Trump’s trade war threatens permanent damage to California’s agriculture market
Dale Edson has lived and worked on her family farm — an orchard in Butte County north of Sacramento — for most of her 77 years. But these days, she said, costs are too high to keep it going. She reluctantly put her land up for sale this year.
“The land here is loam soil,” she said with a sigh. “You throw anything out there and it will grow. It is wonderful soil, and I just hate to see houses built on it. But you just can’t make a living.”
Recalling when her father bought the farm — she was 4 years old then — the 20-acre land at one point housed a dairy, chickens, hogs and sheep. These days, she exclusively grows almonds and had been selling them in China, a market that’s taken a major hit under President Trump’s ongoing trade war.
As tensions and tariffs continue to escalate with China, one of the biggest battles being fought in the trade war is on U.S. soil. Agriculture has been a major target and farmers are feeling the pain from the financial feud that has now stretched over a year and a half.
California farmers like Edson, who already were grappling with labor shortages, higher costs, and slimmer margins, are among those bearing the brunt of the international impasse. The state produces roughly 15% of the country’s agricultural value, and, before the tariffs started taking a toll, exported just under $21 billion in value annually.
The two countries are far from an agreement, with new rounds of increased trade levies planned by both countries in the coming months.
Both Trump and Chinese President Xi Jinping have doubled down on their positions, sparking fears over the increasing damage to the world’s two largest economies, which already has caused concerns about an impending recession in the U.S. and accounted for an estimated $40 billion in export losses.
Before the trade war, California sold nearly $2.3 billion in agricultural products in recent years to China, its third-largest buyer in 2017, and there are concerns that if an agreement isn’t reached soon, those markets could close down for good. Because agricultural exports are a big part of California’s economy, the effects of the trade war are expected to resonate into other industries.
“In response to the trade war, China has cut off agricultural imports from the United States, leaving our farmers shut out of the world’s largest market,” California Sen. Diane Feinstein, a Democrat, said in a statement last Friday. “This will substantially affect California.”
The Trump Administration has tried to temporarily soften the blow, offering billions in subsidies and trade relief to farmers. In May, the president announced a $16 billion “Market Facilitation Program” that also would include investments into building alternatives to the Chinese export market. More than $76 million went to California, but growers, ranchers and dairies across the state said it’s done little to fill the gap or assuage fears about the future.
Markets could close for good
“The concern is the longer this goes on, the more likely it is our products will be replaced,” said Karen Ross, California’s Secretary of Food and Agriculture, adding that she is very concerned about the market disruption. Agriculture exports are a vital part of the state’s economic success, she explained, and the export markets that are at risk of closing took years — or sometimes decades — to build. “What folks are doing is taking lower prices to hold on to those markets or they may be sharing what the cost in the increased tariff is — but you can only do that for so long.”
Dairy farmers, who can’t easily or quickly adjust to unplanned costs or market uncertainty, could be hit hard.
“You can’t turn cows on and off,” said Annie AcMoody, director of economic analysis for Western United Dairies. “I know it is hard for other crops, too, but the cows are there. It is constant production and you can’t just skip a day. When producers make a decision to sell the cows, typically those cows won’t come back.”
California is the country’s biggest milk producer, and more than a third of U.S. dairy exports come from the state.
Dairies were hurting before Trump’s trade wars but were growing their international markets to supplement the slumping domestic demand. AcMoody said roughly a third of California milk ends up outside U.S. borders and exporters have worked hard to build the relationships that open those markets. In 2017, California sold roughly $175 million in dairy products to China according to reports from the state’s Department of Food and Agriculture.
California dairies also are grappling with increases in regulations — along with new water rules and labor shortages — that require investments and adjustments. AcMoody says most small family farms had been unable to keep up even before the $1.5 billion expected losses the dairy industry is expecting nationwide, from dropping dairy prices caused by the tariffs.
“In California, the environment is more difficult than in other states,” she said. “We have had a period of low prices over the past four years and the trade war comes at a time when the industry is struggling to stay afloat.”
