Case Study 1 — Riverside Foods and the Question of NAFTA

In Chapter 3 we used the Riverside Foods plant in Millbrook as an example of comparative advantage. The plant processes vegetables grown by regional farmers and sells frozen products to grocery chains across the upper Midwest, parts of southern Canada, and a smaller market in northern Mexico. This case study uses Riverside Foods to walk through one specific question: how did the North American Free Trade Agreement (NAFTA, which took effect in 1994 and was later replaced by USMCA in 2020) affect the plant?

The story illustrates several things at once: how trade agreements actually work, how a single firm can be both a winner and a loser from the same agreement, how comparative advantage applies in practice, and why the political economy of trade is so complicated even for "winners."

Riverside Foods before NAFTA

In 1993, the year before NAFTA took effect, Riverside Foods was a smaller operation than today — about 700 employees, primarily serving Midwestern grocery chains. The plant did not export internationally. Its main competition was from other regional U.S. processors and a handful of Canadian frozen-vegetable companies. Tariffs on processed agricultural goods between the U.S. and Canada were modest (around 5–10% on most categories) but real enough to slow cross-border competition.

The market for frozen vegetables in 1993 was relatively stable. Demand was rising slowly with population growth. Riverside Foods had a comfortable regional position, modest profit margins, and a workforce that was unionized and earned wages somewhat above the local manufacturing median. The plant was not in trouble. It was also not particularly ambitious about international expansion.

What NAFTA changed

NAFTA, when it took effect in January 1994, eliminated most tariffs on goods traded among the U.S., Canada, and Mexico. For Riverside Foods, this had three immediate effects:

Effect 1 — Cheaper exports to Canada. Without the previous tariffs, Riverside Foods could now sell frozen vegetables to Canadian buyers at lower effective prices. Canadian importers — grocery chains, food-service distributors, restaurants — became more willing to buy from U.S. suppliers because the U.S. products were now cost-competitive with domestic Canadian options.

Effect 2 — Cheaper Mexican competition in the U.S. Mexican producers of certain frozen and fresh vegetables (especially seasonal varieties — bell peppers, certain tomatoes, some squash) gained the same advantage in reverse. Mexican vegetables became more cost-competitive in U.S. markets. For Riverside Foods, this was direct competition: their products were now competing against Mexican imports on U.S. supermarket shelves.

Effect 3 — Cheaper imported inputs. Some of the inputs Riverside Foods used — packaging materials, certain chemicals, some processing equipment — could now be sourced more cheaply from Canadian or Mexican suppliers. This lowered Riverside's costs.

What happened over the following decade

In the 10 years after NAFTA took effect (1994–2004), Riverside Foods went through several distinct phases:

1994–1996: Adjustment. The plant struggled with the new competitive environment. Mexican imports of certain vegetable categories grew rapidly, taking 10–15% of Riverside's share in some markets. Profit margins compressed. The company laid off about 40 workers (out of 700) over two years.

1996–1999: Repositioning. The plant shifted its product mix toward higher-value, more processed items (frozen meals, ready-to-cook combinations) where Mexican imports were less competitive. This required investment in new processing equipment and worker training. The company financed the investment through a combination of retained earnings and a federal loan program designed to help firms adjust to NAFTA.

1999–2004: Growth. As the repositioning paid off, Riverside Foods began exporting more aggressively to Canada. By 2004, Canadian sales accounted for about 12% of the company's revenue — up from essentially zero in 1993. The plant rehired the workers laid off in 1995–96 and added another 200 jobs over the following five years. By the end of 2004, total employment was about 860 — substantially higher than the pre-NAFTA level.

2004–2010: Maturation. The plant continued to grow, slowly. Canadian sales reached 18% of revenue. The product mix continued to shift toward higher-value items. Wages rose gradually. Mexican competition remained but was less of an existential threat than in the mid-1990s — partly because Riverside had moved up-market, partly because Mexican producers had focused on a narrower range of products where their cost advantage was largest.

The current picture

Today (2026), Riverside Foods has about 1,100 employees and sells products in 38 U.S. states, four Canadian provinces, and several states in northern Mexico. It is the largest private employer in Walden County. Roughly 25% of its revenue comes from exports (mostly to Canada). The plant's product line includes traditional frozen vegetables (its core business), prepared meals (the higher-value addition from the late 1990s), private-label products for several large grocery chains, and a small organic and "premium" line that competes for the upper end of the market.

NAFTA is generally credited within Riverside Foods as a positive development on net. But the story is not "free trade is great." It is more nuanced.

What the Riverside story illustrates

Lesson 1 — Even winning firms experience disruption. Riverside Foods is, on net, a winner from NAFTA. But the road there involved a painful period of layoffs, reorganization, and competitive pressure. The 40 workers laid off in 1995–96 mostly did not benefit from the eventual recovery — they had moved on, retired, or taken lower-paying jobs elsewhere. Even when the firm recovers, the individuals who bore the costs of the transition often do not.

