Plowing under Mexico's farmers
Mexico's 15,000 pork producers face collapse when import tariffs on U.S. pork are lifted next year as part of NAFTA.

By Geri Smith, BusinessWeek Online

Mexico and the U.S. are headed for a major food fight. Starting on Jan. 1, Mexico must scrap tariffs on a dozen key products, including rice, potatoes, pork, and chicken, that have enjoyed special protection under NAFTA. To Mexicans, agriculture's importance is not measured in dollars--in fact, the sector contributes 4% of gross domestic product. But 10 million people, about one-quarter of the Mexican workforce, still live off the land. And the dirt-poor campesino remains a potent symbol of Mexico's revolutionary legacy.

No wonder this latest round of tariff cuts is fast turning into a hot-button issue in Mexican politics. What especially galls the Mexicans is that they have to fight with one hand tied behind their backs. According to Mexico's National Agricultural Council [CNA], the average Mexican farmer receives just $722 in annual subsidies, while U.S. farmers stand to collect $20,800 a year as part of a $180 billion farm bill approved earlier this year. Mexican President Vicente Fox (news - web sites) in October warned fellow rancher George W. Bush that the U.S. subsidies could push up unemployment in Mexico's countryside and drive farmers across the border. "Many farms are going to disappear," warns CNA President Armando Paredes, who figures at least 750,000 jobs could go next year alone.

American farmers point out that Mexico's agricultural exports to the U.S. have nearly doubled, to $6.3 billion, over the past decade. "It's been a win-win situation for both countries as far as increasing exports goes," says Terry Francl, a senior economist at the American Farm Bureau (news - web sites) Federation. Mexico has fared particularly well with labor-intensive crops: Today, more than half the cucumbers and over one-third of all tomatoes eaten in the U.S. are grown south of the border. But U.S. producers, with their large, capital-intensive farms, superior technology and infrastructure, have boosted their exports of rice, cattle, dairy products, and apples by more than 15% a year since NAFTA took effect. Mexico's agro deficit with the U.S. reached $4.1 billion last year.

Mexico has been reluctant to tarnish its free-trade credentials by resorting to nontariff barriers such as anti-dumping duties, and sanitary restrictions--means by which U.S. tomato and avocado farmers have kept Mexican products out of some markets. But the gloves are expected to come off as the country heads for midterm elections in July, 2003. This month, Fox is due to announce a raft of new measures to "armor-plate" the agricultural sector from increased competition. Expect more anti-dumping measures, such as the 46.6% duty officials imposed on U.S. shipments of Golden and Red Delicious apples starting in August. "We will not hesitate to utilize all of the protective mechanisms established by national and international legislation," Fox told a gathering of Mexican farmers in early November.

But no matter what Fox does, the countryside will suffer from the new onslaught. Mexican farms average just 13 acres, a legacy of a land reform introduced after the Mexican Revolution. Farmers also pay 40% more for diesel fuel and face sharply higher interest rates on loans. "If Mexico's farm sector is to survive, the government is going to have to give out more subsidies," says Juan Habermann, a prosperous grower of green beans and sorghum in the state of Sinaloa. Fox might be happy to oblige. But there's little room in the tight federal budget for such largesse. For Mexican farmers, bringing home the bacon keeps getting harder.