of trade for tomorrow, how do you relate to one another? So, if you're not very clear on what those terms are, and if there really isn't political will to implement, then the uncertainty that you're supposed to be getting rid of in a trade agreement and make things transparent and clear and obvious, what the terms of trade are going to be just creeps back in because the other country can't implement well or didn't really understand the politics or the mechanics that were going to be required. So, a really prepared partner is actually a real asset in negotiations.
Jon Doggett:
Ambassador Lighthizer recently said he'd be willing to get rid of bilateral trade in favor of a functioning multilateral trade liberalization, something like resuming WTO, negotiating rounds, and actually maybe even possibly getting some progress out of that. I'm going to ask both of you, Darci, first, and then Ryan. Should we be focusing on bilaterals or regional free trade agreements or should we revive the multi-national trade negotiation process?
Darci Vetter:
I mean, all of the above, right? I mean, I have to say I found it a little surprising after months of seeing this administration question whether we should even be in the WTO to suddenly say that multilateral negotiations were the way to go. In the campaign as well, President Trump was very clear that we shouldn't do these regional deals because it undermined our leverage. So, exactly what the strategy is here is a little bit unclear to me, but I think that first of all, I think the last couple of years have really seen a muddying of the vocabulary we use in trade where we talk about trade agreements.
Darci Vetter:
When we used to talk about a trade agreement, it was a comprehensive free trade agreement with another country. So, all tariffs and things like intellectual property and non-tariff barriers, we tried to really address them. We talk a lot about doing agreements now, renegotiating an agreement with Korea. Well, we had an underlying FTA, and we changed a few provisions or doing an agreement with Japan where we addressed only a subset of tariffs. Agriculture happened to be some of them, but it wasn't a comprehensive agreement.
Darci Vetter:
So, what Ambassador Lighthizer means about what a trade agreement is, I think that's not entirely clear, but we have had bilateral negotiations to solve specific trade problems. Think about all the agreements we did to reopen markets to USB, for example, after BSE. Those were smaller specific agreements where we engaged bilaterally to solve problems. Cannot stop doing that. We send too many products to too many countries where we have to keep problem-solving all the time.
Darci Vetter:
Then there were bilateral free trade agreement negotiations. We did free trade agreements with Korea. We had negotiated the TPP, which was more of a regional agreement, and then you have the full multilateral type negotiations that you do in the WTO. The WTO is in a tough place. We have no functioning Appellate Body because the United States will not approve new Appellate Body judges. We have strong calls for reform. We have a big division between commitments that developing versus developed countries take on and how you classify those countries.
Darci Vetter:
So, yes, I think we would all to get back to the negotiating table at the WTO, but I think there's a lot of process work in the institution itself and frankly, some care and attention needed to the day-to-day functioning of the WTO and how we interpret and enforce those rules where we need to be more actively and more constructively engaged, but meanwhile, lots of our competitors are out there concluding bilateral or regional free trade agreements. The TPP11 went ahead without the United States when we pulled back and have now implemented an agreement, lowered tariffs to each other, and that group includes lots of our competitors in key agricultural exports.
Darci Vetter:
The EU is concluding FTAs right and left and gaining access to markets that we don't have as preferential access to. So, we can't take our eye off the fact that our competitive position is declining. We're really falling behind here by not doing these bilateral or regional engagements and forging those agreements. So, we have to be more multilaterally engaged and work on reforming and strengthening and advancing the WTO. We have to have a more offensive agenda and conclude new free trade agreements, and we have to strengthen our bilateral relationships and solve problems with the trading partners we already have to make sure that existing trade runs smoothly.
Ryan LeGrand:
I completely agree with Darci. We have to have a seat at the table, especially as we look at eroding market share around the world. We used to be the dominant player in corn exports to the world, and that has just been chipped away year after year, and now, as we look to enter trade agreements or exit them as we have, if we're not at the table as Darci mentioned, we lose influence. We lose the opportunity to help set the rules in that region.
Ryan LeGrand:
If you look, 55% of our exports of grains in all forms, so that's corn, barley, sorghum, ethanol, DDG, meat products. 55% of those go to countries with whom we have a free trade agreement. So, that just shows you the importance of entering into these agreements right there. The numbers don't lie.
