American corn farmers are losing a 100-million-bushel export market because the U.S. has not yet approved the Colombia Free Trade Agreement, according to grower-leaders and staff experts at the U.S. Grains Council (USGC).
“As a farmer, I am very concerned about the huge loss in our exports to Colombia,” says Terry Vinduska, USGC chairman and a corn grower from Kansas.
“Colombia dwarfs [the potential in] Cuba. We hear about opening our borders to Cuba, and I support that…but why are we not working significantly harder to have free trade with Colombia where there is so much more potential?” Vinduska asks.
Colombia has more than four times the population of Cuba, and Colombia’s economy has turned in a steady record of growth for the past decade. Poverty has fallen 13% since 1997, the inflation rate is near a 42-year low and Colombia is now the most business-friendly country in Latin America, according to the World Bank.
U.S. corn exports to Colombia have done even better, growing for almost two decades (see chart) and making Colombia the sixth-largest export market for U.S. corn producers.
That changed in 2009, when Colombia’s trade agreement with South America’s Mercosur group of nations reduced tariffs for South American grains. Since then, the value of U.S. corn shipments has dropped more than 65%. U.S. market share declined to 45% in 2008-2009 and is expected to be lower in 2009-2010.
“Argentine corn gets a 6.9% tariff, and it will drop to zero by 2018,” explains Kurt Shultz, who directs USGC programs in Latin America and the Caribbean. “Without the free trade agreement, we still have a 15% tariff for U.S. corn.”
That difference is enough to outweigh the normal U.S. freight advantage over South American corn and will put U.S. corn at an ever-greater disadvantage unless the free-trade agreement is approved.
Shultz is even more concerned about what the tariff difference can mean for future sales: “Colombia has tremendous growth potential with the advantages of a huge population and growing income, which will mean growing food demand.”
Both the Colombian swine and poultry industries have checkoff programs to develop their industries.
“We [the grains council] provide the catalyst, but 90% of the industry development is funded by Colombians,” says Shultz. “It’s a perfect situation for growth.”
But under current conditions, it may be Argentina and Brazil that cash in on the growing Colombian market. Brazil’s market share jumped from less than 9% in 2008 to more than 32% in the first half of 2009. Argentina made even greater gains, shooting from about 10% in 2008 to almost 65% in the first four months of 2010.
“Once [South American] agribusiness aligns the ships and transport infrastructure to serve Colombian importers, Brazil and Argentina will become more competitive, and the U.S. transportation advantage will narrow,” explains Shultz.
Colombians will also become more accustomed to using South American corn, he says. “We’re already seeing channels set up that weren’t there before. The U.S. could end up being completely out of this market in a few years.”
U.S. corn is not the only commodity affected by the tariff differential. The value of U.S. wheat exports to Colombia has declined more than 57%.