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New pork tariffs could produce losses down the line

• Jun 7, 2018 at 8:00 AM

Virginia Tech agribusiness expert Olga Isengildina Massa says Mexico’s decision to slap new, higher tariffs on unprocessed pork may have a ripple effect on the entire U.S. pork industry.

“Mexico is one of our largest trade partners,” Isengildina Massa said. “The first layer of the industry that will be affected will be the packers, but they will have to pass along potential losses down the supply chain to producers.”

She is quick to point out, however, that futures markets overall are not too preoccupied with the news in the short term. “There may be hope that continued trade negotiations will be able to overcome this news,” she said. “However, trade wars increase the costs of trading, so the total effect is usually negative.”

Mexico said it would impose a 10 percent tariff on U.S. pork shoulder and legs, with the tariff rising to 20 percent by July 5.

“In the U.S. we produce a lot more pork than we consume domestically. If we are not able to export as much due to higher prices faced by Mexican consumers, the industry will have to adjust by either finding new export markets, increasing domestic processing — as the tariffs are on unprocessed pork — or reducing prices.”

“Given that the profit margins are already very tight, the last option may lead to some contraction.”

Isengildina Massa is an expert in commodity market analysis and forecasting. Her research in Virginia Tech’s Department of Agricultural and Applied Economics focuses on analyzing existing USDA commodity forecasts to provide recommendations for potential areas of improvement as well as developing alternative forecasting and production and price analysis models. Full bio here.

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