More than two decades have passed since the implementation of the North American Free Trade agreement (NAFTA) in 1994 between Canada, Mexico and the United states. The agreement was to create an economic collaboration, by eliminating tariffs on products between its members, thus economic growth was expected. Yet, its particular effects on the Mexican agricultural sector are still widely disputed. This controversy is due to various agricultural reforms and domestic policies that the Mexican government passed, before and during the NAFTA era, during the time that the agricultural trade liberalization that followed with NAFTA occurred.
This essay will explore how the Mexican agricultural sector was affected by the implementation of NAFTA especially considering the trade with the United States. It will not focus on the trade that occurred between Canada and Mexico. The essay will closely analyze the following question:
Did NAFTA have a negative effect on the Mexican agricultural sector, thus leading to the displacement of workers in the agricultural sector?
The North American Free Trade Agreement has had a negative effect on the Mexican agricultural sector and thus has led to the displacement of rural workers. This can be attributed to the exposure of unprepared Mexican farmers to North American concurrence that was more advanced, which they could not withstand. This is important because NAFTA was signed by the Mexican government to create more job opportunities for the Mexican people and to create stability for the economy so that Mexicans would not have to migrate north. Carlos Salinas de Gortari claimed during his administration that by signing NAFTA Mexico would “export goods, not people”. The North American Free Trade Agreement led to the displacement of the rural workforce and did not create jobs for them to work in. This has caused a severe effect in Mexico.
The effects of the failing agricultural sector has been hurting the poorest in the country the most. Therefore, analyzing the root cause for this is utterly important.
When NAFTA came into effect it liberalized agricultural trade between its members in a short period of time there by removing tariffs on agricultural goods. In comparison to American farmers that received subsidies between 2010 and 2017 in an average of 11 million US-$(United States Department of Agriculture 2017), Mexican farmers only received 1,3 million US-$ in 2004 (Luckstead, J., Devadoss, S. and Rodriguez, A. 2012, p.1). According to Jeff Luckstead, Stephen Devadoss and Abelardo Rodriguez the Mexican-U.S. trade sill remained unbalanced because of the immense subsidies the U.S. was pumping into its agricultural sector even though the expectations of eliminating the trade barriers was the complete opposite (2012, p.1).
Due to the now liberalized market, American farmers could export their subsidized goods into Mexico causing an overflow of basic crops1. These basic crops prices were cheaper than the production costs that Mexican farmers had. Thus, the free trade agreement led to American farmers dumping2 their products in the Mexican market (Timothy A. Wise 2009, p.3). Correspondingly, when Mexican farmers could not withstand the competition, they were displaced (Luckstead J., Devados S., Rodriguez A., p.2), but the rest of the economy could not create enough jobs to absorb the out of business farmers.
Undoubtedly corn´s origins can be traced to ancient Mexico and its cultivation has a time span of over 5000 years. It is seen as one of Mexico’s key staple food crops. Corresponding to this, Gisele Henriques and Raj Patel make clear how important corn is for Mexico: “it accounts for 60% of cultivated land, employs 3 million farmers-8% of Mexico’s population and 40% of people working in agriculture” (2003). In the first place, the international Corn prices were at $1,74 a bushel in 2003 but the production costs at the same time were at about $2,66 a bushel for Mexican farmers (US department of agriculture 2003). Furthermore, according to Patricia Marquez, Mexico has been the number two market for U.S. corn from 2000 to 2014 accounting for 26% of U.S. corn Exports (2017, p.3), comparatively, since the implementation of NAFTA corn imports have risen 413% in Mexico from 1990-2 to 2006-8 (Timothy A. Wise 2009, p.4). At the same time, Mexican corn production has not decreased after NAFTA (M. Angeles Villareal 2010, p.12). The largest amount of the workforce in the Mexican agriculture were cultivating corn for the local markets in Mexico in small amounts. It is important to mention that Mexico cultivates white corn used for the consumption of Mexicans, whereas the imported corn from the U.S. is yellow corn mainly used to feed livestock. This means that there is no direct competition (Antonio Yunez Naude and J. Edward Taylor, 2006).
