We’re living in a global economy, and that means the administration’s recent tariff strategy is affecting many U.S. industries.
While most small businesses in eastern Pennsylvania are not directly affected, farming is a different story. Tariffs are putting additional pressures on an already challenging industry.
Now is the time for bankers to talk to their farm customers about options to help them remain profitable – choices that could be considered for any business facing difficult times.
Farmers operate on very slim margins. Profits are subject to the whims of Mother Nature, changing consumer demand, volatility in the commodities markets and the need to maintain equipment and invest in new technology.
Tariffs now cut further into profits, as is evidenced by these two examples:
Soybeans are America’s top agricultural export, and China traditionally buys upward of 60 percent of the U.S. crop, according to a CNN Money report.
As a retaliatory move against U.S. tariffs, China is now turning to other countries for more of its soybeans and is placing higher tariffs on the remaining product it imports from the U.S.
In addition, the overall uncertainty caused by tariffs is making trading on commodity exchanges more volatile, which moves the markets lower because of less investment demand.
Tariffs also are exacerbating U.S. dairy farmers’ difficulties, which include increased production in Europe and consumers’ move to nondairy alternatives.
In addition, Mexico now has imposed tariffs on U.S. cheese and may double them, and China has announced tariffs of 25 percent on many U.S. dairy products. This has all contributed to a sustained low milk market.
With these increased pressures, farmers are moving to other revenue-producing strategies they may not have considered before, including:
Some crop and dairy farmers are launching poultry operations to round out their businesses.
These operations produce eggs (layers) and/or broilers for consumption. Some also produce fertilized eggs used in the making of flu vaccines – a fast-growing business.
Adding a poultry operation to a farm can require a considerable investment. For example, a typical layer house that holds 40,000 chickens can cost more than $1 million. But a banker who has a good relationship with a credit-worthy farm business could be willing to provide the financing.
A poultry operation has another advantage: it provides less hard physical work for older farmers and allows them to stay involved in the business while the younger generation does the more physical work.
Diversification also helps multiple-generation farm businesses provide roles for everyone and smooth the transition from one generation to the next.
< CONTRACT FARMING
In this kind of business, a small farm will act as a steward or “boarding school” for chickens on behalf of an integrator.
The farmer invests in a poultry house and raises the chickens using feed provided by the integrator.
The farmer benefits by being paid for the work and being able to avoid the expense of growing or buying feed.
< DOING MORE WITH LESS
Farmers traditionally use their tractors and other equipment for decades, making repairs as needed. That said, the younger generation of farmers is eager to invest in new technologies to increase efficiencies.
But in times like these, many have looked to slightly used or imported European equipment at a reduced cost.
No one knows how long the trade wars will last, and farmers, like all businesses, have to deal with the here and now.
Experts such as bankers can help. With their breadth of knowledge about farming and small businesses, they can recommend and finance strategies to help customers through difficult times such as these.
And the result may be a business that’s stronger for the future.
Travis Werley is senior vice president and manager of agricultural business at Tompkins VIST Bank. He also owns and operates a family farm in Berks County. He can be reached at email@example.com or 610-603-7213.