Commodity Analysis

US farmers want an end to the trade war

Bloomberg | Updated on July 29, 2019 Published on July 29, 2019

Govt assistance of $16 billion criticised as ‘band-aid’ to stem farmers’ losses

The US last week unveiled $16 billion more in federal aid for agriculture. Farmers were, of course, happy for the funds, but mainly, they want an end to Donald Trump’s trade wars.

“America’s farmers ultimately want trade more than aid,” said Zippy Duvall, president of the American Farm Bureau Federation, the nation’s largest general farm organisation. “It is critically important to restore agricultural markets and mutually beneficial relationships with our trading partners.”

The fresh package comes after last year’s $12 billion tranche for farmers. Agriculture incomes have been depressed in the wake of China’s retaliatory tariffs which hurt demand for everything from cotton to pork to soyabeans. For Trump, appeasing his rural-voter base has become crucial ahead of 2020 elections.

“This is a band-aid when we really need a long-term fix,” said Ben Scholz, president of the National Association of Wheat Growers, adding producers understand holding China accountable for “unfair trade practices. But a trade war is not the solution, especially when farmers are the casualties.”

US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin are set to travel to China on Monday for the first high-level, face-to-face trade talks between the world’s two biggest economies since discussions broke down in May.

But in the meantime, farmers are suffering. American farm income dropped 16 per cent last year to $63 billion, about half the level it was as recently as 2013. Years of overproduction have kept crop prices near historical lows, with the trade spat only adding more pressure. In the meantime, rival Brazil has taken advantage of the US dispute to strengthen its ties with China. Not only are farmers wary of the prolonged trade war, but there are also concerns over how the latest aid package was constructed.

The aid uses similar damage criteria as last year’s $12-billion aid package. But rather than funds based on crop type, the new programme sets a per-county rate based on the blend of crops grown in the area, with payments ranging from $15 to $150 an acre.

“We harbour some concerns about disparities in payments from county to county, which could put some farmers at a financial disadvantage,” said Roger Johnson, president of the National Farmers Union, the second-largest US general farm group. “This assistance is desperately needed, but the ad-hoc roll-out and convoluted structure of these programmes has caused significant confusion among producers.”

Agricultural markets largely took the announcement in stride, given the package is designed to avoid distorting planting decisions.

The new payments will be based on the shortfall in exports of each crop compared with the highest year of exports over the past decade, said USDA Chief Economist Robert Johannson.

Last year’s payments were based on the shortfall in exports compared with 2017, so this tranche may end up being more generous.

Overall trade aid is capped at $500,000 per person.

The US President announced the new package in May as he stepped up the trade war by threatening new tariffs against the Asian nation.

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Published on July 29, 2019
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