How do election results and a divided nation impact commodity markets and trade?
By Jackie Clark
Most Canadians have been following along with the division and unrest south of the boarder, following a controversial election season. Tensions culminated in insurrection on Jan. 6, as Donald Trump supporters invaded the capitol building in DC, where Congress had convened to confirm Joe Biden’s win.
So what implications does the friction surrounding the presidential transition in the U.S. have on Canadian agriculture?
“I was looking at some of these clips on CNN and you want to look very closely at where these folks came from,” Al Mussell, founder and research lead at Agri-Food Economic Systems, told Farms.com. The folks who stormed the capitol reported travelling from Missouri, Tennessee, and Iowa.
Generally, they were from the Midwest and rural areas, Mussell said.
Even if it was the most extreme example of a Trump supporter that was present in DC on Jan. 6, many voters in rural U.S. are unhappy with Biden’s victory.
“Biden is going to have to engage with those people,” Mussell said.
“Imagine now if president-elect Biden looks at what the US has been paying out in farm subsidies that are disproportionately focused on those Midwest states, and says ‘we’re way outside of our obligations here, we’ve got to stop that.’ That will only validate all the fears … that will only fuel the fire,” he explained.
In the recently approved $900 billion stimulus bill, $11.2 billion is dedicated to agriculture, Mussell added. That amount adds to the Coronavirus Food Assistance Programs one and two, which included $10.1 billion and $13.2 billion respectively.
That amount of emergency agriculture funding totals $34.5 billion.
“Then we add the market facilitation program before that, the first one was $8.6 billion, the second one was $14.4 billion. These are astounding amounts of money,” Mussell said. The U.S. has “blown through” the Amber support caps – subsidy limits set out by the World Trade Organization (WTO).
“However president-elect Biden may feel about those caps and compliance of the United States with the WTO agreement on agriculture … he can’t just go in and (remove) the farm subsidies,” Mussell said. “With the precedent that was set yesterday, he might worry about his personal safety when travelling in the Midwest, or another angry mob showing up in Washington.”
Those subsidies are over and above support from the Farm Bill and were meant to be compensating for losses due to the trade war with China and COVID-19 challenges.
“Once you get these payments into the system there’s no easy way out of them,” Mussell said.
So, if Biden can’t reduce those farm subsidies for political reasons, how does that impact Canadian producers?
“Crop rotations adjust to varying degrees from market signals,” Mussell explained. If I were a heavily subsidized farmer in the U.S., “why would I make a radical shift regardless of the market signals? But Canadian producers don’t have that luxury, we don’t have this egregious level of support.”
However, “because we share a price mechanism with the U.S. - we’re ultimately pricing off Chicago - their lack of adjustment to those market signals only focuses more intensely the adjustment on us. We just don’t have that offsetting safety net.”
So Canadian farmers must contend with commodity market forces, while producers in the U.S. are cushioned from the impact of low prices.
Additionally, particularly in Southwestern Ontario, “we compete for inputs” like seed and fertilizer, said Mussell. “If you’re selling those inputs, who’s best positioned to buy? It’s not the Canadians. So, we tend to fall down the priority list. And we have to worry about that, that’s important.”
Other aspects of the presidential transition may impact Canadian agriculture.
“Mr. Biden has said that for now he’s not going to monkey with the array of tariffs in the US-China Phase 1 agreement,” said Mussell. That agreement “expires on Feb 14 2022. What happens there is very critical for us.”
Biden has said he’s not going to change the agreement, “but he also hasn’t said he’s going to renew it. Well what would we do if they don’t renew it?” he asked.
The U.S. has recently experienced massive growth in pork production to meet China’s needs, explained Mussell. “Where do you think all that pork is going to go? Where do you think all those soybeans are going to go?”
Recently, China “has bought a remarkable amount of U.S. corn. Where do you think the US corn is going to go? We need to worry about that. If no other arrangements are made, that could be a very disruptive event and it could last for years,” he added.
Biden “has been extensively involved in foreign policy … so one of the things that I think Canada would hope is that Mr. Biden will have a very different approach than Donald Trump in terms of building international alliances and renewing international alliances,” Mussell said.
The Trump administration formed the agreement unilaterally with China, instead of working with established allies in Canada, the EU and Australia, he explained. “The expectation is that Mr. Biden will come and be much more adept at working with allies and taking a collective approach to engage China on some of the issues that we have in common with Chinese economic policy and geopolitics.”
“But what he has said is that ‘we’ve got to get our domestic house in order first,’” he added. “He could simply be overwhelmed by that, as evident by” the events of Jan. 6.
Additionally, at the end of December the EU and China reached an “agreement in principle on investment,” according to a Dec. 30 release from the European Commission.
“On the surface it may not have much to do with agriculture and food at all,” said Mussell. “However, the issue is, if the US was going to step back into the fold and help form an alliance that would offset some of the leverage that China is using, well the EU just kind of compromised itself, because they just made an agreement with China.”
From Canada’s perspective, that agreement is “not helpful, because we don’t have the leverage of these big countries. The only way we can exert any kind of pressure at all on China is through alliances,” he explained. “The EU just made that a good deal more difficult. And that’s under the assumption that Mr. Biden is prepared to step in and take that role.”
If president-elect Biden has to spend too much time and energy on internal affairs, he may not even get to work on these trade issues, he added.