Relations with Mexico- The Potential Effect on Corn Trade Relations and Our Farmers
26 May 2017
Relations with Mexico – The Potential Effect on Corn Trade Relations and Our Farmers
With formal trade talks still months away, Mexican and U.S. legislators are turning to what has been dubbed the “tortilla wars” as a battleground for NAFTA renegotiations. As a result, America’s corn producers find themselves at the center of controversy.
But will they see business continue as usual, or lose a vital part of their export market?
In the face of the Trump administration’s hard talk of trade renegotiations and increased tariffs on agricultural imports from Mexico, Mexican lawmakers and agricultural economists are indicating that perhaps both countries should take a closer look at corn.
Corn Exports to Mexico
Corn is an essential part of Mexican life. From the plentiful tortillas to tons of corn-based feed for livestock, corn can be considered the center of Mexico’s agricultural community.
Most of the yellow corn consumed by Mexico comes from the United States. Since implementation in January 1994, NAFTA has been a huge success in the eyes of the corn industry. Over the past 23 years, U.S. farmers have seen serious growth of agricultural exports to Mexico. Corn exports to Mexico increased from 3.1 million tons in 1994 to a high point in 2016 of 13.9 million tons. That’s a $2.5 billion market for American corn producers in Iowa, Nebraska, and other corn-growing states.
With each year of steadily increasing exports comes a dependency on the Mexican market for the American corn producer. Mexico is the largest corn export market for American farmers. The U.S. Grain Council estimates that one out of every 10 acres of American farmland is planted for exportation to either Mexico or Canada.
Mexico – A Growing Displeasure with U.S. Corn Dependency
While this trend has been good for the American farmer, many in Mexico have been less than thrilled. Mexican economists blame NAFTA for the reduction of 1.9 million agricultural jobs in Mexico. Some economists even link this to the increase of illegal immigration into the United States. And the buzz in Mexico has steadily increased over the past few years – Mexico needs less dependency on the United States for corn.
What was once just a quiet buzz has become something just short of shouting in the face of Trump’s hard stance towards Mexico. According to the Agricultural and Applied Economics Association, the growth of America’s corn exports to Mexico has slightly slowed in recent years, as Mexico has increased its own corn production. Now, some Mexican farmers are calling for a timely end to dependency on America for corn.
“We’re starting to move where we should’ve moved a long time ago: trying to produce internally what we’ve been importing,” said Alejandro Vázquez Salido, director of Aserca, the Mexican government agency for marketing of Mexican agricultural products.
The Mexican Senate is currently exploring ideas ranging from a complete and immediate boycott to a three-year phase out of the importing of American corn. Mexico’s government has already begun negotiations with Argentina and Brazil to enter NAFTA-like agreements to import corn tax-free.
“It’s time to think about how to shift the place where we are putting our money,” said Mexican Senator Armando Ríos Piter. “If we stop buying their [United States] corn, farmers would have a good idea how important Mexico is.”
What Could a Disruption in Trade Mean for U.S. Farmers?
American farmers already understand the impact a serious shift in trade would have on the industry, and so do the lawmakers in the key corn production states. The loss of agricultural trade with Mexico could be an economic disaster for American corn and the states that grow it.
“I can’t stress enough that there will be real and immediate economic consequences for farmers if we lose exports,” said Charles E. Grassley, Iowa (R).
Bob Hemesath, chairman of the Iowa Corn Growers Association, agrees and has joined with lawmakers to remind President Trump of the concerns of Iowa farmers.
“Mexico is one of our top markets,” Hemesath told the LA Times. “We’re just going to continue to advocate with the administration about the importance of keeping these markets open.”
Tom Sleight, president and CEO of the U.S. Grains Council, says that recent meetings with Mexican customers have been consistently turning towards talks of a “Plan B.” Although he sees that business is currently continuing, as usual, he’s admittedly concerned about a potential shift in Mexican corn purchases.
“They’re actively looking for alternative suppliers,” noted Sleight after a recent trip to Mexico.
A Realistic Outlook on the Corn Trade
To date, American analysts do not seem to be too worried. Political talk of economic change does not overshadow reality. As of today, South American corn producers do not have the ability to supply Mexico with the yellow corn it needs. And Mexican producers don’t currently have the technology or infrastructure to immediately ramp up domestic corn production.
Even if NAFTA folded, and corn exports to Mexico were subject to high tariffs, America has decades of experience in exporting corn to Mexico in a timely and efficient manner. A logistics system, years of trade deals and NAFTA’s tariff-free protections, for the most part, ensure that trade will continue, at least for now.
Jon Doggett, executive vice president of the National Corn Growers Association, says Americans should currently consider “renegotiating” of trade terms as simply “updating” or “modernizing.”
“We will work closely with the Trump Administration and Congress to build on the successful trade relationship we have with our neighbors in Mexico and make sure a modernized NAFTA is a win-win for both our countries,” said Doggett. He is optimistic that trade will continue without major changes or a visible impact to the American corn farmer.
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