U.S. poultry producers are watching talks starting this week in Montreal to renegotiate the North American Free Trade Agreement and whether President Trump follows through on his pledge to pull out of the trade deal. Sanderson Farms is especially concerned since 4.5% of its gross sales for the year ending in October came from chicken parts exported to Mexico.
Without a renegotiated deal, Sanderson and other poultry firms could see a 75% tariff on U.S. chicken and turkey exported to Mexico, while pork exports could be taxed at 20%, Reuters reported. Such a scenario could be disastrous for the $1 billion in poultry that U.S. businesses currently ship there each year.
Talks to renegotiate NAFTA — in effect since 1994 between the U.S., Mexico and Canada — are now in their sixth round. Among other provisions, the accord allows products to be shipped duty-free within the three countries as long as a certain percentage of their components were produced in North America.
Sanderson Farms has been expanding its U.S. poultry processing facilities and positioning itself for further growth this year. In its most recent earnings report, the company posted net sales of $931.9 million — up from $729 million the year before. The prospect of watching sales from Mexico decline following a potential 75% tariff can't be a palatable one for its executives or shareholders. Less income could force it to curtail additional expansion projects and possible acquisitions while potentially hurting its growth prospects and share price.
The U.S. supply of both antibiotic-free and traditionally raised poultry is likely to increase should the renegotiation of NAFTA fail, leaving Sanderson and other producers with more chickens on hand and, presumably, lower prices in the marketplace. Chicken and pork prices had been slowly creeping up, but any gains would likely be more than offset without NAFTA in place should Mexico boosts its tariffs. And while such a scenario would benefit U.S. chicken consumers, it would give the domestic poultry industry major heartburn.
According to the National Chicken Council, the U.S. and Brazil are the top global poultry exporters, and trade deals such as NAFTA are a major reason why. The U.S. exported about 3.7 million metric tons of chicken products worth about $4.6 billion in the most recent year for which the council has full data. The group also noted that Mexico and Canada have been two of the five top export markets for American poultry during the past decade and that Mexico "is today by far our largest market for U.S. poultry products."
Trump has threatened to terminate NAFTA, a move that Mexico strongly opposes, because he said it would be “the best deal” for U.S. interests. However, as the rounds of talks continue, it's hard to tell whether he will stick to that hard line.
“On NAFTA, I’m working very hard to get a better deal for our country and for our farmers and for our manufacturers,” Trump told the American Farm Bureau Federation at its annual convention earlier this month. “It’s not the easiest negotiation, but we’re going to make it fair for you people again. We want to see even more victories for the American farmer and the American rancher.”
The food and agricultural sectors have been actively lobbying U.S. trade representatives to keep NAFTA's provisions intact since they may have more to lose than any other part of the economy, as Politico recently noted.
While the NAFTA renegotiation talks proceed between now and March, Sanderson Farms and the poultry industry as a whole might take a bit of comfort from the optimistic position reportedly being taken by David MacNaughton, the Canadian ambassador to the U.S.
"We’re not going to get every last 't' crossed and 'i' dotted by the end of March," he told The Washington Post this week. “But that doesn’t mean we can’t have a success by the end of March."