Free Trade Proves Devastating for Mexican Farmers

Ask hog farmer Juan Manuel Maya what free trade has done for him, and he’ll tell you in a broken voice, standing amid his silent and empty pens, that it has destroyed him.

Maya called it quits this month after 20 years, selling off the last of the 1,200 sows that once produced thousands of piglets annually for feedlots all over Mexico. A veterinarian, Maya loved hog farming, plowed $2 million into leading-edge technology and was considered a pillar of his industry.

But it wasn’t enough to ensure survival. Like thousands of other Mexican hog farmers, Maya, 61, was overwhelmed by the U.S. swine imports that have flooded this country since the North American Free Trade Agreement took effect in 1994. The trade pact is gradually erasing tariffs on all U.S. farm products, forcing a head-to-head competition that few Mexican growers are up to.

“What a sad place. What was all prosperity and productivity is now like a cemetery,” said Maya of his farm, which once bustled with 35 employees and the arrivals of a dozen big trucks a week to haul his piglets away. Deserted and deathly quiet, his farm 125 miles northwest of Mexico City is up for sale.

NAFTA has been beneficial for Mexico in many ways. It has opened up the economy to foreign investment, helped modernize industry, lowered consumer prices and encouraged democratic reforms. Industrial exports have boomed.

But few would argue that NAFTA has been anything but devastating for Mexican farm families, which account for 23% of Mexico’s 100 million people. Many farmers simply cannot compete with low-cost U.S. imports of grain, vegetable and livestock now pouring into Mexico at low or zero duty. Maya and thousands like him are giving up.

U.S. farms are getting bigger and bigger and have become much more efficient producers than almost any growers in the world. That efficiency is aided by high-tech growing techniques, low-cost financing and enormous government production subsidies, exemplified by the $190-billion farm bill passed in May.

It’s not just Mexico’s hog farmers who are suffering. Growers of corn, rice, pineapples, sugar, apples and poultry are foundering in the sea of U.S. imports. Farm failures are thought to be causing an exodus of peasants from the country to the cities -- and to the United States. Maya said 17 of the 35 employees he let go have immigrated illegally to the U.S.

But hog farmers are among the hardest hit. A third of Mexico’s 18,000 swine producers have gone out of business since NAFTA took effect, the Mexican Hog Farmers Assn. says. Why? U.S. pork imports have more than doubled and have grabbed a 40% market share among Mexico’s consumers and food processing firms, up from just 5% before.

The value of U.S. hog imports in Mexico rose to $344.9 million last year, more than double the $134.7 million in 1993, the year before NAFTA took effect. Meanwhile, Mexican hog exports to the United States were just $4.5 million, half the $11 million in 1993.

Maya has no doubt that it was time to exit. He knew that price competition would only intensify Jan. 1, when the final remnants of import duties on U.S. hogs and hundreds of other agricultural items are eliminated, allowing all U.S. farm products except corn, powdered milk and beans to enter Mexico duty-free. In 2008, tariffs on those three final categories will be abolished.

He also feared the consequences of the 10-year, $190-billion farm subsidy bill that took effect Oct. 1. It raised existing U.S. government support by 78%, a move that tilted the playing field even more.

Farmers aren’t sitting idly by. Protests, marches and roadblocks by growers are increasingly common in Mexico: 900 hog farmers from all over Mexico shut the Nuevo Laredo border crossing in June for four hours. The commotion has prompted President Vicente Fox’s promise to take a hard line in his meeting today with President Bush at the Asia-Pacific Economic Cooperation meeting in Baja California.

Fox said last week that he will ask Bush to cut the subsidy package, which he warned could further damage Mexican farmers and accelerate illegal migration.

“We are going to be adamant. We are analyzing the latest measures that the United States has taken in [agriculture], and however small they may be, if there is a violation in the free trade agreement, we will act with the greatest firmness,” Fox said.

Other top government officials also are talking tough. Economy Minister Luis Ernesto Derbez warned that the government would file more anti-dumping claims against the U.S. unless something is done to fix the “asymmetrical” farm trade relationship. Agriculture Ministry officials have promised to give hard-pressed farmers some sort of financial “armor” but have not specified what it might be or how it would be paid for.

But there is little chance of reimposing tariffs, as some Mexican legislators have demanded. NAFTA changes require legislative approval of the U.S., Mexico and third signatory Canada -- a renegotiation process that could hurt Mexico more than help it, said Gustavo Vega Canovas, a political scientist and NAFTA expert at Colegio de Mexico in Mexico City.

“That could open a Pandora’s box by giving all NAFTA opponents in the United States and Canada who were not happy with the original agreement the opportunity to ask for something too,” Vega said.

What went wrong for Mexico’s farmers? NAFTA’s agriculture provisions were based on the assumption that a phased-in elimination of most farm tariffs over a 10-year period would give Mexican farmers time to modernize, invest in technology and be ready for head-to-head competition Jan. 1, 2003.

Farmers like Maya bought into it. So did his neighbor, hog farmer Enrique Flores, a Texas A&M; University graduate who sank $3 million into modernizing and expanding his sheds, including feeding systems, manure processing and sanitation measures.

But the assumptions proved hopelessly optimistic. Eight years after NAFTA, Mexican farmers pay more for virtually every farm cost except labor, from grain -- which accounts for 55% of the cost of raising a hog -- to machinery and trucking, electricity and credit. That makes competition a losing proposition.

Flores said his grain costs are 20% higher than those of his U.S. competitors -- if he pays in cash. Borrowing to pay for it only deepens the disadvantage, because he pays interest rates of 25% for a farm loan, three times what U.S. growers are charged.

Mexican farmers have also been hurt by the government’s failure to impose and enforce agricultural norms and standards, said Kenneth Shwedel, vice president of research at Rabobank, a Dutch agro-business bank with a branch in Mexico City. Hog farmers say that the lack of supervision has opened the door to cheap, poor-quality meat imports for use by Mexican food processors, products that they say are unacceptable by U.S. standards.

Mexican farmers are still suffering -- as are many Mexican businesses -- from the financial crisis and bank failures of 1995. Its aftermath forced banks to raise the cost of loans and severely limit lending, which in turn have inhibited growth in farming and other sectors.

Enrique Dominguez, director of the Mexican Hog Farmers Assn., said his members have problems in spades: 85% of those who remain are losing money.

“How can we have an open market when we have such different policies on each side of the border, one side benefiting from $19 billion a year in subsidies and the other much less? We need a compensatory system or one side is going to do away with the other,” Dominguez said.

For Maya, the damage is already done. Among the 35 people he laid off were his daughter, who did his accounting, and his son, a recent agricultural science graduate from Iowa State University.

“NAFTA was a good idea, but, in the agricultural sector at least, they didn’t take into account all the advantages that one country had over the other,” Maya said. “I have dedicated my life to raising hogs. I’m sorry to lose this life.”