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Down on the Farm: NAFTA's Seven-Years War on Farmers and Ranchers in the U.S., Canada and Mexico



DWINDLING INCOMES FOR SMALL FARMERS IN THE U.S., CANADA AND MEXICO, LOST FARMS AND RURAL CRISIS IS NAFTA'S LEGACY

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EXECUTIVE SUMMARY:
In the summer of 2001, family farmers and ranchers throughout North America are struggling.

During the 1993 debate over the fate of the North American Free Trade Agreement (NAFTA), U.S. farmers and ranchers were promised that NAFTA would provide access to new export markets and thus would finally bring a lasting solution to farmers' off-and-on struggles for economic success.

Now, seven years later, the evidence shows farm income has declined, consumer prices have risen and some giant agribusinesses have reaped huge profits. These outcomes are defining the growing national debates over President Bush's proposals to establish Fast Track trade authority and to expand NAFTA through the Free Trade Area of the Americas (FTAA).

This report reveals the basis for farmers' concern about NAFTA and its model of export-oriented agriculture. For the past seven years, Midwestern and Plains states wheat farmers; ranchers in Montana, Texas and other states; vegetable, flower and fruit growers in California; lumber mill owners in Louisiana, Arkansas and Washington; vegetable growers in Florida; chicken farmers nationwide and others have suffered declining commodity prices and farm income while a flood of NAFTA imports outpaced U.S. exports to Canada and Mexico.

Yet it was not farmers in Mexico or Canada who benefitted from U.S. farmers' woes. Millions of campesinos throughout Mexico have lost a significant source of income and left their small corn farms. Some became farm laborers working in squalid conditions for poverty wages on large plantations growing produce for export to the U.S. Others moved to Mexico's cities where unemployment is high. Canadian grain and dairy farmers also face steeply rising debt during the NAFTA era. This report also documents the rise in Mexican staple food prices, such as in tortilla prices, even as the price paid to Mexican corn farmers dropped 48%.

However, NAFTA has brought seven years of good fortune to many of the agribusinesses that pressured Washington, Ottawa and Mexico City to negotiate and ratify NAFTA's corporate- managed trade terms. Since NAFTA stripped away many safeguards for the folks who produce raw agricultural products, relative power and leverage has grown for large agribusiness conglomerates to exert pressure on both farmers and consumers.

In Washington D.C., the Bush Administration is pushing forward with an ambitious plan to expand the NAFTA model throughout the hemisphere through FTAA. President George W. Bush and his principal trade policy advisors have stated that they intend to make the debate about NAFTA expansion and Fast Track (which they want to rename "Presidential Trade Promotion Authority") a referendum on NAFTA.

Public Citizen agrees that the debate over NAFTA expansion ­ indeed, the national conversation about the premises and direction of U.S. trade policy ­ should be decided on the basis of the real-life results of NAFTA and the model on which it is based.

In this report, we show how independent farmers in the U.S., Mexico and Canada have seen agricultural prices plummet, farm incomes collapse and critical domestic agriculture safety net programs dismantled. International free trade agreements and the domestic policies which furthered implementation of the export-oriented model, such as the U.S. "Freedom to Farm Act," have proved to benefit only the largest agribusinesses while the majority of farmers and consumers have lost. Our principle findings are these:

The U.S. Agricultural Trade Surplus Has Shrunk Under NAFTA
The U.S. trade surplus in agricultural products, which once was the flagship of U.S. exports, has declined significantly since NAFTA went into effect, and that trend is most profound with NAFTA partners Canada and Mexico.

While the U.S. world trade surplus in agricultural products declined 29.6% during seven years of NAFTA, the U.S. NAFTA trade surplus in agricultural products declined 71%.

The U.S. agricultural trade surplus with Mexico and Canada increased before NAFTA by $203 million (between 1991 and 1994) but fell by $1.498 billion under NAFTA.

This declining trade balance is caused because U.S. exports to Canada and Mexico have grown modestly, while imports to the United States from those countries have grown much faster. In 1989, competitive imports (those that replace crops grown in the U.S.) were 38% of U.S. export levels and 71% of all U.S. agricultural imports. Based on preliminary 2000 data, competitive imports were 60% of U.S. export sales and represented 80% of all U.S. agricultural imports.

