Supporting sustainable economic development
and direct trade in Guatemala

CAFTA: Nothing to Crow About

It's getting harder to find chicken in San Miguel Escobar. Three local butchers have closed down in the last few months. I talked to Miguel, who has been raising chickens for more than 30 years. Immediately after he married, Miguel and his new wife pulled together enough cash to buy 25 chicks. They grew their business slowly, until they had 2,000 chickens at a time. For almost thirty years, you could find one of them in the village plaza in the mornings selling meat. You could knock on their door at any hour of the day for chicken legs.

About six months ago, Miguel started renting space in the Antigua market to sell chicken three days a week. It was a losing venture. He shut down sales in Antigua, then shut down completely. "The big fish eat the little fish," he told me when I asked him why. That surprised me. Locally, he was something of a big fish.

In the same week that the local government announced a move to shut down small chicken operations in the area, Tyson Foods announced a plan to take over 30% of the Guatemala chicken market in 12 months. I think they've done it. Not long ago, I could go to almost 40 homes and local stores to buy fresh chicken. And when I say fresh, I mean it was butchered that morning, if not when I arrived. Now I have to go clear to the other side of town, or into the main market. But in the main market, I can rarely find fresh chicken. It was butchered in a factory and wrapped in plastic and Styrofoam. Or worse, frozen.

That's CAFTA for you. The Central American Free Trade Agreement. This was to be the big boom for the Guatemalan economy. If trickle-down economics "worked" for you, then so did CAFTA. However, the little guys got left in the lurch. Tyson came in and the little guys disappeared.

I know three butchers now out of business. I know of another dozen who no longer butcher nor raise chickens, they simply resell frozen or refrigerated chicken. A couple of guys are trying to convert their businesses to raising hens for egg production. We'll see how it goes. But it's worse than that. Each of those families had two or three kids adding valuable income to the family through raising chickens. Now they're as good as unemployed.

Somewhere in the stead of these small chicken operations are massive chicken factories, called ‘free range' if there's a window the birds can see out of. I don't know all the environmental ramifications of these chicken farms and factories, but in a former life I used to specify motors for the ventilators at big chicken farms. I specified all kinds of motors-motors to run underwater, motors in meat packing plants that got hosed down each day, motors that ran near explosive gases, all kinds of difficult applications. The hardest environment was the ventilators in chicken farms. The air was so full of ammonia that the motors would rust out faster than any other application. I can't help but wonder if there isn't other damage being done.

I used to be able to get chicken without using one drop of petroleum. Now, in most cases, I have to take a motor vehicle to buy chicken. And the chicken came to the store from untold miles away by motor vehicle. It was frozen in the factory and shipped in a refrigerated truck to sit in a glass freezer with an electric heater in the window to keep the glass clear. The amount of oil used so I can eat chicken has skyrocketed.

Speaking of petroleum, this new system of distributing chicken requires petroleum in the form of disposable garbage, the Styrofoam and plastic packaging. Unfortunately, we don't have much in the way of landfill infrastructure here, so that all winds up on the streets and dumped in rivers and ravines.

I'm not so naïve to think that a gargantuan business in a capitalist society could survive if only true market forces were at work, but I'm confused by the economic of this. These small chicken farmers had no payroll-they didn't pay themselves a wage, nor did they pay their kids who worked with them. They paid little to no taxes-their legal business were small and in a low tax bracket. They had no overhead in the form of buildings or land-the chickens were raised in their homes. There was no cost for electricity for butchering, raising, or storing. There were no electric pluckers, electric knives or lights. Some used a light bulb or two for incubating chicks, and a few had freezers-that's about it. They had no transportation costs-everything was sold out their front door or within a few blocks. They had no import expenses, export expenses, licenses, etc. They had no overhead in the form of computers, fax machines, long distance phone bills, office equipment, annual reports or morning doughnuts. These local butchers were very efficient operations.

Tyson has overhead, lots of it. It has big farm buildings and big factories, both of which use lots of electricity and sit on land they did not inherit from Grandpa. Everything is frozen or refrigerated, incurring both equipment and operating costs. To move their product, they need trucks, which they have to purchase and fuel. They have CEO's who need bonuses, stock holders who need dividends, and an army of employees-janitors, middle managers, secretaries, guards, marketing campaign managers, information technologists, and the guy who puts you on hold when you call the 1-800 number-who all need salaries. They are in a different tax bracket to Miguel, and are legally required to pay 5-12% more in Guatemalan taxes than he is. And we haven't even begun to talk about lawsuits and legal fees.

So, if just market forces were at work, all these little farmers should have driven Tyson out of business. I wonder what I missed in economics class. I wonder what that giant sucking sound is...

Maybe the difference is that Miguel doesn't have the budget for a DC lobbyist.

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You may wonder-since Guatemala exports into the U.S.-doesn't CAFTA help Guatemalans? No. The top contributors to the Guatemalan economy are sugar, coffee, bananas, cardamom, tourism, and unofficially, adoptions and remittances. Sugar is specifically excluded from CAFTA. Coffee was unchanged by this legislation, while the very nature of tourism, remittances, and adoptions left them unchanged. The U.S. market doesn't impact cardamom to any substantial degree. So, bananas can get to the U.S. with fewer taxes. But the entire banana market is essentially run by Chiquita and Dole, which aren't Guatemalan owned or operated. So no, CAFTA doesn't help Guatemalans.

But isn't chicken good for Guatemala? Thanks to Tyson and other Big Chickens, isn't there more cheap chicken on the market, providing protein to Guatemala's impoverished children? No, not really. Guatemala is the dumping ground for legs and wings, not the good cuts. Tyson Foods' Vice President for Federal Government Relations, Sara Liligren, testified before the House Ways and Means committee, that "the U.S. industry will begin to benefit from a new 21,800 metric ton Tariff Rate Quota (TRQ) for chicken leg quarters. . ." That's not a new 21,800 tons of chicken for Central America, that's 21,800 metric tons of meat no longer being produced here. That's 21,800 tons to the benefit of U.S. industry, to the detriment of the Guatemalan farmer.

Moreover, Tyson lost $36 million in their international market in one year, and sought to grow it further. The economist in me would have fired those responsible for that decision, but Tyson rewarded them with, among other things, $44 million in stock. So, that's $80 million out the window. I can't help but wonder if the Big Chickens are all just really bad at math, or if they have a plan to recuperate those loses with higher prices once all the Miguels are out of business.

History has a funny way of repeating itself. Under the U.S.-Peru Trade Promotions Agreements, the U.S. will be exporting 12 million tons of chicken legs to Peru. The Big Chickens will once again need more undocumented out-of-work Guatemalan chicken butchers to fuel their factories, and once again talking heads will spout about the influx of illegal immigrants, and once again no one will mention the root causes.