Ag Policy Blog

President Donald Trump’s imposition on tariffs on other countries that have led to retaliatory tariffs on U.S. farm products could not have come at a worse time for American agriculture, Constance Cullman, president of the nonpartisan Farm Foundation, said this week while commenting on the latest agriculture outlook from the Organization for Economic Development and Cooperation.

The outlook from the Paris-based organization of developed, wealthy countries said agricultural production is now plentiful and that prices and farm incomes may continue to fall, but does not include analysis of the impact of the tariffs that Trump initiated.

“The recent trade actions couldn’t have come at a worse time,” Cullman said, referring to current low commodity prices.

Economists have told farmers “figure out your business model, figure out how to be a competitive producer without government support,” she noted but the tariffs make it difficult to deliver “if you export a third of your product or more if you are an almond grower in California.”

And now the Trump administration is talking about providing additional support to protect farmers from the impact of the tariffs, she added, referring to Agriculture Secretary Sonny Perdue’s statements that the authorities of the Commodity Credit Corporation may be used to make payments to farmers.

If the Trump administration moves forward with that plan, the action would further “skew” the numbers in the report, Cullman added.

“The biggest, longest-lasting problem” over the next 10 to 15 years, she said, could be “the discrediting of institutions we have in place to monitor trade.”

The World Trade Organization has rules but it will be difficult “to hold China accountable” if the United States is questioning the rules of the WTO, she said, referring to Trump’s frequent criticisms of the WTO.

The economy of North America — comprising the United States, Mexico and Canada — “is a great economy,” Cullman said, but the conflicts over the North American Free Trade Agreement are now threatening the efficient supply chains that have been established in recent decades.

The total impact of the tariffs is unpredictable, she said, noting that countries want to assure themselves of supplies. After the Carter administration imposed an embargo on U.S. grain sales to the Soviet Union, “we never got that market back,” she pointed out.

The world is now living in an era of plentiful agriculture and food production with lower prices that are expected to continue to fall, but there are still risks related to climate change and policy, the Paris-based Organization for Economic Cooperation and Development said Tuesday as it released reports on the agricultural outlook and the monitoring of agricultural policy.

The situation is very different from the 2008 to 2009 period when production was low and prices spiked, sparking action by many nations to try to improve the situation, Carmel Cahill, the OCED deputy director for trade and agriculture during a teleconference that was beamed to OECD’s Washington Center.

But Cahill said many governments’ policies do not live up to their claims. Fully two-thirds of support is still provided in ways that are market-distorting, environmentally damaging and stifling innovation, she added.

Cahill also noted that emerging economies now dominate both markets and policy.

The OECD-FAO Agricultural Outlook 2018-2027 report said that there is little appetite in major agriculturally-developed countries to reduce government supports in a period of low prices and that emerging countries — defined as developing countries that are getting richer — are increasing support.

Will Martin, a senior research fellow at the International Food Policy Research Institute, who commented on the report, noted that agricultural trade used to be between developed countries, but today it is mostly between developed and developing countries or among developing countries — and that most of the policy conflicts are between developed and developing countries.

Cullman said she wondered what the report’s findings would look like if China were taken out of the “emerging market bucket.”

The report did not factor in the recent tariffs that President Donald Trump has imposed on steel and aluminum and the resulting retaliatory tariffs that other countries have imposed on U.S. farm products. The OECD analysts said that if the tariffs continue they will have to factor them into next year’s reports.

Martin said that the trade conflicts could cause supplies to go up in the short term, but over the long term will cause countries and companies to change the countries from which they buy commodities, interrupting supply chains and reducing efficiency in world agriculture and food production.

Agriculture Department Chief Economist Rob Johansson said he largely agreed with the OECD findings that commodity prices and farm incomes are falling. He noted that both USDA and OCED make 10-year projections and said that if the tariffs continue both institutions will have to take their impact into consideration in their forecasts.

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