The United States and Mexico celebrated 200 years of diplomatic ties in December 2022, but food crop corn is now testing that relationship.
The North American neighbors have one of the closest bilateral relations in the world, supported by strong economic and trade ties, both generating hundreds of billions of dollars in trade revenue with each other. Electronics, vehicles, fuels, minerals, plastics and machinery are the largest US exports to Mexico. Fuel oil, gasoline, motor vehicle parts, passenger and commercial vehicles make up the majority of Mexican supplies to the United States.
But agriculture is at the heart of US-Mexico trade relations. Their agricultural trade is expected to be worth $73.14 billion in 2022, up 13% year-on-year and accounting for 10% of their total bilateral trade, a US Census Bureau report released on February 14 showed. U.S. agricultural exports to Mexico in 2022 included corn, soybeans, dairy products, pork, and wheat, while major Mexican supplies to the U.S. included fruits, vegetables, sugar, and coffee.
Washington knows that Mexico is not only vital to American farmers, but also a potential source of revenue and employment generation for other industries. Washington is also aware that the two democratic allies together form a formidable strategic front in international forums.
„US relations with Mexico are strong and important, and Mexico remains one of the United States’ closest and most valued partners,” the US State Department said on September 16, 2022.
A clue on corn now tests that relationship.
Mexico is the world’s second largest corn buyer, importing 16 million-17 million metric tons annually. Mexico’s corn imports are expected to be worth $4.62 billion in 2021, accounting for 98% of the U.S. corn market share, according to a report by the Monitor of Economic Complexity Data.
Not surprisingly, any corn discontent in Mexico sent tremors through the entire American agricultural community, especially in Illinois, Louisiana, Iowa, Kansas, Nebraska, and Missouri. In the past few years, these six states have sent the majority of U.S. corn exports to Mexico, according to U.S. Census Bureau data. Most of the corn produced by American farmers is genetically modified.
Friendship turns sour
In December 2020, Mexican President Andrés Manuel López Obrador issued a presidential decree to ban genetically modified corn for human consumption by the end of January.
GM corn seeds could contaminate Mexico’s native varieties and harm human health, Obrador said.
A top Mexican scientific institute, the Consejo Nacional de Ciencia y Tecnologia, cites evidence of documented health risks from high consumption of minimally processed GM maize, which may also contain residues of the herbicide glyphosate.
At first, the decree was seen as a political stunt by the Mexican president. The US farming community thought Mexico might reverse its decision under sustained diplomatic pressure.
But as the months passed, Mexico fueled fears of a significant trade loss for U.S. corn farmers. U.S. Agriculture Secretary Tom Vilsack warned that a ban on GM corn would have a significant impact on U.S.-Mexico trade.
A quarter of U.S. corn exports typically go to Mexico each year, so the uncertainty of buying from Mexicans could make corn prices even more volatile, especially amid the Russia-Ukraine war and growing food security fears around the world.
„The Mexico president’s final order will significantly disrupt trade, harm farmers on both sides of the border and significantly increase costs for Mexican consumers,” Vilsack said. „We need to find a way soon.”
Not surprisingly, harsher words began to emerge from Washington, along with veiled threats of sanctions.
„The United States will be forced to consider all options, including taking formal steps to enforce our legal rights under the USMCA,” Vilsack added, referring to the free trade agreement between Mexico, the United States and Canada.
In late 2022, Mexico relented under intense U.S. pressure and proposed delaying import restrictions on GM corn until 2025 and excluding imports of yellow corn for animal feed from the mandate’s scope. But US lawmakers wanted Obrador to withdraw the entire mandate, not just sections.
With continued pressure from the farmers’ lobby, the US government said on March 6 that it had taken enforcement action against Mexico for undermining USMCA trade obligations.
„The United States has repeatedly expressed our serious concerns about Mexico’s biotechnology policies and the importance of adopting a science-based approach that complies with its USMCA obligations,” said U.S. Trade Representative Catherine Toye. „Mexico’s policies threaten to disrupt billions of dollars in agricultural trade and, if left unchecked, will stifle the innovation needed to address the climate crisis and food security challenges. We hope these recommendations will be useful as we continue to work with Mexico to address these issues.”
Pete Meyer, crops and feed economist at S&P Global Commodity Insights, said a blanket ban on GMO corn imports is impractical.
„With Ukraine out of the picture, in theory there isn’t enough non-GMO corn to meet Mexico’s needs,” Meyer said.
What next?
The ball is now in the USMCA’s court, and a protracted dispute is on the horizon.
Whatever the outcome, U.S. farmers have long-term concerns, and commodity analysts fear the dispute could drag on for years. There are further concerns that the GM corn issue could snowball into an avalanche, with both sides imposing retaliatory sanctions on each other.
Punitive trade restrictions are harmful to economies, as seen in the US-China tariffs, which have already cost both countries hundreds of billions of dollars. But US relations with China cannot be compared to those with Mexico. One was a long-standing rival with great economic influence, the other a friendly neighbor despite frequent conflicts.
There is hope that good sense will prevail on both sides of the border, and that US-Mexico relations will be back on track.
„It’s an ongoing battle, full of rhetoric,” the mayor said.
It’s hard to imagine that increasing, he said.
Source: Flats