How Beer Explains 20 Years of NAFTA’s Devastating Effects on Mexico

By Timothy A. Wise, Director of the Research and Policy Program at the Global Development and Environment Institute, Tufts University. Originally published at Global Post

Mexico’s largest agribusiness associated invited me to Aguascalientes to participate in its annual forum in October. The theme for this year’s gathering was “New Perspectives on the Challenge of Feeding the World.”

But it was unclear why Mexico, which now imports 42 percent of its food, would be worried about feeding the world. It wasn’t doing so well feeding its own people.

In part, you can thank the North American Free Trade Agreement (NAFTA) for that. Twenty years ago, on January 1, 1994, NAFTA took effect, and Mexico was the poster child for the wonders of free trade. The promises seemed endless.

Mexico would enter the “First World” of developed countries on the crest of rising trade and foreign investment. Its dynamic manufacturing sector would create so many jobs it would not only end the U.S.  immigration problem but absorb millions of peasant farmers freed from their unproductive toil in the fields. Mexico could import cheap corn and export electronics.

So much for promises.

NAFTA produced a devastating one-two punch. For the first 10 years, the flood of U.S. exports of corn, wheat, meat and other staples drove Mexican producer prices well below the costs of production.

Mexico’s three million small-scale corn farmers saw prices for their crops fall 66 percent, largely because the United States increased corn exports by 400 percent, exporting at prices 19 percent below even U.S. farmers’ costs of production. (See my earlier study.) Call it the Age of Agricultural Dumping.

Soybeans, wheat, cotton and rice saw similar export surges under NAFTA, with similar drops in producer prices. Mexico’s agricultural exports to the United States increased as well, but it takes a lot of tomatoes and strawberries to make up for the surge in staple-food imports.

By the mid-2000s, Mexico was importing 42 percent of its food, mostly from the United States. Corn import dependence had grown from 8 percent before NAFTA to 32 percent. Mexico was importing nearly 60 percent of its wheat where before it had imported less than 20 percent.

Import dependence was more than 70 percent for soybeans, rice and cotton.

Then came the sucker punch. In 2007, international prices for many staple crops doubled or tripled, and so did the cost of importing them. Countries like Mexico that had gotten hooked on cheap imports paid a heavy price. Call it the Age of Dependency.

U.S. policies had as much to do with these high and volatile prices as they had with the Age of Dumping. Now, instead of price-depressing surpluses caused by U.S. agricultural policies, U.S. subsidies and incentives were diverting 40 percent of U.S. corn — 15 percent of the global supply — into ethanol production.

This drove up the price of corn, but also prices for related crops, like soybeans and wheat, and the livestock products that had relied for so long on cheap feed.

Compounding the price volatility, U.S. deregulation of financial markets in the early 2000s had brought agricultural commodity markets into the global casino. Financial speculators, fleeing the collapsing U.S.  housing and stock markets in 2007, went “all in” on commodities, driving prices to disruptive highs, then lows, then highs again.

This was devastating for countries dependent on imported food. The world’s Least Developed Countries, which had exported more than they imported in the early 1980s, saw their food import bills skyrocket to more than $25 billion, driving their collective agricultural trade deficit to more than $19 billion. (See my earlier report.)

Mexico’s agricultural imports topped $20 billion following the price spikes, with its agricultural trade deficit jumping to more than $4 billion. Corn imports accounted for more than half the bill.

And most telling: twenty years into NAFTA, 55 million Mexicans — about half the population — are estimated to be in poverty, many without secure access to food.

The night before my talk in Aguascalientes, in which I would gently call attention to the high cost of Mexico’s failed cheap-food experiment under NAFTA, I ended up at a lush cocktail reception talking to the U.S.  Embassy’s agricultural attaché. I must have said something about Mexico’s agricultural trade deficit, and he immediately took offense.

“This year,” he proclaimed, “Mexico may actually run a surplus.”

I knew better; I’d seen this statistical sleight-of-hand many times.

“Do you mean the ‘agri-food’ trade balance?” I asked.

He nodded.

“The one that has beer as one of Mexico’s biggest agricultural exports?”

He nodded again, and not sheepishly. Beer has undoubtedly been a NAFTA success story for Mexico.

“Beer is a product of agriculture,” he said, with conviction.

I took a sip of my margarita.

“Don’t you think including beer distorts how Mexican agriculture is really doing under NAFTA?” I asked.

Not at all, he replied, the beer sector is a perfect example of the kind of integration NAFTA can achieve.

“Look, Mexico’s even importing the barley malt from us to make its beer!” I said.

I took another sip.

