By Tom Polansek and Mark Weinraub
CHICAGO (Reuters) - U.S. food producers and shippers are trying to speed up exports to Mexico and line up alternative markets as concerns rise that this lucrative business could be at risk if clashes over trade and immigration between the Trump administration and Mexico City escalate.
Diplomatic relations have soured fast this month, as the new U.S. administration floated a 20 percent tax on Mexican imports and a meeting between the presidents of the two countries was canceled. U.S. President Donald Trump has also pledged to renegotiate the North American Free Trade Agreement (NAFTA) trade deal with Mexico and Canada.
Mexico is one of the top three markets for U.S. farm production.
Some U.S. producers of corn, soybean meal and distillers dried grains (DDGs), an ethanol byproduct, are trying to accelerate sales to Mexico because they are uncertain about the risk for new tariffs to disrupt trade, said Rafe Garcia, general manager for U.S. operations at shipper Primos & Cousins USA.
"They don't know what will happen in the next month or the next week," Garcia said about producers. "They are trying to move everything as fast as they can."
The company, which ships U.S. livestock feed to Mexico and imports Mexican products like molasses, has already talked with U.S. producers about selling into other countries, such as Nicaragua, to reduce their dependence on Mexico, Garcia said.
Exports are critical for U.S. farmers as a global slump in prices for agricultural products has pushed incomes to their lowest in years
Last week, more than 130 trade associations and food companies, including Cargill Inc (CARG.UL) and Tyson Foods Inc (N:TSN), touted the benefits of NAFTA in a letter to Trump on trade.
Food producers say the agreement has quadrupled U.S. agricultural exports in the region during the past two decades.
Mexico is expected to import about 4 percent of the U.S. corn crop in 2016/17, according to the U.S. Department of Agriculture (USDA). It buys 7.8 percent of U.S. pork production, the U.S. Meat Export Federation said.
"THEY'RE GOING TO RETALIATE"
The agriculture community, which strongly supported Trump during the presidential election, has already voiced its concern that he has withdrawn the United States from the Trans-Pacific Partnership (TPP) trade pact. They are worried Mexico could use tariffs to strike back against Trump's plans to rework NAFTA and build a wall to keep out illegal immigrants.
Malcolm DeKryger, president of Indiana pork producer Belstra Milling, said he was worried Mexico would impose tariffs on U.S. ham, which could cause Mexican buyers to turn to Brazil or Europe.
"They're going to retaliate," he said about Mexico. "The place they can hit back as fast as they can to try to affect our pocket book is the food."
Mexico could target sanctions on farm products, in particular, in an attempt to punish rural communities that supported Trump in the presidential election, said Katherine Baylis, associate professor of agricultural and consumer economics at the University of Illinois.
"Look at where past trade retaliations have happened: It is amazingly pointed and usually pointed at crucial products from swing states which quite often turn out to be agricultural," Baylis said.
Prominent Mexican politicians, including former President Felipe Calderon, have said the nation should consider ending purchases of U.S. corn if Trump applies new taxes on Mexican exports.
U.S. company Ingredion Inc (N:INGR), which produces high fructose corn syrup and other corn products, said its "geographic diversity balances country-specific headwinds."
In 2009 and 2010, Mexico put tariffs on 99 American exports in retaliation when Washington blocked Mexican trucks from using U.S. highways. The strategy targeted products seen as important to specific U.S. regions, including Christmas trees, apples and frozen sweet corn, to maximize political pressure.
The dispute cost U.S. businesses over $2 billion and cut U.S. exports to Mexico of affected agricultural commodities by 27 percent.