Friday, June 15, 2018

Soybean Tariff: How Much Could it Cost an Ohio Farmer?

COLUMBUS, Ohio — An Ohio farmer could lose more than half of his or her annual net income if the threatened 25 percent tariff is imposed on U.S. soybeans and corn in China, a study from The Ohio State University has found.

Researchers with the College of Food, Agricultural, and Environmental Sciences (CFAES) have projected a 59 percent loss in annual net farm income based on historical trends in yields on corn and soybeans and projections for price drops in both commodities.

For the study, the researchers compiled data from six Ohio corn and soybean farms of similar size and created a representative Ohio farm comprised of 1,100 acres split evenly between corn and soybeans. They used the representative farm to determine the financial toll a tariff could take on an Ohio farm.

Net annual income on that representative Ohio farm was projected to drop from $63,577 to $26,107 under the proposed tariff, according to the study performed by Ben Brown, manager of CFAES’s farm management program and Ian Sheldon an agricultural economist, who serves as the Andersons Chair in Agricultural Marketing, Trade and Policy in CFAES.

Across Ohio, the loss of soybean exports to China would be an estimated $241 million annually.

The study is the first to show the financial impact a 25 percent tariff on China’s imports of U.S. soybeans and corn could have on an Ohio farmer and on the entire state.

“There are farmers who are struggling across the state,” Brown said. “If the proposed tariffs go into effect, we’re going to have farmers who will have to exit the industry.”

The financial losses stem from an expected drop in Chinese demand for U.S. soybeans and corn and in the world price for both crops.

“The biggest impact will be on profits from soybeans, however corn is affected too,” Brown said.

Soybeans are Ohio’s largest crop and the state’s top agricultural export. In April, China announced it would impose a 25 percent tariff on U.S. soybeans, corn and over 100 other American products. That was in response to the tariffs that the administration proposed on a range of Chinese imports valued at $50 billion. Other international trading partners, including Canada, the European Union, and Mexico have recently announced retaliatory tariffs in response to U.S. tariffs on steel and aluminum imports as well, that could also dip into the profits of Ohio farmers.

The losses from soybeans sales are projected to be far greater than for corn. Every year, 31 percent of the soybeans and 2 percent of the corn Ohio produces are exported to China.

China is the largest buyer of soybeans in the world, and Brazil is its top supplier with the United States being second. If China imposes the threatened 25 percent tariff on U.S. soybeans that will drive up the price that Chinese companies have to pay for U.S. soybeans and encourage them to buy even more soybeans from Brazil, Brown said.

“The U.S. remains the largest producers of soybeans, but it is safe to say that Brazil could become the number one producer of soybeans in the world with increased demand for their products,” said Brown, who along with Sheldon are in the Department of Agricultural, Environmental, and Development Economics within CFAES.

The United States may not be able to regain its share in selling soybeans to China, Sheldon said.

He pointed to how the United States lost market share for its beef beginning in 2003 following Japan’s ban on imports of U.S. beef due to cases of mad cow disease in the United States. Taking advantage of the opportunity, Australia was able to increase its exports of beef to Japan, and the United States has not regained its share in that market, Sheldon said.

“Why lose market share when you’re competing as well as you can,” Sheldon said of U.S. exports of soybeans and the prospect of a trade war with China. “It doesn’t make a whole lot of sense to me.”

For more information about OSU Extension, Darke County, visit the Darke County OSU Extension web site at www.darke.osu.edu, the OSU Extension Darke County Facebook page or contact Sam Custer, at 937.548.5215.

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