For Arkansas Soybean Growers, Tariff Troubles One Of Many

Jun 20, 2018

With talk of tit-for-tat and trade wars dominating national business headlines, the impact of retaliatory tariffs on American products and commodities is giving some Arkansas agriculture officials pause.

Last March, the University of Arkansas Division of Agriculture released a $383 million figure as the possible statewide economic impact should U.S. trade partners inflict a 25 percent tariff on soy, rice, corn and sorghum. Chinese authorities on Saturday announced they were imposing a 25 percent tariff on $50 billion in American goods, including soybeans. 

Now, with trade war fears renewed following President Donald Trump’s Monday announcement of new tariffs on $200 billion in goods imported from China, growers and analysts of Arkansas’s largest row crop –soybeans—are already feeling an impact.

As a soybean agronomist, Jeremy Ross with the Division of Agriculture is in regular contact with soybean growers and crop consultants.

"Acreage-wise, soybeans are the largest commodity that we have. It fluctuates from year to year, but we're usually in that 3.3 to 3.5 million acres of soybeans in production any given year," Ross said, in a phone interview. "Rice is usually number one, soybeans is a close second on overall production."

Ross said, though tariffs are a concern, farmers have had difficulty making ends meet under normal trade conditions. Fluctuating commodity prices, as well as the cost of dealing with insects, weeds and disease all diminish the profitability of growing soybeans.

"Probably the biggest concern is the cost of production. Farmers always are trying to find ways to cut corners and maybe eliminate some things and try to increase that profit margin as much as possible," Ross said. "Because, with production costs the way they are today plus with commodity prices, the profit margins are pretty slim."

Most of the 40 percent of Arkansas soybeans that are exported go to China, which is the world's largest consumer of soybeans. The Chinese government recently announced a reduction in soybean imports, and has prompted farmers to grow more soybeans as a result. In addition, efforts to open up Arkansas beef and rice exports to China could prove to be in vain.

Mervin Jebaraj, director of the Center for Business and Economic Research at the University of Arkansas Walton College of Business, said the threat of increased tariffs levied by China has already caused soybean prices to drop.

"If you look at the median farm income [in Arkansas], and don't include off-farm income in it, the median farm income is actually negative. So farmers have had it rough before any of this talk of tariffs has happened," Jebaraj said.

According to Jebaraj, falling commodity prices resulting from a glut of foreign-grown soybeans has effects that reach beyond the agriculture industry in Arkansas.

"We don't just produce soybeans, we actually process them, and that's where a lot of the revenue is, in food processing," Jebaraj said. "And there are a lot of jobs in eastern Arkansas around Jonesboro in the food processing industry, and then we export the processed food to China as well… so it's not just farmers, but it's manufacturing jobs as well."

Ross said the impact of reduced trade and additional tariffs, as well as problems with a crop-damaging weedkiller and a lack of rainfall spell trouble for many of Arkansas's family-owned farms.

"A majority of our farmers are independent farmers. They're family farms, so this is their livelihood. If the farm doesn't succeed, then they've lost their form of income for their family, and really their way of life," Ross said. "A lot of the farmers we have now are getting to the age of retirement. We're struggling on trying to find younger farmers to come in, because a lot of people just don't want to have to work that hard to make a living."

Jebaraj agreed that attracting a younger generation of farmers is proving to be a challenge, one that seems insurmountable in the future of Arkansas agriculture.

"This type of uncertainty will put several farmers currently producing out, as in they'll leave, and whether someone else buys up the farm and picks up the slack remains to be seen," Jebaraj said. "But I think it does not portend well for the future in terms of getting other people into it." 

Ross said farmers have made efforts to maximize profits while maintaining steady crop yields, though it has proven difficult.

"It's really hard for farmers to cut out a lot of stuff because we have to have fertility, we have to have seed, we have to have chemicals, we have to have irrigation to grow a successful, high-yielding crop. But I think where we can probably cut some cost is on efficiency," Ross said.

Though profit margins remain slim as trade woes continue, Ross said he doesn’t foresee a shift away from soybean production in Arkansas similar to the shift away from cotton production seen in the mid-20th century.

"I think we're always going to have soybeans, because soybeans are such a versatile crop when you're looking at the final product. If you look at pretty much anything on the shelf in the grocery store, it's got something related to soybeans in it."