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Mexico’s Agriculture Development: Perspectives and Outlook

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This work addresses key issues affecting agricultural production and trade of those commodities identified by the Mexican authorities as being of strategic importance for the country. It encompasses both macro- and micro-economic issues with links to commodities, trade policy and trade agreements, competition and competitiveness, and food and energy security. It also identifies complementary measures and enabling policies, such as infrastructural investment, research and development, and trade facilitation. Furthermore, the study demonstrates a close integration with the national development outlook of Mexico, which ensures an ongoing consistency with overall national development priorities, including enhancing food security, and reducing poverty, consistent with the UN Millennium Development Goal 1.

Un i t ed nat ions ConferenCe on trade and development


MEXICO’S AGRICULTURE DEVELOPMENT:
Perspectives and outlook




MEXICO’S AGRICULTURE DEVELOPMENT:
Perspectives and outlook


New York and Geneva 2013


Un i t ed nat ions ConferenCe on trade and development


ADVANCE UNEDITED COPY




ii mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


NOTE


The designations employed and the presentation of the material in this publication do not imply the expression
of any opinion whatsoever on the part of the Secretariat of the United Nations concerning the legal status of any
country, territory, city or area, or of its authorities, or concerning the delimitation of its frontiers or boundaries.


Symbols of the United Nations documents are composed of capital letters combined with figures. Mention of
such a symbol indicates a reference to a United Nations document.


Material in this publication maybe freely quoted or reprinted, but acknowledgment is requested. A copy of the
publications containing the quotation or reprint should be sent to the UNCTAD Secretariat at: Palais des Nations,
CH 1211 Geneva 10, Switzerland.




iiiacknowledgements


ACkNOwLEDGMENTS


The outlook “Mexico’s Agriculture Development: Perspectives and Outlook” was prepared by a team from the
Division on International Trade in Goods and Services, and Commodities, UNCTAD, led by Guillermo Valles,
Director, and the Special Unit on Commodities, UNCTAD, led by Samuel Gayi, Head. The team comprised Lucas
Assunção, Mariona Cusi, Junior Roy Davis, Leonardo Garcia, Martin Halle, Alexandra Laurent, Mina Mashayekhi,
Graham Mott, Bonapas Onguglo, Henrique Pacini, Ralf Peters, Hassan Qaqaya, Luisa Rodriguez, Claudia
Roethlisberger, Ulla Schwager, Amos Taipore, Kris Terauds, and Aimable Uwizeye-Mapendano. The authors
express their gratitude to Maria Susana Arano, Guillermo Del Bosque Macias, Renata Grisoli, Matt Hamilton,
Robert Hamwey, Dilip Khatiwada, Lalen Lleander, Tomas Lönnqvist, Alejandra Maruri, Omar Masera, Semida
Silveira, Daniel de la Torre Ugarte, Ailton Vale, Adolfo Valente Marcelo, and Fernanda Vilela.


The study was supported by the Permanent Mission of Mexico to the United Nations and other International
Organizations in Geneva under the supervision of Juan José Gómez Camacho, Ambassador and Permanent
Representative, and Enrique Domínguez Lucero, Agriculture Counsellor Minister. They provided valuable
comments and coordinated the interviews with stakeholders within Mexico’s agricultural sector including
agricultural producers, various Mexican government agencies and universities, together with Mexico’s Ministry
of Agriculture, Livestock, Rural Development, Fisheries and Food, (SAGARPA) with special involvment of the
Agrifood and Fishery Information Service (SIAP); and with the help of Judith Arrieta Marcia and Hugo Rodríguez
Nicolat for interaction and follow up of the study process from the beginning.


