On December 31, 2020, the government of Mexico finalized their commitment to ban the use of the herbicide glyphosate and genetically engineered (GE) corn in Mexico. The plan is to slowly replace each agricultural asset over a set period of time. The agricultural industry was given four years to replace glyphosate with a “sustainable and culturally appropriate” substitute (Diario Oficial de la Federación, 2022). Similarly, the use and consumption of GE corn was to be completely banned by January 31, 2024. In its enforcement, the plan specified that all current licenses to grow GE corn would be revoked, and that future licenses would be considered void (Kuypers, 2021).
While the pesticide restriction has not caused much concern, the ban on GE corn has problematic implications for U.S. farmers (Nosowitz, 2021). The United States is the biggest global producer of GE corn and sold over $2.7 billion in yellow corn to Mexico as of last year (Alexander, 2021). From 2018 to 2019, U.S. yellow corn comprised 96 percent of Mexican corn imports, most of which is consumed as animal feed or in industrial processes (Nosowitz, 2021). Conversely, Mexico consumes 25 percent of all corn exports from the United States, weighing a total of 16 million tons of corn (Alexander, 2021). Because Mexico is such a large market for U.S. corn, the American agricultural industry is lobbying for the federal government to challenge the new ban under the United States-Mexico-Canada Trade Agreement (USMCA). Not only would the ban severely restrict trade between the United States and Mexico, but it could cost the economies of both countries billions in lost profits (Garrison, 2022a). This paper will examine Mexico’s reasons for implementing the ban, and whether those reasons justify the negative economic impact that comes as its side effect.
Reasons for the Ban
The roots of the ban extend all the way back to the 1994 North American Free Trade Agreement (NAFTA). NAFTA prevented all parties involved from enacting tariffs on a large variety of exports that were traded between the three countries. By joining the treaty, Mexico opened itself up to become the market for American GE corn imports that it is today. The new influx of corn lowered the price of domestically grown corn by almost 70 percent. This devaluing of domestic corn forced approximately 2 million farmers to look for employment in big cities or in the United States. The USMCA which replaced NAFTA does not seem to have slowed this decline in the domestic corn industry (Alexander, 2021). In 2021, Mexico was estimated to produce 27.8 million metric tons of corn and import 16.5 million metric tons by the end of the year (Tomas, 2021). However, regional droughts have lowered the predicted tonnage of domestic corn significantly. Juan Pablo Rojas, President of the National Confederation of Corn Producers (CNPAMM), estimated that domestic corn production for 2021 would not rise above 24 metric tons. A more optimistic estimate from the Sitio de Servicio de Información Agroalimentaria y Pesquera, the Federal Department of Agriculture, still shows a two percent decrease from the previous year (Garcia, 2021).
Therefore, Mexican President Andrés Manuel López approved the ban as a way to support domestic corn manufacturers. He clearly wants to push Mexicans towards having a self-sustaining agricultural sector, reducing its dependence on imported corn (Alexander, 2021). As evidence, the Deputy Agricultural Minister Victor Suarez made a public statement, declaring that “Mexico will reduce -GM corn- imports by 50 percent in 2024” (Ventura, 2021). However, regional droughts and government regulation has kept domestic corn production from closing the gap left by imported corn. Production values for corn in the first half of 2021 represented only 24 percent of target production for the year (Ventura, 2021). Moreover, recent research suggests that the economic costs of the ban might further inhibit Mexico from achieving its goal (World Perspective 2022).
The Economic Costs
According to a study conducted by World Perspectives, an agricultural analysis firm based in Arlington, Virginia, the economic costs of the ban over a 10-year period would be significant for the United States, Canada, and Mexico. Their data suggests that the ban would reduce America’s economic output by $73.89 billion, with Mexico and Canada’s productivity dropping by $19.39 billion and $33.94 million respectively. In the United States and Mexico, these economic losses would cause each country’s GDP to shrink by $30.55 billion and $11.72 billion respectively. The United States would suffer 32,217 job losses per year, causing labor wages in the country to drop by a total of $18.38 billion. By contrast, Mexico would suffer a higher number of annual jobs lost at 56,958, resulting in a $2.99 billion decrease in labor wages. The corn industry in the United States would lose $3.56 billion in the first year alone and would incur larger losses the next year. At the end of ten years, U.S. corn growers will have lost $13.61 billion in potential profit (2022).
