How NAFTA Will Affect Farmers on Both Sides of the Border

Today, I want to talk about one of the most important stories in the United States and Canada for farmers: NAFTA.

If you’re not keeping up with recent North American Free Trade Agreement (NAFTA) negotiations, now is the time to start.

If you’re a farmer and you don’t think the NAFTA negotiations will affect you, I’m here to tell you-you’re wrong.

Believe me, they will.

Make no mistake: Supply chains, grain prices, cross-border crop demand and more will be affected by any significant changes to the trade agreement.

All three countries – The U.S., Canada, and Mexico – are looking out for themselves.

And all three are dragging this process out.

Let’s break down what NAFTA is, what changes could come, and how these changes can impact you and your farming operations.

Where NAFTA Started

NAFTA – the free trade agreement between Mexico, the United States, and Canada – first came into play in 1994. Bill Clinton was running the Oval Office and Jean Chretien was in Year 4 of a 10-year run as Canadian Prime Minister.

The initial purpose of NAFTA was to incorporate Mexico’s developing economy with the highly established economies of the U.S. and Canada.

NAFTA opened up opportunities for the U.S. and Canada to increase their exports.

Since the enactment of NAFTA, supporters have stressed how U.S. trade in North America has more than tripled. According to the Council on Foreign Relations, the U.S. economy has experienced “several billion dollars” of growth per year due to this agreement [1].

Of course, for every supporter, there is likely a critic.

Critics argue that NAFTA caused job losses and a stagnate wage for U.S. workers. A commonly cited factor is that many companies relocated manufacturing centers to Mexico for cheaper labor and lower production costs.

Though it seems Mexico has benefited, they too missed out on crucial promises.

Yes, they tripled their farm exports to the U.S. and increased the liberalization of their economy.

But they haven’t experienced the growth originally expected. The Council on Foreign Relations cites the “rapid growth” promised has only produced a 1.2% increase per year [2].

According to the Council, it’s also estimated that NAFTA put around 2 million small-size Mexican farms out of business.  And while Mexico’s urban north region has grown, the council said the “agrarian south” has been left in the dust [3].

One could argue that Canada has benefited from the deal on a macroeconomic level.

The amount of investment dollars coming into Canada from the U.S. and Mexico has tripled.

Canadian exports to the U.S went from $110 to $346 billion in the past decade.

Specifically, Canada’s agriculture sector has reaped many benefits. The Council said they increased “bilateral US-Canada agricultural flows” along with increased productivity in their manufacturing sector [4].

Shaking Up NAFTA Would Be “HYYYYUGE

Current US President Donald Trump took dead aim at NAFTA during his 2016 campaign and promised that he would “tear up” the agreement if it is not renegotiated. Until the 2016 election, certain sectors commonly raised concerns about the impact of NAFTA on companies and workers.

But the election has driven many advocacy and trade groups to push for change.

The agricultural sector has been front and center in the debate.

First, groups like the Rural Coalition, National Farmers Union, Food and Water Watch, along with R-CALF71 have said they want to see NAFTA focus on rebuilding farms and food systems to benefit rural towns in all countries [5].

While big agriculture businesses experienced mostly positive results, many small to mid-size family farms were pushed out. These groups have also said they want NAFTA to address better transparency, a national or local sovereignty farm policy along with adjusting the investor-state dispute settlement mechanism.

Second, the demand for improved transparency is straightforward.

These groups would like adequate, real-time information available to the public, so they’re able to provide ample feedback in the debate. They also want there to be various regional meetings in rural communities instead of there being one hearing in Washington D.C.

After all, what good is an agreement that doesn’t benefit the people it’s been made for?

The groups also want to bring back a national and local sovereignty on farm policy.

What does that mean?

It’s actually quite simple.

This means each country should establish their own domestic policies for farming, rather than having it laid out in a multilateral agreement.

Arguably, the two most essential farm policies address preventing “dumping” and protecting supply management systems.

Anti-dumping policies protect importing countries from too low of prices. For example, if U.S. farmers “dumped” an excess amount of tomatoes into Mexico, then Mexican tomato farmers won’t be able to compete with the low prices since the supply has gone through the roof.