The interviewees were Héctor Gabriel Barreda Neder, Luis Bueno Torio, José Cacho Ribeiro, Oswaldo Cházaro
Montalvo, Juan Cortina Gallardo, Isabel Cruz Hernández, Pedro Díaz Hartz, Rigoberto Espinoza Macías, Jorge
García de la Cadena, Vicente Gómez Cobo, Cruz López Aguilar, Gustavo Adolfo Merino Juarez, José Luis Meza
Villarreal, Heladio Ramírez López, Víctor Reyes Banks, Rafael Ruiz Moreno, Carlos Salazar Arriaga, Víctor Suárez
Carrera, Rafael Trueta Santiago. Furthermore, special credit goes to the many agricultural producers in Mexico
who answered questionnaires providing information for this study.


Laura Moresino-Borini designed the cover and performed the desktop publishing of the publication. Sophie
Combette prepared the graphics.






vcontents


CONTENTS


Note .................................................................................................................................................................. ii


Acknowledgments ............................................................................................................................................ iii


Abbreviations and accronyms .......................................................................................................................... xii


Executive Summary .........................................................................................................................................xv


INTRODUCTION TO THE OUTLOOk ................................................... XXIII


CHAPTER I: AGRICULTURE TRADE POLICY ISSUES FOR MEXICO ...... 1


A. Introduction ................................................................................................................................................. 2


B. Agricultural Trade ........................................................................................................................................ 2


1. Aggregate agricultural trade .................................................................................................................. 2


2. Product specific trade ........................................................................................................................... 6


3. Self sufficiency ...................................................................................................................................... 8


4. Employment ......................................................................................................................................... 9


C. Trade policy ............................................................................................................................................... 12


1. Multilateral trade agreement ................................................................................................................ 12


2. Regional Trade Agreements ................................................................................................................ 14


3. Current domestic support policies ...................................................................................................... 16


4. WTO Doha Round Negotiations .......................................................................................................... 21


D. Impact of technical standards on the agricultural sector in Mexico ............................................................ 22


1. Standards and other measures .......................................................................................................... 22


2. Standards and other measures faced by Mexico’s exports.................................................................. 23


3. Measures applied by Mexico on imports ............................................................................................. 27


4. Sources of concern for Mexico regarding standards from the domestic and import perspective .......... 28


E. Linking trade, policy and development in agriculture .................................................................................. 29


F. Findings and policy recommendations ....................................................................................................... 34


References ..................................................................................................................................................... 37


Annexes ......................................................................................................................................................... 39


CHAPTER II: AGRICULTURE COMMODITY POLICY REVIEw
FOR MEXICO ............................................................ 45


A. Introduction ............................................................................................................................................... 46


B. Overview: Mexico’s rural and agricultural development policy .................................................................... 46


1. Theoretical framework ........................................................................................................................ 47


2. The rural sector ................................................................................................................................... 47


3. Agricultural and rural development programmes and institutions ......................................................... 50


4. Rural finance ....................................................................................................................................... 53




vi mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


C. Agricultural commodities: competitiveness and value chains analysis ....................................................... 59


1. Background ........................................................................................................................................ 59


2. Agricultural and foods products of strategic importance to Mexico ..................................................... 60


3. Technologies and competitiveness of selected agrifoods production and trade ................................... 70


4. Value chain analysis ............................................................................................................................ 76


5. Small-scale farmers participation in high-value agriculture and food chains ......................................... 88


6. Policy recommendations: enhancing competitiveness and integration into global
agrifood value chains .......................................................................................................................... 90


D. Food security: in the context of Mexico’s agricultural policies and trade ..................................................... 92


E. Agrifood standards, technical regulations and laws, and trade ................................................................... 98


1. Proliferation of standards in agrifood production and trade and food safety incidences relevant to
Mexico ................................................................................................................................................ 98


2. Mexico’s food safety laws and agrifood trade ..................................................................................... 99


3. Policy recommendations: towards improving standards compliance .................................................. 99


F. Major Public and Private Policy Actions: towards revitalizing and enhancing the competitiveness
and growth of Mexico’s agrifoods sector, and sustainable rural development .......................................... 102


