Time to Overhaul U.S. Agricultural Policy

Clint Thompson Florida, Top Posts

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By Zhengfei Guan

Since the North American Free Trade Agreement (NAFTA) renegotiation, the U.S. produce industry has been actively pursuing policy changes to counter increasing foreign competition. This competition, particularly from Mexico, has caused great challenges to the sustainability of the domestic industry.

I have participated in policy discussions and testified at two recent hearings. The first was on seasonal and perishable produce held by the Office of U.S. Trade Representative (USTR) in August 2020. The second was on the effects of cucumber and squash imports on U.S. seasonal markets by the U.S. International Trade Commission (USITC) in April 2021. In this article, I will present some major issues in the debate and shed some light on potential solutions.

The Big Picture

U.S.-Mexico trade has been growing rapidly since NAFTA took effect. Between 1993 and 2020, U.S. agricultural exports to Mexico have grown fivefold, while imports from Mexico have jumped elevenfold. In 2020, the United States had an agricultural trade deficit of roughly $15 billion with Mexico. In the same year, fruit and vegetable imports from Mexico reached a record high of $16 billion. To put it in perspective, the combined U.S. exports of corn and soybeans, the two largest agricultural commodities exported to Mexico, were $4.6 billion.

The surge of fruit and vegetable imports has had a profound impact on the U.S. domestic produce industry, particularly in the Southeast, where the production window overlaps with that of Mexico for many crops.

Cucumbers and Squash

In 2000, U.S. production of fresh cucumbers was more than 40% higher than imports. But by 2020, U.S. production had dropped 70%, while imports increased threefold, causing a dramatic reversal in market positions. In 2020, the import volume was seven times higher than total U.S. production, with about 80% of the imports coming from Mexico.

Florida is one of the top suppliers of cucumbers. Within a 10-year period from 2007 to 2017, Florida lost two-thirds of its production due to intensified competition from imports.

Like cucumbers, the squash market positions between U.S. domestic products and imports reversed as well. Between 2000 and 2020, U.S. production of fresh squash dropped over 40%, while imports increased nearly threefold. In 2020, the volume of imported squash was two times higher than total U.S. production, with 96% of the imports coming from Mexico.

In the southeastern United States, Florida and Georgia are major producers of squash. Fresh squash imports from Mexico were at the same level with Florida and Georgia production in 2000. But by 2019, imports from Mexico were eight times higher than the amount produced in those two states. During this period, Florida lost over 40% and Georgia lost over 80% of its production.

Reasons for Rapid Import Growth

Besides having cost advantages, Mexico has been systematically subsidizing its fruit and vegetable industry.

Mexican agricultural subsidies are administered by its Ministry of Agriculture under the National Development Plan, which consists of several subsidy programs. Based on a study my team published in 2018, entitled “Government Support in Mexican Agriculture,” Mexican agricultural subsidies from 2006 to 2016 averaged 59 billion pesos, or 4.5 billion dollars, per year.

Protected agricultural production provides a good example of Mexico’s subsidy policy. The Mexican government subsidizes up to 50% of the cost of agriculture protection structures such as greenhouses and shadehouses. In 2019, under the protected agriculture program, Mexican growers could receive up to 4 million pesos, or over 200,000 dollars, per project.

Total subsidies for protected agriculture alone in Mexico were over 7 billion pesos, or over half a billion dollars between 2001 and 2018. The subsidies contributed to more than 60-fold growth in protected acreage during this period, with 94% of the acreage used to produce fruit and vegetables in 2018.

Cucumbers are one of the major crops in protected agriculture in Mexico. Mexico had over 14,000 acres of cucumbers in protected production alone. Compared to Florida, Mexico’s cucumber yield in protected production was about six times higher than Florida’s yield in open-field production.

There are other government programs that subsidize a wide range of activities, from equipment purchases to financing. In addition, other major specialty crops, such as squash, tomatoes, peppers and berries are included in these programs. In fact, Mexico has been subsidizing its fruit and vegetable industry throughout the supply chain, from production to post-harvest management to marketing. The subsidies coupled with Mexican labor cost advantages have turned Mexico into a market power in the produce industry.  

What’s at Risk?

The decline of the U.S. fruit and vegetable industry, especially in the Southeast, is expected to continue, unless changes occur.

But it is more than that. Foreign competition also poses risks in multiple dimensions associated with agriculture and food systems that have not been widely recognized. For example, a rapidly shrinking U.S. fruit and vegetable industry means greater dependence on imports for food supply. For fresh produce, a perishable commodity that, unlike corn or soybeans, cannot be stored for extended periods and requires constant supply, this dependence poses a food security issue. This has become a legitimate concern and a real risk given the tremendous uncertainties the pandemic has caused in global supply chains.

Last but not least, agriculture provides more than food. It also produces ecosystem services and environmental amenities that are valuable for society. A struggling agriculture industry coupled with rising urbanization pressure in states such as Florida could result in rapidly diminishing farmland lost to commercial development. This is an irreversible process that would have broad social, economic and environmental implications.

Policy Change Needed

In the United States, row crops (like those in the Midwest) and other sectors have been given most of the attention or priority in government support and trade negotiations, but the market and trade patterns have witnessed tectonic shifts in the last two decades. It is time to overhaul U.S. agricultural policy to have a balanced, fair treatment of the U.S. fruit and vegetable industry, which is struggling to survive due to the surge of imports.  

To counter intensifying competition, policy initiatives should address trade practices and prioritize government stimulus on innovation to accelerate technology development and deployment in the U.S. produce industry.

Zhengfei Guan is an associate professor at the University of Florida Institute of Food and Agricultural Sciences Gulf Coast Research and Education Center in Wimauma.