Uncertainty Hits American Farmers and Mexican Consumers

NAFTA 2.0 gets complicated.

By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.

With the fifth round of NAFTA negotiations scheduled to begin next week, Mexico finds itself facing a very uncertain future. The free trade agreement upon which its entire national economic model was built is now looking precariously fragile. Ildefonso Guajardo, Mexico’s economy minister, told the Mexican Congress last week that the way things stand, an end to NAFTA “cannot sanely be ruled out.”

In such an event, the resulting economic pain for Mexico could be considerable, according to calculations from Banco Santander. It forecasts a 15% drop in exports and a 16% fall in imports if the US declared a full trade war rather than reverting to World Trade Organization tariff rules. Moody’s Investors Service estimates Mexico’s economy could shrink as much as 4%.

The biggest problem for Mexico’s economy is the sheer scale of its dependence on trade with the US: 81% of its exports go to the U.S., and about half of its imports come from there. Mexico is so deeply integrated into US supply chains, particularly manufacturing production that the IMF describes Mexican and American industrial production as “co-integrated.” Increases in American economic output are transmitted one-for-one to Mexican output.

Now, with the future of NAFTA increasingly in doubt, Mexico has begun diversifying its import and export markets away from the U.S., as we warned would happen in January.

Mexico bought 100,800 tonnes of yellow corn from Brazil in September and 41,000 tonnes from Argentina — a drop in the ocean compared to the 10.5 million tonnes bought from the US. But as the FT reports, by October this year, it had bought 11% more of the commodity from the two South American countries than in all of 2016.

“It’s important because it shows Mexico has other countries where it can substitute grain imports,” said Juan Carlos Anaya, director-general of CGMA, a consultancy.

More to the point, many of the staple food products Mexico has grown to depend on from the U.S. could be produced just as easily in-house, including sugar, corn (which is native to Mexico), rice, and beans. Growing ranks of academics, practitioners and consumer groups are calling for such a step.

In the last 22 years since NAFTA was launched, Mexico has become unhealthily dependent on heavily subsidized food imports from the US. The UN Food and Agriculture Organization (FAO) estimates that the threshold at which a country becomes what it calls “food-vulnerable” is when as much as 25% of its food supply comes from abroad. In 2016 Mexico imported 46% of all its food. And it important about 37% of its food from the US, worth some $17 billion to US food producers.

It buys a third of the corn it consumes from the US, worth some $2.3 billion last year; between 30-50% of its beans; and up to 80% of its rice, according to data provided by the Secretariat of Agriculture, Livestock, Rural Development, Fisheries and Food (Sagarpa). In return, Mexico exports to the U.S. tomatoes, chili peppers, avocado, coffee, grapes, strawberries, water melon, and so on.

But it’s the staple crops that matter the most — and they are almost all moving in one direction: southward.

In a study on the role of American agribusiness in the Mexican economy, the Woodrow Wilson Center found that U.S. exports of eight basic agricultural staples (corn, soy, wheat, cotton, rice, beef, pork and chicken) have seen huge increases — as much as 700% — since NAFTA. As the study’s director, Timothy A. Wise, points out, all of the products receive in one form or another significant financial support from the US government.

Mexican farm leader Victor Suarez Carrera has argued for a new agricultural revolution — without GMOs. Although GMO corn is illegal to farm in Mexico, a study by the National Autonomous University of Mexico has found that about 90% of tortillas in Mexico were contaminated with genetically engineered corn, about 30% of which contained residues of the alleged carcinogen glyphosate. This is a major problem in a country where corn provides half of all calories and a third of proteins.

The dark irony is that if Mexico were to sign the NAFTA 2.0 agreement, not only would its acute dependence on food imports likely increase, the government would also probably have to open the door to full GMO cultivation — something consumer groups, producer associations and social activists have been fighting against for years, with a little help from incorruptible judges like Marroquín Zaleta.

In June, the U.S. Biotech Crops Alliance asked the US Trade Representative to include a NAFTA 2.0 chapter on agricultural biotechnology. That chapter’s proposed provision for a Mutual Recognition Agreement (MRA) would require Mexico and Canada to accept as valid for importing and growing biotech products the FDA “no issues” letter and similarly non-regulatory decision letters from the US Department of Agriculture. Also covered under the proposed MRA would be any grain and horticulture crops engineered by “new techniques”, which the U.S. government has decided not to regulate.

