Measures taken by the United States, Canada, and Mexico to integrate
the North American food and fiber system have paid large dividends—lower
prices and a wider variety of foods, increased real income, and
easier access to each other’s markets.
A unified North American market transmits more accurate price
signals across national borders, information that better reflects
continental supply and demand. With better information, farmers
specialize in production activities in which they are comparatively
proficient, consumers pay lower prices, and societies benefit from
technological innovations and economies of scale. The lure of such
payoffs explains the genesis of the World Trade Organization, the
European Union, and many regional trade agreements.
The interconnectedness of the three national markets is evident.
U.S. agricultural exports to Canada and Mexico are five times greater
than U.S. exports to the rest of the world. In addition, U.S. food
processing firms are outsourcing more of their production in Canada
and Mexico via strategic alliances, joint ventures, and foreign
direct investment.
Payoffs from integration include:
Under the North American Free Trade Agreement, many tariffs
have been lowered or eliminated, widening access to all three
markets. As a result, incomes increased in all three countries
because producers were able to more fully respond to continental
differences in tastes and preferences and to make better use
of available resources in North America.
Mexican farmers have gained more export access to U.S. and
Canadian markets for fruits and vegetables. And American and
Canadian farmers are meeting Mexico’s relatively high demand
for staple commodities, such as corn and oilseeds.
Cross-border investment in processing facilities has lowered
production costs, enabling food suppliers to more effectively
satisfy consumer demand for convenience foods by offering a wider
variety of low-priced products.
Though increased trade has clearly resulted in benefits to society, institutional
obstacles continue to segment national markets, limiting the gains from trade.
For example, nonuniform inspection, grading, and labeling standards raise
production costs for meat in the U.S., Canada, and Mexico.
North American agricultural markets also stand to gain from universal commercial
laws, common antitrust and regulatory procedures, and better coordination
of domestic farm, marketing, and macroeconomic policies.
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