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Sunday, 01 April 2018 23:26

Tariffs could threaten Michigan’s $2.7 billion ag exports, industry experts warn

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Tariffs could threaten Michigan’s $2.7 billion ag exports, industry experts warn Infographic by Rachel Harper

Michigan’s farmers and food processors are closely watching how talks of trade wars and retaliatory tariffs could affect the nearly $2.7 billion in exports they send to other countries. 

When the Trump administration announced plans to impose tariffs on imported steel and aluminum earlier this year, Michigan Agri-Business Association President Jim Byrum worried the agriculture industry could suffer as a result. Those worries escalated in the weeks after President Donald Trump announced a 25-percent tariff on steel and a 10-percent tariff on aluminum as news hit that the European Union, China and other trading partners could target U.S. goods, including food and agricultural commodities.

Byrum’s concerns align with other Michigan agriculture industry executives who wonder if the country is locked in a showdown to an eventual “trade war.” 

“Countries have already looked at those potential tariffs and threatened certain agricultural commodities,” Byrum said. 

While potential tariff threats to bourbon and Harley-Davidson Motorcycles — both from Republican districts — made the most headlines, the trade war could also affect commodities from Michigan, including dark red kidney beans and soybeans, according to Byrum. 

“We are seeing some of those immediate targets, but long term, we are going to see other countries around the world look at things like dairy, which impacts middle America,” he said. “We are going to see concerns about soybeans, which impacts middle America.”

The tariffs could have a direct effect on Michigan producers. The state’s top three specific agricultural exports are soybeans ($564.3 million), corn ($229.3 million) and dairy products ($222.6 million). 

For now, the threats will not affect plans for farmer-owned cooperative Foremost Farms LLC to build a new milk processing plant in Greenville in the next 12 months, according to President and CEO Michael Doyle. However, he warned that the situation could alter the company’s plans for further development at the 96-acre site it bought for $1.15 million last November. 

The company expects to build a 55,000-square-foot intake system to process up to 6 million pounds of milk solids per day at the Greenville location.

“The first phase is fine,” Doyle said of the project. “The other phases at some of the bigger (processing) plants, you’re talking getting up into the $300-, $400-, $500-million range … plus the cost of steel. Every 10 percent of that could be $20, $30, $40 million added on. That’s the pressure: getting the returns to support that increase in steel (price). That’s where the struggle will come in.” 

‘INSULT TO INJURY’

As the agriculture sector monitors the trade situation for now, Michigan’s manufacturing sector is bracing for more immediate challenges related to the steel and aluminum tariffs. According to a March report from the Brookings Institution, a nonprofit public policy organization based in Washington, D.C., Michigan imports about $2 billion worth of steel and aluminum annually. 

The report’s authors noted the group of states including Michigan, New York, Illinois, Ohio, California, Louisiana, Pennsylvania and Texas account for 60 percent of the nation’s total imports of the metals. 

“Given the large size of their economies, disruptions to trade in these states have significant potential to influence national economic growth and key industry sectors like automotive manufacturing, chemicals, and oil and gas production. Michigan, for instance, relies on NAFTA for more than 70 percent of its steel and aluminum products,” according to the report.

Although Byrum recognizes tariffs will affect those industries, he said “agriculture, unfortunately, always seems to bear the brunt of these retaliatory actions.”

That’s a worry for Dave Armstrong, president and CEO of East Lansing-based GreenStone Farm Credit Services, a leading lender for Michigan’s agricultural industry. He cited farmers’ ongoing struggles with falling net farm income since 2013, when the market hit $123 billion nationally.

“We are down nearly 50 percent (from that time) … before we even started to talk about trade,” Armstrong said. “Now you add insult to injury to an already tenuous ag economy, and that’s a real concern for our customers. (They were) telling us how ‘I couldn’t make my payments a year ago, and now we could be looking at some of the crops we produce maybe dropping another 15, 20, 30 percent.’ 

“That’s going to be tough, certainly, on some of our members.” 

‘BREEDING UNCERTAINTY’ 

With domestic farmers producing more of every agricultural commodity than “we can possibly consume in the United States,” Bryum said the industry needs export options, including with NAFTA partners in Canada and Mexico. However, the talk of tariffs and trade wars does little to inspire customer confidence abroad, Byrum said, noting that uncertainty could cause other countries to back off on U.S. imports.

“For agriculture to be successful and continue to grow and continue to be a vibrant and vital part of rural America, we have to trade, we have to have export customers,” he said. However, President Trump’s rhetoric on Twitter and in speeches “is breeding uncertainty in our international customers’ minds.” 

The uncertainty could cause customers from other countries to consider “other supply options” from sources that grow “what we grow here” and have more stability when it comes to trade, Byrum said. 

“That doesn’t bode well for us as we look ahead to the future or even present trade opportunities,” Bryum said. “It is absolutely critical that we have international trade. The rhetoric, the threats, even random comments (from the president) put uncertainty in the minds of those international customers, and that damages our supply chain, damages our relationships we’ve had for a long time. We need certainty.” 

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