Mar Guinot Aguado
Eurasia Review
Historically dependent on their neighbor to the North as the engine for development, the Central American countries agreed to fully open their markets to the United States in the late 2000s.
The Central American Free Trade Agreement (CAFTA-DR), initiated in 2002 between El Salvador, Guatemala, Honduras, Nicaragua, Costa Rica, the Dominican Republic and the United States, strove to liberalize Central American markets in an effort to increase investments and create economic opportunities throughout the region.
The neoliberal policy was aimed at eliminating trade barriers and tariffs on guaranteed agricultural and manufactured goods, investments, and services, which traditionally have led to misery for vulnerable peasants in the agreement’s less developed countries.
Central America is the third largest U.S. export market, and up to now the neoliberal ideals imposed by the agreement have mainly benefited large corporations that have migrated to the region. The decision of these governments to establish a free market has hampered the Central American agricultural sector and has decreased food security. This process intensifies the area’s dependency on volatile international markets in a region already threatened by structural malnutrition.
CAFTA-DR has been approved by the Dominican Republic, El Salvador, Costa Rica, Guatemala, Honduras, Nicaragua, and the United States.
Central American countries suffer from marked inequality, poverty, and malnutrition, with one fourth of the population (mainly in rural areas) unable to sufficiently feed itself. Without a supply of food at accessible prices for the majority of the population, the governments welcomed the free trade agreements as a process to induce a current accounts surplus.
Under CAFTA-DR, Central American countries have aligned themselves with an agribusiness model previously implemented in 1994 in Mexico with the North American Free Trade Agreement (NAFTA). Under NAFTA, Canada, the U.S. and Mexico opened their economies and threw smallholders into a volatile marketplace. As a result, 1.5 million Mexican farmers found themselves losing their land and facing poverty as well as the prospect of malnutrition.
Income per capita rose by 93 percent between 1960-1979 whereas it only grew 11 percent between 1994 and 2003. Although the misery of many farmers grew after NAFTA, CAFTA-DR was negotiated with a similar agricultural economic policy of placing profit above human rights.
Undeniably, these neoliberal policies revitalized trade, which grew from an average of 5 percent in 1990s to 13.9 percent after the agreement.
Free-trade advocates had argued that CAFTA-DR would decrease poverty in rural areas and accelerate the development of Central America, substantially benefiting consumers by decreasing prices of consumer products and improving their purchasing power.
But years after its implementation, CAFTA-DR has re-structured the countries’ economies by flooding their markets with subsidized grains coming from the Unites States. In fact, between 1995 and 2011, the U.S. government spent $277.3 billion USD in agricultural subsidies, exporting many of these products to Central America.
Since the free-trade agreement, Central American countries and the Dominican Republic have been transformed into net food importers, with their governments unable to dedicate as much investment to the agricultural sector. As a result of the international economic integration with trade liberalization, the region has dramatically increased its dependency on imports supplemented by diminishing amounts of aid, and thus has been exposed to the volatility of commodity prices. Yet, low food prices in Central America have not effectively mitigated hunger.
According to the 2008 State of the Region Report, “An increase of 15 per cent in the price of food could mean 2.5 million more people in extreme poverty, particularly in Guatemala and Honduras.” The report shows “a model of rising imports (wheat, rice and corn went up to about 30 percent in available food between 1990-2003) with tripled prices for wheat and doubled prices for corn and rice (2008-2009),” which not only “leads to profits for the companies that import the goods, but growing malnutrition, especially among the region’s rural and indigenous poor.”
For example, El Salvador imports 79 percent of its rice and 43 percent of its corn. Similarly, Costa Rica imports 77 percent of its beans while Guatemala imports 100 percent of its wheat and 70 percent of its rice.
Food prices have risen internationally; wheat prices have grown 152 percent and maize prices have grown 122 percent between 2006 and 2008.This price inflation has negatively affected poor people in the region, who suffer from a huge dependency on agricultural imports promulgated by CAFTA-DR.
Instead of growing yields destined for local consumption, the trade agreement has led to a decrease in the diversification of production and a concentration on exportable crops in Central America. From the 1990s to 2005, local food production—such as rice, beans, and corn—shrank by 50 percent.
Prior to the agreement, 75 percent of Central American exports had free access to the U.S. market through bilateral agreements. This slashed CAFTA-DR’s developmental benefits for Central America.
Consequently, many households have had to adjust their livelihoods to their new economic reality by focusing on other crops and non-crop activities such as biofuels and tropical products.
While undermining local markets, “the diversification of production has been done at the expense of starving the local population to satisfy the demand for tropical products in developed countries”.
Not responding to the needs of the countries in the region, the area’s agricultural sector is concentrating on exports to Europe and the U.S., primarily with big monocultures specializing on products such as coffee, bananas, cane sugar, palm oil, and pineapple. In the case of the United States, agriculture trade with the region is composed of 58% horticulture products and 36% of sugar and tropical products.
