US president elect Trump
U.S. President-elect Donald Trump's potential revisions to trade, agreements, labor policies could impact economic growth.
NEW YORK CITY, NEW YORK, U.S. —  In the short term, the U.S. presidency of Donald Trump will likely lead to market volatility, while in the long-term potential revisions to trade agreements, labor policies and business regulations may impact economic growth, according to a report released Nov. 15 by the Rabobank Food & Agribusiness Research and Advisory (FAR) group.

“Republican-controlled executive and legislative branches could mean swift action when the new administration takes office,” said Pablo Sherwell, Rabobank head of Food & Agribusiness Research and Advisory, North America.  “Our analysts and others around the world are keeping a close eye on trade, labor, the upcoming farm bill and regulations impacting production agriculture, as these areas are where potential policy changes could have longer-term implications on the industry as a whole.

While any changes and the subsequent impact are uncertain, Rabobank analysts looked at key areas to watch in the short- and long-term.

In the short term, agricultural markets may be affected by foreign exchange volatility, as well as changing business appetite and consumer confidence. A lack of market information creates uncertainty, which generates market volatility.

Following the Nov. 8 election, there was a short-term sell-off reaction by markets.

“Currently, the export share of U.S. agricultural production represents more than 20% in volume and value terms, making U.S. price formation highly dependent on foreign trade and therefore foreign currency,” Sherwell said.

Looking toward the next year, it will be critical to watch potential revisions to trade agreements, labor policies and business regulations, as well as the effects these elements will have on economic growth.

As the largest global agricultural exporter, any change to U.S. agricultural trade agreements will affect global prices and trade dynamics as well as U.S. farmer margins, Rabobank said.

“While it is too early to know for sure, it is questionable whether U.S. agricultural trade agreements, particularly NAFTA, will stop or go through major changes,” according to the report. “This is because the U.S., Mexico and Canada are in many ways an integrated agricultural market.”

The Trans-Pacific Partnership (TPP) is unlikely to happen during Trump’s administration, Rabobank said. However, other markets, like Russia, may reopen.  Other markets may strengthen, like the U.K. An improved relationship with Russia may see the end of the trade ban.

“Other changes in U.S. agricultural trade policy will need to be analyzed on a case-by-case basis to determine their domestic and global impact,” the report said. “Regardless, trade policy will continue to be a critical factor and a source of market uncertainty until it is better understood.”

Another long-term impact is the U.S. farm bill, which is scheduled to be renewed by 2018. Because the Republican party holds the majority, the development, approval and implementation of the 2018 farm bill is likely to be a smoother process than that of the previous bill, Rabobank said.

Regulatory reductions have been a policy direction advocated by President-elect Trump during his candidacy, and it is likely that the direction will shift even more toward an environment of reduced regulation.

During his campaign, Trump advocated for stricter enforcement of immigration laws. Since the U.S. food and agriculture industry is highly dependent on migrant labor, any immigration changes could pressure margins, Rabobank said.

“The challenge for U.S. producers is to remain labor-competitive,” the report said. “It is likely to see some changes regarding immigration and labor. Producers may need to start thinking more about technological investments.”

Trump has discussed some fiscal stimuli to promote domestic growth by cutting taxes, particularly for more affluent earners, as a means of driving job creation. U.S. economic growth should pick up, adding support to certain consumer food products, including premium products, such as organic food, premium wine and spirits, according to the report.

“Trump’s stated policy of reducing taxes for wealthy earners as a means of creating employment could create additional tailwinds for recent trends towards more premium and luxury food and beverages,” the report said.

The full report, “The F&A Sector After the Election: What to Watch” is available here.