Donnelle Eller

The Des Moines Register

U.S. threats to pull out of longstanding trade agreements with Mexico and Canada could drag Iowa's ag industry into another depression, some state farm leaders say.

"We're not doing that well now, so any more bad news could push us over the edge," said Dermot Hayes, an Iowa State University economist.

U.S. Ag Secretary Sonny Perdue on Friday downplayed reports earlier this week that the Agriculture Department is working on contingency plans for U.S. withdrawal from the North American Free Trade Agreement.

Perdue said he was probably premature to publicly discuss possible contingency plans. "I think it's my responsibility to think about what-if scenarios," he said.

"I wanted to make the administration aware there could be some devastating price changes if NAFTA is not renegotiated," said the former Georgia governor, who has suggested farmers would need "safety nets" if they lost the NAFTA agreement.

He declined on Friday to elaborate what the safety nets would encompass.

"At the end of the day, it will be successfully negotiated," Perdue said.

Late last month, about 85 major farm and food groups sent the Trump administration a letter warning that withdrawing from NAFTA "would cause immediate, substantial harm" to U.S. food and farm industries and "to the U.S. economy as a whole."

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Craig Hill, president of the Iowa Farm Bureau Federation, said withdrawing from the 23-year-old pact would "desecrate the trust" other countries have in the U.S. and "devastate the marketplace."

Hill said he's worried withdrawing from NAFTA could spark a farm crisis similar to former President Carter's 1980 U.S. grain embargo on Russia.

"Some believe it was the trigger to our going into a farm depression," Hill said.

"When the embargo happened, the land market declined, grain prices declined and we lost long-term opportunities," he said.

The 1980s farm crisis was one of Iowa's worst economic downturns in history, with the state's unemployment rate hitting 9.1 percent.

"When you're sitting on that much surplus, you can't do anything to interrupt demand — whether it's ethanol, whether it's trade, whether it's livestock production," Hill said.

"You do anything to the demand-side, and it really has a devastating effect on markets," Hill said.

Corn and soybean prices for many Iowa farmers are below the cost to raise the crops.

Iowa and U.S. farmers have struggled with losses for three years with many facing yet another year of red ink.

And it's not only farmers who are hurt by low commodity prices.

Much of Iowa's manufacturing industry is tied to farming, from farm equipment manufacturers Deere & Co. and Vermeer to Tyson and Cargill meat processing and ethanol and biodiesel facilities.

Hayes said Iowa farm products would face tariffs ranging from 20 to 40 percent with exports to Mexico, where leaders are so angry with the United States, "they'd be willing to pay more for food than make a deal."

Hill said Canada and Mexico would look to other nations for corn, soybeans, pork and beef. "Other countries are making contingency plans now," he said.

"We're not the only place" for commodities, he said. "The trading routes, investments will all be reshaped if we back out of NAFTA."

Mexico, Canada and Japan are Iowa's top agricultural markets, Hayes said.

Last year, the U.S. exported $3.2 billion in corn to Canada and Mexico, $3 billion in soybeans and $1.6 billion in pork.

Iowa leads the nation in corn, pork and egg production. It ranked second last year in soybean and seventh in beef production.

Perdue said he's concerned about low commodity prices for U.S. farmers as well.

"Farmers can be paranoid in some areas, especially when it comes to trade, where over 20 percent of every $1 depends on foreign trade."

"We can't afford many bumps in the road," said Perdue, a veterinarian. "This is important to agricultural producers. And I think ... we will get there."

Perdue said President Trump believes the U.S. is unable to get the best deal possible "unless you're willing to walk away from a deal."

"The president is focused on trade deficits," Perdue said. "And we've seen those trade deficits with Mexico grow since with NAFTA was put in place. He thinks those need to be right-sized."

Perdue said the Trump administration hears agriculture's concerns.

"We make it known rather frequently about the importance of agriculture in the American economy," he said.