Meanwhile, the vaunted promises of new NAFTA export markets for U.S. farm products have proven to be as elusive as NAFTA proponents' promises of new U.S. manufacturing jobs created by exports to Mexico. Between the 1994-1995 growing season and the 1999-2000 season:

U.S. corn export volume fell by 11% and prices fell by 20%.

the volume of wheat exports declined by 8% and prices dropped 28%.

the volume of cotton exports fell by 28% and prices plunged 38%.

during the same period, even though the volume of soybean exports increased 16%, the total U.S. soybean crop value still declined by 2% because the per-bushel price fell by 15%.

The most consistent growth market for U.S. farmers has been the domestic consumer market. However, NAFTA provided guarantees of market access for agriculture products -- even when domestic production meets domestic needs -- so that U.S. farmers are now competing for the U.S. domestic market against a new flood of NAFTA imports. The result has been declining trade balances during the period of NAFTA for an array of commodities.

Poultry: The poultry industry trade surplus fell 14% between 1995 and 1999.

Cattle & Beef: The cattle and beef sectors' $21 million surplus in 1995 had become a $152 million deficit by 1999.

Grain and Cereals: The grain and cereals surplus has slid by a third since 1995.

The oilseeds surplus has fallen 17%, and the animal and vegetable oils surplus has been cut in half since 1995.

Fresh Chilled and Frozen Vegetables: The fresh, chilled and frozen vegetables trade deficit grew from $438 million in 1995 to a deficit of more than $1 billion in 1999.

Fruit: The U.S. fresh fruit trade deficit grew from $127 million in 1995 to $469 million in 1999. The frozen fruit trade sector saw a $9 million surplus in 1995 become a $37 million deficit in 1999. The prepared and preserved fruit trade deficit grew by more than half, from a deficit of $236 million in 1995 to a deficit of $396 million.

Juice: The $18 million fruit and vegetable juice surplus in 1995 became a $48 million deficit in 1999.

Dairy: The dairy trade deficit nearly doubled from $416 million in 1995 to $796 million in 1999.

Meanwhile, although the U.S. overall NAFTA agricultural balance declined significantly since NAFTA, U.S. agribusinesses dumping of corn and other grains put Mexican peasant farmers at a devastating disadvantage. In contrast, in Canada, agricultural exports grew and the Canadian agriculture trade surplus grew since NAFTA was enacted. However, despite the growing agriculture trade surplus, farm incomes in Canada have declined and farm debt has risen sharply. The Canadian National Farmers Union explains that replacing consumption of domestically grown food with imported agricultural products has subjected Canadian farmers to the low prices and high volatility of export markets, even if the net agricultural trade balance remains positive and grows.

Agriculture Prices and Farm Incomes Have Collapsed Since NAFTA
At the same time that U.S. agricultural trade surpluses with NAFTA partners dwindled to ever smaller surpluses and even deficits for two years, prices paid to farmers for agriculture commodities collapsed.

Growing imports required under NAFTA have resulted in excess supply and sharply declining commodity prices. Between 1995 and 2000, the bushel price received by U.S. farmers declined 33% for corn, 42% for wheat, 34% for soybeans and 42% for rice. According to the U.S. International Trade Commission (U.S. ITC), the value of U.S. cereal and grain exports declined by 31% between 1995 and 1999 and the share of production going to exports fell by 17%. The value of U.S. oilseed exports declined 16% and the share of production going to exports fell by 15% between 1995 and 1999. The value of exports of U.S. tropical fruit such as pineapples, avocados and mangos fell 16%, and the share of production going to exports fell 40%. The value of citrus exports fell by a third and the share of production going to exports declined by 37% between 1995 and 1999. The value of poultry exports has declined 13% between 1995 and 1999 and the share of poultry production going to exports has fallen by 26%.

The result of the NAFTA agriculture model has been dwindling farm incomes for small farmers in all three countries.

