Chances are that sometime during 1992 and 1993 you sat in on one or more meetings where the topic was discussed — or maybe cussed — on how the then-proposed North American Free Trade Agreement might affect agriculture.
It was outspoken NAFTA critic Ross Perot, you'll recall, who offered the one-liner: “That giant sucking sound you'll hear will be U.S. jobs moving south to Mexico!”
From the pro-NAFTA side of the field, many carrots were dangled about how the agreement would mean smoother times and increased profits for farmers.
So just what has the ambitious plan of trade liberalization between the United States, Canada and Mexico done for farmers and ranchers?
Is NAFTA really working?
“If the objective of NAFTA was to increase trade between the three countries, it has been a resounding success,” says Texas A&M University economist Parr Rosson of College Station, who spoke at 100 farmer sessions across Texas and elsewhere during the early ’90s trying to explain the ramifications of the far-reaching proposal.
“But if the objective (of the pact) was to increase jobs here at home, it's still rather inconclusive.”
Rosson, as professor and Extension economist in international trade in the university's Department of Agricultural Economics, was the “point man” in an effort to inform and educate producers about what the pending agreement might mean to them — and to their livelihoods.
In an interview in his College Station office a few days ago, Rosson said the North American Free Trade Agreement has served to “take up the slack” at the very time when exports of agricultural commodities are hurting in so many other areas of the world.
“Our increasing trade with Mexico under NAFTA, in particular, has filled in for our lost markets elsewhere in the world,” he explained.
Specifically, he estimates that U.S. ag exports might easily have been $5 million to $7 billion lower than the $54 billion reported for the 1998 trade year. “Out of the 10 top world markets for U.S. commodities, the economists said Mexico and Canada were the only countries to register an increase.” U. S. farm exports might have been only in the $49 billion range without NAFTA, he said.
Increased sales of pet foods, snack foods and processed beef and poultry products and processed vegetables have been especially “hot” growth areas.
NAFTA is actually composed of three bilateral agreements, one between the United States and Canada, a second between the United States and Mexico, and a third between Canada and Mexico. The first accord incorporates the Canada-U.S. Free Trade Agreement (CFTA), which took effect in 1889 and has now completed its 10-year implementation phase.
NAFTA, as most Southwestern farmers think about it, eliminated many tariffs and quantitative restrictions between the United States and Mexico beginning Jan. 1, 1994. The pact provides for the progressive elimination of remaining tariffs and other trade barriers between the two countries over a 15-year period.
According to a recent USDA Economic Research Service report, even though U.S. exports to countries outside NAFTA dropped 15 percent between 1997 and 1998, exports to Canada and Mexico increased by 3 and 10 percent respectively. Between 1993 and 1998, U. S. agricultural exports to Mexico alone increased from $2.5 billion to $6.2 billion.
Seven commodities — soybeans, cotton, corn, beef, veal, sorghum, poultry meat and wheat — accounted for 51 percent of the total.
During the same period, U.S. agricultural exports to Canada grew by $1.7 billion to $7 billion. Canada imports a wider array of agricultural commodities from the United States. The top seven products — beef and veal, poultry meats, coffee, soybean meal, lettuce, orange juice, and cotton — account for only 18 percent of the total. It takes at least 40 commodities to reach the 50 percent mark.
Rosson is still a frequent visitor to Mexico. He offers three observations about the situation in the Mexico today. One is the huge contrast in the way its people live and work in agriculture.
“While many people are bound to live on ejidos (land held in common by families or groups of families), you also will find large, sophisticated and efficient cattle operations by way of contrast,” he said.
His second observation: the extreme poverty that exists versus the obvious affluence among other people, even within a block or two distance. “And I am afraid that the income disparity between the haves and the have nots is going to get even worse in Mexico with NAFTA in place.”
Rosson's third observation is a bit more rosy. “There is a growing number of very progressive (agricultural) producers, such as dairymen, who are expanding into dual-purpose enterprises,” he said. “This will broaden their base of operations for the long haul.”
The Texas economist conferred some months ago with the Northern Nuevo Leon Cattle Union, a cattlemen's group, on the subject of animal nutrition and calf management and marketing. “The Mexican cattlemen are wanting to deal on a Hemisphere basis today.”
But even more broadly in this post-NAFTA environment, Rosson said:
Mexico is a vibrant economy overall, and Mexico now. is able to purchase more and more of U.S.-produced processed foods.
With most tariffs and quotas now gone, U.S. markets are open to Mexico and vice versa — regardless of what is happening in the rest of the world. “We have a preference in the market there now.”
Future progress, along with further increased trade, will depend, in large part, on Mexico's improving its infrastructure — cold storage and transportation, as examples — and on the growth of personal incomes.
Competition will continue between the United States and Mexico in industries that are the most labor-intensive. “Some Texas-based businesses will have to make even more adjustments to stay competitive.” He cited melon, onion and other vegetable production.
Rosson noted that Mexico's ability to participate in economic development and trade was set back severely by the disastrous 1995 devaluation of the peso, a multi-year drought, and a strong demand in the United States for feeder calves.
A popular topic at farmer meetings on both pre-NAFTA and post-NAFTA, Rosson said, is the wage disparity between the United States and Mexico. While, according to the USDA-ERS, a U.S. farm employee was being paid $66.32 a day in 1999, a worker in Mexico was being paid $3.60 a day. (His wage, however, may include other subsidies such as housing and some meals.)
“But the fact of the matter is that the Mexican worker is only one-fifth as efficient as his U.S. counterpart,” Rosson said. “”In the time it takes a U.S. worker driving a grain combine to harvest 1,000 bushels of wheat, the worker in Mexico would cut 200 bushels.” That compensates for a portion of the wage difference.
According to the USDA-ERS analysis, NAFTA has had a small positive effect on employment in U.S. agriculture. The effects are most visible in horticulture, veterinary medicine, and landscaping.
Here, based on the USDA Foreign Agricultural Service, are U.S. agricultural exports to Mexico in the calendar years 1994 (pre-NAFTA) and in 2000 (post-NAFTA), in thousands of dollars:
Coarse grains: 753,855 and 972,750.
Rice: 68,158 and 102,310.
Cotton: 193,024 and 476,300.
Peanuts: 17,846 and 33,110.
“Bulk” agricultural total, including the above: 1,752,596 and 2,580,160.
Snack foods, excluding nuts: 125,649 and 245,700.
Red meats, fresh/chilled/frozen: 426,603 and 876,300.
Poultry meat: 228,801 and 249,400.
Processed fruits and vegetables: 107,074 and 259,6110.
Pet foods (dog and cat): 31,558 and 118,460.
For dditional information write Rosson at TAMU, Texas Agricultural Extension Service, Center for North American Studies, 464A Blocker Building, College Station, Texas 77843-2124, or call at 979-845-3070.