Some Mexican producer associations and social movements have responded by calling on the Mexican government to either exempt agriculture from NAFTA 2.0 or withdraw from the agreement altogether.

There’s little hope of either happening, since the Mexican government’s priority is to preserve the current economic model — i.e, providing dirt-cheap labor assembling consumer products for the world’s biggest market while Mexico’s economy, at the exclusive service of transnational corporations, home-grown oligarchs [“Slimlandia”: Mexico in the Grip of Oligarchs], corrupt politicians, and drug lords, continues to splutter in the slow lane. Concerns like safeguarding Mexico’s 7000 years of indigenous maize cultivation or bolstering the country’s capacity to feed itself are mere bargaining chips on the negotiating table. By Don Quijones.

That wages have remained so low for so long in Mexico is not by accident; it’s by design. Read… NAFTA Effect: Global Manufacturers Bet on Dirt-Cheap Mexico

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  16 comments for “Uncertainty Hits American Farmers and Mexican Consumers

  1. d says:

    Bottom line, for an opportunity to provide slave labour, in US company owned towns, on Mexican soil.

    Mexico, is willing to poison it’s population, with polluted US primary food products.

    Only in a country ruled by crony corruption, and nepotism, would such be allowed.

    The risk’s associated with glysophate are to high, and still to murky, to allow it in direct or indirect human consumption product’s.

    Livestock raised on GMO glysophate resistant corn and corn sprayed with glysophate to kill it early for harvest. Have too much glysophate in their processed body fat.

    The potential for the Human Fetus, to be effected by a high glysophate content diet, the same/Similar way, it is effected by high lead levels, In the Mothers diet, is very high.

    • Prairies says:

      The word is *glyphosate*

    • Dan Romig says:

      Glyphosate is used on many non-GMO crops in the US. Farmers in the hard red spring wheat area of the northern plains will frequently spray Roundup on their wheat fields a few days before harvest to make the wheat straw dry and easy to cut with the combine’s cutter bar, and to dry the grain in the wheat’s heads so that it threshes more efficiently. Wet grain can shatter as it is threshed.

      Farmers have no real financial downside to using Roundup pre-harvest as it is very cheap to apply with their spray-rig, and the elevators don’t test crops coming in for glyphosate. Moisture, test-weight and protein are the main factors that are checked, but FSB [scab] and ergot are also checked for.

      Farmers do have a financial upside to doing this as they can schedule their wheat harvest in order to have time to harvest other crops, and it makes the harvest faster with less stress on the combine.

      The damn shame is that there’s glyphosate in nearly half of the HRSW that just got cut around Fargo and Grand Forks.

      My family had a wheat seed genetics company headquartered in Minneapolis from 1993 to 2010 which we sold to Limagrain Cereal Seeds.

  2. Raymond Rogers says:

    Mexico should make agreements in its interest and the United States should make agreements in its interests. As things stand, the United States has for far too long accepted these massive trade deficits, all the while seeing by some estimates of more than 10% of Mexico’s population living illegally in the US.

    It would be one thing if the US had massive trade deficits, and the people in Mexico actually benefited to the point where so many people didn’t illegally enter or overstay. It’s quite another when the citizens of the United States are hit with a double whammy.

    Maybe Mexico someday will get someone who actually cares about its citizens.

    • d says:

      America has such MASSIVE and the truly are massive trade deficits with Mexico.


      p 45 has pinpointed this Deficit but is as normal going the wrong way about resolving it.

      One of the massive flaws in NAFTA is that non NAFTA Nation companies cant set up in Mexico.

      Exploiting cheap Mexican labour and get unrestricted Access to the US markets for their products that would otherwise be heavily tarriffed on entry to the US. So creating unemp[loyment intheir own countries at the same tim ethey expliot mexico and the US.

      This is again the same feature of the Globalised system that does not work. It creates High wage zone unemployment and exploits low wage zones whilst keeping profits high and wages in those low wage zones LOW.

      Higher boats are made lower and lower boats arer kept low or also made lower whilst very few benefit.

      Ther is Profit growth na dasset growth. Ther is no Growth in the street economiees Anywhere.

      In most street economies there is in fact contraction.

      Nothing will change until the rules are changed so the corporates and countries like chinba can NOT GAME THE SYSTEM any more. China is currenmtl;y still gaining from teh currenmt Globalised sytem so supports it in Conflict with p 45.

