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A sweet deal?

22 October 2015

With the phase-out of farm subsidies in 2008, Mexican agriculture (with the exception of the unregulated marijuana and poppy trade) was devastated.  I’ve long thought that subsidies for agriculture were justifiable on two grounds… both as good domestic policy, and as a national security measure.

Having enough to feed its people is, of course, vital to any country.  “No corn, no country” as the opponents of the end of subsidies put it. That the end of corn subsidies at the end of 2008 devastated Mexican corn and bean production is no secret.  It seems a genuine national security risk to put the most basic need of the population at the mercy of agricultural policies outside national control.

imagesA more immediate threat, one that impacts both military security and social policy has been the loss of income in rural regions, especially when crops… marijuana and poppies … were unaffected by regulations.  While in part it meant that farmers either had to turn to those few reliable cash crops, which have created a security nightmare of their own.  What seems worse has been the effect on social policy.  The cities cannot absorb the growth due to migration by rural residents, and what rural residents have hung on are no longer independent farmers, but a rural proletariat … peons to corporate farmers (including those producing the above named unregulated marijuana and poppies) largely producing nothing for the domestic market, except for overstock.

Sugar might be, arguably, a luxury crop.  Mexico produces a lot of it, and has for centuries.  Tthe country has been trying for decades … with on and off nationalization of refineries… to prevent rural displacement and the resulting social displacement, by controlling the sugar market.  Given the emphasis on public health, which means lowering the demand for sugar in the domestic market, the only alternative has been exporting more sugar.

NAFTA was supposed to end all agricultural subsidies, throughout the three-nation region, but, obviously, the rich countries also had social policy to consider.  And, while agricultural workers were of only minor concern, agricultural producers weren’t.  NAFTA was also supposed to reduce consumer prices (or at least allow for competition) in the market.

NAFTA has not produced a “free market” in sugar, which continues to be subsidized … not because of any concern for rural workers, but for the benefit of producers:

… Every year the government grants sugar processors nonrecourse loans linked to the amount of sugar the government says they can produce at a set price per pound: 18.75 cents for raw cane sugar and 24.09 cents for refined beet sugar. If the market price is below the loan price when it’s time to sell, the processors simply forfeit their crop to the U.S. Department of Agriculture in lieu of repaying the loan. They can still make a profit thanks to the price guaranteed by the loan.

To ensure that imported sugar doesn’t drive down U.S. prices, provoking a sugar dump on Uncle Sam, there are also import quotas. Anything above the quotas gets hit with a hefty tariff—16 cents a pound on refined sugar.

Wall Street Journal (The Sugar Scandal, 29 July 2015)

So, to prevent Mexico’s lower priced, subsidized sugar from entering the U.S. market (and driving down the subsidized price paid by US consumers), Mexico will have to limit sugar exports to the US through 2019. Meaning… that while Mexico is also trying to cut domestic consumption, in the name of “free trade” it is being frozen out of it’s “free trade” markets.

Does that even make sense?



Also see:

Who Pays for Agricultural Dumping? (Timothy Wise)

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