April 4, 2019 / 10:35 AM / 3 months ago

Column: A U.S.-Mexico border closure would cause giant headache for agriculture

FORT COLLINS, Colo. (Reuters) - As if the ongoing trade war with China is not enough, the U.S. agriculture market is now uneasy over a potential border closure with vital agriculture trading partner Mexico as immigration issues continue to flare in Washington.

Hogs are seen in the Cher Pork Farms facility in Lone Rock, Iowa, U.S., August 28, 2018. REUTERS/Jordan Gale

U.S. President Donald Trump, who has taken a tough stance on immigration, threatened last week to close the southern border if Mexico did not stop migrant caravans from reaching the United States.

Along with Canada and China, Mexico is a top destination for U.S. agriculture exports. But Mexico is a leading supplier for agricultural products for the United States, particularly fruits and vegetables, so there could be a significant consumer impact if a border closure were to affect trade.

It is unclear exactly what a border closure would entail and to what degree it would affect the transport of goods, even if shipped by sea. On Friday, Trump said he could close the border to all trade and it could remain closed for a long time.

The president’s tone on the issue has been variable in the days since, making it difficult for market watchers to determine whether the drastic move is likely. On Wednesday, Trump tweeted that the “Border, or large sections of [the] Border” could close if Congress does not close immigration and security loopholes.

The U.S. Chamber of Commerce, the largest U.S. business lobbying group, has discussed with the White House the “very negative economic consequences that would occur across the country” should the border be closed. The U.S. auto industry has been particularly vocal with this concern, as it relies on deliveries of Mexican-made components.

U.S. agriculture representatives have also chimed in regarding possible impacts. A U.S. Department of Agriculture official said on Wednesday that the agency has emphasized to the White House the importance of trade flows with Mexico.

Although there is no indication that serious disruptions to agricultural trade are imminent, there is good reason to be on guard just in case, especially with lessons learned from the U.S.-China trade war. Last year, no one thought that the top U.S. soybean buyer would actually avoid the U.S. oilseed or even be able to, but China was largely able to pull it off.

This is not the first time immigration issues at the U.S.-Mexico border have disrupted agriculture. Disagreement over border wall funding between Trump and Congress sparked a record 35-day partial government shutdown spanning December and January. Nearly all USDA datasets and reports were unavailable during that period and for several days and weeks afterward.

TRADE DISRUPTIONS

U.S. exports of agricultural and related products to Mexico totaled $19.9 billion last year, second to Canada at $24.8 billion. China is typically in the No. 2 spot but its U.S. imports were severely slashed last year by the trade war.

Corn is the top U.S. agricultural export to Mexico, which is the top buyer of U.S. corn, valued at $3.1 billion in 2018. Soybeans came in second last year at $1.7 billion and dairy products rounded out No. 3 with $1.4 billion. Pork and pork products were a close fourth at $1.3 billion.

According to USDA, about 80 percent of U.S. grains and oilseeds arrive in Mexico via train, meaning they must traverse the land border that may now be at risk under a worst-case scenario. Mexican livestock producers rely greatly on U.S. grains to feed their animals.

As of March 21, more than 8 million tonnes of U.S. grains and oilseeds that Mexico had purchased for delivery in 2018-19 had yet to make the journey. Some 61 percent of that unshipped grain was corn and 21 percent was soybeans.

Mexico’s contributions are equally important for U.S. consumers. The country is the top supplier of pure agricultural products to the United States, and that trade was valued near $26 billion last year.

Fresh fruits and vegetables made up 43 percent of that total last year. Most of those products arrive on trucks, but movement across the border is slow right now as not all lanes entering the United States are open to commercial traffic.

Avocados are the United States’ second-biggest Mexican import by value, totaling $1.95 billion last year. The president and chief executive of Mission Produce, the world’s largest distributor and grower of the trendy fruit, said that Americans would run out of avocados in three weeks if imports from Mexico were cut off.

Other leading produce items for which U.S. consumers rely on Mexico are tomatoes, all types of berries and grapes, limes, asparagus and bell peppers.

Mexico’s top offering by value is beer. Some $2.57 billion worth of the beverage, specifically in glass bottles smaller than four liters, crossed the U.S. border in 2018. Another $1.04 billion in other Mexican beer and wine products also landed in the United States last year.

The opinions expressed here are those of the author, a market analyst for Reuters. 

Editing by Matthew Lewis

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