US bans on illegal immigrant workers may benefit Australian farmers

Published 20170220

A key policy promise of US President Donald Trump during the recent US election campaign was to round up illegal workers and deport them, because these workers are ‘taking the jobs of US citizens’. If enacted, this policy would have a very large adverse impact on US farming and the food processing sector, and in particular on the US horticulture sector and meat and poultry processing. The implications of these US policies for Australian agriculture are unclear at present, due to uncertainty about future US trade policies.

US President Donald Trump has vowed to ‘get tough’ on border security to stop illegal immigrants, and to deport the millions of illegals he claims are currently taking the jobs of US citizens. He has even proposed mobilising the National Guard to conduct the roundup, which could potentially involve the detention and deportation of millions of people currently residing in the USA. Most recent estimates put the number of illegal immigrants in the US at approximately 11 million.

Some of the US sectors that would be hardest hit by a complete clamp down on illegal workers are agriculture and food processing. In agriculture, it is estimated that somewhere between 55 and 60% of the 1.5-2 million workers employed are ‘unauthorised’ illegals, with the employment of these workers highest in seasonal industries such as horticulture. More than 70% of these workers are from Mexico.

In the meatpacking and processing sectors, it is estimated that between 25 and 30% of all workers are illegals, although there is some uncertainty about these numbers.

Irrespective of the actual numbers, there is no doubt that there are two main factors driving illegal worker employment in agriculture as well as meat and poultry processing. The first is the difficult of attracting US citizens to work in what are often low paid roles with relatively poor employment conditions. The second driver is the reality that illegals are often paid less than other workers, making them attractive to employers in these sectors.

The potential economic impact of the removal of illegal workers from the agricultural workforce has been estimated by the American Farm Bureau, in a study conducted in 2014. The study estimated that If agriculture were to lose access to all undocumented workers, agricultural output would fall by $US 30 to $US 60 billion (from current agricultural output value of approximately $US 175 billion) per annum. 

Particularly hard hit would be  with domestic fruit production reduced by 30-61 percent and vegetable production down 15-31 percent. The livestock sector would also suffer lost production in the 13-27 percent range. The study estimated that the result would be an increase food prices by 5-6 percent. 

The USA is a significant market for Australian agricultural exports, valued at $A 4.7 billion in 2015-16. The USA also exported approximately $A 1.9 worth of agricultural products to Australia over the same period. Principal Australian exports to the USA are beef and wine (theses account for more than 80% of the total value) as well as processed foods and horticultural products such as citrus fruit. Principal Australian imports from the USA include pork and pork products, processed foods and beverages.

There is no doubt that if US farmers and meat and food processors lost access to cheap illegal labour, their costs would increase significantly, and their products would become much less competitive relative to imported products. This would create opportunities for nations that export agricultural products to the USA – including Australia. In particular, it would seem likely to create additional opportunities for Australian beef, wine and citrus exports, although other competing exporters in central and south America would also compete strongly for these market opportunities.

Bilateral trade between the two nations is governed by the USA-Australia free trade agreement, and Australia has a significant trade deficit with the USA. This suggests that it would not be in the interests of the USA to unilaterally increase tariffs on Australian imports, even if the USA decided to increase trade restrictions to maintain the competitiveness of their agricultural products in their domestic market.

A more likely response to assist US agriculture and meat and food processors would be to increase the availability of authorised seasonal workers in regions of the US, such as Texas and California, where illegal workers are currently a significant proportion of the current US agricultural workforce. This would have the effect of moderating any advantage for Australian agricultural exporters arising from these policies, but would still mean there would be upward pressure on US wage rates – and a subsequent loss of US competitiveness in these sectors.

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