1. The case for policy reform ................................................................................................................. 103


2. Parameters for policy reform ............................................................................................................. 104


References ................................................................................................................................................... 107


CHAPTER III: COMPETITION POLICY DEVELOPMENT ...................... 111


A. Introduction ............................................................................................................................................. 112


B. Market concentration in selected agrifood products: avocado, beef, corn, pork and poultry .................... 113


1. Avocado ........................................................................................................................................... 114


2. Beef .................................................................................................................................................. 115


3. Corn ................................................................................................................................................. 115


4. Pork.................................................................................................................................................. 116


5. Poultry .............................................................................................................................................. 117


C. Status of competition in corn production and commercialisation in Mexico.............................................. 117


1. Production ........................................................................................................................................ 118


2. Storage and trading .......................................................................................................................... 127


3. Processing ........................................................................................................................................ 128


4. Final commercialisation ..................................................................................................................... 128


5. Summary of possible competition issues affecting corn production and
commercialisation in Mexico ............................................................................................................. 130


D. Legal and Institutional Framework of Mexico’s competition regime .......................................................... 130


1. The Federal Law of Economic Competition and the Federal Competition Commission ...................... 130




viicontents


2. The CFC’s enforcement record in the agricultural sector ................................................................... 131


3. Remedies under the LFC against possible competition issues affecting corn production
and commercialisation ...................................................................................................................... 131


E. Findings and policy recommendations ..................................................................................................... 133


1. Findings ............................................................................................................................................ 133


2. Policy recommendations ................................................................................................................... 134


CHAPTER IV: AGRICULTURE AND RURAL DEVELOPMENT .............. 137


A. Introduction ............................................................................................................................................. 137


B. Biofuels as a driver of rural development in Mexico .................................................................................. 139


C. Rationale for biofuels from agricultural residues in Mexico ....................................................................... 139


1. Legal framework for Biofuels and rural development in Mexico ......................................................... 142


2. Current state of biofuels in Mexico .................................................................................................... 144


3. Improved usage of natural resources and diversification of rural income ............................................ 146


4. Why avoiding a sole focus on dedicated bioenergy crops might be a good idea for Mexico .............. 148


D. Technological options for residues conversion to biofuels in Mexico ........................................................ 151


1. First-generation biofuel technologies ................................................................................................. 151


2. Second-generation biofuel technologies ........................................................................................... 154


3. Solid biofuels .................................................................................................................................... 155


4. Categorization of residue types from the 13 products of interest ...................................................... 156


E. Mapping of biofuel potentials from residues of 13 agricultural products .................................................. 157


F. Findings and policy recommendations .................................................................................................... 159


References .................................................................................................................................................. 162


CONCLUSION AND MAIN POLICY RECOMMENDATIONS
TO THE OUTLOOk ........................................................................ 167


A. Conclusion .............................................................................................................................................. 167


B. Main policy recommendations ................................................................................................................. 169


endnotes................................................................................................................................................. 174


Box


Box I.1: NAFTA commitments with respect to technical standards .................................................................. 26


Box III.1: An overview of the Mexican Federal Competition Commission’s prosecutions of I
nticompetitive agreements in the markets for maize tortillas...........................................................129


Box IV.1: The potential of developing economies to develop energy potentials from agricultural residues ...... 140


Box IV.2: The emergence of regulatory bonuses for trade of biofuels made from residues ............................. 150


Box IV.3: Mexico’s international cooperation on biofuels technology.............................................................. 155




viii mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


Figure


Figure I.1: Mexican agricultural imports and exports, in US$ bill ........................................................................ 3


Figure I.2: Agricultural imports from the world and the US, in US$ bill ............................................................... 3


Figure I.3: Imports of agricultural products in 2010 ........................................................................................... 4


Figure I.4: Employment in agriculture in Mexico, in million ............................................................................... 10


Figure I.5: Employment share in workforce, 1990 to 2010 .............................................................................. 11


