Fields of Free Trade
Mexico's Small Farmers in a Global Economy
This article is from the November/December 2003 issue of Dollars and Sense: The Magazine of Economic Justice available at http://www.dollarsandsense.org/archives/2003/1103wise.html
This article is from the November/December 2003 issue of Dollars & Sense magazine.
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In Cancún, Mexico, on the stifling afternoon of September 10, Korean farm leader Lee Kyung Hae scaled the police barricades, which were keeping 10,000 protesting farmers from storming the World Trade Organization (WTO) talks, and thrust a knife into his own heart. His self-sacrifice proved to be a catalyst for the disparate protesters and a solemn reminder of the toll trade liberalization has taken on the world's poorest farmers. When the talks collapsed four days later, it became clear that the ship of free trade had foundered badly on the shoals of its captains' hypocrisy on farm policy.
Mexican farmers provided the protests' largest contingent, and not just because the meeting took place on their own embattled soil. Based on their experiences under the North American Free Trade Agreement (NAFTA) and the free-trade model that it embodies, they had a lot to say. Farmers of maize and other grains, who produce for subsistence and for local and regional markets, have been hardest hit by liberalization, with imports from the United States driving prices down to unsustainable levels. But much of the export sector has suffered as well, with gains in industrial tomato farming more than offset by sharp declines in coffee, Mexico's most important export crop in both employment and output.
Mexico's small-scale farmers came together last winter to demand that their government renegotiate NAFTA's agricultural provisions and establish new policies for the countryside. While they have thus far failed to win a commitment from the pro-free trade administration of Vicente Fox to renegotiate NAFTA, last spring they secured new funds for rural development and a promise to assess the agreement's impact on small farmers and to take measures to defend and promote the sector. Whether the movement can hold Fox to those promises remains to be seen, but the farmers' rejection of the neoliberal model is here to stay.
A closer look at the experiences of Mexican farmers of corn and coffee—the country's largest domestic and export crops which directly support some 20 million of the country's 100 million people—illustrates the perils of agricultural trade liberalization. Farmers' responses to the crisis and their policy proposals present a useful starting point for an alternative approach to rural development, one that recognizes the limits of trade, the importance of domestic food sources, and the value of peasant production.
Unrealized Promises
Although some policy-makers still point to Mexico as a success story, there is a growing consensus that the free trade experiment—which began well before NAFTA's inception in 1994—has not lived up to expectations. Its failures are all the more striking given Mexico's indisputable success in transforming one of the world's most protected economies into one of the most open and in attracting the foreign investment needed to capitalize such a transformation. Since 1985, when Mexico began its rapid liberalization process, exports have doubled and foreign direct investment has nearly tripled. According to the promises of free-trade proponents, with inflation in check, Mexico should have reaped the rewards of liberalization. It hasn't. Growth has been slow, job creation has been sluggish, wages have declined, poverty has increased, and the environment has taken a beating. (See "Free Trade's Unkept Promises," page 17.)
In many ways, Mexico got what NAFTA promised: trade and investment. Unfortunately, these have not translated into benefits for the Mexican population as a whole or into improvements in the country's fragile environment. And there is little question that rural Mexico has suffered the greatest decline.
NAFTA versus Maize
When NAFTA was negotiated, Mexico's leaders promised the agreement would help modernize the countryside, converting low-yield peasant plots into highly productive commercial farms growing fruits, vegetables, and other export crops for the U.S. market. Farmers who could not modernize or export would be absorbed as workers into the rising export industrial sector and the expanding service sector. Sensitive to the important role of corn in Mexico's culture and economy—over 3 million farmers grow corn, triple the employment in the maquiladora export assembly sector—NAFTA included a 15-year phase-out period for corn tariffs along with strict import quotas. Such a phased "tariff-rate quota" system was designed to ensure a gradual transition to competition with more developed and highly subsidized U.S. producers.
Farmers were confronted with a far different reality. After negotiating these protections for its corn farmers, the Mexican government proceeded to throw them overboard. Citing supply shortages for basic grains, the government unilaterally approved imports over NAFTA's quotas and then declined to collect tariffs. The decision reflected the growing power of agribusiness interests within Mexico, which coveted access to cheaper and lower-quality U.S. corn. The livestock industry wanted cheap feed, the beverage industry sought inexpensive corn sweetener, and a growing processed-food industry wanted to reduce its input costs for flour.
