NAFTA and The Unsettling of the American Farm Economy

As the United States moves on chaotically under the pressure of President Donald Trump’s executive order pen, it is beginning to appear as if some of his most loyal followers will be hurt the most by his decisions

a Canadian Meat Business exclusive By Scott Taylor

The Caucasian American farmer voted almost exclusively for Trump (at least 80 per cent) in 2016 and today, Trump’s policies (or lack of policies) are doing more to destroy the American farmer — whether he’s Caucasian, African-American or Hispanic – than make his life and his business better.

According to farm author Ted Genoways in the Washington Post and, with statistics obtained from the United States Department of Agriculture, prices for corn (a modern low of $3.40 per bushel) and soybeans ($9.80 per bushel) are so low that it now costs a farmer more to grow the staples than the amount for which they can sell it. In fact, according to Genoways, “Soybeans, which surged in planted acres when corn prices went into free fall, are now below $10 per bushel, beans are trading at less than two-thirds of their price of just a few years ago.”

“A mere three months have passed since the start of the process, which is a nano-second by the standards of trade negotiations”

 

Meanwhile, U.S. Department of Agriculture statistics clearly suggest that while farm income has been cut nearly in half in the past four years, farm debt has increased by more than a quarter — with projections that it could “surpass $390 billion in 2017,” the highest level since the farm crisis in the 1980s. As a result, farmers are taking out more and more loans. Unless something is done, more farms will be sold at auction and fewer farmers will be able to afford to work the land.

As Genoways wrote in the Washington Post on Oct. 24: “In short, Trump wants to slam the door on trade while also kicking out the supports for farmers and rural communities. There’s no way around it: The policies he is pushing will devastate the American farm.”

Which brings us to NAFTA – the North American Free Trade Agreement, which was officially ratified in 1994. On the campaign trail, Trump said he would either tear up NAFTA or “renegotiate it.” He was either going to make it “a better deal” for the United States or there would be no deal at all.

On Nov. 17, the fifth round of NAFTA re-negotiations will begin in Mexico City and things don’t look rosy. At least, for anyone other than Donald Trump. In fact, as Trump moves closer to tanking the U.S. farm economy, he has NAFTA in his protectionist sights.

Now, to be fair, one must look at NAFTA as more than an agreement that affects farmers and ranchers. Its reach is wide and includes a myriad of trades and businesses that involves everything from manufacturing and shipping to immigration and border security. So as we, in the Canadian meat business look at the effects of the agreement, we must also take into consideration the other aspects of this tri-lateral treaty.

This is a deal that is extremely important to the meat industry in Canada. For example, Canada exports both beef in a box as well as live cattle to the United States and Mexico. We do nearly $3 billion worth of business to the U.S. (about $0.90 worth of beef per person in the United States), split almost evenly between butchered and processed beef (or beef in a box) and live cattle. With Mexico, we exported a little more than $100 million last year. Meanwhile, the Americans ship nearly $1 billion of beef into Canada (almost $4.00 worth of beef per Canadian). That means NAFTA is a deal that’s beneficial for everyone.

That said, after the fourth round of negotiations during the summer, Canada’s Foreign Affairs Minister, Chrystia Freeland and U.S. Trade Representative, Robert Lighthizer, Trump’s hand-picked negotiator, stood on a stage and had an uncomfortable and awkward public exchange.

“The ‘win-win-win’ that Vice-President Mike Pence claimed to be seeking cannot be achieved with a winner-take-all mindset or an approach that seeks to undermine NAFTA rather than modernize it,” Freeland said. “We have seen a series of unconventional proposals in critical areas that make our work much more challenging. In fact, there are some proposals being made that would turn back the clock on 23 years of predictability, openness and collaboration under NAFTA.”

Lighthizer answered by ripping Canada and Mexico for what he called a “resistance to change.”

