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FTAs: Good News but May Not End Bankruptcies

by 5m Editor
3 November 2011, at 9:15am

DELAWARE, US - The state's poultry industry expects some help from US free trade agreements (FTAs) with South Korea, Panama and Colombia but a Senator has warned that continuing high feed prices could still bring down other poultry companies.

Delaware's hard-pressed poultry farmers and processors are set to boost revenues and add scores of jobs in coming years because of increased access to markets in South Korea, Panama and Colombia as a result of new FTAs with those countries, reports Delaware First.

The agreements, covering a range of agricultural products as well as other goods and services, could increase the poultry industry's revenues by as much as 10 per cent over the next two years, according to one estimate, as local growers move into markets that have been largely blocked by punitive tariffs on US producers but which will now see sharp reductions in those barriers, starting 1 January 2012.

The improved access to overseas markets will help relieve an industry that has struggled with rising feed costs, particularly for corn, in recent years, forcing the bankruptcy of the long-established chicken processor, Allen Family Foods, in June this year, and prompting predictions of further consolidation in an over-supplied market.

But the expected export increase is not expected to offset sharply higher feed costs and falling demand that have troubled the industry this year.

Mike Tirrell, vice president of human resources and business services at Millsboro-based Mountaire Farms Inc., said: "We are very interested in any sales opportunity whether domestic or export. But until input costs come more in line and demand picks up, the industry is going to continue to struggle."

Poultry – the most important contributor to Delaware agriculture, with more than $700 million in annual revenue – will benefit most from the trade deal with South Korea, already an important export market, especially for dark chicken meat.

The US-Korea Trade Agreement – signed by President Obama on 21 October, along with the other two pacts – eliminates duty on about two-thirds of that country's agricultural imports from the US. For poultry alone, increased access to the Korean market will boost revenues for the Delaware poultry industry by $1.27 million a year, according to the American Farm Bureau Federation (AFBF).

That compares with an additional $306,000 annually for the state's poultry exports to Colombia and $49,000 to Panama, the federation said.

Korea's tariffs of 18 to 27 per cent on frozen leg quarters, frozen breasts and wings and frozen turkey cuts, will be phased out between seven and 12 years, according to the AFBF. That country’s 27 per cent tariff on egg products will be phased out in 12 equal annual reductions.

Other farm products that are expected to see higher exports from the trade deals include wheat, soybeans and processed food and fish.

Dr Titus Awokuse, chairman of the University of Delaware's Department of Food and Resource Economics, said: "It's going to help. Those countries, especially South Korea, really love poultry products from the US. They have major barriers, so there should be a dramatic expansion in terms of those markets."

He estimated that revenue for the US poultry industry as a whole will grow by 10 to 15 per cent over the next two years, with Delaware's share increasing by five to 10 per cent, thanks to the deals.

He predicted more jobs will be created to meet the increased demand but said it is unlikely any new processing plants will be built for the next five years or so because existing facilities are operating below capacity.

Although Delaware's poultry exports to Colombia are relatively low at present, the pact with that country has good potential for growth because of Colombia’s vigorous economy which has grown by five per cent in the last 18 months, Dr Awokuse said.

"Whenever the economy is growing like that, food exports will grow much faster," he added.

According to Delaware First, under the agreement, Colombia will immediately eliminate a system of variable levies that result in tariffs as high as 209 per cent for US poultry exporters. The country will also immediately eliminate a 20 per cent duty on chicken leg quarters through a 27,040-metric ton tariff-rate quota (TRQ) that increases four per cent annually.

It will also phase out the 164 per cent over-quota tariff for fresh, chilled and frozen leg quarters and the 70 per cent over-quota tariff for processed leg quarters, over 18 years, with no reductions during the first six years of the agreement.

In Panama, where US farm products face an average tariff of 15 per cent, duties will be eliminated immediately on high-quality beef, frozen turkeys, soybeans, peanuts and other products.

The central American country has imposed a 260 per cent tariff on chicken leg quarters, a duty that has prevented Delaware processors like Mountaire from exporting there but which will now be phased out, helping to create an opportunity for the local industry.

Openings like that will generate an extra $45 million in revenue every year and 185 more poultry jobs in Delaware by 2022, according to the National Chicken Council.

In a statement, US Senator Tom Carper said: "Right now, our farmers face unbelievably high tariffs to these countries, which means many of them don't export to South Korea, Panama or Colombia. Lower tariffs on our agricultural products will help Delmarva's chicken growers sell more products overseas."

Despite the anticipated boost to farm exports from the new trade pacts, some US workers may lose their jobs if their companies are unable to compete with cheap foreign imports.

To offset such impacts, Senator Carper said he helped to pass a Trade Adjustment Assistance law that helps displaced workers retrain.

Delaware Agriculture Secretary, Ed Kee, said he hopes poultry exports – which currently account for about 15 per cent of revenue – will rise by up to five per cent as a result of the trade deals, with the first signs of progress in the next six to 18 months.

Growers and processors have welcomed the trade deals and are now looking to forge new business relationships or expand existing contracts, he said. "The devil is the details," he added.

But Mr Kee – who previously warned that the Allen bankruptcy likely foreshadows other US poultry failures, perhaps in Delaware – cautioned that expanded export markets will not be a panacea for an industry that has been hard-hit by high feed prices.

In an interview with Delaware First, he said: "I would not see this as a saviour. It certainly helps, and creates new markets. The issue that remains is high feed costs, especially for corn."

Bill Satterfield, executive director of Delmarva Poultry Inc., the industry’s trade group, welcomed the deals as presenting a new opportunity when prices have been depressed by oversupply.

He said: "Any time markets open up around the world, there is the potential to benefit the industry. That helps move prices up."