The result was free-trade shock treatment for corn farmers. Instead of a difficult long-term adjustment to competition with U.S. farmers, they faced the near-impossible challenge of fully liberalized trade just three years into NAFTA. Imports doubled and the price of corn fell nearly 50%. At the same time, the Mexican government was phasing out its price-support system, the final step in bringing Mexico into compliance with the Uruguay Round Agreement on Agriculture (URAA). Though CONASUPO, the main government agency managing supplies and prices, did not fold until 1998, price supports for most crops were eliminated in 1989. Corn and beans saw support into the mid-1990s, though at reduced levels. Facing fiscal pressures after the peso crisis and bailout of the banking sector, the government also reduced other rural support and modernization programs.
Corn farmers and other grain growers responded with an aggressive effort to stay on the land. Their organization, the National Association of Commercial Enterprises (ANEC), brings together over 180,000 producers, mostly small- and medium-scale landowners working 25 acres or less and selling the majority of their produce in local and regional markets. ANEC has bought abandoned state storage facilities, developed its own marketing infrastructure, promoted regional trade, and fostered sustainable agriculture practices. It is estimated that members earn prices 10% to 12% higher than the free market can provide.
"We do not and will not accept that we are mere surplus, that we are not productive, not competitive, that we are a burden for the country," said an ANEC leader at the group's 2000 General Assembly. "We are productive now … we can be more productive in the future … but only if the role of the small and medium peasant producers is revalued." Despite ANEC's success in revaluing the contributions of small farmers, the import flood still threatens to drown many growers, with producer prices below the cost of production.
Disinterest and Disinvestment
The farm crisis is not simply a problem of imports, or even of the structural imbalances between the United States' industrial agriculture and Mexico's more traditional farming. In corn fields, those differences are stark, with the United States farming nearly four times the acreage at over three times the yield, resulting in eleven times Mexico's output. That glut of American corn, which is subsidized at a per-acre level at least triple that of Mexico, sells at less than half the price of Mexico's traditional maize. Such disparities prompted farmers' initial demand to exclude corn from NAFTA, a position the government later watered down to the 15-year tariff-rate quota and a vague U.S. promise to consider reducing its farm subsidies.
At the heart of the crisis, though, is a long-term structural decline in international prices for agricultural and other non-oil commodities. According to the World Bank, real prices for non-oil commodities have fallen by an average of 50% since 1980 to their lowest levels in a century. Global overproduction has been fed by rising productivity in industrial agriculture and the neoliberal mantra to export, export, export. For many developing countries, World Bank and International Monetary Fund policies have mandated a deepening dependency on a few commodities and a turn away from the diversification that characterized Latin American development strategies in the 1960s and 1970s. This dependency, in turn, makes countries particularly vulnerable when commodity prices fall sharply.
Small farmers are even more vulnerable when their government abandons them. True to its neoliberal ideals and its URAA commitments, the Mexican government dismantled most of the agencies that had bought and sold farm produce, provided credit and technical assistance, and administered price supports and subsidies. The percentage of the government budget devoted to agriculture fell by half, to just 4.6% of outlays. Farm subsidies dropped 58% in real terms. The promised modernization of Mexican agriculture through public investment withered on the free-trade vine. New irrigation, an explicit government goal prior to NAFTA, never materialized, with the amount of new irrigated land falling from 100,000 acres in 1991 to a post-NAFTA average of just 17,000 acres per year. Lending by both government and private-sector rural credit programs declined 75% after 1994, when NAFTA took effect, while rural bankruptcies increased sixfold.
Nor did foreign investment, the free-trade elixir for all development ills, step in to slow the bleeding. A paltry 0.2% of the $128 billion in foreign direct investment that flowed into Mexico from 1994 to 2002 went to agriculture. Just three activities—hog farming, horticulture (fruits and vegetables), and flowers—claimed 94% of that total, and almost 90% ended up in the two Mexican states that already had the most modern agriculture.