Jon Doggett:
Darci, what are some of the dynamics outside of agriculture that drive trade policy? Certainly, we've seen a lot of... You alluded to it earlier. A lot of change since the 2016 election, but what are the dynamics outside of ag that really do drive those decisions?
Darci Vetter:
Well, I think right now, you see a huge emphasis on particular manufacturing sectors, and that has been stressed from the last presidential campaign to now that there's been concern about jobs and competitiveness in the automobile sector. That was really the driving force behind three and a half years of renegotiating NAFTA into USMCA and particularly some of the labor provisions behind that, steel and aluminum tariffs. What was driving that in part was overcapacity and subsidization of those sectors by China which were of, and continue to be, of real concern not just to the United States but to a number of our allies as well, but looking at jobs in the steel and aluminum sector and what the impact was having on producers of those metals in the United States.
Darci Vetter:
I think the troubling thing about focusing on those particular sectors, not that they're not worthy of our focus, is that depending on the tactics you use. Implementing tariffs as a first and opening salvo rather than a last resort, for example, means that the users of those products find themselves then at a disadvantage as we try to increase the advantage or the competitiveness of the producers, and our global supply chains for even those basic inputs like steel and aluminum are now so complex, and the types of steel and aluminum are so particularly specified and where they're produced that it's very difficult to just say, "I'm going to put this tariff in place, and it's going to be helpful to these jobs and throughout the supply chain without doing damage elsewhere."
Darci Vetter:
So, certainly, I think in this country the focus on those sectors has really driven trade policy, but the other area of trade policy that really needs development and where I would love to see us get back to the table in the WTO and think about how we develop truly global rules here is the development of the digital economy, and the fact that when the WTO came to be, it didn't even exist, and this is one of the positive things about incorporating the provisions of the TPP that were negotiated and putting those in USMCA was really an attempt to deal with e-commerce and the digital economy and updating some of those trade rules to be consistent with the way trade is conducted right now, and the fact that so many products are traded but also services delivered virtually now.
Darci Vetter:
We're doing this virtually today. Everyone's gone virtual. COVID has really driven that as well. So, figuring out how to tax digital taxation. The U.S. just announced a potential $1.3 billion in tariffs on France if it moves ahead with its digital taxes on digital companies based in the United States. So, what should the rules be for how we tax and otherwise regulate and protect privacy and deal with all the issues that come with that part of the economy? Climate is another. How are we going to measure and account for and be able to actively trade in things like carbon credits and do so consistent with other trade rules and not have those credits become just barriers to trade but opportunities for new sources of income for U.S. farmers, for example?
Darci Vetter:
So, those to me are three areas that really stick out is that there's an overlap of looking to more traditional trade-in goods, this overlap of trade and industrial policy where we have to look at subsidies and trade in traditional inputs like steel, aluminum, look at jobs in the auto sector, and then there are these emerging issues, which is the link between trade and environment and issues like digital trade that really need some attention so that we have clear rules of the road.
Jon Doggett:
Ryan LeGrand, CEO of the U.S. Grains Council. Describe the state of global trade for corn today, and how has that changed since you started as a trader all these many years ago?
Ryan LeGrand:
Yeah, complex is about the most simplistic way I can put it. We have more competition than we've ever seen. We're seeing a great deal of protectionism with the advent of anti-dumping and CBD cases just popping up around the world. We've actually coined a phrase within the U.S. Grains Council called "contagious protectionism." It seems like every time we turn around, we're fighting another AD/CVD case in one country or another. So, those dynamics of increased competition and increased protectionism are just a couple of things that I don't see going away anytime soon.
Ryan LeGrand:
As far as changes, there's just been so many changes in my 20 years of working in ag trade. Trade of many products to Mexico has increased dramatically since I started trading in the late '90s, early 2000s. Asia and southeast Asia has boomed as well with containers going over there. We bring the electronic goods over to the United States, and there's a backhaul opportunity for cheap freight to ship our ag goods grains and distillers grains over to Asia. So, that's worked out really well.
