The renegotiation of the North American Free Trade Agreement (NAFTA), which stalled late in 2017, resumed again in January, 2018, and could potentially reach a conclusion later this year. The results of the NAFTA negotiations could have a dramatic effect on the U.S. agriculture industry, both in the short-term, and for longer term growth and development of the industry.

History of NAFTA

NAFTA is a trilateral trade agreement among the United States, Canada and Mexico that was originally set up in 1994, which granted the “most favored nation” status to all trading partners. This status gives all participating partners equal treatment in all trade transactions, including the reduction or elimination of tariffs on most imports and exports from the other countries. Some of the tariff reductions and eliminations were phased in over a number of years. Consistent with campaign promises, the Administration of President Trump initiated the NAFTA renegotiation talks during 2017, calling for a “more-fair trade agreement” with Canada and Mexico.

The U.S. agriculture industry has shown a trade surplus in every year since 1959. In a 5-year period from 2012-2016, U.S. ag exports have averaged approximately $140 billion per year, while ag imports over the same period have averaged about $110 billion annually. Ag exports account the utilization of  nearly half of the U.S. production of soybeans, wheat, and rice, 70 percent of cotton production, and 25 percent of pork production. USDA estimates that that every dollar of ag exports generates $1.27 of economic activity in the United States. USDA also estimates that every $1 billion of agriculture related exports supports approximately 8,000 jobs, so based on that estimate, the current total level of ag exports supports over 1 million jobs in the U.S. 

Based on the most recent USDA World Supply and Demand Estimates (WASDE) report in January 2018, nearly 2.2 billion bushels of soybeans, or about 50 percent of the total 2017 U.S. soybean production, is expected to be exported during the 2017-18 marketing year, with China being the largest customer for U.S. soybeans. The U.S. accounts for approximately 40 percent of the international corn trade, with Japan being largest importer of U.S. corn, followed by Mexico. USDA is estimating total U.S. corn exports for 2017-18 at just over 1.9 billion bushels, which is about 13 percent of the total U.S. corn production in 2017. U.S. wheat production in 2017 was 1.7 billion bushels, with about 56 percent of that total expected to be exported to foreign countries.

U.S. agriculture exports to Canada and Mexico have grown in the past 23 years from below $9 billion per year the before the NAFTA agreement in 1994 to over $38 billion per year in 2016. Trade with Canada and Mexico accounts for about 28 percent of the total U.S. ag exports, as well as 39 percent of the total U.S. ag imports. In 2016, U.S. ag exports to Canada were valued at just over $20 billion, with leading export products being grains and feed, animal products, fruits and vegetables, oilseeds, and horticulture products. U.S. ag exports to Mexico in 2016 totaled nearly $18 billion, with the top export products being animal products, grain and feed, and horticulture products. Mexico is either the largest or second largest export destination for U.S. beef, pork, poultry, wheat, corn, and dairy products.

Current situation

The Trump administration has threatened to initiate procedures to withdraw from NAFTA, if there are not meaningful negotiations “to improve and modernize” the NAFTA trade agreement. After several rounds of discussion among the three countries, it does not appear that any agreement to NAFTA revisions will occur anytime soon, which could increase the potential for a U.S. plan to withdraw from NAFTA. Much of the contention during the negotiations has been on non-agriculture related issues, such as the auto and manufacturing industry, labor and currency issues, and varied trade requirements on certain goods and services. Discussions on ag-related products have mainly focused on dairy products with Canada, fresh produce with Mexico, sugar, and energy production. 

What does U.S. agriculture and the overall U.S. economy have at risk if the U.S. were to suddenly withdraw from the NAFTA trade agreement? Following are some highlights from a letter that was drafted to officials in the Trump Administration by more than 70 agriculture and trade organizations on the potential risks and impacts of the U.S. withdrawing from NAFTA:

Trade negotiations, including the current NAFTA negotiations, are often very complex, and usually take years to develop. Many times, it is not just economic issues that are difficult to negotiate with other nations, but also labor, environmental, and social issues that may vary among the negotiating countries. It is probably far too early to predict dire consequences to the U.S. agriculture industry from any renegotiation of trade deals under NAFTA, or with any other country. It is also important to remember that there are also possibilities for new trade deals to be developed between the U.S. and other countries. However, it does appear that the agriculture industry, and ultimately farm operators and rural communities, have a lot to gain or lose, depending on the outcome of the current NAFTA negotiations. Most folks in the agriculture industry and leaders in most Midwestern States would like to see current NAFTA policies “tweaked and modernized”, rather than eliminated.