Report

Wary of Protectionism, U.S. Agriculture Wages Charm Offensive to Save Mexican Exports

With talk of a trade war, tariffs, and reprisals, Mexico is looking for new suppliers of food.

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American food producers are turning into diplomats, flying to Mexico to bolster decades-old business relationships now fraying under the protectionist trade shift in Washington.

The Trump administration’s plan to renegotiate the North American Free Trade Agreement has thrown a cloud of uncertainty over the trade terms that have underpinned Mexico’s growth for the past two decades and made it the third-largest export market for American farmers.

As buyers and the Mexican government start to look at getting their food from countries other than the United States, several U.S. industry officials have headed south of the border in recent weeks to reassure them that Mexico is still a valued customer.

U.S. food producers have noticed a chill in their conversations with longtime customers, and some are seeing their sales to Mexico stall, according to industry officials. Meanwhile, buyers are telling their U.S. suppliers that they are exploring new sources of grains, corn, dairy products, and meat for fear that Mexico will revive tariffs on agricultural products that went to zero after NAFTA.

“We’re talking with people we’ve been working with for decades. For the first time, they are questioning their overdependence on the U.S.,” said Tom Sleight, CEO of the U.S. Grains Council, a nonprofit that represents corn, barley, and sorghum producers.

The industry-led diplomacy comes amid a leadership vacuum in Washington. Nominees for the top trade and agriculture posts have yet to be confirmed, leaving the job of salvaging a hard-won trade relationship to company officials and trade group representatives who know little more than Mexico does about what direction the Trump administration will ultimately take.

America’s top farm states overwhelmingly backed President Donald Trump in the election. But now there’s growing concern in these states that his trade policies will help manufacturers at the expense of farmers. For U.S. farmers, who sent $130 billion in exports abroad last year — including $18 billion worth to Mexico — cultivating and nurturing trade relationships has been a bedrock of U.S. agricultural policy for decades. For Mexico, it’s about more than business: The country doesn’t grow enough food to feed its population, so imports are a food security issue.

Without a voice for agricultural interests atop the administration, farmers and food producers fear real damage is being done. Last week, several senators from farm states sought to fill the void, raising concerns in a Senate hearing for the nominee for U.S. trade representative, Robert Lighthizer.

A trade war could have “real and serious economic consequences for farmers,” Sen. Chuck Grassley (R-Iowa) warned, adding that “when we are retaliated against, it’s often done through countries taking actions against our agriculture.”

Trump’s nominee for agriculture secretary, Sonny Perdue, is set to have his confirmation hearing Thursday, after months of delay as Perdue sought to avoid ethics problems relating to a family trust.

“There’s no leadership,” said Philip Seng, the president and CEO of the U.S. Meat Export Federation, who argued that the administration’s trade rhetoric runs against “the whole fabric of what our agricultural policy has stood for for 50 years.”

The lack of assurances coming from Washington stands in stark contrast to decisive moves by Mexico to diversify its food supply. On March 1, Mexico said it would suspend through the end of the year tariffs on imports of 200 metric tons of beef from countries with which it doesn’t have a free trade agreement, a move seen as benefiting Australia and New Zealand.

Meanwhile, the Mexican agricultural ministry is pursuing a flurry of trade visits to Europe, Asia, and South America, including a mission next month to Brazil and Argentina to explore importing corn, grains, and other products. Agriculture Minister José Calzada, in a press conference this week, proposed a plan to cultivate new import and export markets, saying Mexico had to “get out of its comfort zone.”

Sleight of the Grains Council flew last week to meet with feed millers, livestock companies, and grain marketers in Mexico City and Guadalajara, as well as with officials at Mexico’s Ministry of Agriculture. The companies told him that they are accelerating their grain purchases to build up their inventories and looking at using alternative grains, like feed wheat or white corn, for livestock.

“It’s starting to influence business decisions,” he said.

The cross-border farm trade is, like much of the U.S.-Mexico relationship, tight-knit and interdependent. The $18 billion in agricultural exports the United States sent to Mexico last year accounted for about 70 percent of all Mexican agricultural imports. Meanwhile, the United States imported about $23 billion worth of Mexican agricultural products, such as avocados and tomatoes, accounting for nearly 80 percent of all such Mexican exports.

The tenor of Sleight’s conversations in Mexico was one of frustration and bewilderment that the United States would imperil such a key trade relationship. “‘Why are you doing this? Why are you treating your best customer like this?’” he said the Mexican industry officials asked.

The U.S. dairy industry, whose top export market is Mexico, sent a delegation to Mexico last week led by former Agriculture Secretary Tom Vilsack, who now heads the U.S. Dairy Export Council. The industry is worried the protectionist tone in Washington is harming business.

Last year, California-based Hilmar Cheese Co. exported about half the milk powder it produced from a new plant to Mexico. Lately, the company has seen the market soften. That’s in part because of a weak Mexican peso but also because Mexican buyers are looking for new suppliers, said chief executive David Ahlem.

“It’s creating uncertainty for our buyers,” he said. “In the short term, that could have real impacts.” Customers have told his sales team that they are talking to potential suppliers in the European Union. “Even if we get to the right place in the long run, once that demand is gone, it’s gone,” he said.

Meanwhile, the U.S. dry bean industry, based in the upper Midwest, is feeling reverberations from the policy shift in Washington. Star of the West Milling Co. in Frankenmuth, Michigan, hasn’t received any bean orders from its Mexican buyers since Trump was elected, said Rob Chandonnet, the company’s vice president of edible bean sales.

He has heard concerns from customers on a recent trip to Mexico that their government will suddenly impose a retaliatory tariff on U.S. bean imports between the time they place the order and when it’s delivered. Another worry: Mexican border officials who carry out phytosanitary inspections of the beans could reject them, as a way to retaliate against U.S. trade policy, he said.

Chandonnet feels he can’t offer assurances to his buyers until he knows what the administration will do. “I’m a seller, and if I can’t reassure my customers, then that causes even more uncertainty in the market,” he said.

One of his customers, Importadora Exportadora Dorsalva, currently buys only American and Canadian beans. But now it’s exploring importing beans from other countries should Mexico pursue retaliatory measures that make U.S. beans costlier, Salvador Sanchez, a company manager, said.

Sanchez confirmed that many in Mexico believe their country will hit back with tariffs on farm products if the United States pulls back on market access to Mexican-made manufacturing goods.

“If Donald Trump does something about the manufacturing part, Mexico is going to respond with the agricultural part,” he said.

Photo credit: SCOTT OLSEN/Getty Images

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