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Opening Doors in a Burgeoning Regional Grain Market
By Kenneth Murray and James Gartner
The U.S. grain sector has
benefited in many ways from NAFTA, and the outlook is favorable
for continued expansion of grain trade among the three NAFTA
partners, the United States, Canada, and Mexico.
Improved access to the Mexican grain market has been especially good news for U.S. growers. Though domestic producers have fretted over increasing Canadian grain and grain product sales in the United States such sales actually began under NAFTA’s precursor, the 1989 U.S.-Canada Free Trade Agreement (FTA).
On balance, though, the freeing up of rules governing grain marketing within North America holds great promise for the continent as a stimulant to trade flows. It is also a step toward economic integration, not only within the three-country region, but throughout all of the Americas, as planned under the Free Trade Agreement of the Americas (FTAA).
Trade Boons with Mexico. . .
NAFTA mandates the eventual elimination of trade barriers among its members. This provision mainly affects trade with Mexico, because the United States and Canada undertook a similar condition in the CFTA.
Although Mexico now enjoys relatively free access to both the U. S. and Canadian markets, it has little grain or grain products to export; on the contrary, Mexico is a major importer of wheat, corn and sorghum. Conversely, the United States and Canada are world leaders -- and rivals -- in grain exports. While the United States remains Mexico’s principal grain supplier overall, Canada is making inroads into the Mexican wheat market.
Before enactment of NAFTA in 1994, Mexico controlled all its grain imports through restrictive licensing and high tariffs. But now, the United States and Canada enjoy preferential treatment.
For example, Mexico’s wheat import licensing requirement has been eliminated for the United States and Canada, but remains in effect for all other suppliers such as the European Union (EU) and Argentina, two other major players in the world market.
In addition, Mexico set its import tariff on wheat from the United States and Canada at 15 percent, and will gradually reduce it to zero over 10 years.
The tariff on wheat from other suppliers stands at a hefty 67 percent, effectively shutting them out of this market. Mexico’s overall wheat imports are projected to be 1.2 million tons in the 1998/99 trade year (July 1 - June 30).
Mexico has set a tariff rate quota (TRQ) with a zero duty for corn of U.S. or Canadian origin. The 1998 minimum TRQ was set at 2.8 million tons, but later raised to 4.5 million tons to help meet feed demand.
The Mexican Government allocates the TRQ by sector, with the largest portion going to the animal feed industry, the second-largest to starch manufacturers and the remainder to food processors. The TRQ system will remain in effect through 2008, with minimum initial allocations increasing 3 percent a year. Corn imports that exceed the TRQ will be assessed a duty of 172 percent, but this will be phased out for intra-NAFTA trade over 15 years.
Mexican imports of U.S. sorghum, already duty- and quota-free,
and are projected to reach 2.7 million tons in trade year 1998/99
(October 1 - September 30). 
The outlook for U.S. grain exports to Mexico is ripe with promise, because that country’s demand for wheat and feed grains continues to outstrip its production capacity. At the same time, Mexico’s policymakers are moving away from the concept of self-sufficiency and embracing greater market orientation. Consequently, grain imports play a vital role in Mexico’s agricultural and food economy. The preferential trading arrangements under NAFTA assure that the United States will retain its position as Mexico’s leading grain supplier.
Mexico consistently ranks as the largest foreign market for U.S. sorghum and the second- or third-largest market for U.S. corn. In addition, exports of U.S. rice to Mexico have ranged between 200,000 and 300,000 tons in recent years.
. . . And Prickly Hurdles With Canada
The other side of the coin is grain
trade between the United States and Canada.
Because of the CFTA, grain trade between the United States and Canada was already on the upswing before NAFTA went into effect. By 1997, trade in grain and related products between the two totaled a record $2.7 billion.
The Canadian share ($1.6 billion) consisted mainly of sales of wheat, malting barley, oats and processed products such as pet foods, breakfast cereals and bread. The U.S. share ($1.1 billion) was made up mostly of corn and processed items, again including pet foods and breakfast cereals.
The rising tide of Canadian wheat and barley exports to the United States has caused consternation among some U.S. farmers, especially those along the northern tier of the Great Plains. Because Canada’s grain exports are controlled by the Canadian Wheat Board, they often spark the complaint that they’re supported by hidden subsidies. Canada’s strict control over the movement of U.S. wheat into Canada remains another source of contention.
Less concern exists for trade in oats. Canadian oats are welcomed by U.S. processors, who cannot get enough of the product from domestic sources. U.S. oats production has declined dramatically over the years, to the point where now it meets just two-thirds of domestic consumption needs.
Closer American Trade Ties?
Progress on the FTAA, envisioned as sweeping all countries from the Arctic Circle to Tiera del Fuego in a single free-trade area, has been slow.
Meanwhile, our trade partners and competitors are pursuing their interests with vigor.
South American nations are busily working to expand their own trading bloc, MERCOSUR, which affords its members trade preferences. MERCOSUR membership, for instance, has given Argentina an advantageous position as the No. 1 grain supplier to this market.
Canada has announced that it will explore the possibility of
negotiating a free trade agreement with the MERCOSUR countries.
The EU has indicated that it wants to open negotiations with
MERCOSUR and Chile.
Canada also has been negotiating a free trade agreement with Chile that provides Canada with duty preferences for wheat and other grain exports.
These developments have placed U. S. grain exports to South America at a disadvantage, raising the stakes for U.S. grain producers and exporters for the successful negotiation of an FTAA which will include all of our American neighbors.
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Kenneth Murray, foreign agricultural affairs officer, and
James Gartner, an agricultural economist, are with FAS’
Grain and Feed Division. Tel.: (202) 720-6219; Fax:
(202)720-0340; Email: murrayk@fas.usda.gov,
gartner@fas.usda.gov
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