To: Congressional Oversight Group on Trade
Cc: United States Trade Representative Robert Zoellick

From: Elanor Starmer, Associate for Colombia and Central America, Latin America Working Group
Vicki Gass, Senior Associate for Economic Issues and Brazil, Washington Office on Latin America Katherine Ozer, Executive Director, National Family Farm Coalition
Tom Ricker, Co-Director, Quixote Center/Quest for Peace
Katherine Hoyt, National Co-Coordinator, Nicaragua Network

Date: April 8, 2003

Re: Concerns over potential CAFTA impact on small farmers in Nicaragua

As negotiations over a Central American Free Trade Agreement (CAFTA) continue, we urge you to examine closely the potential impact of such an agreement on small farmers in Nicaragua and other Central American nations.[1] US Trade Representative Robert Zoellick and others have stated that a desired outcome of this trade agreement is to advance economic development and combat poverty in participating nations.[2] Our own analysis of past trade agreements, Mr. Zoellick’s statements on the proposed structure of CAFTA, research by our Nicaraguan colleagues—including agricultural associations and human rights organizations[3]— and the experience of small farmers in Mexico after the passage of NAFTA all strongly suggest that CAFTA will hurt, rather than help, small farmers in Nicaragua. For any trade agreement with Nicaragua to be effective at reaching the goals of economic development and poverty reduction, it must take into account the almost thirty percent of the Nicaraguan workforce employed in the agricultural sector, and must make the health and sustainability of this sector a first priority.

There are a number of conditions for trade between the United States and Nicaragua that, according to analysts in both countries, would provide for a more equitable and mutually beneficial trade relationship. Several of these conditions are outlined below. While these conditions offer a broad framework for a more equitable agreement on agricultural trade, the most effective agreement will be one which is negotiated with the full participation of regional and local farming associations and other members of civil society. The current deadline set for CAFTA will not allow adequate time for these consultations to take place, and may therefore result in a weaker agreement with harmful ramifications for small farmers. We ask that the deadline for CAFTA negotiations be extended to allow for the full participation of civil society.

Nicaraguan Agriculture in Crisis

Recent fluctuations in the market for both export and staple crops have severely affected not only small farmers in Nicaragua, but also medium and large farm operations. The fall of coffee prices on the world market is felt especially hard in Nicaragua, a country that exported over 80,000 metric tons of coffee in 2000. The revenue earned per ton of coffee exported from Nicaragua dropped by 42 percent between 1999 and 2000, according to the Food and Agriculture Organization of the United Nations. The export value of Nicaraguan corn has also dropped, falling by more than two-thirds between 1999 and 2001, precipitated directly by low world prices resulting from US farm policy. As a result of these declines, farmers growing both export and staple crops have seen their incomes fall far short of their costs of production.[4]

Vulnerabilities in the agricultural sector are especially worrisome due to the high percentage of Nicaraguans who depend on farm revenue to meet their daily needs. Four hundred thousand people, about a third of the total Nicaraguan labor force, are directly employed in the agricultural sector, while the United Nations estimates that another 600,000 to 700,000 people are dependent on the income earned by agricultural workers. The agricultural sector now generates over thirty percent of Nicaragua’s GDP, according to the World Bank Development Index. The majority of food produced for consumption in Nicaragua comes from small and medium family farms; as such, these families will be deeply affected by a continued drop in agricultural prices.[5]

Toward a More Equitable Trade Agreement

The market fluctuations felt so acutely by small farmers in Nicaragua could be mitigated by establishing price floors and other safeguards for export products, while staple crops could be protected by placing import controls on foreign agricultural products dumped on the Central American market. Similar subsidy and tariff mechanisms have been used in the United States to protect the agricultural sector. The US Trade Representative, however, has refused to discuss US agricultural subsidies during the CAFTA negotiations, and has signaled an intent to keep US export credit programs in place.[6] A trade agreement that prohibits Central American governments from introducing safeguard mechanisms, while allowing the United States to continue to provide massive farm subsidies, will make it impossible for farmers in Nicaragua and other Central American nations to compete in the open market. On such an uneven playing ground, the food security and livelihood of the more than fifty percent of Nicaraguans living below the poverty line will be threatened.[7] A more equitable trade agreement would maintain each government’s ability to determine policies aimed at protecting the agricultural sector from dumping and other market disruptions.

An equitable trade agreement should also exclude staple crops such as corn, beans, and rice from trade liberalization. While trade liberalization will bring lower prices for imported staple goods, these lower prices will not benefit small farmers or other Nicaraguans in the long term. Rather, when subsidized imports undercut the ability of small farmers to sell their products, many Nicaraguan farmers will be forced into debt and may lose their land and livelihoods. The lessons of NAFTA reveal that in an underdeveloped economy, employment in non-agricultural sectors is not always available for out-of-work farmers, leaving migration to the United States as one of their only options for survival. In a March 3, 2003 article in the New York Times, Tina Rosenberg writes of post-NAFTA Mexico, “Few new jobs have been created that could absorb [Mexican] farmers. Mexicans fleeing the countryside are flocking to Houston and swelling Mexico’s cities, already congested with the poor and unemployed.”[8] Nicaragua simply cannot afford the further blow to rural livelihoods that we fear will result from a hastily negotiated trade agreement.

Agriculture is a critical element of the Nicaraguan economy. It provides employment, helps to maintain national food security, contributes to biodiversity, and carries on the cultural heritage of the region. It is a way of life for almost one third of Nicaraguans. We ask that in your role as the oversight group for US trade negotiations, you consider the conditions outlined above as a broad framework for a more equitable agreement on agricultural trade with Central America. In order that a more thorough framework may be negotiated, we also ask that you press for an extension of the deadline for CAFTA negotiations, allowing adequate time for the participation of those who will be most affected by trade liberalization.

For more information, or to respond to this memo, please contact Elanor Starmer at the Latin America Working Group, 202-546-7010 or estarmer@lawg.org.

[1] The term “small farmers” in this memo refers to farmers who cultivate on fewer than ten acres of land.

[2] Letter from USTR Zoellick to Senator Robert Byrd, submitted October 1, 2002.

[3] Organizations consulted include Centro Humboldt; Coordinadora Agropecuaria y Forestal de Nicaragua; la Coordinadora Civil; and Federacion de Cooperativas Agropecuarias.

[4] All statistics taken from the Food and Agriculture Organization of the United Nations, FAOSTAT Agriculture Databases (www.apps.fao.org). For information on coffee producers, see also Oxfam International, Mugged: Poverty in Your Coffee Cup. September 2002, Oxfam International.

[5] According to the Nicaraguan Census Bureau (Instituto Nacional de Estadísticas y Censos) document “Encuesta de Medición de Nivel de Vida, 2001,” ch. 9, sixty percent of Nicaraguan farmers cultivate on fewer than ten acres of land, and seventy percent on fewer than fifteen acres. Seventy-one percent of agricultural activity in Nicaragua is for domestic consumption, rather than for export. (www.inec.gob.ni).

[6] Letter from USTR Robert Zoellick to Senator Robert Byrd, submitted October 1, 2002

[7] Poverty statistic from the CIA World Factbook 2002 (www.cia.gov/cia/publications/factbook/index.html)

[8] Tina Rosenberg, “Why Mexico’s Small Corn Farmers Go Hungry.” New York Times, March 3, 2003.