Farm groups warn that end of NAFTA would lead to big losses in agricultural sector
What’s at stake for the Midwest’s food and agriculture sectors when it comes to the future of the North American Free Trade Agreement? A whole lot of jobs and economic activity, according to a letter signed in November by nearly 170 agriculture organizations and companies and sent to all 50 U.S. governors.
“Withdrawal from the accord would have adverse impacts,” the letter states before detailing why, as well as the economic consequences in various sectors.
For instance, Canada and Mexico account for 40 percent of the volume of U.S. pork exports (seven of the 10 leading states for pork production are in the Midwest) and 27 percent of U.S. beef exports (five of the 10 states with the most cattle are in the Midwest).
Without NAFTA in place, these products would be subject to a tariff, and Mexico, in particular, would likely start looking for cheaper sources of meat. Professor Dermot J. Hayes, the Pioneer Chair in Agribusiness at Iowa State University, believes an end to NAFTA would be especially harmful in Corn Belt states such as Iowa.
In the Midwest, for example, most states have agricultural trade surpluses with Mexico. In Hayes’ home state of Iowa, that surplus was more than $1.5 billion in 2016 (see table). These numbers would likely change, however, with a withdrawal from NAFTA and a shift to “most favored nation” status.
Exports from Iowa and other states to Mexico would be subject to a 20 percent duty. As a result, products such as corn, pork, soybeans and beef would lose their competitive advantage, Hayes says.
Losses in production and profits would then spill over to other sectors — for example, reduced commodity sales would make farmers less likely to buy new equipment and machinery.
“Agricultural sectors often face downturns, but these rarely happen at the same time,” Hayes says. He worries that such a scenario might occur with a U.S. withdrawal from NAFTA.
The November letter to the nation’s governors includes a diverse group of signatories, from the American Farm Bureau Federation and the National Pork Producers Council, to the Hop Growers of America and the Grain and Feed Association of Illinois.
It notes that in 2015, the United States held a 65 percent market share for agriculture products in North America.
The letter also cites findings from a study by the economic consulting firm ImpactECON: specifically, a loss of 50,000 U.S. jobs in the food and agriculture industries and a drop of $13 billion in GDP in the farm sector if the three nations move away from NAFTA and replace it with “most favored nation” tariff rates.
Meanwhile, the mere uncertainty of whether NAFTA will be successfully renegotiated is hurting the agriculture sector, Hayes says.
“When it was announced [in November] that the ministers would not be attending the next round of NAFTA discussions, all of the commodity markets fell,” he adds. This will likely affect farm prices in 2018, since futures markets determine pricing for the next year.
|Stateline Midwest: December 2017||1.86 MB|