Ryan LeGrand:
China used to be a major corn exporter, major corn exporter, and now they're a net importer and a large one to boot. The entire Asian region as a matter of fact has really come on the scene. I saw an interesting number the other day. The Asian region is on track to top 50% of global GDP by 2040 and drive 40% of the world's consumption. So, when we look at areas of focus, that's one where we need to be focusing.
Jon Doggett:
We talk a lot about the emerging Asian market and the emerging African market, but there's another trend that we see more from the political standpoint, and that is economic populism, and I'm going to ask both of you to address that. Darci Vetter, former Ag Negotiator for USTR, where do you see some of this populism going that's seemingly spread across the world?
Darci Vetter:
Well, I think in a way that behavior... Ryan mentioned earlier this sort of contagious protectionism, right? When one market walls itself off, the response is sometimes to do the same. Then carve out the domestic market in your own country if you can't have access to another, and I think you're seeing some of that same contagion behavior on the populism or the nationalism side, and I think unfortunately that COVID has provided more temptation or an excuse for that kind of behavior, but it's very difficult I think for anyone country to supply the needs whether they're medical or in food and agriculture or other sectors fully on their own, and I think there is a tendency to suggest that policy at the border is going to solve these problems rather than a much stronger focus on building domestic supply chains, domestic labor capacity, thinking about the incentives that are there domestically for firms to participate in local, regional and international markets and not just to import or export.
Darci Vetter:
I think it's easiest if there seems to be a shortage of equipment or if in the case of Vietnam who put export restrictions, for example, on rice at the beginning of COVID. If the rice isn't making it to the local shelves to shut the border and say, "We're going to make sure all the rice stays in Vietnam." Well, if COVID is stressing your internal supply chains, it's interfering with trucking routes, or you get the people who process or package rice might be ill and not be able to get where they need to go. So, the problem might not be trade at all, but closing the border sends a sense of control and a focus on your domestic constituents. It can be very tempting to focus there first.
Darci Vetter:
But the fact is that if we want a more competitive manufacturing sector if we want to think about providing more options and risk management tools and strategies for dealing with low commodity prices and interrupted markets for our own farmers, we might want to think about what we're doing with those domestic supply chains, what we're doing in terms of risk management tools. Are we encouraging and helping farmers market both locally as well as into international markets? Are we helping them think in ways that builds capacity rather than suggesting that just controlling the products in or out will solve the problem?
Darci Vetter:
So, I think it's tempting for governments everywhere to batten down the hatches, close the borders a little bit and say that they're protecting their domestic constituents. I think our supply chains are far too complex for that, and I think in American agriculture, we've always been these surplus producers. The negative effects that when other countries start doing the same and limiting our access on... The negative effects of that overwhelm the positive effects pretty quickly.
Ryan LeGrand:
That's right. Unfortunately, when this happens around the world, U.S. agricultural products receive the brunt of the fallout, and it just does not help our situation. As we're looking to correct trade imbalances around the world, if we're out there placing measures on other countries, first thing they're going to come back at is our ag products. It just seems to happen every time because that is a major surplus item for us. So, it's really hurting us and would like to find a way to move away from it, but in today's environment, it's just very difficult.
Darci Vetter:
I think that just to go back to that point for a little bit, I mean, the retaliation impact on agriculture really can't be overstated, and I think Ryan brought that up. There's both the fact that food is emotional. So, when people want to provide some sort of control when it looks like we're not getting the meat that we need on our grocery store shelves, the impulse is to say, "Well, we should absolutely feed Americans first or whatever country it might be before we engage in trade."
Darci Vetter:
But when we start making trade limiting measures on steel and aluminum, on shoes or clothes or whatever it might be from China, the fact that we are so competitive, and we are export-dependent as agriculture means we are also the first and the easiest target when countries who face tariffs from us want to hit back and try to change that policy, and I think what's been hard for me to watch is what that means for farmers who are getting squeezed on both ends.