AcMoody said there’s a new push to increase local sales in California, but cow numbers continue to drop in the state and smaller family dairies haven’t been able to stay afloat.
“Economies of scale enable [dairies] to be more efficient, so as the cost of doing business goes up, it tends to favor the bigger producers,” she said.
Trade aid doesn’t go far enough
In May, the Trump administration announced a new trade aid package intended to ease the blow being felt in agriculture communities. Along with a promised $14.5 billion in subsidies, the U.S. government released a plan to purchase roughly $1.4 billion to stock school meal programs and food banks across the country. An additional $100 million is planned to go into a program that will help some producers and sectors as they seek out new markets.
It builds on the $12 billion in bailout funds issued by the Department of Agriculture last year, which was heavily criticized for its slow roll-out and the disproportionate amount given to big corporate farms.
California producers received on average $42,000 in subsidy payments but the range was wide. Still, the funds weren’t enough to fill the gap, especially as they won’t help fuel investments in the future.
“I think any farmer you talk to would say, it’s better than nothing. But what we really want are markets,” Ross said. “We have invested tremendously to build relationships and open markets and keep markets.”
Ryan Jacobsen, who heads the Fresno County Farm Bureau — a breadbasket area where 350 different crops are grown, contributing a combined total of more than $5.6 billion to the California economy — agrees.
Adding that he remains hopeful that the president will eventually be able to negotiate a better trade agreement with China that will be advantageous to California farmers in the future, and that his district appreciates the assistance from the administration, it’s not a sustainable solution.
“This is a Band-Aid,” he said. “This is something no one in our industry wants to see long term. It definitely helps to bridge that gap until we are able to see that resolution that’s hopefully coming soon.”
Trade war likely won’t be over soon
The political pressures on both sides of the globe fueling the feud between the U.S. and China are deep set. While economic alarm bells are starting to sound around the world, Neither Trump or Xi appears willing to give in — and they are targeting one another where it hurts most.
“What you see here is a chess game being played,” Nick Vyas, the executive director for the Center for Global Supply Chain Management and professor at the University of Southern California said, explaining that China has taken aim at sectors that have shown strong support for Trump, in the hopes that he will be ousted from office next November. “It is not about randomly picking and choosing but picking and choosing where the maximum impact of the trade and tariff increases and how to send a message.”
The president still has broad support from many of the industries most affected.
Trump’s approval rating among farmers across the U.S. is 79%, according to a Farm Pulse survey done in July, and roughly the same percent responded that they believe the trade war will end with a better market position.
Vyas says that support also encourages the president not to back down. He needs to look tough in order to secure his base for the 2020 election.
“You have the number one and number two economy leaders playing in a sandbox,” he added. “Neither one wants to look weak. How do you see these leaders creating a win-win for their respective constituencies? I don’t see that being easy to accomplish.
Vyas believes that without a resolution soon, the supply chain will be redrawn and exporters will look for other countries to sell to. It’s clear that the Trump administration is trying to push that shift, and has already achieved an agreement with Japan, which will now be a bigger buyer of U.S. agricultural products, specifically purchasing U.S. corn surpluses.
Trump’s trade conflicts aren’t limited to China, and the president’s hostile trade tactics toward other countries have cast uncertainty on where new investment opportunities might be safe. Under the Trump administration, there has been an unprecedented number of trade disputes, according to the Congressional Research Office. As of July, the U.S, was involved in 278 total, including with major trading partners like the European Union, Canada, and India.
The United States Mexico Canada Agreement, a trade deal with Mexico and Canada that overhauls the North America Free Trade Agreement and is seen as a big win for American dairy, has yet to be ratified by Congress. It’s likely to be scheduled for a vote before the end of the year.
For smaller farmers across California, like almond farmer Dale Edson, that may not be soon enough. Still, Edson says, she supports the president’s aims to achieve better trade agreements. She will have to sell her farm either way.
“In general I am glad that Trump is trying to get China to negotiate and be more fair about the tariff situation. I am glad finally that one of our presidents is trying to do something about it,” she said, adding, “I just hope it doesn’t affect other farmers too much.”
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