Tuesday, July 6, 2010

NAFTA to Mexican Subsistence Corn Farmers: "You've Been Made Redundant"

My dad thinks it's hilarious that the British way to lay off workers is to say "You've been made redundant." Nothing personal or anything, but you're a redundancy and our bottom line says you need to go. Buh-bye. That was essentially what NAFTA did to many Mexican subsistence corn farmers. The negotiators of NAFTA looked at their numbers and decided that those farmers would be more efficient if they grew something else or left farming altogether. This was a naive decision, at best. Here's a postmortem of many of the mistakes they made in their assumptions during NAFTA negotiations.

Note: My source here is "The Environmental & Social Impacts of Economic Liberalization on Corn Production in Mexico" by Alejandro Nadal.

At the time of NAFTA, corn accounted for 60% of cultivated land in Mexico. Three million producers depend on corn for their incomes in Mexico, making up 8% of their population and 40% of their farmers. On average, Mexico has much lower corn yields than U.S. farmers - 1.8 tons per hectare in Mexico vs. 8 tons per hectare in the U.S. And it costs a U.S. farmer 40% less than a Mexican farmer (on average) to produce a bushel of corn.

On average is an important word here. The paper divides Mexican producers into three categories - competitive, intermediate, and subsistence.

Competitive farmers can attain yields similar to those in the U.S. They've got great soil, irrigation (or dependable rainfall), "input-intensive technologies" (tractors, pesticides, fertilizers, hybrid or GE seeds), and "well-established marketing channels." Often they've got a lot of land, and they have the flexibility to grow other crops instead of corn if they want to. Up the ante on the competition via a free trade agreement and these guys don't go out of business. One thing to note is that when corn prices dropped, so did prices for other crops like barley, rice, sorghum, and wheat, so it was still most profitable to grow corn, even for lower prices.

Subsistence producers, at the other end of the spectrum, make up 40% of all Mexican corn producers. (For now I'm going to skip over the intermediate producers.) Subsistence producers "operate under difficult conditions of inferior soil, sloping terrain, irregular rainfall, and small landholdings." They produce corn for their own consumption and then meet other financial needs with off-farm employment. In a pinch, they sell their excess corn (often right after harvest when the market is flooded and prices are low). If they run out of corn during the year, they have to buy more to eat (long after the harvest, when prices are high).

NAFTA negotiators assumed that corn prices wouldn't affect these subsistence farmers because they grow corn to eat and not to sell. Of course, as you can see, they do sell it to cover basic household needs. NAFTA made corn prices drop, lowering the amount these farmers can earn for their corn, but tortilla prices have stayed high (the low prices are not passed onto the consumers).

This is the group of farmers that NAFTA negotiators probably figured oughta do something other than grow corn. They are farming marginal lands and producing low yields. Wouldn't it be better for Mexico - and the world - if they did something more productive? Grow tomatoes for export perhaps, or go work in a factory in the city.

This was a stupid decision for several reasons. One is that these farmers are the stewards of some of the most varied and valuable corn genetics in the world. As corn was domesticated in Mexico, Mexico has the most variety in corn genetics. These peasants have painstakingly selected their seeds year after year to produce varieties of corn perfectly adapted to their climates and micro-climates. Should a disaster befall us (a new corn disease or pest or changing climate, for example) - especially considering that corn is one of the most important staple crops worldwide - these genetics are our best hope of finding a corn variety that can stand up to whatever new challenge the we face. Thus, the corn grown by these farmers in Mexico is not interchangeable with the corn grown by U.S. farmers. Sure, you can eat them both, or feed them both to your livestock, but only the Mexican farmers are doing the job of conserving all of these precious genetics, whereas U.S. farmers are not.

Another reason why the NAFTA negotiators screwed up is that they failed to understand corn farmers ability to just go grow something else. As mentioned earlier, prices of other crops went down at the same time the corn price dropped, so it was often still the most profitable to keep growing corn. Also, Mexico didn't have unlimited demand in the U.S. for some of its other crops (tomatoes, watermelons, citrus, peppers). For these crops, Mexico competes with California, Texas, and Florida producers, as well as Central American nations. And, NAFTA negotiators didn't take into account the role that technology would play in reducing the need for labor for these crops in the future. As new innovations allowed farmers to grow more with less, the increases in exports to the U.S. didn't translate into the same increases in labor on those farms.

Mexico's top crop (by metric tons produced) is actually sugar cane, not corn. Corn is #2. In theory - and in the treaty as signed by Mexico - NAFTA allowed Mexico to increase its sugar exports to the U.S. But the U.S. (which likes to protect its sugar industry) played a dirty trick on Mexico by slipping a designation of high fructose corn syrup as a sweetener into NAFTA before ratifying it. For technical reasons in the treaty, that little detail disqualified Mexico from sending us all of its sugar.

Then there's of course the notion that the few who are harmed by lower corn prices would be offset by the masses who would benefit from them at the supermarket. Unfortunately for Mexicans, corporations that bought corn, processed it, and sold it to consumers stepped up and took this savings for themselves. After NAFTA, tortilla prices went up.

Corn

As you can see in the graph above, Mexicans did not respond to NAFTA by producing less corn. In fact, they produced more corn. They also increased the amount of land where they grew corn. As Mexican corn producers were desperate to make ends meet in the face of lower prices, they began cultivating more marginal lands, with lower yields. I guess they didn't get the memo that they were supposed to quit growing corn and go work in a sweatshop.

This is just part one on NAFTA and corn in Mexico. Stay tuned for more.

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