RECENT POLICY DEVELOPMENTS

IN THE MEXICAN

AGRICULTURAL SECTOR

Andrés Casco Flores

San Diego, California

Febrero 2000

SAGAR

OUTSTANDING ASPECTS OF THE RURAL ECONOMY IN MEXICO

For the period 1994-98, the share of the agri-food sector in the Gross Domestic Production was on average 11.4 per cent .

ESTRUCTURE OF THE GROSS DOMESTIC PRODUCTION 1998 p/

FUENTE: Elaborado con base en datos del INEGI.p/ Cifras preliminares correspondientes al PIB trimestral.

Services68.2%

Agriculture, forestry andfisheries

5.8%

Processe Food, Beverages andTobacco

5.2%

Other Activities20.8%

SAGAR

Productivity in units of less than 5 ha. ranges from 0.5-2.3 tons.

Productivity in larger units migh reach 8-10 tons.

Total

100.0

40.9

9.2

36.4

13.5

Total Income

Agriculture

Livestock

Non Agriculture Activities

Migration from Mx to US

OUTSTANDING ASPECTS OF THE RURAL ECONOMY IN MEXICO

0-2

ha

100.0

16.8

5.4

57.8

20.0

2-5

ha

100.0

26.8

8.0

49.6

15.7

70% of the producers

5-10

ha

100.0

37.7

9.6

35.8

16.9

10-18

ha

100.0

44.9

10.3

28.5

16.2

>18

ha

100.0

61.8

10.5

24.3

3.4

30% of the producers

SAGAR

AGRICULTURAL POLICY IN MEXICO AND SUPPORT PROGRAMS IN THE RURAL SECTOR

PROCAMPO

Applicable since 1994 for supporting the income of the producers of grains and oilseeds.

The eligible crops are: maize, beans, wheat, sorghum, rice, soybean, safflower, cotton and barley.

The elegible acreage must be used in crops, livestock, forestry or conservation uses.

PROCAMPO has benefit an average of 13.7 millions of ha. annually. More than half of the total acreage benefited belongs to producers with less than 10 ha. per unit of production, and represents more than one fourth of their income.

SAGAR

ALIANZA PARA EL CAMPO

This Program operates under a decentralize scheme. The decisions are taken at local level in an Agriculture State Council.

Federal and State support complement producers investments.

The main programs of Alianza para el Campo are:• Ferti-irrigation Rural Equipment

• Mechanization Elementary Technical

• Improved Seeds Assistance

• Genetic Improvement Training and Extension

• Prairies

SAGAR

MARKETING SUPPORT PROGRAM FOR GRAINS AND OILSEEDS

The main objectives of this Program are:

offset the negative factors that have an effect on the marketing of grains and oilseeds, and

support under a selective approach, targeted to products and regions with structural problems.

In 1999, marketing support payments, for specific regions, were granted to soybeans, rice, wheat, sorghum, cotton and maize.

Marketing supports are allocated through public auctioning.

Buyers that requires the lowest subsidy and commits themselves to pay a certain price to the producer receive these supports

SAGAR

RISK MANAGEMENT SUPPORT PROGRAM

The main objective of this program is to support producers expected harvest income, through hedging instruments for management of risks related to the fluctuations in the international prices.

The eligible crops for receiving supports for hedging are:

MAIZE COTTON

WHEAT SORGHUM

SOYBEANS

SAGAR

THE EXTINTION OF CONASUPO

Since the crop season Spring-Summer 1998/99, CONASUPO ceased to buy corn and beans.

In the past, CONASUPO bought to producers at a guarantee price. It operated the warehouses in production and consumption areas, and was in charge of the whole logistics.

CONASUPO supplied maize to the “tortilla industry” at subsidized prices.

In December of 1998, price controls for “tortillas” were abolished.

PRICES OF TORTILLA 1996-1999

CURRENT

REAL 1994=100

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

Pesos p

er

Kilo

1996 1997 1998 1999

SAGAR

PRICES OF TORTILLA

SAGAR

TRANSITIONAL SCHEMES FOR MAIZE

In most production areas, the market has substituted efficiently the role of CONASUPO. The “tortilla producers” have become a Key player in this market.

Marketing problems have appeared in those states that generate large surpluses and are far from main consumption areas (especially Sinaloa and Chiapas).

Maize of Sinaloa and Chiapas was included in the marketing support Program operated by ASERCA.

In Sinaloa, three auctions were made for the Autumn-Winter season. The private sector purchased the total amount for this crop.

DIRECT ALLOCATION

AUCTION

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MARKETING SUPPORTS FOR MAIZEALLOCATED BY ASERCA

SAGAR

TRANSITIONAL SCHEMES FOR MAIZE IN CHIAPAS

In Chiapas, conditions are more difficult for the development of a free market.

Lack of knowledge of marketing instruments (marketing loans, options, futures, etc).

Lack of producer organizations with entrepreneurial skills.

Deficiencies in railroads and problems in the transport system.

1994 1995 1996 1997 1998

0.0

5.0

10.0

15.0

20.0

25.0

30.0

Mil

lio

n T

on

s

PURCHASES

PRODUCTION

SAGAR

CONASUPO´S PURCHASES OF NATIONAL PRODUCTION OF MAIZE

SHARE

1994 40.5%

1995 21.8%

1996 8.7%

1997 18.8%

1998 13.4%

SAGAR

TRANSITIONAL SCHEMES FOR MAIZE IN CHIAPAS

Marketing support program was granted through ASERCA to main buyers under an auction system, as well as through direct allocation for firms located in the area.

A trust operated by the State Government has purchased a large part of the crop. It is financed by a credit line; it only purchases on account of the interested buyers.

SAGAR has designed a program to train producer organizations in marketing and provides some support to induce marketing cooperatives.

SAGAR

TRANSITIONAL SCHEMES FOR MAIZE IN CHIAPAS

Former CONASUPO infrastructure in the State will be transferred to producers, in a way that enhances the formation of marketing cooperatives. The medium term objective is to create conditions similar of those of Sinaloa.

CONASUPO operated 200 warehouses in the State of Chiapas. Under the new scheme only 102 warehouses were enabled by the State Trust. This fact shows that CONASUPO’s infrastructure was larger than strictly necessary.

The estimated crop production for this season is 450 thousand tons. So far 350 thousand tons have already been marketed by private purchasers.

INTERNATIONAL VS DOMESTIC PRICES OF MAIZE 1994-1999

200.0

400.0

600.0

800.0

1,000.0

1,200.0

1,400.0

1,600.0

Pes

os

per

To

n

CBOT

DOMESTIC

SAGAR

INTERNATIONAL VS DOMESTIC PRICES OF MAIZE1994-1999

SAGAR

Until May of 1999, CONASUPO was the sole importer of milk powder to supply private processors and social programs for low income population.

Milk Powder Imported by CONASUPO(Metric Tons)

161,440

135,059

158,941174,381

148,610

020,000

40,00060,000

80,000100,000

120,000140,000

160,000

180,000

200,000

1994 1995 1996 1997 1998

Source: SECOFI

AUCTION FOR IMPORTS OF MILK POWDER

SAGAR

AUCTION FOR IMPORTS OF MILK POWDER

Since the second half of 1999, import certificates are

allocated directly to the final user.

The allocation of quotas is based on historical

consumption of each firm (for infra-marginal

quantities).

For complementary requirements, additional import

certificates are auctioned. The result of these auction

provide information on market conditions.

DICONSA is also allowed to import directly milk

powder for its social program.