NAFTA End Could Hurt U.S. Poultry Industry

PALESTINE, Texas/MEXICO CITY (Reuters) - Workers at the Sanderson Farms plant in Palestine, Texas, are cutting up chickens for export to Mexico, a market that has become a pillar of the town’s economy and a key focus of the U.S. poultry sector. 

The facility’s roughly 1,000 employees process a quarter of a million chickens a day, with parts zipping along racks to a packing area where legs and thighs are prepared for delivery to the United States’ southern neighbor. 

But the Mexican market may find its way to the chopping block if talks to renegotiate the North American Free Trade Agreement collapse and President Donald Trump makes good on a threat to pull out of the 1994 deal with Canada and Mexico. 

The stakes are high for the U.S. poultry sector, which exports products worth more than $1 billion a year to Mexico. 

Mexico could slap a 75 percent tariff on U.S. chicken and turkey under its commitments to World Trade Organization rules, compared to the 20 percent tax on imports the Latin American nation could apply to other major U.S. exports like pork. 

“It would effectively prohibit us from selling product to Mexico,” Sanderson Farms Chief Financial Officer Mike Cockrell said. He added that the loss of the market would be comparable to the impact of Russia’s 2002 ban on U.S. chicken imports. 

The bulk price of chicken leg quarters in 10 U.S. states including Texas sank to 18 cents a pound in March 2002, down from 26 cents a pound before the Russian ban, according to data from the U.S. Department of Agriculture. 

Mexico accounted for about 4.5 percent of Sanderson Farm’s gross sales in the 12 months through October. 

Mexican officials have made clear they don’t want consumers to face the price hikes that would be triggered by tariffs, although they have also said global trade rules would allow import taxes in the absence of NAFTA. 

“There is nothing standing in the way,” said Raul Urteaga, the top trade official in Mexico’s agriculture ministry and one of the people involved in the NAFTA negotiations of the 1990s. “What I can’t say is what the tariff would be.” 

Mexican, Canadian and U.S. officials will meet in Montreal on Tuesday for talks to modernize the 24-year agreement, with negotiators aiming to reach a deal before Mexico’s presidential campaign kicks into gear ahead of a July election. 

Even a 25 percent tariff would make it hard to sell in Mexico, leading to a glut of chicken legs in the U.S. market, Cockrell said. 

“Nobody really goes to the Olive Garden to buy a leg quarter,” Cockrell said, referring to U.S. consumers’ general preference for white chicken meat rather than the dark meat found on leg quarters. 

Lost sales to Mexico would add to the pain already felt from the virtual closure of the Chinese market to U.S. chicken. 

Beijing has lowered the stiff anti-dumping tariffs on U.S. broiler chickens that it enacted in 2010, though Washington maintains China has not gone far enough to comply with a WTO ruling against the tariffs.