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NAFTA and the Small Mexican Farmer

NAFTA and the Small Mexican Farmer. Daryll E. Ray Director, Agricultural Policy Analysis Center Melissa B. Cooney, Graduate Research Assistant University of Tennessee. History of NAFTA. GATT – General Agreement on Tariffs and Trade (1946). Direct result of the 1930s and WWII

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NAFTA and the Small Mexican Farmer

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  1. NAFTA and the Small Mexican Farmer Daryll E. Ray Director, Agricultural Policy Analysis Center Melissa B. Cooney, Graduate Research Assistant University of Tennessee

  2. History of NAFTA GATT – General Agreement on Tariffs and Trade (1946) • Direct result of the 1930s and WWII • Conflicts over trade seen as one cause of war • International interdependence seen as inhibiting war • Restructuring world economy based on comparative advantage and free trade • Tariffs detrimental to all parties • Tariffs should be eliminated

  3. History of NAFTA • 1970s and 1980s • Economic problems in the U.S. • Stagflation • 1980s to early 1990s • U.S. needed new markets to grow economy • Fall of Soviet Union • Mexico’s debt crisis and stagnant economy • Mexico joins GATT in 1986 • January 1, 1994 • U.S.-Canada agreement expanded to include Mexico - NAFTA

  4. NAFTA’s Provisions for Free Trade • Objectives • Eliminate barriers to trade • Promote fair competition • Increase investment opportunities • Protect intellectual property rights • Establish a framework for future agreements

  5. The Argument for NAFTA • Economic theory • Adjustment periods • Comparative advantages of U.S. & Mexico • U.S. in grain production, animals and animal products, and oilseeds • Mexico in vegetables, fruits, fresh flowers, and beverages

  6. The Argument against NAFTA • Mexico’s “comparative advantage” is only for very specialized products that are capital intensive, few producers, and have higher risk and costs • Not self-sufficient • Large, efficient agribusinesses with access to technological advances benefit from NAFTA • Economic models do not account for social welfare

  7. NAFTA By the Numbers • By the numbers, NAFTA is a success for Mexico • 1994 – 2000: Total trade volume has increased from $297 billion to $676 billion • Mexico exported $154 billion to NAFTA partners in 2000 • Growth in Mexico’s exports has contributed to more than half of the real GDP growth in Mexico • Investment in Mexico has grown by 72% • 2.7 million new jobs generated in Mexico • More than half of those new jobs were related to export activity • Manufacturing exports pay nearly 40% more than other manufacturing jobs Source: NAFTA at Seven, 2001. Pettigrew, Zoellick, and Derbez

  8. A Growing Dependency Source: Office of Trade and Analysis, US Department of Commerce

  9. A Growing Dependency Source: Office of Trade and Analysis, US Department of Commerce

  10. NAFTA and Agricultural Trade • Agricultural exports from Mexico to US totaled ~ $4.7 billion in 1998, up from a stagnant $2.5 billion prior to NAFTA. • Mexican agricultural exports have grown about 11.5% per year. Vegetables ~ 13% annual increase Fruits ~ 17% annual increase Beverages ~ 28% annual increase Source: US-Mexico Chamber of Commerce, 1999

  11. Agriculture under NAFTA • Immediately eliminated most non-tariff barriers and many tariffs • Phasing out all tariffs and Tariff Rate Quotas (TRQs) over 10-15 years i.e. Between US and Mexico: Wheat 2004 Sugar 2007 Corn 2008

  12. Take Corn: What NAFTA was Supposed to do? • Reduce domestic price of corn • Output will decrease • Labor, land and capital are reallocated • Marginal lands left fallow

  13. The Importance of Corn in Mexico • Originated in Mexico over 7000 years ago • Pre-NAFTA: Over 3 million producers = 8% of population 40% of people in agriculture 60% of cultivated land Nearly 60% of output by value Source: The Environmental and Social Impacts of Economic Liberalization on Corn Production in Mexico.Alejandro Nadal, 2000.

  14. Corn Diversity • 41 landraces, thousands of varieties • Poor producers with low yields could compete in the Mexican domestic market. • 1.8 million corn producers use locally adapted varieties (80 % of the corn cultivation)

  15. Failure to impose the TRQ • 2-level pricing: Low tariff up to a certain quota, high tariff after passing the quota • 15-year transition period shortened to three years because Mexican government never implemented the TRQ

  16. Mexico imports of US corn Imports increased 14-fold Source: APAC, Centro de Estadistica Agropecuaria

  17. Area under corn cultivation Source: Centro de Estadística Agropecuaria Sistema de Información Agropecuaria de Consulta

  18. Corn production in Mexico Source: Centro de Estadística Agropecuaria Sistema de Información Agropecuaria de Consulta

  19. What has happened • Corn production has remained fairly stable but area under cultivation has increased. • Went from 60% of cultivated land yielding 60% of Agricultural output value to 67% yielding 36% of value of output. • Environmental damage by both large and small farmers.

  20. What has happened • Tortilla prices increased • Elimination of guaranteed price floor subsidy • Urban migration • Further Dependency Source: Down on the Farm: NAFTA’s Seven-Year’s War on Farmers and Ranchers in the US, Canada and Mexico. Public Citizen 2001

  21. Conclusions • NAFTA has obviously benefited Mexico’s overall economy • GDP levels from $314.5 billion in 1991 to $617.8 billion • Small farmers lose out big time • GDP is not only measure of well-being • Access to food & adequate housing • Health services and education, etc.

  22. Weekly Policy Column To receive an electronic version of our weekly ag policy column send an email to: dray@utk.edu requesting to be added to APAC’s Policy Pennings listserv

  23. For More Information … www.agpolicy.org Agricultural Policy Analysis Center The University of Tennessee Dept. of Agricultural Economics 310 Morgan Hall Knoxville, TN 37996-4519 dray@utk.edu (865) 974-7407 phone (865) 974-7298 fax

  24. Maquiladoras in Mexico Source: Maquila online directory

  25. Maquiladora map As of Jan. 2001 > 601 (1280) 251 – 600 101 - 250 76 – 100 26 – 75 1 – 25 0 Source: Instituto Nacional de Estadistica, Geografia, e Informacion

  26. Maquiladora working conditions • Discrimination against women • Poor working conditions • Low wages • No union representation • Slum communities

  27. The Link between Corn Producers and Maquiladoras • Pre-NAFTA: ~3 million corn producers 2002 ~ 2 million corn producers Pre-NAFTA (1990): 449,519 maquila workers (1995): 629,481 (2000): 1,277,727 Source: Border Maquiladoras, an Overview. Frontera Norte Sur, Sept 2000 As of Feb 2003: 1,047,587 Source: Maquila Online Directory

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