May 24, 2006

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COLLEGE STATION – Immigration reform and high energy prices could impact revenue from Texas' agricultural export industry, a Texas Cooperative Extension economist said.

More than $3.5 billion was generated from agricultural exports in 2004, helping employ more than 90,000 workers statewide. But high fuel and labor costs could cut profits, Dr. Parr Rosson said.

Meat processing and vegetable packing businesses are particularly dependent on immigrant workers, he said.

"A lot of these jobs traditionally have been held by either first- or second-generation immigrant workers," Rosson said. "And to the extent that we go through a period where those workers are constrained and can't come into the country, those businesses are going to experience higher costs because they will have to pay higher wages to attract other workers. That certainly would affect the competitiveness of the export industry."

At the Texas Ag Forum in San Antonio recently, John McClung, president of the Texas Produce Association, said, "We can't operate without the labor base we have now. We need a guest worker program."

Long-term high fuel and fertilizer prices could also affect revenues, leading to higher-priced products, "particularly processed goods," Rosson said.

"In terms of bulk commodities, it would be difficult to say if we'd lose our competitiveness, but we may go through a period of time where those products would face additional competition internationally that they don't (currently) face because of higher energy costs," he said.

Not only will producing the commodities on the farm cost more, Rosson said, moving them to the market place will be more expensive, whether domestically or to a port facility for exporting.

"That will all take a toll," he said.

To help offset the potential high production costs, the economies of many foreign countries continue to grow, which will increase export demand.

"We're seeing some resumption of growth in Japan and other Asian markets," Rosson said. "Korea and China are growing. We've seen a pick up in economic growth in the European Union and seeing a pick up in Latin America. That's certainly good news from a standpoint of export potential."

Exports of agricultural goods produced in the U.S. is big business. About $10 billion in agricultural exports are marketed to Canada annually, followed by Mexico, which receives nearly $9 billion, Rosson said.

Mexico initially was a bulk commodity market, but now receives shipments of boxed beef and poultry products, especially frozen foods, as well as U.S. beverages such as wine and beer.

"It's become a wide-based consumer market," Rosson said. "What's become important is with the experienced decline of Asian markets, we've seen no big drop off. As a result, Mexico and Canada have picked up the slack. Exports have increased."

Over the past decade, agricultural exports to Mexico has grown due to U.S. grocery retailers establishing a marketplace. HEB entered the market in the 1990s, and Wal-Mart has aggressively expanded its stake with supercenters throughout the country, Rosson said.

"The Mexican retail business has also adjusted to compete with those efforts, which is good news for U.S. agriculture products," Rosson said. "It's created additional demand that wasn't there before."

China is also an important export market. In 2005, the country became the fifth-largest export market. China is a large holder of U.S. debt securities ($281 billion), next to Japan ($694 billion), providing a large supply of capital to spark economic growth, Rosson said.

"(China as a big export market) is a welcome development," he said. "Because exports had not been growing at very rapid pace last year, China was able to turn that around."

Cotton, oil grains and oil seeds are a few of the leading commodities exported to China.

"While beef sales haven't been important to this point, there's a lot of optimism with the population base in China growing," Rosson said. "As their economy grows, it's anticipated that it will help develop a larger urban population. With that, our exports of beef to China will begin to pick up significantly."

With the 2002 Farm Bill scheduled to expire in 2007, new farm legislation will weigh heavily on the U.S. agricultural export industry. One of the key issues is how policymakers will change the current farm program to comply with World Trade Organization rules.

"In particular, what will be looked at closely is which of our programs will be compliant and changed to adjust to any rules that come out of WTO," Rosson said. "Because of that, we're going to go through a period where we're not real sure if we will have a new farm bill next year, or wait until after the WTO negotiations are concluded.

"Nobody knows right now. They've missed a deadline in late April. As a result of that, it's thrown more uncertainty than existed before."

One of the changes will deal with export credit guarantees, Rosson said. When Brazil won a 2005 ruling that found U.S. cotton subsidies created unfair trade practices. Export credit guarantees were also affected.

U.S. companies had been extending export credit to foreign buyers, which enhanced demand for domestic agricultural products, Rosson said.

"As a result of that case, those (subsidy) programs are going to have to change," he said. "We're not going to be able to extend export credit guarantees for up to three years, for example. Those are going to have be cut back to three months."

The U.S. Department of Agriculture has already implemented regulatory changes, and those will be reflected in a new farm bill, Rosson said. Marketing loan programs are also likely to be modified, he said.