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Tariffs Take a Bite Out of Ag
The current trade war between the U.S. and China is having a far-reaching effect on American agriculture. Products ranging from vegetable juice, leather goods, peanut oil, smoked and salted beef, wine, and bourbon have been targeted. The list is varied and seemingly endless, with both sides imposing new tariffs as the tit-for-tat continues. More than 6,000 specific products are now subject to tariffs imposed by one side or the other.
Few segments of American agriculture are likely to emerge unscathed.
According to Bloomberg News, China’s agriculture imports from the U.S. in 2017 were worth $24.1 billion, about 19% of total farm imports.
Pork exports to China, accounting for around 13% of pork produced in the U.S., are now subject to a 62% tariff. First-half exports to China/Hong Kong were 21% below last year in volume and 9% in value, according to the U.S. Meat Export Federation (USMEF). USMEF attributes the decline to a combination of the increasing tariffs and China’s growing domestic pork industry.
The soybean market, as reported by Agriculture.com in Here’s What’s Happened to Soybean Exports Since Tariffs, has made worldwide adjustments that have ultimately meant increased exports to other countries at lower prices for U.S. producers. China is the world’s leading importer of soybeans and America’s largest buyer at around $14 billion worth last year.
Some exported U.S. goods, such as almonds, have seen their prices drop domestically because Chinese tariffs have driven down demand abroad, and produce growers in the Northwest are worried about loss of sales of apples, pears, and cherries, knowing others will seize the marketing opportunity created by the void.
A Hit for Hay Growers
Hay growers are feeling the pinch. Already exporting to China under an 8% tariff, U.S. hay producers are now facing an additional 25%. China buys 1.2 million metric tons of U.S. hay per year, at a price of $1.5 billion last year. According to a report issued by University of California – Davis Agricultural Issues Center, the trade war is expected to push the price of alfalfa down 7.5% and reduce growers’ revenue by around $377 million for 2018.
China, where U.S. hay is used primarily by its dairy industry, is the leading export destination for U.S. alfalfa, and second only to Japan for all hays. Fall and winter are peak times for demand.
Paying on Both Sides of the Ocean
The tariffs are hitting some ag sectors coming and going.
“It’s a very messy situation,” says Chase Adams, senior policy and information director of the American Sheep Industry (ASI). Sixty-one percent of all U.S. wool exports heads to China’s textile manufacturers, who sell clothing back to U.S. customers. Not only are there increased tariffs on wool, but those textile products are now open to additional tariffs as they enter the U.S.
The theory is consumers will opt for U.S. made products instead of paying higher prices for tariffed items.
But, the U.S. textile industry is at capacity, says Adams. “It doesn’t have the capability to absorb that amount of wool any time soon.” Of the nearly 40% of U.S. wool processed domestically most is used by the military.
Wool growers started to see effects of the trade policies at the end of the marketing season in late spring and summer. Mike Corn, owner/operator of Roswell Wool, the country’s largest wool auction house located in Roswell, New Mexico, and ASI President, says so far his Chinese buyers are still buying, absorbing the 20% to 25% in fees, but how long the trade war lasts will determine their enthusiasm, and the resulting market prices, next spring.
Corn says the wool industry likely won’t be hit as hard as other ag sectors, but there will still be effects. There has been a softening of the wool pelt market, lamb is now on the tariff list, and importers are finding it harder than in the past to get product into China due to increased inspection and red tape, a complaint levied by several industries on both sides of the war.
Like most ag sectors, the emphasis is on new markets to make up for lost business in China.
Corn expects emerging markets in Bulgaria, India, and Egypt to take up some of the slack. “Even selling at those markets’ lower prices could effectively cut the impact about in half,” he says.
“We continue to work with the USDA Foreign Agricultural Service to expand other markets,” says Adams. “That is ongoing, in good times and bad. The more markets we have, the more flexibility we have in times like these. But this is a big market for us. A swift resolution would be welcome.”
In addition to the disruptions to their export markets, U.S. ag producers are likely to see increased costs for their operating inputs. Included on the list of Chinese products targeted by U.S. tariffs are chemicals used in pesticides and fertilizers, as well as certain animal feed ingredients.
That’s in addition to the tariff placed on steel and aluminum imported into the U.S. that started the war, including the steel and aluminum used to manufacture ag equipment, grain bins, and drying equipment. Some experts put the cost of price increases at 5¢ per acre added to farmers’ operating costs. Some farmers have seen price increases on items like grain bins of 20% over 2017.
Exemptions for some products are available, but industry insiders say the process is tedious at best, and many products are simply not made in the U.S., eliminating switching to another manufacturer as an option. In addition, some financial experts have downgraded machinery manufacturers as an investment opportunity.
Dewayne Holmes, an outside account manager with Steel and Pipe Supply in Manhattan, Kansas, told Farm Equipment, “You have to prepare and be strategic with who you’re partnering with from the supply chain side because there is a possibility that what was available six or 12 months ago may not be available 12 months from now.”