The consequences of President Donald Trump’s rhetoric on Mexico could wreak havoc upon Colorado agricultural exports, says Don Brown, the state’s Commissioner of Agriculture.
It’s also a concern for his boss, Colorado Gov. John Hickenlooper.
The administration’s tough talk on Mexico — including a suggested (and then semi-retracted) 20 percent tariff on Mexican imports, renegotiating the North American Free Trade Agreement (NAFTA) and the construction of an $8 billion-plus wall — could lead to problems with Mexico that could hurt Colorado agricultural exports, particularly for beef and potatoes, Brown told The Colorado Independent. NAFTA is the 23-year old agreement that opened up trade and investment between Canada, the United States and Mexico.
The talk of a looming trade war with Mexico worries Brown, in part, because it’s coming at the same time prices for some of Colorado’s biggest crops — corn and wheat — sit at 30-year lows, and cattle is also going for lower-than-average prices.
“Agriculture won’t work at these prices,” Brown, a registered Republican, said. Hickenlooper appointed Brown, a third-generation Yuma County farmer and small business owner, as commissioner of agriculture two years ago.
If the Trump administration were to enact a 20 percent tariff on Mexican imports to pay for a border wall, that could trigger Mexican retaliation against U.S. exports, including beef, potatoes and corn from Colorado. These commodities top the list of Colorado exports to Mexico, and potato exports already are restricted to the first 16 miles in Mexico south of the U.S.-Mexico border. “We could double potato exports” without that restriction, Brown said. He noted that cattle are Colorado’s largest export, representing 70 percent of the state’s agriculture’s economic activity. That includes beef and cattle byproducts, such as skin and hides.
More alarming is Trump’s threat to renegotiate NAFTA, Brown said. Roughly half of all food exports from Colorado go to Canada and Mexico, and Mexico is the biggest market for Colorado beef. “If we rearrange NAFTA, we could lose those export markets,” he warned.
Hickenlooper said Wednesday that Trump’s rhetoric around Mexico makes the state’s relationship with that country more difficult, given its role as Colorado’s #2 export market. “If we’re going to remove ourselves from NAFTA, we’d better have another trade agreement. Farmers and ranchers need more markets, not less.”
Hickenlooper pointed out he is headed to Cuba this weekend for his first visit, and he hopes it could be a new market for Colorado ag with its 10 million residents. “The best solution for low commodity prices is more markets,” he said.
What a renegotiation with NAFTA could mean: Mexico imported more than $1 billion in Colorado products in 2015, including agricultural products, according to the U.S. Department of Commerce.
Three of Colorado’s top six exports are agricultural – fresh and frozen beef, and cattle hides and skins – which brought in more than $700 million to the state in 2015.
Colorado beef exports were among the losers last week when the president signed an executive order to take the United States out of Trans-Pacific Partnership (TPP) negotiations. The TPP had been in the works since November 2009 and proposed to link the United States and 11 mostly Asian-Pacific nations, such as Japan and Australia, as trading partners. Also included were Mexico and Canada, who were partnered with the United States through NAFTA.
While it was not at all clear that TPP would have gotten through Congress, Colorado beef exports could have benefitted from the deal, Brown said. The hope was that tariffs on beef exports to TPP nations would drop from the current 40 percent to around nine or 10 percent, which would substantially lower the price of those exports, making U.S. beef more competitive.
A looming export battle with Mexico could not come at a worse time for Colorado agriculture. For years, agriculture was second only to manufacturing as the state’s top economic driver. At its peak In 2011, farming, ranching and related activities brought in $1.8 billion to the state’s economy. And while agriculture still employs about the same number of people — 100,000 — as it did 15 years ago, agriculture’s contribution to the Colorado economy has dropped sharply, although it remains in the top five of Colorado industries. Agricultural exports in 2017 are expected to be less than $400 million, according to the 2017 Colorado Business Economic Outlook, produced by the University of Colorado Leeds School of Business.
Working in the state’s favor: We’re not in a drought and “we had a great wheat crop this summer,” Brown said.
But it goes downhill from there.
Prices for beef, corn and wheat have plummeted. These commodities are at 1986-price levels, but with 2017 production costs, Brown said.
Low prices mean it costs farmers more to produce those crops than can be made from selling them. Some of the crops also had record yields in 2016, but that’s not as good as it might sound. Lower demand for corn-based ethanol, partly because vehicles are more fuel-efficient, means the corn supply outstrips the demand.
It’s causing some farmers to look for other revenue sources, such as selling or leasing their water rights until market prices recover. In LaSalle, Colorado, for example, Chuck and Ronibell Sylvester sold water rights to 110 acres on their farm to the city of Aurora in December, keeping just a few acres for grazing.
The outlook for livestock, especially Colorado’s cattle industry, isn’t any better. The report said cattle prices reached a high watermark in 2014 at around $148 per hundred pounds, but prices have dropped 21 percent since then to about $123 per hundred pounds. A steer sells at around 400 to 500 pounds.
Add to falling prices a stronger U.S. dollar against foreign currencies, which is driving up the cost of Colorado agricultural exports in overseas markets, Brown said.
On the bright side, Brown is optimistic about Trump’s nominee for Secretary of Agriculture, former Gov. Sonny Perdue of Georgia. While he has not yet met Perdue, Brown said he believes Perdue understands farmers and the economics of farming, given his background as a veterinarian and as a former feed and fertilizer dealer. “He understands increasing costs and will understand the needs for exports,” Brown said. “I think he’s a good choice.”
Not everyone agrees that a sour relationship with Mexico will necessarily hurt sales of Colorado beef. Gerald and Kay Schreiber own a 100-year-old cattle ranch near Last Chance, in Washington County, Colorado. Gerald Schreiber believes NAFTA has been more beneficial to Canada and Mexico than to the United States. Mexico needs to export products to us, more than we need to export to them, he said.
Colorado agriculture is already at a crossroads, Schreiber said. Brown calls it a “perfect storm” – good crops, low prices for farmers and a stronger dollar – now coupled with fears about what will happen with Mexico.
Photo of Don Brown courtesy Colorado Department of Agriculture. Cattle photo by Jennifer Goodland.