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June 13, 2017

 

NAFTA dissolution spells trouble for US, Mexico, Canada, says report

 

 

Agricultural lender Rabobank has painted bleak scenarios in the event the North American Free Trade Agreement (NAFTA) is dissolved.

 

Last month, the Trump administration notified Congress that the US planned to renegotiate the NAFTA, which also includes Mexico and Canada.

 

In an analytical report, Rabobank said that if NAFTA were to be terminated, US producers would face lower milk prices, likely back down to 2009 lows, as domestic supply would pile up and exporters would need to find new markets, which would take time and money.

 

Mexican consumers would also face higher food prices, and the Canadian dairy industry would need to find another trading partner to help balance any difference in their local market.

 

Rabobank said that over NAFTA's 23-year history, the US and Mexican dairy industries have become somewhat interdependent. "The US depends on Mexico for dairy exports", it said, as Mexico accounted for 32% of US dairy exports in 2016.

 

Interdependent

 

The US dairy industry also depends heavily on Mexican labour on-farm, as around 50% of dairy labour comes from Mexico, "which is of benefit to both markets", it added.

 

On the other hand, the Mexican consumer also benefits from NAFTA, as Mexico is only 80% self-sufficient in dairy. 

 

As for Canada, Rabobank said that "it has been somewhat removed from involvement in NAFTA dairy, but has relied on small volumes of trade on an ad-hoc basis to help balance its local dairy market".

 

Rabobank noted that Canada recently developed a Class 7 milk price, which has had an impact on US exports to Canada and has implications for Canadian exports of milk proteins going forward, and may also put them at a disadvantage in terms of dairy if any renegotiations occur.

 

"With the threat of a dissolution of NAFTA, Mexico and Canada have both sought to reach bilateral agreements with the EU and other markets who, in theory, could easily backfill the US as a trade partner from a dairy perspective", Rabobank said.

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