NAFTA Renegotiations: What’s at Stake for American Farmers, Ranchers, and Families

Report Trade

NAFTA Renegotiations: What’s at Stake for American Farmers, Ranchers, and Families

January 11, 2018 15 min read Download Report
Daren Bakst
Research Fellow in Agricultural Policy
Bakst studies and writes about agricultural and environmental policy and property rights, among other issues.

Summary

Agricultural trade provides many benefits to Americans—be they farmers, ranchers, or consumers. Exports enable farmers and ranchers to sell their goods to new markets, helping them to increase revenue and build stronger businesses. Imports make it possible for Americans and their families to purchase more affordable and better-quality agricultural commodities. Canada and Mexico are critical agricultural trading partners for the United States. This is why the current NAFTA renegotiations among the three countries is so important. This Backgrounder provides a picture of what is at stake with these negotiations by highlighting the importance of U.S. agricultural trade with both Canada and Mexico, on a national and state level. It also details some specific principles to guide this renegotiation process so that, at a minimum, the many benefits that the U.S. currently enjoys from agricultural trade are not threatened.

Key Takeaways

Canada and Mexico are critical for U.S. agricultural trade on both a national and state level.

There is much at stake with the NAFTA renegotiations for American farmers, ranchers, and families.

U.S. trade negotiators should ensure that, at a minimum, the many benefits that the U.S. currently enjoys from agricultural trade are not threatened.

Agricultural trade provides many benefits to American farmers, ranchers, and consumers. Exports enable farmers and ranchers to sell their goods to new markets, helping them to increase revenue and build stronger businesses. Imports make it possible for Americans and their families to purchase more affordable and better-quality agricultural commodities, such as staple items like fruits and vegetables, more readily throughout the year.

Canada and Mexico are critical agricultural trading partners for the United States. This is why the current North American Free Trade Agreement (NAFTA) renegotiations among the three countries is so important. This Backgrounder provides a picture of what is at stake with these negotiations by highlighting the importance of U.S. agricultural trade with both Canada and Mexico, on a national and state level. Finally, it details some specific principles to guide this renegotiation process so that, at a minimum, the many benefits that the U.S. currently enjoys from agricultural trade are not threatened.

The Importance of Agricultural Trade in General

As Chart 1 shows, both U.S. agricultural exports and imports have increased dramatically. In 1989, agricultural exports were about $40 billion, and by 2016 had increased to $134.8 billion, more than a threefold increase. During that same time, agricultural imports increased five times, from $21.9 billion in 1989 to $112 billion in 2016.[REF]

BG3277 Chart 1

Exports. For many American farmers and ranchers, exports are a necessity. They produce more than they can sell domestically. The U.S. Department of Agriculture’s (USDA’s) Economic Research Service (ERS) explains, “With the productivity of U.S. agriculture growing faster than domestic food and fiber demand, U.S. farmers and agricultural firms rely heavily on export markets to sustain prices and revenues.”[REF]

Based on volume, agricultural exports averaged about 20 percent of agricultural production from 2011 to 2013.[REF] For certain commodities, exports are even more important. For example, exports accounted for over 70 percent of the volume for both cotton and tree nuts (mostly almonds), and over 50 percent for wheat and rice.[REF] Further, according to the Congressional Research Service (CRS), “U.S. agricultural exports are projected to account for 33.4% of gross cash earnings in 2017.”[REF]

From an economy-wide perspective, according to the ERS, in 2015, agricultural exports created an additional $169.4 billion in economic activity and over 1 million full-time jobs.[REF]

Imports. Agricultural imports provide significant benefits to American consumers. For certain commodities, imports are critical because consumer demand exceeds domestic production capabilities.[REF] As an example, the ERS explains that “[o]ver 95 percent of coffee/cocoa/spices and fish/shellfish products consumed in the United States are imported.”[REF]

