Asia’s Woes Taking a Bite Out of U.S. Food Exports

The economic crisis that has engulfed most of Asia has reduced demand for some U.S. agricultural products, but in the long run the situation could help American farmers by forcing trade reforms in that region, government officials and farm groups said this week.

In many cases, bailouts from the International Monetary Fund are predicated on the loosening of restrictions that have made it tough for U.S. farm goods to gain a foothold in some Asian lands. Desperate for financial aid, these nations are agreeing to reduce tariffs and introduce other reforms that otherwise might have taken years to win through painstaking negotiations.

South Korea, for example, is expected to make it easier for California citrus to enter that historically restrictive but major market.

“The silver lining is that many of the IMF packages are providing long-term reforms that will gain access for many products,” said Lon Hatamiya, administrator of the U.S. Department of Agriculture’s Foreign Agricultural Service.

At the same time, the United States is moving to protect--or boost--the Asian market presence for U.S. growers by boosting subsidies for Asian customers having trouble paying for American farm goods.

As East Asia has prospered in recent years, it has grown in importance to U.S. farmers. Overall, it accounts for 40% of this nation’s agricultural exports, or $23 billion annually. According to the U.S. Department of Agriculture, from 1991 to 1997, Asia provided 45% of U.S. export growth.

The stakes are especially high for California farmers, notably growers of citrus, cotton, grapes, nuts and other products. More than half of the state’s farm exports go to Asia.

California Department of Food and Agriculture officials do not yet have a firm handle on how sales of many of those products have fared. But they are encouraging the state’s growers to work with Asian customers to maintain relationships.

The Asian woes last month forced the USDA to revise downward its forecast for U.S. farm exports for fiscal 1998.

“Faltering Asian economies have tripped up racing U.S. farm exports a little bit,” Agriculture Secretary Dan Glickman said on Feb. 23.

With Asian orders slowing, Glickman said, the U.S. is expected to export $56 billion in agricultural products in fiscal 1998, down 2% from last year and $2.5 billion less than the USDA’s earlier 1998 forecast, issued just two months previously.

Of that projected $2.5-billion reduction, Asia could account for as much as $2.1 billion, Hatamiya said. And economists agree that conditions in Asia will get worse before they get better.

The Asian crisis “is affecting higher-valued, consumer-ready products,” said Keith Collins, the USDA’s chief economist. “It looks to us that the biggest impacts will be in meats--beef, pork, poultry--then fruits and vegetables and then bulk commodities like grains.

“All in all, it has hurt U.S. ag producers because it has taken the growth out of some markets, particularly meats. But it’s not end of the world, it’s not catastrophic.”

To maintain U.S. agriculture’s presence in Asia--against competition from Australian farmers, among others--the USDA has trotted out $2.1 billion in export credit guarantees, $1.1 billion to South Korea alone. The rest has been divided among Thailand, Malaysia, Indonesia and the Philippines.

The credit guarantees enable customers to get loans, giving struggling countries the liquidity they need to continue buying U.S. goods. The credit arrangement also gives customers much more time to pay off debts.

One U.S. crop benefiting from the export guarantees is cotton, including California’s high-quality pima, much of which goes to Asia.

If they hope to pull themselves out of the doldrums, big clothing-manufacturing nations such as South Korea must keep importing the raw product so that their plants can pump out goods for export.

Korea has used almost its entire allocation, and that has helped stabilize two key measures for U.S. cotton: contracted sales and shipments. Still, said Kevin Brinkley, an economist with the National Cotton Council in Memphis, Tenn., consumption by Asian countries will be off by 10% for this marketing year, which began last August.

The reduced demand is exacerbating a global oversupply of cotton that was already depressing prices and making it a buyer’s market for the commodity. Many growers will lose money this year.

Asia’s dwindling appetite has also worsened a glut of pork which has sent the value of hogs plummeting 40% in the last six months, said Nick Giordano, international trade counsel for the National Pork Producers Council.

The situation bodes well for U.S. consumers, who can expect to see bargains galore at the meat counter.

Farm groups were quick to point out that many factors in addition to oversupply cloud the Asian trade picture. They include rising demand in Canada and Mexico, which is helping to offset slower sales to Asia, and even that favorite whipping boy, El Nino.

“We fully believe that the major factor . . . is not the economic situation but El Nino,” said William K. Quarles, a spokesman for Sunkist Growers in Sherman Oaks. “We have been unable to fill the Asian demand, quite frankly.”

With California fields and orchards reduced to quagmires by El Nino’s recent downpours, Sunkist has been prevented from harvesting much of its crop of navel and Valencia oranges and lemons. Meanwhile, winds have diminished what would have been a larger-than-typical crop, Quarles said, with the result that “we will have shipments very close to normal.”

Orders from Indonesia and Malaysia are down substantially, but those are small markets where ill effects have been balanced by gains in Hong Kong and stability in other countries.

Sunkist has carved out the high-quality, high-priced sector of the marketplace and thus “may well be in a relatively recession-proof commodity,” Quarles said, noting that many affluent Asian consumers can still afford the co-op’s products.

For California vintners, the good news is that most of their Asian exports go to Japan, Taiwan and China, the countries least affected by the downturn. Neither Indonesia nor South Korea, two nations in dire straits, has yet emerged as a major wine market.

Recent preliminary figures from the Wine Institute, a trade group in San Francisco, show that U.S. wines, the bulk of which come from California, have continued to register strong gains in Singapore, Taiwan, China and even in Japan, where the declining value of the yen has made U.S. wines much more expensive.

Still, the economic troubles have put the brakes on some of the stellar growth California wines have enjoyed in recent years thanks to new markets such as Thailand, Laos, Vietnam and Cambodia. In Thailand, jolted by a steep decline in the value of its currency, the baht, sales of U.S. wines have shown a 40% drop.

“Our goal is to maintain prior-year sales levels [of 1.5 million bottles to Asia], but that’s becoming increasingly frustrating and difficult,” said John Schwartz, senior vice president of international operations at Wente Vineyards in Livermore, Calif.

Golden State table grapes, on the other hand, “dodged the bullet,” said Bruce J. Obbink, president of the California Table Grape Commission. By volume and value, sales to Asia grew close to 9% through December.