COVID-19 May Spur Domestication of Hemp Grain Imports

By Trevor Yahn-Grode, Data Analyst, New Frontier Data

Despite 80 years of prohibition, the United States remains the largest consumer of hemp-based products worldwide. Prior to establishment of state pilot programs in 2014 (the first legislative step toward subsequent federal legalization of domestic hemp), the U.S. market was 100% dependent on imports to serve demand. In 2019, total imports reached $89 million, representing more than a 15-fold increase over $5.7 million in 2005. Historically, hemp imports came primarily from two countries, with textiles from China, and grain from Canada.

Chinese imports of hemp textiles – which require extremely labor-intensive production processes – are unlikely to be replaced by domestic fiber sources in the near term, as it would be exceedingly difficult for domestic players to compete with China’s low labor costs and lax environmental standards.

Canada, conversely, sees no such comparative advantage. Canadian exports – having exceeded $300 million since 2010 – have long relied on lack of competition caused by U.S. prohibition to dominate the grain market. In 2017, 92% of total hemp imports – worth approximately $61 million – were for seeds and food products, the majority from Canada.

Since the 2018 Farm Bill, however, such artificial protectionism has largely evaporated. The legalization of U.S. hemp cultivation has provided American farmers with opportunities to supplant Canadian hemp grain imports with domestic stock.

The long process of import domestication has already begun, though economic fallout from both the COVID-19 pandemic and the U.S.-Chinese trade war could very well accelerate the process. COVID-19 has created massive uncertainty in global export markets as well as in food prices. Several countries – including Russia and India – have banned a broad array of agricultural imports in efforts to support farmers and secure domestic food supplies. Uncertainty in those export markets could force U.S. farmers to focus more intensely on the domestic market, and to explore potential new crops, including hemp. States including North Dakota and Montana have already dedicated significant acreage to hemp grain. Montana became the largest hemp-producing state in 2018, when it licensed 22,000 acres for hemp cultivation, much of it dedicated to grain and fiber. As neighbors to Canada, such states possess climates like the Canadian prairie, where most of that nation’s hemp is grown.

U.S. demand for hemp grain is projected to increase at a CAGR of nearly 20% over the next five years, and American farmers’ interest in growing hemp remains high. However, there are serious challenges to American farmers seeking to replace their Canadian counterparts. According to Tom Dermody, VP of strategic development for International Hemp Solutions, the primary obstacle to import domestication is currently a lack of seed supply. “The logistical challenge presented at the moment for grain and fiber cannot be understated,” he said. “There simply is not enough domestic planting stock to service the kind of demand that we’re seeing.”

While a shortage in planting stock may well slow recent gains in the market share of U.S farmers, it is unlikely to stop them from dominating in the long run. Though nothing remains certain in the age of the coronavirus, the scale and efficiency of American agriculture remains a safer bet than most.