Lesson 2 — Firms can adjust, but not always quickly or cheaply. Riverside Foods successfully repositioned itself, but the repositioning took five years and required substantial investment. Many firms in similar situations did not make it. The U.S. lost roughly 30% of its frozen-vegetable processing capacity between 1994 and 2010, with most of the closures concentrated in firms that did not (or could not) reposition.

Lesson 3 — The benefits and costs are unevenly distributed within a single firm. Riverside's higher-value product lines required workers with different skills than the plant's traditional workforce. Some long-tenured employees thrived in the new environment (those who could be retrained for the higher-tech equipment); others were displaced. The aggregate "Riverside Foods is a NAFTA winner" story masks a lot of variation in who actually benefited.

Lesson 4 — Trade adjustment assistance was inadequate. Of the 40 workers laid off in 1995–96, only 8 received Trade Adjustment Assistance (TAA) support. The rest were either ineligible or chose not to apply (the application process was complicated and many workers didn't know they qualified). Of the 8 who received TAA, 5 used it for job training; the other 3 took the income support and did not retrain. Of the 5 who retrained, 3 found new jobs related to their training; 2 did not. The program helped some workers, but the coverage was thin and the success rate was modest.

Lesson 5 — Time horizons matter. Looking at Riverside Foods' situation in 1995, NAFTA looked like a disaster. Looking at its situation in 2010, NAFTA looked like a clear win. Looking at its situation today, NAFTA looks like a complicated story whose net effect was positive but whose costs were borne unevenly. Which time horizon you choose changes the story you tell.

What about the laid-off workers?

This is the part of the story that the standard surplus analysis tends to obscure.

The 40 workers laid off in 1995–96 had an average age of 47, a high school education, and 12 years of tenure at Riverside. They were not the kind of workers who could easily move to another industry. Most of them had family ties in Millbrook, mortgages, and children in local schools. Picking up and moving to a city with better job prospects was not realistic.

What happened to them? A 2007 retrospective study by an MSU labor economist (a hypothetical study, but representative of real labor economics work on NAFTA) tracked the workers' employment outcomes. The findings: - 14 of 40 found new jobs in manufacturing within 18 months, mostly at lower wages - 8 of 40 found jobs in other sectors (retail, transportation, construction), generally at significantly lower wages - 6 of 40 retrained for skilled trades (plumber, electrician, welder) and eventually earned wages comparable to their pre-layoff levels - 9 of 40 dropped out of the labor force entirely — mostly older workers who took early retirement or disability - 3 of 40 left the area to find work elsewhere

Average earnings for the displaced workers, five years after the layoff, were about 24% lower than they would have been if the layoff had not happened. This is consistent with the broader empirical literature on trade-displaced workers — substantial earnings losses, particularly for older workers without easily transferable skills.

These 40 workers were "winners" in the sense that they were workers at a firm that NAFTA ultimately benefited. They were "losers" in the sense that they personally bore the cost of the transition that made the firm's eventual success possible. The aggregate calculation that "Riverside Foods is a NAFTA winner" hides this.

This is the same story as the China shock at smaller scale. The comparative advantage gains are real. The aggregate welfare effect is positive. The distributional effects are uneven, the losers are often unable to recover, and the policy response (TAA) has been chronically inadequate.

What this means for trade policy

The Riverside Foods story is more typical than the China shock. Most trade-affected firms in the U.S. went through some version of this experience: initial disruption, eventual adjustment, net positive outcome for the firm but uneven distribution of the costs and benefits. The China shock was an extreme version because of the size and speed of Chinese imports; the typical version has been smaller but similar in structure.

The right policy response is, in principle, clear: support free trade because it produces aggregate welfare gains, but invest seriously in helping workers displaced by trade — through retraining, income support, regional assistance, and more. The problem is that the U.S. has consistently underinvested in the second half. Trade Adjustment Assistance is a patchwork program with low budgets and mediocre results. Workers displaced by trade rely heavily on other social programs (unemployment insurance, disability, food assistance) that are not specifically designed for them and that don't adequately address the long-run challenges they face.

The Riverside Foods story is what successful trade-driven economic transition looks like at a single firm. The 40 displaced workers are what unsuccessful trade-driven economic transition looks like for the people who bear its costs. Both halves are real. Both halves have to be addressed honestly to get trade policy right.

Discussion questions

1. The case study found that Riverside Foods is, on net, a NAFTA winner — but 40 workers paid a personal cost that they never fully recovered from. Is "on net positive" the right way to think about this trade-off?

2. The U.S. response to trade displacement — Trade Adjustment Assistance — has been inadequate. What would a better response look like? What would it cost?

3. The case study suggests that older workers without easily transferable skills bore the largest cost of NAFTA. Is there anything specific that could have been done to help them?

4. Riverside Foods successfully repositioned itself by moving up-market into higher-value products. Why couldn't every U.S. firm in similar situations do the same? What conditions made Riverside able to adjust where others couldn't?

5. Imagine you are advising the U.S. government on whether to enter a new trade agreement with a low-wage country. Apply the lessons of the Riverside Foods story. What conditions would you want to include before supporting the agreement?