Trump’s Renegotiation of NAFTA Could Skunk Your Corona
Trouble brews for Mexican beer as uncertainty over trade policies threatens U.S. exports of two key ingredients
There’s nothing more Mexican than a bottle of Corona. Or not, as it turns out.
Mexican beer may be brewed and bottled south of the border, but the key ingredients — the hops and the barley — come mostly from the northern United States. Much of that makes its way back to the United States and onto grocery shelves in bottles of Dos Equis, Tecate and other easy-drinking Mexican brews: Beer is Mexico’s No. 1 agricultural export to the United States.
That win-win relationship is now at risk with clouds hanging over the North American Free Trade Agreement. Farmers are worried that the Trump administration’s tough stance on Mexico will rupture their long-nurtured trade relationship with America’s southern neighbor, and give Canadian and European growers an advantage in what has long been a privileged American market.
“It’s the uncertainty of upsetting our biggest trading partner and not knowing what they’ll do,” said Scott Brown, a barley farmer in Soda Springs, Idaho.
The high-altitude region of eastern Idaho where Brown’s 10,000-acre farm sits has a short growing season. If barley sales dried up, his only other option would be wheat, and the switch would be costly. “This is barley country. You can’t grow much else,” he said.
Mexico is hugely important for American agriculture as a whole — with exports reaching nearly $18 billion last year — but particularly for specialty crops like malting barley and hops. Mexico is the biggest market for U.S. barley growers, and the second-biggest market for hops producers. U.S. farmers supplied nearly three-quarters of the $265 million in barley and malt, and the $37 million in hops, imported by Mexico and largely used for beer production last year, according to the U.S. Department of Agriculture.
That’s largely due to NAFTA, which gives U.S. exports tariff-free access to Mexico.
Under NAFTA, “it’s the same for a barley producer from Idaho to ship its grain to Monterrey as it is to Milwaukee,” Javier Chavez, a marketing specialist at the U.S. Grains Council in Mexico, said. By contrast, European barley growers face “quotas and a tariff system that could be changed anytime a politician finds it suitable to protect Mexico’s market.”
But that access is now up in the air. Canada, Mexico and the United States are set to begin talks to renegotiate NAFTA as soon as August. Should the United States push too hard on rewriting the pact to favor U.S. manufacturers, farmers fear Mexico will hit back with tariffs on American farm products, including barley and hops, under clauses of the pact that allow retaliation. Talk in Congress of a border tax on imports has also prompted fears of Mexican reprisals, which could end up hurting U.S. farmers.
A spokesperson for the Mexican Brewers Association declined to comment on the importance of U.S.-supplied barley and hops in Mexican beer production, saying only that it was “a delicate topic” given the NAFTA renegotiation.
Since NAFTA took effect in 1994, the U.S. and Mexican economies have become deeply intertwined, with supply chains bouncing back and forth across the border. That’s especially true for agriculture and food. The pact phased out tariffs on most agricultural trade in the region, blazing new supply chains and spurring cross-border investment. U.S. companies bought pork-processing plants and berry-picking operations in Mexico, but the investment flowed north as well.
In 2005, Grupo Modelo, the maker of Corona and Modelo, built a $60 million plant in Idaho Falls, Idaho for malting barley for the Mexican beer industry. Today, Anheuser-Busch InBev, which bought Modelo in 2013, operates the plant, which malts more than 7 million bushels of barley each year, according to Kelly Olson, the administrator of the Idaho Barley Commission.
When NAFTA cut tariffs to zero, it sent a “real strong signal that that plant was a good investment to make,” Olson said.
U.S. barley sales to Mexico have grown hand in hand with the rising popularity of Mexican beer. In 1990, two out of ten beers imported by the United States were Mexican; today, it’s seven out of ten, according to the U.S. Department of Commerce. Last year, Mexican brewers’ U.S. sales topped $3.1 billion.
“It’s difficult to picture a beach sometimes without picturing a Corona,” said Richard Shaye, an export manager for S.S. Steiner, Inc., a New York-based hops grower and dealer, who called exports to Mexico “extremely important” for the U.S. hops industry.
And U.S. farmers are eyeing additional markets in Mexico beyond the traditional beers they’ve been helping produce: Mexico’s fledgling craft brew market is growing, and that requires a steady supply of pricier aromatic hops.
“We have to look beyond our borders and, if there’s a barrier, economic or otherwise, it makes things difficult,” Shaye said.
It’s not idle speculation. Worried by the Trump administration’s approach to trade, Mexico has already been working on a “ Plan B” campaign to diversify its food sources and even grow more food at home. It embarked on trade missions to Brazil and Argentina to test the waters for grain imports from those countries, rattling the U.S. grains sector.
On a trip to Mexico in March, U.S. Grains Council CEO Tom Sleight said industry officials talked about Mexico adopting biotechnology to expand domestic production and replacing imported corn used for animal feed with corn grown at home, even if it costs more.
“When you put those Plan B concerns in, you get away from purely economic decisions,” he said.
In recent weeks, some U.S. agriculture officials have grown more optimistic the administration won’t push Mexico too far in the NAFTA talks. But the threat of a sharp deterioration still looms.
Last month, Trump came within a whisker of withdrawing the United States from the pact before Mexican President Enrique Pena Nieto and Canadian Prime Minister Justin Trudeau persuaded him to renegotiate it instead.
“Not knowing what the Trump administration will do one day to the next is worrisome,” Brown said.
And it’s not just farmers who benefit from free trade between Mexico and the United States, noted Chavez of the Grains Council.
“Next time you are drinking your nice Dos Equis, think that without free trade, you would be drinking Bud Light,” he said.
Photo credit: SCOTT OLSON/Getty Images
1Erdogan Is Failing Economics 101 419 Shares
2Putin's Endgame in Syria Has Arrived 555 Shares
4Italy Needed a Government. It Got a Circus. 354 Shares
5Trump Has No Idea How Diplomatic Deals Work 1039 Shares
6The Making of a Chechen Hitman 303 Shares
7How to Steal an Election in Broad Daylight 781 Shares
9Erdogan’s Flying Carpet 361 Shares
10Regime Change for Dummies 2783 Shares