THE FIGHT OVER FREE TRADE : As Winners Eye Gains, Losers Fear NAFTA’s Pain : Agriculture: The end of protective tariffs is fraught with uncertainty. Sugar beet growers are sure to suffer while corn growers anticipate a boom.

The notice still taped to the glass front door of the sprawling sugar beet processing plant is blunt: “Effective Friday, Oct. 30, 1992 . . . applications for employment will no longer be accepted.”

It is last year’s sign, posted after the plant--across the Red River of the North from this sleepy farm town--had completed hiring for the “fall campaign,” when mounds of sugar beets the size of bloated softballs are cleaned, sliced, boiled and crystallized into processed sugar.

Residents here fear that such dark and disheartening notices will appear with increasing frequency if the controversial three-way free trade pact negotiated by the United States, Mexico and Canada is approved. If Congress ratifies the North America Free Trade Agreement this fall--the fight is certain to be bitter--it will take effect Jan. 1.

Then, say this town’s farmers, politicians and business people, the sugar beets will disappear--and so, too, will the jobs they bring. In the fertile swath of land along the Minnesota-North Dakota border where the rich, charcoal-colored loam each autumn yields a bountiful harvest of bulbous brown sugar beets, the sweet life will turn sour, they fear.

“There would be complete devastation,” said Lawrence Deal, who this year planted sugar beets on 185 of his 800 acres near Doran, a hamlet 10 miles southeast of here. “You’d see the whole area go broke.”

Of course, the free trade agreement is likely to bestow significant benefits on other communities, where the lowering of trade barriers would lead to an increase in job-producing exports. Elsewhere in Minnesota, for instance, the pact would boost exports of corn, prepared foods, auto parts and agricultural chemicals, according to a business coalition supporting the agreement.

Down in Pleasanton, Neb., home of Randy Cruise, president of the National Corn Growers Assn., the accord could be a real boon. Eliminating Mexico’s tariffs on corn from the United States would create a new market for American corn farmers and boost their income through increased sales and upward pressure on prices.

But that is little consolation to tiny Breckenridge (population 3,708). Even if NAFTA produces far more benefits than costs for the nation as a whole, as many experts anticipate, it could still upset the economics of the domestic sugar beet industry--an industry that has thrived in a protectionist cocoon that NAFTA would unravel.

The trade agreement would remove quotas that keep Mexican sugar out of the United States and reduce Mexican tariffs that now prevent soft drink bottlers using from using American corn syrup. Farmers here fear the changed rules would allow Mexico to flood the U.S. market with cheap surplus sugar that would bowl over the multibillion-dollar American sugar industry--whatever the gains for U.S. corn growners and sugar consumers.

There is more at issue than the profits of the 220 farmers growing sugar beets in this region, or the dollars and cents of life in an out-of-the-way pocket of rural America. The argument over sugar beets is a microcosm of the approaching public debate over the agreement as a whole. America, after all, is dotted with communities that share concerns like those of the people of Breckenridge.

Supporters of the trade accord cite studies projecting huge potential benefits from ratification of the three-way treaty, such as a net gain of some 200,000 jobs in the United States. In California, for example, proponents say the treaty would increase net employment by 30,000 to 40,000, with more than four new jobs for every one lost.

Yet even the treaty’s most enthusiastic advocates acknowledge that for certain industries, regions and communities, NAFTA will produce far more losses than gains. Indeed, the biggest problem President Clinton and other supporters face is that the treaty’s potential benefits tend to be diffuse and difficult to identify in advance, while the pain it would create is sharp and its sufferers ready to speak out.

Textile towns worry about cheap imports arriving free of the tariffs that have kept American products competitive. Teamsters worry about a relaxation of standards that would let Mexican truck drivers onto U.S. highways under fewer of the regulations that raise costs for American drivers. Factory towns are concerned about the appeal that lower labor costs and less stringent enforcement of environmental standards in Mexico would have to domestic manufacturers.

