The trade war between the United States and China began in 2018 and proved devastating to many American farmers who were already reeling from low prices for their products.
Arkansas farmers certainly felt the pinch when a tariff tit-for-tat shut down the country’s biggest export market. The two countries signed a “Phase 1” trade agreement in January that has given the industry a cautious cause for optimism that recovery is around the corner.
That recovery, so far, is still more promise than reality.
As part of the agreement, China promised to purchase about $36.5 billion of American agricultural commodities in 2020 and some $43.5 billion in 2021. After the first seven months of 2020, Chinese purchases totaled slightly more than $8.5 billion.
“It is very difficult, for myself included, to make decisions about what crops to plant and what you’re going to make a commitment to [because of the question], ‘Is this trade war going to stabilize?’” said Newport farmer Derek Haigwood, who is director of the United Soybean Board and the past chair of the U.S. Soybean Export Council. “Is China going to do what it says? It seems like they are doing what they say.”
Arkansas Agriculture Secretary Wes Ward said the trade war hurt the farming industry in the state but it was a needed “reset” button. Ward said agriculture is a huge part of Arkansas’ economy, and the closing of the Chinese market forced the industry to diversify and expand where it sold its products.
If the Chinese market reopens to prewar levels, all the better for American and Arkansan agriculture products. If trouble arises again, then farmers can turn to the new markets they developed.
“If you look at Arkansas we are exporting over $3 billion worth of agriculture commodities a year; that’s a big number,” Ward said. “Arkansas is a big state when it comes to agriculture exports. When the difficulties with China started a couple of years ago, that certainly had a pretty significant impact.
“The administration and key figures in agriculture … said we have too many eggs in one basket. Maybe that is the silver lining in all of this — we have broadened our portfolio.”
One Thing, Then Another
The trade war’s effects have been complicated by the COVID-19 pandemic and some turbulent weather this year, including a devastating windstorm (called a derecho) in Iowa and Hurricane Laura along the Gulf Coast. The prices for agricultural commodities such as corn, soybeans, cotton and rice have been low for years, but the pandemic, weather events and the Phase 1 deal have had beneficial effects.
The loss of crops due to weather makes the surviving crops more valuable because there is a smaller supply. As for the pandemic, rice demand, for example, has increased as more American consumers are eating at home.
Iowa, the country’s biggest producers of soybeans and corn, saw its crops hammered by the derecho Aug. 10. It was estimated that 20% of its soybeans and 26% of its corn were severely damaged or ruined.
Executive Director Andrew Grobmyer of the Agricultural Council of Arkansas said there are “glimmers” of long-term improvements, but there is still a glut of agricultural products that have to be sold and moved. Grobmyer said the “black swan” events of 2020 have offered hope in the short term but it is important that fundamental changes happen for the industry’s long-term viability.
“We are working through some large stocks and it is going to take some time to get those through this Phase 1 deal,” Grobmyer said. “It will probably be a couple of years before we get our stocks back in line where they will command a better overall price on an annual basis.”
As Haigwood said, farmers care about price. Their livelihood depends on being able to sell their corn, rice or soybeans at a profit. Haigwood said prices have gone up for soybeans, a huge crop in Arkansas and a huge need of China for animal feed products. Soybean prices rose to above $10 a bushel this month for the first time in two years.
The federal government approved billions of dollars in aid to help farmers during the dark days of the trade war to the point that the U.S. Department of Agriculture estimated that one-third of farmers’ net income in 2019 was from aid and subsidies.
“As a farmer my goal is to every day produce the best crop I possibly can, and I’d much rather have trade than any type of aid,” Haigwood said. “That’s something I can bank on, if we have an open and free market.”
Price of War
Even global finance wars have victims. Almost 600 U.S. farmers filed for bankruptcy protection in 2019, a 20% increase from 2018 and an eight-year high.
The government aid program clearly helped keep some farmers in business when prices dropped and markets closed. Ward empathized with the pain the trade war caused but said it was worth it for the larger good.
“Personally I would say yes; China does buy a lot of products, no doubt, but they were doing a lot of things that weren’t right,” Ward said. “We have to sell our commodities, but they can’t keep violating their agreements or stealing intellectual property. I do think it absolutely hurt, but I do think it was needed.
“Over the long run, and I hope we are starting to see this, our trade will level back out and continue to increase. That will be a good thing for Arkansas agriculture.”
Haigwood said the trade war caused many farmers to do whatever it took to cut costs and “stay alive.” He said whether the trade war was worth it will be determined over the long run.
“We will have to see how that plays out,” Haigwood said. “It’s not if it is just one year. In the long term if this follows through — and we have no idea who is going to be president — if this goes away and goes back or gets worse, then absolutely not. It is not worth it.”
Grobmyer said the Arkansas farming industry really didn’t find many alternate markets during the active trade war with China. He doesn’t know how much the government aid helped because if prices don’t stabilize, aid is just a temporary bandage.
“We have taken it on the chin with prices, and that is the result: You have stocks that continue to build because the demand is not there,” Grobmyer said. “Markets are going to have to fill the gap at some point. When the times are crazy and upside down, the need is there for extra help. We have been there for some time.”