The Office of the United States Trade Representative has explained: “It’s important to remember that United States agricultural imports benefit consumers with lower prices and expanded choices.”[REF] The ERS notes that “U.S. consumers benefit from imports because imports expand food variety, stabilize year-round supplies of fresh fruits and vegetables, and temper increases in food prices.”[REF] In a recent report, the CRS highlights perceived market benefits of fruit and vegetable imports, such as “lowering costs (given a wider supply network)” and “improving eating quality.”[REF]

Further, high food prices have a disproportionate impact on low-income households. The lowest-income households spend a greater share of their after-tax income on food (33.0 percent) than other households, including the highest-income households (8.7 percent).[REF] By making food more affordable, including for staple items like fruits and vegetables, agricultural imports particularly help low-income households.

The Importance of Agricultural Exports to Canada and Mexico

Canada and Mexico are critical agricultural partners for the United States. As shown in Chart 2,agricultural exports to Canada were $5.3 billion in 1993, the year before implementation of NAFTA. In 2016, this number had nearly quadrupled to $20.3 billion. Agricultural exports to Mexico also saw major growth: In 1993, agricultural exports to Mexico were $3.6 billion and increased almost five times to $17.9 billion in 2016.[REF]

In 2016, Canada and Mexico were the second-largest and third-largest U.S. agricultural export markets, respectively. While China was the largest market with $21.4 billion, Canada was very close at $20.3 billion; in 2015, Canada was ahead of China. To provide additional context: Total agricultural exports to Canada and Mexico were greater than the next nine largest agricultural export markets combined.[REF]

BG3277 Chart 2

Export Data by Commodities. Table 1 lists 12 major commodities and their agricultural exports to Canada and Mexico in 2016. For seven of the 12 commodities listed, Canada or Mexico was the largest agricultural export market, and for 11 of the commodities, Canada or Mexico was a top three market. Further, for half of the commodities listed, both Canada and Mexico were a top three market.[REF]

Agricultural Exports to Canada and Mexico, by State, 2016

The data are also illuminating when looking at the value of agricultural exports to Canada and Mexico. At least 20 percent of the agricultural exports of nine of the 12 commodities went to Canada and Mexico (see Appendix Table 1). For half of the commodities listed, more than a third went to Canada and Mexico (this included dairy products, fresh fruit and fresh vegetables, poultry meats and products, pork and pork products, and peanuts). Fresh fruit and vegetable exports to Canada and Mexico were especially important, accounting for 47 percent and 82 percent of their total exports, respectively.[REF] Appendix Table 1 provides a more detailed breakdown of agricultural export data by commodity.

BG3277 Table 1

Export Data by States. The benefit of agricultural exports to Canada and Mexico is spread across most states. Map 1 shows that either Canada or Mexico, in 2016, was the top agricultural export market for an incredible 37 states and a top three market for every state except Hawaii and Washington. There were 31 states in which Canada and Mexico were both a top three market, including states as different as Iowa and Rhode Island.[REF]

BG3277 Map 1

When looking at percentage of agricultural exports for each state (in terms of value), as shown in Chart 3, there were 41 states in which 20 percent or more of agricultural exports went to Canada and Mexico, 32 states with 30 percent or more, and 12 states with more than half of agricultural exports going to Canada and Mexico.[REF] Appendix Table 2 provides a more detailed breakdown of agricultural export data by states.

BG3277 Chart 4

BG3277 Table 2

The Importance of Agricultural Imports from Canada and Mexico

As shown in Chart 4, agricultural imports from Canada were $4.7 billion in 1993, the year before implementation of NAFTA. In 2016, this number had more than quadrupled to $21.5 billion. Agricultural imports from Mexico also saw major growth: In 1993, agricultural imports from Mexico were $2.7 billion and increased more than eight times to $22.7 billion in 2016.[REF]

In 2016, Mexico and Canada were the largest and second-largest agricultural importing countries for the U.S., respectively. There was a big difference compared to other countries: The third-largest importer was China, and its imports ($4.2 billion) were just one-fifth of Canada’s imports ($21.5 billion). The total imports from Mexico and Canada was greater than the next 16 countries combined.[REF]