U.S. Farm Income: In the U.S., 33,000 farms with under $100,000 annual income have disappeared during the seven years of NAFTA. This is a rate six times steeper than the pre-NAFTA period. In the U.S., farm income is projected to decline 9% between 2000 and 2001 -- from $45.4 billion to $41.3 billion in 2001. This compares to annual farm income of $59 billion before NAFTA went into effect in 1993 -- a 43% drop compared to the 2001 farm income projected by the Farm and Agriculture Policy Research Institute.

Mexican Farm Income: NAFTA-required changes have resulted in literally millions of Mexican peasant farmers leaving their small farms and their livelihoods and being forced to migrate. The land redistribution program established in the Mexican Constitution at the time of the Mexican Revolution was changed to meet NAFTA's foreign investor protection requirements-- meaning that, for the first time in 80, years small farmers could lose their land to bad debt. Projections range up to 15 million displaced Mexican small farmers because of NAFTA's agriculture provisions. At the start of NAFTA, more than one quarter of Mexican workers were employed in agricultural production. While overall population growth in Mexico over the past decade was 20%, rural population growth is now 6% while urban population growth is 44%, showing a trend of displaced farmers migrating to Mexico's cities, where unemployment rates are high, or to the north.

Canadian Farm Income: While Canada's NAFTA agricultural exports grew by C$6 billion between 1993 and 1999, net farm income declined by C$600 million over the same period instead of rising by $1.4 billion as Agri-Food Canada had predicted. Since NAFTA, the rate of Canadian farm bankruptcies and delinquent loans is five times that before NAFTA, even as Canadian agricultural exports doubled. Dropping prices meant that in Canada, farmers' net incomes declined 19% between 1989 and 1999, although Canadian agricultural exports doubled during that period.

NAFTA Has Been Used to Justify Shredding Farm Safety Nets
Using NAFTA both as a sales pitch and as the political instrument to force policy change, corporate and political elites in Washington, Mexico City and Ottawa set about eliminating domestic farm programs aimed at safeguarding growers. In the U.S., the same interests helped shape the 1996 Freedom to Farm Act, part and parcel of implementing the export-oriented NAFTA agriculture model.

While assorted export subsidies useful to commodity traders remained, domestic programs including price supports and commodity loans that had made family farming economically viable in the U.S. were cut. These domestic programs put protections into place to safeguard family farmers from the whims and dictates of the commodities brokers and speculators and to offer buffers against wild market fluctuations. When real grain prices fell by as much as 20% in 1998 -- after being depressed by half between 1978 and 1997 -- farmers faced the cruel reality that the twin policies of free trade and elimination of domestic farm policies effectively would hand the entire food production and distribution sectors over to the agribusinesses who had pushed these trade and farm policies.

Ironically, to counteract the failure of NAFTA and the same farm deregulation policies embodied in the Freedom to Farm Act, Congress has had to appropriate emergency farm supports -- in massive farm bailout bills -- every year since the legislation went into effect.

As well as the undoing of Mexico's land reform policy, the Mexican government eliminated floor prices for corn and caps on tortilla prices, and government investment in agricultural projects fell by 90% even though 39% of Mexico's population lives in rural communities.

NAFTA's rule empowering investors, guaranteeing grain traders access rights and constraining government regulatory action has set up a race to the bottom in farm income, wages and sanitary and environmental standards. For instance, a quantity of the huge new NAFTA flood of tomatoes and peppers are coming from transnational agribusinesses which relocated production to Mexico to access $3.60/day rural labor, exploit the use pesticides banned in the U.S. and enjoy unlimited duty-free access back into the U.S. consumer market. Lax Mexican labor law enforcement also means the Mexican operations are not required to invest in worker safety or sanitation. The result is that Mexican farm workers are being exposed to toxic pesticides and squalid work conditions. Meanwhile, the food produced under such conditions runs a greater risk of contamination and poses increased risk to consumers. In 1998, contaminated strawberries were imported from Mexico, causing a massive hepatitis outbreak among Michigan school children eating the berries in school lunches. In 2001, two people died from salmonella after being infected by cantaloupe from Mexico which could have been contaminated through unsanitary working conditions such as a lack of bathrooms and hand washing facilities on Mexican farms.