Such anxieties led Rep. Collin C. Peterson (D-Minn.), who represents Breckenridge, to announce his opposition to the trade agreement. And similar misgivings around the country almost certainly will turn congressional consideration of the pact into a contentious debate.

If these concerns are not overcome, they could doom the free-trade plan.

The pact was completed last year; side agreements intended to protect labor standards and the environment, and to guard specific industries against “import surges,” were added in August.

Clinton plans to send the accord and its supplements to Congress in coming weeks. A June 30 court decision, ordering the Administration to study the treaty’s impact on the environment, is being appealed, but it has thrown the timetable into doubt.

In communities such as Breckenridge, there is fear for a lifestyle--one built on a bulwark of quotas and tariffs, perhaps, but one that has provided comfort and security.

Unemployment here is a low 4.2%, thanks in large part to the 210 full-time jobs at the Minn-Dak Farmers Cooperative across the river in North Dakota, a tally that rises to 516 positions at the height of the sugar beet season.

Should Breckenridge face direct competition from Mexican sugar grown at lower costs, people here say the farmers will stop raising sugar beets and the hands will lose their jobs. The sugar beet processing plant would be closed; Krebs’ Buick and Pontiac dealership would lay off one or two workers, and so would the John Deere farm machinery dealer.

The supermarket would need fewer clerks. The banks would make fewer loans and serve fewer depositors. Young people would leave the farms to look for work in Minneapolis and Fargo, N.D.

The town--with a business district barely two blocks long as it is--would just fade away, they say.

“Basically, the community of Breckenridge without agriculture is dead,” said Carol Walker, an insurance agent here for 25 years who is president of the Chamber of Commerce.

For 20 years--ever since the opening of the processing plant made it profitable to grow sugar beets because they no longer had to be moved by truck or rail to faraway refineries--the big cash crop here has been sugar. In Wilkin County, Minn., and adjacent Richland County, N.D., roughly 65,000 acres--a patch of land approximately twice the size of Beverly Hills--are planted this season with sugar beets.

No one is saying that if NAFTA goes into effect, the land spanning the slow-flowing Red River of the North will suddenly go fallow.

“Sure, we could grow more wheat,” said Michael L. Matz, senior vice president of First American Bank of Breckenridge. “But the (profit) margin in wheat is very, very small,” he explained one summer evening as he presided in T-shirt and jeans over the cash box during a bank-sponsored “Moola Moola” parking-lot party for young depositors.

The pocketbook equation works out this way: In a good year, an acre of sugar beets can produce as much as $900 on an investment of $450 to $500. An acre of wheat would return perhaps $160 on an investment of $130.

Terry Goerger, who raises sugar beets, soybeans and grains on 650 acres first farmed by his great-grandfather in southern Richland County, N.D., sees a less prosperous future without sugar beets. “I’d have less income,” he said. “I’d lose my investment in the co-op. I’d lose the investment in equipment I don’t need. The community will lose people I don’t employ, which will hit Main Street pretty hard.”

Farmers here say the agreement would remove the protection that import quotas have afforded refined domestic sugar, both sugar cane in the warmer parts of the country and sugar beets in the upper Midwest. From Minn-Dak and other refineries, railroads haul one-ton sacks of sugar to bakeries, soft drink canners and other food processors--and to the retail companies that fill the sugar bowls on America’s kitchen tables.

NAFTA would allow nearly unlimited and untaxed access to the American, Mexican and Canadian markets for businesses in the three countries. With the agreement in effect, opponents say, soft drink makers in Mexico would follow the lead of companies in this country and use cheaper U.S. corn syrup--now kept out of the Mexican market there by a 15% tariff--rather than the more expensive Mexican-grown sugar they now use.

According to this scenario, Mexican farmers who now sell most of their crop to their domestic soft drink companies would look north to a potentially lucrative market for refined sugar in the United States.

