10 May 2019

Agriculture Is Still Vital to U.S. Trade Talks -- For Now

By Rebecca Keller

Agricultural sectors in several countries will likely retain high levels of influence for another decade or so, but demographic change and technological advancements will eventually exert a stronger and more consistent influence, eroding farming's ability to shape trade priorities. The Japanese market may soon open up for U.S. farmers as Tokyo could sacrifice its own agricultural sector during its current trade talks with the United States to protect its other industries. The EU will push back against including agricultural concessions to the U.S. in their trade talks, but U.S.-China negotiations could progress in a favorable direction for U.S. farmers ahead of America's presidential elections. 

Time stops for no one, or so the saying goes. And right now, the clock is not on the side of many U.S. farmers, who have suffered hit after hit in recent years. The U.S. Department of Agriculture's recently released five-year agriculture census, along with other newer data, paints a picture of an increasingly aging sector that is struggling with debt and bankruptcy. In recent months, U.S. farmers have had to contend with delayed harvests as well as uncertainty surrounding the recent government shutdown and support payments, and the agriculture sector's status as a bargaining chip in White House trade policies. Now, with elections in 2020 looming, the U.S. administration is looking for ways to maintain the support of a key political base. Agricultural states helped propel Donald Trump to the Oval Office in 2016, but the trade policies pursued since have sacrificed farmers' short-term interests in an effort to protect or bolster other strategic sectors. But well aware of the consequences of completely ignoring the sector, Trump has provided emergency support payments and made agricultural concerns more central to trade negotiations. 

The Big Picture

As the world evolves, the agricultural sector is slowly losing political influence, which will affect its ability to impact trade agreements. As we cap off a series of analyses examining the political clout of key agricultural producers, it is clear that demographic, technological and societal shifts are gradually weakening the influence of several global agricultural sectors — even as more immediate concerns, like elections, will temporarily stall the longer-term decline.

But regardless of political pledges, U.S. farmers are facing geopolitical trends that will change the face of America's heartland. Longer-term demographic and technological factors point toward a future in which agriculture will lose political influence not only in the United States but also in Europe and Japan. Eventually, for instance, precision agriculture and increased use of automation will better align urban and rural economic interests. For the moment, however, political necessity in the United States and strong nationalist sentiment on both sides of the Atlantic on topics like rules of origin mean the agricultural sector will continue to have pride of place during trade negotiations — even as the demographic and technological ground begins to shift beneath its feet.

Moving Parts, Trade Talks

In a periodic series of analyses, Stratfor has examined the agricultural sector's political influence in crucial global producers and consumers. Close scrutiny reveals that the traditional factors propping up the U.S. agricultural sector — such as the number of people employed in the industry, their overall economic contribution to gross domestic product and lobbying heft — are stagnating or waning. The sector is contending with rising bankruptcies, an aging pool of farmers and an ongoing paradigm shift in how technology is used in agriculture. Together, these factors will eventually deflate the sector's political influence and, perhaps most importantly, the weight it carries in future trade talks. At the same time, Japan is facing its own demographic decline and weakening agriculture sector, as evidenced by the formerly powerful industry's loss of influence. In the European Union, spending under the Common Agricultural Policy has fallen in parallel with the decline of rural populations. In contrast, agricultural influence is growing in Brazil and Australia, as the countries' relatively small populations and ample available land have allowed the sector to maintain — or even raise — its prominence.

But the factors that made the U.S., Japanese and European agricultural sectors powerful do not just disappear overnight, meaning that their legacy of political power and influence will ensure their concerns remain front and center in major trade negotiations, underlying demographic change notwithstanding.