Greater Concentration of Agribusiness in NAFTA Era
Many agribusiness concerns operating in North America took advantage of the new rights of market access for agricultural products and NAFTA's new investor protections and began rapid consolidation. Agribusiness mega-mergers like the unions of Smithfield Foods and Murphy Family Farms, or top poultry producer Tyson Foods with meat packer IBP, have become a feature of the NAFTA era. Agribusinesses have been able to create new export platforms which play farmers from the U.S., Mexico and Canada against one another in a fight for survival as prices paid to producers are steadily pushed down. While the number of independent farmers dropped between 1993 and 2000, agribusiness giants such as ConAgra and Archer Daniels Midland had significant earnings gains. From 1993 to 2000, ConAgra's profits grew 189% from $143 million to $413 million; and Archer Daniels Midland's profits nearly tripled between 1993 and 2000 from $110 million to $301 million.(1)

NAFTA Encourages Transnational Agribusinesses to Dump Low-Priced Farm Commodities
The report describes how U.S. corn dumping into Mexico has devastated Mexican farmers and undermined the genetic diversity of Mexico's corn breeds. Although NAFTA provided a 15-year phase-in of corn import levels, the Mexican government opened the market in two years. Tons of imported corn sold below the floor price Mexican farmers had received before NAFTA flooded into the market. Between NAFTA's enactment in 1994 and 1998, Mexico's import of cheap corn forced millions of Mexican maize farmers and their families off the land; some projections run to as many as 15 million people, or about one in six Mexicans. While millions of peasant farmers left their farms and livelihoods, perversely the price for Mexican consumers of corn tortillas increased proving wrong the oft-repeated free trade mantra that greater imports and lower commodity prices benefit consumers with price cuts. Worse, Mexico's new reliance on imported corn meant that when U.S. corn supplies fell in 1996, Mexico faced a corn shortage that contributed to the malnourishment of one in five children.

One More Agribusiness NAFTA Goodie: Intellectual Property Provisions That Are Patent Protectionism and Encourage Biopiracy
NAFTA contains a chapter establishing intellectual property rights that require the three countries to issue patents guaranteeing 20-year monopoly marketing rights on a vast array of items, including seeds and plant varieties. It also required Mexico to change its domestic law and institute criminal penalties for violating these NAFTA rules. These vast new intellectual property rights have established yet another way for U.S. and Canadian agribusinesses to benefit from NAFTA: biopiracy. Indigenous communities that have been planting and crossbreeding strains of food crops for centuries to develop perfectly adapted varieties can be required, under NAFTA, to pay an annual license fee to use their own saved seeds if a corporate bio-prospector has collected the seeds and patented them. The report documents several specific cases that have arisen in recent years.

The Record of Food Fights Under NAFTA
A review of the agricultural trade disputes that have occurred during NAFTA reveals that many of the commodity constituencies that were supposed to have benefitted under NAFTA have, in fact, found their legitimate expectations subordinated to NAFTA's unfortunate reality. The study includes a detailed review of the U.S.-Canada softwood lumber fights and an array of other cases including:

The Endless Durum Wheat Fight and the Canadian Wheat Board Battles. A series of ongoing trade disputes over U.S.-Canada wheat trade have failed to remedy the pre-NAFTA or post-NAFTA problems for U.S. wheat farmers.

Peppers. Florida and California bell pepper farmers and New Mexican chile pepper farmers also are facing a flood of cheap chile pepper imports from Mexico, depressing prices and putting farmers out of business. To date, although the U.S. ITC has produced reports on the increasing importation of peppers into the U.S., required under NAFTA's implementing legislation, it has not recommended any actions to protect beleaguered domestic growers.

Tomatoes. Within the first two years of NAFTA's enactment, two thirds of Florida's tomato production was eliminated. Again, the U.S ITC has recommended no import surge protection or other safeguards.

Sugar from Mexico; U.S. High Fructose Corn Syrup. The U.S. and Mexico have been locked in a dispute over the amount of sugar the U.S. is required to import under NAFTA. The victims of this dispute are sugar beet growers in Colorado, Wyoming, Idaho, Michigan, Texas, Minnesota, Montana, Nebraska, New Mexico, North Dakota, Ohio, Oregon, California and Washington.

