By Sylvain Charlebois
After the shock comes the reality of understanding what a Trump Presidency and a Republican-dominated Congress will mean to all of us. Over the last two years, policies on immigration, trade and security have dominated the campaign. Not much was said about agriculture or food policies. By the looks of it though, a new approach in Washington could affect what we eat and most important, the cost of food in general. In fact, the “Trump effect” could increase the cost of our food over the next few years. With food prices dropping in recent weeks in Canada, this could be welcome news for the industry, but not so much for budget-conscious consumers.
First off, Donald Trump’s victory could have major implications on energy geopolitics around the world. President-elect Trump has called for more drilling of fossil fuels, fewer regulations and a complete withdrawal from the Paris Agreement. His defiance towards OPEC is consistent with his views on U.S. energy security. The Keystone XL project also fits well with Trump’s intentions. All these measures could potentially initiate the next commodity super-cycle, as we witnessed with the Bush administration a decade ago or so. Trump’s infrastructure plan has already pushed up prices for iron, copper and other materials. Commodity prices could go higher and increase input costs in processing.
For now, agricultural commodity prices are still historically low and will remain so for a while. In some parts of the Unites States, food prices have dropped by as much as 8 to 10% in one year, the most significant drop in almost 50 years. This is great news for consumers, but the number of jobs in this sector has now stagnated over the last six months. This phenomenon has recently reached Canada, but to a lesser extent. Even though we all want lower food prices, the current situation is clearly hurting the food industry. The proverbial sweet spot for food inflation is anywhere between 1 and 2% a year. Such a threshold is manageable for all and allows the industry to provide higher quality products at an affordable price.
With Trump in the White House, labour is another challenge which could generate headwinds. Eventually, the whole issue of immigration could also indirectly affect consumers’ dinner plates. Trump’s proposed immigration laws could harm American agriculture. More than 66,000 temporary agricultural workers with visas enter the United States every fiscal year — not a significant amount. However, U.S. agriculture has an estimated 2 million illegal workers helping farmers at harvest time. Without such support, U.S. production levels will be negatively affected and could push prices higher. It will be interesting to see how President-elect Trump intends to create jobs for Americans in agriculture, an issue Canada has also struggled with.
The next Farm Bill will of course be written by the Trump-Pence administration. The Farm Bill is American-driven but its influence is often far-reaching. It is unclear how policies will take shape under a new Farm Bill, but it is easy to assume that American farmers will come first. We could see subsidies driving commodity prices higher for a while. Just like Bush before him, Trump has a thing for ethanol. We all remember what happened with food prices when oil was over $140 a barrel. American farmers could be well served by the next Farm Bill, but the rest of the world should brace themselves for more food price volatility. Abrupt fluctuations of commodity prices at farm gate value will always penalize emerging markets.
Ironically though, Trump’s known abhorrence for regulations will benefit the bottom line for many restaurants Since his election, stock values of many restaurant chains have gone higher. The $15 an hour fight was hit hard by Trump’s victory which again signifies good news for restaurant operators. Unlike general food prices, menu prices could drop. For Canadian restaurants, it means less pressure coming from the United States, at least for while. Many in the Canadian restaurant industry are likely cheering, but ever so quietly.
Trump’s proposal of a hard cap on business taxes at 15% will make some Canadian lawmakers nervous. We could see more food processing closures in Canada or could see many operations relocating to the States, where labour costs are more competitive. This could jeopardize further our control over food supply chains. It may become harder to maintain our level of competitiveness, faced with such a fiscal shift south of our border. The loonie is likely to fall even further with lower interest rates here, and the Federal Reserve is likely to raise rates in the U.S., both causing our food economy to become more vulnerable to currency fluctuations.
In sum, a Trump administration could push food prices higher over the next few years, and in this case, Canada would not be immune to this shift. Menu prices in restaurants could be spared though. Higher food prices in general may be problematic for some consumers. What will be more challenging for all are abrupt shifts in commodity prices. That will be bad for everyone if Trump-esque ideologies spell trouble for global agriculture.
Dr. Sylvain Charlebois, B.Comm MBA DBA
Dean of Management and
Professor in Food Distribution and Policy
Faculty of Management
Faculty of Agriculture
Faculty of Management
Kenneth C. Rowe Management Building
6100 University Avenue
PO Box 15000
Halifax, Nova Scotia, Canada B3H 4R2