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Ohio Ag Net's Dave Russell interviews John Newton with AFBF in Washington, D.C.

Global economic setbacks, progress and potential as planting season draws near

By Dave Russell and Matt Reese

The world is watching as coronavirus sweeps around the globe and limits commerce at every level of society. The issue, and its impact on the agricultural economy and global trade, was certainly a topic of discussion with the Ohio Farm Bureau members on the recent County Presidents’ Trip to Washington, D.C.

“We’re dealing with a new kind of demand destruction with the coronavirus. We found yet another headwind for U.S. agriculture this year,” said John Newton, chief economist with American Farm Bureau. “The elephant in the room is China and Phase One and what has happened to that elephant with the coronavirus. Globally the supply chain is going to slow. This could have a long tail and we’ll have to continue to keep an eye on it.”

After a general downturn in the agricultural economy and an extended trade war, the impact of the coronavirus could have lasting effects for farms. There is also concern about significant economic implications to the U.S. economy as a whole.

“Interest rates are low and what that does, if the economy takes a major hiccup, it gives us fewer tools to deal with that because we can’t strategically lower rates because they are already very low,” Newton said. “I think folks in agriculture were a little more optimistic a few weeks ago. The challenge now is going to be the damage with weeks of disruptions. These could be massive shocks to the economy that we have not anticipated.”

The grim economic realities of the coronavirus have dampened what would otherwise be some real bright spots in terms of trade progress for agriculture. Ted McKinney, U.S. Under Secretary of Agriculture for Trade and Foreign Agricultural Affairs, spoke to the Ohio Farm Bureau group and pointed out some very positive developments in trade. Canada — the last country of the three North American countries to pass the agreement — is in the process of finalizing the long-awaited USMCA that will replace the North American Free Trade Agreement between the United States, Mexico and Canada.

“There is plenty of bad news we hear about. You could spend all day on the negative side.

Ted McKinney, Under Secretary of Agriculture for Trade and Foreign Agricultural Affairs

But we are about to finish the biggest trade deal in the history of the world with USMCA and it is a better deal [than NAFTA], including for Ohio’s farmers. China Phase One helps China a great deal if China honors the commitment. Time will tell if they do. There is a lot of good news, but just as they were patient entering these agreements, farmers need to be patient as we work them out,” McKinney said. “I can understand all of the questions about whether China will be able to meet its Phase One Agreements, but they have not asked yet for any reprieve on commitments they have made. That is a very good signal. They have not yet missed a single deadline yet, nor have we, and that is a very positive sign. They like and want our products. The reductions in tariffs are being applied to many products. They have been fairly open about that. Those are very positive signs. On the other side, China is well noted for fizzling on their commitments, but we are staying on the positive side because the signs we’re seeing indicate they are trying their best. We are monitoring these sales on a daily basis.”

McKinney also sees other potential with agricultural trade expansion around the world.

“I am optimistic about the United Kingdom. It has been difficult because they have been following all of the European Union rules. Whether they do a hard Brexit where they have a pretty complete break from EU policies or a modest break will have a lot to do with whether we get much in trade or not,” McKinney said. “I am optimistic because they took the enormously difficult stance of Brexiting. They would not have done that had they not wanted to get some of their own decision-making back. It will take time as these things go.”

Any progress in the UK would be significant in the challenging agricultural trade situation that has existed for years between the European Union and the United States.

“Partly as a result of the mad cow episode of 20 years ago and the loss of faith of the government regulatory system coupled with some activist groups, Europe seemed to adopt the ‘precautionary principle.’ Those words sound safe. Who wouldn’t object to those? In reality, it is essentially saying they will accept no risk in food. None. Zero. It is chocking trade not just between the U.S. and Europe, but in a lot of countries around the world. We are addressing that as best we can, but it has a chokehold on Europe,” McKinney said. “They know with their beautiful 10- to 20-hectare farms, there is no way they can compete with U.S. farms, or farms in Mexico or Canada, Brazil, or Argentina. So, we are at a bit of a standoff. Every time we get something approved to sell to Europe it somehow gets denied one way or another. We are flat in our sales to the EU yet we continue to buy from them. I’m hoping we can get a breakthrough and use precaution, of course, but not the precautionary principle, which is a no risk policy.”

Elimination of tariffs is also a goal moving forward with trade.

“Our president is very frustrated with the inequities in so many tariff issues. Why does Europe charge 5% or 8% more tariffs on stuff we send them and we don’t do the same? Where is the reciprocity in that? On average, the tariffs on ag products we send to them are twice the tariffs we have on them,” McKinney said. “We’d like to get rid of tariffs but we can’t when countries around the world like in Europe are maintaining such high levels.”

 

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