By Isabel Morales
Corn, or maize, played a central role in Mayan culture to the extent that it was considered a sacred crop. Maize is therefore a deep cultural symbol in Mexico that represents its people’s history and traditions (Santini, 2006). The crop continues to be the main ingredient in Mexican cuisine, making it not only important for Mexican culture, but also for the economy. More importantly, corn is tied to the daily lives of Indigenous peoples and farmers of Mexico that rely on it for their survival and welfare (Santini, 2006). The North American Free Trade Agreement (NAFTA) affected the Mexican economy in different ways, having more of a positive impact in some sectors and negatively impacting others. When observing its impacts on agriculture and the corn industry, NAFTA negatively affected several farmers who depended on the crop for their daily food intake and income.
NAFTA is a pact signed in 1994 between the U.S., Mexico, and Canada. The purpose of NAFTA was to promote trade liberalization by boosting trade among these countries through the reduction of tariffs on imports and exports (Chatzky, 2020). Mexico’s main objective in being part of the treaty was to stabilize its economy that was undergoing a decline. Between the 1930s and 1980s, Mexico’s economy followed import substitution industrialization (ISI) policies that most Latin American countries pursued during this period. These policies promoted domestic production of manufactured goods instead of depending on imported goods (Nuñez Palomino, 2020). The goal of ISI was to grow domestic industries by decreasing dependence on more developed countries. These protectionist policies remained in effect until the 1980s when Mexico started to face high levels of inflation and a declining standard of living (Armendariz & Larrain, 2017). Due to this, the country decided to restructure the economy focusing on trade liberalization. NAFTA was a big component of Mexico’s new focus of opening to trade (Angeles Villareal, 2010).
Several studies have analyzed the effects of NAFTA on the Mexican economy. Results show that NAFTA brought economic and social benefits to the country overall, but the benefits were not evenly distributed among the country. NAFTA’s uneven impacts are observed on different levels (Angeles Villareal, 2010).
One of these levels is related to NAFTA’s effects on different Mexican industries. For instance, the magnitude of the agreement’s effects on the manufacturing sector can be compared with its impact on the agricultural sector. Pre-NAFTA, Mexico mainly exported agricultural products, fuel, and ore such as petroleum (Richford, 2021). After the agreement, Mexico diversified its economy with an increase in exports of manufactured goods, such as electronics, auto parts, and clothing (Richford, 2021). This allowed Mexico to shift away from its dependence on exporting oil.
On the other hand, the agricultural sector took more time to adjust and keep up with the NAFTA reforms. At the time that NAFTA was being negotiated, about 40 percent of all Mexicans working in agriculture were growing corn (White et al., 2003). Because NAFTA opened the Mexican economy to U.S. corn exports, it exposed Mexican corn farmers to competition from subsidized U.S. agriculture (Angeles Villareal, 2010). Prior to NAFTA, U.S. corn imports to Mexico were equivalent to 8 percent, but then rose to around 33 percent. A large portion of American taxes go towards supporting U.S. farmers. In 2020, U.S. farmers on net received about 40 percent of their income directly from the U.S. government. The farm bill also protects farmers against price fluctuations, it subsidizes their insurance, and promotes exports. In other words, the U.S. government has made it a priority to help their farmers (Mcmillan et al., 2005). However, it is important to see how the effects of developed countries’ subsidies might harm poor farmers in developing countries. These subsidies given to American corn farmers allowed them to sell their crops at prices far below what it costs to produce them. As a result, cheap corn rushing in from the U.S. to Mexico drives Mexican farmers out of business. In the first decade of NAFTA, U.S. corn exports to Mexico quadrupled while Mexican corn prices fell by 66 percent. Therefore, U.S. farmers benefited from NAFTA for the most part, while Mexican corn farmers suffered.
