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Nicklaus: Soybean farmers prefer free market to government handout

Nicklaus: Soybean farmers prefer free market to government handout

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A tractor tills the ground for soybeans in Gideon, Missouri

A tractor tills the ground for soybeans in Gideon, Mo., on May 16, 2018. REUTERS/Shannon Stapleton

Brooks Hurst, who grows soybeans on 3,000 acres in Missouri’s northwest corner, appreciates a plan to pay farmers for losses caused by foreign tariffs.

Still, he’d rather have access to international markets than a government check. “It helps in the short term,” Hurst says of the Agriculture Department’s plan to funnel $12 billion to farmers, “but we worked really hard to open up the market in China, and I hate to see it go away just like that.”

China placed a 25 percent tariff on U.S. soybeans in response to President Donald Trump’s tariffs on a variety of Chinese goods. China had been buying a quarter of the U.S. soybean crop, but it’s now shifting purchases to Brazil and other countries.

Soybean futures prices have fallen 15 percent since late May, reflecting both the tariffs and expectations of a bumper crop. Agriculture Secretary Sonny Perdue said last month that he’d use the Commodity Credit Corp., created in 1933, to compensate farmers for those lower prices.

Soybean growers will share the $12 billion with producers of pork, cotton, wheat and other farm products affected by the tariffs.

The big worry for Hurst and other farmers is that the U.S. could permanently lose its advantage in the fast-growing Chinese market. Brazilian production grew rapidly after President Richard Nixon placed an embargo on U.S. soybean exports in 1973, and the current tariff war could cause a similar expansion.

“The concern is about doing potential damage to our relationship with China,” Hurst said. “What won the U.S. more allocation than South America is our infrastructure, but as South America invests more in its infrastructure, it catches up,” he said.

Joseph Glauber, senior fellow at the International Food Policy Research Institute, says Hurst’s concern is justified. “Brazil will plant more,” he said. “Once those acres are developed, planted and brought into production, that is market share the U.S. will either not gain as China continues to grow, or will lose.”

Even if support payments make farmers whole for this year’s crop, they can’t fix the tariffs’ long-term damage. Just calculating each farmer’s short-term loss, meanwhile, will be complex.

Some farmers sell their crop long before harvest, or use the futures market to lock in a price. Those who did so in April or May managed to insulate themselves from the tariffs’ effect. Crop insurance also has some price-support features.

If the government waited until it knew exactly how much farmers earned on each acre of soybeans, it couldn’t send checks until sometime next year. Because the goal seems to be to put money in farmers’ hands before the November election, Glauber says payments probably will follow a simple formula based on acreage. That could hand some producers a windfall while leaving others short of covering their losses.

Nonfarmers can raise another fairness issue: Trump’s trade war is hurting many other industries, from nail factories to heavy equipment manufacturers, and nobody is sending them checks.

The farm payments will add to the federal deficit, and they could attract scrutiny from our trading partners. The World Trade Organization places strict limits on farm price support payments, and it was the U.S. that pushed for those limits in the 1990s.

The worst thing about the proposed payments, Glauber argues, is that they insulate politicians from the political costs of their actions.

“It makes it too easy to make bad policy,” he said. “You want the bull out of the china shop; you don’t want to be following him around writing checks for everything he breaks.”

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