NAFTA and U.S.-Mexican Beef Trade: Long-Run Implications for Changes in Trade Flows from Technology Transfers

This study examines potential long-term impacts on the U.S. and Mexican beef industries of the reduction in trade barriers under NAFTA and likely associated international technology transfers (of beef cattle, feeding methods, and meat packing) and foreign capital investments. The beef industry is represented as four subsectors: cow-calf production, post-weaning beef production, meat packing, and leather production. The analysis is accomplished through a multi-sector model of the U.S. and Mexican beef industries, estimation of key parameters, and simulation of long-run outcomes under three alternative scenarios. Our results show that Mexico will dramatically expand the size of its cow herd. The expanded supply and lower post-slaughter processing cost in Mexico give it a comparative advantage in beef production, despite most of the feed grain requirement being met from U.S. exports. Mexico is able to expand its exports of feeder calves significantly when technology is transferred and to become a beef exporter. Beef prices in both countries decrease in real terms. We conclude that U.S. beef producers cannot be optimistic about the long-run potential for beef exports to Mexico but much better prospects exist for U.S. feed grain exports.