Leaders of the U.S. agricultural industry are girding for an extended trade battle with China, which is already taking a toll on U.S. farmers and food companies.
Trade disputes with China, Mexico and other countries touched off by President Trump’s get-tough stance on trading partners, are altering global flows of foodstuffs like soybeans and pork, agribusiness executives said. Retaliatory tariffs are cutting into profits for the biggest agricultural companies and farmers alike, prompting the U.S. government to pay out billions of dollars to shore up farmers’ finances.
The chief executive of the top U.S. pork producer said the Trump administration’s trade fight with China was needed to improve access to a major market for that meat.
“It’s hurting the agricultural community, and it’s hurting us,” Ken Sullivan, president and CEO of Smithfield Foods, said at The Wall Street Journal Global Food Forum on Thursday. Smithfield was acquired in 2013 by Hong Kong-based WH Group Ltd., a deal that created the world’s largest pork company.
Mr. Sullivan said China has maintained duties on U.S. pork products for years, which have hindered U.S. meat companies’ ability to fully access the country’s world-leading pork market. While confronting China on trade was “a fight that was necessary,” and resolving the dispute is in both countries’ best interests, Mr. Sullivan said a resolution “isn’t happening as quickly as I’d like it to.”
“China looks a little bit intractable at this point,” he said.
U.S. Agriculture Department Secretary Sonny Perdue said he understands farmers are anxious about the pressure that tariffs in China, Mexico and other countries are putting on U.S. commodity prices.
Still, he said, the Trump administration’s tough tactics will lead to more protection for U.S. economic and intellectual property interests overseas. He said President Trump wouldn’t be intimidated by threats to U.S. farmers’ livelihoods.
“China has not played fair on the trade topic for a long time,” Mr. Perdue said on Thursday in an interview.
The USDA has begun paying out some of the nearly $5 billion it has promised to U.S. farmers raising soybeans, hogs and other goods hit by retaliatory tariffs. It will continue to monitor prices to determine whether further payments are necessary as trade tensions persist, Mr. Perdue said.
The USDA can pay out an additional $7 billion under a plan outlined in July.
Duties levied on U.S. pork by major buyers, China and Mexico, are expected to exact a more than $2 billion toll on U.S. pork producers this year, said Iowa State University economist Dermot Hayes. U.S. farm income is expected to drop 13% in 2018 to $66 billion, according to the Agriculture Department.
Soren Schroder, CEO of crop-trading company Bunge Ltd. , said at the forum on Thursday that farmers will feel a “very prolonged hangover” if trade disruptions continue. Already, global trade flows are changing in unusual ways, he said.
Chinese tariffs on U.S. soybeans have sent shipments of the commodity, which would typically be sold to China, toward countries like Argentina and Brazil instead, he said. Farmers there, meanwhile, are exporting their crops to China.
“This is a world upside down for sure,” he said. “I don’t think we’ll be in a good situation unless we find a solution relatively quickly.”
Mr. Schroder said a protracted trade conflict will accelerate the expansion of soybean production in Brazil, making it difficult for U.S. farmers to regain their share of global trade.
The American Soybean Association estimates that soybean prices have dropped about $2 per bushel, or 20%, since the U.S.-China trade dispute escalated in June.
“I don’t think tariffs being applied are temporary,” said Darci Vetter, former chief agricultural negotiator for the Office of the U.S. Trade Representative and head of Edelman’s public affairs.
“They have other alternatives to get that supply and the political resolve to endure some of that pain.”
Ultimately, raw U.S. commodities like soybeans will find a buyer even if China isn’t bidding, Ms. Vetter said. But it’s a different story for fruit, vegetables and value-added products like wine. Producers of perishable goods, like cherries, have fewer options because they can’t just store them until prices improve.
“If you have cherries that don’t have anywhere to go, you just have a rotten pile of cherries,” Ms. Vetter said.
Mexico’s tariffs target as much as $578 million in U.S. dairy goods, while China’s duties could hit $408 million of cheese, whey and other products, according to U.S. Chamber of Commerce data. U.S. dairy farmers will see their incomes slide $1.5 billion this year because of tariffs from the two countries, according to agribusiness-consulting firm Informa Economics.
“Many farmers aren’t able to withstand that pressure after multiple years of a down cycle,” Beth Ford, CEO of dairy-foods maker Land O’Lakes Inc., told attendees of the forum.
Ms. Ford said 43 Wisconsin dairy farmers went out of business in August alone.
Ms. Ford, who took over the nation’s third-largest farmers’ cooperative in July, said U.S. dairy farmers largely support President Trump’s push to open the Canadian market to U.S. dairy products. But the administration needs to act quickly, she said, as low prices are already hurting farmers.
“We need the administration to work with speed,” Ms. Ford said.