Mexican Farm Trade May Move on 2-Way Street

For the past seven or eight years, Cardinal Distributing Co. in Coachella, Calif., has contracted with growers in Mexico to produce the asparagus and green onions--crops that require a lot of field work--that the U.S. company then sells on this side of the 2,000-mile common border.

“We’re taking advantage of the labor market in Mexico,” explained Nicholas H. Jarrett, Cardinal’s general manager.

Jarrett is not crazy about buying from Mexico produce that grows up and down the Coachella Valley. But, he explained: “Labor is the biggest part of the end cost, and to stay competitive we have to grow in Mexico. We’re in it for the economics--but we’d just as soon not be.”

Cardinal is not alone today among U.S. agricultural concerns exporting part of their operations to Mexico to benefit from that country’s ample supply of cheap labor. Several competitors are moving their carrot-packing operations from Coachella to Mexico--shipping California-grown produce south for handling, then bringing it back for sale in the United States. And other firms, such as two-year-old Andrew & Williamson Sales in San Diego, capitalize on Mexico’s trade advantages: They import seasonal crops, such as tomatoes and strawberries, that ripen earlier in Baja and therefore command premium prices.

But, although such moves may increase Mexico’s agricultural sales to the United States at the expense of California produce, many trade specialists think that Mexico’s long-depressed and highly protected market for foreign food is about to swing open once again. They maintain that agricultural trade in both directions is on the brink of significant expansion for the first time since Mexico’s oil boom collapsed.

In fact, farm trade between the two countries, which had been flowing modestly in Mexico’s favor since 1986, is near equilibrium and will probably shift to a U.S. surplus this year--and possibly a strong one at that. U.S. farm exports last October and November, the first two months of the government’s new fiscal year, soared to $533.6 million. For the same months a year earlier, sales totaled $181 million.

Focus on Opportunities

Meanwhile, Mexico’s shipments north increased modestly to $190.9 million, up from $184.3 million, according to the government figures.

So Western growers, these experts maintain, might well focus less on fears of an invasion of the United States by low-cost Mexican produce and processing, and more on increased export opportunities for themselves.

“Mexico appears to be moving into the position of becoming a larger market for U.S. agricultural products,” Leon G. Mears, agricultural counselor at the U.S. Embassy in Mexico City, wrote in a recent assessment. “Anticipated changes in Mexico’s agricultural production and trade in the next few years are likely to have a considerable effect on the quantity and composition of its agricultural imports.”

California, at least, appears to anticipate significant growth in two-way trade across its southern border. Gov. George Deukmejian, who last year opened state trade offices in London and Tokyo, will dedicate a third foreign outpost next month--this one in Mexico City.

In his analysis, Mears pinned his optimism on anticipated economic growth and increased income in Mexico. That, he calculated, should boost consumption of meat, dairy products and eggs, which declined by up to 30% from the pre-recession high in 1981. U.S. food exports to Mexico reached a record $2.7 billion that year before plunging to less than $1.5 billion in a year. After bottoming out at $1.1 billion in 1986, however, they are again approaching the $2-billion mark.

Mexico’s population is growing rapidly, and a larger proportion of it is young, which translates into a hungrier country, Mears said. In addition, urbanization continues at a rapid pace: Although 30% of the country’s inhabitants lived in cities in 1950, 60% had moved to town by 1980. That is significant in terms of agricultural trade, he said, because urban consumers tend to buy more animal products and processed foods than do rural residents, many of whom also grow some of their own food.

Tourist Trade Boom

Moreover, migration, particularly to the United States, is expected to slow because of changes in immigration laws. And Mexico is experiencing a boom in the tourist trade, which attracted 5.5 million visitors last year and is expected to draw 8 million by the mid-1990s.

That dynamic backdrop adds significance to the fact that Mexico traditionally buys 70% of its food imports from the United States and has greatly liberalized its trade policy over the past five years, Mears said.

This start on reducing tariffs, licensing requirements and other import barriers was a precondition to Mexico’s joining the General Agreement on Tariffs and Trade in 1986. A year later, Mexico signed a bilateral pact with the United States that, Mears said, “should provide for further trade liberalization.”

The question is what form future liberalization might take, said Scott D. Morse of Morse Merchant Agribusiness, a San Francisco consulting firm that specializes in trade finance and regulation. It will likely require U.S. producers to give up some of the tariff protection that they enjoy on a wide range of commodities, he said.

Potential for Growth

A further significant reduction in food trade barriers, Morse said, could quadruple California’s farm trade with Mexico. This accounted for only about 2% of the state’s $3.34 billion in total agricultural exports in 1987, but the potential for growth is considerable, he said.

Mears said significant export opportunities for U.S. farmers exist for a variety of “high-value agricultural products.” These include almonds, walnuts, cherries, apples, peaches, pears, sweet corn and dried fruits. In addition, high-quality beef is needed to meet the tastes of Mexico’s expanding tourist trade. And wine, beer and other alcoholic beverages are in demand; also wood products, animal skins and hides, and prepared animal and poultry feeds.

Mears is not alone in his optimistic outlook for growth in Mexico’s food market.

Jimmye S. Hillman, an agricultural economist at the University of Arizona, told the American Farm Bureau Federation last month in San Antonio that “healthy economic tendencies” are in the wind. Mexico, he noted, already is the United States’ third-largest agricultural trading partner (after Japan and Canada), and the U.S. market is Mexico’s largest outlet for its farm exports.

Hillman said he expects Mexico to become more dependent on the United States for food imports.

But that will not happen without encouragement, Rep. E. (Kika) de la Garza (D-Tex.), chairman of the House Committee on Agriculture, told the U.S. farm group. “Mexico is in a very difficult situation, and we have to help them out.”

For now, however, the disparity in labor costs represents a major Mexican advantage in terms of its agricultural trade with the United States, as the Coachella firms tapping into that resource demonstrate. And that worries some farm groups, which complain that government policies--federal and state--often magnify foreign competitors’ trade advantages by unnecessarily increasing domestic costs.

“Our growers just can’t be expected to compete with Mexican growers paying daily wages equal to our hourly rates,” said David Moore, president of Irvine-based Western Growers Assn., which represents 2,700 produce growers, packers and shippers in California and Arizona.

Move ‘Off Shore’ Feared

The danger, spokeswoman Barbara Buck said, is that domestic farm interests, as happened earlier with automobiles, steel and textiles, will move “offshore,” attracted by lower production costs elsewhere.

“It may be that, economically and with no emotions, that wouldn’t be a bad thing,” Buck acknowledged, “but these are families , living on family farms--for four generations, some of them. It’s going to be difficult to have it be a purely economical decision.”

On the other hand, increasing Mexico’s standard of living to reduce the labor imbalance may be impossible without long-term U.S. aid, suggested Henry J. Voss, a Ceres rancher who heads the California Farm Bureau. “There is no reason why Mexico someday should not be as big a trade partner as Canada is,” Voss said, “but there is a need for a great amount of California investment in Mexico to bring that about.

“We’re giving a lot more aid to other countries than to Mexico right next door.”