Citing a U.S. Department of Agriculture estimate, Luther Markwart, executive vice president of the American Sugarbeet Growers Assn., predicted that under the agreement, Mexico would ship 800,000 tons of sugar to the United States by 2008. That is equivalent to 11% of the 7.2 million tons of sugar expected to be produced in this country in 1993, and more than 100 times the annual quota of 7,200 tons now allotted to Mexico.

“All sugar growers in the United States are concerned about NAFTA, that they’d be wiped out by the sugar imports,” said Thea Lee, an economist at the Economic Policy Institute, a policy research organization in Washington that opposes the agreement.

“The sugar people see this as out-and-out war,” said Rep. Peterson. “The growers, the co-ops, the workers--they don’t want any part of it.”

Such opposition has caught the attention of the people in the office of the U.S. Trade Representative who helped negotiate the agreement. “There’s no doubt the sugar people are politically influential in a number of states, and we take it seriously,” said one official who spoke on condition of anonymity.

NAFTA supporters say that industry is overlooking the broader picture. “This was not an agreement that focused just on sugar,” the official said. “It focuses on all trade between the United States and Mexico. Across the board on agriculture, it comes out fair.”

The agreement provides a seven-year phase-in period to protect U.S. sugar farmers from the jolts of sudden competition. Still, “at some point in time, everyone who produces agricultural products is going to be exposed to free trade--and that means sugar too,” the official said. The concern that high-fructose corn syrup would replace sugar in the Mexican soft drink industry “was one of the industry concerns we were unable to accommodate,” he said.

The overall outlook for U.S. agriculture is far brighter, the Administration believes. Officials contend that removing trade restrictions will benefit American farmers because they operate more efficiently than their Mexican counterparts.

Indeed, prospects for widely enhanced sales of corn to Mexico have put U.S. corn farmers solidly in the NAFTA camp. “We’ll definitely benefit,” said Keith Heard, executive vice president of the National Corn Growers Assn. and director of its Washington office.

Mexico, a country heavily dependent on corn to feed its people, would no longer be allowed to protect its own corn farmers with tight quotas and tariffs. In the first year, U.S. farmers could ship 2.5 million metric tons of corn to Mexico; within 15 years, all quotas would be eliminated.

“We’re going to double our exports of corn (to Mexico) almost immediately, from 1 million metric tons to 2.5 million,” predicted Heard. “We’re talking substantial amounts of corn exports.”

In the end, Administration officials say, the superior efficiency and greater resources of American farmers will enable the growers of Breckenridge to overcome foreign competition.

That competitive edge has not come cheaply.

A tour of the Lawrence Deal farm, on land his grandfather homesteaded in 1890, reveals a pricey array of implements. There’s a $130,000, four-wheel-drive tractor that rolls on 12 six-foot-diameter tires. There is a harvester. And a crop sprayer with a 50-foot boom and 150-gallon tank.

It is not unusual for a beet farmer to own $250,000 worth of equipment, according to Ervin Dye, a salesman at the John Deere dealership.

Without the special equipment needs of the sugar beet farmers, he said, “we would probably see a 25% reduction in sales.”

The message was the same a few hundred yards up U.S. 75, the main street through Breckenridge. “In a town like this one, that ripple effect is incredible,” said Steve Krebs, owner of the Pontiac and Buick dealership. “My business would drop 20%; but then you think of the rest of it. . . .”

Layoffs? “Absolutely,” he said. “Obviously, my expenses have to drop and my payroll has to drop.”

Ditto for Snyder’s Drug Store and the Jubilee Supermarket, which adds four workers every summer to keep up with the business that comes with the migrant farm hands who work in the sugar beet fields. Sugar beets require more ground preparation than wheat, more applications of weed killers and--seemingly an anachronism amid all the expensive machinery--hoeing by hand in late spring and early summer.

From the banks to the farm, from farm to town, from the co-op to the workers, the dollars flow. Each dollar spent on producing sugar beets produces another $1.86 as it ripples through the economy, according to S. Larry Leistritz, a professor of agricultural economics at North Dakota State University in Fargo.