Figure I.6: Average MFN applied tariff in Mexico .............................................................................................. 13


Figure I.7: Producer support in the US (US$ mill.) .......................................................................................... 16


Figure I.8: Producer support for maize in the US as a percentage of production value .................................... 18


Figure I.9: Producer prices for maize ............................................................................................................... 18


Figure I.10: Producer prices for soybeans in Mexico and the US between 1993 and 2009 (US$/tonne ........... 31


Figure II.1: Income disparities between Statestween States ............................................................................ 48


Figure II.2: Mexico rural sector characteristics ................................................................................................. 49


Figure II.3: Schematic of rural capital formation trap ........................................................................................ 53


Figure II.4: Quarterly credit granted by commercial and development banks for agricultural, livestock,
forestry and fisheries activities: 2003 – 2011 (nominal balances in millions of pesos ......................54


Figure II.5: Credit given by commercial and development banks to the agricultural sector as a share
of total credit portfolio, 2003-2011..................................................................................................56


Figure II.6: Total credit granted by commercial and development banks to agriculture, livestock,
forestry and fisheries activities per federal entities...........................................................................57


Figure II.7: Number of production units engaged in production of selected crops, 2007.................................. 60


Figure II.8: Evolution of selected crop production (1990-2010 in kgs per caput) .............................................. 61


Figure II.9: Main producing states of selected crops, 2009 ............................................................................. 62


Figure II.10A: Yields of selected crops: Mexico compared to World, 1995-2010 ............................................. 63


Figure II.10B: Yields of dry bean, coffee and rice: Mexico compared to World, 1995-2010 ............................. 63


Figure II.11: Average monthly income (MX$), selected crops ........................................................................... 64


Figure II.12: International trade of selected crops (in US$ million) between Mexico and the world
and the world and with the US, 1991-2010 65


Figure II.13: Per caput production of beef, poultry and pork in Mexico, 1980 – 2010 (in kilograms) ................. 66


Figure II.14: Main producing states of selected livestock and fisheries products, 2009 .................................... 66


Figure II.15: Average monthly income (MX$), selected livestock and fisheries, 2005 - 2011 ............................ 67


Figure II.16: International trade of selected livestock products, 1991-2010 (in US$ million) .............................. 68


Figure II.17: Production volumes of selected fisheries, 1990-2010 .................................................................. 69


Figure II.18: International trade of selected fisheries products, 1991-2010 (in US$ million) .............................. 70


Figure II.19: Effects of selected technologies on yields of wheat, barley and maize ......................................... 72


Figure II.20: Effects of selected technologies on unit costs of wheat, barley, maize and sugarcane ................. 73


Figure II.21: Effects of selected technologies on margins earned on corn, wheat and beans ........................... 75


Figure II.22: Wheat value chain ....................................................................................................................... 77


Figure II.23: Coffee value chain ....................................................................................................................... 81




ixcontents


Figure II.24: Maize value chain ........................................................................................................................ 86


Figure II.25: Main companies in corn flour subsector ...................................................................................... 86


Figure II.26: Recent food rice spikes, 2001-2011 ............................................................................................ 93


Figure II.27: Percentage of undernourished population, food poverty and consumption expenditure
on food in Mexico, 1992-2008.....................................................................................................94


Figure II.28: Mexico’s food trade balance, 1996-2010 (iin US$ 1,000) ............................................................. 95


Figure II.29: Aggregate Mexican cereal yields compared with world and regional averages,
1961-2010 (in tones/Ha) 97


Figure IIII.1: Overall corn production in Mexico .............................................................................................. 118


Figure III.2: Mexican corn production for human consumption ...................................................................... 119


Figure III.3: Mexican forage corn production ................................................................................................. 119


Figure III.4: Overall corn production per province in 2009 .............................................................................. 120


Figure III.5: Corn production for human consumption per province ............................................................... 121


