The Multinational Monitor

April 2004 - VOLUME 25 - NUMBERS 4

CAFTA:  Recolonizing  Central  America

Competition or Massacre?
Central American Farmers’
Dismal Prospects Under CAFTA

By Tom Ricker

Managua, Nicaragua -- "Prices are so low we have to grow more and more just to meet ends."

That's how a leader of a new Nicaraguan campesino organization, FEDICAMP, describes the current situation for small farmers here.

Already struggling to compete with subsidized imports from the United States, small farmers in Nicaragua are concerned about the prospect of being inundated with corn and rice imports sold below costs of production if the Central America Free Trade Agreement (CAFTA) is implemented.

CAFTA -- referred to as El TLC, the free trade treaty in Spanish -- is already well known and much feared in Central America. The roadsides in Managua are full of graffiti denouncing the agreement. The favorite is "TLC = miseria" (CAFTA equals misery).

The ruling governments in Central America, however, celebrate CAFTA. In March 2004, trade and commerce ministers from Central America came to Washington, D.C. to lobby members of the U.S. Congress to pass the agreement. Ministers argue that CAFTA will help consolidate democracies in the region and open a new path for development. "This is the consolidation of a very difficult, very grave process that for some of our neighbors started with civil war. It has taken courage and vision to get to this point," Alberto Trejos, Costa Rica's Trade Minister told reporters.

The future of FEDICAMP and other small farmer organizations -- and of Central America's heavily rural population -- rests on which assessment of CAFTA is right: misery or opportunity.

"Negotiating" CAFTA
"Where there is no balance of power, negotiation is imposition," says Carlos Pacheco of the Center for International Studies in Managua, Nicaragua. It would be difficult to find another multilateral negotiation process with less "balance of power."

The U.S. economy is a global behemoth, topping $11 trillion in 2003 and accounting for nearly 70 percent of the gross domestic product (GDP) of the entire Western Hemisphere. Meanwhile, the combined GDP of countries in Central America was $58 billion in 2000 -- smaller than the total income of just two U.S.-based agriculture companies that will benefit from the accord: Cargill and Archer Daniels Midlands. The smallest economy, Nicaragua, produces just $3 billion a year in goods and services.

Politically, the elite of Central America are also historically dependent on the United States, with Costa Rica being something of an exception. In Nicaragua, El Salvador and Guatemala, the ruling parties overseeing CAFTA negotiations last year were each U.S.-supported alliances that evolved during the wars of the 1980s in which the United States government was far from a neutral observer.

Inequality and dependence played themselves out most clearly in CAFTA's agriculture negotiations, where Central America had arguably the most at stake. Yet, from the beginning negotiations, CAFTA was really a matter of refining the position of the United States Trade Representative (USTR), not bargaining.

During informal talks that preceded the launch of official negotiations, the Federation of Central American Agricultural Producers lobbied hard for a separate negotiating table for agriculture. The USTR refused, requiring agriculture to be placed along with other contentious items such as textiles, into a single Market Access Table -- a single negotiation over tariff issues.

Central American negotiators then attempted to create a list of sensitive agricultural products they hoped to exclude from the agreement until the United States opened discussions on domestic agriculture subsidies. For example, groups such as the Nicaraguan Agricultural Cooperative Federation pressed for the exclusion of white corn, red and black beans, rice and dairy products. The USTR refused, requiring that all products be "on the table" for negotiations.

In the end, the USTR did agree to a gradual rather than immediate elimination of tariffs on some sensitive products, extending deadlines to 15 and 20 years in some cases. However, even this "concession" is not secure. Chapter 19 of the agreement grants the Free Trade Commission, which will administer CAFTA, the power to accelerate tariff elimination.

On the matter of U.S. agricultural subsidies, the USTR merely repeated its position that it will only discuss agriculture subsidies at the WTO, and not in bilateral or regional agreements.

Thus, from the opening, the negotiations were framed to exclude the most fundamental of Central American agricultural demands. What was left to Central America negotiators was to bargain as a unit in order to strengthen their positions on the remaining details. This too fell by the wayside as the USTR opened bilateral talks on market access with individual country teams, effectively playing one country against the other. The result, evident in the final agreement, is a patchwork of market access rules with minimal concessions from the United States. Another result of this divide-and-conquer strategy was to seriously reverse the process of regional economic integration in Central America by making a unified tariff structure -- with the countries eliminating tariffs between each other and maintaining a single tariff structure for imports from outside the region -- nearly impossible. The irony is that the Bush administration promoted enhanced regional integration as one of the goals of the talks.