“So Mexico’s agricultural contribution to its beer exports is … what?” I asked.

Nervous laughter.

Here is a case where NAFTA has gotten the United States to open its market to something of value that Mexico can export, and Mexico can’t even capture the value from it. The industry’s growth benefits U.S. barley growers and U.S. malt makers. Mexico can’t even import the barley and make the malt themselves.

So the country is basically a maquiladora for beer bottling. I guess Mexico contributes the water. Which it doesn’t have enough of.

This has been Mexico under NAFTA in a nutshell. Giving away everything of value, then deluding yourself that your farm sector is doing fine because your Corona beer, bottled from U.S. ingredients, is a big hit in the States.

Meanwhile, hungry corn farmers wait for their government to invest in producing more of its own food.

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    1. Yves Smith Post author

      With all due respect, we’ve been all over the TPP and the parallel European trade deal, the TTIP:

      I omitted a few….

  1. psychohistorian

    This reads like another chapter in The Shock Doctrine, as it should… comes out of the same play book by the same set of global plutocrats.

    They hate us for “our” freedoms to F them over…..the blowback will be intense when it happens…..too bad it will fall on those not responsible for the rape, as usual.

    One hell of a way to run a “civilization” don’t you think? A thinning fig leaf of “social organization” covering the iron fist class structure management by centuries of inherited plutocrats (the invisible hand myth). How and when will this sickness end?

    1. sleepy

      Thanks for the link.

      From the article:

      “Education reform: Mexico’s political parties passed a law in September that will break the country’s once almighty teachers unions’ control over the education system and will allow for the first time the hiring, promotion and even firing of new teachers based on standardized tests and periodic evaluations.”

      “Labor reform: In the biggest labor law shakeup in four decades, Mexico’s Congress passed a law aimed at making it easier for employers to hire and fire workers. The new law’s intent is to drive millions of people out of the underground economy.”

      “Energy reform: By far the most covered by foreign media, Mexico’s new energy reform will change the Constitution to allow private firms to work with the giant state-owned Pemex oil company in the exploration and drilling of new fields. The constitutional overhaul is expected to bring billions of dollars in foreign investments over the next decade.”

      1. D. Mathews

        I couldn’t figure out the labor reform one: “…to drive millions of people out(?) of the underground economy.” It would seem to me to have the opposite effect, but then what do I know.

        And here is another somewhat related LINK that may be of interest.

        1. sleepy

          Yeah, I couldn’t really figure that one out either.

          I guess it means they can fire a bunch of higher paid workers and replace them with cheaper workers from the underground economy. Or at the very least, al workers will now be paid underground wages.

          If everybody is paid underground wages, it’s the norm, and voila, no more underground, right?

          1. McKillop

            What difference does it make if the comment makes sense or not? It seems that various claims are made to promote the “reforms” we are being offered and, once the reforms are set in place, well, oopsies, “it didn’t quite work out as we were promised.
            Re-read the article on ‘privatisation’, check out how ‘deregulation’ worked out.
            Bought any used cars lately – or new ones?
            These creatures will say anything. The propaganda is non-stop!

        2. J Guzman

          If there are strict labor laws many small stores will just hire people off the books so that they don’t have to worry about complying. Any job that is not following government regulations or paying taxes they call “underground”. By loosening the laws they hope to bring those underground jobs back into the “real” economy.

      2. from Mexico

        According to the EIA, if we lump Mexico’s shale oil resources together with its shale gas resources, together with its deep water potential in the Gulf of Mexico (most of the deep water potential is in Mexico’s part of the Gulf, not the US’s), it ranks 5th in the world, only very slightly behind the U.S., in non-conventional oil and gas potential.

        This is what the transnational capitalists are after with Mexico’s energy counter-reform.

        Many Mexicans consider it to be the greatest theft of Mexico’s patrimony since the bufoon Santa Anna lost half of Mexico’s territory to the US in 1836 to 1848 through a combination of corruption and incompetence.

        This is why Mexico’s current president, Enrique Peña Nieto, is considered by most rank and file Mexicans to be the worst leader Mexico has had since Santa Anna, and +90% of Mexicans I know fly into a rage when his name is mentioned.

        Can the US military and deep state protect him? It will be interesting to see.

        1. sleepy

          “This is why Mexico’s current president, Enrique Peña Nieto, is considered by most rank and file Mexicans to be the worst leader Mexico has had since Santa Anna, and +90% of Mexicans I know fly into a rage when his name is mentioned.”

          Unfortunate that most Americans don’t have the same insight on their own economic problems as do Mexicans on theirs.

