Key Valley industries like citrus, dairy and cotton are hurt by tariffs for second year
By John Lindt
CENTRAL VALLEY – For the second season in a row, United States fruit growers will face retaliatory export tariffs this shipping season imposed by some of our biggest customers including China, Mexico, Canada and the EU. And it isn’t as if Central Valley farmers are immune.
A look at the calendar tells the tale as Valley fruit is quickly ripening on millions of acres of trees and vines. With the ratcheting up of retaliatory tariffs now, growers of cherries, stone fruit, grapes, citrus and other commodities continue to face up to 50% duties or more – a recipe for another year of poor sales and lower prices.
After trade talks broke down last week China’s Ministry of Finance announced it will impose 5%-25% tariffs on thousands of U.S. exports beginning June 1 after the U.S. raised their tariffs last week. Much of the Valley’s produce was already impacted by high tariffs.
Looks like a repeat performance to many. “Nothing is changed from the first week in July of last year,” said Mark Powers, president of the Northwest Horticultural Council recently to the Packer newspaper. Last year, Northwest cherry shipments to China were off 41% compared with the 2017 season he says.
Even with neighbors Mexico and Canada where the trade war was supposed to be off the table, President Donald Trump has not removed punitive tariffs on their exports that maintains the retaliatory fees on our produce and milk products.
Milk and cotton, too
Valley dairymen and cotton farmers are the same slow boat to China.
Visalia dairy Co-Op CEO Andre Mikhalevsky of California Dairies recently told a congressional panel that a “much-needed recovery in U.S. milk prices was halted in 2018 due to trade retaliation tariffs with Mexico and China.”
In his testimony Mikhalevsky said, “Last July, Mexico imposed a 25 percent tariff on U.S. cheese to retaliate against our tariffs. This created significant turmoil for U.S. cheese manufacturers and the producer community having a direct impact in lowering milk prices. Mexico is the largest customer for U.S. cheese exports. Between July and December, 2018, the value of U.S. cheese exports declined eight percent due to these tariffs.
This past year, China issued retaliatory tariffs that included essentially all U.S. dairy products. This resulted in U.S. cheese and whey exports declining 40 percent year-over-year. Today, U.S. milk, cream, yogurt, whey, butter and cheese face a 25 percent retaliatory tariff, while lactose and infant formula face up to a 10 percent retaliatory tariff. We are now seeing a precipitous decline in U.S. dairy exports to China, including business that took years to develop.”
Competitors take our market
Mikhalevsky also points to President Trump’s decision to leave the Transpacific Partnership allowing other countries to export into Japan more cheaply than we can. “The Trans-Pacific Partnership (TPP) going ahead without U.S. involvement has affected our competitive position in a key region.”
Tom Vilsack, CEO of the U.S. Dairy Export Council says an agreement with Mexico would help boost U.S. dairy prices and keep existing foreign customers.
“We shipped $1.4 billion in dairy products to Mexico last year” – more than one-fourth of U.S. dairy exports. While we have a treaty in place “our competitors in Europe are expected to implement a lucrative new trade arrangement with Mexico by next year.”
Likewise with the other top local crop – citrus. Exeter-based California Citrus Mutual says shipments of citrus to China in January of this year are about half what they were in January 2018 – from 19.6 thousand metric tons in January 2018 to 10.7 thousand metric tons in January 2019.
So where is China getting its fruit fix? Increasingly, it is our low cost South American competitor, Chile.
Chilean fruit exports to China grew by 11% in 2018/19 season say industry reports. China is now the top customer for Chilean fresh fruit in Asia – China accounts for 22.8% of Chile’s global fruit exports. They are sending cherries, table grapes, plums, apples, nectarines and avocados. Chilean plum exports to Asia recorded an impressive growth rate of 78% this past season.
Of course, these are all the same fruit varieties we want to export.
The global trade war has hurt most U.S. ag prices across the board. Today cotton prices have sunk to the 62-cent level as wheat, cattle, hogs, corn and soybean prices all head for the basement on the futures market – in many cases below the cost of production.
Valley cotton growers are gloomy about prospects for this year’s cotton crop as they near their planting deadline. The U.S. is the world’s top cotton shipper and more than three-quarters of the domestic crop goes into exports, especially to China. Over 95% of California’s high quality cotton lint is exported each year.
California exported $88.5 million worth of cotton to Chinese mainland and Hong Kong in 2016. For the 2017-18 crop year, that value jumped to about $185 million due to increased shipments, said Jarral Neeper, president of Bakersfield based Calcot, who markets the Central Valley’s cotton.
With the tariff, the mills will have to pay more, and then that apparel will come back to the U.S. and hit consumers with a higher price, he said. “All of a sudden, your $80 Brooks Brothers dress shirt is 150 bucks,” Neeper said.
Not just Chile but plenty of other countries are taking advantage of our tariff standoff to bolster their own exports this summer.
Sun World quits
Bakersfield-based Sun World company, a fixture in the Valley table grape industry for decades has just sold off their vineyards. They will leave the table grape business citing a number of negative factors.
Those include the fact that “Spain and other producers are competing for Asian business that once was exclusively a market for California grapes.” They also cited competition from “Mexico on the front end and Peru on the back end eliminating the once profitable shoulder seasons for California grapes.”
Chinese citrus imports coming here?
Meanwhile USDA wants to open the U.S. to Chinese citrus and understandably, California Citrus Mutual says they have concerns. Former CCM president Joel Nelsen says there are worries over a “virus which I will call a cousin to citrus black spot. It is transmitted via fruit and leaves and ultimately creates spots on the fruit. If left untreated on an urban tree, which is where these things pop up first, it will lead to significant blemishes and spoilage on fruit and ultimately the tree loses leaves. It can be spread by wind and rain.”
Nelsen says he does not understand why we would offer to “give China access while they create a barrier.”
On top of that, Nelsen is increasingly concerned about low cost foreign suppliers like Chile sending in “an explosion” of citrus into the U.S. – directly competing with Valley farmers in the U.S. marketplace.