As Trudeau and Trump meet, farmers fear becoming a bargaining chip: Don Pittis

When he shows a picture of U.S. President Donald Trump during a rural speaking tour, farmer and agricultural economist Philip Shaw gets quite a reaction.  

"The room just erupts," he says.

"The story of 2017, for Canadian agriculture, there's one story and that's Donald Trump," says Shaw.

Despite the things they don't like about current trade rules, people in agriculture are nervous about what will happen should the North American Free Trade Agreement be reopened.

That nervousness is not found just in Canada, but in the U.S. and Mexico as well, in what has become a deeply integrated North American market in agricultural products.

In farming circles, Shaw is a respected commentator on agricultural issues on both sides of the border. His talk on financial risk management where he showed the photo of Trump was part of a 10-stop "Agriculture Roadshow" sponsored by the tax and accounting partnership BDO Canada.

As a farmer, Shaw hears what other farmers are saying. And people in many parts of the North American agriculture industry are afraid Trump will upset the apple cart.

"Farmers are talking about, they worry about, Donald Trump and how he may change the NAFTA agreement," says Shaw.

Many Canadians think of the United States as an industrial economy, but the U.S. has historically been a huge agricultural exporter. The farm lobby has a lot of clout in Congress, and the grain-producing "corn belt" voted solidly for Trump.

A 'farm bust'

Part of that vote was a protest because all is not well in the U.S. farm sector. High prices a few years ago due to drought and surging demand from a growing Chinese middle class have turned to glut.

All that money invested by farmers in land and equipment is not resulting in hoped-for returns.

The U.S. remains a large exporter. But, as happened in the run-up in oil prices, when agricultural prices rose, countries around the world expanded food production, bringing 70 million new hectares into cultivation.

"The boom encouraged farmers in other countries to ramp up production," said a report last week in the Wall Street Journal titled The Next American Farm Bust Is Upon Us. "Lower production costs, proximity to fast-growing markets and improving infrastructure gave some overseas farmers an edge."

Now, North American farmers and agricultural industries are worried they could become a bargaining chip in a renegotiated NAFTA.

Mexico buys U.S. corn

For the United States, Mexico is the Number One importer of corn, dairy products, pork and rice. It's a close second and third in soybeans, beef, wheat and cotton. Any U.S. move to tax Mexican car production could result in a countervailing barrier to agricultural products.

As Prime Minister Justin Trudeau meets Trump today, Shaw is worried Canadian farmers could be sacrificed to insure industrial access to the U.S. market. 

The border between Canada and the United States for grain has been open for decades, he says. That means any disruption in U.S. exports could have an impact here.

But far more serious to Canadian farmers would be concessions on dairy or changes in the rules on red meat.

"From a Canadian perspective, there might be a trade-off to save the auto industry by trading off access to the Canadian dairy market," says Shaw. He fears attempts to help U.S. farm exports will just import American problems here.

It won't help Canadian consumers, he says, just the food industry middlemen. For farmers it's a race to starvation wages. 

'America' first

Shaw says Trump's "America First" slogan, meaning United States first, is nerve-racking for Canadian meat producers who have fought a long battle with the U.S. over country-of-origin rules that declared Canadian beef foreign.

Like the auto industry, meat production is so integrated across the border, from feed to livestock to meat, that such rules are viewed by Canadian producers as pure protectionism.

"You have Canadian farmers with Canadian cows that go over to Colorado to be fed in the winter," says Shaw. "Sometimes they come back to be slaughtered in Canada and then the beef goes back to the United States."

How such intricate cross-border trade would be affected by a Trump border tax remains a mystery.

Trump also paints a picture of Mexican workers and companies stealing U.S. jobs. But according to Judith Teichman, who has been studying Mexican political economy for years and writes a blog on the subject, U.S. agricultural exports have had a devastating effect on the Mexican economy.

She says balance-of-trade figures between the U.S. and Mexico are "fake accounting" that ignore the fact that Mexican exporters represent U.S. agribusiness firms while U.S. corn exports have killed off jobs in subsistence agriculture.

"One of the things you have to remember is that when NAFTA was negotiated between the three countries Mexico was still an authoritarian regime," says Teichman, a professor at the University of Toronto. "They could happily ignore peasant producers and listen to other powerful groups."

She says with Mexican elections coming next year and a pro-farmer candidate leading the pack, that will no longer be the case if NAFTA is reopened now.

Follow Don on twitter @don_pittis

More analysis from Don Pittis