The agribusiness knowledge provider


February 15, 2017

 

Obstacles, promises for US agricultural industry under a Trump Presidency
 

 

Ambiguity and uncertainty are the hallmarks of US President Donald Trump's administration, and understandably, a cause of genuine anxieties for the country's agricultural industry.


"Expect the unexpected from this unexpected president," Jim Wiesemeyer of Informa Economics writes in a commentary for Ag Web. He identifies trade policy uncertainties, foreign policy flare-up potential and tax relief policies as among industry players' key concerns as the Trump administration goes into action, starting with a slew of presidential executive orders signed during the first few days of office.


Already, for demanding that Mexico pays for a controversial border wall between the former and the US, Trump has, in less than a month since inauguration, prompted a Mexican senator to present a retaliatory bill that will have Mexico buy corn from Brazil and Argentina, instead of the States. Further complicating the now testy US-Mexico relationship is the Republicans' border tax proposal, a significant issue for agribusiness executives. "The main reason is that higher taxes on imported inputs or ingredients will alter their pricing structure," Wiesemeyer, a seasoned Washington observer, explains. "I think they will eventually adjust prices higher, but there is concern nonetheless. Also important to stress that many Asian and European countries already have in place a border tax similar to what is being proposed in the US."    


According to Wiesemeyer, Trump supporters hope the trade surplus generated by agriculture (one of the few American sectors to do so) remains unaffected. "I believe agriculture will actually build on market access gained via NAFTA and the proposed-but-now-withdrawn TPP. But farmers want proof," he says. With farmers and exporters fearing that they will be used as "collateral to gain market access elsewhere", Trump's executive order to renegotiate NAFTA renders an even more worrying outlook for the sector; the deal after all elevates agricultural trade with Canada and Mexico, the country's biggest export markets. 


"(Farmers) want to use the existing market access gains in NAFTA and the proposed TPP as a starting point, building on that to make sure they can tell farmers and ranchers they have gains from a new approach to trade policy," Wiesemeyer adds.


In the meantime, implementing tax relief/reform is an equivocal issue. "It's not a question of whether tax relief is coming, but how and when," Wiesemeyer remarks. Even after these measures come into legal effect, changes may have to be made to deductions and other tax policies, in order to "help pay for the very expensive revenue needed to lower and simplify corporate and individual tax rates".


Yet, ultimately, tax relief is a "clear net-plus" for the US and agriculture industry. "More investments. More opportunities," Wiesemeyer comments. 


Another positive development, Wiesemeyer notes, is a new farm bill that would greatly benefit the cotton and dairy sectors which are vulnerable due to "ineffective" safety nets. In addition, the corn and soybeans industries have to recalibrate their ARC programme and improve financial securities of farmers if crop prices decline and stay below breakeven. "Crop insurance is clearly the programme to watch in the farm sector. Insurance will be largely protected during the new farm bill round," Wiesemeyer says.


In conclusion, Wiesemeyer expects uncertainties in the US agricultural industry to be short term. Long-term gains could materialise if the Federal Government is able to implement a sound fiscal policy in place of a Federal Reserve-dominated monetary framework. "I would bet on growth ahead. It will take a non-politician to get this country growing behind anemic 1.5% to 2% growth rates toward 3% and rising," Wiesemeyer predicts. "That, in turn, will help boost investments and demand as incomes rise not only here, but around the world. That will mean a return to demand-pull markets in agriculture, which are the best."

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