Ag Economists: Scrutinize NAFTA, but Dont Scrap It
Published: Friday, March 30, 2018
Trade wars are probably not the answer for good profit margins, and farms should have goals and clear plans to make their operations work. Those were some of the messages renowned scholars David Kohl and Chris Hurt had for a crowd of 190 at "Positioning for the Economic Reset" last Wednesday at Winona Lake.
Hosted by Lake City Bank, the agribusiness seminar provided advice on how to farm in a future where only change is a certainty. Kohl, professor emeritus in agricultural and applied economics at Virginia Tech University, started off the day discussing major trends in farming, saying the current economy is "hotter than a pepper sprout."
At the same time, there is a commodity surplus worldwide. Kohl encouraged farmers not to pine for the "golden years" of 2006 to 2012 when the market for agricultural goods was very hot. It may seem odd that the ag market was good during the worst U.S. recession in decades, but he explained that the economies in the big cities and coasts were "asynchronous" with agricultural communities. In other words, when one is up, the other is often down.
There's plenty of opportunity in these not-so-golden years. The farming economy is in reset, and change is inevitable in every sector, but the changes bring chances. Both professors urged the audience to embrace technology. Kohl suggested that older farmers should actively work with young agricultural workers, who tend to be up-to-speed on tech changes. He also noted that the U.S. has been in an economic expansion for 105 months, the longest ever. And it could continue to expand. But we need to beware of bubbles and consumer attitudes. Kohl thinks the student debt bubble is a serious problem, as is a lack of saving in the U.S. and rising credit card debt.
Debt, bubbles, tech. These and other factors affect agriculture and are resetting its economy. Kohl and Hurt agreed that we are in a deeply connected world economy. That's why, both noted, trade wars are a bad idea. They promote retaliation, and a U.S. tariff on Chinese steel could result in a retaliatory tariff on, say, soybeans. And it isn't just the Chinese who might swing back at the U.S. Kohl warned that harsh talk on tearing up NAFTA (North American Free Trade Agreement) was already affecting relationships with Mexico and Canada, who import vast amounts of products made in the U.S.—very much including commodities, for which they are major markets.
"We've already done damage, folks," said Kohl.
Yet he also noted that President Trump's appointment of Wilbur Ross as Secretary of Commerce was a wise move. Ross has long experience in trade.
After a lunch break, both Kohl and fellow speaker and scholar, Hurt, ran through some questions provided by the audience. Agricultural students from Huntington University gave assistance while Hurt and Kohl answered queries on a wide range of topics. Hurt, for example, asserted that robotics might be of use to small dairy farms, as human help can be hard to find (and pricey). And robotics don't just provide work assistance. They gather potentially useful information.
Our nation's debt was a focus for one question. Hurt, professor of agricultural economics at Purdue University, said, "There is no desire in Washington," to deal with it," with Kohl adding, "We have a real problem." Hurt suggested Washington will deal with it "when the time comes."
Trade wars and tariffs, which were a big focus during the day, came up during the question period. Should NAFTA be scrutinized? Yes, but not torn up as has been suggested in the past by President Trump. Both professors wanted the audience to understand that NAFTA is not all bad, and has had some benefits for agriculture. It just might need to be modified.
What about old technology? Kohl noted the Amish would have the edge there, but for the non-Amish, "I'd sure have a plan B." Hurt suggested old tech might work for farmers catering to a niche market.
As for niche markets, like meeting the needs of vegans, it's time to accept that the public doesn't want to be told what they want to eat by the government and big agribusiness, as was the case from the mid to late 20th Century. Since the 21st Century began, consumers have demanded more vegan, ethnic and specialized foods. There's no going back.
Hurt discussed marketing and pricing for those in agribusiness during this reset. He was emphatic that marketing plans should be made, written down and followed. Farmers need to know themselves, understand their own tolerance for risk. Emotions and personality are factors for the plan. In a sense, the planners must take inventory of themselves when market planning and pricing.
Marketers should figure out their desired profit margins, said Hurt, then make a pricing and marketing plan that help improve the chances of delivering those margins.
"Good card players work the odds," he advised.
Hurt went on to explain pre-pricing based on how crops have performed during a specific season in the past. He further explained that everything is "interlinked." Producers must be willing to see the potential in well-managed managed risk. After all, Hurt said, when opportunity knocks, farmers should answer the door.
Return to Top of Page