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Record U.S. Agricultural Trade Deficit Forecasted to Keep Growing

By Betty Resnick

After decades of substantial U.S. agricultural trade surpluses, staggering agricultural trade deficits over the past two years have caught the nation’s attention. For fiscal year 2024 (October 2023 – September 2024), USDA’s Economic Research Service estimates that there will be a record $32 billion agricultural trade deficit. The fiscal year 2024 deficit follows the current record deficit of $16.7 billion set in fiscal year 2023 and would be only the fourth agricultural trade deficit in the last 50 years. This trend reversal leaves many people scratching their heads, but your American Farm Bureau Federation Economics team is here to help explain how we got here.

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Background on Agricultural Trade Mix

Agricultural trade is essential to our nation’s food security, and benefits both 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. 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. Many cannot live without their daily cup of coffee, a tropical import we do not grow in the continental United States. (Apologies to Hawaii and Puerto Rico, which combined grow approximately 0.2% of the coffee we consume).

Some of our seasonal fruit and vegetable producers have been squeezed by imports from our southern neighbors; but much of what we import does not directly compete with domestic agricultural products, and some of those imports are value-added products produced with raw agricultural products exported from the U.S. In fact, 16% of total forecasted fiscal year 2024 imports consist of coffee, cocoa, distilled spirits and beer. Other imports complement U.S. domestic production. For example, much of the beef imported to the U.S. are lean cuts that are blended with fattier, U.S.-raised beef for desired levels of leanness in ground beef. Without imports of lean beef, U.S. ranchers who focus on growing the highest quality beef in the world for premium cuts for delicious steaks would miss out on the market demand for ground beef.

The category with the largest trade deficit is horticultural products – predominantly made up of specialty crops including fresh fruits and vegetables.

Rising Imports and the Challenges to U.S. Specialty Crops

The category with the largest trade deficit is horticultural products – predominantly made up of specialty crops including fresh fruits and vegetables. Accounting for 49% of all imports by value, it has increased by $22 billion (+31%) since fiscal year 2020. In part, the increase in horticultural products reflects a thriving U.S. economy. As real income per capita increases, consumers are demanding more fresh fruits and vegetables. This is also reflects the strong U.S. dollar and a focus on healthy diets.

However, rising imports are both a cause and effect of the reduction in U.S. fresh fruit and vegetable production, which has declined in volume by 10% and 23.1%, respectively, since 2000. U.S. fresh fruit and vegetable production is declining 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. Production of many fresh fruits and vegetables is extremely labor intensive. For U.S. agricultural production broadly, labor accounts for about 10% of expenses. For fruit and vegetable production – labor costs account for 38.5% and 28.8% of input costs, respectively.

Seasonal agricultural producers have access to the H-2A temporary worker visa program, a generally reliable but pricy option to bring in workers from other countries. Farmers are increasingly using the H-2A visa program, under which 378,000 jobs were certified in fiscal year 2023 – three times the number certified only 10 years ago. With the H-2A visa program, producers must pay an hourly rate set by the government called the “Adverse Effect Wage Rate,” which is established regionally based on local rates for field and livestock workers. The AEWR has risen precipitously in recent years, climbing an average of 5.9% annually since 2019. In 2024, the national AEWR is $17.55 per hour. In California, the largest fresh fruit- and vegetable-producing state, the AEWR is $19.75. In addition to the required AEWR, employers provide housing, food, transportation, visa fees, insurance and other expenses for every worker. At the same time, agricultural workers in Mexico are estimated to make almost the same amount in an entire day than for one hour of work in California paid at the AEWR rate.

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While high labor costs are raising the cost of producing specialty crops domestically, increasing imports during the growing season are lowering prices and potential revenue for U.S. producers. Increasing costs and decreasing revenues make for an unprofitable business, and a further reduction in U.S. fruit and vegetable production. This is especially prevalent in the months just before and just after peak domestic production, when producers often made their highest profit margins.

This phenomenon is demonstrated below in the U.S. table grape industry, i.e., the grapes you eat. Over 99% of all U.S. table grapes are grown in California and they are available in stores from May to January. While in 2004 only 2% (11,200 MT) of all table grape imports occurred between July and November, in 2023 the share had grown to 13% (104,000 MT). For the shoulder months of July, October, and November – imports have grown an overwhelming 1,126%! Compared to 2004, U.S. table grape production is roughly the same, but between marketing years 2018/19 and 2022/23, production declined by 19%.

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