NAFTA: The Trade Deal that Delivered the Dinero for U.S. Dairy
Exports to Mexico soared to $1.5 billion annually
Maligned by critics from the get-go but appreciated by farmers, cheesemakers, truck drivers and others in the U.S. dairy industry, the landmark North American Free Trade Agreement (NAFTA) died at 11:59 p.m. on June 30.
NAFTA was 26.
This article is an obituary and a eulogy to a free-trade agreement that provided stunning economic ROI for U.S. Dairy and the 3 million American workers our industry supports (employment data from Dairy Delivers® — the International Dairy Foods Association’s economic impact tool).
“U.S. agriculture in general and the U.S. dairy industry, in particular, will remember NAFTA as the landmark agreement that ushered in an era of growing and mutually beneficial free trade between the United States and our neighbor to the south, Mexico,” said U.S. Dairy Export Council President and CEO Tom Vilsack.
NAFTA’s successor is the U.S.-Mexico-Canada Agreement (USMCA), which went into effect July 1.
In a joint news release, the U.S. Dairy Export Council (USDEC) and the National Milk Producers Federation (NMPF) commended the bipartisan effort from the Administration and Congress that made USMCA a modernized and improved version of NAFTA.
If adequately enforced, USMCA will build on NAFTA’s foundation by bringing positive changes to U.S.-Canadian dairy trade, protections for common cheese names and increased certainty to U.S.-Mexico trade relations, among other benefits.
U.S. Dairy’s Mexico growth story
As optimistic as U.S. Dairy is about USMCA, it’s fitting during this week of transition to reflect on the legacy of its predecessor. This retrospective tribute to NAFTA has plenty of statistics, but two data points stand out most.
During NAFTA’s 26 years, U.S. dairy export volume to Mexico increased by 435% while the dollar value of sales to Mexico soared 646%.
Why should anyone beyond the U.S. dairy industry care?
Even if you never drink milk and have only seen dairy farms on TV, dairy’s growth under NAFTA affected your state economy, the taxes you pay and the livelihood of 3 million American workers. Go here to get your state’s three-page info bundle packed with economic impact data.
Increased dairy trade with Mexico had an economic ripple effect that affected the broader U.S. economy, including rural communities coast-to-coast.
Dairy exports under NAFTA gave double ‘bang for the buck’
“ The Impact of NAFTA on U.S. Dairy Exports to Mexico” by Informa Economics is a 35-page analysis commissioned by the U.S. Dairy Export Council and the National Milk Producers Federation in 2017.
One of the most striking findings of the Informa study is this:
Every $1 of U.S. dairy exports to Mexico generated $2.50 of economic activity in the United States.
Put another way, the U.S. dairy industry’s investment in Mexico has yielded more than “double the bang for the buck.”
- Overall, U.S. dairy exports to Mexico, which includes cheese, employed 16,492 full-time equivalent jobs, according to the Informa report.
- U.S. exports to Mexico generated an aggregate GDP of $8.4 billion over the five years Informa studied.
- When Informa included impacts on industries linked to dairy exports, the aggregate economic ripple effect magnifies to $23.3 billion.
More reasons, some cheesy, to praise NATFA
NAFTA will be a tough act to follow. Its accomplishments have been recorded and enshrined for dairy posterity, including:
- About 30% of all the NDM/SMP we make in the U.S. travels to Mexico. That is almost as much as we sell domestically.
- Mexico, in recent years, became the world’s largest NDM/SMP importer and one of the largest cheese importers. The U.S. dairy industry was able to meet the expanding need, thanks to NAFTA.
- Mexico is still only about 73% self-sufficient in dairy. That percentage is shrinking because consumption continues to rise faster than domestic production, providing more opportunity for increasing U.S. dairy exports to help meet the growing demand needs in Mexico.
- What we sell to Mexico provides vital, affordable dairy nutrition to appreciative consumers.
Moving milk from farmers’ cows beyond U.S. borders
As impressive as those facts are, U.S. dairy farmers are most eager to see more of their milk travel beyond our national borders. Under NAFTA, it did.
U.S. dairy exports to Mexico are off to a rough start in 2020 due to the coronavirus pandemic and a struggling Mexican economy with a devalued peso, among other factors.
