The U.S. Central America Free Trade Agreement does not taste sweet to U.S. sugar producers, is kind of fuzzy for U.S. textiles and has labor organizations in both Central America and the United States in a tizzy. But no doubt, it could add some starch to trade prospects for both milled and rough U.S. rice.
CAFTA was negotiated between the United States and five Central American countries: Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua. Negotiations to include the Dominican Republic are also under way.
CAFTA will be good for U.S. rice producers because it would replace a gentleman's agreement with a written agreement, according to Penn Owen, Mississippi rice producer and chairman of the international program committee of the U.S. Rice Producers Association. And both milled rice and rough rice would be a part of it, not just rough rice.
Another interesting point is that Central America was already a natural market for rice, Owen noted. Prior to CAFTA, Owen and Jim Willis, USRPA's president, international programs, made several trips to the region, promoting consumption of U.S. rice and developing a solid relationship with Central American rice industry leaders.
All five Central American countries are both producers and consumers of rice. “As you move from north to south, per capita rice consumption increases,” Owen said. “But in all cases, they are not self-sufficient in their rice needs.”
This shortfall in production is what led to an accord between U.S. rice producers and Central America that “as those countries needed rice, when their domestic supply ran out, they would come to the United States for their needs,” Owen said.
In addition, “Central America built a significant, very modern, very well-financed milling industry in those countries — just as modern as anything I've ever seen in this country,” Owen said. “They are very sophisticated business people.”
With the milling capacity in place, “they preferred to import rough rice from the United States to run their mills. There was never anything in writing that I know of, or anything more than a gentleman's agreement.”
The rough rice market “has been the lifeblood of the rice economy in the Mississippi Valley, from the Bootheel to northeast Louisiana,” Owen said. “That marketplace in Central America and Mexico was about 1 million tons of rice or more annually.”
The Central Americans were satisfied with the unwritten accord, so when CAFTA was proposed, “they became very nervous about it,” Owen said. In fact, the Central Americans formed their own federation called FECARROZ, to represent the rice industry in CAFTA negotiations.
According to Owen, the role of USRPA during this phase was to try and understand the needs of U.S. rice customers there and the initiative of the U.S. government in the free trade agreement.
“The position of the U.S. Rice Producers Association is to help exports in any way we can — milled, brown, rough or whatever the customer wants,” Owen said. “We had formed some extremely good relationships with Central American mills, government officials and grower representatives.
“We also made it clear to our government officials that we were never opposed to CAFTA, and we were never opposed to the United States exporting milled rice.”
During talks, there was a little hand-holding, quite a few face-to-face meetings and assurances that Central American producers and mills would not be forced out of business by imports of U.S. rice.
Another reason to push for a written agreement was concern that if the accord ever fell apart, “the Central American industry would find other sources for rice, milled or rough, around the world,” Owen said. The fear was that this would open the market for lower-priced Asian milled rice.
With that in mind, in March 2003, USRPA met with officers of the USA Rice Federation to discuss the upcoming CAFTA negotiations, “to form a common position toward the CAFTA negotiations. It was a wonderful market that needs to be preserved. But at the same time, the milling industry down there needs a little breathing room to adjust.”
A plan began to come together in October 2003, when representatives from FECARROZ, Owen and Willis of USRPA, Bob Collins of USA Rice Federation and the U.S. negotiating team of Jason Hafemeister and Brian Gruenfelder met in Houston. They had an hour to discuss the issues. The opportunity almost slipped away.
“I really thought the Central Americans were going to lay something on the table, but at the end of that hour, there was no progress,” Owen said. “Nobody was unhappy or angry. We just talked around the subject.”
As the group prepared to leave, Owen made one last try to get the ball rolling, saying, “Look, lets all just acknowledge that by the end of the negotiations, there will be some U.S. milled rice in the final CAFTA agreement.”
That might have been what broke the ice. Negotiations picked up in earnest, and within a few weeks, the parties forged an agreement. “Now we have a document that says there will be some milled rice and a lot of rough rice.
“And when they need more rice than what CAFTA calls for, they will buy from us,” Owen said. “We're going to continue our trade servicing and trade monitoring in Central America just as we've done for the last three to four years.”
CAFTA still has several hurdles to clear, including anti-CAFTA campaigns mounted by sugar, labor and U.S. textile mills. And politicians may not want a hot issue on the table during the upcoming presidential campaigns.
Nonetheless, “we're hopeful it will pass the U.S. Congress,” Owen said. “The president says he will sign it, and we hope it will pass in those Central American countries.”
CAFTA also exposed common ground for the U.S. Rice Producers Association and the USA Rice Federation to work together, although differences still exist.
“We feel a consistent natural relationship with rice producers in all six states,” Owen said. “There are times when we don't see eye to eye with the milling industry and don't care to be dominated or represented by the milling industry.
“But we'd much rather work with the Federation. We want to work with the Federation and will work with the Federation in all our market development programs where we can utilize our best talents and strengths.
“There are many places in the world where we have unique skills and contacts to benefit all U.S. rice growers, specifically Mexico and Central America for our long grain and Turkey for our medium grain growers,” he said. “And we will continue our efforts to grow and enhance those marketplaces for all forms of rice, milled and rough. We are favorably disposed to all forms of rice.”
Current sales of rice to Central America are 550,000 tons annually, but CAFTA countries deny access for U.S. milled rice. CAFTA provides for immediate guaranteed market access for all types of U.S. rice and duty free access over 18 to 20 years.