President Bush’s recent trip to Latin American included a one day visit to Guatemala where he helped pack vegetables and talked about the need for social justice. The Guatemalans appreciated the attention from a U.S. presidential visit, but news coverage provided only a glimpse of the challenges and opportunities for Guatemala to more fully participate in international trade through CAFTA-DR and other trade agreements.
Guatemala is an agricultural country seeking to develop industries to fully employ workers. Agriculture accounts for 22 percent of the GDP, 40 percent of exports and 50 percent of the labor force. The country’s agriculture is driven by its topography of mountains with narrow coastal plains and rolling plateaus. The lowlands are hot and humid while the highlands are cooler. In a country about the size of Tennessee, 13 percent of the land is arable and another 6 percent is permanent crops. Coffee, sugar and bananas are the main agricultural products. Corn and black beans are the subsistence diet.
Guatemala has a population of just over 12 million people. President Oscar Berger commented at the formal arrival ceremony that 10 percent of the population lives in the U.S. Creating economic opportunities in the country is essential to stemming the flow of workers to the U.S., but that has been a constant refrain for the past 30 years. President Bush noted in his remarks that 40 percent of the population is less than 15 years of age. According to the CIA Fact Book, the population in 2006 grew at 2.27 percent, with a birth rate of 30 per thousand population, a death rate of 5 per thousand and net migration of 2 per thousand people. These compare to a population growth rate of 0.9 percent in the U.S. and zero in Japan and Western Europe. The short-term need is child health care and education. The long-term opportunity is a growing work force and growing demand for consumer goods by employed workers.
A stable political environment is relatively new in Guatemala, and much needs to be done to build durable political and economic institutions common in western democracies. A 36-year guerrilla war ended in 1996 when the government signed a peace treaty. It left 100,000 people dead and created 1 million refugees, some of whom moved to the U.S. and are now the most important source of foreign income, exceeding the total of exports and tourism. President Berger has held office since January 2004 and can serve only one four-year term. Elections are scheduled for September of this year.
Per capita income on a purchasing power basis is $5000 per year, about half that of Argentina, Brazil and Chile. Gross fixed investment increased by 15 percent in 2006 and the GDP grew by about 5 percent. The U.S. accounts for 50 percent of Guatemala’s exports and 38 percent of its imports. The unemployment rates is estimated at a low 3.2 percent, but half the people live in poverty so the earning power of many of those jobs is low. With half of the country’s labor involved in agriculture and half of the population in poverty, it is easy to suggest these conditions are opposite sides of the same coin.
Guatemala’s $924 million of agricultural exports to the U.S. in 2006 reflect the traditional strengths of its agriculture. Unroasted coffee led at $278 million, followed by bananas and plantains at $248 million, sugar at $114 million and other fresh fruit at $110 million. The fresh vegetables handled by President Bush were only $23 million, but that is up from $9 million in 2002. These markets are already open to imports from Guatemala and their volume will be mostly driven by increasing investments to produce quality products.
U.S. exports of agricultural products to Guatemala in 2006 of $558 million are also concentrated in a few areas. Wheat led at $124 million, followed by coarse grain (mostly corn) at $93 million, soybean meal at $64 million and cotton and poultry meat at $37 million each. Most of the corn imports were yellow corn used for feed, snack foods and breakfast cereals. Yellow corn imports have been increasing about 12 percent a year and CAFTA-DR tariff rate quotas allow for a 25,000 metric tons (MT) per year increase.
Guatemala has been impacted by the Mexican “tortilla crisis.” About 80 percent of corn production is white corn used mostly for human consumption, much of it by small scale farmers. According to the U.S. agricultural attaché in Guatemala, wholesale prices in late February were about 30 percent higher than the historical average. White corn imports averaged about 48,000 MT per year for 2000-2004, but are estimated at 80,000 MT for 2006. The government believes current supplies and production in 2007 will be adequate. Higher corn prices are a problem for poor consumers, but a benefit for small scale producers who market corn to pay for other consumer items.
Changes are occurring in Guatemala’s agriculture in addition to the fresh vegetable exports highlighted by President Bush. According to the U.S. agricultural attaché, productivity is improving in white corn production as local certified seed becomes more available and farmers have access to micro loans to buy fertilizer. Guatemala has a relatively efficient sugar cane industry that could produce ethanol. As productivity increases in agriculture and improves it competitive position in world markets, it will release low skilled workers for employment in non-agricultural jobs.
That is why the non-agricultural portions of CAFTA-DR are so important. Outside investment must be attracted to new, low-skilled industries to employ the available labor. It then becomes a virtuous cycle were workers with higher incomes can afford more varied diets that will be met by domestic production and imports. That cycle ultimately depends on open markets for imports and exports, a stable political climate, sound economic policies and an inflow of investment capital to supplement domestic capital.