Corn tests two centuries of US-Mexico relations

The US and Mexico celebrated 200 years of diplomatic relations in December 2022, but the food crop corn is now testing that relationship.

The North American neighbors have perhaps one of the closest bilateral ties in the world, backed by robust economic and trade relations, with both generating hundreds of billions of dollars in trade revenues for each other. Electronics, vehicles, fuels, minerals, plastics and machinery are the biggest US exports to Mexico. Fuel oil, gasoline, motor vehicle parts, passenger and commercial vehicles form the bulk of Mexican supplies to the US.

But it is agriculture that remains at the core of the US-Mexico trade relations. Their agriculture trade was valued at $73.14 billion in 2022, up 13% on the year, and accounting for 10% of their total bilateral trade, the US Census Bureau report published Feb. 14 showed. The top US agricultural exports to Mexico in 2022 were corn, soybeans, dairy products, pork and wheat, while major Mexican supplies to the US included fruits, vegetables, sugar and coffee.

Washington knows that Mexico is not only vital to the US farmers but also a viable source of revenue and employment generation for other industries. Washington is also aware that the two democratic allies together forge a formidable strategic front at international forums.

"US relations with Mexico are strong and vital, and Mexico remains one of the United States' closest and most valued partners," the US State Department said Sept. 16, 2022.

A spat over corn is now testing that relationship.

Mexico is the world's second-largest corn buyer, importing 16 million-17 million mt annually. Mexico's corn imports in 2021 were valued at $4.62 billion, with US corn accounting for 98% of the market share, according to the Observatory of Economic Complexity data.

It is not surprising that any corn discontent in Mexico can send jitters through the whole American farming community, especially in Illinois, Louisiana, Iowa, Kansas, Nebraska and Missouri. Over the past few years, these six states have sent the bulk of US corn exports to Mexico, according to the US Census Bureau data. Most of the corn produced by the US farmers are genetically modified.

Friendship turning sour

In December 2020, Mexican President Andrés Manuel López Obrador issued a presidential decree to ban genetically modified corn for human consumption by the end of January 2024.

The GM corn seeds can contaminate Mexico's native varieties and could also have a detrimental impact on human health, Obrador said.

A top Mexican science institution, Consejo Nacional de Ciencia y Tecnología, claims the evidence of documented health risks from consuming large quantities of minimally processed GM corn, which may also contain residues of the herbicide glyphosate.

At first, this decree was seen as a political stunt on the part of the Mexican president. The US farming community thought Mexico's decision could be reversed under sustained diplomatic pressure.

But, as months went by, an undeterred Mexico stoked the fear of a sizable trade loss for American corn farmers. US Agriculture Secretary Tom Vilsack warned that a ban on GM corn would have a significant impact on US-Mexico trade.

One-fourth of US corn exports typically head to Mexico every year, so any hint of purchase uncertainty from the Mexicans is likely to make corn prices even more volatile, especially amid the Russia-Ukraine war and rising food security fears around the world.

"Mexico president's phaseout decree has the potential to significantly disrupt trade, harm famers on both sides of the border and significantly increase costs for Mexican consumers," Vilsack said. "We must find a way forward soon."

Not surprisingly, sterner words with veiled threats of sanctions started emanating from Washington.

"The US would be forced to consider all options, including taking formal steps to enforce our legal rights under the USMCA," Vilsack added, referring to the free trade agreement between Mexico, the US and Canada.

By the end of 2022, Mexico did relent under intense US pressure and proposed delaying the import restriction on GM corn until 2025 and excluding imports of yellow corn for animal feed from the purview of the decree. But US lawmakers wanted Obrador to recall the whole decree, not just some sections.

With sustained pressure from a farmers' lobby, the US government said March 6 that an enforcement action against Mexico has been taken for undermining the USMCA trade commitments.

"The United States has repeatedly conveyed our serious concerns with Mexico's biotechnology policies and the importance of adopting a science-based approach that complies with its USMCA commitments," US Trade Representative Katherine Tai said. "Mexico's policies threaten to disrupt billions of dollars in agricultural trade, and they will stifle the innovation that is necessary to tackle the climate crisis and food security challenges if left unaddressed. We hope these consultations will be productive as we continue to work with Mexico to address these issues."

Pete Meyer, crops and feedstock economist with S&P Global Commodity Insights, said a total ban on GMO corn imports is impractical.

"With Ukraine out of the picture, in theory there is not enough non-GMO corn to satisfy Mexico's needs," Meyer said.

What next?

The ball is now in the USMCA's court, and a drawn-out dispute is on the horizon.

Whatever the decision, US farmers are likely staring at long periods of anxiety, commodity analysts said, fearing the dispute could drag on for years. There are added concerns of the GM corn issue snowballing into an avalanche, with both sides imposing retaliatory sanctions on each other.

Punitive trade restrictions are harmful for economies, as has been seen in the US-China tariff spat, which has already cost both countries hundreds of billions of dollars. But one cannot compare US relations with China to that of Mexico. One is a longtime adversary with huge economic clout, while the other is a neighborhood ally despite frequent bickering.

There is hope on both sides of the border that better sense will prevail, and US-Mexico ties will be back on track.

"This has been an ongoing battle, filled with rhetoric," Meyer said.

It's hard to imagine that it will escalate, he added.