“They were fighting to preserve one-sided benefits enjoyed by their companies and refusing to endorse policies they agreed to as part of the Trans-Pacific Partnership deal that Mr. Trump killed,” said Lighthizer.

Freeland claimed that the collapse of the agreement “did not appear imminent.” However, all three countries admitted in their joint statement that there were “significant conceptual gaps” among them.

“I continue to hope for the best,” said Freeland. “But we will prepare, in a no-fuss Canadian way for the worst possible outcome.”
Freeland has already admitted that there are major gaps between Canada/Mexico and the United States on five issues – none of which involves meat production, the supply chain or the ability of farmers and ranchers to work together.

The issues to which Freeland referred are automobiles, dairy, government procurement, dispute resolution, and the “sunset clause,” a caveat the United States wants to insert into the agreement that would automatically terminate the deal in five years “if a new endorsement from all three countries is not agreed upon.”

Originally, Trump and his negotiators wanted a new deal in place – or no deal at all – by the mid-term elections of 2018. It doesn’t look like that will happen and Freeland is pleased the United States has agreed to dump its wham-bam-thank-you-ma’am schedule. Freeland, who admits she clearly understands the all-or-nothing approach of the Americans for the political hot-potato that it is, she has also decided that by changing their negotiation schedule, they are indeed, prepared to negotiate.

“What this says to me is something quite significant,” she said. “There is goodwill in all parties, a real willingness to roll up our sleeves. Our government remains committed to sticking out the talks. A mere three months have passed since the start of the process, which is a nano-second by the standards of trade negotiations.”

However, the Americans are still worried about the length of the talks heading into 2018. A Canada-U.S. trade lawyer named Dan Ujczo, who works for Dickinson Wright Attorneys in Columbus, Ohio, told the Toronto Star recently that he doesn’t believe the U.S. negotiators will allow the talks to go much past the next two scheduled sessions.

“The more days and weeks we let pass by, that 2018 political calendar becomes almost impossible,” he told the Star. “We have to use this month constructively, because there’s really no time on the back end. I don’t see how any trade deal can be announced in the winter of 2018 in the middle of primary season.”

The differences between Canada and the United States can be traced directly to Trump’s concern about “trade deficits.” Trump believes the United States is “losing,” although economists would argue that trades deficits or surpluses have absolutely nothing to do with winning or losing. Especially when it comes to Canada. After all, Canada has 35 million people, the United States has 325 million people and while Canada might export more to the U.S. in total, it is significantly less per capita.

“For us, trade deficits do matter,” said Lighthizer, who knows the United States is actually in a per-capita trade surplus position with Canada. “And we intend to reduce them.”

The comment, like so many from the Trump administration, makes little to no sense.

And that is the heart of the problem. Too much of these hard-nosed negotiations make no sense for negotiators or even for many of the people who voted for Trump.

According to the U.S. Department of Agriculture, roughly one-third of the American farmer’s combined corn and soybean harvest plus beef, pork and poultry products are shipped to other countries – Canada and Mexico included.

Farmers who voted for the current president, told the Washington Post that they were “heartened by Trump’s reputation as a hard-nosed negotiator, a businessman renowned for his skill at the art of the deal, who could strong-arm trading partners into paying higher prices for American commodity grains.” However, Trump is once-again threatening to withdraw entirely from NAFTA, which might lead to higher prices but will also result in higher tariffs. According to more than one farm lobbying organization, market analyst and trade expert, that would be absolutely disastrous for farmers.

Bad enough that Trump already killed a great opportunity for farmers with the Trans Pacific Partnership, he’s now on the verge of destroying North American markets for U.S. farmers and ranchers. After all, pulling out of agreements and potential agreements with the Pacific Rim has devastated commodity prices this year.

When he pulled out of the TPP, the American Farm Bureau Federation blasted him. The AFB had estimated that the TPP would have raised net farm income by $4.4 billion per year and added more than 40,000 jobs, mostly in rural areas.