Darci Vetter:
So, when we put tariffs in place on steel and aluminum and engines and motors and all the things that farmers need to purchase to make their farms work and then other countries in retaliation put tariffs on the things that we produce, we pay more to produce it, and we get less for the output, and that really is hard when you're looking at six-plus years of low commodity prices before these trade wars started. That's pretty difficult to deal with but was utterly predictable because we know that when retaliation comes, it is often directed squarely at the U.S. ag sector.
Jon Doggett:
They know that going there is a good way to make things hurt.
Darci Vetter:
Absolutely.
Jon Doggett:
And one thing about it, farmers are not particularly shy about complaining to policymakers when they think that they're getting poked at a little bit. So, as we're recording this, we're about 112, 113 days away from the election, and of course, the subject of China has been part of the election process, and a lot of it has been discussed by a lot of different campaigns. We're down to two campaigns now. How does China factor into our trade strategy going into what's going to be a very contentious election? And whether we have a second Trump term or a first Biden term, where are we with our strategy? Where are we with our competitiveness in a lot of different places with China?
Ryan LeGrand:
Well, China is a big factor in markets no matter the product that they're buying at the time, and we've seen some very nice purchases recently, and I'll talk about those in just a second, but we have the phase one deal in place with China, and one of the most important items that I see in phase one is the longer-term overhaul of China's policy on biotech and their approval of biotech events. I think they promised to review and complete the reviews of new biotech events in an average of 24 months versus dragging it out for years and years.
Ryan LeGrand:
So, if they comply with that section of phase one, that is really going to play into our strategy long term for China for a long time to come, but short-term, they're in the market. They're active. We did have these purchase agreements that were part of phase one. The actual numbers haven't been made public, but they've really made a splash on the scene with large corn purchases, recently, sorghum as well. We're still waiting on DDG and ethanol purchases to come through, but China just made their largest U.S. corn purchase in history last night, and it was the fourth largest sale the U.S. has made to any customer in history.
Ryan LeGrand:
This was a sale of 1.7 million metric tons or just over 69 million bushels, and last week, they bought what was at the time their second-largest U.S. corn purchase. It's now the third with the action overnight. China is all of a sudden a top four export customer for U.S. corn. That's for old crop. That's for current old crop, and with today's purchase, which was all new crop and remember, it's early. They are currently our number one customer for new crop corn. So, when they're in, they make a big, big difference.
Ryan LeGrand:
When you look at a product like DDG, they're not buying it right now, but they can and do move the market when they're buying. When I was trading distillers grains, they came out of nowhere and started buying massive quantities in 2007, 2008, and from then until the most recent AD/CVD case where they levied tariffs on our product and trade ceased, we saw regular bidding wars between China and Mexico for ownership of U.S. distillers grains, and that's ultimately positive for ethanol margins of positive... going back to the U.S. corn farmer. So, they're a big, big factor anytime that they're in the market.
Darci Vetter:
Let me back way, way up here. I think there's an agriculture aspect to this, but what you asked about is what is our China strategy, and I have the same question. What is our China strategy? Trade should only be part of that strategy, right? I mean, we are seeing mass internment camps in Xinjiang, the new security law in Hong Kong, key elements on human rights, and encouraging democracy, and aggression in the South China Sea, making new land off of islands and installing military bases there. Investments in African land and the Belt and Road Initiative where they are inking new relationships and building infrastructure, but infrastructure that's all oriented towards sending supplies back to China and perhaps not in the long-term development interests of the countries that are signing on to this because they need the short-term development benefits.
Darci Vetter:
I'm not sure we have a comprehensive strategy, and that we are using our economic and trade conversations to further that strategy, nor do I think despite the power and the historical leadership of the United States, nor do I think we can do that alone, and we have chosen to take on China bilaterally to pull out these big pieces of leverage with tariffs and to focus those tariffs on getting what I think are very limited results. Do not get me wrong. I think these corn purchases are really important and a billion and a half consumers are always going to influence our ag markets whether they're buying from us or from our competitors, right? They're going to affect our prices.
