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Dumping Without Borders

How US Agricultural Policies are Destroying the Livelihoods of Mexican Corn Farmers

Oxfam / Executive Summary / Briefing Paper 50, 27aug03

Complete paper in PDF format at Oxfam website (375kb)

The Mexican corn sector is in acute crisis because of the influx of cheap subsidised corn imports from the US. Poor Mexican farmers cannot compete against US producers, who receive $10bn a year in subsidies. Action is required at the WTO Ministerial Conference in Cancun in September 2003 to end agricultural dumping, together with action by the Mexican government to control US corn imports.

"Poor Mexico, so far from God and so close to the US!" Popular saying

Executive summary

In September 2003, the world’s trade ministers will descend on the Mexican tourist resort of Cancun. The aim is to advance the current negotiations at the World Trade Organization (WTO). Northern governments promised to make the latest talks a ‘development round’. But if they are to translate their promises into practice, they will need to address an issue that is causing mass poverty across the developing world: agricultural dumping. Nowhere is the problem more powerfully apparent than among Mexico’s corn farmers.

Mexico has been growing corn for 10,000 years. But today the corn sector is in a state of acute crisis. Household incomes are in decline, and nutrition is deteriorating. Across Mexico, millions of people are migrating in a desperate bid to escape rural poverty, many of them intent on reaching the US. In the southern state of Chiapas, where the corn crisis has interacted with a collapse in coffee prices, it is estimated that 70 per cent of the rural population now live in extreme poverty.

The slump affecting Mexico’s corn farmers has multiple causes. Some of these are domestic. Successive Mexican governments have failed the rural poor, preferring to concentrate public spending on commercial enterprises. It is also the result of the strategies of big agribusiness companies which buy, trade, and process corn on both sides of the border. But the US government is also directly culpable, and it is US agricultural policy that will be under discussion in September. As we show in this paper, there is a direct link between government agricultural policies in the US and rural misery in Mexico.

Under the North American Free Trade Agreement (NAFTA), Mexico has rapidly opened its markets to imports from the US, including corn. Since the early 1990s, US corn exports to Mexico have expanded by a factor of three. These exports now account for almost one third of the domestic market.

Surging imports have been associated with a steep decline in prices. Real prices for Mexican corn have fallen more than 70 per cent since 1994. For the 15 million Mexicans who depend on the crop, declining prices translate into declining incomes and increased hardship. Many people can no longer afford basic health care. Women have suffered disproportionately. Male migration and falling incomes have increased the labor demands on them, both on household farms and in income-generating activity beyond the household.

One of the primary factors behind the advantage US corn has in the Mexican market is US government payments to the sector. The US corn sector is the largest single recipient of US government payments. In 2000, government pay-outs totaled $10.1bn. To put this figure in context, it is some ten times greater than the total Mexican agricultural budget.

In its official reports to the WTO, the US denies using any export subsidies in the corn sector. That denial is justified in terms of the letter of WTO law, which currently defines export subsidies as a payment that bridges the gap between (higher) world prices and (lower) export prices. The problem is that the WTO regulations relating to agriculture are deeply flawed. They fail to acknowledge that transfers to producers include a de facto export subsidy.

In this paper we estimate the scale of this subsidy by two methods. The first involves comparing export prices with the cost of production. The second involves converting overall payments to corn into $/ton equivalent subsidies, and then using this to estimate total export subsidies. Both of these methods are consistent with the rules applied to dumping by the WTO in nonagricultural areas. They reveal an effective export subsidy to the Mexican market of between $105 and $145m annually. This export subsidy exceeds the total household income of the 250,000 corn farmers in the state of Chiapas.

Far from operating on a ‘level playing field’, small farmers in Chiapas and elsewhere in Mexico are at the wrong end of a steeply sloping playing field which runs downhill from the US Mid-West. They are competing not against US farmers, but against US taxpayers and the world’s most powerful treasury. It is difficult to think of a starker illustration of unfair trade in practice.

Set against the losses suffered by Mexico’s rural poor, US corn subsidies do create some winners. Agricultural corporations – such as Cargill and Archer Daniels Midland (ADM) – get access to US corn surpluses at artificially depressed prices, creating lucrative export opportunities. The same corporations are the largest corn exporters to Mexico, and benefit from export credits to Mexican importers. Some US farmers also gain. However, the lion’s share of corn subsidies goes to the biggest farms. As in other sectors, US agricultural subsidies hurt the rural poor overseas and fail the rural poor at home, but they create windfall gains for big farms and corporate agribusiness interests.

The crisis facing Mexican corn farmers is a microcosm of the crisis facing millions of vulnerable rural communities across the developing world. Resolution of the corn crisis will require action at the national and the global levels. The Mexican government needs as a matter of urgency to renegotiate the NAFTA agreement. It is unconscionable for Mexico’s poorest rural communities to be subjected to competition from heavily subsidized imports. They have a right to more effective protection – and the Mexican government has a responsibility to provide it.

At the global level, stronger WTO rules are needed to prohibit all forms of direct and indirect export subsidies. That prohibition should extend to subsidized export credits (which are extensively used by the US in Mexico).

One of the most serious problems with current WTO rules is that they are designed to accommodate, rather than reduce, trade-distorting subsidies provided by the US and the EU. For example, up to half of total US agricultural support payments are exempt from WTO discipline, ostensibly on the grounds that they do not increase production. The distinctions drawn between Green Box (allowed) and Amber Box (prohibited) subsidies are an anachronism. They were designed by the EU and the US, largely to facilitate the repackaging of subsidies under the Uruguay Round agreement.

This paper recommends the following measures:

  1. WTO members should agree to a timetable at Cancun for the elimination of agricultural export dumping.
  2. The WTO Agreement on Agriculture should guarantee the right of developing countries to protect their agricultural sector in the interests of development and food security.
  3. The US government must introduce fundamental changes to its agricultural support measures, to guarantee the sustainability of US family farms by providing fair prices and equal access to United States Department of Agriculture (USDA) agricultural support for small producers, minorities, and women.
  4. The Mexican government should push for the revision and renegotiation of NAFTA, so as to protect crops and products that it considers essential for food security and development in the country.

from p.27 of paper

Annex: Calculation of the ‘real’ export subsidy to Mexico

Method 1		1998	1999	2000	2001	2002
(1) Cost of		2.83	2.85	2.95	2.71	3.07 
(2) Export price,	2.58	2.29	2.24	2.28	2.69 
(3) Difference		0.25	0.56	0.71	0.43	0.39 
  between cost of
  production and
  export price (1)-(2),
(4) Difference		9.99	21.93	28.07	16.82	15.14 
  between cost of
  production and
  export price, $/ton
(5) US corn exports 	5247763 5068619 5146666 5592398 5325745 
  to Mexico (Mt)
(6) Dumping	52.44	111.17	144.47	94.04	80.65 
  margin to Mexico
(4) x (5), US$mn

Source: Foreman (2001) & Table 1 – Cost of production forecasts for US major field crops, United States Department of Agriculture, & Institute for Agricultural Trade Policy (2002)

(USDA cost of production data is calculated using operating costs plus allocated overheads, added to which we have included IATP’s estimate of transport and handling costs.)

Method 2	   1998	   1999	   2000	   2001	   2002
(1) CCC net	   12.16   22.87   42.91   26.66   12.53 
    per ton
(2) US corn	   5247763 5068619 5146666 5592398 5325745 
    to Mexico
(3) Total payments 63.8	   115.9   220.8   149.1   66.7 
    implied in US 
    corn exports 
    to Mexico
   (1) x (2), US$mn

Source: United States Department of Agriculture

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