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The Environmental Costs of Agricultural Trade Liberalization: Mexico-U.S. Maize Trade Under NAFTA

Working Group on Environment and Development in the Americas March 29-30, 2004

Alejandro Nadal and Timothy A. Wise

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U.S. Advantage on a Tilted Playing Field

U.S. vs. Mexico in corn production:

•Nearly four times the area •Over three times the yield/hectare •Eleven times the production •At least three times the farm subsidies per hectare •Sold at less than half the price

Effect of NAFTA:

•Accelerated tariff reduction, 3 years instead of 15 •Tripling of U.S. exports to Mexico •47% drop in producer prices

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30 25 20 15 10 5 0 1990

U.S. Maize in Mexico

Mexican Maize Consumption Domestic vs Imported, 1990-2002 Domestic Production Imports

1992 1994 1996 1998 2000 Sources: Imports - FATUS USDA; Production - SIACON 2002

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Decline in Real Maize Prices, 1993-2002

Mean Rural Maize Prices 1993-2002

800 700 600 500 400 300 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Source: SIACON database, 2003.

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Mexico: Important Market for U.S. Corn

U.S. Corn Exports to Selected Countries 1990-2002

18 16 14 12 10 8 6 4 2 0 1990 Japan Taiwan S. Korea

Mexico

Japan S. Korea EU Mexico Taiw an Egypt Canada 1992 1994 1996 1998 2000 Source: USDA, Agricultural Statistics Service (2003) w w w .usda.gov/nass/ EU 2002

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An Analytical Framework

Agricultural Trade Liberalization and the Environment Pollution Haven:

* Assumes North-South pollution flow * For agricultural trade, could be the reverse

Globalization of Market Failure:

* Negative environmental externalities in North * Positive environmental externalities in South * Liberalized trade magnifies environmental harm * Environmental impact greater than sum of its parts

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Which crop uses the most chemicals?

Illinois is typical of other states

Illinois: Chemical intensity of crops, 2000

100% In every case, corn uses more chemicals than soy or winter wheat planted in the same state 80% 60% 40% 20% 0% nitrogen phosphate potash herbicides soy wheat corn

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Fertilizer Use in US Corn Production, 2000

110 105 100 95

Fertilizer

90 1994

Runoff

Nitrogen Phosphate Potash

Fertilizer Intensity of U.S. Corn 1994-2002

1996 1998 2000 kg fertilizer / hectare corn, 10 top states Source: USDA, NASS.

2002 Total Use (thousand metric tons) 4,424 1,577 1,716 Nitrogen Phosphate Potash Intensity (kg/hectare) 148 53 57

Excess nitrogen fertilizer runoff contributes to the dead zone in the Gulf of Mexico

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Pesticides

Pesticide Use in US Corn Production, 2000

Herbicides Insecticides Total Use (thousand metric tons) 69.61

4.45

Intensity (kg/hectare) 2.33

0.15

Pesticide Intensity of U.S. Corn 1994-2002

100 90 80 70 Herbicide 60 50 Insecticide 40 30 1994 1995 1996 1997 1998 1999 2000 2001 2002

kg chemical/hectare corn, 10 top states

Source: USDA, NASS Herbicide decrease: *real improvement *tech. change Insecticide decrease: *misleading *potency still high *NOT a sign of positive impact of Bt corn use

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Irrigation

• 1997: 15% of US corn irrigated • 1992: 14% irrigated • Three-fourths is in four states over the Ogallala aquifer % of corn irrigated, 1997

All other states:

5%

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Dry-State U.S. Corn Production

Dry State Corn Production and Planted Area CO, KS, NE, and TX as a percent of US, 1965-2002

26 24 22 20 18 16 14 12 10 8 1965 production planted acreage 1970 1975 1980 1985 1990 Source: National Agricultural Statistics Service, USDA 1995 2000

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The Rise of Genetically Modified Corn

45%

GM Corn Adoption Trends, 1996-2003

40% 35% 30% 25% 20% 15% 10% 5% 0% 1996 1997 all GM corn Bt corn herbicide tolerant corn 1998 1999 2000 2001 Benbrook (2001) 'When Does it Pay to Plant Bt Corn' USDA (2003) NASS Dataset www.usda.gov/nass/ USDA (2003) Benbrook (2001) and USDA (2003) 2002 2003

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Whose Subsidies Are Bigger?

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US Corn: Declining Prices and Dumping

U.S. Corn: Export Prices vs. Costs

4.50

4.00

3.50

cost of production 3.00

2.50

US export prices 2.00

1.50

1990 1992 1994 1996 1998 2000 2002 Source: IATP (2004). Cost of production includes Iowa production costs (USDA), transportation/handling, input subsidies (OECD).

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Environmental Impacts in Mexico

•

Rise in intensive farming

* Geographically very concentrated: esp. Sinaloa * High chemical and water use

•

Threats to traditional producers

* Feared loss of maize diversity * Mexico center of origin; over 40 landraces * Important global resource; key to crop-breeding * Will economic pressure cause abandonment of land, loss of stewardship and diversity?

