Bad weather leaves $347M impact on state agriculture output
By Tyler Hale
Every industry has boom years and down years. For Arkansas agriculture, it was a down year in 2019. A perfect storm of variables, from heavy rains to record floods to trade disputes, caused Arkansas farmers in the $21 billion-a-year industry to post low or negative cash flow.
Natural causes had a major impact on agriculture, with the wet soil delaying or preventing planting for many producers around the state. According to Arkansas Department of Agriculture figures, 327,732 acres of corn, 38,348 acres of cotton, 511,792 acres of rice, and 187,888 acres of wheat were not planted in 2019 as a result of excessive moisture.
“When you look at the harvest in 2018, it was very wet. Going into spring planting in 2019, it was a very wet year,” Arkansas Department of Agriculture Secretary Wes Ward says.
The rain put farmers across the state behind, scrambling to get back on track, according to Jim Whitaker, who owns a large farming operation near McGehee with his brother Sam.
“We started out 2019 a little behind. Then we had excessive rainfall. It was tough for growers. There were areas that had it better than other areas, whether it was higher land. Nobody made it out without some trouble. Some people had tons of trouble,” Whitaker says.
The early rains were just the start of problems for farmers though. In May, massive rainfall in Oklahoma surged into the Arkansas River and ripped through the state, causing significant field damages, as well as damages to roadways and other infrastructure. State officials estimate that Arkansas lost $23 million a day for every day that the Arkansas River was shut down due to flooding.
Adverse weather, including the floods, is estimated to have cost Arkansas producers roughly $347 million in output, according to a study from the University of Arkansas Division of Agriculture Cooperative Extension. As a result of this loss in output, the state of Arkansas is expected to lose out on $142 million.
But natural causes are not the only factor that impacted agriculture during 2019 and that will play a role in 2020. Multiple high-profile trade policy disputes have captured worldwide headlines and are affecting Arkansas farmers. The biggest issues are the U.S.-Chinese trade war and the effort to pass the United States-Mexico-Canada Agreement (USMCA).
“2019 was another challenging year for Arkansas rice, corn, soybean and wheat farmers due to excessive rain and flooding during the planting season, and low commodity prices due to a number of fiscal, monetary and trade policy issues around the world,” Ward says.
Over the course of a three-part series, Arkansas Money & Politics will look at the most pressing issues in Arkansas agriculture that will affect farmers in 2020. From trade policy to legislative efforts to agricultural finance, we will investigate the most pressing topics for the year.
The trade disputes and its impact on farmers has been a major source of concern for many farmers and policymakers over the past 18 months. Beginning in 2018, President Donald Trump announced tariffs on a range of products from solar panels to washing machines to aluminum and more from multiple countries. Trump imposed tariffs on $34 billion worth of Chinese goods in July 2018, followed by tariffs on an additional $16 billion worth of Chinese goods the next month. China responded with tariffs on American goods, and the United States issued tariffs on $200 billion worth of Chinese goods in September 2018.
Both federal lawmakers and farmers around the state have been watching the back-and-forth between the United States and China with bated breath. The two nations reached a Phase I agreement in December 2019 in which the U.S. and China have agreed to begin rebalancing their trade relationship. However, onlookers still have concerns and questions.
One of the most prominent onlookers is U.S. Rep. Rick Crawford, who represents Arkansas’ First District and is monitoring the trade situation with China. For Crawford, trying to establish a new trade deal with China is a risky move. China, Crawford says, has not demonstrated the willingness to abide by international regulations that would made a new trade deal possible.
“I think we can use a different approach than what we’ve done in the past, but I have not just misgivings about China, but some real, real concern about the damage on our economy if we’re not careful in how we deal with them,” Crawford says.
“So my point is that you just have to rethink how we access the market. But number one, I’m not sure it’s realistic to think that the president could get a trade deal with China. Number two, if he does, we might be doing more harm than good. It just remains to be seen,” Crawford says. “So, I think we need to take steps to make sure that China behaves; [that] they actually follow the rules of the WTO or organizations, which they gained entry in 2001 and yet they still continue to flout the rules.”
China requires an essential product grown in Arkansas – soybeans. Instead of dealing with China directly, Crawford proposes establishing a distributor network for U.S. – and Arkansas – agricultural products. In essence, the United States would sell soybeans and other crops to countries such as Japan that could then sell them to China.
