Palestine, Texas/Mexico City — Workers at the Sanderson Farms plant in Palestine, Texas, are cutting up chickens for export to Mexico, a market that has become a pillar of the town’s economy and a key focus of the US poultry sector.
The facility’s roughly 1,000 employees process a quarter of a million chickens a day, with parts zipping along racks to a packing area where legs and thighs are prepared for delivery to the US’s southern neighbour.
But the Mexican market may find its way to the chopping block if talks to renegotiate the North American Free Trade Agreement (Nafta) collapse and US President Donald Trump makes good on a threat to pull out of the 1994 deal with Canada and Mexico.
The stakes are high for the US poultry sector, which exports products worth more than $1bn a year to Mexico. Mexico could slap a 75% tariff on US chicken and turkey under its commitments to World Trade Organisation (WTO) rules, compared to the 20% tax on imports the Latin American nation could apply to other major US exports, such as pork.
"It would effectively prohibit us from selling product to Mexico," Sanderson Farms chief financial officer Mike Cockrell said. He added that the loss of the market would be comparable to the impact of Russia’s 2002 ban on US chicken imports.
The bulk price of chicken leg quarters in 10 US states, including Texas, sank to 18c a pound (about 9c/kg) in March 2002, down from 26c a pound (about 13c/kg) before the Russian ban, according to data from the US department of agriculture.
Mexico could slap a 75% tariff on US chicken and turkey under its commitments to WTO rules, compared to the 20% tax on imports the nation could apply to other major US exports, such as pork
Mexico accounted for about 4.5% of Sanderson Farm’s gross sales in the 12 months until the end of October.
Mexican officials have made clear that they don’t want consumers to face the price hikes that would be triggered by tariffs, although they have also said global trade rules would allow import taxes in the absence of Nafta.
"There is nothing standing in the way," said Raúl Urteaga, the top trade official in Mexico’s agriculture ministry and one of the people involved in the Nafta negotiations of the 1990s. "What I can’t say is what the tariff would be."
Mexican, Canadian and US officials will meet in Montreal on Tuesday for talks to modernise the 24-year agreement, with negotiators aiming to reach a deal before Mexico’s presidential campaign kicks into gear ahead of a July election.
Even a 25% tariff would make it hard to sell in Mexico, leading to a glut of chicken legs in the US market, Cockrell said. "Nobody really goes to the Olive Garden to buy a leg quarter," Cockrell said, referring to US consumers’ general preference for white chicken meat rather than the dark meat found on leg quarters.
Lost sales to Mexico would add to the pain already felt from the virtual closure of the Chinese market to US chicken. Beijing has lowered the stiff anti-dumping tariffs on US broiler chickens that it enacted in 2010, though Washington maintains China has not gone far enough to comply with a WTO ruling against the tariffs.
Waiting in the wings
The US exports about 20% of its poultry production — it sent about $800m in chicken and turkey meat to Mexico in 2016. Mexico buys more US chicken than the next two markets combined.
If Nafta disappears, US poultry could face increased competition from Brazil, which is the world’s top chicken exporter and has tariff-free access to the Mexican market to the end of 2019, as well as the possibility of lost jobs.
The Texas town’s mayor Steve Presley says he is worried about the economic future of his town of 18,000. Sanderson Farm’s plant opened in 2015.
The poultry industry, for its part, has responded by lobbying US officials. James Sumner, president of the USA Poultry and Egg Export Council, said he has met with US Trade Representative Robert Lighthizer to discuss the issue. Zippy Duvall, a Georgia chicken grower who is the head of the American Farm Bureau Federation, met briefly with Trump in Nashville on January 8, said the federation’s lobbyist Dave Salmonsen.
Texas, Georgia, Arkansas and Mississippi are the top four states sending poultry meat to Mexico. Each is a Republican stronghold that voted heavily for Trump in the 2016 presidential election.
Some observers speculate the potential impact of a Nafta collapse on agriculture could prompt the Trump administration to ultimately stick with the deal.
In an interview earlier this month, Caroline Freund, a fellow at the Peterson Institute for International Economics, said, "It wouldn’t be in the Republicans’ interest to hit a big part of their constituency in their pockets."
Reuters
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