As the world digests Donald Trump’s shock presidential victory, the effect on the potato industry and wider food and farming sectors is still very unclear. There is likely to be little impact from a weaker US dollar, with possible trade restrictions and labour controls perhaps having a much longer term effect.
Currency Changes
The dollar weakened following the result on Wednesday morning along with lower stock market values, but there was an almost instant rebound after conciliatory remarks by the President Elect and a realisation that Trump’s policy of investing in the US economy could create growth and jobs. The dollar may experience a relatively bumpy ride as the transition from old administration to new progresses, but it is likely that it will be relatively strong against the world’s other currencies. This means there is unlikely to be any significant advantage for US exporters looking to ship on the back of increased competitiveness.
The dollar actually strengthened against the euro after the election result was known and did so again on Monday. The dollar on Monday November 14 was 2.4% stronger than it was on election day on November 8 at US$1=€0.928 with the euro at the weakest point it has been for the whole of 2016.
The dollar also strengthened against the Yen regaining some of the losses it has seen against the Japanese currency this year. In contrast, the euro has remained weaker against the Yen.
The USA’s relationship with its main trading partner China will be important in the Trump era and so will the exchange rate between the US dollar and the Yuan, especially now that the value of the Yuan floats more freely against the US dollar than it used to. The current weekly Yuan value is US$1=Yuan 6.8 which compares to a low of less than Yuan 6.5 in the first half of 2016 and 6.3 a year ago.
Closer to home, the US$ went from being worth Ca$1.330 on election day to Ca$1.357 on Monday, a 2.0% strengthening of the US dollar. Against the Mexican peso the US dollar strengthened from US$1=Peso18.34 on November 8 to US$1=Peso21 on Monday, a 14.5% change.
Trade questions remain
Trade has played a major role in the presidential election, with Trump calling for a more isolationist ‘America First’ approach and the abandonment of negotiations for a US/EU Transatlantic Trade and Investment Partnership trade deal. That is almost certain to happen, but he has also suggested that the US should withdraw from the NAFTA (North America Free Trade Area) which also includes Canada and Mexico. There is even a suggestion that it might want to withdraw from the World Trade Organization which would allow America to set its own tariffs and duties.
The US runs a food trade surplus of around US$18.8 billion exporting US$133 billion and importing US$114.2 billion. The US Department of Agriculture forecasts that exports to China will be US$21.5bn in 2017 with the country overtaking Canada (exports of US$21.1bn). Shipments to Mexico are expected to be US$18bn, with US$11.8bn exported to the EU and US$11.0bn to Japan. In food, the imposition of tariffs would mean that the US would be a net loser because its exports are greater than its imports. For example, the imposition of a 20% tariff on imports and exports would add US$26.6 billion to the cost of exports, but only US$22.8bn to the cost of imports.
But food trade is dwarfed by trade in other goods and services. The US is the world’s second largest exporter after China shipping US$2.230 trillion of goods and services in 2015, according to the US trade department, but it is the world’s largest importer buying US$2.762trn from other countries in 2015 giving it a trade deficit of US$532bn.
Under that scenario, a 20% tariff on imports and exports would add US$446bn to the cost of US exports, but bring in US$552bn, a net benefit of US$106bn. It has to be noted that we are using a 20% tariff to illustrate a point rather than because that figure has been suggested. It also assumes that if the US imposes a 20% tariff on imports, countries importing from the US will impose a similar rate.
When it comes to trade in potatoes and potato products, the US is a net exporter, exporting US$1.686bn of potatoes and product in the year to September 2016 compared to imports of US$1.128bn, a surplus of US$558 million. US sales are diversified with Japan accounting for 19% of exports, Canada 17% and Mexico 14%. Canada dominates imports accounting for 88% of trade followed by Mexico at 7% and Germany at 1.5%. The US has a trade deficit in just one product – seed at US$16.4 million with virtually all seed imports from Canada.
Nearly two thirds of US potato trade is in frozen fries, with exports at US$1.112bn and imports at US$771 million. Exports of dehy products (including chips/crisps) are more than a quarter of a billion dollars, while potatoes are at US$194.3 million.
Labour uncertainty remains
The other major issue facing the potato industry (along with other food industries) is labour. It is estimated that around 70% of US farm labour is foreign born with Government estimates from 2009 suggesting that 40% to 50% are not officially authorised. Trump’s hard-line on immigration will have alarmed workers and employers alike. He has said about deporting illegal migrants and even building a wall between Mexico and the US to limit immigration. In 2014 farm lobby group the Farm Bureau released a report that concluded if the agricultural sector (not including food processing) lost access to undocumented labour then agricultural output would fall by between US$30 to US$60 billion (out of a total of US$177 billion). This would have a massive impact on the US$835 billion food industry and increase food prices by 5% to 6%. Vegetable production could drop by up to 31% and fruit by up to 61%.
Since the election there has been some clarification of Trump’s views and it seems that the initial focus will be on undocumented migrants that have committed other crimes which could see the removal of three million people. There is a possibility that another eight million undocumented migrants may be offered some legal status and that a more regulated system of immigration is introduced. That might offer workers and employers more certainty, but might make it more difficult to source labour for agriculture and food processing.
On other food and farming issues there is little clarity. There were few explicit pronouncements on support for agriculture from either Trump or his Democratic rival Hillary Clinton, but all the main cornbelt states as well as Idaho (the largest potato state) and Wisconsin (third largest potato state) plumped for Trump, although second largest potato state Washington voted Clinton along with five of the other top ten potato states. The US House of Representatives now has 246 Republican members and 186 Democrats with three vacant seats. The Senate has 54 republican members, 44 Democrats and two independents.
Many environmentalists have expressed concern that a Trump presidency may roll back environmental legislation with the new president associating himself with climate change scepticism. There have been mixed messages on GMOs with some campaign tweets critical of the technology, but other pronouncements rejecting moves to increase GMO labelling.
Trump’s farm advisers
Trump did gather together a 65 person agricultural advisory committee and he is likely to turn to this group for more guidance. It includes congress members, senators and farm commissioners from largely rural Republican states as well as farmers, the chair of the Kansas Wheat Commission, the chair of the national Council of Farmer Co-operatives. The Official Cowboy Poet of Texas is on the list, but there are no specific representatives from the potato sector, although the head of Western Growers – a trade association made representing growers from California, Arizona and Colorado that pack nearly half the US’s fresh produce is an adviser.
（World Potato Market）