When the talks concluded in December 2003 (Costa Rica joined the final agreement in January 2004), the groundwork had been laid for what many view as a potentially devastating agreement for Central American farmers. "Our mainly agricultural economy is going to be destroyed by the big transnational agribusinesses from the U.S. which are receiving subsidies that cannot be matched by our government," warns Carlos Pacheco of the Center for International Studies.

Stark Inequality, Unfair Competition
A popular education piece on CAFTA and agriculture published in Nicaragua asks, "Is CAFTA competition or a massacre?" -- comparing the agricultural sectors of Nicaragua and the United States. The level of inequality between the two countries, and between the United States and the rest of Central America, is stark.

"CAFTA will force farmers in the region to compete, not against U.S. farmers but against U.S. taxpayers and the world's most powerful treasury," Stephanie Weinberg of Oxfam America told congressional staff in a January briefing. Average U.S. subsidies to its agriculture sector dwarf small farmer income in Central America. While the average farmer in Nicaragua struggles to earn $400 a year in income, government funded producer supports in the United States averaged $20,000 a farm from 1999-2001 according to the annual report of the Organization of Economic Cooperation and Development (OECD, a grouping of rich countries). (However, the average figure obscures extreme inequality; the vast majority of U.S. farmers receive less than a $1,000 a year.)

The subsidy issue in the United States is intricately tied to the chronic structural problem of overproduction. Textbook market rules don't apply in the real world of agriculture. Like farmers anywhere, farmers in the United States will tend to produce more, not less, as commodity prices fall, in order to make ends meet. This becomes part of a downward cycle. Increased production puts further downward pressure on farm gate prices, and more pressure to produce. Subsidies are supposed to play the role of stabilizing farmer income and limiting overproduction, but rarely are subsidies administered evenly enough so as to be adequate for the average small farmer.

Archer Daniels Midland and Cargill have fought efforts to stabilize farm prices. They have preferred to buy up farm commodities cheaply and then dump them overseas. The United States is responsible for nearly 18 percent of global agricultural exports (70 percent of global corn exports), outpacing the European Union and Japan. Export markets are highly concentrated. Archer Daniels Midland and Cargill alone control almost two-thirds of U.S. corn exports. Despite their enormous advantages, both firms benefit from additional export subsidies and commodity promotion programs financed by U.S. taxpayers.

In 2001, the average export price for U.S. corn was 33 percent below the full costs of production and transportation. For rice, it was 22 percent.

The inequality between agricultural sectors in the United States and Central America goes well beyond the issue of subsidies. When measured as a factor of labor productivity (value of production per worker), farm output in Nicaragua is 2.76 percent that of the United States. This enormous gap is the result of much heavier use of fertilizers and the mechanization of agriculture in the United States. In the United States, there are 1,586 tractors in use for every 1,000 workers in the agricultural sector. In Nicaragua, the number is 3.87.

The gap in breeding and biotechnology research also affects these production numbers, in ways that may have profound effects if CAFTA comes into force.

The tale of the "rojo chiquito," or small red bean, illustrates what is at stake. Researchers at the University of Washington developed the rojo chiquito under a U.S. Department of Agriculture-funded research program. The rojo chiquito is the first red bean strain that will grow in the United States that has the same qualities as red beans from Central America. The USDA's Agricultural Research Services news release on the discovery of this strain in April 2002 stated, "rojo chiquito is primarily intended as an edible dry bean crop that U.S. farmers can grow for export markets in Honduras, Nicaragua, El Salvador and other Central American countries."

While not a major news item in the United States, a front-page article in El Nuevo Diario in Nicaragua denounced the rojo chiquito as potentially more devastating than Hurricane Mitch. Farmer groups fear U.S. imports will knock local farmers out of business and off the land. Alvaro Fonsceo of the Foundation for Rural Social and Economic Development in Nicaragua claims that the livelihoods of 200,000 farmers are at stake.

Given the gross agricultural inequalities between the United States and Central America, in Central America, even CAFTA supporters are nervous.

"The level of asymmetry is obvious," says Oscar Aleman, an external commerce specialist in Nicaragua, and one of the pro-CAFTA voices in the country. "The U.S. has to start from reality, even for its own sake. Unless it develops an economic cooperation plan that will level out inequalities through investment and technical transfers, the resulting job losses and further depression in Central America will only increase the pressure of migration on its own borders."

Evaporating Jobs in the Countryside
Across the region, tariff elimination, even if phased in for some products, ultimately will mean people in rural areas lose their land and jobs.