On long summer days it is quiet at the Minn-Dak co-op. The odors of sugar making have been replaced by the smell of fresh paint.

The plant operates 24 hours a day during the “campaign,” when 5,800 tons of beets daily are fed into its hoppers to emerge as water, fiber that will be fed to cattle in Europe and Japan, molasses and--most profitably--sugar. Summer is the time for construction and improvements at the plant, along with routine maintenance. That too means jobs for local residents.

A new storeroom expansion is under way. Last summer, a third epoxy-lined steel silo was added.

“You don’t realize the amount of money set in motion,” said Deal, a member of the co-op’s board. “We bring in coal from Montana (300 tons a day), a new filter system from Europe. All this money funnels out on a national and international basis.”

At issue, he said, is more than a trade agreement. It is maintaining a profitable industry that, with government protection, has put sugar on American tables and kept Breckenridge prosperous for two decades.

“It’s not just NAFTA,” he said.

“It’s a way of life.”

NAFTA’s Impact on U.S. Agribusiness

Projections of how the North American Free Trade Agreement will affect key sectors of American agriculture vary, with proponents of the treaty predicted broad gains and critics warning of wholesale losses. What follows are highlights of the Agriculture Department’s upbeat assessment. Bear in mind that the Clinton Administration wants the treaty approved. Product: Beef Net Gain (Loss) in U.S. Exports*: $200 million-$400 million Analysis: More young cattle will be shipped to the U.S. for feeding; more slaughtered cattle will be shipped to Mexico Effect on U.S. Prices: Negligible rise

Product: Dairy Net Gain (Loss) in U.S. Exports*: $62 million-$69 million Analysis: Increase in exports of nonfat dry milk; 15% increase in exports of other dairy products; few Mexican exports likely Effect on U.S. Prices: No projection

Product: Coarse grains Net Gain (Loss) in U.S. Exports*: $400 million-$500 million Analysis: Steady increases in U.S. corn and sorghum exports; 20% increase in barley, rye and oat exports Effect on U.S. Prices: No projection

Product: Oilseeds Net Gain (Loss) in U.S. Exports*: $400 million-$500 million Analysis: 20% increase in U.S. soybean exports; modest increases in U.S. exports of soymeal, cottonseed and other oil seeds Effect on U.S. Prices: Negligible rise

Product: Wheat Net Gain (Loss) in U.S. Exports*: No projection Analysis: 20% increase in U.S. exports, to about 1.5 million metric tons Effect on U.S. Prices: Negligible rise

Product: Cotton Net Gain (Loss) in U.S. Exports*: No projection Analysis: Some increase in U.S. exports of raw cotton and textiles; Mexico likely to substantially increase exports of textiles and apparel Effect on U.S. Prices: No projection

Product: Vegetables & Melons Net Gain (Loss) in U.S. Exports*: No projection Analysis: Small increase in U.S. exports of sweet corn, green beans, tomato paste, frozen asparagus; increases in Mexican exports of cucumbers, bell peppers, broccoli, tomatoes, asparagus, melons. Effect on U.S. Prices: Will vary

Product: Non-citrus fruit Net Gain (Loss) in U.S. Exports*: Will vary Analysis: U.S. exports of fresh peaches, apples and pears to Mexico will double; Mexican exports of strawberries could rise; U.S. strawberry exports to Canada will rise up to 13% Effect on U.S. Prices: Peach prices will rise 6%; apple, pear and strawberry prices will rise slightly

Product: Citrus fruit Net Gain (Loss) in U.S. Exports*: No projection Analysis: U.S. exports of fresh oranges to Mexico will increase, but U.S. will remain a net importer; slight increase in U.S. imports of frozen orange juice concentrate Effect on U.S. Prices: No projection for fresh oranges; slight drop in prices for frozen concentrate

Overall: Increased U.S. exports of $2 billion to $2.5 billion; increased Mexican exports to the U.S. of $500 million to $600 million.

* Annually as of 2008, when most tariffs would be eliminated

Source: USDA Office of Economics