NAFTA’s Rural Legacy: Dumping, Displacement, and Dependency

The following is excerpted from Chapter 8 of Eating Tomorrow: Agribusiness, Family Farmers, and the Battle for the Future of Food (New Press 2019).

Migrant from rural Mexico awaits transport to the United States. (Photo: © David Bacon dbacon@igc.org)

The North American Free Trade Agreement (NAFTA) provoked a wave of migration to the United States. Many of those migrants were coming from the post-NAFTA disaster that was rural Mexico.

The country’s three million maize farmers were under assault. Their government had eliminated key agencies that supported small-scale producers, such as CONASUPO, which bought and marketed basic grains at supported prices. In its modernization push, the government had also forced through a modification of the Mexican constitution, written in the wake of the Mexican Revolution in the early 20th century, which recognized communal rural property, as ejidos or as communal lands in indigenous areas. The constitutional reform created a path to privatization, which many feared would result in the dispossession of poor farmers. And then there were NAFTA’s reduced tariffs. To deepen the assault, the government had unilaterally decided to forego the transition periods for most agricultural tariffs, which would have phased them out over 5–15 years to allow a more orderly adjustment of these sensitive markets. From day one of NAFTA, Mexico opened its doors and maize farmers got no transitional tariff protection.[i]

U.S. goods certainly poured through those open doors. By 2007, U.S. exports to Mexico of wheat, cotton, and rice had all increased more than 500% over pre-NAFTA levels. Meat exports jumped as well, with beef up 278%, poultry 363%, and pork a remarkable 707%. Soybean exports went up 159%. Maize exports increased more than 400%.[ii]

Worse still for Mexican farmers, those imports entered at dumping-level prices, below what it cost to produce them. In part, that was because the U.S. Congress added insult to NAFTA’s injury with its 1996 farm bill. The Orwellian “Freedom to Farm Act” eliminated all vestiges of supply management, which had been the cornerstone of U.S. agricultural policies since Henry A. Wallace introduced them during the Great Depression. Their demise meant that the U.S. government no longer used a mix of price supports, reserves, and land set-asides to manage the precarious balance between supply and demand, which without government intervention often saw supplies outstripping demand and prices falling to unsustainable levels. Surprise: the reforms created an immediate crisis when prices plummeted. Millions of acres of land that had been held out of agriculture came back into production. Land planted to eight major U.S. crops increased 6% and crop prices fell, prompting a farm crisis that threatened to provoke a run on rural banks. The government stepped in with a series of emergency payments to farmers, which evolved into the mix of farm subsidies we see to this day. Farm program costs increased from their pre-1996 levels of around $10 billion per year to around $20 billion per year.

So Mexican farmers weren’t just facing an import flood of competitively priced farm products, they were being asked to compete with dumped goods. I had estimated the so-called “dumping margins” between 1997 — after full NAFTA liberalization and the U.S. farm bill — and 2005, the year before the speculative run-up in commodity prices began. For five key crops, the U.S. exports were sold at 12%-38% below their average costs of production. Corn was exported to Mexico in those nine years at 19% below what it cost to produce.

This helped push down producer prices in Mexico. Adjusted for inflation, producer prices fell between 51% and 67% from their pre-NAFTA levels. Corn prices plummeted 66%. But if the United States exports yellow corn, for animal feed and industrial uses, and Mexico grows white corn for tortillas and other foods, why would cheap U.S. corn drive down Mexican prices? The markets have been closely connected for a long time, with one price quoted on the Chicago Mercantile Exchange and often with a price premium in Mexico for white corn. After the integration that came with NAFTA, those markets became more closely intertwined, and prices converged downward with U.S. corn prices.[iii]

Mexican farmers in a few short years had seen their government abandon the family farm sector then open the gates not just to cheaper industrial U.S. maize but below-cost grain. I estimated that Mexican farmers in those nine years would have earned $6.6 billion more from the sales of their maize if prices had just been at cost, without the dumping. But at least the tortillas were cheap, right? Wrong, as the magic of the imperfect market once again confounded free trade’s true believers. Despite the drop in maize prices, tortilla prices ten years into NAFTA were about one-third higher, adjusting for inflation.[iv] The two companies that dominated the tortilla market didn’t pass on the price reductions, and the Mexican government’s elimination of subsidies undercut the consumer benefits of cheaper maize.

The impact on rural Mexico was devastating. Production of soybeans, wheat, cotton, and rice all fell with the import surge. Maize production, remarkably, increased 50%, which analysts have attributed partly to Mexico’s own farm subsidy program, which favored maize over other crops. But for poor farmers who received a small share of those subsidies, the increase in maize production represented a “retreat to subsistence,” the long-observed tendency of poor farmers to increase production of basic food crops in an economic crisis. If you can’t make money selling them, you’ll at least have something to eat.

And this was a certifiable rural crisis. Rural poverty went up to 55%, with 25% in extreme poverty.[v] Not surprisingly, many left agriculture to look for work. According to the 2007 agriculture census, an estimated 2.3 million people had left agriculture since 1993, more than one-quarter of the farming population.[vi] The displacement was actually far worse than that. Another three million had left their households as internal migrants, seeking wage income as seasonal laborers in the booming tomato and strawberry fields. The fruit and vegetable export operations, mostly large commercial farms operated by multinational firms like Driscoll strawberries, had expanded dramatically under NAFTA. In 2017, $5.5 billion worth of fresh vegetables and $6.0 billion in fresh fruit were shipped to a seemingly insatiable U.S. market.[vii] But that didn’t do anything for Mexican farmers. The good news was that those farmers hadn’t given up their farms, despite the constitutional reform intended to make them to do just that. The household survival strategy involved sending young and able-bodied family members off to earn money they could send back home. They picked strawberries for Driscoll, harvested tomatoes in Sonora state, or went to the cities to join the informal workforce. Many rural migrants, of course, simply headed north to the United States, where the North American jobs were.