Darci Vetter:
So, we need to be engaged, and we need to be encouraging those transactions, but if you just look at the decline in exports since the beginning of this trade war, we have already paid a lot for a very limited phase one deal and given where our relationships with China are right now, I'm not sure we're leveraged to get more from that, and the underlying reform in their business practices, things like IP theft, massive subsidization in their China 2025 policy for AI and electric vehicles and a lot of these really lucrative and important industries of the future, we haven't seen any reform there yet, and we've already paid a lot, and we've done it by ourselves.
Darci Vetter:
So, our allies aren't necessarily backing up the things that we're asking for or creating additional points of leverage to drive that reform. So, a real hard look at what our tools of influence are, what we're aiming them at, and where we're paying that we're aiming it toward getting the kind of payoff we need for a future strategic relationship with a real global power. I would like to see that, and I can't really state what our priorities are with China right now or how each of our points of leverage are being used to drive those priorities. It is not clear to me.
Darci Vetter:
Second, I think if you look at the areas where we have emphasized in agriculture that we want China to act, again, we focus that on short-term purchases, which for farmers who are really hurting now is important. Don't get me wrong. I want to see China purchase from the United States, but the fact is if we really focused on the terms of trade and again working with our allies, they would buy from us anyway. We have good product. We deliver it efficiently, and we do it transparently and on time and on spec. There are a lot of reasons countries buy from us, and it's not just because we made them write down a number. It's because we're often a really good place to get your ag products from. We're good at this stuff.
Darci Vetter:
So, focusing on that number I fear is a little bit misplaced, and this corn example is a good one. We spent several years putting together a case at the WTO, again, using our trade infrastructure, working with allies through the trade system to sue China about filling its quota for corn, about reducing its level of agricultural subsidies to its corn farmers that we knew were inefficient, and part of the reason that we chose to do that is we know that within China, they know that putting such a high domestic support price on corn and emphasizing corn production in a country that already has significant agricultural pollution and soil degradation and limited water, corn is probably not where they should be putting so many resources. They need to reform their own ag system.
Darci Vetter:
So, they needed I think external pressure to do the right thing, and by using that trade system, by bringing that case, by continued bilateral interaction, it was a not an open door but a door with not so much resistance to get to where we needed to be on corn, and we were I think making progress there. By putting purchases then as this big political win, did we pay for something they would have done anyway or where we had already won that in the WTO? So, again, I think we need to take stock of where these global markets are going, all the different forms of leverage and relationships and negotiation we have with these countries, and it's not always a high-stakes political trade-off that is needed to get the results that we want.
Jon Doggett:
And going to a new subject, as we all know, passage of USMCA that the U.S.-Mexico-Canada trade agreement was our biggest legislative lift over the last few years, and that was successful. Ryan LeGrand, now what?
Ryan LeGrand:
Well, we have certainty in our top corn market with Mexico. We have certainty in Canada, very, very important market for corn, distillers, grains, and ethanol as well. So, it's nice to have a modern and updated agreement. I'm sure Darci has a lot more to say on this than I do. I'm just glad we didn't have NAFTA canceled and get left with no agreement, which I was living in Mexico at the time when all this talk of canceling NAFTA was starting up and lived through that, and boy, it was just a real headache dealing with Mexican customers that were afraid that their number one market, the number one supplier was going away, and they started looking to Brazil and Argentina for increased supplies, and we've seen that happen.
Ryan LeGrand:
Part of that is due to increased competitiveness from the South, but we lost about 10 market share through this whole deal. We used to run 97, 98% market share for corn in Mexico, and now, we're... I think this past year, we were in the upper 80s or maybe lower 90s. Maybe it wasn't quite 10%, but it was a hit to our market share. So, I'm glad we have an agreement in place. NAFTA was probably the best agreement that the U.S. farmer had seen in history. So, it was fantastic, and I'm just very glad it's not canceled and we have something in place, an updated agreement.
Darci Vetter:
Yeah, I mean, I think... No disagreement that for Mexico, the United States was just the easiest market of choice. We developed a rail line right to their livestock center to deliver our grain, which ran just a couple miles from my house in Nebraska. Easy delivery of our corn there. Strong long-lasting relationships. If you needed agricultural inputs, you got them from your neighbor to the North, and when we renegotiated USMCA, particularly in this contentious environment, that raised questions, and it impacted our market share and certainty, but I think when I was making that point early on when we had the threats to pull out of NAFTA and the renegotiation to say, "Wait a second. This is putting in jeopardy our market share." The questions I got back sometimes inside the beltway was, well, we still have access to zero tariffs. Why does this matter?