Another level at which NAFTA’s different effects are observed is across Mexico’s regions and its corn farmers. The effects of trade liberalization are different depending on the region within the country and among different farmer types (Angeles Villareal, 2010). For instance, in areas characterized by developed infrastructure and high levels of foreign direct investment, their economies grew faster and experienced a rise in wages and employment. On the other hand, poorer southern states did not equally benefit due to low levels of infrastructure, education, and low-quality institutions, which made them less likely to gain from trade liberalization (Angeles Villareal, 2010). In terms of farmers, there are some who grow corn in different quantities and for different reasons. For instance, more than half of the poorest corn farmers in Mexico reported that they never sell any corn, mainly because they grow corn to feed their families (Mcmillan et al., 2005). Corn farmers with medium sized land almost always sell most or all their crop. Because small farmers were not selling their corn, NAFTA probably had little impact on their welfare. On the other hand, farmers with medium sized land were harshly impacted by NAFTA because most of the consumers that bought their corn started to buy cheap U.S. corn (Mcmillan et al., 2005).
It is also crucial to keep in mind that these trade agreements not only impacted Mexican farmers directly, but it also contributed to one of the main issues involving Mexican-U.S. relations: immigration. Prior to NAFTA, several corn-producing families did not make a lot of money, but people did not go hungry (Darlington & Gillespie, 2017). According to the United States Department of Agriculture, Mexico lost over 900,000 farming jobs in the first decade that NAFTA went into effect (Darlington & Gillespie, 2017). After NAFTA, Mexican farmers could not compete with U.S. imported corn and make a living wage, causing many of them to head north and look for jobs in the U.S. (Darlington & Gillespie, 2017).
There are different arguments made by economists about NAFTA’s direct effects on the Mexican economy. Some argue that the effects of NAFTA on agricultural employment and production cannot be entirely attributed to trade liberalization and rich countries’ subsidies. This is because Mexico also implemented agricultural reforms at the same time of NAFTA’s implementation, making it difficult to separate both the effects of each (Angeles Villareal, 2010). However, despite the extent of different policies’ impacts, there will always be benefits and drawbacks to trade liberalization. Most of the time, rural farmers who sell these competitive crops are those that carry the burden of these drawbacks. These consequences of trade liberalization negatively affect farmers’ welfare and the country as a whole, as these impacts contribute to aggravating poverty and inequality.
Angeles Villareal, M. (2010). NAFTA and the Mexican Economy. Congressional Research Service. https://sgp.fas.org/crs/row/RL34733.pdf
Armendariz, B., & Larrain, F. B. (2017). The Economics of Contemporary Latin America [E-book]. The MIT Press. https://mitpress.ublish.com/book/economics-contemporary-latin-america
Chatzky, A. (2020, July 1). NAFTA and the USMCA: Weighing the Impact of North American Trade. Council on Foreign Relations. https://www.cfr.org/backgrounder/naftas-economic-impact (Chatzky, 2020)
Darlington, S., & Gillespie, P. (2017, February 9). Mexican farmer’s daughter: NAFTA destroyed us. CNN Money. https://money.cnn.com/2017/02/09/news/economy/nafta-farming-mexico-us-corn-jobs/index.html#:%7E:text=In%20the%20first%20decade%20of%20NAFTA%2C%20U.S.%20corn%20exports%20to,its%20number%20one%20export%20market.
Mcmillan, M., Peterson, A., & Ashraf, N. (2005, May). My Policies or Yours: Does OECD Support for Agriculture Increase Poverty in Developing Countries? National Bureau of Economic Research. https://doi.org/10.3386/w11289
Nuñez Palomino, M. (2020, April 18). Latin American and Caribbean countries: From Import-oriented substitution strategy to Export-oriented industrialization. Panoramas. https://www.panoramas.pitt.edu/economy-and-development/latin-american-and-caribbean-countries-import-oriented-substitution-strategy
Richford, M. (2021, November 22). Benefits of NAFTA & Impact on Mexico’s Economy. NAPS. https://napsintl.com/mexico-manufacturing-news/how-nafta-has-elevated-mexicos-economic-health-and-status/#:%7E:text=Following%20the%20NAFTA%20agreement%2C%20preferential,shift%20away%20from%20oil%20significantly
Santini, C. (2006, December). The People of the Corn. Cultural Survival. https://www.culturalsurvival.org/publications/cultural-survival-quarterly/people-corn
White, M., Gammage, S., & Salas, C. (2003). NAFTA and the FTAA: Impact on Mexico’s Agriculture Sector. Women’s Edge Coalition. https://www.iatp.org/sites/default/files/NAFTA_and_the_FTAA_Impact_on_Mexicos_Agricultu.pdf