Tag: California Agriculture

Tariffs on foreign goods coming into the United States create both benefits and headaches for most American businesses. For agriculture, while there are some potential benefits, there are possibly more headaches.

Tariffs, of course, have been used by countries for centuries to protect the health of existing and new industries, respond to unfair trade practices by trade partners (e.g., dumping, foreign government subsidized exports), and generate revenues.  In the U.S., tariffs date back nearly 240 years to the Tariff Act of 1789 in which President George Washington placed a 5% tax on all imports to generate revenue for our new republic and protect its domestic industries.  So, the United States has used tariffs for a long time by both Democratic and Republication administrations.

On the positive side, tariffs protect California agriculture from imports that can be produced at lower costs and with less regulation.   This is especially the case for growers when bringing their commodities to market during harvest seasons and facing imports at lower price points in retail markets.  During the off-seasons, the benefits of import tariffs are somewhat less.  And in some cases, imported commodities actually serve as “placeholders” to meet retailer needs and consumer demand when those California commodities are not as readily available.  If those imports weren’t available, retailers will give that shelf space to other types of commodities and consumers would make other choices—hopefully only temporarily, but always facing the risk that consumption patterns will change permanently.

Tariffs also can be a headache—perhaps, more like a migraine in many cases.  There are three main problems with tariffs from a business perspective in agriculture.

First, because tariffs can be turned on and off very quickly, sales increases resulting from higher prices on imports are likely to be short-term.  The tariffs may stay in place for a while—or, they may not.  Generally, most growers shouldn’t make major commitments to expanding acreage and/or make crop changes unless it truly appears that the market opportunities created by tariff policies will be maintained for at least six months to one year, and possibly five to seven years, depending on the commodity.   

For most growers, expansion is a slow and costly process because it takes time to acquire and prepare the land, and for plantings to yield significant production.  In California, for example, growers of tree nuts, berries, non-citrus fruit, and wine grapes have wisely demonstrated a conservative approach to expansion–their combined bearing acreage increased by 2.1% per year from 2020 through 2023.   And, ten of the twenty specific commodities studied in these groups actually reduced the number of bearing acres during this time period.

Second, tariffs frequently result in reciprocal tariffs which may or may not be on like products.  So, grower gains in the American market may be mitigated by losses in foreign markets.

For instance, in April 2018, China increased its “most favored nation” tariffs on selected agricultural products by approximately 15% in retaliation to U.S. tariffs on aluminum and steel.   Examples of the China’s tariff increases were:

In this case, the agricultural products gained nothing from the U.S. tariffs, and the value of California’s agricultural exports to China declined by about $339.0 million from 2017 to 2019.  It is unknown whether the decline in exports to China was solely due to China’s tariff increase.  However, it certainly had to be a causal factor since the value of exports to China had been increasing over the prior three year period (i.e., 2015 through 2017) and there is no reason to believe that overall growth trends in dollar value would reverse themselves so suddenly and significantly in 2019.  The total export value declined 14.9% in 2019 compared to 2017.

Based on the total value of California’s agricultural exports to China declining from 2017 to 2019 by $339.0 million, and given an average 15.0% increase in retaliatory tariffs, this equates to a decline of approximately $23.3 million in export value per 1.0% tariff increase in today’s dollars.  While the relationship between tariffs and export sales may not be perfectly linear, the decline is still going to be significant.

Applying that experience to current times, China increased its tariffs from approximately 21.1% at the end of 2024 to 125.0% in April 2025.  If the ratio of approximately $23.3 million decline per 1.0% increase in tariffs in the 2018 scenario were applied to 2025, the decline in value of California agricultural exports would be approximately $2.3 billion.

Third, tariffs and the resulting reciprocal tariffs present a “double whammy” for growers in that they not only shrink export markets but they simultaneously increase their operating costs.  Tariffs placed on imports will raise the costs of equipment, equipment maintenance, farm supplies, etc., and reciprocal tariffs will drive down sales in foreign countries.    

A 10% increase in just some operating costs resulting from import tariffs on raw materials and parts on such items as  feed, chemicals, fuel, farm equipment and maintenance, etc. will increase total operating costs by 4.1% for an average California farm.  A 25% increase in these costs will raise total operating costs by 10.2%.  And, a 50% increase in these costs due to import tariffs will raise total operating costs by 20.5%.  In effect, average operating costs could rise by $30,000 to $140,000 per year for an average California farm depending on the size of the tariff and grower purchases. For an average size farm in California (about 328 acres), operating costs could rise anywhere from $90 to $500 per acre per year depending on the tariff.

Having to deal with one of these issues would be bad enough, but dealing with all three definitely moves the needle from headache to migraine.

The likelihood, of course, is that the current Administration and foreign governments will find ways to step back from the cliffs rather than jumping off.  While nobody will admit to blinking first, ways will be found to both save face and avoid a full-fledged trade war that lasts any meaningful amount of time.  But, sooner or later, these threats of trade wars are likely to turn into a reality even if on something less than a catastrophic scale.

So, what can California’s agricultural industry do in these turbulent times of “on again,” “off again,” tariff threats?  Several things.  First, start taking steps to reduce vulnerability to higher costs and lower export sales because these situations are likely to arise again.

For growers, control what you can control.  Becoming as cost-efficient as possible is always a good business strategy, but it is essential to survival during these tariff-induced turbulent times.  Every dollar saved reduces grower vulnerability. Lower operating costs help mitigate any lost revenues from reciprocal tariffs and gives growers options for shifting to alternative markets that might require selling at lower price points to avoid a buildup of inventory or straight crop loss.   

For the industry, expanding the domestic market to the fullest extent possible helps reduce reliance on export sales.  For most commodities, there are only so many apples, cherries, grapes, almonds, etc. that an individual will eat in a given time period.  So, look for new uses, new users, or both in the American marketplace.  The odds are that there are some opportunities to expand domestic sales.

Additionally, the industry should seek to solidify a “brand preference” for California-grown agricultural products in foreign markets.  Doing so can help make consumers in foreign markets less sensitive to price increases for California agriculture, thereby reducing the impact of reciprocal tariffs.  Although virtually nothing will help if reciprocal tariffs reach astronomical levels, foreign buyers who prefer California-grown commodities will probably pay some premium during moderate trade wars.  Industry efforts to cultivate foreign markets for the California brand requires considerable promotional/marketing efforts, but are likely to yield benefits during normal as wellas moderately turbulent times. — By Dennis H. Tootelian