Darci Vetter:
I think Ryan really just illustrated that businesses have to try and manage their risk and make good decisions, and what I heard from the ag community was we used to be able to write six-month contracts. They've gone down to 90-day or 30-day terms where we're constantly renegotiating, and it's not clear that we'll be supplying these markets in Mexico at the same price or at the same level as we have been, and there are of course transaction costs to all of that, and I think it's true having been a policy person all my life, not a traitor like Ryan was, that when we talk about the terms of trade, are there tariffs or not? What do the rules look like on paper? The people negotiating the terms don't always know what the actual practical parts of trading look like.
Darci Vetter:
I think one of the things that USMCA could teach us is how much the agricultural community and other business communities have to illustrate how uncertainty manifests itself in the price you receive, in those terms of contracting, in the paperwork you might have to fill out, and that it does make doing business harder when those terms of trade are unclear. It actually is more costly even if the tariff didn't change, and I learned a lot through this USMCA process as a trade policy person about actually how that uncertainty manifests itself in changing the bottom line for our farmers and ranchers and traders and processors of widgets who were losing market share because of future uncertainty, and I think that's just a lesson for the corn growers, for the Grains Council, for others to take away to say like, "Spill it out why this consistency is so important and why policymakers need to pay attention."
Ryan LeGrand:
That's right. I would just add that during all these discussions of the potential cancellation of NAFTA and tariffs that could come, sellers of U.S. corn started putting into their contract terms that said, "If tariffs are levied, these tariffs, they will be passed along to the buyer," and that really makes the buyer think twice about where they want to buy from.
Jon Doggett:
And Ryan, how many countries around the world does the U.S. Grains Council have a presence in?
Ryan LeGrand:
Well, we have eight international offices outside of the U.S., plus our U.S. office makes nine. We're looking to add a 10th office in India, New Delhi if we're given the approvals there. So, that's our office, and then we have a full-time presence in 13 additional countries where we have full-time consultants on the ground there, and through that network, we're able to operate and run programs in over 50 countries and the European Union. So, we are able to say that we work around the clock every day for the U.S. farmer because we are working in basically every time zone around the world.
Jon Doggett:
Okay, so when you're looking at promoting trade for corn and corn products around 50-some countries around the world, what makes this competitive, and what impedes that competitiveness?
Ryan LeGrand:
Our reliability and our consistency are major factors in customers buying U.S. corn. You know what you're getting when you buy from the U.S., and you know when you're going to get it. We don't have the long delays in port where vessels are sitting for 10 to 20, 30 days, waiting just to get loaded. We pull our vessels into the Gulf or into the PNW. They load efficiently, and they're shipped out and go on to their destination. So, consistency and reliability is very big. Price has been an issue recently. We've been with Brazil and Argentina and even Ukraine coming on. They have been able to produce corn as cheap or cheaper than us in many cases, and then this year, we've been hit by currency fluctuations.
Ryan LeGrand:
With the strength of the U.S. dollar, we've really seen additional problems that I guess we haven't seen too much in the past. The Brazilian real that's gone from... It hovered for many years in the upper threes or four reals to one dollar. It skyrocketed up to nearly six reals to one dollar. So, that just increases Brazil's competitiveness in a big way, and it's really hurt us this year.
Jon Doggett:
This is an issue, Ryan, that you and I have discussed and our staffs have discussed, but I'd like to take from both you and Darci, what role does sustainability or production practices play in market acceptance and the marketability of corn around the world?
Ryan LeGrand:
Sure. That's something we're starting to explore. We're doing that together with NCGA. NCGA started a task force on this, and we're trying to dovetail into it right now and add a little input and create a healthy discussion there, and we have people with strong opinions on this on both sides. My thought is that the world is moving towards more sustainable practices. Companies are starting to demand it, and the U.S. corn farmer has worked very hard to be more sustainable each year for decades now. So, why not showcase that? Why not tell our story?
