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

Volume 18, Issue 7
July 2024

Contributed by Betty Resnick, Economist, American Farm Bureau

The United States is the world’s largest agricultural exporter and has been for decades. However, as a wealthy country with a population of more than 340 million people with appetites for a broad range of agricultural products - we are also one of the world’s top agricultural importers. Historically we’ve had a small trade surplus, but for the past two years our agricultural imports have substantially exceeded our exports.

For the federal 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. 

Background on Agricultural Trade Mix

Agricultural trade is essential to our nation’s food security and benefits American farmers and consumers alike. Farmers find export markets eager to buy U.S. products that we grow in abundance such as grains, oilseeds, meats 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).

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

The category with the largest trade deficit is horticultural products – predominantly made up of 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 also reflects the strong U.S. dollar, a focus on healthy diets, and a growing consumer preference for fresh fruits and vegetables over frozen or canned products.

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, 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 called the “Adverse Effect Wage Rate,” 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 average AEWR is $17.55 per hour. In New England and New York, it is $17.80. 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 H-2A 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.

Decreasing U.S. Exports

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, their export value naturally decreased. The strong U.S. Dollar is making U.S. products less competitive due to currency exchange alone. For instance, Japan is consistently a top-5 market for U.S. agricultural products. The Japanese Yen is the lowest it has been against the U.S. Dollar since 1986 and half of its value from only 12 years ago, in 2012. While this exchange rate is great for U.S. tourists visiting Japan, it makes it expensive for Japanese consumers to purchase U.S. products.

U.S. grain and oilseed exports are seeing headwinds from rising competition from Brazil and other countries. 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 overall.

It does not help that the U.S. has not entered any new free trade agreements with new trading partners since 2012. At the same time – the rest of the world has continued to sign more FTAs. The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), 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 and causing U.S. market shares to shrink for products ranging from frozen fries to blueberries to pet food.

Conclusion

Fiscal year 2019 was the first U.S. agricultural trade deficit going back to at least 1967. We have subsequently faced an agricultural trade deficit in four of the last six years, with a record $32 billion deficit forecasted in fiscal year 2024.

Editor: Chris Laughton
Contributors: Betty Resnick, Economist, American Farm Bureau, and Chris Laughton

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