Of course, Trump responded by threatening to cancel the U.S.-Korea Free Trade Agreement, calling it “a horrible deal.” The American Soybean Association immediately denounced Trump: “This decision, if carried through, will have disastrous consequences for the nation’s soybean farmers.”

Trump backed off, but said the United States could remain in the pact as long as there was a total overhaul, which angered ASA President Ron Moore, who said, “Even the threat to withdraw from this or any trade agreement is a dangerous course of action.”
Meanwhile, American cattle ranchers aren’t particularly happy with Trump these days, either. As an example, in Texas, where nearly 90 per cent of the farm community voted for Trump, the Texas Cattle Feeders Association wrote the following:

“As talks continue to renegotiate the North American Free Trade Agreement — called the “worst trade deal ever” by President Donald Trump — area economists, farmers and ranchers are hopeful but nervous about the deal’s future. Texas Panhandle observers worry about a withdrawal from the agreement leading to tariffs on trade that would stifle Texas Panhandle grain exports, disrupt the flow of cattle into the region’s feed yards and hurt the Amarillo area economy.

The end of NAFTA could hurt feedlot capacity, said Steve Amosson, area economist for Texas A&M AgriLife Extension Service. The panhandle markets roughly 5.5 million head of fed cattle a year, he said.

Amosson said that supply is kept up by an estimated 500,000 and 750,000 stocker cattle that come across the U.S.-Mexico border and into Texas Panhandle feedlots each year.

“Making a more business-friendly environment for U.S. farmers and ranchers to operate in, we agree wholeheartedly in those efforts,” said Paul Defoor, co-executive director of Cactus Feeders. “But in this one, I’m not sure they’re seeing overall economic impact clearly.”

Cactus Feeders’ beef division employees about 500 workers and produces about one million head of cattle a year, Defoor said.

The price for finished beef cattle that come out of the feed yards is $1.10 a pound, working out to about $1,400 a head Defoor said.

About $300 of that can be attributed to export demand, he said.

“If we damage that and (our) trading relationship with Canada and Mexico, it would hit us pretty hard,” Defoor said. “I’m not sure how we would make it up.”

“I don’t want to say catastrophic. That might be a little too strong. But it would be detrimental to our company as well as to the economy of our three-state region.”

Ross Wilson, president and CEO of the powerful Texas Cattle Feeders Association, has called NAFTA “one of the greatest success stories in the history of U.S. agriculture.”

And that story, from the Texas Cattle Feeders, is just one of many in the United States. NAFTA has worked for American farmers and ranchers and, indeed, if the November talks bring an end to the Agreement, the United States rancher will suffer dramatically.

However, as the soybean lobbyists saved the U.S.-Korea partnership (at least for now), there are other groups in the United States who are working to save NAFTA.

That’s certainly the belief of John Masswohl, the Canadian Cattlemen’s Association’s government and international relations liaison. He spends the majority of his time as the voice for the Canadian beef industry to both the Canadian and U.S. governments, as well as maintaining international relations around the world. Masswohl joined the CCA after previously working closely with the Canadian beef industry as Agriculture and Trade Counsellor with the Canadian Embassy in Washington, D.C.
 He is experienced enough to understand clearly that despite all the talk in Washington – talk that seems to be going off in all directions — international trade has never been in as good a place as it is today.

“Our approach to the situation in Washington is business as usual,” Masswohl told Canadian Meat Business Magazine. “I’ve been around all this for more than 15 years and I can say, there has not been a day when something doesn’t come up that’s crucial and sometimes controversial in terms of international trade. However, I can also say that we’ve never been in as good a position on trade as we are right now.

“I look at it this way. Despite what President Trump says from day to day, we’re not in any trouble, at least not yet. Our relationship with the beef and cattle organizations in the United States has never been better, more co-operative and more understanding of each other’s needs than it is right now.”