Figure III:6. Forage corn production per province .......................................................................................... 121


Figure III:7: Land possession regime ............................................................................................................. 123


Figure III.8: Current situation and challenge for 2030 for balanced supply and demand for water .................. 126


Figure IV.1: Total employment in Mexican agriculture between 2005 and 2010, by season ............................ 140


Figure IV.2: Gasoline and diesel in Mexico: Native production and consumption ........................................... 142


Figure IV.3: Development of a policy for biofuels in Mexico ............................................................................ 144


Figure IV.4: The strategy toward the main development concerns of rural areas in Mexico ............................ 147


Figure IV:5: Ministries and resources involved in rural policy in Mexico .......................................................... 148


Figure IV.6: Substitutability of biofuels with common petroleum derived fuels ............................................... 152


Figure IV.7: Substitutability of biofuels for clean fossil fuels used for cooking ................................................ 152


Table


Table I.1: Export concentration of Mexico’s food exports and Mexico’s import share in total imports, 2010 ....... 4


Table I.2: Agricultural exports and imports of Mexico for different periods and different data sources/definitions
(in US$ 1’000) ............................................................................................................................5


Table I.3: Market shares of agricultural exports and imports in NAFTA ............................................................... 6


Table I.4: Top ten Mexican agricultural imports from USA, share in total agriculture imports from US ................. 7


Table I.5: Imports of selected agricultural products ........................................................................................... 7


Table I.6: Top ten Mexican agricultural exports to USA, share in total agriculture exports to US ......................... 8


Table I.7: Self domestic production to domestic consumption ratio ................................................................... 9


Table I.8: Employment share in workforce 1990 to 2010 ................................................................................. 11


Table I.9: Labour output ratio in Mexico .......................................................................................................... 12


Table I.10: Mexico tariffs by product group ..................................................................................................... 13


Table I.11: EU preferential treatment of Mexico’s 10 most important export products to the world .................. 14


Table I.12 : Average applied tariffs in agriculture between the US, Canada and Mexico ................................... 15




x mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


Table I.13: Mexico domestic support for agriculture, 2010 ($m) ...................................................................... 17


Table I.14: US producer support for selected products ................................................................................... 19


Table I.15: Mexico domestic support for agriculture, 2010 (MXNmn) ............................................................... 20


Table I.16: Average ad valorem equivalents of NTMs....................................................................................... 26


Table I.17: Average dumping margin of US exports to Mexico, 1997 to 2005 ................................................. 31


Table I.18: Contribution of agriculture to real GDP between 1996 and 2010 .................................................... 33


Annex 1: US MFN tariffs on Mexican agricultural imports ................................................................................ 39


Annex 2: Imports Mexico, selected agricultural products ................................................................................ 40


Annex 3: Change of imports of selected products between 1991 - 1993 and 2008 - 2010............................. 41


Annex 4: Comparison of data sources, change in imports from 1995 to 2010 ................................................ 41


Annex 5: Exports of Mexico, selected agricultural products ............................................................................ 42


Annex 6: Product definition ............................................................................................................................. 43


Table II.1: Rural population and agriculture labour force .................................................................................. 48


Table II.2: Population and labour force size ..................................................................................................... 48


Table II.3: Mexican farm structure characteristics ............................................................................................ 49


Table II.4: Key features of Financiera Rural ..................................................................................................... 55


Table II.5: Number of bank offices per radius of 15 km of cultivated area per state 2011 ................................ 58


Table II.6: Technology combinations ................................................................................................................ 71


Table II.7: Yields and unit costs per crop and technology combination ............................................................ 71


Table II.8: Impacts of technological improvements on yields in maize .............................................................. 72


Table II.9: Impacts of technological improvements on unitary costs in Maize ................................................... 74


Table II.10: Margins per crop and per crop and technology combination ($/kg and $/ha) ................................ 75


Table II.11: Wheat production, milling and flour consumption in Mexico, 2010 ................................................ 78