Policies on anti-dumping could help ease the tension between southern U.S. farmers and Mexican farmers.

Supporting these supply management systems can prevent them from being targeted continuously and in turn stabilize higher prices for farmers and growers, which in turn benefit the workers.

How Would A NAFTA Shakeup Affect Farmers?

So how could changes to NAFTA impact each country?

For starters, it’s possible a trickle-down effect would happen to Canadian supply chains.

In addition, many Canadian exports to the U.S. could see an increase in tariffs [6].

About half of all western province exports go to America Canadian agriculture exports that could be most impacted are cattle and wheat.

As for Mexico, impacts are already being felt even without definite conclusions on the horizon.

In the past three months since NATFA re-negotiations have started, the Mexican Peso has fallen more than 6% against the US Dollar. Citizens in Mexico are concerned the government will focus on benefiting big businesses, like Coca-Cola and Nestle, instead of the small-town laborers.

Since the introduction of NAFTA, a large number of Mexican farmers were displaced and out of a job. Many working-class citizens fear their rights and welfare will be further pushed down the drain.

When it comes to the U.S., there is a multitude of opinions and ideas of what can happen. Farmers and experts alike both fear the agriculture sector will not only suffer first but will also suffer the most.

Despite promises from the Trump administration that they’re well aware of how to protect farmers, the farmers if that promise will materialize into anything.

With so much demand riding on exports, it’s hard to tell the US Dollar impact any new NAFTA policies will have. But one thing to watch for is how new tariffs on U.S. imports will affect production for the different sectors.

For example, according to Feedstuffs.com, if the U.S. withdraws from NAFTA, farmers could see a 20% tariff on U.S. pork exports into Mexico. This could then trigger a “15% in consumer pork prices in Mexico” which would then force the U.S. to reduce production by approximately 5%.

The wheat industry is already suffering. Mexico is already turning to other suppliers. They have entered a contract to purchase 30,000 tonnes of wheat from Argentina.

America Politico looked at a group of 86 food and agriculture constituents and suggested that the fallout would be, “at least 50,000 jobs in the U.S. food and agriculture industry, and a drop in GDP of $13 billion from the farm sector alone.” [7]

Overall, it’s largely agreed that NAFTA has improved North American agriculture.

Any new additions or subtractions will have a substantial impact on all three countries. Whether it’s increased tariff prices for Canada, fewer opportunities for Mexican farmers, or a decrease in U.S. exports, each country will face new battles.

Where Do We Stand Now?

Canada and Mexico appear frustrated with the U.S. Trump has repeatedly stated that Canada and Mexico will have to get over losing some of the benefits they’ve become accustomed to. Canada and Mexico say not so.

In an appearance on CNN, Foreign Affairs Minister Chrystia Freeland scrutinized the U.S. for using a “winner-takes-all” approach. TheStar.com reported Freeland responded to the U.S. saying in an email from her spokesperson, “Our government remains focused on achieving a win-win-win in these negotiations, a winner-take-all attitude won’t work.” [8]

If the U.S. decides to exit the agreement, Freeland said Canada would most likely stay at the table.

Mexico, however, has taken a firmer stance. If the U.S. backs out, so does Mexico. The Mexican Economic Minister Ildefonso Guajardo is using some tactics of his own.

Guarjardo has made it clear they don’t have to rely on the U.S. for imports. There’s plenty of other countries interested, according to the Washingtonexaminer.com [9].

Bloomberg reported Guajardo making this statement in Mexico City last week: “It’s very simple: If today I’m the top buyer of yellow corn, of fructose, rice, chicken, pork from the U.S., I need to open a space for trade with Brazil and Argentina so that at the table people realize that we have options,”

NAFTA negotiations will continue to heat up as the weather gets colder.

This is one of the largest macroeconomic factors that could affect grain prices over the next year and beyond.

Be sure to stay tuned in November on how you can get access to the best insight available on these three commodity categories.

About the Author
Megan Perrero

Megan Perrero is the financial editorial intern for FarmLead. She is currently a junior at Columbia College Chicago. She is working towards her BA in journalism with a concentration in magazine writing. She also has a minor in public relations. She grew up in central Illinois.

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