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Prescription for farm profits or a placebo for politicians
If I had a dollar for every time USDA Secretary Johannes or Trade Ambassador Portman has used the phrase “market access,” I would be rich enough to get into farming. They have made market access the bedrock of U.S. trade policy. They are demanding other nations open their markets to U.S. goods while assuring U.S. producers this improved access will lead to greater profits. But is it true?

Those who worship at the altar of protectionism and feel we should produce only food for the U.S. do not believe market access will work. They want to build a trade wall around the U.S. that keeps foreign products out and keeps our farm products in. These folks came very close to preventing the passage of the Central America Free Trade Agreement (CAFTA) last summer. The CAFTA fight was one of the most contentious and hard fought trade treaties Congress had ever seen.

Yet CAFTA did pass, and that is why I am writing this column in Costa Rica. I am currently traveling with a delegation of 30 farmers, agribusinessmen, and government leaders who are here to take advantage of the opportunities that CAFTA offers. From what I have seen, there are plenty of opportunities.

Most Americans think of Central American countries as lands filled with ruthless dictators and eternal civil wars. While much of this part of the world has a very violent history stretching back to the conquering Spanish in the 15th century, for the past decade peace, prosperity, and market oriented economies have been sprouting up like sugar cane.

Our first stop was Guatemala. The last time I visited this country in the early 1980s, there was a government coup. I vividly remember the sight of a machinegun nest placed in the lobby of our hotel. Since 1996, however, bullets have been replaced by businessmen. Guatemala’s Gross Domestic Product (GDP), the measure of the size of their economy, grew by more than 2 percent in 2004 to more than $25 billion making them the largest economic power in Central America.

U.S. exports have benefited from this economic stability. Total U.S. agricultural exports rose from $287 million in 1998 to $357 million in 2003. About a third of this business is in bulk commodities, but the rest is made up of a growing demand for consumer goods. In government-speak, they are known as value-added products, but they are things like breakfast cereal, popcorn, and pet food. Guatemala has a growing and prosperous middle class and a burgeoning retail sector.

In 1994, only 15 percent of food was purchased at retail stores; today close to 40 percent of consumers purchase food at a growing number of supermarket chains. There are more than 150 grocery stores in the country, most located in urban areas. The U.S. holds 26 percent of this consumer-ready market, and U.S. products have a good reputation with shoppers. In addition to processed food items, high quality cuts of beef and pork are in growing demand. U.S. dairy products also enjoy good demand here.

The CAFTA deal is all about improving the U.S. position in the Central American market. Guatemala has free trade agreements with most of their neighbors, including Mexico. Thus, this is a very completive marketplace, and U.S. products cost more than imports from other nations. CAFTA eliminates tariffs and phases out quotas which will improve prospects for both commodity and consumer ready products.

The Indiana delegation with which I am traveling is here to make business contacts and develop relationships that will lead to new business for raw and processed farm goods. If this works, it will prove that market access can lead to increased sales for U.S. farmers and show that U.S. producers can compete in foreign markets. But success is a fait accompli.

The CAFTA deal was supposed to be implemented on January 1, but that date has come and gone and none of the CAFTA nations have lowered their trade barriers. In fact, Costa Rica has yet to ratify the agreement and has a number of phytosanitary regulations that are still hampering pork sales.

Next week I will look at trade from the other side: What do Central Americans think of CAFTA and do they feel U.S. farmers can compete in this region of the world.

Published in the January 11, 2006 issue of Farm World.