There’s still confusion surrounding whether or not the Department of Agriculture is working to put together a contingency plan to help out farmers if the U.S. pulls out of the North American Free Trade Agreement, but experts say such a plan really wouldn’t help much in a worst-case scenario.
If indeed President Donald Trump followed through on threats to ditch the pact with Mexico and Canada, our North American neighbors could raise tariffs on everything from beef to soybean meal up to pre-NAFTA levels that mostly range between 20 and 40 percent, say farm group representatives.
If those tariffs – the maximum allowed under agreements in the World Trade Organization – went back into place, the result would be devastating, say people like Nick Giordano, vice president and counsel for global government affairs for the National Pork Producers Council.
“If the United States Pulls out of NAFTA, we will lose $1.5 billion collectively over the industry,” Giordano told Agri-Pulse. “That’s 5 percent of our production gone. That would be about $12 per hog.”
It’s that massive level of potential losses that negate any possibility that some form of government safety net program could make up for losing market shares in Mexico and Canada, said Kent Bacus, international trade director for the National Cattlemen’s Beef Association.
“We’re concerned, but how do you prepare for increased tariffs and limited access to two of your best export markets?” Bacus said. “It’s not just us. It’s corn, pork and poultry. There’s a net effect across the board that would be extremely damaging … Where’s that product going to go? It’s going to go back into the U.S. and depress prices and put a lot of farmers and ranchers out of business. You can’t make a contingency plan for that.”
Dermot Hayes, Iowa State
Dermot Hayes, a professor and economist at Iowa State University, agrees.
While the USDA could try to protect farmers and ranchers from the impact of losing exports by trying to subsidize producers, that would artificially push up prices, making U.S. products much less competitive on the international market, Hayes said.
In the long term, U.S. ag would have to downsize, he said, and that’s not possible if the government is propping up prices.
“If you compensate (U.S. producers) for the price reduction, then you don’t have the adjustment in production,” said Hayes. “Really, it’s impossible to develop a compensation mechanism that fully insulates farmers from the price reductions, allowing them to reduce output. In order to get (farmers and ranchers) to reduce output, we have to punish them with low prices or low profits.”
But USDA is still looking at its options.
Agriculture Secretary Sonny Perdue sparked a ripple of concern through the ag sector last Wednesday when he first said that USDA was working on a contingency plan to help out farmers if the U.S. pulls out of NAFTA. Then he added confusion the next day when he seemed to suggest there was no plan.
“I probably misspoke a little bit – I was thinking out loud,” Perdue told reporters. “I’m the kind of guy who likes plan B and that was my consideration … I like to be prepared and that was my thinking out loud. It was probably a little premature to get out ahead with you guys with microphones but I’m just trying to think ahead and prepare.”
Ag Secretary Sonny Perdue
A USDA official, who spoke on the condition of anonymity, put it this way: “We would be derelict in our duty if we were not preparing for contingencies, but we do not have a specific plan.”
House Agriculture Committee Chairman Mike Conaway said he appreciated any efforts by USDA to look into contingencies if NAFTA is lost, but stressed he hopes it doesn’t come to that.
“Trade is too important to be able to think that there’s a fallback position that would make producers whole if we pulled out of NAFTA,” Conaway told Agri-Pulse. “The scope of that would just be stunning.”
Sen. Chuck Grassley, R-Iowa, agreed.
“If it is needed,” he said when asked about a contingency plan, “it won’t do the good that NAFTA does for agriculture.”
Meanwhile, on Tuesday, a group of 168 ag-related trade associations and companies delivered letters to the governors and state ag commissioners of all 50 states stressing the economic importance of NAFTA and the potential harm a withdrawal would cause. The group asked the officials to let Trump know that they support a modernized NAFTA that maintains and enhances ag trade among the U.S., Mexico and Canada.
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