          Can the US protect Mexico’s president? Probably not in the long run, and the oligarchs know this I presume, but they will all scramble to make hay while the sun still shines.

        2. Ed

          The worst Mexican presidents since Santa Anna were Carlos Salinas and Huerta (forgot his first name), whose coup set off the Mexican civil war/ revolution. The others since Santa Anna were actually OK or at least had mixed records. Essentially you are saying that Pena will turn out to be worse than Salina, which is a tall order.

  2. from Mexico

    Thank you for this.

    I think, however, that it is important to keep in mind that none of this happens without a great deal of murder, mayhem, and human suffering. NAFTA is the poster child on this side of the Atlantic for “democracy and the rule of the law” at “the point of a gun,” as the neocon guru Max Boot puts it.

    Probably the investigator that has done the most thorough job of tying the economic ends of NAFTA together with the use of the U.S. instruments of state violence — the U.S. military, police and deep state — along with its cohorts and partners in crime in the Mexican pólice and military, who are every bit as corrupt as the pólice and military in the U.S., is Peter Dale Scott.

    The economic destruction that has been wrecked on Mexico for the past three decades is now coming home to roost in the U.S., beginning in about 2008 with the advent of the GFC. Never let a crisis go to waste, as Milton Friedman famously put it. Will the murder and mayhem come next? It would be easy to say that the lower orders of the U.S. are now getting what they deserve as their economic plight now follows in the footsteps of what has been inflicted upon the lower orders of Mexican society for so long. It’s a sort of a poetic justice. But it doesn’t work that way. The worse it gets for everday gringos, the worse it gets for everyday Mexicans.

    The only winners to this cruel and ruthless game are the transnational capitalist class.

  3. rob

    This is now typical.This article is a great/pathetic snapshot of American foreign/domestic policy.How much damage can so few do to so many?The answer gets clearer and worse, all the time.

    1. bob

      The most interesting man in the world, co-opted image of Ernest Hemingway, Doesn’t usually drink beer, but when he does, it’s dos equis.

      Owned by Heineken.

    2. bob

      There is also a huge “small batch” tequilla selling push in the US. I don’t have that much familiarity with it, but where is that stuff “produced”? The labels are less than clear, and the prices are huge.

  4. Banger

    I confess to ignorance about NAFTA’s effect on Mexico. But I have noted that in the mainstream media there have been many articles about the growing Mexican middle-class and how well the country is doing. Of course, I never believe or disbelieve these stories since I know the mainstream media intimately. But according to several articles I’ve read Mexico is growing at a good clip and enjoys a growing middle class due to a growing manufacturing sector which has been caused, they say, to increasing costs in Chinese manufacturing as well as transportation costs.

    1. Lexington

      The mainstream media has also published many similar stories about China.

      For the most part these stories are written by upper middle class “journalists” working for large news organizations owned by tycoons who know that their continued comfortable livelihood depends on delivering copy that will please their employer-tycoons. This means that instead of doing legitimate journalism they’re mostly acting as publicists for said tycoons’ various political agendas, which very much includes free trade (or more accurately, free capital flows).

      One of the ways they try to mitigate the resulting cognitive dissonance is to spend as much time as possible with people very much like themselves (professionally, socio-economically, ideologically) and as little time as possible with anyone likely to present facts or arguments incongruent with that world view. So the news cycle is naturally saturated with feel good stories about the rising professional middle class in Monterrey or the nouveaux riches in Foshan jetting off on shopping expeditions to Taipei. It’s not everyone’s reality, but it’s the reality that matters to them.

      I gave up on The Economist years ago because it’s the poster child for this kind of self congratulatory “triumph of neoliberalism” cheerleading.

    2. kareninca

      I keep seeing the “rising middle class” articles re Mexico, too. And the other day someone posted on NC the legal text of a wondrous new legal right to medical care that Mexican citizens now have (no mention of how well funded the new right is).

      What I think is making a big difference is family size. In the 70s the Mexican government started encouraging smaller families and contraception. Family size has plummeted: In 2011 the fertility rate in Mexico was 2.28 kids per woman!!!!!!! So now I see stories re women who grew up in families with twelve kids, and they were all seriously hungry all the time, and making meals of thin rice water. And these women (in their 30s or so) are now having only one or two kids each. And they are very happy about that, and their kids are getting enough food.

      So even with NAFTA’s destruction, it just has to be easier to keep one or two kids fed, than twelve. Even a little plot of land can keep a small family fed. So even if the poverty level is still as high, perhaps the misery level is a little bit less.