When the North American governments signed NAFTA, they expected that the displaced workers that were previously cultivating basic crops in Mexico would switch to agriculture with a higher productivity. Mostly fruits and vegetables because “Mexico had a geographically based comparative advantage in supplying off-season fruits and vegetables to a hungry U.S market” (Timothy A. Wise 2009). This did happen to an extent and there was an expansion from 17.3 million tons in 1994 to 28.2 million in 2012. This accounted for 3 million seasonal jobs that were there by created (Mark Weisbrot, Stephan Lefebvre and Joseph Sammut 2014, p.13-14), but overall from 1991 to 2007 2 million jobs were lost in the agricultural sector. Adding to this, horticultural crops only make up 15% of the total agricultural production and only employ 18% of the Mexican agricultural working force (Gisele Henriques and Raj Patel 2003, p.24). So as Henriques and Patel said “The deepening of this sector as the solution for inefficient import competing producers remains an elusive goal.
The U.S. Mexican agricultural trade has developed greatly since the introduction of NAFTA.
Mexican agricultural exports to the other members of the agreement have been steadily growing. As an example, “the U.S. agricultural imports from Mexico increased 9.1% to $23 billion resulting in a U.S. agricultural trade deficit with Mexico of $5.1 billion” (Patricia Batres-Marquez 2017, p.1). Equally important, Mexico is the 3 largest market to consume American agricultural goods (Patricia Batres-Marquez, p.1)
While some of the effects on the Mexican agricultural sector can be attributed to NAFTA, some are very much also attributed to Mexico’s unilateral agricultural reform measures implemented to liberalize the market and open it to free trade. In hope of liberating the agricultural economy Mexico passed reforms eliminating support for famers it had previously given to them, by various state agricultural agencies. This led to the Mexican government dismantling the state agency CONASUPO that was created to provide price support for certain crops, agricultural inputs, marketing subsidies and import controls (Gisele Henriques and Raj Patel 2003, p.22). As stated by Gisele and Patel the abolishment of CONASUPO led to small famers having little to no adaptation mechanisms to cope with the now free market(2003, p.22-23). Procampo was then created to substitute some of CONASUPO functions. Leading to public spending favoring medium to large producers and not considering small and substantial ejido3 farmers (Gisele Henriques and Raj Patel 2003, p.22).
The North American Free Trade Agreement included tariff rate quotas (TRQs) to better transition into free trade, the quotas were applied to products that the three member countries considered very sensitive (Timothy A. Wise 2009, p.7-8). In the case of Mexico, the quotas were applied to corn, beans and other basic crops. These goods were given transition periods so that tariffs were still placed on the goods because of this complete free trade was only reached in 2008 when the quotas were eliminated (Antonio Yunez Naude 2012, p.6).
It has however had a negative effect on a section of the Mexican agricultural sector thus leading to the displacement of agricultural workers in the sector it had its effects on. Some large farmers and individuals did experience a positive effect from the liberalization of agricultural goods. This however does not change the fact that NAFTA greatly affected the Mexican corn market and production. Corn being one of the most important crops for Mexicans, employing more than 60% of the agricultural work force has been hit by the most negative effects due to the agreement. The assumption that basic crop farmers would stop farming corn etc. and switch to more productive horticultural crops was proven false.
How NAFTA has exactly impacted the Mexican agricultural sector is hard to conclude because at the same time it was implemented the Mexican government passed several reforms and as much as NAFTA has had a negative Impact on the Mexican agricultural sector the Mexican government and its failure to aid the poorest in its country is also a big reason leading to the failure of the agriculture and the displacement of its workers
1 Corn, Soybeans, Cotton, Beans
2 Prices below their costs of production, one of the definitions of “dumping” in the WTO.
3 Ejido in Mexico, village lands communally held in the traditional Indian system of land tenure that combines communal ownership with individual use. The ejido consists of cultivated land, pastureland, other uncultivated lands, which cannot be sold.