Pandemic, China Trade Deal Fuel Farmer Doubts

This story originally appeared on Stateline.

When farmers don't have enough money in their pockets, neither do local businessowners or other residents in their small, rural communities. 

"It doesn’t matter what you do in North Dakota, your income is based somehow off of agriculture," said soybean farmer Tyler Stafslien, who lives in Makoti, North Dakota.

Buffeted by a two-year trade war, followed by a disappointing — at least so far — trade deal and then a worldwide pandemic, there aren’t a lot of farmers, or rural communities, feeling flush right now. Worried farmers and business groups are urging the United States and China to fulfill their obligations under the first stage of the trade agreement, even as the coronavirus scrambles its assumptions. 

"I'm worse off today than I was before the trade war," Stafslien said, “and I don’t see an end in sight.”

Whether it's in agriculture, manufactured goods or energy, neither country is on track to meet its obligations of the Phase One trade deal signed six months ago. Then, as soon as the deal went into effect a month later, the pandemic spread, and reduced demand for many agricultural products.

"The market tends to, especially on the downside, respond to the rumors and then the realities," said Mark Watne, president of the North Dakota Farmers Union. "The reality was we had this Phase One deal. The rumor was that [China] couldn't deliver, and now that rumor is playing out. It tends to keep the market at bay or lower."

During the trade war, soybean-growing states bore the brunt of China’s tariffs on American agricultural products because China was the biggest buyer of U.S. soybeans, according to a March report from the Federal Reserve Bank of Minneapolis.

While U.S. agriculture exports fell to $142.7 billion, down 5% from 2017 to 2019, by contrast they were down 10% in South Dakota and 6% in North Dakota. Before the trade war, soybeans accounted for a third of South Dakota’s agriculture exports in 2017, and a quarter of North Dakota’s.

While China has been increasing its purchases of agricultural goods since the trade deal went into effect in February, it's also a seasonal buyer of soybeans and typically buys more during the last quarter of the year.

"When we start getting into our harvest seasons is typically when China comes in and buys large amounts of U.S. agriculture products," said Frayne Olson, a crops economist at North Dakota State University Extension in Fargo. "There's still time for them to meet those targets but they're going to have to get at it."

In the run up to harvest, farmers, experts and others are somewhere between cautiously optimistic and worried.

"At this especially challenging time, rural America needs one of its greatest potential export markets for food and agricultural products," 192 groups representing agriculture, rural economic development and business interests said last month in a flattering letter to President Donald Trump expressing optimism that the "agreement will accelerate and be fulfilled by China."

On July 6, the U.S. Chamber of Commerce and more than 40 associations encouraged White House officials and Chinese Vice Premier Liu He to "redouble efforts to implement all aspects of the Agreement," including purchases of "agricultural goods, where implementation appears to be lagging."

Meanwhile, farmers and ranchers can tighten their spending, make only necessary equipment purchases and forge ahead.

"We just buy what has to be bought. We don't need any of the extras, if we can help it," said Josh Geigle, whose family has been farming and ranching his land since 1907. The family raises beef cattle, wheat, corn, sunflowers, alfalfa and grass hay about 20 miles north of Wall, in western South Dakota.

"You just don't get a wheat crop overnight," Geigle added. "You harvest it in early July or August for the following year. You still have to plant those crops. You still have to get the cattle bred. Because if you don't do all that stuff, and the market comes back, you don't have anything to sell."

In 2018 and 2019, the Trump administration authorized roughly $28 billion in federal aid to farmers and ranchers, through the Market Facilitation Program (MFP) and two additional programs. The MFP payments have been widely criticized for compensating certain parts of the country over others. They have also raised questions of whether they line up with farmers' economic losses.

According to a paper published earlier this year in Iowa State University's Agricultural Policy Review, the payments outweighed the total net effects of tariffs on some state economies.  

Midwestern states that rely on their agricultural sector for income, such as Iowa, North Dakota, Nebraska, Kansas and South Dakota, received substantial MFP payments and gained between $347 million (South Dakota) and $878 million (Iowa), the study found.

Meanwhile, more populous states experienced welfare losses, or decreased economic wellbeing, because the federal payments failed to outweigh losses due to the tariffs. California received a small MFP payment given the size of its agriculture sector and experienced a net welfare loss of $8.2 billion. It's followed by Texas ($4.2 billion) and Michigan ($1.9 billion).

Then, the pandemic exposed vulnerabilities in several farm states created by the cramped conditions at the large meat packing plants. When the virus spread through plants across the country, and sickened the largely immigrant, Latino workforce, the plants temporarily ceased or slowed operations.

"In the name of efficiency, essentially, what they have created are these big land cruise ships," said Evren Celik Wiltse, associate professor of political science at South Dakota State University in Brookings. "In the end, the consumers are getting cheaper products, but at what expense?"

The situation caused some farmers to cull their farm animals because they couldn't be slaughtered for sale. Meanwhile, some parts of the country saw hunger rise and long lines of people at food banks.

"In this country, we need to work real hard to make sure that we don't allow that food supply chain to become broken again," said Scott VanderWal, president of the South Dakota Farm Bureau and vice president of American Farm Bureau Federation. "We need to look at the system and what's going on and look for ways that we can keep those supplies and product moving to consumers in the event that COVID hangs on."

Several meat-packing plants in Nebraska also have faced serious COVID-19 outbreaks. However, outside of those hard-hit counties and their neighbors, Nebraska has not seen widespread coronavirus cases and deaths.

"Even though our economy has been hurt by COVID in an overall sense, it's been hurt less," said Eric Thompson, director of the Bureau of Business Research at the University of Nebraska in Lincoln. 

To be sure, the Cornhusker State could face nearly $3.7 billion in losses to the agricultural economy because of the pandemic if economic conditions continue to decline, according to a June study from the Nebraska Farm Bureau.

However, Nebraska has been better off than other states during the pandemic because it has a broad-based agriculture economy. Thompson didn’t dispute the Farm Bureau’s findings, but pointed to employment that's related to agriculture without being direct, on-the-farm jobs, such as in cooperatives, trucking, rail, fertilizer sales, processing and slaughtering.  

"There's this whole other part of the economy that's tied to agriculture," Thompson said. "As long as production is maintained, that ag-related activity continues."

With a large service economy, including insurance, banking and business service sectors, many people were able to work from home, Thompson said.

In North Dakota, the farm economy is deeply entwined with manufacturing, transportation and financial institutions.

"For every job that we would directly attribute to the farm economy, there are probably at least an equal number of jobs in supportive activities that are coming into play," said David Flynn, professor and chair of the economics department at the University of North Dakota.

But North Dakota, unlike Nebraska, is suffering from a sharp drop in oil prices. People who flocked to the western part of the state to profit from the oil boom are leaving without putting down roots.

The eastern part of the state relies on Canadian retail traffic, Flynn said. Retail stores and restaurants in that region are concerned that they're going to have to make do with a dwindling customer base because the border is only open to essential travelers. It's not clear if the stores will get those customers back. 

"This lifestyle is harder for a young family to come and want to embrace," said Ryan Taylor, a fourth-generation cattle farmer in Towner, North Dakota, and the former Democratic minority leader of the state Senate.

"Your town shrinks in size. Your school shrinks in size and that makes it that much harder for everyone who is left out here on the land when your town is under that kind of stress."