When I attended the Montana Ag Summit in Great Falls this month, several of the panelists spoke on the importance of trade to producers in Montana. As President Trump considers revisions to NAFTA, it is critical to take into account the multi-faceted impacts of trade agreements.
In general, some producers benefit from free trade while others lose. Domestic producers benefit from free trade when they can produce at lower cost than their foreign competitors because trade expands their consumer market. Producers are worse off from free trade when the trading partner has a competitive advantage in production of a good because imports will rise and prices will drop. Consumers are always better off from free trade because they can access more products at lower prices. However, there may be additional concerns about safety and regulations when consumers do not have complete product information.
Several speakers at the Ag Summit emphasized the growing markets for wheat and pulse crops in Mexico. Below are some figures that illustrate how exports of these commodities to Canada and Mexico have changed over time.
The United States imports a high value wheat from Canada, but the United States also exports a large share of wheat to Mexico (Figure 1). The United States also exports a modest amount of wheat products and wheat flour to Canada and Mexico.Fig1
The United States imports large quantities of dried peas, lentils, and chickpeas from Canada (Figure 2). Nevertheless, Figure 3 indicates that exports of pulse crops to Mexico and Canada are rising, suggesting that Canada and Mexico will likely be important trade partners for U.S. pulse growers in coming years.fig2
Finally, I look at cattle and beef trade. It is important to keep in mind that not all cattle and beef are perfect substitutes for one another. Most beef produced and exported from the United States is grain-finished and high-value, while most imports to the U.S. are lower-valued cuts used for processing. Likewise, genetics and other characteristics likely distinguish domestic and imported live cattle.
Mexico and Canada are the only significant suppliers of live cattle to the United States. Figure 4 shows feeder cattle imports to the United States from Canada and Mexico. Figure 5 shows the total number of live cattle imported. Mexico specializes in supplying light-weight feeder cattle. Marsh (2001) finds that these imports reduce the prices of feeder cattle for domestic producers. However, Mexico was also the largest importer of U.S. beef from 2004 to 2010 (USDA, ERS). The same study by Marsh also finds that increased demand for beef is a key factor raising the prices of feeder cattle, so trade with Mexico likely also benefits U.S. cattle producers.Fig4
Trade with Canada and Mexico is clearly important for Montana agricultural producers. The total impacts of a change in trade negotiations can be difficult to measure since prices are often impacted by supply and demand in multiple markets, externalities to trade, and retaliatory responses to increased trade barriers. All of these factors must be considered when evaluating a trade policy.
Marsh, J.M. “U.S. Feeder Cattle Prices: Effects of Finance and Risk, Cow-Calf and Feedlot Technologies, and Mexican Feeder Imports.” Journal of Agricultural and Resource Economics. 26(2): 463-477.
USDA, ERS. “Cattle & Beef: Trade.” https://www.ers.usda.gov/topics/animal-products/cattle-beef/trade/. Accessed June 15, 2017.