WHY GLOBAL AGRICULTURAL TRADE AFFECTS YOU

Photo by Erwan Hesry on Unsplash

Do you remember that one thing you loved as a kid? Everyone else may have looked at it thinking it was silly. Maybe looking back, you do too, but, at the time, it meant the world to you. Twelve years ago, I found myself in the middle of a dramatic discussion about my one thing. This group of 8 or 9 kids would get together every day and argue to the point that people weren’t sure whether or not we were all friends. So, what was so important that 3rd graders were upset and that, at one time, were sent to the principal’s office?

Trade.

We’d gather in the gym, each with two or three LEGOs, hoping to trade for the one figure we needed. The ones everyone wanted were Star Wars characters (obviously), followed by aliens, and this little LEGO monkey we called Norm. Looking back, this is one of those things I view as silly. Even though our group eventually got shut down, we still practiced some trading basics.

If you have flipped on the T.V. in past months, you’ve likely heard of the trade war. Trade is very important for many people and has serious implications for many sectors, especially agriculture. According to the USDA, 20% of a farmer’s income is the result of global trade. With all that on the line, here’s a rundown of what trade issues are concerning people.

NAFTA

The North American Free Trade Agreement is the largest trade deal in the world. This deal between the United States, Canada, and Mexico was unlike anything we’d seen prior. Every state (except for Wyoming and Kentucky) trades at least $10 million worth of goods every year because of NAFTA. Just here in Illinois, over $2 million of ag goods are shipped to Mexico and Canada each year. To read more about each state’s relationship with NAFTA check out this Iowa State Publication.

TPP

The Trans-Pacific Partnership is a trade deal that got a lot of people in agriculture excited. Expanding and increasing exports of ag goods is something that could pick up a down ag economy. The deal was set to involve twelve countries that border the Pacific Ocean. The deal was never ratified. Then, last year the U.S. pulled out of the deal. Now the remaining countries are still in negotiations under the name Comprehensive and Progressive Trans-Pacific Partnership. Even though we withdrew from TPP, recent talks have mentioned the U.S. rejoining. If that happens, net farm income could increase by $6 billion (Michigan Farm Bureau). The renegotiated deal is expected to be signed soon allowing the United States to join later.

China

One of the hottest topics in trade has been the escalating discussions between the U.S. and China. According to the USDA, China is the second largest importer of U.S. ag products totaling $19.6 billion. With that much on the line, it is very important to agriculture that we continue to trade with China or find other markets to sell our products.

What a Regression in Trade Would Mean

The U.S. produces more food than we can use. So, we sell what food is left over. As I learned in 3rd grade making deals, to sell a product, someone must be willing to buy it. Ideally, many people will want to buy it (like Norm the LEGO monkey) and the seller can charge a higher price because of its value to so many people (I grossly overpaid for that monkey). If the U.S. successfully does creates a condition where many countries want U.S. ag products, the economy grows healthier. Additionally, when farmers receive fair prices and make money, they can invest in machinery, seed, technology, and practices that result in a healthier and safer food supply. This further stimulates the ag economy.

These reasons are just a few on the list of why trade is so important to farmers.

JC Campbell
Legislative Intern
Illinois Corn Growers Association

A FARMING FAMILY

I was walking into my final CHEM 102 lecture on Cloud Nine. The class which caused me so much stress and many late nights was almost over. Apparently, this attitude was noticeable as someone I’d never met chose the seat next to mine. I began making small talk when she suddenly stopped me, “What do you mean a family farm? Aren’t farms owned by huge corporations?” Her question caught me off guard. I always mention my upbringing when I introduce myself, so I don’t think about it much. To address her confusion, I began to tell stories of growing up on the farm. To her, the idea of a family farm is a strange one. This prompted me to reflect on family farms and the following three questions:

  1. How many farms are family farms?
  2. How does farming work as a business?
  3. Why do people pursue this lifestyle?

How many farms are family farms?

Today, it can seem most of our food is the result of science experiments and the profit invested interests of large companies. However, when we look at farms from a family perspective we find that conventional truths may not be very true.

To begin with, large companies have a very small stake in the production of food. While many companies who buy and sell agricultural products may be quite large, the actual growing of food is a family experience. According to the United States Department of Agriculture, only 4% of all farmland is not owned by family farmers. Even more surprising is 45% of farmland is owned by small family farms. The remainder is owned by mid-sized to large family operations. The apparent follow-up question seems to be who makes up that 4%? Well, we find that most of that farmland is owned by universities and companies for research purposes. More information on this topic can be found here.

How does farming work as a business?

At their core, all farms are businesses. A farmer’s most basic goal is the same as an accountant or nurse, to establish a means of providing for themselves and their family. However, unlike an accountant or nurse, family farms involve more than just adults working. In my household, everyone was wholly invested in providing a living for our family. However, when it comes to farming the way this living is made is quite unique.

One of the most difficult concepts of farming to understand is the markets. When referencing the markets, we often are discussing the factors which dictate the price at which farmers sell their crops. To fully understand the markets and all the nuances one would need to study this area for most of their life. To keep things simple let’s just briefly discuss two overarching concepts, the futures and cash prices. The futures market is where individuals exchange contracts of commodities for sale at a future date at a set price. Cash prices are what a farmer could get right now for the grain he currently has in storage. The dollar amounts of both futures and cash prices are constantly changing. This means is a farmer never knows how much money they will earn. As a business farming is one of the most turbulent. Imagine you work at grocery store and at the end of your first 40-hour week, your boss pays you $600, or $15 an hour. But the next week consumers decide to stop buying bananas, so your boss pays you $360, or $9 an hour, for your second 40-hour week because of the loss of profits. Due to factors beyond your control, you got paid $240 less than you expected. That is like the stress farmers feel as they watch the grain prices fluctuate daily.

Why do people pursue this lifestyle?

It’s hard to explain the way farmers work. It takes a unique person to want to submit themselves to this lifestyle. So unique, that only 2% of the U.S. population finds work as farmers. This 2 % provide enough food and resources for the U.S. and a large portion of the globe. However, if you ask them, there isn’t anything else these people would rather be doing. They serve the world by raising the best crop they can. Despite the highs and lows of the markets, the turbulence of everyday farm work, or the potential troubles looming on the horizon, our farmers continue to labor producing the safest and highest quality crop they can because they know your family depends on it.

J.C. Campbell
IL Corn Legislative Intern