NAFTA Truth and Consequences: Corn

Public Citizen
March 31, 2004

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Public Citizen | March 31, 2004

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.

NOTICE: In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving this information for research and educational purposes.

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