President-elect Donald Trump has already toned down some of the campaign rhetoric that propelled him to a surprise victory over Democratic candidate Hillary Clinton. With agricultural issues playing virtually no role in election debates, Trump’s election as the 45th U.S. President has the food and agriculture sector awaiting further clarification on his policies and positions.
Rabobank report
In a new report, “The F&A Sector after the U.S. Election: What to Watch,” the Rabobank Food & Agribusiness Research (FAR) and Advisory group attempts to quantify the implications of Trump’s policies. Primary policy issues to watch include trade, labor, regulations impacting production agriculture and the upcoming federal Farm Bill, according to Pablo Sherwell, Rabobank head of Food & Agribusiness Research and Advisory, North America. With Republicans holding power in both houses of Congress and the White House, action could be swift, with far-reaching implications.
In the short term, agricultural markets may be affected by foreign exchange volatility, as well as changing business appetite and consumer confidence.
Longer term, trade agreements, agricultural policy and labor will be key areas. As the No. 1 global agricultural exporter, the U.S. food and agriculture sector is one of the main drivers of global agriculture and trade, reaching nearly $125 billion in 2016. Any change to U.S. agricultural trade agreements will not only affect global prices and trade dynamics, but also U.S. farmer margins.
Questions surround trade
Any strengthening of the U.S. dollar against other currencies will negatively impact U.S. ag exports. Mexico currently imports around 18 percent of total U.S. food and agriculture exports, and a weakening peso will reduce that. In addition to large volumes of pork and poultry, the U.S. exported 4.1 million tons (milk equivalent) of dairy products to Mexico in 2015—by far the biggest export destination for U.S. dairy.
Brazil, a direct exporting competitor to the U.S., may become a more attractive global source, particularly in grain, oilseed and animal protein commodities.
“Currently, the export share of U.S. agricultural production represents more than 20 percent in volume and value terms, making U.S. price formation highly dependent on foreign trade and therefore foreign currency,” said Sherwell.
While it is too early to know for sure, it is questionable whether U.S. agricultural trade agreements, particularly the North American Free Trade Agreement (NAFTA) will stop or go through major changes, said Sherwell. The U.S., Mexico and Canada are in many ways an integrated agricultural market. Currently, Mexico and Canada account for about 30 percent of total U.S. agricultural exports.
While, these numbers represent significant trade values, they also illustrate the integrated nature of the North American animal protein supply chain. Mexico and Canada are large suppliers of cattle to U.S. feedlots and packing plants. Mexico imports 23 percent of all U.S. corn exports, an important part of its animal-feeding supply chain. Consequently, changes to NAFTA and other agreements would have significant implications on both sides of the border throughout the food supply chain.
The Trans-Pacific Partnership (TPP) trade agreement is unlikely to happen during Trump’s administration, said Sherwell. However, an improved relationship with Russia may see that market reopen. Prior to the trade ban, Russia was the world’s second biggest dairy importer, sourcing products primarily from Europe. In this case, the U.S. dairy sector may benefit, and that same logic may apply to U.S. animal protein exports to Russia.
A proponent of TPP, Jim Mulhern, president and chief executive officer of the National Milk Producers Federation (NMPF), said his organization would work with the Trump Administration to expand opportunities for U.S. dairy farmers.
“In the coming months, we will share our views with the White House and cabinet-level agencies – as well as members of the Senate and House – on strategies that will help achieve these goals,” Mulhern said. “We must strengthen the safety net for dairy farmers here at home, grow markets for farm exports abroad, and ensure that pro-farmer policies are in place in areas including labor, environmental regulation and taxes.”
2018 Farm Bill
The current Farm Bill is scheduled for renewal by 2018. Due to the challenges U.S. farmers are currently facing, the Trump Administration and next Congress may need to begin setting policy objectives and direction as soon as possible.
Regulatory reductions have been a policy direction advocated by President-elect Trump during his candidacy, and it is likely that the direction will shift even more toward an environment of reduced regulation.
It is also likely the direction of the Farm Bill will shift more toward business sustainability – with adjustments to revenue support and crop insurance programs – and away from conservation.
Because the Republican Party holds the majority, the development, approval and implementation of the 2018 Farm Bill is likely to be a smoother process than that of the previous bill.
However, history offers little accurate comparisons, according to University of Illinois agricultural economists Jonathan Coppess, Gary Schnitkey, Nick Paulson and Carl Zulauf. In their report, “Early Thoughts: 2016 Election Results and the Next Farm Bill,” they note the last time a Farm Bill was written by a Republican-controlled Congress and White House was 1954, and commodities were operating under a parity pricing system.
Republican presidents and Congresses have historically used the budget process to push for reforms and substantial changes in federal policies, including farm bills. The election results would appear to reinforce the view of a primary role for the budget process.
Expanding programs and assistance to farmers would be difficult in a budget reconciliation process. It would be made even more difficult if accompanied by controversial reductions to the Supplemental Nutrition Assistance Program (SNAP).
Labor and immigration
The U.S. food and agriculture industry is highly dependent on migrant labor, particularly in sectors such as produce, animal protein and food service operation. If immigration laws are enforced more strictly, business owners may face labor shortages, which would pressure their margins. Producers may need to start thinking more about technological investments, said Sherwell. 
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Dave Natzke
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