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Milking NAFTA for all it’s worth

31 January 2017

I’ve always been fascinated by the differences between anti-NAFTA critiques north and south of the border. While in both Mexico and the United States, the left has always attacked NAFTA over its unfair labor provisions, and lack of environmental regulations, in Mexico, the biggest “losers”… and most vociferous critics have been the farmers. Although it was the subsistence farmers and small producers who were devastated (many turning to “unregulated” crops like marijuana or opium poppies if they were to survive at all) even the large producers have had nothing but complaints. The political left has been particularly strong in rural areas in good part because they have demanded renegotiations of NAFTA, and more support for farmers, especially those growing maize (corn).

cowsIn the United States, where it is industrial workers who felt shafted by NAFTA, the strongest supporters have been the farmers… or at least the “Big Agro”, which had the advantage of US export credits and tax breaks corporate tax breaks that allowed it to profit from Mexico’s agricultural crisis.

Trump may have accidentally upset the balance, bringing the “big business” producers… those who managed to profit from US markets, more in line with the small farmers, bringing hope to corn growers and milk producers, while realizing their own position may not be as bad as they first thought.

Even more interesting is that I came across “Sector agropecuario sería contrapeso en renegociación del TLCAN” (by Valente Villamil and Daniel Blanco) in today’s El Financiero from a post on a left-wing site. El Financiero is the Mexican equivalent of the Wall Street Journal, and while less reactionary in its editorials, is the voice of the buinesss elites. My translation follows.

Mexican agriculture may be the industry that balances out the impeding renegotiation of NAFTA, said Luis de la Calle, an expert on foreign trade, during his participation in the EF Agro Forum, organized by El Financie

“It is what gives balance to the negotiation: the agricultural sector is very important because we are a major market,” said de la Calle, who participated in negotiating the original NAFTA treaty that was signed in 1993.

And although Mexico fruit and vegetables are a major export — in 2016, selling more than 1.9 billion dollars in tomatoes and another 1.7 billion in avocados, — the country is also a big buyer from its neighbor of the North, purchasing over 1.4 TRILLION dollars in agricultural products over the last two years.

In the event that NAFTA ends, although Mexico would see effects, the United States would be severely impacted, as World Trade Organization (WTO) rules would automatically be applied. Mexican agricultural exports would pay a 6.4 % tax to enter the United States, while US goods entering Mexico would be taxed at 38.4 %, de la Calle explained.

De la Calle, managing director of De la Calle, Madrazo, Mancera Consultants, quoted from an open letter to US president Donald Trump, from dozens of agri-business companies and organizations in which they asked Trump to maintain NAFTA, or renegotiate it in light of the impact on the US agricultural sector.

“For reasons having to do with the higher taxes, the producers in the United States are very fond of NAFTA as it stands now,” he said.

At the same forum, Eduardo Orihuela, president of the National Confederation of Rural Landowners, warned that the US decision to renegotiate NAFTA could lead to a shortage of Mexican products in the US market, which would eventually lead to an increase in prices, if there is no Substitution capacity.

” If there is no substitution capacity (for food products that Mexico sends to the US) it will generate a price increase and consequently a decrease in consumption. One of every fruit consumed in the United States comes from Mexico,” he added.

Scot Rank, General Director of Grupo Lala [Mexico’s largest dairy products company], opined that while the agricultural sector in Mexico is a success story in many ways, there are also examples where many producers barely survive.

“The dairy industry represents 20 percent of the agricultural sector, producing 11 billion liters of milk a year and growing 5 percent a year. To meet the present demand for 16 billion liters of milk, we have to import, and there are more than 100 formal companies in the sector, “said Rank.

According to Rank, in order to improve opportunities in the dairy sector, “yellow maize production must be grown to feed the livestock and to be able to produce 5 billion liters more to meet demand, there have to be protocols to facilitate the importation of dairy products from various counties, give tax incentives to the dairy producers, and promote milk consumption in the schools.”

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