That belief is held almost right across the board in the U.S., at almost every single level of farming and ranching in the country — not just in the meat industry, but in all other forms of farming in the United States.

For example, Gordon Stoner, president of the National Association of Wheat Growers, said in late October that “growers have already been hurt by the uncertainty caused by the Trump administration’s NAFTA rhetoric and posture to date.”

“Trump was treating other countries as if they were the other side of a real estate deal, to be discarded after the transaction, rather than long-standing partners,” Stoner said. “The administration’s behavior on NAFTA would make it harder to get other countries to agree to the bilateral agreements Trump has said he prefers.

“As a negotiator, part of what you have to do is understand the person on the other side of the table. I can only think people on the other side of the table are looking at the U.S. right now and saying, ‘Why bother? They’re going to tear it up in five years. They’re going to say it’s a terrible deal. They’re going to walk away from it. Why even invest in the negotiation?”

Jim Monroe of the National Pork Producers Council in the United States told Farmscape Online that NAFTA must be maintained and strengthened.

“It is important to move through the negotiation quickly and to maintain the benefits that have been realized through NAFTA,” he said. “We have very aggressively advocated our position on NAFTA to the administration, including the U.S. Trade representative, to the U.S. Department of Agriculture and to Congress. I think right now there is a certain level of uncertainty around trade in North America, between the U.S., Canada and Mexico and I think the sooner we can eliminate that uncertainty the better.

“Uncertainty around trade agreements like this make businesses more reluctant to invest in growth opportunities both at home and abroad so I think the sooner we can remove the cloud of uncertainty around us right now, the better.”

Even the U.S. Chamber of Commerce has come out in support of NAFTA. More than 300 Chambers and various business groups signed a letter to Trump asking that NAFTA be modernized, but retained.

“NAFTA has created American jobs, boosted economic growth, and strengthened local economies,” the letter said, “but we know we can do even more to seize the benefits of trade with our North American neighbors.”

The letter notes that U.S. agricultural exports to Canada and Mexico have quadrupled since the agreement, growing from $8.9 billion in 1993 to $38 billion in 2016.

Neither Canada nor Mexico wants NAFTA revoked. Almost every United States agricultural organization wants NAFTA maintained (we couldn’t find a single one that wants to completely dispose of the agreement, although some Wisconsin Dairy Farmers don’t like it).
However, if the Trump Administration decides that it will tear up the agreement, Canada certainly has options.

Our country is the largest export market for U.S.-made goods and Canada could hit the United States with tariffs on imports. We have long been eyeing closer ties with China, to say nothing of European and Latin American markets.

And recently The Telegraph and Foreign Policy Magazine reported that Britain is now considering a NAFTA-type agreement with Canada and Mexico (if the U.S. indeed pulls out) as it desperately looks to counter the trade loss that already has taken place due to the slow-moving Brexit talks. And, of course, if the U.S. remains in the agreement, the deal would be even more appealing to Britain because with Canada, the United States, Mexico and Great Britain together, NAFTA would account for more than 30 per cent of the World’s economy.

Meanwhile, Canada has close friends in the American cattle, pork and poultry industries and even the tech industry, a group that has lobbied tirelessly to protect NAFTA.

According to Masswohl, the future of NAFTA is worrisome, but it’s not time to panic. Although, it is time for concern.

“NAFTA is the model of what we think a free trade agreement should be,” he said. “I believe when it comes to our relationship with the United States, we just have to take everybody aside and assure them that Canada-US trade is beneficial to everyone and from what we’ve encountered, our American counterparts share our view. We just have to continue to remind them that we have mutual interests that are made stronger by our solid, positive, long-term relationships.”

The fifth round of talks will be held from Nov. 17-21 in Mexico City followed by the sixth round in Canada in December (TBA). Obviously, NAFTA – a 23-year-old model agreement — is now a long way from being settled.

a Canadian Meat Business exclusive By Scott Taylor