FTAA Will Expand NAFTA's Attack on Farmers
Finally, the report reviews data on farmers' prospects under the proposed FTAA. According to a comprehensive 1998 analysis of FTAA by the U.S. Department of Agriculture, FTAA will have a minimal positive impact on farm incomes in the U.S. at best. The report also found that FTAA would increase the U.S. agricultural trade deficit with FTAA countries. The USDA estimates that FTAA would increase agricultural imports into the U.S. by 3%, but increase U.S. agricultural exports by only 1%.

FTAA would open U.S. markets to South American agricultural export giants such as Brazil, Argentina, Chile and Uruguay. However, FTAA would not offer significant new export opportunities for U.S. producers. This is because many of the FTAA countries already have lower than NAFTA-level agriculture tariffs, yet the U.S. has no export markets there because competitive goods can be produced more cheaply than in the U.S.

According to USDA, the U.S. already has an agricultural trade deficit within the FTAA region of $2.6 billion in 2000. The USDA found that the FTAA would increase the regional U.S. agricultural trade deficit by $250 million -- an 18% increase. Updated 2000 USDA figures on FTAA show that if the FTAA were implemented, the U.S. agricultural trade deficit with the FTAA countries would grow by 1% for the first five years, 2% for the next 10 and then keep increasing.

Oddly, both of USDA's comprehensive FTAA analyses are noticeably silent on the potentially devastating impact the FTAA could have on fruit and vegetable growers, given that Chile is a world-class producer of fruits and vegetables that compete directly with produce grown in the U.S. (Only orange juice is noted by USDA, which reports that imports of Brazilian orange juice would increase steeply, wiping out U.S. production.) An array of U.S. commodities would be hurt if FTAA went into effect.

In 1996, the U.S. had a $1.6 million soy surplus with Argentina, and in 2000 the U.S. had a $2.8 million soy deficit. In 1996, the U.S. had a $53 million soy surplus with Brazil, and in 2000 the U.S. had a $843,000 soy deficit.

The U.S. has significant beef trade deficits with Argentina, Brazil and Uruguay. The U.S. beef deficit with Brazil has grown 1400% since 1991, from $6 million to $91 million.

Even without special market access privileges for Chile, U.S. fresh fruit imports from Chile grew by 42%, to $597 million between 1996 and 2000.

California's dominant domestic market share of wine and table grapes is vulnerable to imports from Chile. The U.S. world grape trade deficit has doubled between 1996 and 2000 to $191 million in 2000. Over the same period, the value of grape imports from Chile has grown 32% since 1996, to $388 million in 2000.

Conclusions and Recommendations
Given the NAFTA models' negative track record for farmers and consumers in the three NAFTA countries, growing opposition nationwide to the notion of expanding NAFTA through the proposed Free Trade Area of the Americas is not surprising. The seven-year record of NAFTA on agriculture sets the context for the increasingly heated debate about the demand by the Bush Administration that Congress delegate away its constitutionally designated authority to set U.S. trade policy by granting the Administration multi-year Fast Track trade authority.

The Administration argues that Fast Track is necessary for the U.S. to successfully negotiate and approve trade agreements. Yet although hundreds of trade pacts were implemented since Fast Track's 1974 inception, Fast Track has been used only five times. According to the Office of the United States Trade Representative, nearly 300 separate trade agreements were negotiated by the Clinton Administration.

At the last House Agriculture Committee hearing on trade, Commerce Secretary Evans could not name a single country that refused to negotiate with the U.S. because of the absence of Fast Track. Evans admitted that several additional Latin American countries already have approached the U.S. to negotiate bilateral FTAs even without Fast Track. Given that these countries join a list that includes Singapore, New Zealand and others, the issue seems to be a shortage of U.S. negotiators to work with all of the countries seeking deals, not a lack of Fast Track keeping away new potential trade partners.

The only way to ensure that U.S. trade policy suits the broad needs of U.S. farmers and consumers is for Congress and the public to play a more prominent and continual role in the entire policy process -- from setting the U.S. agenda to selecting appropriate prospective trade partners with whom to negotiating to ensuring the negotiations are obtaining U.S. goals and then to guaranteeing that only agreements that meet U.S. goals are approved and implemented. This level of involvement and oversight is impossible under the Fast Track process. The conclusion also lists the principles of a fair agriculture trade policy.