The position of agriculture appears to be most straightforward in U.S.-Japan trade negotiations. In fact, as we highlighted in October 2018: "Japanese lawmakers could make concessions on agriculture during trade talks with the United States if they decide that the health of the country's car industry is more important." Indeed, that appears to have come to pass. During recent negotiations, Japan agreed to raise the level of agricultural access for U.S. producers to the same degree it offered in recent trade deals with the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the European Union. And though Tokyo pushed back on currency measures (a separate demand of the United States), it appears ready to acquiesce on agriculture in order to protect a far more critical industry — automaking. Japan, naturally, is not providing the keys to its agriculture market without demanding something from the United States in return, as the country's negotiators have stood firm on their demand for better access to the U.S. auto market. Despite Japan's proposed concession on agriculture, however, the United States might not budge on the automotive sector, complicating the possibility of an agreement.

The issue comes down to time — farmers in the United States, the European Union and Japan are growing older. American farms, meanwhile, are getting bigger, even as fewer people operate them.

In contrast to the diminishing influence of Japan's agriculture sector, the European Union's farming industry retains enough political influence, particularly in France, to remain more of a hurdle in negotiations. Nationalist forces in major European agricultural producers remain steadfast on labeling, which protects makers of famous, geographically specific products from outside competition, and other protections for their agricultural sectors. For at least the next decade, these concerns will outweigh demographic and technological trends that are eating away at agriculture's political heft in much of Europe. But disagreements on trade talks and tariffs are not the only thing that could derail negotiations, as nontariff trade barriers, including vastly different regulations on genetically modified plants and newer techniques like genetic engineering, could also obstruct discussions. As the United States and the European Union seek to outline negotiating parameters for future talks, France has remained staunchly opposed to including the agriculture sector in negotiations, prompting Trump to threaten another round of tariffs if the bloc keeps the sector off the table. In the end, agriculture might be enough of a sticking point that it could scuttle a larger deal between the United States and the European Union.

The political influence of the agriculture sector is prominent in other trade talks as well. In one of his latest moves in the ongoing trade war with China, Trump asked Beijing to shift its retaliatory tariffs away from U.S. agriculture to other goods. The president made the request in part because the important agricultural states that supported his run in 2016 have suffered greatly in the U.S.-China trade dispute. China’s reciprocal tariffs have hit U.S. farmers hard, limiting access to the world’s largest market for the export-oriented sector. What's more, farm states have had to sit on the sidelines as competitors elsewhere in the world have benefited from the terms of trade deals like the CPTPP and the Comprehensive Economic and Trade Agreement between the European Union and Canada. Understandably, with another presidential election just around the corner, Trump has great reason to call for action that would benefit the agriculture sector.

A Cruel Reality

The president's rhetoric notwithstanding, there is a difference between words and action. The new reality demonstrates that the U.S. agricultural sector lacks the weight to persuade Washington to enact longer-term policies that would truly benefit the industry, such as restructuring agricultural aid, overhauling the visa system for the foreigners who do the lion's share of farming work and enticing younger people to take up the job, among others. And due to mitigating environmental factors, it may not even be able to fully benefit from the promise of greater access to the Chinese market in the near term. After all, widespread spring flooding in the U.S. Midwest destroyed much of last year's grain and soy stocks, while demand for feed grains in China is poised to fall over the next three years at least after African swine fever decimated the country's hog population. 

Ultimately, the issue comes down to time — farmers in the United States, the European Union and Japan are growing older. American farms are getting bigger, even as fewer people operate them. The declining influence is one of the factors that is shifting the United States' "ecumene," or core. Technology — including automated equipment, precision agriculture and biotechnology — is fundamentally altering farming and ranching, which, in turn, will change how the sector influences political negotiations.

The present round of U.S. trade talks with Japan, the European Union and others will not mark the end of agriculture's influence over negotiations (though Japan's decision to sacrifice its farming industry may be a harbinger of things to come). Food, of course, will continue to be important, but the decline of formerly strong, protective players will not only reduce farmers' influence over global trade but also remove roadblocks to international trade deals. Paris and Washington, for instance, may not go toe to toe over cheese in the future. Alternative technologies will be increasingly tied into the agriculture sector, making the interests of technology and agriculture — the urban and the rural — more intertwined. And by the time a few decades have passed (and the developed world's population is that much grayer) advancements in technology might have turned what was an insurmountable obstacle into a simple curb.

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