Mexico
Ready to Play the Corn Card in Trade Talks
By Kirk Semple, 4/2/17
MEXICO CITY — From the
hundreds of millions of tortillas consumed every year to the countless tons of
corn-enriched feed that fattens livestock and poultry, corn is perhaps Mexico’s
most important agricultural commodity, one at the center of its life and
culture.
Now corn has taken on a
new role — as a powerful lever for Mexican officials in the run-up to talks over Nafta, the North American Free Trade
Agreement.
The reason: Much of the
corn that Mexico consumes comes from the United States, making it America’s top
agricultural export to its southern neighbor. And even though President Trump
appears to be pulling back from his vows to completely overhaul Nafta, Mexico
has taken his threats to heart and has begun flexing its own muscle.
The Mexican government
is exploring buying its corn elsewhere — including Argentina or Brazil — as
well as increasing domestic production. In a fit of political pique, a Mexican
senator even submitted a bill to eliminate corn purchases from the United States within
three years.
American corn shipments
to Mexico totaled nearly $2.6 billion last year and are part of an elaborate
agricultural trade relationship between the two nations that has helped to
interlace their economies. But though the corn business is a tiny fraction of
the overall $525 billion in annual trade between the two countries, it has
gained outsize importance and become something of a symbol for the nations’
economic codependence.
The prospect that the
United States could lose its largest foreign market for corn and other key
products has shaken farming communities throughout the American Midwest, where
corn production is a vital part of the economy. The threat is particularly
unsettling for many residents of the Corn Belt because much of the region voted
overwhelmingly for Mr. Trump in the presidential election.
“If we lose Mexico as a
customer, it will be absolutely devastating to the ag economy,” said Philip
Gordon, 68, who grows corn, soybeans and wheat on a farm in Saline, Michigan, that
has been in his family for 140 years. Mr. Gordon said he planned to call Mr.
Trump at the White House “and remind him we need trade.” “He’s a businessman,”
Mr. Gordon said. “He understands how much support for him came from the
agricultural community.”
A Trump administration
document that circulated on Capitol Hill last week appeared to present a more moderate approach to Nafta negotiations, seeking to
preserve much of the existing agreement and recognizing the interconnectedness
of the two nations’ economies, cultures and histories.
Still, people involved
in agricultural trade on both sides of the border said they were not about to
rest easy on the basis of the document, which even the White House seemed to
disavow.
“It’s really hard to
track with this president,” said Todd Hultman, a grains analyst at DTN, an
agriculture news and data service based in Omaha. “The campaign rhetoric has
been really over the top. But what actions are really going to come from the
White House is still a mystery.”
Mr. Trump has repeatedly
asserted that Mexico has been the big winner under Nafta, and the United States the loser. But many
leaders in the agricultural and food industries in the United States — not just
in the corn market — hope Mr. Trump does not disrupt the agreement too much.
“When you mix politics
with economics, you hope that economics influences your political decisions and
not vice versa,” said Luis A. Ribera, associate professor of agricultural
economics and director of the Center for North American Studies at Texas
A&M University.
Many leaders in the
American agriculture industry say Nafta has been a boon for farmers in the United
States, particularly because it opened up new foreign markets and helped to
expand agricultural exports more than fourfold since the agreement was signed.
In 2016, the United
States exported nearly $18 billion of agricultural products to Mexico, the
third-largest market for these American exports, according to the United States
Department of Agriculture.
Mexico is not only the
leading destination of American corn, but it also imports more dairy products,
poultry and wheat from the United States than any other nation, and is one of
the top importers of American pork, soybeans and beef, the department says.
Mexico imported about
13.8 million tons of American corn last year, according to the Mexican
government. Nearly all — about 12.7 million tons — was yellow corn, which is
largely used for livestock feed, supplementing about 3.5 million tons of
homegrown yellow corn.
