Search Site   
News Stories at a Glance
Deere 4440 cab tractor racked up $18,000 at farm retirement auction
Indiana legislature passes bills for ag land purchases, broadband grants
Make spring planting safety plans early to avoid injuries
Michigan soybean grower visits Dubai to showcase U.S. products
Scientists are interested in eclipse effects on crops and livestock
U.S. retail meat demand for pork and beef both decreased in 2023
Iowa one of the few states to see farms increase in 2022 Ag Census
Trade, E15, GREET, tax credits the talk at Commodity Classic
Ohioan travels to Malta as part of US Grains Council trade mission
FFA members learn about Australian culture, agriculture during trip
Timing of Dicamba ruling may cause issues for 2024 planting
   
Archive
Search Archive  
   
Henderson: NAFTA’s value to U.S. ag is not overrated

By ANN HINCH

DANVILLE, Ind. — However a farmer regards the finer points of free trade deals, a number of economists and politicians say maintaining a friendly export market is critical to the finances of U.S. agriculture.

This year has been contentious for trade agreements that appeared to be settled. Since taking office in January, President Donald Trump has withdrawn the United States from a pending Trans-Pacific Partnership (TPP), opened renegotiations of the 1994 North American Free Trade Agreement (NAFTA) and made noises about changing the five-year-old U.S.-Korea Free Trade Agreement (KORUS).

The specifics of how their products are sold to foreign markets may not interest all ag producers. But, “exports have a huge impact on farms and farm goods,” according to Jason Henderson, director of Purdue University extension and associate dean of its College of Agriculture.

Before coming to Purdue, his background was in economics, working as a vice president of the Federal Reserve Bank of Kansas City, and his presentation opened the recent Indiana Corn/Soybean joint policy meeting in Danville.

“Every time that you’ve had an export boom, you’ve had a farm boom,” he noted, adding economic contractions work the same way – during the Great Depression and in the 1980s being two notable examples.

USDA Economic Research Service (ERS) data show the value of U.S. ag exports rose annually from $85 billion in 1995 to more than $144 billion by 2013, comprising 7-10 percent of total U.S. exports in any given year.

Henderson said roughly 15 percent of U.S. corn is exported, as are 50 percent of soybeans, 22 percent of pork, 10 percent of beef and 17 percent of poultry, from USDA data. The Indiana Corn Growers Assoc. stated corn and corn product exports represent a full third of U.S. gross farm income, and Mexico receives 25-30 percent of those corn exports, said to Chad Hart, ag economist at Iowa State University.

Last week Farm World reported ag exports hit more than $140 billion as of Sept. 30, the end of the 2016-17 marketing year, which was the third-highest on record. But Henderson believes exports are set to soon plateau after some years of steady increase.

The United States is not playing on a field alone. By 2026-27, he said Brazil will be far ahead of America in global soybean exports and is the leading U.S. competitor for all livestock exports, including poultry. Given how plentiful grain stocks are this year and the increasing hardiness of seed genetics, there may not be a scarcity of global ag production in 10 or 20 years, either.

“I believe in the power of agriculture,” Henderson said. “Agriculture is an industry where producers are more than willing to produce themselves out of prosperity.” They still need to find a way to maintain a customer base, though, and trade agreements help assure that.

He cited a Daily Caller article from Oct. 12 in which U.S. Commerce Secretary Wilbur Ross dismissed concerns that withdrawing from NAFTA would cripple American agriculture businesses. “As far as I can tell, there is not a world oversupply of agricultural products,” Ross had said, calling the potential danger of a NAFTA withdrawal to food producers an “empty threat.”

“Unless countries are going to be prepared to have their people go hungry or change their diets. I think it’s more of a threat to try to frighten the agricultural community,” the Caller quoted.

Henderson said this is one example of the challenge farmers face in making the politicians who represent them understand their needs. Even if there is no scarcity of production, trade agreements help assure the United States is the country of first choice from which to purchase ag goods going forward.

“How do we set ourselves up to be first choice?” he said is how farmers should think of it. One of the benefits of NAFTA, he explained, is it made the United States a source of first choice for a number of goods to Canada and Mexico – opening new markets by reducing tariffs.

Last year there was a $2.2 billion ag trade surplus to Canada. From 2015-17 it has been the largest global destination for U.S. ag exports, at about 15 percent (from 2012-14 it came in second to China). And since 2009, Mexico has bought about 13 percent of U.S. ag exports to be our third-largest customer.

Should the United States exit NAFTA, Henderson said tariffs on exports to those two nations are likely to increase, and could jump to 23 percent in Canada and 32 percent in Mexico. “The tariffs will shift prices in these foreign countries,” he said, causing ripple effects along the general economy in the short to medium term.

For instance, if tariffs on U.S. pork to Mexico rose to 20 percent upon a NAFTA withdrawal while other countries have duty-free access, the U.S. pork industry would eventually lose the Mexican market. This is according to a white paper released by the National Pork Producers Council (NPPC) earlier this year, quoting research from ISU economist Dermot Hayes.

That would equate to a loss of 5 percent of U.S. pork production, which would reduce the U.S. live hog market by 10 percent at a cost of $14 per hog, or a nearly $1.7 billion aggregate loss to the industry.

“A loss in exports to Mexico of that magnitude would be cataclysmic for the U.S. pork industry,” Nick Giordano, NPPC’s vice president for global government affairs, said earlier this year. “Pork producers will support updating and improving NAFTA, but only if duties on U.S. pork remain at zero and pork exports are not disrupted.”

As for corn, ISU’s Hart has noted if Mexico reduces or eliminates its purchasing, U.S. producers and suppliers would need to find a home for millions of bushels each year. Short-term impacts could be a price drop of 30-50 cents per bushel. Henderson said it could mean $48-$80 per acre in the short term.

In the long run, he said it probably means a 1-2 percent drop in corn prices, while Mexico rebuilds its own corn production and/or looks to buy elsewhere. (He noted Canada might decide to start growing more of its own corn again too.) He said Purdue is currently working on its own study of the effects of NAFTA.

Some have pointed out that Mexico importing corn from anywhere else would mean that country having to change from established transportation infrastructure with the United States. Henderson said indeed, it might take a few years to establish new routes if Mexico changes suppliers and it would cost the country more in shipping costs for a while, but South American countries are trying to fix their infrastructure problems.

He did say any switch would also be delayed by the fact there are contracts in place for the U.S. supplying commodities to Mexico, that would have to be changed or broken.

“This will all stabilize, long-term, and at a slightly higher cost,” Henderson noted. “The question is, can (your farm) survive the wave (until then)?”

Negotiators were set to meet this week in Washington, D.C., for another limited round of talks on NAFTA. The Topeka Capital-Journal reported Sunday that Kansas Republican Sens. Pat Roberts and Jerry Moran are urging Trump to remain in the pact because of its benefits for farmers and ranchers, in their state particularly.

Both said they had met with Commerce’s Ross on the importance of NAFTA. Roberts expressed concern about eliminating the three-country trade deal in favor of individual deals with countries. “Can we improve it, sure? Should we try it, yes? But you don’t terminate something and then try to put it together again,” he said. “That’s like Humpty Dumpty off of the wall.”

The article quoted Moran saying many of the states that would be affected by NAFTA withdrawal are ones that voted for Trump: “They need to make certain that they wouldn’t be taken for granted.”

12/13/2017