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CAFTA-DR results ‘nothing short of great’CAFTA-DR results ‘nothing short of great’

Marketing efforts and access paying off in region.

Krissa Welshans 1

March 21, 2018

5 Min Read
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U.S. undersecretary for trade and foreign agricultural affairs Ted McKinney recently led a U.S. Department of Agriculture trade mission to Central America, making it a good time to review where the U.S. stands on its free trade agreement with Central America and the Dominican Republic, known as CAFTA-DR.

CAFTA-DR is a regional trade agreement between the U.S. and Central American trading partners that include Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and the Dominican Republic. The agreement allows favorable tariff treatment for more than 95% of U.S. agricultural products, including corn, according to USDA.

“It’s been just over 10 years since we started cutting agricultural tariffs on both sides, and the deal has delivered exactly as trade agreements are supposed to,” USDA trade counsel Jason Hafemeister said in a USDA-published article about the recent trade mission. “Going forward, a deal that has been a solid positive for U.S. agriculture has the potential to get even better as further market openings create more opportunities for U.S. exports.”

According to Hafemeister, U.S. agricultural exports to the CAFTA-DR countries were worth $1.6 billion in 2003, the last year before the deal was inked. At that time, the U.S. was selling a lot of corn, wheat, soybean meal and rice to the region.

CAFTA-DR meant that tariffs would eventually be phased out, except for a handful of sensitive products for which access would be provided through tariff-rate quotas.

“Recognizing the challenge of adjusting to a free trade environment, a number of products tariff phase-outs were extended for up to 20 years. In the interim, the United States provided capacity-building assistance to its CAFTA-DR partners to facilitate trade going both ways,” Hafemeister explained.

The results, Hafemeister said, have been nothing short of great.

“While all the countries in the CAFTA-DR region face significant challenges, the (gross domestic product) of the region has effectively doubled, even as barriers to U.S. exports have fallen. U.S. ag exports have grown to $4.3 billion,” he said.

Exports of dairy, livestock and poultry products, which were valued at less than $70 million for each category in 2003, have seen large gains. By 2017, exports of dairy products increased to $165 million, livestock to $336 million and poultry products to $283 million. Exports of fresh fruits and processed vegetables now exceed $100 million each. Corn and rice exports have nearly doubled to reach $663 million and $171 million, respectively. Also, while soybeans and products faced fewer barriers, Hafemeister said exports have still benefited by seeing increased demand in the region, and annual exports now stand at almost $1 billion.

“For the CAFTA-DR countries, agricultural exports to the United States have more than doubled to $5.8 billion in 2017, led by imports of bananas ($1.6 billion), coffee ($1.1 billion) and pineapples ($518 million) – all basically double the pre-CAFTA-DR levels,” he noted.

Even with the growth so far, there is plenty of room for more growth, Hafemeister said.

“Tariffs are still being phased out on many products (the last tariff comes off in 2026)," he noted. "U.S. exporters are developing new contacts, including through this week’s trade mission captained by undersecretary McKinney, and the prospects for further economic growth in the region are good, particularly if all countries continue to pull together to facilitate trade.”

Grain industry efforts

The U.S. Grains Council (USGC) has worked closely with livestock and feed producers in Central America since the early 1980s. The combination of the council's work and the preferential trading terms in the CAFTA-DR region have helped accelerate meat, egg and milk production and expand overall U.S. market share in the region.

“We certainly want to make sure we capture any and all markets, especially those in our geographic vicinity,” said Marri Tejada, USGC regional director for the Western Hemisphere. “Although the individual countries might appear small, together, they make up a significant market."

Tejada said the sector has been creative with its limited resources, often combining ports of destination, all while still seeing consistent growth. “Livestock sector growth is driving the economic pace, which is remarkable for the members of the CAFTA-DR compared to the rest of Latin America," Tejada added.

USGC said since CAFTA-DR was enacted in 2006, the agreement has worked to emphasize the U.S.'s comparative advantages to regional buyers and end users.

“Educational efforts have proven effective for building knowledge and confidence in both U.S. coarse grains and co-products as well as the cost savings opportunities buyers can leverage,” the council noted.

For co-products like dried distillers grains with solubles, efforts have led to substantial increases to some markets. For example, USGC said since the agreement went into effect, exports have jumped significantly to El Salvador and Guatemala, rising 26-fold and 11-fold, respectively.

Overall exports of grain in all forms to CAFTA-DR countries set a new record in 2016-17 at 5.28 million metric tons (208 million bu.), a 22% increase from the previous year. USGC pointed out that the majority of those exports were corn, which also hit an all-time high at 4.05 mmt (159 million bu.) in sales, a 28% increase year over year.

In the current marketing year (September 2017 to January 2018), Costa Rica ranks as the seventh-largest market for U.S. corn, with 310,000 mt (12.2 million bu.) sold after setting a new record for sales in the previous year. Additionally, Guatemala is now the eighth-largest customer for U.S. corn, with 243,000 mt (9.57 million bu.) in exports thus far.

This combination of increasing demand, close proximity, favorable trading terms and market development work make Central America a convenient and growing market to watch for U.S. exports of grain in all forms, USGC said.

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