The remainder of corn
imports were of the white variety, which is used mostly for human consumption
and is a key ingredient in tortillas. Mexico is essentially self-sufficient in
white corn. The country produced 22.2 million tons last year and imported about
1.1 million tons of American white corn to make up for lucrative white corn
exports to South Africa and other countries, according to the Mexican
government.
And just as
international supply chains in automobiles, aerospace and other industries
crisscross the border, the same is true of agricultural products. Mexican
calves — possibly fed American corn — are exported to the United States, where
they are further fattened and then butchered for meat that may be exported for
sale abroad, including to Mexico.
Farmers and agricultural
industry representatives say that American farmers are already reeling from
higher production costs and declining commodity prices, and that Mr. Trump’s
threats on trade and immigration have injected more uncertainty.
“There’s a lot of
volatility in agricultural markets to begin with,” said Barbara Patterson,
government relations director of the National Farmers Union, “and shutting off
our borders or losing access to trading partners has farmers concerned.”
The loss of Mexico as a
market for agricultural products, farmers say, could presage job losses and
bankruptcies.
“We’d like to see careful consideration and a
cautious approach,” Ms. Patterson said.
Formal talks to
renegotiate Nafta are still at least several months away. Still, corn
producers, as well as their counterparts elsewhere in American agriculture,
have begun to lobby elected officials and the administration.
“Soup to nuts: corn,
dairy, meat, specialty products, fruit — they’re all pretty much gathered
together,” said Tom Sleight, president and chief executive of the U.S. Grains
Council. Producers, he said, are seeking to remind the administration of the
importance of trade and Mexico to agriculture’s bottom line.
The administration’s
threats have already begun to sour longstanding business arrangements between
American sellers and Mexican buyers.
“Relationships are
getting frosty with our customers right now,” Mr. Sleight said. “Usually it’s
been a very symbiotic relationship, but recently it’s gotten a little more
difficult. Mexicans are saying, ‘Why are you doing this to us? We’ve been your
best customers.’”
The Mexican government
has not delayed in exploring other markets in which to purchase corn. A top
agricultural official from Argentina visited Mexico City last month to discuss
the possibility of increasing sales of Argentine yellow corn to Mexico.
Officials from Mexico’s Agriculture Ministry are planning a trip to Argentina
and Brazil this month to discuss increasing corn purchases from those
countries.
Last month, Mexico’s
deputy economy minister told The Financial Times that Mexico was exploring the
possibility of allowing duty-free access to Argentine and Brazilian corn
imports.
Developing new import
arrangements with South America will not be easy, officials said. New
relationships would have to be brokered, and costs to import may also be
higher, officials say, in part because there are fewer established
transportation routes between Mexico and the Mercosur countries of South
America.
Mexican officials say,
however, that an increase in trade between the regions might lead to more
competition, which could increase efficiency and lower costs.
The showdown on Nafta
has also inspired Mexican agricultural officials and producers to step up
programs that would increase domestic corn production and revive a sector
undercut by the agreement, said Alejandro Vázquez Salido, director of Aserca, a
Mexican government agency that supports farmers and promotes the marketing of
Mexican agricultural products.
Some economists blame Nafta for causing widespread
unemployment in the Mexican agricultural sector by opening the floodgates to
heavily subsidized American agricultural products, especially corn. A 2014 study estimated that 1.9 million agricultural jobs were wiped
out, mainly those of small family farmers, helping to drive more illegal
immigration into the United States.
Mr. Vázquez said that
even before Mr. Trump began to attack Nafta and Mexico, the Mexican authorities
had begun to discuss plans to substitute imports with national production. “But
these new challenges, these new policies that we’re facing, are having us move
in that direction faster than we were,” he said.
Mr. Trump has knocked
Mexicans “out of our comfort zone,” forcing agriculture officials to find ways
for Mexico to be less dependent on American imports, Mr. Vázquez continued.
“We’re starting to move where we should’ve moved a long time ago: trying to
produce internally what we’re importing.”
Meredith Hoffman contributed reporting
from San Antonio.
Norb Leahy, Dunwoody
GA Tea Party Leader
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