The study also conducted a cost-benefit analysis specific to Mexico and found that, within the first year, the selling price for unregulated corn would increase by 48 percent, upping the price per bushel to $8.14. That same year, the price of importing corn would cost Mexico an extra $571 million. The cost of corn in Mexico will increase by about 19 percent with an additional $1.056 billion in enforcement costs being handed down for Mexican consumers to pay. The increase in corn prices will also increase the cost of livestock feed by 13.7 percent. Thus, the Mexican meat industry will have to increase the selling price for poultry meats by 66.7 percent to account for the rising cost of meat production. Such an increase would not only make eggs unaffordable for the poorest consumers but also disincentivize the average Mexican from buying domestic poultry. They would be more likely to buy imported meat fed with genetically modified corn at lower prices which would hurt domestic meat manufacturers. The study concluded that the ban would still have a significant negative impact that would outweigh any of its potential benefits. The resulting economic down turn would harm a majority of Mexicans, 55.7 million of whom live below the poverty line and use corn as a food source (World Perspectives, 2022).
Conclusion
Although Mexico may eventually gain from becoming more self-sufficient, the current plan to phase out GE corn comes with short-term costs that are too great to justify. The economic downturn that results will not only affect the agricultural industry but also the poultry meat industry. Mexico’s frustration with its dependence on the U.S. is understandable, but their solution seems too rushed to have its intended effect. The domestic corn crop in Mexico seems incapable of replacing American yellow corn in the near future, and the sudden drop in imported corn will lead to domestic price hikes that will adversely affect the poorest sectors of the Mexican populace. The United States will also suffer from the ban and is justified in challenging both the legality and the long-term sustainability of the ban.
References
Alexander, R. & Simran, S. (2021, July 19). Mexico is phasing out imports of glyphosate and GMO corn. Supporters say that could reverse years of damage from U.S. trade policy. The Counter. https://thecounter.org/mexico-phaseout-glyphosate-genetically-engineered-corn-united-states/
Garcia, D. (2021, March 25). UPDATE 1-Mexico will miss corn output forecast, says key farmers’ group. Reuters. https://www.reuters.com/article/mexico-corn-idUSL1N2LN0CR
Garrison, C. et al. (2022, September 28a). U.S. farmers urge Washington to challenge Mexico’s looming ban on GM corn. AG Week. https://www.agweek.com/news/policy/u-s-farmers-urge-washington-to-challenge-mexicos-looming-ban-on-gm-corn
Garrison, C. & Barrera, A. (2022, October 27b). Mexico to proceed with GMO corn ban, seeks international grain deals -official. Financial Post. https://financialpost.com/pmn/business-pmn/mexico-to-proceed-with-gmo-corn-ban-seeks-international-grain-deals-official
Kuypers, K. (2021, January 06). Mexico Publishes Decree to Ban Glyphosate and GE Corn. (Report No. MX2021-0003). United States Department of Agriculture. https://apps.fas.usda.gov/newgainapi/api/Report/DownloadReportByFileName?fileName=Mexico%20Publishes%20Decree%20to%20Ban%20Glyphosate%20and%20GE%20Corn_Mexico%20City_Mexico_01-06-2021
Nosowitz, D. (2021, July 17). Is American GMO Corn Banned in Mexico? Nobody Really Seems Sure. Modern Farmer. https://modernfarmer.com/2021/07/is-american-gmo-corn-banned-in-mexico-nobody-really-seems-sure/
Diario Oficial de la Federación. (2020, December 31). Decree to gradually replace the use, acquisition, distribution, promotion and import of the chemical substance called glyphosate and agrochemicals. https://dof.gob.mx/nota_to_imagen_fs.php?codnota=5609365&fecha=31/12/2020&cod_diario=290221
Tomas, J. (2021, April 28). Mexico’s 2020/21 corn outlook endangered by drought fears: GCMA. Fastmarkets. https://www.fastmarkets.com/insights/mexico-s-2020-21-corn-outlook-endangered-by-drought-fears-gcma
Ventura, L. (2021, November 9). Mexico’s corn production needs to increase significantly — is this possible with agroecology, and without GMOs? Genetic Literacy Project. https://geneticliteracyproject.org/2021/11/09/mexicos-corn-production-needs-to-increase-significantly-is-this-possible-with-agroecology-and-without-gmos/
World Perspective. (2022, September 19). Consumer Price Impacts of Mexican Restrictions on GM Corn: An Economic Analysis. https://www.bio.org/sites/default/files/2022-10/Implications%20and%20Consumer%20Price%20Impacts%20of%20a%20Mexican%20GM%20Corn%20Ban_Final_221003%20%28002%29.pdf
