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NAFTA: Truth and Consequences on Corn dumping

http://www.citizen.org/trade/nafta/agriculture/articles.cfm?ID=11303

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NAFTA Truth and Consequences: Corn

NAFTA Defenders' Myth: The flood of U.S. corn that has been dumped in
Mexico during NAFTA has not harmed Mexico's farmers because the U.S.
imports are yellow corn for animal feed while Mexican farmers grow white
corn for human consumption.

REALITY: Since NAFTA came into effect on January 1, 1994, U.S. corn
exports to Mexico have almost doubled to some 6 million metric tons in
2002. NAFTA eliminated quotas limiting corn imports (Mexico used to
only import corn when its farmers' production fell short of domestic
needs) but allowed U.S. subsidy programs to remain in place - promoting
dumping of corn into Mexico by U.S. agribusiness at below the cost of
production. While U.S. corn exports to Mexico were almost all yellow
corn in the mid-1990s, some 20% are now white corn. Even before the U.S.
white corn exports began to increase, the price paid to farmers in
Mexico for corn fell by over 70% as huge amounts of U.S. yellow corn
were dumped in the Mexican market. In 2001, Mexican farmers produced 18
million tons of corn - 3 million of which were left unused.

U.S. corn is typically dumped in the Mexican market at up to 30% below
the cost of production. In addition, corn buyers in Mexico are attracted
to imported U.S. corn by the very favorable loan rates available to them
through U.S. export agencies. In the years immediately following NAFTA's
introduction for example, buyers that contracted with U.S. exporters had
access to loans through the U.S. Commodity Credit Corporation at 7% for
3 years. Interest rates from Mexican lenders ran between 25 and 30% at
that time. The availability of large amounts of U.S. yellow corn,
combined with the favorable credit terms, has given a small number of
large corn purchasers in Mexico tremendous leverage over prices in their
dealings with Mexican producers; if the Mexican farmers will not sell
them corn at their demanded price, the large producers - including
Mexican corn mills and other food processors now part-owned by U.S.
agribusinesses - buy U.S. corn.

While large amounts of U.S. yellow corn are used in Mexico as animal
feed, substantial amounts are also used in preparing food for human
consumption. The growing use of yellow corn for human food has triggered
protests and outrage in Mexico. At a news conference in August 2002, a
coalition of corn producers, activists and representatives from the
Mexican states of Chihuahua and Sinaloa gave voice to a widespread sense
of outrage over the "indiscriminate importing" of U.S. corn, its use for
human consumption and its alleged health risks. According to the popular
Mexican magazine Cambio, one out of every three corn tortillas in Mexico
is now made out of imported corn.

Under sustained political pressure from citizens and activists, the
Mexican government in 2002 agreed to publish the list of companies that
import U.S. corn, which showed extensive purchases by producers of food
for human consumption.
Click to view U.S. corn imports by Mexican food-producing companies.

Moreover, yellow and white corn are treated as the same commodity under
NAFTA. This policy has had serious consequences for Mexican corn
growers, as it made it almost impossible to maintain price differentials
between yellow corn and the normally-more-expensive white corn. Prior to
NAFTA, the white corn that most Mexican farmers grow was priced some 25%
higher than yellow corn.[1] By 1996, this price differential had
disappeared. Under NAFTA's terms, Mexico can collect tariffs on corn
imports above a certain level, but this quota includes both yellow and
white corn. So while large-scale protests and intense public pressure
led the Mexican government to reinstate a NAFTA-permitted above-quota
tariff for imported white corn in December 2003, but the Senate defeated
a measure to also reinstate tariffs on imported yellow corn. Victor
Suarez, a representative of the Partido de la Revolucion Democratica
(PRD) argued that not placing a tariff on yellow corn will jeopardize 3
million small and medium-sized producers and will benefit 10 large corn
transnational and Mexican firms; among the Mexican firms, he singled out
Bachoco, Lala, Maseca and Minsa, and among multinational corporations,
he named Cargill, Archer Daniels, Corn Products International, Tyson,
Pilgrim's Pride and Ralston.[2]

NAFTA provided for a 15-year phase-out of Mexican tariffs on imported
corn.[3] The Mexican government decided to almost entirely liberalize
the sector within three years instead of the allowed 15 years. This
greatly exacerbated what would have been a serious to the rural economy
if it had been phased in over the full 15 years. According to Mexican
activists, a government advisory panel called the Committee to Evaluate
Corn Imports was instrumental in the decision to import twice as much
U.S.corn each year as the government had agreed under NAFTA.[4]
Large-scale Mexican corn consumers (many of whom are substantially owned
by U.S. agribusiness interests, two of which - Cargill and ADM - are
responsible for fully two-thirds of all U.S.corn exports[5]) dominate
this committee. Only recently was the government forced to give domestic
corn producers some representation on this panel.


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[1] Alejandro Nadal, "The Environmental and Social Impact of Economic
Liberalization on Corn Production in Mexico," study for Oxfam Great
Britain and the World Wildlife Fund International, Sep. 2000, p.16.

[2] Elba Mónica Bravo, "Representatives back agreement to eliminate
tariff on yellow corn," La Cronica, Dec. 29, 2003,
http://www.cronica.com.mx.

[3] Under NAFTA. the tariff rate quota (TRQ) for all corn was initially
set at 2.5 million tons a year, with a planned constant increase of 3%
per year, while the ad valorem tariffs for exceeding the quota would be
reduced from 206% in 1994 to zero by 2008.

[4] Hugh Dellios, "10 Years Later, NAFTA Harvests a Stunted Crop,"
Chicago Tribune, Dec. 14, 2003.

[5] Mary Beth Lake; Sophia Murphy; Mark Ritchie, "United States Dumping
on World Agricultural Markets," report by the Institute for Agriculture
and Trade Policy, 2003, p.8.