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What have we learned from DR-CAFTA Nearly a Decade Later: Understanding the Nicaraguan reality

By Ileana Valle, WfP Nicaragua Team

According to the World Bank, Nicaragua was able to mitigate the global economic crisis in 2008. In fact, it’s had impressively stable economic growth during the past decade. In 2012, Nicaragua’s GDP growth was 5.2%, slightly higher than the 5.1% growth seen in 2011. Could this be the Dominican Republic-Central American Free Trade Agreement (DR-CAFTA) living up to its high expectations? This has been the ongoing discussion.

Let’s go back to 2003, when the rhetoric around this controversial agreement was mainly focused on how DR-CAFTA would not only boost the United States’ economy, but also, single-handedly catapult Central America and The Dominican Republic out of poverty.

The initial negotiation process with Nicaragua was completed in record time – one year. This alone casted a dubious cloud over the actual intentions behind the agreement. Within this timeframe, only a select few were actually present at the negotiating table. Mario Arana, member of the Nicaraguan Foundation for Economic and Social Development (In Spanish: Funides), and Azucena Castillo, General Manager of the Association of Producers and Exporters (In Spanish: APEN) were some of the Nicaraguan representatives present– appointed by then President Enrique Bolaños. But what about the small producers? From the very beginning, on the Nicaraguan side, we saw the scale shifting toward larger corporations instead of all parties involved. As we have learned from NAFTA, these types of unilateral agreements negatively affect small producers whose entire livelihood depends on small production. They struggle to compete with the massive agricultural corporations in the U.S. aided by subsidy policies. So arguably, this deal isn’t very fair depending which side of the power dynamic you may find yourself on.

Although concrete evidence to favor or condemn DR-CAFTA is yet to be found, I sat down with a Nicaraguan economist to put all the contributing factors of this complex reality, into perspective.

Beef Industry First, Nicaraguan beef is known to be leaner and is a healthier, overall higher quality meat, than their North American counterpart. Further, Nicaragua is the leading beef exporter to Costa Rica, and El Salvador, and number 2 behind the U.S., to Guatemala ( 2014). Now through DR-CAFTA, the beef industry in the U.S. is able to import into Nicaragua, and the rest of Central America, at a significantly lower cost – lower than the cost it requires for local Nicaraguans to produce their beef. Additionally, the gigantic retail predator Walmart has been conveniently benefiting and has become a direct competitor not only with their sale of U.S. beef, but also with their domination of the supermarket scene in Nicaragua. So Walmart is actually able to import beef into Nicaragua with tax breaks through the same quotas established between Nicaragua and the U.S. In other words, Walmart can take advantage of the lower cost to import beef into Nicaragua and the rest of Central America in order to compete with locally produced beef and, thus, directly competing with local supermarkets.

What does this all mean? Well, considering that Nicaragua has successfully been the leading exporter of beef in Central America, now the Nicaraguan economy as a whole is being threatened. Most importantly, local producers can’t realistically compete with these exports – so where in DR-CAFTA does it protect the livelihoods of small producers? Further, does the Nicaraguan economy relish in the increased sales of Walmart? Of course not. This revenue goes back to the U.S.

So how do we explain the economic growth that Nicaragua has still managed to experience? Crop Diversification

The agriculture community has managed to stay afloat due to its successful diversification efforts. Nicaraguan farmers change what they grow depending on international demand. As a result, they vary what they grow from year to year. Additionally, among Nicaragua’s largest exports is coffee – so their being able to change what they grow allowed them to strongly benefit from the drought that happened in Brazil that caused the price of coffee to skyrocket. Finally, gold is another one of Nicaragua’s largest exports; so it’s worth mentioning that both coffee and gold -whose sales make up the majority of Nicaragua’s GDP – are industries not regulated by DR-CAFTA.

New Markets

Looking for new markets is probably one of the most important factors in the Nicaraguan economic dynamic. Nicaragua has been able to successfully engage in new opportunities with the Bolivarian Alliance for the Peoples of our America (ALBA). ALBA is an alternative to the free trade agreements of the north that was started by Venezuela and Cuba – led by Hugo Chavez and Fidel Castro, respectively.

Through this agreement, Nicaragua is able to export the rice that can no longer compete with U.S. rice coming into Nicaragua, to Venezuela. This is among other basic grains they’ve began exporting to Venezuela. These combined strategies have alleviated the effects of DR-CAFTA, and have greatly contributed to the continued growth. According to the economist we consulted, things would get ugly if ALBA would cease to exist.

So, have the expectations of DR-CAFTA been met? Far from that. I think it’s created a difficult space where the resilience of the Nicaraguan people has played an important role. Being able to diversify, depend on industries that aren’t regulated by DR-CAFTA, and engaging in new market opportunities has allowed them to not only survive, but continue to grow. So in the end, who gains with DR-CAFTA? Clearly the U.S. and few large private Nicaraguan corporations – definitely not the Nicaraguan farmers. What have we learned? Nicaragua has had to go up against – instead of working alongside – the massive economic power that is the U.S.


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