Statement of National Corn Growers Association on US-Morocco FTA

US House of Representatives, Washington DC

7 July 2004

House Committee on Ways and Means

Statement of Dee Vaughan, National Corn Growers Association

Chairman Thomas, Ranking Member Rangel and members of the Committee. We would like to thank the Committee for giving us the opportunity to submit a statement regarding the U.S.-Morocco and U.S.-Australia Free Trade Agreements.

The National Corn Growers Association (NCGA) was founded in 1957 and represents more than 33,000 dues-paying corn growers from 48 states. The Association also represents the interests of more than 350,000 farmers who contribute to corn checkoff programs in 19 states.

NCGA’s mission is to create and increase opportunities for corn growers in a changing world and to enhance corn’s profitability and use. Trade is vital to the future of corn growers as we search for new markets and provide grain that is more abundant and of better quality.

The National Corn Growers Association and sister organization, the U.S. Grains Council, support the Morocco Free Trade Agreement (FTA). Along with the Central America Free Trade Agreement (CAFTA), the Morocco FTA will provide new opportunities and an expanding market for U.S. feed grains. More so than any time in the past, corn producers operate in a competitive international marketplace. For this reason, free trade agreements have never been more essential to the future success of our industry.

The feed grains industry has been active in building markets in Morocco and the sector is already benefiting from strong economic ties between the two countries. Morocco is primarily a bulk commodity market with corn being the largest component of that trade.

In 2002, Morocco imported 1.1 million metric tons of corn, 63 percent originating from the United States. However in 2003, U.S. market share declined to about ten percent due to increased competition from Argentina, Brazil and Eastern Europe. This decline was only a temporary phenomenon due to abundant world grain stocks in 2002. The world grain situation in 2002 saw abnormally high feed wheat and corn stocks being exported from Eastern Europe and ongoing economic turmoil in Argentina.

Fortunately, U.S. market share is returning to normal in 2003 and 2004 as feed grain stocks have returned to their normal levels. In 2003, Morocco imported 330,819 metric tons of U.S. corn, making it the 17th largest market for U.S. corn exports. The U.S. Grains Council projects this market will continue to grow over the next ten years, with additional demand for feed grains of 1.2 million metric tons by the year 2011.

Driving Morocco’s feed grain demand is poultry production, the fastest growing meat production sector in Morocco. In 2003, total broiler production was 245,000 metric tons (plus 12,000 metric tons from spent laying hens and breeders and 50,000 from backyard chicken production) and total egg production was 2.35 billion (plus 800 million eggs from backyard production). Per capita consumption of eggs is 105 per year and poultry meat is 10.2 kilograms. During 2003, the poultry sector consumed approximately 825,000 metric tons of corn. There is further room for growth in the poultry sector, as the cost of producing chicken meat in Morocco is one of the highest when compared to other middle-income countries. In addition, corn is no longer seen as a viable crop for production in Morocco due to the large amounts of water it consumes and the fact that domestically produced corn is extremely expensive compared to international prices.

Morocco’s beef sector has remained stagnant over the past twelve years, with an annual production level of 150,000 metric tons of beef. Production levels of red meat would have to increase to 512,000 metric tons by the year 2020 to keep up with population growth, given the per capita consumption of 4.3 kilos per year. This level of production can only take place through intensive feeding of a larger number of animals with access to low cost feed grains.

Although Morocco represents a valuable market to U.S. corn growers, high tariffs remain a significant barrier to U.S. exports. The current tariff system in place operates much like a variable levy - when the world price goes up, the overall percentage charged on the value of the corn shipment goes down; and when the world price goes down, the percentage goes up. For example, if a shipment of U.S. corn is valued at $150 CIF, the first $80 is assessed an ad valorem tariff of 35 percent, while the other $70 for the amount above $80 is assessed a duty of 2.5 percent. This gives little incentive for importers to seek the best world price or the most optimal combination of feed ingredients.

The Morocco FTA cuts the tariff on U.S. corn initially in half (to 17.5 percent for lower value per ton shipments based on its reference price system), and then proceeds to zero by year six based on linear reductions. This provides a significant advantage to U.S. exporters and could potentially allow them to capture near 100 percent of the Moroccan market. The duty-free corn would save the Moroccan poultry and livestock industries approximately $30 million per year based on current imports and applied duties.

The reduction and elimination of tariffs on U.S. feed grains will benefit corn growers upon implementation and in the future. The reduction in tariffs will provide lower feed costs to the Moroccan poultry and livestock industries which will allow further overall expansion of the Moroccan market for feed grains. In addition, the lower tariffs applied to U.S. feed grains versus the most favored nation (MFN) rates that competitor countries will continue to face will allow the United States to capture a larger portion of that important growth market.

The future strength of the agricultural economy in the United States will depend on expanding trade opportunities like those in Morocco. At the same time we need to continue educating farmers across the country on the benefits of trade. Sometimes it is hard to articulate the importance when most farmers never see their grain again once it leaves the elevator and is transported by barge or train. We must do a better job communicating with our grassroots, but we need the Congress and Administration to negotiate and enforce trade agreements that allow farmers to participate on a level playing field in the international marketplace.

The National Corn Growers Association remains committed to an aggressive trade agenda and bilateral free trade negotiations. We urge the Committee to approve the Morocco FTA as soon as possible and we look forward working with you on this and other issues of importance. Mr. Chairman, we appreciate the opportunity to comment and please do not hesitate to contact us if we can be of assistance in any way.

source: US HoR