After decades of substantial U.S. agricultural trade surpluses, staggering agricultural trade deficits during the past two years have caught the nation’s attention.
The U.S. Department of Agriculture Economic Research Service projects a record $32 billion agricultural trade deficit for the 2024 fiscal year. This follows a record deficit of $16.7 billion in 2023 and would be only the fourth agricultural trade deficit in the past 50 years.
Agricultural trade is essential to our nation’s food security and benefits farmers and consumers alike. Farmers find export markets eager to buy U.S. products that we grow in abundance, such as grains, oilseeds, meat and more. American consumers have become used to eating fresh fruits and vegetables year-round, much of which would be impossible without imports from our southern trading partners.
The category with the largest trade deficit is horticultural products—predominantly specialty crops, including fresh fruits and vegetables. Accounting for 49% of all imports by value, it has increased by $22 billion since fiscal year 2020. In part, the increase in horticultural products reflects a thriving U.S. economy, the strong U.S. dollar and America’s focus on healthy diets.
However, rising imports are both a cause and effect of the reduction in U.S. fresh fruit and vegetable production. These sectors have declined in volume by 10% and 23%, respectively, since 2000. This is due to a multitude of factors, including land loss due to urban encroachment, diseases such as citrus greening and, probably most importantly, a lack of affordable and available farm labor.
For fruit and vegetable production, labor costs account for more than 38% and 28% of input costs, respectively. Increasing costs and decreasing revenues make for an unprofitable business and a further reduction in U.S. fruit and vegetable production.
The phenomenon is demonstrated in the U.S. table grape industry. More than 99% of all U.S. table grapes are grown in California and are available in stores from May to January. While only 2% of all table grape imports occurred between July and November in 2004, the share had grown to 13% in 2023. For the months of July, October and November, imports have grown an overwhelming 1,126%.
Meanwhile, two major factors have contributed to the decline of the value of U.S. exports since 2021: falling commodity prices and the strong U.S. dollar. As corn and soy prices fell, the export value naturally decreased.
The strong U.S. dollar is also making U.S. products less competitive on currency exchange alone. For instance, Japan is consistently a top-five market for U.S. agricultural products. The Japanese yen is the lowest it has been against the dollar since 1990.
While this exchange rate is great for U.S. tourists visiting Japan, it is very difficult for Japanese consumers seeking to purchase quality U.S. products.
U.S. grain and oilseed exports are seeing headwinds from rising competition from Brazil. Efforts by China to become less dependent on agricultural imports from the U.S. are also having an impact. In fact, fiscal year 2024 is forecasted to be the first year that Mexico is the top destination for U.S. agricultural exports.
There is also a growing trade deficit in animal fats and vegetable oils spurred by rapid market—and policy-driven—growth demand for feedstocks for renewable diesel production.
It does not help that the U.S. has not entered any new free trade agreements with new trading partners since 2012 as the rest of the world has continued to sign more FTAs. For example, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, formed by the other partners in the aftermath of the U.S. abandoning the negotiated but unratified Trans-Pacific Partnership, is quickly slashing tariffs for other exporters in major U.S. export markets on the Pacific Rim.
This is causing U.S. market shares to shrink for products ranging from frozen fries to blueberries to pet food.
USDA Market Access and Foreign Market Development programs support agricultural exports by providing matching funds to industry groups that promote U.S. agricultural products abroad. But funding has not been increased since 2006 and 2002, respectively. The farm bill passed in the House Committee on Agriculture seeks to double MAP and FMD funding.
The expanding trade deficit reflects some serious challenges imposed on U.S. agriculture, including lower commodity prices, stress in domestic specialty crop production and less competitive access to many traditional U.S. export markets, among other factors.
Policy changes to stem rapidly increasing farm labor costs, increase exports by negotiating lower tariffs and better market access and more international market promotion funding could help return the U.S. to agricultural trade surpluses.
Betty Resnick is an economist for the American Farm Bureau Federation. This article is condensed from her Market Intel report, “Record U.S. Agricultural Trade Deficit Forecasted to Keep Growing,” which may be found at fb.org/market-intel.