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Images of maize planting

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Trends in Mexican Agriculture

Declining government credit

Banrural: Credit for Agriculture

$6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $0 1994 1996 1998 2000

Commercial Bank Loans for Agriculture

50000 40000 30000 20000 10000 0 Total 1994 1997 Agriculture 2000 Livestock Declining commercial credit

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Trends in Mexican Agriculture: Declining Investment

New Irrigated Surface, 1991-2001

50.0

40.0

30.0

20.0

10.0

0.0

1991 1993 1995 1997 1999 2001

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Declining Agricultural Subsidies

Real Agricultural Subsidies, 1994-2002

10,500 9,500 8,500 7,500 6,500 5,500 4,500 1994 1995 1996 1997 1998 1999 2000 2001 2002 Source: OECD, Agricultural Policies in OECD Countries: Monitoring and Evaluation, 2003; author's calculations.

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Declining Subsidies for Maize

Real Maize Subsidies 1994-2002

3,500 3,250 3,000 2,750 2,500 2,250 2,000 1,750 1,500 1994 1995 1996 1997 1998 1999 2000 2001 2002 Source: OECD, Agricultural Policies in OECD Countries: Monitoring and Evaluation, 2003; author's calculations.

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Savings for the Consumer?

Rise in Tortilla Prices Despite Falling Corn Prices

Real Tortilla Prices in Mexico 1994-2003 (2002 pesos) 1.25

1.00

0.75

0.50

1994 1995 1996 1997 1998 1999 2000 2001 Source: Banco de Mexico, Informacion Financiera y Economica, IPC 2002 2003

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Foreign Investment: No Answer for Peasants

US Foreign Investment in Mexico, 1999-2002

Total US FDI $44,000,000,000 In agriculture Hog farming 0.4% 69% $172,000,000 $120,000,000 Horticulture, flowers All others

Coffee

26% 5%

.000025%

$45,000,000 $7,000,000

$4,300

Sinaloa, Sonora All other states

Oaxaca

89% 11%

.00003%

$154,000,000 $18,000,000

$5,400

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Map of Poverty Shadows Map of Biodiversity

Threats to agro-biodiversity:

•Shift to more profitable crops •Move out of agriculture •Loss of traditional knowledge •Migration, abandoning land

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160

Cultivated Maize Area in Traditional States 1990-2002

140 Chiapas

Traditional Maize:

No reason to worry?

Oaxaca 120 100 Guerrero 80 1990 1992 2000 1994 1996 Source: SIACON database 1998

Not so fast:

*peasant survival strategy *alternative crops depressed *alternative livelihoods few 2002 Need closer analysis of: *migration trends *diversity impacts Rise in planted area Rise in production 220 200 180 160 140 120 100 80 1990

Maize Production in Traditional States 1990-2002

1992 1994 1996 Source: SIACON database 1998 2000 2002 Chiapas Guerrero Oaxaca

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Marginalization by DDR, 2000

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Marginalization and International Migration, 2000 Relación entre marginación e intensidad de migración entre México y Estado Unidos, 2000.

3.0000

2.5000

2.0000

1.5000

1.0000

0.5000

0.0000

-0.5000

-1.0000

-1.5000

-2.0000

-1.5000

-1.0000

-0.5000

0.0000

0.5000

1.0000

Índice de Marginación

1.5000

2.0000

2.5000

International migration rates highest

not

for poorest.

Internal migration rates

are

highest for poorest producers.

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Maize Diversity, Poverty and Migration, 1990-2000 Level of Diversity 1990 Very high High Medium Low Very Low Number of Producers 1990

684,147 1,157,916 651,524 158,476 62,374

% of total producers 1990

25% 43% 24% 6% 2%

% Incomes Below Five Minimum Wages, 2000 (1) Internal Migration Index of Int. Rate 1995 Migration, 1995-2000 2000 (per thou)

81.5

72.4

74.5

72.4

69.7

bajo medio bajo alto bajo -4.80

-2.16

-1.50

-0.96

9.22

Change in cultivated area, 1990 2000

26.1% 32.6% 14.6% 24.5% 2.4%

Change in production, 1990-2000

12.7% 41.9% 12.2% 33.2% 0.1% Sources: VIII Censo Agricola, 1991; Sagar/SIACON database; CONAPO.

Diverse producers (DDRs with over 60% using native seeds): •Represent 68% of maize producers.

•Suffer high levels of poverty (over 70%) •Show low levels of international migration •Show the highest levels of internal migration •Have expanded production and cultivation with fewer people

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Policy Regime for Sustainable Corn Production in Mexico

        Price differentials Credit NAFTA and WTO-compatible subsidies Technical assistance Crop failure insurance Trade fairs National Corn Institute In Situ conservation of corn genetic resources

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Conclusions

Pollution haven:

North not always more sustainable than South, especially in agriculture.

Globalization of market failure:

Environmental externalities can be exacerbated by trade, with harm to both sides.

Environmental contributions of traditional agriculture:

Need to assess non-market ecological values prior to liberalization; “inefficiency” may be beneficial.

Agro-biodiversity:

Key concern in some areas.

Macroeconomic policies:

Rising demand for some agricultural products could be harnessed to stimulate sustainable agriculture and

in situ

conservation.

Look beyond trade agreements:

Important to not simply isolate NAFTA impacts from overall political economy.

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