      As soon as china is no longer gaining from the current Globalised system you will see either a huge chinese push for “Change to the system” or, rapid protectionism in china.

      china in particlur is an all take no give nation even the “Aid ” it gives to OBOR target nation’s, is on Investigation, extremely predatory lending.

    • chillbro says:

      How about Germany? China?

      • Wolf Richter says:

        Yes, Mexico’s trade deficit with the US is relatively small compared to the HUGE trade deficits the US has with China and Germany. Those two are the biggest trade culprits, from the US point of view.

        Mexico imports a lot of stuff from the US, unlike China and Germany.

        • Realist says:

          As such no surprise considering that China and Germany are manufacturing gigants and US manufacturing is a hollow shadow of what it once upon a time was.

          Well, low wage manufacturing is probably establishing it self in the US. Foxconn being in the vanguard ( and taxpayer subsidies enables this )

  3. Realist says:

    Yet again a good article by DQ.

    For Mexico’s sake, a very good thing if Mexico would grow less dependent on US agribusiness and still better if Mexico would grow enough crops to be more selfsufficient on food than today. As a bonus, a lot of Mexicans would be employed by agriculture thus strenghtening the local economy.

    Funny when you consider things, Theresa May did recently suggest that the UK should join NAFTA in case of a more and more probable hard Brexit.

    • Kraig says:

      May plan to make UK another low boat no suprise empire 2.0 plan allows lots of cheap African labour into UK.

    • Prairies says:

      Canada already went ahead with CETA – a trade agreement with the EU and that seemed to attract the UK as they want to get in on the deal. If they didn’t go ahead with Brexit they already would have been included.

    • Paulo says:

      Canada has a lot of corn and wheat to sell to Mexico after NAFTA. And to China.

      This is the year people try and wash the US off their hands in a whole lot of ways. Time to move on.

    • MC01 says:

      According to official data, and hence not including Mexico’s burgeoning “grey economy”, 13.4% of the workforce is employed in the agricultural sector. Which is a lot.
      By comparison Brazil is at 10% (including forestry), Peru is at 7.6% (including fishing) and Argentina a minuscule 0.5%, less than the United States.
      Again using official data, Mexico is in the same ballpark as far less “developed” Bolivia (13.4%) and nominally far poorer Honduras (13.5%).
      What is going on here?

      Mexico’s agriculture is the counterpart of its manufacturing sector, meaning due to ferociously repressed wages it concentrates on crops which haven’t been as heavily mechanized as corn, soy, wheat, cotton etc. Yet: John Deere and the rest of the gang are getting there, don’t worry. Crops such as tomatoes, strawberries and watermelons still ahve heavy labor requirements and the cheaper the labor, the better.
      To this it must be added Mexico still has areas where what once was classified as subsistence farming is practiced. While this evokes the image of a humble laborer barely able to feed his family by working a small lot, these days it mostly means growing avocadoes, especially in Puebla, Michoacan, Morelos, nyarit and neighboring States.
      Most avocado producers work relatively small lots and while high avocado prices are improving their income, these hardy farmers’ growing wealth has attracted the unwanted attentions of both criminal cartels and corrupt local officials.

      Ironically enough, most of the avocado cultivars grown in Mexico, not to mention growing and ripening techniques, originated in the US, especially in California and Florida, where avocado orchards still exist thanks to high demand.
      I could write all day about agriculture and forestry so I’d better stop here.

  4. Mexico imports more food than it exports? I am dumbfounded. When W Bush started the corn for ethanol program the price of tortillas in Mexico tripled, and so the USDA subsidies came about? Well maybe all that GMO corn is good for is your gas tank.

    • d says:

      GMO corn, is great.

      If used as originally intended, by stupid Americans, to feed to cattle, which helps them produce, Fatty, Stringy, tasteless meat.

      It was never intended for Human consumption

      GMO is a byproduct of factory farming.

      Both are very bad.

  5. John Taylor says:

    Trade agreements like NAFTA all have winners and losers in all signing countries. It really isn’t about which country comes out ahead, but which segment of the population wins.
    Hopefully renegotiating NAFTA will bring more benefits to the large working class and less to the small investor/owner class in both the US and Mexico.
    You have to be skeptical because the representatives on both sides are from the wealthy investor/owner class, but you can still hope for improvement.

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