The State of the American Agriculture Industry

  • July 18, 2019
  • By Aidan Dwyer

The U.S economy has 3% growth across the board over the past year, but one industry is still struggling. The American Agriculture industry, once considered the bread and butter of the U.S economy, has seen some hardships over the past few years. Since 2013, farmers have seen a 50% decrease in net income. The deterioration of the U.S agricultural industry has been caused by a number of factors. Also, many U.S economists believe that it will get worse before it ever gets better.

Politics Impede on American Agribusiness

One of the biggest things that is currently hindering the agriculture industry is the ongoing trade wars. The imposing tariffs from China and Mexico, two of the largest importers of American agricultural products, are crippling the agriculture industry. While the Trump administration has promised $12 billion in aid to the agriculture industry to offset losses due to the trade war, it still isn’t enough. American farm exports are expected to drop by $1.9 billion during the 2019 fiscal year. Moreover, in 2018, 700 U.S dairy farms closed their doors. With no end in sight to the U.S trade wars, farmers are looking for other ways just to stay afloat.

Mother Nature Can Be Costly

Other forces are impeding on the agricultural industry, including uncontrollable ones. Drought in The U.S has crippled the agricultural industry, particularly on the West coast. California is currently in the middle of its worst drought in 120 years. Farmers have had to tap into groundwater reserves and other water sources to keep their farms operational. This is very costly. As a result of the drought. California alone has seen an average annual additional cost of $1.5 billion from revenue losses and groundwater pumping costs. Aside from direct costs. The state of California has also seen a net loss of over 17,000 seasonal and part-time jobs related to agriculture, approximately 4% of the state’s total farm unemployment. 

What Agricultural Businesses are Doing to Combat Outside Forces

With all of these forces impacting the agricultural industry, employers must look for ways to keep their businesses alive, including taking out business financing and working capital. Over the last five years, farm borrowing has increased by 30% from $315 billion to $409 billion. This is close to the levels seen during the farming crisis of the 1980s. While the amount of money borrowed has increased overall, the cost of that borrowing has not necessarily increased. Agricultural land values have held steady and even increased in some cases keeping farmers’ debt-to-asset ratio fairly standard. Combined with relatively low-interest rates, the cost of working capital is manageable for the majority of agro-business owners. While no business owner is excited at the idea of taking on debt, it can be a wise decision for business owners who know how to manage debt properly. 

At REIL Capital, we understand the struggles that farmers and other Agribusiness owners are facing and we want to help out. We want to help your business succeed with the working capital that is right for you. If you want to find out how we can help your business, fill out our commitment free application to see the financing options we offer that best fit your business needs. 

 

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