In Analyzing CAFTA

It Takes More Than Wheat to Make A Loaf of Bread

U.S. trade officials reached an agreement in principle late last year on the Central American Free Trade Agreement, involving the U.S. and five Central American countries: Costa Rica, Guatemala, El Salvador, Nicaragua, and Honduras.  There is a possibility that the Dominican Republic may also round out the agreement. If that occurs, CAFTA would represent the second largest trading partner for the U.S. in Latin America, behind only Mexico.  Congress must yet approve the agreement, a dubious challenge in an election year. 

The USTR says that the CAFTA will streamline trade, promote investment, slash tariffs on goods, remove barriers to trade in services, provide advanced intellectual property protections, promote regulatory transparency, strengthen labor and environmental conditions, and provide an effective system to settle trade disputes.

Agriculturally, CAFTA will mean expanded markets for U.S. farmers, according to the USTR. More than half of current U.S. farm exports to Central America will become duty-free immediately, the USTR says, including high quality cuts of beef, cotton, wheat, soybeans, key fruits and vegetables, processed food products, and wine. Tariffs on most remaining U.S. farm products will be phased out within 15 years. U.S.

farm products that will benefit from improved market access include pork, beef, poultry, rice, fruits and vegetables, corn, processed products and dairy products, the USTR says.

U.S. labor unions oppose CAFTA, which they say would continue a trend of exposing U.S. workers to increased competition from low-wage nations with lax labor and environmental laws.

Sugar producers are also among U.S. industries that oppose CAFTA.  The USTR points out that in the first year, increased sugar market access for Central American countries under CAFTA will only amount to about 1.2% of U.S. sugar production, growing very slowly over fifteen years to about 1.7% of production.

However, U.S. sugar beet and cane producers see CAFTA as a template in which the mechanism in place to protect their industry will be chipped away. They view CAFTA as a three-legged stool – kick one leg out, and eventually the stool topples.

For its part, the Bush Administration hopes to use CAFTA as a stepping stone to an even bigger goal, the creation of a Free Trade Area of the Americas covering all 34 democracies in the Western Hemisphere.  This worries sugar and corn.  For example, there is concern that open borders with Brazil, and the elimination of tariffs on ethanol imports into the U.S., would effectively kill the nation’s still-developing ethanol industry.

In considering a policy resolution on CAFTA, the farmer directors of the Minnesota Association of Wheat Growers considered both the wheat and sugar situation in Central America.  For wheat, Central American countries are significant customers for hard red spring wheat and U.S. wheat as a whole. For instance, in the past year, for all classes of wheat, they bought the production off of about 1.2 million acres or about 44 million bushels of wheat, about half of Minnesota’s wheat production.

However, this demand is likely to continue with or without CAFTA, as there currently are no wheat import duties or tariffs in place that impede U.S. wheat exports to Central America.  Thus, recognizing the effect and precedence that CAFTA may have on both sugar and ethanol, the Minnesota Association of Wheat Growers came out in opposition of CAFTA, as did Minnesota Farm Bureau and the Minnesota Corn Growers Association.

We agree with MFB President Al Christopherson who made the point that  bilateral trade negotiations must consider all of agriculture. “We need to make sure that in our effort to reach agreements, we do not forget there are minor-use or import-sensitive crops that do not have a safety net or farm program to fall back on,” he says.

Indeed, we are not just wheat growers. We are sugar beet growers. We are soybean growers, corn growers, and producers of other farm commodities. Farm groups often speak as one voice on state and national issues. In fact, there are numerous coalitions of various farm groups at the state and national level that champion unanimity on policy issues, and if one member of the group voices opposition to an issue, then they all do.

As MAWG Executive Director David Torgerson points out, you need more than wheat to make a good loaf of bread. You need other key ingredients as well, including a sweetener (sugar or corn syrup) and oil (such as soybean or canola).  The same cohesiveness holds true for farm policy.