      There are surprisingly few stories in the news re the new fertility rates in Mexico. I think that the guys in our neighborhood, in their late 40s, who are doing stuff like roofing and gardening, are probably the tail end of that labor demographic incoming, at least from Mexico. I’ve done some tutoring and many are illiterate even in Spanish, due to their impoverished backgrounds. The next generation will be better educated and have more options.

    3. D. Mathews

      Yes some Mexicans are indeed making money, yet this is occurring at the same time many more are joining the ranks of the poverty stricken, according to Mexican time series data from ENIGH (I tried to post a translation earlier of an analysis by my colleague from UNAM Dussel Peters, but it wasn’t accepted). Some large Mexican firms are benefiting from the open economy, but small and medium firms are actually biting the dust. Overall, manufacturing has lost a fifth of its jobs since the year 2000.

  5. TomDority

    Same playbook, different country.
    Many other countries have been destroyed by the same game – see Haiti as but one of many examples pre-dating Mexico. The mechanisms that the playbook are based upon are so well known, it baffles me that textbooks and college courses are not taught about it.
    I suppose that sort of education is only available in black-ops schools where these methods are well taught and employed around the glove – of course they are kept secrete for national security reasons. I suppose that is why bankers are allowed to launder money and co-operate with ‘terrorist orginizations’

  6. markf

    Website GeoMexico:

    “The total number of people living in poverty in Mexico continues to rise, though the poverty rate (as a percentage) remains roughly the same. According to Mexico’s National Political and Social Development Commission (Spanish language acronym: Coneval), the number of people in poverty has risen steadily for several years, much in line with Mexico’s rising total population. Coneval’s figures are based on a simple multidimensional poverty index
    According to Coneval, 53.3 million Mexicans (45.5% of the total population) were living in poverty in 2012.
    The dire situation in Mexico compares to a slight decrease in poverty in most larger Latin American countries, including Venezuela, Ecuador, Brazil, Peru, Argentina and Colombia.”

    Anyone who has been to Mexico, can easily see the squalor everywhere.

    also “Carlos Slim Heel born January 28, 1940) is a Mexican business magnate, investor, and philanthropist. From 2010 to 2013, Slim was ranked as the richest person in the world.”


    Yes, drive people in Mexico off of their farms, by the millions, give them nothing else to do, and then be puzzled why they risk their lives to get into the USA.

  7. susan the other

    And is Venezuela next? They just split their stock “index” 1000 to 1, if I read it correctly. (How do you split a stock index; isn’t this a devaluation?) What is making Venezuela take off like this? Remember Mitt Romney tried to introduce us to the idea that it would be good to “go in” to South America. If we can’t control the price of oil coming from Venezuela it will probably be unacceptable for the big oil corporations’ take over of the Caribbean; hence we are now in the process of overthrowing the Maduro gov.t?

  8. PaulArt

    Is there a book that goes into the provenance of NAFTA? Were Rubin and other banksters involved? I would like to know about this. The entire sequence of events reads like a master scheme with money men at its root.

  9. MRW

    John Nichol’s excellent articles on it as well:

    Trade Fights, March 14, 2002
    John Nichols, The Nation
    This article appeared in the April 1, 2002 edition of The Nation.

    There aren’t many Democratic Congressional candidates who can claim that they personally thwarted the agenda of organized labor in the most critical legislative battles of the past decade, but former Clinton White House aide Rahm Emanuel can–and does. Northwestern University, where Emanuel has served as an adjunct professor of communications studies, identifies him as the man who “coordinated the passage of NAFTA.” In addition to getting the North American Free Trade Agreement “ball across the goal line,” as Emanuel likes to put it, Clinton’s former senior adviser for policy and strategy was also a point man for the Administration in fights with unions over granting China most-favored-nation trading status and over fast-track negotiation of a hemispheric free-trade-area agreement that union leaders call “NAFTA on steroids.”

    That résumé might not sound like one that would be a magnet for labor support. Yet, as the millionaire investment banker seeks the Democratic nomination for an open Congressional seat representing blue-collar Chicago neighborhoods hard hit by the loss of industrial jobs, Emanuel is running with the endorsement of the Illinois AFL-CIO. Weirder still is the fact that Emanuel’s opponent in the close struggle to win the March 19 primary, former State Representative Nancy Kaszak, is a lifelong backer of union causes who speaks with passion about the devastation wreaked on Illinois by more than 37,000 lost jobs directly linked to the passage of NAFTA.

    Another 2008:
    The real story is how Goldman Sachs set up Mexico in 1995.

  10. Ep3

    ” I guess Mexico contributes the water. Which it doesn’t have enough of.”
    what about montezumas revenge?

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