Texas Vegetable Assn. Mid-Year Meeting

McAllen, Texas

June 17, 2004

Central America Free Trade:

What’s at Stake For Texas Agriculture?

C NAS Parr Rosson, Professor & Director

Center for North American Studies

Department of Agricultural Economics

Texas A&M University

What’s At Stake?

Access to Dominican Republic &

Central American Markets

Sources of Raw Materials

Gains/Losses to Trade

Greater Efficiency & Economies of

Scale

Australia ‘04

Bahrain ‘04 DR-CAFTA

‘04

Chile ‘04 FTAA ‘06

Morocco ‘04

Southern African

Customs Union ‘05

Singapore ‘03

Jordan ‘03

U.S. Trade Agreements-3d Largest Market

NAFTA ‘94 Israel ‘85

CUSTA, ‘89

Andean FTA

05

Panama ‘05

Thailand ‘05

15 Trade Agreements Completed or Pending

World Average Agricultural Tariffs, 2000

115

85

55

40

30 25

12

0

20

40

60

80

100

120

140 Bound Average

World Average

62%

Percent

Bound Tariffs for Selected Products, 2000

40 39

52 52

86 86

10 12

Fruit Fresh Fruit Preparations 0

20

40

60

80

100

Percent South America

Central America

Caribbean Islands

North America

Source: ERS/USDA

Bound Tariffs for Selected Products, 2000

41 38

54 51

86 86

11 12

Vegetables Vegetable Preparations 0

20

40

60

80

100

Percent

South America

Central America

Caribbean Islands

North America

Source: ERS/USDA

DR-Central American

Free Trade Agreement

Dominican

Republic,

800 Miles

NE

North

Houston,

1,300 Miles

NW

Mexico

Separate

Agreement with

United States

CAFTA WHO?

– Costa Rica

– Dominican Republic

– El Salvador

– Guatemala

– Honduras

– Nicaragua

What? Free Trade Area Between Each Country & the United States

When? Early 2005, if Approved

How? Trade Promotion Authority

CAFTA (cont.)

About ½ of Markets Open to U.S. Agriculture When Implemented

Opportunities: HQ Beef, Cotton, Wheat, Soybeans

Rest of Market Access Over 15-20 Years: Pork, Beef, Poultry, Rice, Corn, Dairy

DR-CAFTA Demographics

Country Pop.

(mil)

GDP/

Person

Poverty

%

Lit.

%

Ag. Pop.

%

Costa Rica 3.9 $8,300 20.6 96 20

El Salvador 6.5 $4,600 48 80.2 30

Guatemala 13.9 $3,900 75 70.6 50

Honduras 6.7 $2,500 53 76.1 34

Nicaragua 5.1 $2,200 50 67.5 42

Dom. Rep. 8.7 $6,300 25 84.7 17

Total/Avg. 44.8 $4,633 45.3 79.2 32.2

U.S. Total Trade with CAFTA, 2003

Source: Foreign Trade Statistics, U.S. Census Bureu

$3.4

$1.8

$2.3

$2.8

$0.5

$4.2

$3.4

$2.0

$2.9 $3.3

$0.8

$4.5

$0.1

-$0.2

-$0.7 -$0.5

-$0.3 -$0.2 $0.0

$1.0

$2.0

$3.0

$4.0

$5.0

-$1.0

Billion Dollars

Exports Imports Balance

U.S.-Central American Agricultural Trade, 1990-2003

$1.3 $1.4

$1.5 $1.6 $1.6

$1.8 $2.0

$2.2 $2.1

$1.9 $2.1

$1.9 $2.0

$2.1

$0.5 $0.6 $0.6

$0.7 $0.8

$0.9 $1.0 $1.0

$1.3 $1.1 $1.1

$1.2 $1.3 $1.3

-$0.8 -$0.8 -$0.9 -$0.9

-$0.8 -$0.9

-$1.0 -$1.2

-$0.8 -$0.8 -$1.0

-$0.7 -$0.7

1990 1995 2000 2003

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

-$0.5

-$1.0

-$1.5

Billion Dollars

Imports Exports Balance

Source: Foreign Agricultural Trade of The United States , Calender Year, USDA/ERS

U.S. Ag Trade with CAFTA, 2003

Source : Fore ign Trade Statistics, U.S. Census Bureu

$242 $238$349

$200$95

$442

$865

$105

$763

$221$114

$280

-$623

$133

-$414

-$21 -$19

$162

Costa R

ica

El Salvador

Guatem

ala

Honduras

Nicaragua

Dom

inican Rep.

$0

$200

$400

$600

$800

$1000

-$200

-$400

-$600

-$800

Mill ion Dollars

Exports Imports Balance

U.S. Agricultural Exports to

Central America

Source: U.S. Trade Internet System, www.fas.usda.gov/ustrade

Grains & Feeds

$218

Oilseeds

$90 Animals

$47

Veg/Fruit

$44

Beverages

$37

Other

$47

Grains & Feeds

$582

Oilseeds

$260

Animals

$204 Veg/Fruit

$117

Cotton

$47

Other

$129

Total, 1990: $483 million Total, 2003: $1,339 million

U.S. Agricultural Imports from

Central America

Bananas

$453 Fruit/Veg.

