Plight of Trade Policy Grounding Many U.S. Growers

Plight of Trade Policy Grounding Many U.S. Growers

Panama Canal Expansion opening celebration

Photo courtesy of the Panama Canal Authority

Many producers have expressed hope that the Trump Administration will bring relief to an agriculture industry struggling to survive after farm prices declined as imports of competitively produced items surged. While fruit and vegetable growers have a sense of hope, many other agricultural sectors fear the changes that may take place if the administration goes back to the drawing board on the North American Free Trade Agreement (NAFTA). The successes of grain and livestock in trade make it difficult for agriculture to develop a consensus on trade policy, particularly with NAFTA. Canada and Mexico (our partners in NAFTA) rank as the top two sources of agricultural imports into the U.S. combining to account for more than 38% of all U.S. agricultural imports. Those same two countries rank two and three, behind only China as destinations for U.S. agricultural exports, combining to account for 29% of all U.S. agricultural exports. A rewrite of NAFTA could be risky to for agriculture. Viewed myopically from the perspective of fruit and vegetable growers, it may be a risk worth taking. Viewed myopically by grain and livestock producers, it may be a risk that threatens their sector. That conundrum is facing policymakers.

The Situation

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U.S. fruit and vegetable growers have seen a surge in imports from Mexico since NAFTA was implemented in 1994 with fresh tomato producers at the center of this trade anxiety. Fresh tomatoes accounted for $2.263 billion worth of agricultural imports in 2016, the 13th leading agricultural import item that year. Mexico was the import origin for most of these tomatoes, totaling $1.964 billion, or 86.7% of the total. How does this compare to years prior to NAFTA? In 1990, fresh tomato imports totaled $377 million with Mexico accounting for $371 million. There has been a steady increase in the value of fresh tomato imports after 1990. The growth of the greenhouse industry in Canada and the use of protected agriculture in Mexico have been responsible for much of this growth in imports. The USDA Foreign Agricultural Service reports that 37,065 acres in Mexico are now devoted to protected agriculture for tomato production. Expansion in protected agriculture increased reported yields from 820 25-pound carton equivalents in 1990 to 1,998 25-pound carton equivalents in 2016.

If NAFTA was solely responsible for this growth in import values, then we would expect market share for Mexico and Canada to increase but stabilize with U.S. producers still controlling a significant share of the market. After all, removal of the tariff on fresh tomatoes was fully realized in 2004 (after the 10-year transition period), lowering the cost of imports 2.1 cents per pound ($0.525 on a 25-pound carton equivalent). Continued growth in imports from Canada and Mexico after NAFTA was fully implemented suggests other factors may be leading this surge. The major cause may be investment in protected agriculture.

The dilemma facing U.S. growers is how they respond to this pressure from outside our borders. U.S. growers have fought this battle with their own technology advances. According to USDA, U.S. yields increased from 1,000 25-pound carton equivalents in 1990 to a peak of 1,244 25-pound carton equivalents in 2007. Yields appear to have stabilized around 1,200 25-pound cartons per acre since 2000. The 20% growth in yields for U.S. growers pales in comparison to the 130% increase reported in Mexico.

Options Moving Forward

It appears U.S. vegetable growers are at a crossroads. Tomatoes are only one example of the challenges facing the specialty crop sector. U.S. growers have attempted to level the playing field by filing trade disputes with the U.S. International Trade Commission (US ITC). Success in that venue convinced Mexican growers to agree to minimum prices on imported tomatoes. Those agreements may have provided some relief to U.S. growers, but Mexican growers may have benefitted by forcing buyers to pay at least the minimum price on these imports. Another trade case that could be taken to the US ITC to seek stronger relief for a struggling industry. That could happen, but the legal fees and time involved will be significant and success is far from assured.

Renegotiation of NAFTA is an alternative that could bring more discipline to foreign suppliers of specialty crops, but erasing the changes brought on by NAFTA are not likely to achieve a restoration of market shares. There is likely no turning back on the productivity gains that imported produce has made.

Another approach could be to invest more in technology development that would benefit our growers. Labor is just one example of many areas where new technology could help our producers become more efficient relative to U.S. imports. New varieties adapted to our climate that increase productivity along with gains in quality relative to competition also could prove beneficial.

The specialty crop sector is struggling to survive and needs new investments in technology for long-term survival, but where does the money come from to make those investments happen? Struggling producers with an uncertain future may have problems justifying investment in development of long term assets or technologies. One source of funds could be the U.S. Farm Bill. The Farm Bill is scheduled to expire in 2018. Passing a new Farm Bill takes a coalition of forces to get the programs that help the agricultural sector and assure food security to our nation and world. The Farm Bill is a longer-term alternative. The challenge will be to get something done in time to help our growers.

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Jay Bunker says:

As for the drastic increase in Mexican exports compared to the US, there are two points. One is that the Mexican ag economy is not nearly as large so a 130% growth is not as large as it seems.

The second point is the influence of the labor situation. As inexpensive foreign labor becomes less accessible to American growers some large growers are simply moving some of their plant below the border where they can easily exploit the cheap labor again. It is no secret that most of the perennial fruit nursery stock from American nurseries has been sold south of the border for years.

The same thing happens in the northeast where the giant blueberry corporations own growing areas on each side of the border and play the labor and exchange rate markets. Things are often owned internationally in a hodge-podge of different ways. Some Mexican tomatoes are making profit for US owners even though they are not grown on US soil.

It’s hard to put that genie back in the bottle. Especially for a country with some of the highest paid workers in the world who still won’t do the work for that money. One can sort of see where this will end – and its not with higher wages and easier work for American labor…

Russell Costanza says:

The issue that is not exposed is cost of on the farm labor. In US dollars the Mexican farm workers are paid 10-15% per hour that US farm workers are mandated to be paid per hour.
Canadian farm workers are paid about 30% less than U S farm workers. The work required to produce a crop is all the same for all farmers. We are in essence importing abused cheap labor, not speciality produce!