“Protectionism” and U.S. farm profitability

“Protectionism” and U.S. farm profitability

Congress has gone on recess without holding a vote to approve the Trans-Pacific Partnership (TPP) Agreement during the last days of the Obama administration. But on the day after the U.S. elections, Inside U.S. Trade reported that Senate Majority Leader Mitch McConnell reminded journalists that President Donald Trump will still be able to present new trade agreements for an expedited, no amendments vote under the 2015 Trade Promotion Authority Act. Free trade proponents are already fretting that Trump’s notion of a better trade deal would mean “protectionism.” But what does that term really mean?

Conventionally, “protectionism” describes government actions and policies, such as taxes on imports, i.e. tariffs, and import quotas to restrain international trade and to protect local economic development. “Free” trade is said to be the absence of such actions and policies, to maximize international trade and, in theory, produce benefits for all consumers and most workers.

However, as economist Dean Baker has written, “the TPP goes far in the opposite direction [from free trade], increasing protectionism in the form of stronger and longer patent and copyright protection.” He estimates that intellectual property protectionism increases prices of prescription drugs, software and other protected products by an equivalent to a several thousand fold increase in tariffs.

Furthermore, the investment chapter of the TPP and other “free” trade agreements increases protection for foreign investors by providing for private arbitration panels of corporate lawyers to sue governments for policies or actions believed to have diminished the value of their investments.  The TPP does not allow governments to sue investors for cross-border damage resulting from their investments.

Notwithstanding unanimous transnational agribusiness support for the TPP, the view from rural America—62 percent of whom voted for Trump—is quite different. With farm incomes plummeting for the third year in a row, and the level of farm debt to income the highest since the farm mortgage crisis in 1985, Trump’s tying the message of rural economic pain to the TPP was not a hard sell. But what kind and extent of protection did the Obama administration provide for farmers and ranchers, and indirectly for their input suppliers and landlords, to enable agribusiness exports?

The 2014 Farm Bill payments to compensate for falling crop and livestock prices were locked in for 2016 and so did not figure in the election debates. The Congressional Budget Office estimates that for fiscal year 2017, U.S. taxpayers will pay farmers and ranchers about $10.2 billion for commodity support programs, plus about $5.5 billion for conservation programs.

However, despite these payments, farmer and ranchers are caught in a cost-price squeeze, since USDA estimates that the costs of production will continue to be greater than the prices offered by agribusiness for their raw materials. For example, wheat farmers will pay about $6.50 to grow a bushel and receive $5.21 a bushel at their local grain elevators. The American Farm Bureau Federation commissioned a study that claims the TPP would increase wheat prices by $0.02 a bushel by 2025.

A more fiscally conservative policy is available to increase prices paid to farmers and decrease taxpayer support payments—supply management— to adjust supply to demand. But agribusiness has long opposed any form of supply management, most recently in the TPP negotiations.

TPP proponents didn’t explain how more agribusiness exports would make farmers profitable in the market place and reduce their dependence on government payments for survival. According to a Farm Bureau lobbyist, Trump’s supporters believe the best way to protect farmers is to eliminate regulation: “Without a doubt the rural Americans that supported Trump supported him mostly on his comments about the EPA . . . When you ask farmers their biggest concern, it’s always regulation.”

The Republican Party promised in its Platform to empower states, not the EPA, to protect rural families, water and soil from toxics. But if President Trump signs a bill to cripple the EPA, and farm debt continues to rise relative to income, will regulation remain the Farm Bureau’s biggest concern? Gutting the EPA will not increase farm profitability, but it will help protect “least trade restrictive” policy, imports and exports.