President Trump announced the renegotiation of the North American Free Trade Agreement [NAFTA] to congress this month. The agriculture industry will be the sector most affected, but some are hopeful that through Trump’s decision to renegotiate and not withdraw from NAFTA, a better deal will surface for Americans all around.
While America’s agriculture industry could be hit with economic loss, some economists say it would not be the American farmer who is most affected. Industries that play smaller roles in agriculture like the transportation industry and key players like the corn and beef industry could not only see changes in revenue but also in employment numbers.
A game of tug-and-pull between the Trump administration and Mexico has American farmers concerned if trade woes continue between the two nations.
The American midwest serves as a key supplier of agricultural goods to many countries, but it is also a region that largely supported President Trump during the election.
Trump carried farm belt states like Kansas during November’s election, but the current political climate between the U.S. and a long list of nations may be what affects the bottom line for many Americans.
Job creation lead as one of the top issues for American voters during the 2016 election, especially for voters in middle America. With manufacturing jobs down, and coal mining jobs virtually non-existent, voters were looking for Trump to create results during his first 100 days in office.
And Trump did create waves during his first months in office – unsurprisingly, in his own way.
The prospect of a trade war is alarming, particularly if the fallout is with Mexico. In 2016, total U.S. exports of agricultural products to Mexico totaled $18 billion. It is one of the most lucrative agricultural markets for the U.S., as top consumers of corn, soybeans, poultry and beef products, trade tensions with Mexico could result in a deep financial hit for the U.S.
Earlier this year, Mexico threatened to export agricultural goods from elsewhere, particularly corn. Mexican leaders proposed “Plan B” in March, a plan that would essentially wean Mexico off American goods, even if it means paying more.
But how would tariffs or a trade war between the U.S. and Mexico truly impact the agriculture industry? It might not be in the places you would think.
The corn industry for one has been the poster child of the agriculture battle with Mexico, but the impact of a trade war on the industry would only be minimal.
If Mexico decides to retaliate on corn, and tariffs are put in place, they’re going to switch to buying their corn from Brazil or Argentina. This however does not mean we will see the full effect on the industry. According to economists, there will be adjustments in who consumes corn from the U.S. and there will be a change in profits, but jobs will remain for the most part.
“The people that were buying from Argentina or Brazil will probably be displaced and they’ll come buy some of it [corn] from the U.S.,” said Philip Abbott, agricultural economist at the University of Purdue. “It’s not so much employment as it is farm income that is going to be affected. Many farmers won’t go out of business, they’ll just have a lower income. Right now that’s a big issue in agriculture because commodity prices are low and income is low.”
Over 80 percent of corn farm operations in the U.S. were family or individually operated in 2012, accounting for 65 percent of sales according to the 2012 Census of Agriculture by the USDA.
And corn prices have remained low for the past four years. The price of corn today holds at $3.70 per bushel and many fear this trend will continue.
Last year alone, the U.S. Department of Agriculture had to pay more than $7 billion to farmers in order to keep them afloat in the face of low crop prices. And with the potential renegotiation of NAFTA, this could mean more trouble for corn producers.
“We could see a total reduction in the number of total farmers that we have in the midwest. That could happen with a NAFTA renegotiation or without a NAFTA renegotiation,” said Darin Newsom, senior analyst at DTN. “If prices stay this low, regardless of what happens with NAFTA, you could see the same result.”
And the corn industry is not alone when it comes to the potential business loss as the after effects of a NAFTA renegotiation.
Corn Prices Over The Last Five Years
The beef industry is not one most people think of as possibly being impacted by NAFTA, but economists say this is one industry where job loss and shrinking profits could be found the most.
“What you would see, going forward with the ripple effect in other agricultural industries would be lower feed cost,” said Newsom. “Usually what happens with lower feed cost is larger herd sizes. We would continue to increase the herd size in the cattle. What we could get into in time, is the situation of possible oversupply in cattle, which would then drop the cattle market down as well, because feed cost would be expected to go lower due to the lower price of corn.”
This again would be tied to the renegotiation of NAFTA, and economists say the meatpacking industry could also be affected.
“Generally, when looking at production agriculture, it is real machinery intensive, and it doesn’t use a lot of labor,” said Chris Hurt, agricultural economist at the University of Purdue. “ Where we would use a considerable amount of labor, would be in some of the food processing areas. The labor requirement for meat processing as an example, is relatively high.”
The meat and poultry industry is considered one of the largest segments of U.S. agriculture. In 2012, total meat and poultry production reached more than 93 billion pounds according to the North American Institute. And with large numbers of meat being processed in the U.S., this also means there are many jobs at stake.
Roberto Nunez, a 48-year-old meat packer in Commerce, Calif., says he’s concerned about his job security more than ever.
“I’ve been working in the industry for more than 10 years, and I’ve always seen job security go up and down,” said Nunez.
The last plant where Nunez worked for over five years closed and moved to Kansas, but now he is not worried about losing jobs to the other side of the country, he is worried of losing jobs permanently.
There are almost 30,000 plants in the U.S. that provide food and beverage processing. And according to the United States Department of Agriculture, these plants employed 1.5 million workers in 2011, 32 percent of those being in the meat processing industry.
Another industry whose employees play a critical role in agriculture is the transportation industry.
While most essential jobs tied to the agriculture industry fall under labor intensive, other jobs like those in the transportation sector also play an important role in the industry.
“I think it would not be in production agriculture that would be high numbers in job loss,” said Hurt. “There would certainly would be some, but there would be more in processing and in transportation, because we just wouldn’t be moving these goods as much.”
According to Abbott, who drives the trucks that transport agricultural goods is also key in NAFTA negotiating.
“One of the big issues in NAFTA is trucks crossing the border, and that goes both ways,” Abbott said. “I know that ultimately there were concessions, some of what comes here from Mexico is Mexican trucks and some of what goes down to Mexico is U.S. trucks.”
And there may also be a greater demand than supply for jobs for people in the transportation industry.
“It’s hard to find people to drive trucks. My guess is that some of those people are of Mexican origin and that could be affected by an agreement and a crackdown on Mexicans working in this country,” Abbott said. “There’s a possibility we’ll see less people willing to do those jobs, if you’re a manager in the transportation industry, it may become harder to keep your fleet moving.”
Regardless of what may happen during the renegotiation of NAFTA, many are breathing more freely now that Trump has stepped away from the idea of withdrawing from the agreement. The role of NAFTA in the the livelihood of many Americans is one that is at stake and one the world will continue watch.