Farm Bill Discussion Needs to Focus on Food Security as Foreign Competition Takes US Markets
As the discussions are well underway for the next Farm Bill, there is an increased focus on food security and food as medicine. Working with the hard-working men and women that produce and process American fruit and vegetables, these foods are a key element of both those discussions. They represent 10% percent of all domestic food manufacturing with $18 to $23 billion in annual sales. Overall, the food manufacturing and processing industry is a critical part of the American economy containing approximately 15% of the American manufacturing base including over 30,000 plants and 1.5 million American jobs. The USDA's Dietary Guidelines state that processed fruits and vegetables offer the same nutritional value as fresh produce and recommend consumption of all forms of fruits and vegetables. Even more important, processed, shelf stable foods especially American grown fruits and vegetables represent a “value” proposition to consumers, particularly lower income and to institutions, by providing nutritionally equivalent food to fresh fruits and vegetables, but in a more convenient, shelf stable and more affordable package. If canned food manufacturers cannot maintain this “value” proposition for consumers the least among us will be harmed. We learned just how valuable the American consumer thought these products were as their use increased during the Covid Pandemic. And we all learned first-hand about the need to focus on Food Security and supply chains in America.
Yet as this discussion begins, that value proposition is being threatened. First, by well-meaning provisions in previous Farm bills and other legislation regarding the federal government purchases of fruits and vegetables for the WIC and school lunch programs that lock domestic processed fruits and vegetables out by creating set asides for fresh produce that is generally imported. Second, tariffs imposed to level the playing field with China and to help the domestic steel industry have had the untended effect of hurting American farmers, food processors and workers by making canning materials expensive for domestic use, driving up costs and causing shortages. This has enabled imported processed fruit and vegetables to gain significant market share in the U.S. market over American grown.
In this Farm Bill, there should be no room now for special interest provisions or set asides that don’t encourage all forms of fruits and vegetables for both food security as well as for improved diets and health. This Farm bill cannot afford to continue leave an important source of American grown, affordable, shelf-stable nutrition on the sidelines. We have also learned the danger of subsidizing foreign imports during the months when domestically-grown fresh fruits and vegetables are unavailable.
In the interests of national security, there is now a recognition that we need to increase domestic supplies and manufacturing here in American.There has long been such a “Buy American” standard for school food purchases with taxpayer money, but it is not being enforced. Its exceptions allow subsidized foreign imports of fruits and vegetables to bypass the law if there is a so-called “significant cost differential”. That this cost differential is likely foreign subsidy or discounts provided doesn't matter. This exception is one of the main reason for ignoring the "Buy American" rule. Its application has disrupted sales of domestically produced food products into school food programs across the country. While USDA is reviewing the Buy American rules right now, we urge Congress to ensure “Buy American” rules cannot be ignored.
And then there are the tariffs on tinplate steel for food cans. Since the Trump Administration initiated the Section 232 tariffs on steel and aluminum in 2018, American fruit and vegetable farmers and processors have been asking the Administration to exclude the tinplate steel used for those cans. Not only is it a specialty product, with no national security application, but the domestic tinplate steel producers can only satisfy 58.5% of the demand so the gap has to be filled by imported tinplate steel. The U.S. steel industry has not and will not re-invest in this specialty product because it is too low margin. Nevertheless, a 25% tariff was imposed and remains on the tinplate. And the result is devastating to the industry.
Why? In the canned food sector, their profit margins are razor thin and demand is elastic meaning that it is nearly impossible for producers to pass on the tariff charge costs. Over 40% of the cost of a can of vegetables is the steel can, even before the tariff, with a little over 20% being the actual vegetable or fruit. This 25% tariff hurts the entire value chain for fruit and vegetable processors, farmers, and suppliers. In addition, in the case of China, they are exporting their subsidized processed fruits and vegetables into the U.S. with no tariffs and selling them into the U.S. school lunch programs and other institutions at prices lower than local American products grown less than 90 miles away can offer now with a 25% tax on each can.
American food processors have been hit with tariff charges in the hundreds of millions of dollars forcing them to shutter plants across the country, including the world’s largest peach processing facility located in California, with the loss of good American jobs.
While the Department of Commerce has provided a very arcane process for companies to individually request exclusions from the tariff, many of these applications across this industry have been denied or are still paying the tariffs because many of the countries imported from now have quotas on how much they can sell, so you can't buy it from them at any price. These tariffs have backfired and are replacing American fruits and vegetables on our shelves with more expensive options, mostly foreign food imports.
To underscore this point, on March 15, the U.S. International Trade Commission (ITC) released a report - mandated by Congress - rejecting claims that China, or other countries, rather than U.S. companies, paid the cost of over $300 billion worth of goods that the U.S. levied tariffs on between 2018 and 2021.
More importantly for food industry, the ITC report found with regard to the Section 232 'national security' tariffs imposed on necessary tinplate steel imports that "U.S. importers bore nearly the full costs of these tariffs because import prices increased at the same rate as the tariffs." So, despite the fact that the American steel industry cannot meet the American food industry demand for tinplate steel for its canned foods, these tariffs remain increasing the cost of shelf stable food and increasing food inflation for Americans trying to make ends meet.
Specifically, the ITC determined that import prices on goods increased by about 1% for each 1% increase in tariffs on those same goods. As a reminder, President Trump imposed a 25% duty on steel, a 10% duty on aluminum, and a 7.5% duty on Chinese goods. This helps explain our food price inflation problem.
SIDE NOTE: Check out the Constitution Parters alert on the ITC report here
If you look at the dramatic increase in imports of fresh and shelf stable fruits and vegetables, it is clear that our foreign competitors are taking advantage of these tariffs and set asides. They are lobbyng hard to maintain and expand “fresh” produce set asides for school programs. Of course, America does not grow a lot of fresh produce during the school year, so the vast majority of the fresh fruit and vegetable in schools is imported fruits and vegetables because processed fruit and vegetables are expressly prohibited from competing.
Beyond driving up the cost of U.S. canned fruit and vegetables, the absurd tariffs do not apply to imported canned foods. So, inferior canned peaches from China have a competitive advantage in pricing. The impact is large. The cost of canning materials is typically higher than the cost of the fruit or vegetable content of the can,
According to a recent study on USDA Agricultural Projections to 2031, the value of U.S. agricultural imports is projected to increase by an average annual rate of 6 percent a year over the next decade because domestic consumer spending is expected to remain strong for agricultural goods that continue to exceed domestic production. Domestic production of all fruits and vegetables for fresh or processing is only expected to grow a meager 3% over the next decade with all the barriers they face by law. Meanwhile, imports of processed fruits and vegetables will jump by 50% over the same period.
With the next Farm Bill under discussion, it is time for the U.S. Congress to take account of how its special set asides in feeding programs have hurt U.S. farmers to the benefit of foreign farmers and importers. Also, Congress should use its oversight authority to shine a light on how President Biden’s continuation of the tin plate tariffs are undermining his efforts to advance the interests of American workers.