Both countries provide American consumers with a wide variety of imports, including fruits and vegetables. Table 2, using CRS data,[REF] shows the ranking of countries by fruit and vegetable imports to the U.S. Mexico is by far the top importer, with Canada a distant second. In 2015, both countries accounted for an astonishing 56 percent of the fruit and vegetable imports to the U.S.[REF]

Principles to Inform NAFTA Renegotiations and Agriculture

These data show how important agricultural trade with Canada and Mexico is for the U.S. The current NAFTA renegotiations should not risk these benefits. NAFTA helped to free up trade between Canada, Mexico, and the U.S., and if anything, renegotiations should only improve upon the agreement, not create unnecessary barriers. U.S. trade negotiators should keep the following principles in mind during the renegotiation process:

  • First, do no harm. There has been a constant[REF] mantra from many in the agricultural community regarding the renegotiations, including USDA Secretary Sonny Perdue:[REF] “[D]o no harm.” It is understandable why this has been the message; farmers and ranchers recognize the current benefits of agricultural trade. While this message may be simple, it does capture the bottom line principle that should guide the renegotiations.

  • Do not pick winners and losers. Trade negotiators should not help one industry at the expense of another, including agriculture, regardless of whether agriculture is the beneficiary or the “victim.” This principle should also apply when it comes to picking winners and losers within the overall agricultural sector or within a specific agricultural industry. Unfortunately, U.S. trade negotiators have been pushing a provision in the NAFTA renegotiations (known as the seasonal provision) that would favor a subset of a specific agricultural industry (by making it possible for growers to bring trade complaints on behalf of their “sub-industry”), even at the expense of other producers within that industry and others in agriculture.[REF]

    For example, Florida tomato growers could bring a case that would be analyzed based on their experience alone, regardless of whether producers of tomatoes in other states have the same concerns or are suffering any harm.

    This appears to be a matter not of whether a foreign country or its producers are taking inappropriate actions but of whether a small set of growers within an industry are able to effectively compete in the marketplace. The provision could lead to more trade disputes and possible trade retaliation against a wide range of agricultural commodities.

  • Minimize delay and uncertainty. Mexico is already reportedly looking to other countries to meet some of its agricultural import needs.[REF] With NAFTA in flux, both Canada and Mexico will likely look to producers in other countries, at least to some extent. American farmers and ranchers compete in a global agricultural marketplace, and factors that create uncertainty only make securing foreign customers more difficult. Further, once customers are lost, they may be difficult to win back in the future if foreign producers have successfully filled demand.

  • Promote freedom to trade. Trade is often discussed in connection with how it affects countries, but, as a general matter, trade is truly about the freedom[REF] of individuals and businesses to voluntarily exchange goods and services with customers. American farmers and ranchers, just like other businesses, should be free to sell to customers all over the world. Further, consumers should be free to purchase goods and services that best meet their needs, regardless of national origin. Government-imposed barriers, such as tariffs, undermine these freedoms. As U.S. trade negotiators work through the NAFTA renegotiations, this principle of freedom to trade should be front and center.

Conclusion

There is much at stake for agricultural producers and American families as a result of the NAFTA renegotiations. While risks do exist, the renegotiation process provides a unique opportunity to promote even freer agricultural trade, and as a result, greater prosperity. By addressing agricultural issues using the outlined principles, agricultural trade between Canada, Mexico, and the United States will continue to flourish.

—Daren Bakst is Research Fellow in Agricultural Policy in the Thomas A. Roe Institute for Economic Policy Studies, of the Institute for Economic Freedom, at The Heritage Foundation.

 

 

BG3277 Appendix Table 1

BG3277 Appendix Table 2 p1

BG3277 Appendix Table 2 p2

Authors

Daren Bakst
Daren Bakst

Research Fellow in Agricultural Policy