The fundamental economics of the US agricultural industry are about to change. Few outside the industry seem to have noticed. Farmers, trade groups and business publications like Forbes and others are following the developing story with an increasing level of anxiety. The United States appears ready to move away from a trade agreement known as NAFTA that has dominated the US agricultural industry since the 1990s. THe effect will be loss of competitiveness for our nation’s currently strong farm exports.
Mexico imports $18.5 billion of agriculture products each year and Canada imports $23 billion. Together these are the most important export markets for U.S. farmers. These nations account for more than 90% of US food produce exports. Both nations recently announced plans to replace US farmers for their future food needs. Cancellation of the trade agreements is good for Mexican and Canadian farmers but even more damaging to U.S. food producers who are currently supplying most of the western world’s surplus food product.
Agriculture markets are described by economists as “inelastic”. That means that a relatively small change in supply or demand for products has an amplified effect on producers in the industry. The probably of disrupted markets, commodity price instability and ultimately the bankruptcy of some farmers is forecast.
I am not able to comment on the overall effect of the US change in policy on a wider basis nor the separate political issues. However, it does seem clear that the level of financial risk for US agricultural businesses has risen significantly and that this risk should be considered by accountants or anyone in the business of planning and financing US farms.