Consider the impact of the North American Free Trade Agreement (NAFTA) in Mexico. The collapse of corn prices following the influx of U.S. corn has cost 1.7 million Mexican agriculture jobs, with almost 15 million small farmers losing significant income.

Unlike the United States, where perhaps 2 percent of the workforce is in agriculture, Central America is still highly dependent on its agriculture sector for employment. The average workforce participation in agriculture for the region is 30 percent, with Nicaragua leading at over 47 percent (some estimates place Guatemala higher). Thus major shake-ups in agriculture constitute full-fledged social disruptions.

"If CAFTA were to go into effect today," says Alvaro Fiallos, the president of Nicaragua's Union of Farmers and Ranchers (UNAG), "420,000 Nicaraguan agricultural sector jobs -- including those of the producers themselves -- could just disappear, increasing migration to the cities, Costa Rica and the United States."

U.S. agricultural dominance will also undermine intra-regional trade. For example, 46 percent of Guatemala's total exports are agricultural sales to other countries in Central America. With CAFTA in place, these markets will be overwhelmed by U.S. production. Oxfam researchers estimate the immediate loss of 22,000 jobs and as many as 80,000 over five years. This would be in addition to the loss of hundreds of thousands of jobs in domestic production.

These job losses will exacerbate an already desperate situation. The region is already suffering from the loss of 600,000 jobs in recent years from the international collapse of coffee prices.

Meanwhile, Central America's elite exhibits little concern. Costa Rica's government, for example, has refused to protect its corn producers for years, siding with ranchers who demand access to cheaper livestock feed. As with the rest of the region, Costa Rican farmers fear CAFTA will put the nail in their economic coffin.

Food Sovereignty
The World Food Program estimates that one in four people in Central America -- 8.6 million people -- suffers from hunger. The vast majority of the hungry live in rural areas. Some CAFTA proponents say these people will benefit from the lower prices that the agreement will usher in. But lower commodity prices typically do not translate into lower marketplace prices for food.

In Mexico under NAFTA, report Gisele Henriques and Raj Patel, writing for the Americas Program of the Silver City, New Mexico-based Interhemispheric Resource Center, "the domestic price for corn has fallen. But the price of corn food -- especially the Mexican staple, the tortilla -- did not decrease; in fact it has increased 279 percent." The reasons for the price hike, which is even higher in rural Mexico, are the decline in government subsidies to tortilla producers, and the fact that the market is highly concentrated -- two companies control 97 percent of the market.

The Mexican monopolists are already beginning to exert market power in Central America. MASECA, the corn flour giant from Mexico that is partially owned by Archer Daniels Midland, has been dumping corn flour in Leon, Nicaragua. Alvaro Fiallos, head of the Union of Farmers and Ranchers in Nicaragua, explains, "MASECA representatives had given [tortilla makers] free corn flour to work with for a month. All of the women felt it was an improvement, as they didn't have to go buy maize kernels, then soak them and grind them. � The following month, none of them wanted to go back to buying the grain; they all started buying the corn flour."

Even without CAFTA, multinational corporations are already grabbing control over domestic food markets in Central America. Cargill has bought interests in Nicaragua's poultry company Tip Top, and is seeking to purchase the regional giant, Pollo Campero, currently a Guatemala company. The dairy industry giant Parmalat controls the only dairy processing facility in Nicaragua with the capacity to meet pasteurizing requirements for entry into U.S. markets, and is the main supplier of domestic dairy products.

The only real potential beneficiary of expanded quotas for dairy imports into the United States under CAFTA, Parmalat is currently squeezing dairy farmers in Nicaragua. Magda Lanuza, who works with Hijas y Hijos del Maiz (Children of the Corn) on issues of food sovereignty, explains that "Parmalat used to pay local dairy farmers $.45 a liter for fresh milk. But now they are buying more powdered milk from the United States, and asking farmers in Nicaragua to supply milk for only $.25 a liter."

Countries in Central America are losing the capacity to supply food from domestic stocks at reasonable prices everyday. CAFTA will accelerate this process dramatically.

There is little reason to doubt that implementation of CAFTA will result in widespread displacement in rural areas of Central America. Proponents are essentially betting that other provisions in the agreement will create enough new opportunities for displaced rural workers and farmers to offset this impact. Farmers in Nicaragua and elsewhere in the region understandably are not eager to participate in such an experiment, which, in a best case scenario, will costs tens of thousands their land and, in a worst case, will cost them their land without providing employment alternatives. Given the dismal record of economic neoliberalism in the region so far, that worst case scenario seems to many to be the one likely to be realized.

Tom Ricker is policy coordinator for the Hyattsville, Maryland-based Quixote Center.