NAFTA ever after

I asked the question in this week's Fresh Talk poll, "Has NAFTA been good for the U.S. produce industry?" I thought I would troll the Web for a few links about NAFTA, and this link from a left-leaning think tank analyzes the impact of NAFTA on Mexican farmers. Obviously this has not been written by the USDA, but it does point out some of the challenges faced by Mexican grain producers. After discussing massive farm subsidies, the author Laura Carlsen says:

What does this do to the Mexican market? An IATP analysis reveals that in 2001 corn cost an average of $3.41 a bushel to produce in the United States and sold on the international market for $2.28 a bushel. Food First, a California-based policy institute, reports that California rice costs between $700 and $800 an acre to produce but received $650 an acre on the world market and that U.S. wheat is exported at 46% below cost.

There's a name for this—dumping—and it is supposedly prohibited under both NAFTA and World Trade Organization (WTO) rules. According to the above calculations, the over five million tons of U.S. corn sold in Mexico in 2001 carried a dumping margin of 25%. Analyses from past years show dumping margins of over 30%. Dumped U.S. surpluses erode producer prices; the value of Mexican corn dropped 64% between 1985 (when Mexico signed the General Agreement on Tariffs and Trade—GATT) and 1999. They also leave Mexican producers without a market. The United Nations Development Program estimates that worldwide U.S farm subsidies cost poor countries about $50 billion a year in lost agricultural exports.

Mexican farmers cannot and should not be forced to compete with grains sold at less than U.S. production costs. They lack credit, economy of scale, fertilizers, chemical weed and pest controls, farm equipment, and most importantly, significant government supports. As U.S. farm support increases, Mexican government programs have followed International Monetary Fund (IMF) prescriptions and all but disappeared. During the period from 1990 to 1994, Mexican farmers received 33.2% of their yearly income from the government. For 1995 to 2001, that figure had dropped to 13.2%.

In addition to subsidized prices, cheap and ready access to U.S. financing has played a key role in the glut of grain imports to Mexico, which has devastated domestic prices. The Center for the Study of Rural Change in Mexico (CECCAM) reports that an overriding incentive for importers has been financial. U.S. exporters and government export-financing organisms, particularly the Commodity Credit Corporation (CCC), offer low-cost loans to Mexican importers buying U.S. grains. Although rates have decreased in recent years, prevailing credit rates in Mexico in the mid-1990s were over 30%, while the CCC offered between 7-8%. For Mexico-based import companies, the CCC's sweetheart rates were like rain in a drought.

Mexican Agriculture after
14 Years of NAFTA

Importing food, exporting farmers ...

• Every hour, Mexico receives $1.5 million dollars worth of food imports
• In that same one-hour period, 30 farmers leave Mexico for the United States
• 40% of Mexicans' food is imported
• Over 1.5 million rural jobs were lost in 12 years

A dying countryside...

• Agriculture's share of GDP dropped from 10% to 3.4% between 1981 and 2006
• Rural population dropped from 40% to 30% in that period
• 388 municipalities have become ghost towns due to out-migration
• Genetically modified corn has contaminated native strains
• Corn production for ethanol threatens to reduce corn for human consumption and raise consumer prices for Mexico's main staple food
• Arable land is increasingly dedicated to illegal drug production
• Erosion renders useless thousands of acres of productive land a year