Relief package & potential deal with Mexico could buoy US farmers negatively impacted by trade war

By Elizabeth Crawford

- Last updated on GMT

Relief package & potential deal with Mexico could buoy US farmers

Related tags North american free trade agreement Soy Usda Farmers Trade deal

As the White House pushes forward with its hardline approach to international trade deals, including a bilateral proposal announced yesterday with Mexico that could replace the North American Free Trade Agreement, it also is taking steps to provide financial relief to US farmers and ranchers impacted by “unjustified retaliation by foreign nations,” according USDA Sec. Sonny Perdue.

Perdue announced Aug. 27 a short-term relief package that would pay US farmers $4.7 billion “while the Administration works on free, fair, and reciprocal trade deals to open more markets in the long run to help American farmers.”

In the statement Perdue said the package is designed “to make sure our farmers [do] not bear the brunt of unfair retaliatory tariffs,”​ and “after careful analysis by our team at USDA, we have formulated our strategy to mitigate the trade damages sustained by our farmers.”

The deal includes payments beginning Sept. 4 to corn, cotton, dairy, hog, sorghum, soybean and wheat producers, and a promise that USDA’s Agriculture Marketing Service will buy up to $1.2 billion in commodities “unfairly targeted by unjustified retaliation,”​ which will then be distributed through nutrition assistance programs, according to the agency.

Soy farmers see the most relief

While the package will impact farmers from a wide array of commodities, the biggest winners by far will be soybean farmers, which will see an initial payment rate of $1.65 a bushel for up to an estimated initial payment of $3.6 billion.

The payments “will provide a real shot in the arm for our growers, who have seen soybean prices fall by about $2 per bushel, or 20%, since events leading to the current tariff war with China began impacting markets in June,”​ John Heisdorffer, the president of the American Soybean Association, said in a statement Aug. 27.

He also lauded USDA’s initiative to provide an additional $200 million to develop foreign markets through a Trade Promotion Program.

Other beneficiaries of USDA’s assistance under the Market Facilitation Program are pork, which could see up to $290 million in payments, grain sorghum with an estimated $156 million in payments as well as $127 million for dairy, $119 million for wheat and $96 million for corn.

Even with the short-term relief promised by the package, Heisdorffer encouraged US officials to “remain focused on market opportunities in the long term,”​ including negotiations for a new North American Free Trade Agreement.

“We hope a new NAFTA will build on the original agreement for US soy and livestock product exports,”​ he said.

Tariff mitigation falls short, dairy industry says

Not everyone was happy with USDA's mitigation plan, including the National Milk Producers Federation.

In a statement, NMPF says that it appreciates USDA's efforts "to help producers weather these volatile economic times,"​ but it says the dairy specific financial assistance package "falls far short of addressing the losses dairy producers are experiencing due to trade retaliation resulting from the Trump Administration's imposition of steel and aluminum tariffs."

In particular, NMPF calls out that the financial assistance offered for dairy represents less than 10% of American dairy farmers' losses caused by the retaliatory tariffs imposed by Mexico and China.

NMPF explains that an Informa Economics study showed the impact of the retaliatory dairy tariffs "projects dairy farmer income will take a hit of $1.5 billion this year if the tariffs remain in place through the end of 2018. This loss compounds to $16.6 billion if the tariffs are left in place long term over the next five years, through 2023."

Given all that is at stake, NMPF says it will continue to work with USDA to "best accomplish our shared goals of supporting dairy farmers' prices in light of the harm caused by retaliatory tariffs."

Deal with Mexico on the table

USDA’s announcement came the same day that the White House announced a tentative agreement with Mexico that could replace NAFTA if the proposal is able to overcome significant challenges.

Top among these challenges is the exclusion from the negotiations so far of Canada, which is a current NAFTA partner. Some say the proposed deal is an attempt to pressure Canada into an agreement quickly so that there is sufficient time for the current Mexican president to sign the agreement before he leaves office.

Both Mexican and US officials have sent mixed signals on whether they are willing to move forward without Canada. But Mexican President Enrique Peña Nieto reportedly said on a call with President Trump that it was his wish Canada now be incorporated into the arrangement.

The deal also needs to be approved by US Congress and Mexico.

What the deal could mean for agriculture

While most of the attention on the deal has focused on its implications for the auto industry and other manufacturing jobs, it also would affect the US agricultural industry.

“This is nothing short of a great victory for farmers and ranchers, because locking in our access to Mexican markets is critical to supporting farm income and strengthening rural communities. Mexico has historically been a great customer and partner and we are happy to have this resolved for our agriculture producers,”​ Perdue said about the potential deal in a statement.

Specifically, he called out as positive provisions in the proposal that address agricultural biotechnology “to keep up with 21st​ Century innovations,”​ and a mutual pledge “to work together with Mexico to reduce trade-distorting policies, increase transparency, and ensure non-discriminatory treatment in grading of agricultural products.”

Industry praises deal

The Americans for Farmers & Families praised the proposed deal as “a big step forward,”​ as “Mexico is a critical market for American agriculture.”

Seventh-generation farmer and spokesman for AFF’s Retaliation Hurts Rural Families Casey Guernsey initiative explained, “Since NAFTA’s implementation in 1994, agriculture and related exports from the US to Mexico have increased by more than 450%. And as the third largest importer of US beef, Mexico is a trading partner that cattle ranchers like me rely on to grow our businesses – making our local communities and nation’s economy even stronger.”

AFF added that it is hopeful that the deal, if finalized, could pave the way for other trade agreements around the world.

“Finalizing this important trade deal will be a significant win – one that not only expands opportunities for farmers and families across North America, but also one that sets the standard for strong US trade agreements in key markets around the world,”​ Guernsey said in the statement.

ASA President Heisdorffer echoed this hope for the future as well as his hope that it would open the door for Canada to return to the table and move the trilateral agreement one step closer to ratification.

“This is exciting news for soy growers anxious to expand existing markets and purse new ones,”​ he said. “We need NAFTA and new free trade agreements to build and ensure the certainty of our markets for soy and livestock product exports”​ especially “with the uncertainty and market loss resulting from China’s tariff on US soybeans.”

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