Trade Fight Threatens Farm Belt Businesses

July 2nd, 2018

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Category: Miscellaneous

(Wall Street Journal) – The U.S. Farm Belt helped deliver Donald Trump to the White House, drawn to his promises to revive rural America and deregulate industry. Now, the president’s global trade offensive is threatening the livelihoods of many farmers.

Mounting trade disputes, spurred by U.S. threats to withdraw from the North American Free Trade Agreement and tariffs on billions of dollars’ worth of goods from key trading partners, have cut U.S. agricultural exports and sent commodity prices tumbling. Many farmers, who depend on shipments overseas for one-fifth of the goods they produce, say they are anxious, especially because they are already expecting bumper harvests or grappling with a dairy glut.

“We live and die by trade,” said Arkansas farmer Rusty Smith, who joined dozens of other farmers in a sunlit hotel ballroom in Grand Rapids, Mich., last week to discuss trade and agricultural commodities.

Since April, duties the U.S. has levied on goods from China, Mexico, Canada and the European Union have sparked retaliatory tariffs and trade threats, targeting American farm goods from pork to cheese to apples.

Disquiet among farmers grew in June as crop prices fell thanks to benevolent U.S. weather and additional duties expected from China on products like soybeans, for which it is the U.S.’s top customer. The total value of this year’s U.S. corn, soybean and wheat crops has dropped about $13 billion, or 10%, since the start of June, said Chris Hurt, an agricultural economist at Purdue University.

The planned tariffs on U.S. soybean exports come as farmers nationwide have boosted plantings of the crop, betting on the oilseeds to deliver stronger returns than corn during a yearslong slump in the farm economy.

For farmers like Mr. Smith, who grows corn and soybeans on 1,500 acres in Cotton Plant, Ark., the 16% decline in soybean prices alone translates into a nearly $100 per-acre drop in the value of his crop. “That’s $100,000 that has disappeared into thin air,” he said. “We were already in the red, and now it’s even worse.”

Researchers at the University of Illinois and Ohio State University estimate that over four years, a 25% tariff on U.S. soybean imports by Beijing would result in an average 87% decline in income for a midsize Illinois grain farm. The loss would pressure farmland prices, they say, prompting a more than $500,000 decline in the farm’s net worth by 2021.

Farmers for Free Trade, an advocacy group, recently rolled out its third advertisement warning about the harmful consequences of trade fights for farmers. U.S. farm and agribusiness groups in June joined manufacturing, retail and technology organizations imploring Congress to step up oversight of the president’s actions.

Still, many farmers say they support the Trump administration’s trade goals of modernizing Nafta, shrinking the U.S. trade deficit and combating what they see as unfair trade practices by China. They view the president’s approach as a negotiating tactic and hope it will bear fruit by fall, when farmers will harvest their crops. Some are prepared to sacrifice financially if the U.S. economy benefits in the long run.

“Ultimately I think the president is trying to do the best thing for the country as a whole. You can’t please all people all the time,” said Jon White, a Jones, Mich. hog farmer who sells 70,000 pigs each year and expects his farm to be unprofitable for the next three years due to low prices. Fears of reduced export business have exacerbated losses in a market already pressured by record pork production.

As midterm elections loom, administration officials have tried to reassure farmers, saying they are considering the use of Depression-era programs, which permit borrowing of as much as $30 billion from the Treasury, as well as other tools to shield farmers from trade-related losses. Agriculture Secretary Sonny Perdue said in Chicago last Tuesday that the agency aims to have a plan ironed out by this fall.

Addressing farmers in Michigan, Ted McKinney, the U.S. Department of Agriculture’s undersecretary for trade and foreign agricultural affairs, expressed his empathy for the farmers’ struggles and thanked them for their patience, saying negotiations with China could be a “bumpy ride.”

Despite their small numbers, farmers could take on outsize importance in upcoming elections in key farm states, like Michigan, which Mr. Trump narrowly won in 2016. Michigan exports more than $3 billion worth of food and farm goods, supporting over 26,000 jobs there, according to the state’s Farm Bureau.

Mr. Trump’s job-approval rating hasn’t taken a hit as trade tensions have escalated, said Charles Franklin, director of the Marquette Law School poll, which interviews Wisconsin voters. But if farm incomes are significantly squeezed, tensions could emerge between party loyalty and farmers’ wallets. “In a close enough election even a small group can matter,” Mr. Franklin said.

Some farmers fear trade battles will jeopardize foreign markets for U.S. agricultural products that took decades to establish.

“It’s a long, hard climb to build market share,” said Gary Parr, who grows corn and soybeans in Charlotte, Mich. “To lose it is tough.”

Others worry another bumper harvest this fall will compound pain inflicted by tariffs. The USDA expects farmers to reap the fourth-largest corn crop and third-biggest soybean crop in history.

Dairy farmers have been banking on sales abroad to help absorb increasing milk supplies that have pushed down prices. Tariffs imposed on U.S. cheese exports by Mexico, the largest buyer of U.S. dairy products, add insult to injury, they say.

Brian Preston, a dairy farmer who milks 800 cows in Quincy, Mich., said trade uncertainty helped prompt a decision to postpone a $2.5 million expansion project on his farm.

Amid Michigan’s rolling hills, Nick Schweitzer, an apple grower, said recent duties levied on U.S. apple exports by China and Mexico could create an oversupply of the fruit on the U.S. market this fall, increasing competition for growers. To produce the largest, highest-quality fruit possible, he is applying more fertilizer and hand-thinning smaller apples, called “fruitlets,” from his trees. Tariffs “might sting us,” said Mr. Schweitzer.

Arkansas’ Mr. Smith said he embraces the Trump administration’s efforts to remove regulatory burdens for farmers. “But if I’m a bag check at Walmart next year, it’s not going to mean a whole lot,” he said.

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