By the mid-2000s, many rural villages looked hollowed out, with grandparents raising their grandchildren after all the working-age family members had migrated. It was an extreme version of what I’d seen in Iowa, with its depopulated rural communities. This was far more devastating for families, with parents separated from children. For those who migrated to the United States, the wage remittances they sent home became a lifeline sustaining rural communities, and almost defining a new rural economic order. You could tell who had family members in the United States by which household had the new roof, the cement floor, the car. Remittances from the United States to Mexico topped $20 billion, making it ironically one of the largest sources of U.S. dollars, even greater than U.S. foreign direct investment.[viii] Mexican migrants were sending as much capital to Mexico as all those coveted foreign investors. Strict U.S. immigration policies didn’t really slow the northward migration, they just inadvertently increased the number of permanent undocumented residents as migrants chose to stay rather than risk the return to Mexico.

NAFTA not only devastated rural Mexico, it undermined the larger society. Mexico may have been exporting more fruits and vegetables to the United States, but its imports of basic grains and meats left the country dangerously dependent. Mexico had been relatively self-sufficient in maize before NAFTA, importing in lean years. By 2007, the country was importing one-third of its maize. Import dependency increased for other crops as well, most notably from 18% to 57% for wheat, the very crop Norman Borlaug had bred in Mexico for the first green revolution. Overall, Mexico is now estimated to be importing a disturbingly high 46% of its basic grains, most from the United States.[ix] That import dependency made Mexico particularly vulnerable when maize and other commodity prices spiked in the United States in 2007–8. The country’s agricultural trade deficit with the United States went negative as the gamble on cheap food went sour. The rising cost of maize imports alone accounted for Mexico’s entire $2.5 billion agricultural trade deficit in 2011.[x]

And that imported food, with the shift to U.S.-style diets, is making a lot of people sick. As a revealing New York Times feature showed, NAFTA has indeed exported obesity to Mexico.[xi] Part of the problem is the prepared foods Mexico imports, many of which are processed and high in sugar, salt, and fat. Soda is a big winner under NAFTA. Some of the problems come with the crops, as cheap maize and soybeans provide cheap feed for the growing consumption of meat and dairy products. And part of the NAFTA effect comes through U.S. multinational retailers like Walmart, which coax Mexicans to give up their tortillas, beans, and tamales for cheap processed foods like pizza slices. Altogether, the diet changes have given Mexico the dubious distinction of having the highest child obesity rate in the world, surpassing the previous title-holder, its NAFTA partner to the north.

Notes

[i] Nadal, “The Environmental & Social Impacts of Economic Liberalization on Corn Production in Mexico,” 26.

[ii] This and other figures in this section, except where noted, come from: Timothy A. Wise, “Agricultural Dumping Under NAFTA: Estimating the Costs of U.S. Agricultural Policies to Mexican Producers,” Working Paper (Global Development and Environment Institute, December 2009), http://www.ase.tufts.edu/gdae/Pubs/wp/09-08AgricDumping.pdf; For a full assessment of NAFTA at 20 years, see: Steven Zahniser et al., “NAFTA at 20: North America’s Free-Trade Area and Its Impact on Agriculture” (US Department of Agriculture, Economic Research Service, February 2015), https://www.ers.usda.gov/webdocs/publications/40485/51265_wrs-15-01.pdf?v=42038.

[iii] Kirsten Appendini, “Reconstructing the Maize Market in Rural Mexico,” Journal of Agrarian Change 14, no. 1 (March 25, 2013): 1–25, https://doi.org/10.1111/joac.12013.

[iv] Alejandro Nadal and Timothy A. Wise, “The Environmental Costs of Agricultural Trade Liberalization: Mexico-U.S. Maize Trade Under NAFTA,” Discussion Paper (Working Group on Development and Environment in the Americas, June 2004), 26, http://www.ase.tufts.edu/gdae/Pubs/rp/DP04NadalWiseJuly04.pdf.

[v] Zepeda, Wise, and Gallagher, “Rethinking Trade Policy for Development,” 15.

[vi] John Scott, “Agricultural Subsidies in Mexico: Who Gets What?” (Centro de Investigación y Docencia Económicas, n.d.), 76, https://www.wilsoncenter.org/sites/default/files/Subsidizing_Inequality_Ch_3_Scott.pdf.

[vii] “Mexico: US-Mexico Trade Facts,” Office of the United States Trade Representative, n.d., https://ustr.gov/countries-regions/americas/mexico.

[viii] Zepeda, Wise, and Gallagher, “Rethinking Trade Policy for Development,” 10.

[ix] Suárez Carrera, Rescate Del Campo Mexicano, 413.

[x] Timothy A. Wise, “The Cost to Mexico of U.S. Corn Ethanol Expansion,” Working Paper (Global Development and Environment Institute, May 2012), 7, http://www.ase.tufts.edu/gdae/Pubs/wp/12-01WiseBiofuels.pdf.

[xi] Andrew Jacobs and Matt Richtel, “A Nasty, Nafta-Related Surprise: Mexico’s Soaring Obesity,” The New York Times, December 11, 2017, sec. Health, https://www.nytimes.com/2017/12/11/health/obesity-mexico-nafta.html.

Author of Eating Tomorrow: Agribusiness, Family Farmers, & the Battle for the Future of Food. Advisor with Institute for Agriculture and Trade Policy.

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