Ryan LeGrand:
My thought is that if we have a way to showcase the U.S. farmer's sustainable practices without asking him or her to change their operation or telling them how to run their operation if we can do that, we should, but the sustainability I think is going to be an issue in areas like the EU and maybe Japan and other more prosperous countries, you could say, and then I think the developing countries and even third-world countries might take a little bit longer to come on and really place a value on sustainability, but if we can get ahead of the curve and showcase what the U.S. farmer is doing, I think we should be doing it.
Darci Vetter:
I think whether it's sustainability mandates or other things that could segment corn and other ag product markets, I think we need to look at this as a potential opportunity for farmers. The story behind food, the story behind all products in terms of their environmental footprint is going to continue to be desired by consumers and may be required by governments who are trying to meet their commitments in terms of environmental benchmarks, carbon commitments, that kind of thing. So, I think it's coming, and whether the U.S. takes on a commitment or not if other countries do, and if companies who operate in multiple markets and are going to want to contribute to those kinds of targets are taking them on, then all of their suppliers will need to be helping in achieving that goal.
Darci Vetter:
So, whatever you feel about the Paris accord, whatever you think should be U.S. policy, the fact is we are global suppliers of corn. So, we can't ignore the fact that people want to know the story behind their food and are going to want to know the environmental accounting behind the products that they're consuming whether as fuel or feed or food, but I think there are a lot of... At the same time that we're paying more attention to the environmental cost of or benefits of our products, there's also all of this development of technology to help us track that in ways that are consistent and less burdensome.
Darci Vetter:
If we can find a platform that allows farmers to be able to track that in a way that's more efficient, so that they can then market their product in the way that captures the most value for their effort, I think that's really a guiding question for our overall farm policy and for industry to try and get its hands around because I see huge potential not just for the carbon credits associated with your corn, but toward really matching buyers and sellers in a more granular way.
Darci Vetter:
So, instead of just hauling all of your corn and sending it to the local elevator, can you segment that, and can you be selling a certain starch corn? Can you be selling identity-preserved corn whether it's organic or non-GM or GM with particular qualities, right? That now that we're looking at a new generation of biotech that might be able to have nutritional traits and benefits. I think our commodities are in a way being de-commoditized both on environmental and on other quality grounds. So, how can we figure out what that means for farmers and their ability to market those products that bring value all the way back to the farm?
Darci Vetter:
That to me is just a fascinating question as we think about policy and how we can support new and diversified streams of income as well as the environmental and nutritional benefits that might come with doing that. So, I think it's really exciting if you take the question back to how have we structured our markets in a way that we can achieve these multiple goals.
Jon Doggett:
Ryan LeGrand and Darci Vetter, what are the biggest opportunities for corn short term and then long term?
Ryan LeGrand:
Well, short term, I think you've got to look at the China sales. I mean, we have our usual suspects in Mexico, Japan, even Korea. They're really driving the bulk of corn sales as they have for many years, but China has been absent in recent years, and now they're here. So, when we're looking at short term, I think that's where the opportunity lies to add incremental volumes, but longer-term, Asia, in general. South Asia is up and coming, and Southeast Asia will continue to strengthen. You've got Vietnam in that region. I think they're the world's largest corn importer. We get very little share of that. A lot of that goes to South America.
Ryan LeGrand:
So, any incremental volume that we can get into Vietnam, and they're a real powerhouse in the region. That would be good for us long term. We can't forget about Sub-Saharan Africa and the tremendous population and middle-class growth that's expected there. I think Nigeria is up at the top of the list when you're looking at population and middle-class growth over the next several years. So, they're going to be a focus. We're starting to negotiate a free trade agreement with Kenya, so that'll be one to keep an eye on as well.
