Proposed tariffs have ag industry on edgeProposed tariffs have ag industry on edge
“Trade is really our safety net ... 95.6% of the people that don’t live in the United States that want more protein and want to do better,” says Kevin Paap, president of the Minnesota Farm Bureau.
March 30, 2018
There’s never a good time for something bad to happen.
That is what’s potentially happening across the U.S. ag industry and rural America as retaliatory rhetoric is being spewed in response to President Donald Trump’s proposed tariffs on steel and aluminum on countries around the world, with a few exemptions.
China is one of the main targets of these tariffs, and as with any proposed tariffs, the Chinese government has threatened retaliation. The Chinese threat has been estimated to come in the form of tariffs of their own on approximately $3 billion worth of goods including pork, steel pipes, fruit and wine.
Trade is imperative to a thriving U.S. agriculture industry, and quite possibly the means of survival for a lot of American producers. International trade has been treading on tenuous ground ever since Donald Trump assumed his role as president of the United States.
Early in his term in office, he followed through on campaign promises to pull out of the Trans-Pacific Partnership and the North American Free Trade Agreement. The remaining 11 countries of the TPP have moved on without the United States, while U.S., Canadian and Mexican officials continue to renegotiate the double-decades old NAFTA, working to resolve and update the trade pact.
“We’re so fortunate in this country that we grow whatever we can use. Trade is really our safety net. We like to think of the farm bill and crop insurance and commodity programs are good risk management tools, but our safety net over the years has really been that 95.6% of the people that don’t live in the United States that want more protein and want to do better,” says Kevin Paap, president of the Minnesota Farm Bureau. “This is the worst possible time (to disrupt export channels) in that 52% drop net farm income in the last five years, this is the fifth year of declining farm income, so with those concerns, and a lot if it is the low prices, and the best way to increase commodity prices is to increase demand. It’s not worth anything sitting on the farm, so by increasing that demand and by using 95.6% of the world’s market share seems so important to us.”
Dale Norton, former president of the National Pork Board and hog producer from Bronson, Mich., says even though China has not always been a consistent customer for U.S. pork, he fears what retaliation may mean. “If tariffs are put on Chinese products, China will likely retaliate with tariffs on our pork and other agricultural products. They will do this to hit hard at the middle American electorate that likely voted for Trump. Tariffs on our pork will raise the price to the Chinese people who will the buy less. It will lower prices to producers like us at a time when production levels are becoming overbearing,” he writes in an email.
Kent Bang, Compeer Financial vice president of Swine Lending, has spent time with his producer-clients and says the general consensus is that agriculture will take the brunt of any trade war with China and that the meat industry and pork specifically is an easy target.
“Timing of a trade war, if it were to continue, couldn’t be much worse from a supply standpoint in the pork sector. Not only do we have record pork production in the U.S., but we have increasing supplies of beef and broiler meat,” Bang writes in an email. “Other clients believe that the impact will be fairly minimal as pork imports to China are an easy decision at this time as the price for pork in China for a domestic product is quite low relative to recent history. North America will likely continue to export pork to China and there could be a fix to the tariff issue before too long.”
Paap says all this trade banter is coming at a bad time with a lot of uncertainty in the ag world. “We have uncertainty with the farm bill, uncertainty with the RFS (Renewable Fuels Standard) and adding value that way. It seems like a lot of things are piling on at once. … if it were just the China discussion, it would be bad enough, but we also have NAFTA, then we have the other 11 countries in TPP moving on forward without us, and we’re not at that dance.”
Market analysts say to take the trade rhetoric with a grain of salt. China is not our only trade partner but any trade disruption will be negative. Kevin Bost, president of Procurement Strategies in Des Plaines, Ill., says, “Frankly, I do not see it as a market mover. It is not a great big chunk of business.”
Steve Meyer of Kerns and Associates says U.S. pork exports to China and Hong Kong account for 66% of our byproducts and only 9% of our muscle meat. China is important to the byproduct value.
Looking at the bigger picture, John Nalivka, president of Sterling Markets, notes 27% of total U.S. pork exports go to Mexico, 16% to Japan and 5% to China. “In the bigger scheme of things when you talk about trade, the North American trade is more critical,” he says.
Norton fears this tariff talk will undo trade progress that has been made. “Trade of American agricultural products has been a bright spot in our economy,” he writes. “It has taken a long time to build the relationships that allow for beneficial trade to take place. A trade war would destroy those relationships and truly be a shame.”
Paap agrees, “that it’s time that we need to remind people that it’s a lot easier to avoid a trade war than it is to stop one. … we must be getting old because there are a lot of people who really don’t remember the Russian grain embargo and what that did to our markets and our farm income for a significant amount of time. … Hopefully cooler heads will prevail.”
“We’ve got to make sure our elected officials realize and understand how important exports are to agriculture,” Paap says. “We’re very dependent. We need to tell our elected officials just how important this is, and not just for agriculture, but rural America.”
Though the timing of tariffs is never good, Paap sees these discussions and the Easter recess provide a good time to add a side dish of trade talk to Congressional leaders’ Easter ham while they are back in their home areas. “Hopefully they will get an earful from those it will be affecting,” Paap says, “We need to keep the pressure on. I hope we’re considering the consequences.”
Hopefully, these wars of words will remain in the rhetoric stage and not develop into true trade wars.
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