Although U.S. Department of Agriculture Secretary Sonny Perdue remains hopeful that the Trump Administration will be successful in renegotiating the North American Free Trade Agreement (NAFTA), he told reporters in a press gaggle after his Agency’s Veterans Day ceremony that USDA is preparing contingency plans, warning a withdrawal from the trilateral agreement would have “some tragic consequences” as reported by Politico’s Catherine Boudreau. IL Corn agrees with the Secretary’s assessment. A withdrawal from NAFTA would mean lower prices, lost markets, and a heavy dependence on farm program payments. We continue to support President Trump’s efforts to modernize NAFTA and applaud him for that work, but the modernization cannot come at the expense of losing the agreement as it stands now.
Trade matters to U.S. agriculture. Corn and corn product (ethanol, DDGs and corn gluten feed) exports are responsible for 33% of corn farmers’ gross farm income. This can mean the difference between whether a corn farmer turns a profit or a loss each year and is even more important during times where commodity prices are lower like they are now.
For the past 23 years, NAFTA has been a resounding success for U.S. agriculture and has underpinned development of the most successful grain value chain in the world. Since NAFTA’s implementation, U.S. agriculture sales to Mexico have quintupled. Last year U.S. corn farmers sold more than $2.5 billion worth of their product (13 million metric tons, or 523 million bushels) to Mexico.
Terminating NAFTA would devastate U.S. corn farmers and the American rural economy.
Economic models cannot fully capture the systemic and immediate market shocks from a withdrawal.
For U.S. corn farmers, no single market could replace Mexico, which bought 25 percent of U.S. corn exports last year. Corn prices are currently below the cost of production. A global oversupply of corn is pressuring prices even as the new crop of corn is harvested.
Farmers would be left with serious basis challenges, impacting their bottom lines immediately. Local elevators would also feel these shocks, and transportation facilities like rail shuttle facilities built specifically to serve the Mexican market would face immediate business losses.
To compensate for lost market share, the grains industry will seek other markets. However, a lack of new free trade agreements and a plethora of new trade policy challenges brought by partners concerned with the trustworthiness of U.S. trade policy would stymie these efforts.
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