Effects of agricultural trade agreements still to be seen

It may still be too soon to see how recently signed and enacted trade agreements will impact American agriculture and specifically farmers in southeast Iowa.

Chad Hart, an associate professor of economics from Iowa State University said the United States - Mexico - Canada Agreement (USMCA), which involves the country's two largest trading partners, will see a substantive change for the dairy industry.

'They're going to get a little bump with more open trade rules. Corn, soybeans, pork and beef, the rules are the same and trade just continues as it has been for a while,” Hart said.

Hart explained the agreement is essentially a slightly broadened extension of the North American Free Trade Agreement (NAFTA).

'Canada and Mexico are worth $20 billion a piece. What NAFTA did was lower tariffs and trade barriers across the board. The USMCA held those barriers low and lowered several more, which is an incremental step forward,” Hart said.

While the USMCA doesn't necessarily make big changes or splashes to trade, farmer Tom Adam from Harper said it was 'essential” that it got signed and would have been 'devastating” for farmers otherwise.

Both Adam and Hart said the bigger trade agreements to keep an eye on are the ones that have been signed with China and Japan.

'China one everyone has been talking about,” Hart said. The economist explained the deal as signed holds China to buy $30 million worth of products this year and an addition $39 the next.

'This is the only trade agreement written like this. Usually the writing addresses specifics on tariffs and lowering trade barriers, those are policy levers. Then they let markets figure out what going to trade. This makes it a unique trade deal,” Hart said.

The deal would push China to become the country's largest trading partner and aims to give farmers in the U.S. a short-term advantage.

'It's increasing demand at a time when farmers have found demand waning and prices low,” he said.

Hart added that he believes recent increases in farm bankruptcies are related to trade disruption, but overall number of farms in financial trouble is small.

'A 24% increase is big but we're still talking about a small number across Iowa. Only 24 filed. What's created this is low prices over the last five to six years, which has put a lot of financial stress on farms overtime. These trade agreements mean we get some agricultural economic expansions overtime,” Hart said.

The large buying threshold will force China to buy a variety of products, something that hasn't quite happened yet.

'If China comes through with everything they said they're going to do, China would be the one for soybeans, USMCA would be the one for corn,” Adam said, 'Some people are concerned [China] hasn't done much purchasing yet but when you look at the time of year, it's not surprising.”

As a soybean farmer, Adam is expecting the deal with China will give his industry a bump.

'China has granted tariff waivers on soybeans from the U.S.,” he explained, 'Even though they haven't purchased anything recently, we do expect them to purchase soybeans this summer and through the fall.”

However, other factors have also slowed recent trade to China, including growing concerns about the coronavirus as well as the African Swine Fever. This has pushed farmers to explore new markets that they hadn't considered before including India, Cambodia, Pakistan and parts of the European Union.

'As the middle class increases in size across the world, globally, people eat better as they rise out of poverty. India is the number five producer of soybeans in the world, but they've gone from large exports to consuming their own production and given up markets like Bangladesh and Pakistan. We've picked up all of that,” Adam said.

The farmer also pointed to other barriers to agricultural trade including exchange rates and a high U.S. dollar.

'It makes anything we export more expensive,” Adam said.

Adam, who recently met with a Vietnamese trade delegation said other countries are interested in buying, but it may come down to price.

Moving forward, Adam said he's excited at the prospect of creating a trade deal with the United Kingdom, especially in light of their recent exit from the European Union. Overall, Adam believes agriculture and specifically demand for soybeans will continue to grow.

'Soybean production worldwide has increased three-and-a-half times in the last 35 years. The demand for soybeans is continuing to grow. As more people worldwide get into the middle class, protein is where they're choosing to go. I feel like eventually we're going to grow out of this,” he said.