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The Trade Numerologist - Why Farmers Fear Killing NAFTA

19 March 2018 John Miller

As negotiators from the U.S., Canada and Mexico prepare to start their eighth round of redoing the North American Free Trade Agreement in April, one key concern, and unresolved issue, is agricultural trade.

Farmers and their customers in the three nations are worried about market access and supply. In a letter to Wilbur Ross, the U.S. secretary of commerce, a lobbying alliance of over 80 American farm organizations said they would suffer “immediate, substantial harm” if the U.S. left NAFTA.

“Contracts would be cancelled, sales would be lost, able competitors would rush to seize our export markets, and litigation would abound even before withdrawal would take effect,” the letter said. It’s already happening, illustrating how political rhetoric itself can sometimes become a significant trade barrier. Buyers in all three countries have been diversifying their sourcing, in case their governments increase their tariffs on key imported goods in order to protect domestic suppliers.

Soybean processing plants in Mexico typically get two-third of their raw materials from the U.S. They are now ordering more soybeans from countries in South America. Already, one big beneficiary of U.S. protectionism is Brazil. Mexican importers are ramping up orders for Brazilian corn, soybeans, and meat.

Brazilian exports of meat to Mexico

2012: $0
2013: $872,187
2014: $35.9 million
2015: $63.7 million
2016: $108.2 million
2017: $217.5 million
To be sure, the U.S. is still, by far, Mexico’s biggest source of meat, but U.S. producers are worried that could change.

Mexican meat sources, 2017

U.S. $3.2 billion
Canada $328.3 million
Brazil $217.5 million
Chile $63.9 million
Nicaragua $45.1 million

Canada, too, is heavily reliant on U.S. meat.

Canadian meat sources, 2017

U.S. $1.4 billion
Australia $184.5 million
New Zealand $166.8 million
Brazil $47.3 million
Uruguay $47 million

As is usually the case in negotiations over farm and food products, negotiations are hinging on labeling and sanitary standards. The U.S. wants better access, especially in Canada, for its dairy and poultry farmers, who benefit from a quota system. U.S. exports of poultry to the north have been declining.

U.S. poultry exports to Canada

2015: $427.1 million
2016: $359.8 million
2017: $308 million

NAFTA has been a boon to U.S. farmers, who export everything from wine and almonds to corn and soybeans. U.S. agricultural exports to Mexico and Canada have increased to $40 billion a year from under $10 billion a year before the deal was implemented in 1994.

U.S. farmers are worried that Canada and Mexico could pressure U.S. trade officials by slapping duties on corn, soybeans, pork and beef.

If the Mexican reaction to NAFTA’s incentives has been to build a massive manufacturing cluster south of the border, the U.S. response has been a build-up in the capacity to produce foods Mexicans want and ship them south.

The trade deal has also helped farmers, cooperatives and other parts of the distributions chains in the U.S. and Canada build up their export supply chains, and become the top ten exporters of cereals, which includes wheat, corn, rice and sorghum.

Top cereals exporters, 2017

U.S. $18.7 billion
Argentina $7 billion
France $5.6 billion
Ukraine $6.5 billion
India $7.54 billion
Russia $7.48 billion
Australia $6.5 billion
Canada $6.3 billion
Thailand $5.4 billion
Brazil $5 billion

And Mexico and Canada are two of the U.S.’s top three export markets. Mexico is a massive buyer of U.S. corn.

Top destination, U.S. cereals exports, 2017

Mexico $3.9 billion
Japan $3.2 billion
China $1.3 billion
South Korea $1.2 billion
Colombia $1 billion
Taiwan $736.2 million
Peru $612.8 million
Philippines $583.2 million
Canada $507.6 million
Saudi Arabia $395.7 million

The U.S. is also the world’s biggest meat exporter.

Top meat exporters, first 11 months of 2017

U.S. $14.9 billion
Brazil $12.8 billion
Netherlands $9 billion
Germany $8.2 billion
Australia $8.1 billion
Spain $6 billion
Poland $4.9 billion
Canada $4.6 billion
New Zealand $4.2 billion
India $3.9 billion

And, just like in cereals, NAFTA partners are two of its biggest markets.

Top destinations, U.S. meat exports, 2017

Japan $3.2 billion
Mexico $2.9 billion
South Korea $1.5 billion
Hong Kong $1.5 billion
Canada $1.3 billion
Taiwan $527.3 million
China $477 million
Chile $207.1 million
Colombia $205.8 million

Individual states would suffer if the U.S. were to leave NAFTA. Canada is the top agricultural export market for 29 U.S. states.

For example, Virginia’s agriculture and forestry industries employ half a million people. The state’s agriculture and forestry exports to Canada have increased 475% and to Mexico by more than 1,300% since NAFTA was enacted in the 1990s.

“U.S. farm incomes are at their lowest in more than a decade, so we need to be removing barriers to trade and giving our farmers all the advantages and opportunities that we can,” Ralph Northam, governor of Virginia, said in a recent pro-NAFTA speech.

To be sure, Canada is equally reliant on U.S. markets, especially for its large timber sector.

Buyers of Canadian wood, 2017

U.S. $10.8 billion
China $1.3 billion
Japan $865.8 million
UK $286.5 million
South Korea $163.9 million

One sign of hope for farmers in all three countries: U.S. agriculture secretary Sonny Perdue has told reporters that President Trump softened his stance on NAFTA after seeing a map showing how reliant American farmers were on the trade treaty.

What topic would you like the Trade Numerologist to cover? Email tradenumerologist@gmail.com with comments and questions.

The Trade Numerologist is IHS Markit’s unique weekly look at global trade by award-winning journalist John W. Miller, formerly of the Wall Street Journal, using proprietary numbers from IHS Markit’s Global Trade Atlas database, the world’s most complete and accurate set of trade numbers.

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