Unpredictable conditions are nothing new to farmers. Volatility—in seasonal weather, commodity markets, consumer preference, labor availability, and the supply chain—comes with the territory.
As if managing those risks weren’t enough of a challenge, now there’s the tariff impact on farmers. “We’re still reeling from TW1—Trade War One—and are certainly not thrilled about an extended TW2,” Caleb Ragland, American Soybean Association (ASA) president and a Kentucky soybean farmer, said in an April 9 statement.
The current conflict escalated significantly in April in a tariff volley that put American farmers firmly in the crossfire. After the Trump Administration imposed a 125% tariff on goods from China, the Chinese government retaliated by imposing similarly bloated tariffs of its own on U.S. goods, including agricultural products.
On the U.S. side, the tariffs are expected to be especially damaging to farmers that export oilseeds, grains, and especially soybeans to China, which historically has been the largest export market for U.S. soybean growers. Factoring in new and existing tariffs and taxes, the effective levy on U.S. soybeans shipped to China is now 114.73%, according to the ASA.
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Higher costs, instability: Tariff impact on farmers
To compound matters, tariffs on imported farm equipment and other farm supplies also are likely to increase the cost of doing business.
The fear is that the cumulative impact of tariffs could inflict even more damage than the first trade war when, by the ASA’s estimates, the U.S. agricultural sector lost $27 billion.
“We run the risk of immediate impacts this growing season, along with the impacts a prolonged trade war with China will inflict on our industry once again,” said Ragland. “The short-term disruptions are painful, but the long-term repercussions to our reputation, our reliability as a supplier, and the stability of those trading relationships are hard to even put into words.”
For farmers, the timing of the tariff escalation was problematic, too, coming as many were finalizing planting plans for the upcoming season.
“Farmers and ranchers suffer from instability, as their soundest business decisions can be turned upside down,” wrote Betty Resnick, a former economist with the American Farm Bureau Federation.
Cultivating new markets
Now farmers find themselves in the familiar position of shifting their planting priorities, along with other measures to minimize the impact of tariffs.
To that end, they’ll need to uncover and develop new markets to blunt the impact of lower demand from China and other markets affected by retaliatory tariffs.
That could entail taking a page out of China’s playbook from the first trade war, only in reverse. Just as China was able to connect with new agricultural product suppliers when tariffs on exports like soybeans increased dramatically in 2018, U.S. farmers need to connect with new customers in different markets.
Market intelligence, analytics and modeling tools can help here by showing them markets with the highest unmet demand for their products, as well as areas where their products can be most cost-competitive in light of current tariffs and taxes.
Those tools can also help them identify the most cost-effective means to get products to new markets and customers.
But cultivating new export markets takes more than technology. Relationship-building will also be critical, with support from the federal government via initiatives like the trade mission recently announced by U.S. Agriculture Secretary Brooke Rollins to Vietnam, Japan, India, Peru, Brazil, and the United Kingdom.
Farmers shifting planting plans to offset tariff risk
As heavily as tariffs will influence demand in China and other export markets, they also will figure prominently in farmers’ planting plans.
Fresh data from the AFBF indicate that, due in part to the tariff situation, farmers intend to plant significantly more corn, while moving away from cotton, wheat and soybeans.
To orchestrate shifts like this cost effectively, farmers need a clear line of sight into the operational and financial requirements associated with pivoting part of their product portfolio from soybeans to corn, for example.
To offset some of the tariff impact on farming supplies, they’ll also need to identify and evaluate alternative suppliers for goods like farm equipment and parts, seeds, etc.
Finding lower cost supplies can help mitigate any cost increases they pass on to customers, something that 44% of businesses said they plan to do as a direct result of new tariff policies, according to a survey by Zilliant. In that survey, 42% of companies said they have shifted suppliers or sourcing regions to respond to tariff changes.
Getting better at pricing
Amid the tariff uncertainty, agribusinesses also need to be more on-point with pricing.
“Rather than making across-the-board price increases, forward-thinking organizations are implementing targeted pricing strategies that balance profitability with competitive positioning,” observed Stephan Liozu, Zilliant’s chief value officer, noting that 83% of survey respondents indicated they are using AI-driven pricing technology to adapt to economic volatility.
Capturing new operational efficiencies also can help farmers address volatility. By applying intelligent capabilities to their processes and to internal and external data, growers can increase yields and margins, and better manage resources.
When it comes to coping with the extreme uncertainty the current tariffs war has brought to agricultural markets, every little bit helps.
