With the Dutch elections now over, many are breathing a sigh of relief that a moderate, centrist party is to remain in government. While there was always little chance of Geert Wilders taking power, the fact that his party is not the largest in parliament will mean a return to normal in Dutch politics.
But following Brexit and a rise in nationalist sentiment in Europe, coupled with President Trump threatening to introduce a more protectionist approach to international trade, there is uncertainty in the agribusiness industry over how this will impact trade in agricultural products. Worse still, there are major questions on what the German Federal elections (due in Sept 2017) and the French Presidential elections (first round in April 2017) will bring. Such anxiety over government intentions is never good for business, so it is worth taking time to look at the facts in the current situation, as they may give a clue to future events influencing agrichemical markets.
What will Trump do for AG Trading?
Much has already been said about Donald Trump’s approach to trade and diplomacy, but the overriding view from business analysts is one of unpredictability. However, his views on trade are possibly best summed up by Simon Denyer of the Washington Post, when he wrote that, “[Trump is] a man who sees trade as a zero-sum game, and sees anyone ‘beating’ the United States as a threat.”
Understanding this helps chemical traders comprehend Trump’s approach to international trade. A vital point highlighted by Antonio Graceffo when he wrote in the Foreign Policy Review, “Across the globe, people are wondering why the US, usually the leader in free trade, is now taking such a protectionist stance. [But] Donald Trump obviously believed that the TPP partners were ‘beating us’ on trade, and so he voted to leave. Furthermore, leaving the TPP will most likely be only the first of many steps in the new Trump-lead American protectionism, under the slogan ‘America First’.”
It might be hoped that Trump would have the concerns of the farming community in mind, as the more rural states in America formed the bedrock of his election win. As Ricardo J. Salvador and Nora Gilbert noted in a recent article for the Guardian, “Caught in a toxic cycle of depressed commodity prices, rising debt and plummeting income, it comes as no surprise that American farmers voted en masse for change and the hope of different leadership with new ideas.”
And yet there have been many in the agricultural industry that have voiced concern for Trump’s withdrawal from international trade deals. As the independent, industry journal Investigate Midwest reports in an article entitled, “Trump’s pull-out of TPP deal prompts criticism, anger from AG industry”. It continues by quoting industry bodies that firmly believe that success for American agribusiness means staying in such trade agreements.
For example, the American Farm Bureau Association stated that, “Trade is vital to the success of our nation’s farmers and ranchers. More than 25 percent of all U.S. ag production ultimately goes to markets outside our borders. We viewed TPP as a positive agreement for agriculture – one that would have added $4.4 billion annually to our struggling agriculture economy.”
While the National Cattlemen’s Beef Association said that, “TPP and NAFTA have long been convenient political punching bags, but the reality is that foreign trade has been one of the greatest success stories in the long history of the U.S. beef industry.” And continued to state that, “Fact is American cattle producers are already losing out on $400,000 in sales every day because we don’t have TPP, and since NAFTA was implemented, exports of American-produced beef to Mexico have grown by more than 750%.”
Meanwhile the American Soybean Association’s President, Ron Moore, pointed out that, “Trade is something soybean farmers take very seriously. We export more than half the soy we grow here in the United States, and still more in the form of meat and other products that are produced with our meal and oil.”
Despite these industry appeals for more open trading, the fact remains that the current White House administration is heading in a different direction that will seemingly take the business out of agribusiness.
Furthermore, with Marine Le Pen leading the opinion polls in the French Presidential elections (as of 17/3/17) and Germany’s right-wing, Euro sceptic, Alternative for Germany party climbing to third place (as of 17/3/17), should we now also fear the impact of populism in European AG markets?
Is Europe also Heading for Protectionism?
If Le Pen has her way, then there will be major repercussions for French agriculture and trading in agricultural products. To know this, one need look no further than Le Pen’s open declaration to Euronews, when she said, ““With Brexit, people made the choice for border control, re-industrialisation, economic patriotism, intelligent protectionism. The United States has chosen the same by electing Trump. I’ve been pushing for this new world order for years. [Political divisions] no longer put the right and left in opposition, but patriots and globalists.”
The article continues by explaining that, “Social and employment policy are thus presented in terms of promoting ‘patriotic’ models. There are pledges to promote French business, to protect the economy where necessary from foreign investment and free it from ‘European constraints’, to impose an extra tax on the employment of foreign nationals.”
Meanwhile, the party leader for Alternative for Germany, Frauke Petry (a doctor of chemistry, who according to Politico, entered politics in 2013, “after a chemical company she started with her mother went bankrupt”) is maintaining her anti-Euro stance.
She told InternationalTradeNews that, “Everyone who is anyone in business has come to the conclusion that the euro project has failed.” Adding that, “I would like to mention that exports [from Germany to] the eurozone have not risen but have actually fallen. I have seen that first hand in my own nine-employee company. Since last year we have been experiencing an extreme drop in turnover from our European partners. For us, the upward valuation of a national currency in the form of a new German mark would mean a fall in the cost of raw materials which would allow us to offer more attractive prices to our European neighbours.”
While her party collegues show an equal approval of Trump’s protectionist stance, with Euractiv news reporting how in an interview, “The AfD also wanted to clarify its position on TTIP, the planned free trade agreement between the US and Europe. ‘TTIP is a new dividing force in Europe along the lines of the Cold War,’ said deputy AfD spokesperson, Alexander Gauland.
Fortunately, demand for fertilizers and crop protection products remains strong, so there is every possibility that agribusiness profits will still be made in the coming years. For evidence of this, one need only look at a recent interview Chris Jahn, President of the Fertilizer Institute, gave to ICIS. Here he explained the thoughts of many businessmen, especially those in complex, competitive, international trading such as agrichemical products, in a desire for open trading, whoever is in power.
“There is a lot of rhetoric around trade from both sides frankly and it’s a little bit alarming,” he said, “not just for fertilizers but for agriculture in general. We can’t consume everything that we produce here [in America] and so having open markets across the world is really important and agriculture is a big success story for our trading.”
But of course, this view also returns to politics, as he continues by arguing how, “European imports coming into the United States don’t pay any tariffs, but we go into Europe and there is a 6.5% tariff on fertilizers so [the] TTIP is important for us to unlock some of those European markets. Particularly, at a time when margins are tight, prices are low, 6.5% doesn’t sound like a lot but it’s enough to make a difference and so we are looking for Europe to open up and let’s just compete and whoever wins, wins.”
So maybe populism is a good or bad thing only depending on which side of the Atlantic, or wall, you are sitting.
Like Wilders, and also like Trump, Le Pen and Petry may have little chance of winning, but the popularity of their ideas may still influence the next government. If that is the case, then maybe there is little need to watch the election results, but instead be aware that there has been a sea-change in international politics and international trade. Rightly or wrongly, many voters are rejecting globalisation in favour of a more nationalistic view on how government policy can benefit them. They may or may not be misguided beliefs, but it seems that they will be impacting the agrichemical industry for years to come.