As Farmers Face Pressure From Tariffs, Suppliers Are Feeling the Squeeze as Well
Earlier this month Farmers began recieving aid relief from tariffs, but even with relief farm incomes are still down. that means many farmers will likely be putting of larger purchases which will puts a strain on ag suppliers.
Just off I-35 in Waco is Tipton International. It’s an agricultural supplier that sells all types of heavy equipment. Matthew Walker, the general manager, says he’s already seeing a drop in revenue of about 10-20% due to drought and tarrifs. It’s caused a lot of farmers to receive aid from the federal government. “They’re in survival mode right now, They’re just doing what they can to survive,” said Walker. Tipton International isn't immune to tarriffs either. According to Walker steel surchages has caused the company to raise prices.
Luis Ribera is an Agricultural Economist at A&M University. He says Farm Income has been in steady decline for several years now, and even though the tariffs haven’t taken place the damage is already being done in the industry. “It’s just the talk of tariffs that adds a lot of uncertainty to the market because the market’s react to news and information,” said Ribera.
According to Ribera farmers are generally optimistic “They always think that next year is going to be higher prices or better yield," Ribera said, but farmers have been facing some tough situations. "When you have low prices for several years, that’s going to erode your savings, your profits and you’re going to wait a little longer to replace your tractor, or your combine, or whatever it is that you need,” Ribera said.
Farmers are likely to wait until all the NAFTA talk and uncertainty with China is resolved before making any big purchasing decisions for things like large heavy equipment. However, dealerships that sell heavy equipment have ways to weather these kinds of storms. Walker said, “You have to be diversified in what you do as far as being in an ag dealership. You can’t just focus on one aspect of the business whether it be large farm, construction, things like that,” While commodity and cattle prices are down, they’ve been able to supplement selling replacement parts and by selling construction equipment.
Gene Hall of the Texas Farm Bureau says there’s an important difference between Farmers and their suppliers. Farmers are price takers, not price setters. “In our pricing system you’ve got only a few buyers and a whole bunch of sellers. If farmer brown doesn’t want to sell his corn to me, then I go down the road a piece and talk to Farmer Green, and he will,” Hall said. If a farmers’ tools or equipment costs more, they’ll have no choice but to pay that increase in cost “That triggers economic decisions right on down the line, what do I tell my banker? can I refinance my loan? Can I just pay the interest this year? Or sadly at the end of this year or next year, Do I stay in business or not?” Hall said.
There may be a number of factors beyond tariffs that trigger these questions but they’ll certainly play a factor as suppliers increase prices and commodities remain suppressed.
Copyright 2018 KWBU