Rabobank: Trump policy could tighten U.S. farmer margins

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Rabobank: Trump policy could tighten U.S. farmer margins

Trade agreements, agricultural policy and labor are key areas where there is potential for long-term change in the wake of the U.S. presidential elections, according to Rabobank. 

U.S. President-Elect Donald Trump

U.S. President-Elect Donald Trump

The Rabobank Food & Agribusiness Research and Advisory (FAR) released a report discussing the possible implications of the election, which saw Donald Trump elected as the 45th U.S. President.

"Republican-controlled Executive and Legislative branches could mean swift action when the new administration takes office," said FAR North America head Pablo Sherwell.

"Our analysts and others around the world are keeping a close eye on trade, labor, the upcoming Farm Bill and regulations impacting production agriculture, as these areas are where potential policy changes could have longer-term implications on the industry as a whole."

The report said while President-elect Trump's policies are yet to be clearly defined, his statements during the campaign suggested "drastic changes" from current policy could be on the horizon.

It explained producers' prices and margins would be impacted in the short-term due to volatility in the U.S. dollar and currencies generated by market uncertainty.

The report noted the export share of U.S. agricultural production represents more than 20% in volume and value terms, making U.S. price formation "highly dependent" on foreign trade

In addition, it said currency depreciation in emerging markets like Mexico - which imports around a fifth of U.S. food and agricultural exports - may reduce trade from the U.S. into those countries. On the other hand, Mexico’s exports to the U.S. may get a boost from the peso's depreciation.

"The current uncertainty diminishes the appetite foreign businesses have to invest in US agribusiness," the report said, adding food consumption and trade trends may be affected by lower consumer confidence.

TPP 'unlikely to happen'

Looking at the long-term, the analysts identified trade agreements as one of the main areas likely to see change following the elections.

U.S. agricultural exports were valued at US$127 billion last year, and the analysts said any change to trade agreements "will not only affect global prices and trade dynamics but also US farmer margins."

The report said it was 'questionable' whether U.S. trade agreements, particularly the North American Free Trade Agreement (NAFTA), would stop or go through major changes, given how the U.S., Mexican and Canadian agricultural markets are heavily integrated.

"Regarding other shifts in trade agreements and trade policy, the Trans-Pacific Partnership (TPP) is unlikely to happen during Trump’s administration," it said.

"However, some markets, such as Russia, may reopen, and other markets may strengthen, like the United Kingdom. An improved relationship with Russia may see the end of the trade ban.

"Other changes in US agricultural trade policy will need to be analysed on a case-by-case basis to determine their domestic and global impact. Regardless, trade policy will continue to be a critical factor and a source of market uncertainty until it is better understood."

Technological investments in face of labor shortage

Aside from trade deals, another key topic is the U.S. Farm Bill which is scheduled to be renewed by 2018. The report said the Republican party majority in both houses would likely lead to a "smoother" development and approval process than last time.

"Reduction in regulation has also been a clear policy direction advocated by Trump during his candidacy. While this may not materialise in the actual Farm Bill, it is likely that the direction of the Farm Bill will shift even more toward business sustainability and away from conservation," it said.

"Increasing the budget for the Conservation Reserve Program is expected to become a key issue, along with an adjustment to the revenue support programs, including crop insurance."

In addition to trade deals and the Farm Bill, the report said a potential labor shortage would bring challenges to the sector.

"Assuming a stronger stance against illegal immigration, small business owners may face higher operating costs as a result of labour shortages, which would pressure their margins," it said.

"In fact, US agricultural producers have already been facing rising labour costs, and lower labour availability, caused by increasing opportunities for labourers in Mexico, decreased birth rates in Mexico, and stricter immigrations laws. 

"The challenge for US producers is to remain labour-competitive. It is likely to see some changes regarding immigration and labour. Producers may need to start thinking more about technological investments."

Big ramifications

Meanwhile, John Dillard, an associate attorney at OFW Law who has an emphasis on agriculture, environmental, and food-related matters, agreed many farmers were facing positives and negatives from potential policy changes.

"I think time will tell how things turn out," Dillard told www.freshfruitportal.com.

"A lot of people are excited about maybe a less intrusive approach to regulation, but there are also concerns about trade, and that’s a very crucial part of agriculture.

"Losing access could have big ramifications, so I think the general hope is that they’ll approach it carefully and any changes they make will hopefully reduce trade barriers for agricultural products."

He said that overall excitement about the Trump administration was high amongst U.S. farmers, highlighting the campaign promise to back off the Waters of the United States (WOTUS) rule.

The proposed WOTUS rule would expand the Federal Government's authority over bodies of water across the U.S., many of which are already managed by their states. The proposal been criticized by much of the agricultural industry.

He added many farmers were concerned about potential changes U.S. immigration policy, but agricultural industry representatives had been in communication with the Trump campaign to explain the importance of the workforce and the need for any immigration reform to accommodate industry needs.

Photo: www.shutterstock.com


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