In anticipation of the final approval of USMCA, we’ll cover the importance of U.S. agricultural exports to the U.S. and Canada. It’s our last High Plains Ag Week before the break. We’ll be back on Friday, January 3. See you next decade.
The U.S., Mexico, Canada agreement (USMCA) is commonly thought of as a ‘new NAFTA’. NAFTA, the North American Free Trade Agreement, was signed into law in 1993 and went into effect in 1994. The goal of both agreements has been the creation of a trilateral trade bloc across North America. What does that actually mean? In creating a trade bloc, the countries lowered tariff and non-tariff barriers to trade to make the flow of goods between the three nations easier. USMCA is a re-hashing of the NAFTA agreement. The U.S. House of Representatives approved USMCA this week; now it goes to the senate. Thus far, the executives of each of the three countries and the Mexican Senate have approved the deal.
How important has NAFTA been to the U.S. agricultural sector? Since the agreement was signed exports to Mexico and Canada have grown substantially. In 1993, prior to NAFTA’s signing, agricultural exports to the two countries totaled $8.9 billion. By 2018 that figure had grown to $39.9 billion. In 2014, the U.S. exported $41.3 billion to it’s NAFTA partners, reaching the highest value to date. Canada and Mexico are the U.S.’s largest trading partners.
Trade impacts certain sectors differently. It is true that when barriers are lowered sectors feel the effect differently. Countries with a comparative advantage will tend to specialize in the production of a good for which they have the lowest opportunity cost. The principle of comparative advantage can lead to individual sectors being harmed domestically as they compete with those more efficient producers in other countries, however net impacts of trade typically remain positive. A rising tide lifts all boats as they say.
The expansion of markets for agricultural products through NAFTA and now USMCA yields a positive effect for producers in the U.S. Increased demand brought on by a growing number of customers is bullish for price. The first chart shows that exports to both Canada and Mexico have grown since 1994.
U.S. Exports to Canada & Mexico
How important was NAFTA to the Texas High Plains and how important will USMCA be? A rule of thumb among trade exports is ‘trade with your neighbor’. Lower transportation distance decreases total cost and therefore makes trading with neighbors a better option, fiscally. For Texas this means that Mexico is an important trading partner; Mexican exports from Texas were valued at $109.7 billion in 2018. Consider the categories which the U.S. exports to both countries in the pie charts below.
U.S. Exports to Mexico (Thousand Dollars)
U.S. Exports to Canada (Thousand Dollars)
‘Grains and Feeds’ ranks first in U.S. agricultural exports to Mexico and second in agricultural exports to Canada. In 2018, the U.S. exported $3 billion of corn, $749 million of wheat, wheat products, and wheat flour, and $36 million of sorghum to Mexico. Each of these crops are significant to the Texas High Plains economy; cash receipts each year from corn, wheat, and sorghum averaging $551 million, $147 million, and $101 million, respectively from 2013-2017.
‘Livestock and Meats’ exports to Mexico totaled $3 billion in 2018. Beef cattle are significant to the Texas High Plains’ agricultural economy; annual average cash receipts from value added from fed beef and cow-calf and stocker operations were $2.8 billion from 2013-2017. In 2018 U.S. exports of beef and veal, beef variety meats, and whole cattle hides totaled $1.2 billion. Livestock and meat exports to USMCA partners totaled $5.6 billion in 2018.
For further analysis and perspective on USMCA’s impact on Texas, I highly recommend reading a brief by the Center for North American Studies (CNAS). CNAS is a group within Texas A&M AgriLife Extension that focuses on the impacts of international trade. Their brief ‘Economic Impacts of U.S. and Texas Agricultural Exports to Canada and Mexico‘ describes the economic output and jobs created through the agreement within the state.
This week’s chart challenge sticks with the trade theme. The graph shows exports to a certain country in thousands of dollars from 1985 to the present. You can compare the figure to the bar chart of NAFTA/USMCA partner country exports above for reference. What country is graphed below?
January 5-11 – The Executive Program for Agricultural Producers (Register Here)
February 6-7, 2020 – Developing this Year’s Marketing Plan for Feed Grains and Cotton, Amarillo AgriLife Research & Extension Center; Preregister at https://agriliferegister.tamu.edu/Grain