The Central American Free Trade Agreement (CAFTA) is a comprehensive trade agreement among Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and the United States. The agreement became known as CAFTA-DR when the Dominican Republic joined the negotiations. The trade treaty will not have the affect promoters claim. Its chief importance is as a stepping stone to the Free Trade Area of the Americas (FTAA) agreement.

High ranking USDA officials as well as leaders and organizations that say they represent farmers are increasingly talking about the fantastic opportunities CAFTA-DR will bring to agriculture. They contend the agreement is vital for the future of US agriculture. It sounds like NAFTA all over again. On the other hand, others make it sound like CAFTA-DR would create a dooms day for agriculture. But are either of these expectations justified?

Let’s first review how CAFTA-DR sizes up compared with the US’s NAFTA partners (Canada and Mexico). The six countries in CAFTA-DR, excluding the US, have a combined population of about 43 million people—one third of the combined population of Canada and Mexico. In economic terms, the GDP of the six amounts to only 6% of the GDP of the US’s NAFTA partners. The total trade of the CAFTA-DR countries is only 6% of the total for the US’s NAFTA partners.

Moreover, regarding agricultural arable land, the CAFTA-DR countries only have about 10% of the arable land of Canada and Mexico, combined. Based on those figures, the immediate question is, “If the NAFTA partners, whose economy and total trade is 16 times larger than the six CAFTA-DR partner countries, were not able to pull agriculture up from low prices and away from high dependence of government payments, how would the smaller CAFTA-DR partners do it?”

Notwithstanding that, the US is already the main supplier of corn, wheat, rice, soybeans, and dairy to the markets of the CAFTA-DR countries. Any increased impacts from CAFTA-DR would pale in comparison to the impacts already created by NAFTA. Whatever NAFTA might have done to restore profitability to US agriculture is long gone, and CAFTA has no real possibility of making up for it.

Some studies cited by US government officials and some farm leaders assuring CAFTA benefits are misrepresentations. The American Farm Bureau (AFB) has produced a study supportive of CAFTA-DR arguing our agricultural exports will increase by 1.5 billion per year by 2024. The National Cattleman’s Beef Association (NCBA) tries to make the case that beef and beef products exports would increase by about $28 million once the agreement is completely implemented in 2015. These studies’ margin of error exceed the minimal hoped-for benefit in the happiest assumptions. The worst case scenario is ignored… a violation of basic econometric standards.

The AFB paper’s best case scenario represents less than a 3 percent increase in the value of exports after 20 years time. The current total value of agricultural receipts will, under this unrealistically optimistic projection, increase less than one half of one percent (0.005) – and it will take 20 years to achieve this impact. The increase in beef products export value, estimated by the NCBA, is less than three tenths of one percent (0.003) during 2003-2004. The same CAFTA promoters have criticized findings that the agreement will have negative impacts on the sugar industry, then use the same techniques to promote the benefits for other commodities. The pro-CAFTA claims in these studies are not credible, in my view.

The reality is very simple; the possibility that CAFTA-DR will have any widespread benefit to US agriculture is slim to none. Whatever NAFTA has not done or can not do, CAFTA will not do it either. This is also true regarding the potential damage that CAFTA-DR could have on agriculture. Except for sugar, the potential of the CAFTA countries to compete is very limited; they lack the land resources required to develop a sizeable livestock industry. The ability of the CAFTA partners to compete will be mostly driven by their ability to invest in fruits and vegetables and the corresponding trade infrastructure. Regarding the hog and poultry industries, while they can be potentially moved to those countries to take advantage of reduced environmental regulations, it is NAFTA that offers a better choice, once sanitary issues are taken care.

The CAFTA-DR hyperbole is driven more by its importance as a step towards the Free Trade Area of the Americas (FTAA) than by impacts to US agriculture. FTAA presents non-trivial prospects of major dislocations for US producers and major gains for agribusiness.

The rhetoric used to enlist agriculture’s support for CAFTA, and any other trade agreement, is based in the already old and disproven story: the agricultural sector can export its way to prosperity and remedy low prices, low income, and government dependency. The grim reality is that exporting commodities at prices below their cost of production, while increasing market share, does nothing good for farm profit or farm prices. No industry seeking a healthy and sustainable development will try to increase its market share without addressing the profitability of its products first.

By the same token one needs to ask, “Where is the honesty and the morality of competing with Central American farmers with products from a US agricultural sector that are consistently priced by the market at below US cost of production?” DDLTU