$1.5 billion sold to Mexico alone in 2019
But the upward year-after-year trend line shown in the chart above speaks for itself. Not only did volume soar 435%, value (sales revenue) increased at an even higher rate — 646% in 26 years.
In 1993, the year before NAFTA implementation, the U.S. sold only $205 million in exports to Mexico. In 2019, the last year with available 12-month data, the U.S. sold $1.53 billion in dairy products and ingredients to Mexico.
That accounted last year for roughly one-fourth of all U.S. dairy exports.
“Giant sucking sound” predicted
NAFTA was born in controversy.
In a 1992 debate with Bill Clinton and George H.W. Bush, presidential candidate Ross Perot famously predicted NAFTA would create a “giant sucking sound” of U.S. jobs going to Mexico. Other critics have charged that it was the worst trade deal America ever signed.
For U.S. Dairy, however, NAFTA held promise from the start.
Mexico was a dairy-deficient country. It didn’t produce enough milk to meet the increasing demand for its nearly 100 million consumers.
The U.S., on the other hand, had ample milk supplies and the capacity to make and ship more and more dairy products and ingredients Mexican consumers would love.
NAFTA’s provisions promised that, over time, Mexican tariffs would be lowered to zero across the entire market basket of dairy products-from milk powder to cheese to fluid milk-giving U.S. dairy suppliers a significant advantage over competitors in Europe and Oceania.
Mexico: More than just a dairy customer
NAFTA has yielded benefits to the dairy sectors in both nations, supporting steady milk production growth for Mexican dairy farmers and making Mexico the United States’ №1 export market.
But the bonds grown between the U.S. and Mexico dairy industries go beyond just business.
In 2017, Vilsack joined with the CEOs of the National Milk Producers Federation and the International Dairy Foods Association on a goodwill trip to Mexico that USDEC organized, expressing a united front of appreciation from leading U.S. dairy groups.
In an interview with Iowa Public Television before the trip (video below), Vilsack explained why “relationships matter” with our Mexican neighbors.
In Mexico City, Vilsack made the same point when he addressed the National Dairy Forum, an annual gathering of Mexican dairy farmers organized by the Mexican Federation of Milk Producers (Femeleche).
“We have always seen Mexico as a partner first and a customer second,” Vilsack told the large crowd of farmers. “That’s why we intend to continue working with you and your industry to expand dairy consumption in a way that benefits both countries.”
Joining hands in collaboration across the border
The dairy industries of the U.S. and Mexico have found ways to cement their common interests with partnerships.
In 2007, USDEC and the National Milk Producers Federation (NMPF) signed a Memorandum of Understanding with the Asociación Nacional de Ganaderos Lecheros (ANGLAC), Mexico’s dairy farmer association, creating the North America Dairy Improvement Partnership.
The goals outlined in the agreement included improving farming standards and practices, facilitating trade and identifying and implementing a program to increase dairy consumption in Mexico.
New alliance formed
USDEC and NMPF also created the U.S.-Mexico Dairy Alliance with ANGLAC, the Confederación Nacional de Organizaciones Ganaderas (CNOG), and Cámara Nacional de Industriales de la Leche (CANILEC).
Last October, dairy industry leaders from the United States and Mexico met in Torreón, Mexico.
They issued a statement agreeing to work collaboratively on 12 issues that will benefit the dairy sectors of both countries. It was the fourth annual meeting between U.S. and Mexican dairy leaders.
Without a strong trade agreement like NAFTA, across-the-border collaboration like this would have been unlikely.
Hello, USMCA
As good as NAFTA has been for the U.S. dairy industry, a modernized USMCA followed up with vigilant enforcement has the potential to be even better.
Adios, NAFTA
Let’s not forget, however, that NAFTA created a solid foundation for USMCA.
Political scientists, economists and historians will continue their assessments and debates over NAFTA’s long-term impact on globalization and other topics.
For U.S. Dairy, however, there is no debating what NAFTA did for our exports to Mexico.
That’s why this obituary is more than just an “adios” to the North American Free Trade Agreement.
It’s a grateful “muy bien” and “muchas gracias” for 26 years of expanded dairy trade with Mexico.
Mark O’Keefe is vice president of editorial services at the U.S. Dairy Export Council (USDEC), a nonprofit trade association that works to enhance global demand for U.S. dairy products and ingredients.
