Tariffs and trade wars have taken a toll on the U.S. apple industry and will most likely continue rolling into the 2019 season.
Speakers discussed tariffs and the upcoming crop during the U.S. Apple Association’s Apple Crop Outlook & Marketing Conference held in Chicago in August, and the conversations continued off the agenda as well.
USApple invited U.S. Department of Agriculture’s undersecretary of agriculture for trade and foreign agricultural affairs, Ted McKinney, to speak about trade issues on the second day of the conference.
“We have a lot of trade disputes going on right now,” McKinney said. “(The Trump administration is) part of that, but we’re trying to level the playing field.”
The “level playing field” analogy may fall short for apple exporters, who faced retaliatory tariffs following the U.S. government’s move in March 2018 to apply Section 232 steel and aluminum tariffs to multiple countries.
Important apple markets such as China, India and Mexico all retaliated, said Todd Fryhover, president of the Washington Apple Commission. The best thing the U.S. government can do for the apple industry is to remove the 232 steel and aluminum tariffs, Fryhover told Good Fruit Grower after the conference. That’s what happened with Mexico, and trade immediately re-stabilized.
McKinney said the retaliatory tariffs have targeted U.S. agriculture because it’s a “ripe target.” He’s right. According to media reports, sales to China of U.S. soybeans, pork, wheat and other products have dried up since the trade war began.
The Trump administration is aware of the declines in agricultural trade and is looking for ways to mitigate them, McKinney said.
USDA purchased $83 million of fresh apples in fiscal year 2019 as part of its trade mitigation program. But the value of U.S. fresh apple exports declined by roughly $250 million from 2017 to 2018 (from $1.1 billion to $854 illion), according to USDA data.
“We want to get rid of the tariffs, but it takes two to tango,” McKinney said. “This is not the time to retreat and lose our progress. If we get to some semblance of fair trade, things can get better.”
Shortly after McKinney’s presentation, which focused in part on the administration’s efforts to improve trade relationships, President Donald Trump tweeted in response to newly announced Chinese tariffs: “Our great American companies are hereby ordered to immediately start looking for an alternative to China.”
Mexico answered the initial 232 tariff by applying a 20-percent tariff on U.S. apples in June 2018. Fortunately, Mexico removed the tariff in May 2019, after the U.S. repealed the 232 tariff on Mexico and Canada, Fryhover said.
“The situation has stabilized in Washington’s No. 1 export market, which is welcome news to the industry as we start the new 2019–20 crop year,” Fryhover said.
Many speakers at the USApple conference spoke of the need for all parties to ratify the United States-Mexico-Canada Agreement (USMCA), the proposed free trade agreement between the three North American countries. Mexico has already ratified the agreement, and there’s a good chance Canada and the U.S. will do so this fall, said Diane Kurrle, USApple’s senior vice president.
Mexico and Canada make up about half of the U.S. apple export market, Mark Seetin, director of regulatory and industry affairs for USApple, said.
“The sooner that tension gets put to rest, the better off we’ll be,” he said.
USApple has been working closely with the Trump White House and Congress to make sure USMCA is approved, said Kaari Stannard, chair of the USApple board of directors.
“We must continue free access to Mexico and Canada,” Stannard said.
China responded to the 232 tariff with a 15-percent retaliatory tariff in April 2018. When the U.S. imposed an additional tariff, China responded with another 25-percent duty, Fryhover said.
The tariff escalation was one of three factors that had a huge impact on Chinese exports of apple juice concentrate to the United States in the 2018–19 season, said Michael Choi, president of Zhonglu America Corp.
In a typical year, China can fill up to 80 percent of the U.S. concentrate import market, with European countries taking up much of the rest. In 2018, however, China lost almost a third of its apple crop to spring frosts, and Europe had its largest crop in history. That shift, as well as the tariffs, reshuffled the U.S. concentrate market. China’s share dropped to about 7 percent, while Europe’s rose to 85 percent — a complete reversal, Choi said.
China’s 2019 crop will be back to normal (the country is forecast to produce 500,000 metric tons of apple juice concentrate this year, a 43-percent increase from last year), with Europe’s much reduced. Even with the extra tariffs in place, Choi thinks China will be competitive in the U.S. market this coming season and expects it to regain its previous market share.
As for fresh apples, the U.S. and China opened their markets to each other several years ago, but the volume of trade has never been huge. U.S. fresh exports to China have decreased lately, however, and countries such as New Zealand are filling the gap, Choi said.
India had initially announced that a 25-percent duty would be applied to U.S. exports starting in August 2018. This was in addition to the standard 50-percent duty applied to all apple producers outside of India. The additional tariff was postponed, but the uncertainty severely disrupted the flow of shipments, which dropped by 80 percent in the first three months of the 2018–19 season. India eventually applied a 20-percent tariff in June 2019, Fryhover said.
Since that additional tariff was enacted, Ridgetop Orchards hasn’t shipped a load to India, said Mark Boyer, one of the owners of the Western Pennsylvania orchard and past chair of USApple’s board of directors.
“That additional 20-percent tariff is our margin,” Boyer said. “We’re going to be hard-pressed to go to India this year.”
Ridgetop will refocus on the domestic market to make up for any losses, he said.
The coming season
For almost the entirety of the 2018–19 season, U.S. apples battled retaliatory tariffs in three major export markets. They are headed into the 2019–20 season with a 70-percent tariff in India and a 60-percent tariff in China, Fryhover said.
And last year’s U.S. crop was on the smaller side, Boyer said, which might have mitigated some of the damage.
“I’m not sure everybody fully felt the implications of the tariffs last year,” Boyer said. “This year, it could be a different story.”
The current trade wars could have long-term consequences for Washington apple exports — namely brand erosion, Fryhover said.
“Washington apples have been consistently present in these markets for over 20 years,” he said. “Middle- and upper-income consumers flock to our product, looking for high-quality apples. But if our presence is limited due to tariffs blocking us out, and markets that are overproducing come in and overtake the shelf space, it will be extremely difficult to get that space back.” •
—by Matt Milkovich