According to one government-commissioned study, overall investment levels as a percentage of agricultural GDP declined from a healthy 11% in 1980 to 6% in 1985, then dropped to 3% just prior to NAFTA's signing. They have remained under 2% since NAFTA took effect. If its goal was to modernize Mexican agriculture, the liberalization project has been a dismal failure.
Winning Through Exports?
In a free-trade world it is almost a given that if you're not part of the trading, you're part of the problem. NAFTA's apologists could claim that Mexico's inefficient grain farmers were just not competitive in a market freed of distortions. As the cold logic of comparative advantage separated the high-value wheat (or, in this case, corn) from the uncompetitive chaff, they needed to find more productive uses for their labor or their land. With few prospects for efficiency gains on poor lands suffering disinvestment and a rural credit vacuum, farmers who wanted to stay in agriculture would have to switch crops and export.
For small farmers in Mexico's rugged highlands, coffee might have seemed a likely solution. It was already the country's largest export crop, and the second largest commodity export after oil. Before NAFTA, Mexico was the world's fourth largest coffee producer, and its shade-grown arabica beans were highly valued on the international market. Better still, there would be no competition with U.S. producers.
Free Trade's Unkept Promises
NAFTA took effect in 1994, but the "neoliberal" experiment began in the mid-1980s following Mexico's 1982 debt crisis. Ten years into NAFTA and nearly twenty years into neoliberalism, the track record, drawn from official World Bank and Mexican government figures, is poor:
•Economic growth has been slow. Since 1985, Mexico has seen average annual per capita real growth of just 1%, compared to 3.4% from 1960 to 1980.
•Job growth has been sluggish. There has been little job creation, falling far short of the demand from young people entering the labor force. Manufacturing, one of the few sectors to show significant economic growth, has registered only marginal net job creation since NAFTA took effect.
•The new jobs are not good jobs. Nearly half of all new formal-sector jobs created under NAFTA do not include any of the benefits mandated by Mexican law (social security, vacations, holidays, etc.). One-third of the economically active population works in the informal sector.
•Wages have declined. The real minimum wage is down 60% since 1982, 23% since NAFTA's inception. Wages in all sectors have followed suit.
•Poverty has increased. According to Mexico's most respected poverty researchers, the number of households living in poverty has grown 80% since 1984, with nearly 80% of Mexico's people now below the poverty line, up from 59% in 1984. Income distribution has become more lopsided, making Mexico one of the hemisphere's most unequal societies.
•The rural sector is in crisis. Four-fifths of rural Mexicans live in poverty, over half in extreme poverty. Migration levels remain high despite unprecedented risks due to increased U.S. border patrols.
•Imports surpass exports. The export boom has been outpaced by an import boom, in part due to intrafirm trade within multinationals.
•The environment has deteriorated. The Mexican government estimates that from 1985 to 1999, the economic costs of environmental degradation amounted to 10% of annual GDP, or $36 billion per year. These costs dwarf economic growth, which amounted to only $9.4 billion annually.
So much for economic theory. Mexico's coffee farmers have been living their own free-trade nightmare, and it has little to do with NAFTA. In 1989, the U.S. and Mexican governments pulled out of the International Coffee Agreement (ICA), a supply-management arrangement between major producing and consuming countries that had kept supplies and prices at relatively stable and sustainable levels. The target price had been $1.20 to $1.40 per pound. Such "market-distorting" schemes are proscribed by the Organization for Economic Cooperation and Development and the Agreement on Agriculture of the GATT (General Agreement on Tariffs and Trade), the precursor to the WTO.
The result was as predictable as it was devastating to small coffee farmers. Prices plummeted to below the costs of production (about $0.60 a pound in Mexico) as stored coffee flooded the market and free competition among producing countries bid down prices. Five years of low prices (1989-94) ended temporarily when destructive frosts in Brazil in 1994 and 1997 killed off coffee trees in the world's largest producing nation. But when Brazil's new, high-yield coffee plantations came back on the market, prices fell even lower.
