Food & Ag Economic Forecast: Sunny with Possible Storm Clouds Brewing

The majority of us continue to see news stories about the 223,000 jobs added to the economy in June and increases in wages and decreases in the jobless rate. At the same time, farmers are wondering if they’ll have the workers needed for harvest and the agriculture industry worries about the impact of the trade war being waged from Washington, D.C.

The Good News

According to Wells Fargo’s Food and Agribusiness Industry Update in June, they remain optimistic about the economy. “Economic activity continues to improve this spring, with Real GDP looking on pace to rise at a 4.2% annual rate during the second quarter.” Consumer spending seems to be rebounding, jobs have been added and wages on the rise (ever so slightly at .3%). At the same time, there’s definitely less optimism around trade issues because of the recent tariff announcements.

Pricing for both restaurants and retail food increased in May, again according to Wells Fargo. This is something to watch since food prices are a key factor in overall profitability and more volatile than wages and overhead. Business owners are watching the balance between those factors, knowing it is critical to overall profitability of individual operations.

Critical Summer Months

Summer is the time most farmers and fishermen are harvesting their crops that were planted much earlier in the spring. Each year there are a number of factors which cause concern and affect the success of each crop. Weather is obviously the largest factor and that includes access to water. Smaller farmers appear okay as long as they have enough water for crops and the labor to manage the farms and the harvest. Larger operations are even more concerned about labor, water and the impact of tariffs on the overseas markets they’ve spent years developing.

Labor Availability Threatens Farmers

Labor accounts for “48 percent of the variable production costs for fresh fruits and 35 percent of variable costs for fresh vegetables” according to information from the Farm Bureau. That’s a pretty large percentage, and one that has a direct impact on the overall profitability year over year. This year, the availability of workers is more of a concern for farmers who rely on unauthorized immigrant workers for between 50 and 70 percent of their workforce. They do this because there are few Americans workers are willing to do the strenuous work.

As harvest times for critical fruits and vegetables approach, farmers are anxious about the labor force, hoping workers will return to their farms. In some cases, the same laborers have been working at farms for years, even generations. The Farm Bureau estimates the loss in revenue to farmers if workers are not available for harvest would be as high as $60 billion dollars. This will have a large impact on the prices paid at restaurants and retail outlets as well as the health of the farming industry.

Unlike tariffs, labor concerns apply to all farmers, large and small, because everyone uses labor. Not everyone exports their products.

Agriculture Victim of Trade Wars

Finally, the elephant in the room for farmers and companies that have built a market exporting their product to another country is tariffs. Soybean, salmon, pork, dairy, cherry farmers are all aware of the issue. Those who work away from these industries may wonder what the fuss is about. Let there be no mistake. As of April, China had weighed tariffs against 128 U.S. industries, 94 of which are agricultural. According to the Farm Bureau, 86 products (including fresh and dried fruit, tree nuts and wine) will be subject to an additional 15 percent tariff while pork is one product subject to an additional 25 percent tariff.

Not surprisingly, the impact will vary by state based on where the products are grown. A July 10 article in USA Today suggests, not surprisingly that farm and seafood-producing states are going to be hit hardest. These include Alaska where salmon exports to China account for nearly $1 billion. Alexa Tonkovich from the Alaska Seafood Marketing Institute explains “the seafood industry directly employs nearly 60,000 workers in Alaska each year and directly employs more workers than any other private sector industry.”

The largest impact is expected in the Midwest states because that’s where the majority of the affected industry big farms are located. Those affected by the production or distribution of soybeans and pork are expected to be see impacts on their overall gross domestic product.

Poultry and livestock processors, winemakers and vegetable growers are also vulnerable. All told, more than 1.7 million jobs are in industries affected by the tariff, according to Joseph Parilla, a fellow at the Metropolitan Policy Program at the Brookings Institution.

In conclusion, while the picture looks bright and clear when one looks at the overall economy, job and wage growth, there are some real points of concern regarding the impact of policy changes on the agriculture industry. The next few months will be crucial to the future of many companies as they harvest, process and prepare to distribute products throughout the U.S. and other countries.

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