$133

Fish

$211

Coffee

$372

Sugar

$133

Other

$264

Bananas

$674

Fruit/Veg

$527

Fish

$478

Coffee

$459

Sugar

$188

Other

$328

Total, 1990: $1,566 million Total, 2003: $2,654 million

Source: U.S. Trade Internet System, www.fas.usda.gov/ustrade

U.S. Onion and Melon Exports to

CAFTA

Source: U.S. Trade Internet System, www.fas.usda.gov/ustrade

$0.6

$2.0

$1.5 $1.3

$2.6

$3.9

$1.9

$1.0

$0.4 $0.6

$0.2 $0.0 $0.0

$0.1 $0.0 $0.0 $0.1 $0.0 $0.0 $0.1

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

$0.0

$1.0

$2.0

$3.0

$4.0

$5.0

Million Dollars

Onions Melons

U.S. Onion and Melon Imports from

CAFTA

Source: U.S. Trade Internet System, www.fas.usda.gov/ustrade

$1.2 $0.8 $0.8 $0.8 $0.9 $1.1 $0.8 $1.2 $0.8 $1.3

$74.4 $79.0

$85.7

$102.5 $93.9

$106.6

$126.2

$143.0

$161.1

$142.1

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

$0.0

$50.0

$100.0

$150.0

$200.0

Million Dollars

Onions Melons

Melon Tariff Phase-Out

US Tariffs Eliminated Immediately

Most CA Tariffs Eliminated Immediately

Exception: Dominican Republic May Impose 20% Safeguard Duties

– 5 Years for Watermelon

– 10 Years for Other Melons

Onion Tariff Phase-Out

US Tariffs Eliminated Immediately

CA Tariffs Eliminated Over 10 to 15

Years

All But El Salvador Have Some Type

of Safeguard or Tariff-Rate Quota

CAFTA Base Tariffs

for Yellow & White Onions

47

15 15 15 15

97

Costa Rica* El Salvador Guatemala Honduras Nicaragua Dom. Rep.

0

20

40

60

80

100

120 Percent

* Denotes Tariff-Rate Quota

CAFTA Phase-Out Period

for Yellow & White Onions

15

12

10

15 15 15

Costa Rica El Salvador Guatemala Honduras Nicaragua Dom. Rep. 0

2

4

6

8

10

12

14

16

18 Years

Monthly U.S. Cantaloupe Shipments and Imports

Source: Agricultural Marketing Service, USDA

0

100

200

300

400 Million Pounds

0

5

10

15

20

25

30 $/CWT

Texas Other U.S. CAFTA Mexico Price

Monthly U.S. Honeydew Shipments and Imports

Source: Agricultural Marketing Service, USDA

Jan 01

May

Jan 02

May

May

Jan 04

0

20

40

60

80

100Million Pounds

0

5

10

15

20$ per 2/3 Carton of 6s

Texas Other US CAFTA Mexico Price

Monthly U.S. Watermelon Shipments and Imports

Source: Agricultural Marketing Service, USDA

Jan 01

May 01

Jan 02

May 02

Jan 03

May 03

Jan 04

0

200

400

600

800Million Pounds

0

0.1

0.2

0.3

0.4

0.5Cents/Pound, Various Red

Texas Other U.S. CAFTA Mexico Prices

Monthly U.S. Onion Shipments and Imports

Source: Agricultural Marketing Service, USDA

0

100

200

300

400

500 Million Pounds

0

10

20

30

40

50 $/CWT

Other U.S. Texas Mexico CAFTA Other Imports Price

Shipping Trends CAFTA Poses

Biggest Threat to Texas Cantaloupe & Honeydew

Other US Bigger Threat in Some Years

Mexico Beneficiary of Higher Prices for Onions & Cantaloupe

Texas Benefits from Higher Prices for Cantaloupe, Watermelon & Onions

Declining Shipments from Texas

Texas Shipments

97.3

52.3

423.2

80.8

35.1

343.3

56.0

34.6

279.3

Cantaloupe

Honeydew

Onions

0.0 100.0 200.0 300.0 400.0 500.0

2001 2002 2003

-42.5%

-33.8%

-34%

Million Pounds

Summary

Negotiations Completed – DR-CAFTA May Go To Congress Soon

– Labor & Environmental Interests Important to the Debate

DR-CAFTA Tariff Reductions Will Open Markets, Over Time

Dr-CAFTA Major Supplier of Honeydew and Cantaloupe to U.S. Market

– Texas Season Overlaps with Rest of United States & DR-CAFTA

Mexico & Other US Major Competition in Watermelon & Onions

Issues for Texas

Are More Trade Agreements a Desirable Outcome?

Without DR-CAFTA, U.S. Market Access Limited

– Even with DR-CAFTA, No Guarantee of Market

Growth, Some Countries Need Economic

Development & Income Growth

Investment in CA May Spur Production &

Development of Infrastructure

SPS Problems May Arise, More Trade Disputes

Likely

Recent Declines in Shipments of Texas Cantaloupe,

Honeydew & Onions Troublesome

Center for North American Studies

Parr Rosson

Ph: 979-845-3070

E-mail: prosson@tamu.edu

“Informed Decisions for Global

Change”

C NAS