On July 6, 2018, China’s Commerce Ministry accused the United States of launching a trade war.[1] Since then, a ripple effect has reached the automobile, tech and agriculture industries, all of which are still feeling impacts today.[2]
To help clarify, a trade war is when countries attack each other with taxes and quotas; one country will raise tariffs (a tax on a product made abroad) causing the other to respond. Thus, the goal is to stress another nation’s economy to enact some form of change.[3]
For the agriculture industry specifically, this trade war comes during a “perfect storm” of detrimental events. For the past five years, crop production has been abundant, creating an excess in supply and reduction in commodity prices. Extreme weather has delayed planting, likely reducing yields this fall. And, as a result of the trade war, tariffs on U.S. agricultural products have increased; therefore providing significant economic strain on farmers.
Agricultural Aid Relief
In efforts to bring relief to the U.S. farmers impacted by the tariffs, the USDA announced a $16 billion aid program on May 23 of this year. This support serves as an action to assist farmers impacted by the trade disruption. The package includes the Market Facilitation Program (MFP), Food Purchase and Distribution Program (FPDP) and Agricultural Trade Promotion Program (ATP) authorized under the Commodity Credit Corporation (CCC) Charter Act.[4]
The MFP will provide $14.5 billion in direct payments to producers. The $1.4 billion FPDP will be used to buy surplus commodities affected by trade retaliation for distribution to outlets such as food banks serving low-income individuals. $100 million will be issued through ATP to assist in developing new export markets on behalf of producers.5
As of July 19, Secretary of Agriculture Sonny Perdue announced that the USDA has awarded $100 million to 48 organizations throughout the Agricultural Trade Promotion Program (ATP) to help US farmers and ranchers identify and access new export markets.[5]
These 48 recipients are co-op organizations that applied for $200 million in ATP funds in 2018. The additional round of support for farmers boosts exports for US agriculture, food, fish and forestry products.5
Exporters witnessed success since the $200 million in assistance was announced in January, so there’s a great hope that this $200 million in assistance will do the same. “A comprehensive marketing effort by the US soybean industry has increased exposure in more than 50 international markets,” the USDA said. “These funds will continue to generate sales and business for US producers and exports many times over as promotional activity continues for the next couple of years.”5
View the list of ATP funding recipients at: https://www.fas.usda.gov/atp-funding-allocations
At the mercy of trade
The trade war disrupts the supply chain by adding cost to the farmers’ products, everything from corn, soybeans, pork and cotton to airplanes, cars and steel pipes. As the agricultural industry operates on large volume and slim margins, it’s not difficult to see that the farming community is at a breaking point.6
And, although aid programs can be beneficial in some cases, most farmers are in strong agreement that they would prefer more normalized trade conditions versus aid relief.
What can be done?
It’s an uncertain time for you and your farmers and there is so much that is out of your control. But, there are a few things you can do to help mitigate worry with your farmers and make the best out of a trying situation:
- Be vigilant and well-read on trade news. This may be obvious, but being well-read on agricultural trade news will help you stay on top of updates that are directly impacting the economics for you and your farmers’ businesses. This can minimize the stress of reacting to unexpected changes in tariffs and can help you and your farmer feel more connected to the decisions happening locally, statewide and even nationally.
- Take proactive measures to protect and maximize yield. Anything you can do to protect your inputs acts a bit like an insurance policy on your yield. From nitrogen stabilizers, to herbicides and more, they can provide insurance to seed and applied fertilizer, helping you to get the maximum return from your inputs. Yes, these protective products are an extra cost, but with rising costs for inputs, it makes long-term economic sense to protect it.
- Stick to the plan. Rocky markets, unpredictable weather and government changes can make any well-rooted farmer want to adjust and pick a different route for executing their nutrient management and harvest plans. However, many agronomists urge retailers and farmers alike to stay the course as to avoid making brash knee-jerk reactions to government news out of fear or something similar. This can end up being more detrimental to the overall success of those plans.
[1]China Accused the United States of Firing the First Shot on Friday When the White House Said That It Would Impose Tariffs of 25% on $50 Billion worth of Chinese Goods. “China: ‘The US Has Launched a Trade War’.” CNNMoney. https://money.cnn.com/2018/06/15/news/economy/china-us-trade-war/index.html.
[2] Reiff, Nathan. “What Industries Are Most Affected by the Trade War With China?” Investopedia. June 25, 2019. https://www.investopedia.com/industries-most-likely-to-be-impacted-by-trade-disputes-with-china-in-2019-4580508.
[3] “Trade Wars, Trump Tariffs and Protectionism Explained.” BBC News. May 10, 2019. https://www.bbc.com/news/world-43512098.
[4] “USDA Announces Support for Farmers Impacted by Unjustified Retaliation and Trade Disruption.” USDA. May 23, 2019. https://www.usda.gov/media/press-releases/2019/05/23/usda-announces-support-farmers-impacted-unjustified-retaliation-and.
[5] July 19, 2019 News Releases ,Release No. 0112.19. “USDA Awards Agricultural Trade Promotion Program Funding.” USDA Foreign Agricultural Service. July 19, 2019. https://www.fas.usda.gov/newsroom/usda-awards-agricultural-trade-promotion-program-funding-0.
6 “Caught in the Middle of the Trade War.” The New York Times. May 16, 2019. https://www.nytimes.com/2019/05/16/podcasts/the-daily/trump-tariffs-china-trade-war.html.