UF Economist: Peso Devaluation To Blame For Growers’ Woes

September 24, 1996

GAINESVILLE—Devaluation of the peso by the Mexican government is to blame for trade disadvantages that have hurt Florida’s vegetable growers for the past two years, according to University of Florida research.

Monetary policies set forth by Mexico’s Zedillo administration not only have caused U.S growers to lose money, but “artificial inflation” of the peso also has hurt Mexicans by reducing the spending power of the country’s lower classes, said Professor John Van Sickle, an agricultural economist at UF’s Institute of Food and Agricultural Sciences.

Van Sickle, who monitors commodities for UF’s Market News Service, is set to testify about his research before a U.S House Agricultural Committee on Risk Management and Specialty Crops which held open hearings in Lake Worth today (9-24).

“We’ve got a real trade war going on here,” Van Sickle said. “Everyone has painted Florida to be anti-NAFTA, but this is not a NAFTA issue. Devaluation had a far greater impact than NAFTA. This is a trade dispute and the issue is way bigger than tomatoes.”

Van Sickle concedes that he has been an outspoken critic of the North American Free Trade Agreement, saying it has allowed Mexican tomato growers to injure Florida’s tomato industry by flooding U.S. markets with cheap products. His past research has shown that Mexico violated tariff rate quotas during the last two winter growing seasons. But he says, the bigger issue is Mexican trade policy that began when Zedillo was elected in 1994, and its effect on competitiveness.

Van Sickle said the large devaluation of the peso relative to the costs of production has made the biggest impact on trade over the past two years. As Mexico devaluated its currency by amounts larger than the change in the wholesale price index, the cost index declined, giving Mexican producers a trade advantage, he said.

With every year that the exchange rate for the peso increased more than Mexican inflation, the relative cost of production for Mexican growers declined. While this allowed Mexican producers, whose production costs were lowered, to “dump” products on the United States, U.S. exports to Mexico declined, Van Sickle said.

“These declines occurred even though import barriers were lowered following NAFTA,” Van Sickle said. “The U.S.-Mexico trade balance for agricultural goods declined from a $994 million surplus for U.S. producers in 1994, to a $263 million deficit in 1995. This represented a $1.2 billion decline for U.S. producers.”

Mexico is hurting its consumers who can’t afford Mexican-grown produce, Van Sickle said. This has created a human rights issue and has widened the chasm of haves and have-nots in Mexico, he said.

“The growing middle class in Mexico is shrinking under these policies,” Van Sickle said. “We’re putting Mexicans in the same boat as the Florida farmers. The only people that are benefitting in all of this are a few powerful Mexican producers whose pockets we’re feathering… This should be a state department issue.”

Van Sickle said NAFTA was founded on the notion of fair trade. Winners and losers were expected, “but so far the U.S. hasn’t had much more than losers.”

As the presidential race continues, Van Sickle said he hopes the candidates will open discussions on fair trade policies. So far, nothing has been done by the U.S. government, but new laws must be enacted to counter the Mexican policies, he said. “Until we get a handle on the peso, we can’t do anything to resolve this trade dispute,” he said.