Opinion: How the US midterms affected Kiwi farmers

  • 21/11/2018

By Professor Bill Bailey

While the most recent US national election was not a presidential election, its influence has national and international significance. 

Control of the US Congress  the Senate and the House of Representatives  was dependent on the outcome of the elections. Further, for the country's 50 states, 36 states had elections for their state's governor.

The elections resulted in the US Senate remaining under Republican control and the US House of Representative shifting to Democratic control. Previously, both the House and Senate were under Republican control. The Democrat house win has policy implications

The change in House leadership will have policy and legislative implications. When Democrats were in the minority, their positions could be for purely political reasons since the authority, and responsibility, of legislative actions were under Republican control.

Because Democrats will be in a leadership position in the legislative process, it is anticipated their positions on a number of issues will moderate as they become part of the solution to issues rather than simply complaining.

A key, and unresolved, legislative issue is US farm legislation, which is paired with domestic feeding program funding.

Both the Senate and the House have their own versions of farm and feeding legislation  with the farm legislation similar and the feeding program sections quite different.

Republicans wish to cut spending on domestic feeding programs and Democrats wish to strengthen the program. It is expected Congressional negotiations will resume early 2019 with the sitting of a new Congress.

However, there are some who wish to consider the Farm Bill before a new Congress is in place. It is not believed this quick movement, which was possible before the elections, will take place.

However, farm financial stress may force the both the House and Congress's hand The delay in addressing new farm legislation could be met with the reality of severe financial stress at the farm level.

US farm income has declined steadily for the past six years and currently sits at a 12-year low. Current farm legislation does little to reverse that trend.

A Republican Senate will be reluctant to increase spending but farm state financial stress could force them to do so.

Professor Bill Bailey.
Professor Bill Bailey. Photo credit: Supplied

The House would support such an effort. A new, and divided, Congress will be faced with an expired farm bill and severe farm level financial challenges.

While some see gridlock in the legislative process, it is expected Congress will quickly pass legislation to shore up farm finances. One idea to do so is to return to production controls on a variety of crops, including dairy.

Another unresolved issue is the trade agreement between the US, Canada and Mexico (USMCA). While some see the trade agreement dying in Congress because of the Democrats anti-Trump positions, a failure to confirm the agreement, with significant financial and political consequences, would be seen as a direct consequence of Democratic petulance rather than leadership. Consequently, it is expected USMCA will be implemented by mid-2019.

All of the above have consequences, some greater than others, for New Zealand agriculture. 

A new Farm Bill that addresses the bad US farm financial situation could result in reduced US production and, as a consequence, higher world prices for a variety of commodities, including dairy. It is expected the Senate and the House could reach agreement on the legislation, in part because the Democratic House is now a part of the solution.

Trade, broadly reviewed, could be more politically contentious. As noted, the House could increase its pressure to reduce ties and trade with Russia.

Such a move, depending on its focus, could open up new opportunities for New Zealand agriculture

 The probable agreement to USMCA would be neutral to New Zealand exports, in large because of the limited changes to the agricultural part of the agreement from the earlier agreement.

In summary, the elections resulted in a divided Parliament (Congress). That division will change the discussions from parties deeply critical of the President and the other party, to recognition they are part of the solution and will lead to positive legislation.

Such an outcome is good for New Zealand agriculture.

William C Bailey was Chair of Agribusiness at Massey University for 13 years. He has written weekly world dairy market columns for ASB Bank for almost 15 years. He currently is President of Topker Consulting, specialising in agricultural market research and supply chain issues relevant to agriculture