The market was further glutted by the entry of Vietnam, which grew from a virtual nonproducer in 1990 into the second largest coffee producer in the world by 2000. The World Bank and other development agencies had heavily promoted coffee as a viable export crop for small farmers in Vietnam and elsewhere, offering loans and other inducements. It worked, but by 2000, depressed prices had even low-cost producers in Vietnam scrambling to survive. By 2002, even the lowest-cost producers were unable to recoup their production costs.
Mexico's coffee farmers were especially hard hit by the price drop. They grow some of the world's best coffee, but at costs higher than many of their competitors. The sector is dominated by small farmers on shady hillside plots, with yields lower than Brazil's ecologically damaging but high-yield plantations. And the Mexican government added neoliberal insult to free-trade injury by eliminating INMECAFE, the Mexican coffee institute that had marketed and promoted Mexican coffee from its 285,000 producers.
In one of Mexico's poorest coffee-growing states, the Coffee Producers of Oaxaca (CEPCO), a grassroots organization of nearly 30,000 small-scale producers from nine indigenous groups, responded to the crisis with an impressive array of independent initiatives designed to "appropriate the production process for the producers." The members created their own credit union, mobilized women farmers, and promoted direct sales from their collective to marketers and consumers in the fair-trade movement. CEPCO campaigns encouraged farmers to produce certified organic coffee, bringing substantially higher prices for some 8,000 member families.
International market prices now hover around $0.50 a pound (and producers usually get far less than that). Organic fair-trade coffee pays producers $1.41 a pound, a dramatic price premium. But while the fair-trade and organic markets are growing quickly, they still account for a very small percentage of the market—currently about 3%. As even the most ardent fair-trade advocates acknowledge, niche markets can't solve a worldwide overproduction problem that affects far more producers than fair-trade consumers could ever sustain.
CEPCO's organic producers aside, most Mexican coffee farmers are in dire straits. Even high-quality arabica beans now receive low prices from international buyers. The national coffee farmer association in Mexico reports a 40% decline in coffee production in the past three years, a 55% decline in coffee exports, and a 70% decline in income from coffee sales. Many producers are letting the beans rot on the trees, since it makes little economic sense to harvest them. Clearly, if there is going to be a solution to coffee farmers' free-trade woes, it will come from a reversal of free-trade policies. An international coalition of coffee farmer organizations has called for a return to supply management and international assistance in keeping the lowest quality coffee off the market.
Mobilizing for Change
CEPCO's and ANEC's efforts have not been enough to reverse the overwhelming impacts of unregulated globalization and the Mexican government's abandonment of small-scale farmers. That is why coffee and corn growers have joined other farmers' groups in demanding policies and trade agreements that recognize and value the social, economic, and environmental contributions of small producers. Their demands are hardly radical, but their implications are entirely subversive to the neoliberal model. The farmers' movement has demanded:
1. A moratorium on the agricultural provisions of NAFTA, if not their renegotiation;
2. Emergency and long-term agricultural development programs;
3. Viable rural credit institutions providing adequate and affordable credit;
4. Government investment in rural infrastructure and communities;
5. Food safety and quality for Mexican consumers (a response to the importation of genetically modified corn from the United States);
6. Recognition of the rights of indigenous communities.
The April 2003 agreement with the Fox administration represented one important battle in a longer war. In the long run, the farmers' movement is demanding a return to an inclusive government development strategy in which trade and foreign investment are but two of many economic means to an end. They are not the ends in themselves.
If the WTO meetings in Cancún are any indication, farmers will continue to be a thorn in the side of the liberalization juggernaut. Via Campesina, an international farmer alliance that claims over 100 million members, put the issue front and center in Cancún. Arguing that agricultural products are more than just commodities and rural communities are more than just laborers, the group demanded that agriculture be removed from the WTO. They advanced the new concept of "food sovereignty"—the right of every country to decide how it will meet the food needs of its people, free of the strictures of WTO rules.
With negotiations on the proposed Free Trade Area of the Americas slated for November, we can look forward to further conflict. Current drafts include significant agricultural liberalization, following through on the U.S. promise that the Free Trade Area of the Americas will be a "NAFTA for the hemisphere." Before signing any deal, the peoples of Latin America and the Caribbean would do well to talk to Mexico's farmers.