Darci Vetter:
No disagreement there. I don't know how you define short and long term. I think in terms of selling corn and corn products, absolutely having a bit more certainty in our relationship with China and focusing on those Southeast Asian markets and really opening up opportunities there I think are critical. Long term, I think it goes back to that sustainability discussion, which is how do we value corn in its entirety, the product, all the things you can do with it, the different ways that we might market it and add value to it I think does require some attention. So, absolutely, we have to keep our eye on whether markets are open and where we're going to send those products and create stable markets for our corn, but I think we then have to look at what are all the places we can derive value from this product, and let's think creatively about what it is that we're marketing and how we might be able to distinguish again the work of our farmers in all these different ways.
Jon Doggett:
So, we're getting down to the end of this podcast, and we've had a wonderful conversation with Darci Vetter, former Ag Trade Rep and former Deputy Secretary of Agriculture of long, long, long, long history in ag trade policy, and we have Ryan LeGrand, CEO of the U.S. Grains Council. Any last comments or anything that you'd like to add that we haven't covered yet?
Ryan LeGrand:
I would just say with coronavirus, COVID-19, we tend to focus on how our lives have been upended and we focus on the difficulties of the virtual world and some things that have been made easier actually in this virtual world, but at the Grains Council, we've been trying to put out a key message of what has not changed, and that's the status of the U.S. grain export system. We remain the most reliable and consistent supplier to the world, and that has not changed, and we don't foresee that changing. So, that's the key message that we've been trying to put out to customers around the world.
Darci Vetter:
I guess I would say as we focus on trade, again, that in my experience as a trade negotiator and talking about agricultural markets, I had the opportunity to meet and talk to a lot of the customers of U.S. ag products, those who were interested in buying more from us, could we get those barriers down? A lot of what I heard, and again, was my stump speech when we were negotiating the TPP and trying to get its passage. A lot of what I heard was that it's not just that U.S. farmers are really good at creating a high-quality, consistent product, and that for the most part we have good systems and logistics and to get the product there, but that the U.S. had a regulatory and culture around trade where we tended to be consistent and not changing our policies and barriers at the border. It was informed by science. It was transparent. It was predictable.
Darci Vetter:
We had a rule of law that treated foreign and domestic businesses on more equal footing, and there was a sanctity of contracts. There was the whole way we do business was a selling point for our products. I mean, I even had some folks say, "Even if you can just get the tariff down low, I'll pay a little more to know what I'm getting and to do business with you because we like the way the U.S. does business." I don't think that has changed one iota in our business culture, and I think that U.S. business could do more to emphasize, "We want to remain globally engaged. We remain committed to these things," but I do think that renegotiation of USMCA, some of our unilateral measures may be sending a different measure on the policy side.
Darci Vetter:
So, it is I think more incumbent than ever for U.S. industry to say we see this relationship as here for the long haul. We are committed to these global markets. We want to be your global partner, and we're still here to produce those same great products and get them to you in the same way that we always have.
Jon Doggett:
Tomorrow, I will be observing the anniversary of my coming to the National Corn Growers Association 19 years ago, and through those years, occasionally, we would do some surveying, a poll at Commodity Classic or a poll at Corn Congress and say, "How important are these issues to you?" Up until several years ago, trade didn't break the top five. In most years, it didn't break the top 10. That's completely changed in the last two or three years. It's now in the top three or the top two, and we have a couple states where they say, "It's our number one issue." So, it is a more and more important issue to the corn industry and to the National Corn Growers Association.
Jon Doggett:
We're just absolutely delighted to have Darci Vetter and Ryan LeGrand here with us today. Thank you so much for being on, and we certainly have enjoyed the conversation and looking forward to continuing it in other places. So, with that, that does it for this episode of Wherever Jon May Roam. I'm Jon Doggett, the CEO of the National Corn Growers Association. Thanks for listening and tune in next month for our next episode.
Dusty Weis:
That is going to wrap up this edition of Wherever Jon May Roam, the National Corn Growers Association podcast. New episodes arrive monthly, so make sure you subscribe in your favorite app and join us again soon. Visit ncga.com to learn more or sign up for the Association's email newsletter. Wherever Jon May Roam is brought to you by the National Corn Growers Association and produced by Podcamp Media, branded podcast production for businesses. Podcampmedia.com. For the National Corn Growers Association, thanks for listening. I'm Dusty Weis.