Competition or Massacre?
Central American Farmers'
Dismal Prospects Under CAFTA
by Tom Ricker
Multinational Monitor, April
"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
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.
"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
$5S 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 1950s 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
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
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
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
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 frontpage 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
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 shakeups 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 intraregional 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
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.
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 R 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
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
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
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 l 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
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