The Central America Free Trade Agreement (CAFTA) was signed by trade representatives from El Salvador, Honduras, Nicaragua, Guatemala, the U.S. at the end of 2003 and Costa Rica in January 2004. CAFTA was ratified by the US Congress on July 27, 2005 and therefore will take effect on January 1, 2006 between the US and Honduras, El Salvador, and Guatemala, who had previously ratified the agreement. Costa Rica and Nicaragua will join as soon as their respective congresses pass the agreement. It is currently the most hotly debated political issue in all Central American countries that are part of the agreement. Unfortunately, the debate is mostly fueled by perceptions regarding the likely impact of CAFTA, rather than based on facts grounded in sound analytical work. Despite the economic and social importance of CAFTA in all five countries, policymakers in the region are concerned by the lack of adequate information regarding how to best deal with the transition period and how to minimize the social costs that CAFTA will impose on their already fragile societies.

The Central American Council of Agriculture Ministers (CAC) has requested the assistance of the Regional Technical Assistance Unit-Unidad Regional de Asistencia Técnica (RUTA) and IFPRI in analyzing appropriate policies and other measures in order to be able to adequately deal with the economic and social challenges that CAFTA will bring.

"The Impact of The Central American Free Trade Agreement (CAFTA) On Agriculture And The Rural Sector In Central American Countries" project was launched in early 2005, as part of the larger program on Institutions and Infrastructure for Market Development. It is jointly managed by the Development Strategy and Governance (DSG) and the Markets, Trade and Infrastructure (MTI) divisions.