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The Impact of Rising Tariffs on Agriculture

  • November 21, 2019
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The trade war amongst the United States and China has been a hot topic in the media but has especially been an area of concern for all agricultural producers. The impact of rising tariffs has reached far beyond just commodity prices. Mike Doherty, Senior Economist and Policy Analyst with the Illinois Farm Bureau offered some data and insights on the far reaching effects of the escalating trade war.

“Consumers and producers of the affected products are at a disadvantage in this tariff war. For instance, the tariffs on goods imported from China are in essence the same impact as an increased sales tax for U.S. consumers and the retaliatory tariffs by China are in essence a tax on our producers’ exports to China,” he says. “United States agriculture faces a tariff of 25% on its soybean exports to China that did not exist before 2017. On September 1st, a build-up of Chinese retaliatory tariffs on U.S. pork hit 60 percent, which is on top of a prior existing 12 percent duty.”

Doherty continues to say that these tariffs have obviously reduced U.S. pork exports to China and were estimated to cost U.S. hog producers approximately $8/head. While, China did recently announce a reduction in those tariffs, no concrete details have been released yet.

When discussing the tariff impact on soybean exports, Doherty says, “More than anything, there has been a very significant reduction in sales of U.S. soybeans to China, which has contributed to a 10 percent reduction of total U.S. exports of soybeans worldwide.”

Doherty shared the following statistics from a recent ProFarmer newsletter, further highlighting the trade war impact on soybeans:

  • Drastic decline in U.S. soybean exports to China. S. soybean exports to China were 1.324 billion bushels in 2016-17, 1.036 bil. bu. in 2017-18 and 485 million in 2018-19 after a full season of Chinese tariffs on U.S. soybeans.
  • In 2016-17, China accounted for 61% of total U.S. soybean exports. This proportion has declined to 27.8% in 2018-19.

For Illinois corn and soybean farmers, Doherty says the Market Facilitation Payments (MFP) of 2018 and 2019 have been of assistance in helping navigate the uncertain market conditions.

“Illinois farmers lost out on $1.65/bushel in the price of soybeans, which was offset by the MFP payment of $1.65/bushel on soybeans,” he says. “In my opinion, hog farmers were impacted negatively with lower prices of $8 to $10/head less in parts of 2018 and going into 2019, due to pork falling under two separate sets of retaliatory tariffs by China and also some reductions in shipments to Mexico.”

While Doherty did not see any strong evidence of a tie between the trade war and decreased farmland values, he did say that market uncertainty may be tied to farmland prices. “It may be possible that the recent 2 percent decline in farmland prices in central and northern Illinois was at least partly attributable to the market uncertainty created by the trade war with China.”

Doherty offers a few key financial strategies to help farmers stay afloat and maintain liquidity amidst the trade war. “First, maintain open communications with financial lenders and family members regarding working capital,” he says. “Fine tune bookkeeping habits by focusing on paperwork and working more closely with your farm business accountant. Lock in profit margins when you can and finally, don’t be shy of asking for help and support, including financial counseling.”

The trade war has led to retaliatory tariffs on many agricultural products and impacted farm profits due to reduced exports. Keeping a close eye on finances, while monitoring the markets can help agriculture producers protect their investment and maintain land values.

By: Amy Ryan

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