Economist to Team Trump: More Trade Won't Avert a Farm Crisis

July 20, 2017 | 4:59 pm
Pete Markham/Flickr
Karen Perry Stillerman
Deputy Director

Whether or not you think “Made In America Week” is a hypocritical joke, it seems like a good time to assess the Trump administration’s plan to sell more home-grown farm products abroad. Earlier this month, senior administration officials tucked into prime rib in Beijing to celebrate the re-opening of China to US beef after 14 years. Despite a rather incoherent overall trade strategy, when it comes to exporting corn and beef, the administration has been bullish (pun intended). Secretary of Agriculture Sonny Perdue has said we can “sell our way out” of a crisis with exports, and he recently reorganized the USDA to add an Undersecretary for Trade who will “wake up each and every day” thinking about how to unload more US farm products overseas. (The president just this week nominated Indiana Agriculture Director Ted McKinney to fill that post.)

On the face of it, new and expanded global markets might seem like a way out for US farmers suffering from low commodity prices and declining farm incomes. But will it work? I walked down the hall to ask an expert.

Kranti Mulik is our resident agricultural economist here at the Union of Concerned Scientists, and her bio includes stints researching global agricultural trade issues at Iowa State University, IHS Global Insight, North Dakota State University, and Kansas State University. Following is my recent Q&A session with Kranti to better understand how much we can expect US farmers’ prospects to improve through increasing exports of major farm commodities.

KPS: For starters, just how bad is the economic picture for US farmers right now anyway?

KM: Farmers are in a bind—commodity prices are low and we have an oversupply issue. Grain storage bins are full and farmers are trying to find a way to get rid of their supply. In addition, net farm incomes are expected to decline for the fourth consecutive year and farm debt is also expected to rise by over 5 percent. And the entire northern hemisphere is dealing with overproduction. As a result, global farm commodity prices are low and the latest forecasts indicate that they will remain low compared to previous highs. In addition, demand for agricultural commodities is also expected to slow down as countries like China slow their spending.

In response to all of this, our friends at the National Farmers Union—who represent 200,000 family farmers across the United States—are sounding the alarm about a full-blown farm crisis.

KPS: That’s bad. But we’ve heard that as China’s middle class grows, it will be hungry for more meat and poultry products from the United States. Is that a given?

KM: It’s true that China’s economy and its middle class are growing, and that more affluent consumers demand more meat. However, GDP growth in China has leveled off (as shown in this graph), and we won’t see growth rates there or in other developing countries like we saw 10 years ago. In addition, Chinese pork demand has peaked, and is now declining as diets get healthier. Pork sales hit a three-year low last year at 40.85 million tons (down from 42.49 million tons in 2014), and it is predicted that they will fall slightly this year as well. New Chinese government dietary guidelines also aim to reduce that country’s meat consumption by 50 percent. And as I mentioned before, China is also expected to slow its spending.

So is Chinese meat demand really expected to grow that much going forward? Maybe not.

Also, trade decisions really depend on a combination of factors, not just GDP growth but also exchange rates and consumer preferences for particular products. The US dollar is strong now (too strong, according to President Trump), which makes our exports more expensive abroad. Moreover, South American countries now have advantage over the US in terms of lower cost of production, and those countries are expanding their cattle inventories. So it’s harder for US farmers to compete with cheaper beef coming from Brazil and Uruguay, for example. And to some degree, beef is beef for Chinese consumers, and the government is likely to import the cheaper product.

Overall, I think it’s irresponsible to suggest to farmers that increasing exports is some kind of silver bullet.

KPS: Assuming for the moment that US exports of farm commodities could be increased significantly, would that necessarily benefit the average American farmer?

KM: Exports are already a big part of total US farm income, and increased trade isn’t inherently bad. But right now our exports are dominated by grains and oilseeds (think corn, soybeans, and cottonseed), along with meat produced from animals fed those products in industrial facilities. That’s what Secretary Perdue is suggesting we sell more of abroad. But that means doubling down on a large-scale vertically-integrated production system that is already failing most US farmers. This system primarily benefits big agribusiness companies like Cargill and Tyson. And global trade in these kinds of undifferentiated commodities rarely helps the little guy very much.

And today, beginning farmers operate 20 percent of US farms. These mostly younger farmers want to move away from the industrial model, and they won’t be helped much by Secretary Perdue’s trade strategy.

KPS: But isn’t a free market and more trade good for everyone?

KM: Not necessarily. The US export strategy has long been a matter of using world markets to sell commodities—like corn—that we’re producing too much of already. And a major reason our farmers are producing too much in the first place is that a handful of commodities have long been subsidized by federal farm policies. Farm subsidies between 1995 and 2014 totaled $322 billion, and most of this has supported five commodity crops—corn, soybeans, wheat, cotton, and rice—with corn alone receiving more than $94 billion in subsidies over that period.

So when we sell a lot of subsidized commodities, corn for example (or corn-fed beef or pork) globally, it drives down world food prices. And farmers in other countries—where they don’t get big subsidies—can’t compete. That’s really bad for farmers in developing countries. And when farmers in those countries suffer, the whole population suffers. We’re talking about some of the poorest people in the world here.

KPS: What other effects might we see from boosting production of US farm commodities for export?

KM: It would almost certainly worsen the environmental impact of US agriculture, which is already a big problem. My recent research has shown how our policies that subsidize a few farm commodities have contributed to a massive water pollution problem. By encouraging Midwestern farmers, for example, to maximize production of corn and soybeans, these policies have created a vast monoculture with lots of added nitrogen fertilizer and bare soil in between crops, leading to erosion and runoff that has harmful downstream impacts. The national price tag for nitrogen pollution from farms is already $157 billion a year—more than double the value of the entire 2011 US corn harvest. Expanding corn production, especially if it’s done in less-productive, more-erodible areas, will make this problem worse.

More industrial agriculture probably won’t be good for public health, either. A 2014 Harvard study found that ammonia emissions from exporting livestock and commodity crops resulted in public healthcare costs of $36 billion and 5,100 premature deaths.

KPS: Based on your research, what are the most promising strategies—trade or otherwise—for helping American farmers and rural communities out of their current economic slump?

KM: As I said, there’s nothing inherently wrong with trade in farm products. But it’s interesting that while the United States has always been an agricultural exporter, our food and farm trade balance has been declining. We are now importing more than we’re exporting. Of course, farmers in the Midwest can’t meet local consumer demand for bananas and coffee, but there are plenty of crops they could grow.

For example, we now import oats from Canada and Sweden, and my most recent report shows we could grow more of those in the Midwest, and that would benefit the region’s farmers and its environment. Rather than continuing to focus on single-commodity exports, we should use public policies and incentives to encourage farmers to grow a wider variety of higher-value, differentiated products that would find ready markets both abroad and right here at home.

I mentioned beginning farmers earlier. They’re the future of agriculture, but they face various challenges—the primary one being access to land, which has becoming increasingly difficult. In addition, the major focus of the government subsidies and research is still on commodity crops, making it challenging for farmers who want to grow so-called specialty crops (fruits and vegetables). With 30 percent of principal farm operators over the age of 65, we need more beginning and young farmers to enter the work force and we need to support these farmers as they are critical to our rural economies.

I’ve studied the economic benefits that would come from farmers in states like Iowa growing fewer commodities and more fruits, vegetables, and other foods for local consumption. I found that if public policies did more to connect small and midsize farmers there with large-scale food local buyers such as supermarkets and hospitals, it would create jobs, revitalize rural communities and improve access to healthy food all at once.