Dec 29, 2020

Trade war losses for California farmers not offset by Market Facilitation Program

Economic research measuring the overall losses to California agricultural exports resulting from the trade war shows that two years of Market Facilitation Program (MFP) payments only covered roughly half of the net losses to California commodities, according to a new article in the Nov/Dec edition of ARE Update.

UC Davis agricultural economists Professor Colin Carter and Ph.D. student Jiayi Dong compare the 2018 and 2019 MFP payments made to California farmers affected by the trade wars with estimates of the net impact of the retaliatory tariffs on their agricultural exports. Their paper highlights the disparities in payments across different U.S. states showing that, despite significant losses due to the trade war, California agriculture received a relatively small share of MFP payments, equivalent to about 2% of net farm income, compared to the 17% overall average for U.S. states. Overall, California incurred the largest net economic welfare losses due to the trade war of any U.S. state.

“The trade war caused losses that outweighed any potential benefits by far, as tariff increases induced a substantial reallocation of agricultural trade around the world,” Carter explained.

The trade war began when the U.S. government increased import tariffs for major trading partners in 2018. In response to these tariffs, China, the European Union, Canada, Mexico, Turkey, Russia, and India retaliated by imposing new tariffs against U.S. exports, targeting primarily agricultural and food products. While the trade war negatively impacted U.S. agriculture as a whole, California farmers were hit particularly hard by the retaliatory tariffs; tree nuts incurred losses of around $239 million, dairy experienced losses of $130 million, and overall losses in the first year of the trade war were estimated at around $875 million.

The authors estimated the reduction in U.S. market share in countries involved in the trade war for agricultural commodities relevant to California. In countries with retaliatory tariffs in place, producers of tree nuts, including almonds, walnuts, and pistachios, saw a reduction of U.S. market share from 79% in 2016/2017 to 65% in 2018/2019. Fresh fruits experienced a market share loss in these countries from 12% to 4%, cotton from 46% to 22%, and dairy from 16% to 8%.

To compensate for some of these losses, the government created the MFP to distribute payments to eligible commodities over two years, 2018 and 2019. The second round of payments included a wider range of specialty crops produced in California. In total, payments to California producers amounted to just over $450 million. However, with the exception of rice and cotton, most MFP payments were not sufficient to cover the export losses incurred as a result of the trade war. The greatest losses were experienced by producers of nuts, dairy, and processed fruits and vegetables.

UC Davis alumnus Sandro Steinbach, who is now an assistant professor at the University of Connecticut, also co-authored the report.

Read the full article online.

Photo: Heidi Schweitzer/ARE