“The fact is the Chinese are going to have to purchase soybeans whether they buy them from us, Brazil or Argentina. Those are the top three soybean-producing nations on the planet,” Crawford says. “It’s a question of what route they take. And I think the way we can avoid some of the barriers is to establish the bilateral trade relations with Japan and countries like Vietnam, the Philippines, Indonesia, Thailand, and others and allow them to be our distributor.”
At the local level, Whitaker says that the trade dispute has hurt farmers’ ability to make their revenue. He expresses concern that it is costing farmers access to the valuable Chinese market. Instead of buying American products, the Chinese could turn to other countries, including Argentina and Brazil.
“The whole China thing – especially corn and beans – those markets are being stripped. That’s hurt us a lot,” Whitaker says. “There’s payment assistance, and it’s been a big help, but I’m worried that we’ve lost some of these markets. Do we ever recover them, and do we fully recover them?”
Not only is it costing farmers a market for products like soybeans, he argues, it is also impacting the commodity prices of other crops. “That was such a good market for us. When that happened, it bled into the other crops…” he says.
Crawford agrees that farmers have gotten the rawest end of the deal in the trade dispute. However, he doubles down on the necessity of making a break from the Asian superpower.
“Farmers – they have been somewhat of a political pawn in this equation. The fact remains that American businesses at some point are going to have to come to terms with, just to be quite blunt with you, ‘whose side you on?’ I mean, we have continually put money into China over a 30-plus-year period,” he says.
Farmers have been able to claim subsidies to offset the losses incurred this year by the trade dispute. Through the Market Facilitation Program (MFP), farmers can claim aid based on the impact posed by economic damages caused by “unjustified foreign retaliatory tariffs” that were issued by USDA in 2019. So far, President Trump has directed the USDA to release two rounds of MFP funding with a possibility of a third round this month. Trump authorized up to $16 billion in aid.
Arkansas producers have received more than $300 million in MFP payments to date according to figures from the Arkansas Department of Agriculture. Eligible farmers received $211,167,587 in the first round of payments in July, followed by an additional $107,013,435. In total, the producers received $318,181,022 in MFP funding.
“Individual farmers I think have to understand that can’t be the new normal,” Crawford warns. “That can’t be part of the calculation when you’re going in and you present your financials to your ag lender.”
The other pressing trade issue is the passage of the USMCA trade deal. Similar to the Chinese trade deal, USMCA is focused on rebalancing trade relationships with Mexico and Canada, two of Arkansas’ largest agricultural partners. “There’s lots of other countries out there – increasing our participation with a broader trade…It’s all about risk management,” Ward says.
To manage Arkansas’ risk better, state officials have been working to find new trade partners.
Trade deals aren’t limited to the federal level, and Gov. Asa Hutchinson has been making moves to establish healthy relationships with countries that could become agricultural trade partners. He has been focusing on developing countries primarily that are looking to expand access to high-quality products.
“We’re looking at developing countries a lot of times with increased standards of living and rising incomes that are interested in purchasing the higher quality commodities from the U.S,” Ward says. Prospective countries include India, Japan, Spain, the Philippines and members of the United Arab Emirates.
“China is important, but we have to be diversified in our market. We can’t rely solely on China,” Ward says. “We want to be able to do business with them, but we need to be doing business with other countries as well, making sure we’re reducing our risk.”
Both Whitaker and Poinsett County farmer Gary Sitzer are taking a philosophical approach to the current trade situation. Both acknowledge that issues such as trade policy inevitably affect their profession, but that these matters cannot continue indefinitely. Otherwise, U.S. and Arkansas farmers will be negatively impacted.
“Most businesses have cycles, and it’s okay to have cycles. What happens to agriculture is that what we do is not dependent on us but on these trade deals – favorable trade deals,” Whitaker says.
“It’s a very fluid situation, you know, operating, personally, on a breakeven scenario, and you can only do that so long,” Sitzer says. “I try to keep it in perspective and try to look at it outside my personal experience. The challenges that my great-grandfather and grandfather had – was wondering whether they would have enough food to live through the winter. We don’t have that challenge yet. It’s definitely challenging and not a lot of fun … if you do everything right and the weather cooperates, we’ll break even.”
As the custodian for the Arkansas agriculture industry, Ward strikes a positive note for the trade issue. Clearing up the trade disputes won’t be easy, but he believes it will have a long-term positive impact for Arkansas in 2020 and beyond.
“I know that we’re going to come out of this. I think we’re going to be better off. It’s going to take a bit. We’ll have to creative, innovative practices to lower their costs to make it more sustainable,” Ward says.