Table II.12: Distribution of price margins along wheat value chains .................................................................. 78


Table II.13: Price estimates for coffee: 2005 (in Mexican Pesos) ...................................................................... 83


Table II.14: Maize production in Mexico .......................................................................................................... 85


Table II.15: Distribution of price margins along corn value chains .................................................................... 86


Table II.16: Horticulture marketing chain ........................................................................................................ 89


Table II.17: Policy responses to rising food prices, 2008-2010 ........................................................................ 95


Table II.18: Value of US border rejections of agrifood products from selected countries 2004-2008 ............... 99


Table III.1: Market Share of Avocado Export Volumes, 2010.......................................................................... 114


Table III.2: Market Share of Feedlot Beef Production, 2010 ........................................................................... 115


Table III.3: Market share in selected corn products - flour, starch and animal feed, 2010 ............................... 115


Table III.4: Market Share of Hog and Pork Production, 2010 ......................................................................... 117


Table III.5: Market Share of Broiler Meat and Egg Production, 2010 .............................................................. 117


Table IV.1: The strategy toward the main development concerns of rural areas in Mexico.............................. 147


Table IV.2: Residues from production of 13 selected agricultural products in Mexico ..................................... 158


Table IV.3: Biofuel production potentials based on residues from 13 agricultural products in Mexico ............. 160




xiaBBReVIatIons.and.accRonYms


ABBREVIATIONS AND ACCRONYMS


AFA Agro-Food Armour


AMIS Agricultural Market Information System


APEAM Avocado Producers and Exporting Packers Association of Michoacán


APEC Asia-Pacific Economic Cooperation


APHIS Animal and Plant Health Inspection Service


ASA Aeropuertos y Servicios Auxiliares


ASERCA Apoyos y Servicios a la Comercialización Agropecuaria


AVE Ad Valorem Equivalents


BPA Buenas Prácticas Agrícolas


BPM Programa de Buenas Prácticas de Manufactura de Alimentos


CANIMOLT Cámara Nacional de la Industria Molinera de Trigo


CDC Centers for Disease Control


CDM Clean Development Mechanism


CFC Mexican Federal Competition Commission


CIDRS, Commission for Sustainable Rural Development


COFEPRIS Comisión Federal para la Protección Contra Riesgos Sanitarios


CONAGUA Comision Nacional del Agua


CONASUPO Compañía Nacional de Subsistencias Populares


ENERGEX ENERGEX Biocombustibles Internacionales, S.A. de C.V.


EU European Union


FAEE Fatty acid ethyl esters


FAME Fatty acid methyl ester


FAO Food and Agricultural Organization of the United Nations


FDA Food and Drug Administration


FIRA Fideicomisos Insituidos en Relacion a la Agricultura


FIRCO Fideicomiso de Riesgo Compartido


FOCIR Fondo de Capitalizacion e Inversion del Sector Rural


FSMA Food Safety Modernization Act


FTA Free Trade Agreement


GATT General Agreement on Tariffs and Trade


GDP Gross Domestic Product


GIMSA GIMSA, Sociedad Anonima Bursatil de Capital Variable


GMO Genetically Modified Organism


GPEC Epecial Concernet Program for Rural Development


GSTP Global System of Trade Preferences among Developing Countries


Ha Hectare


HACCP Hazard analysis and critical control points


HVA High-Value Agriculture


IADB Inter-American Development Bank


ICO International Coffee Organization




xii mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


ICRISAT International Crops Research Institute for the Semi-Arid Tropics


IEA International Energy Agency


IMF International Monetary Fund


Kgs Kilograms


LAERFTE Ley para el Aprovechamiento de las Energias Renovables y
Financiamento para la Transición Energetica


LDRS Ley de Desarrollo Rural Sustentable


LFC Ley Federal de Competencia Económica


MCS México Calidad Suprema


MFN Most favoured nation


Minsa Grupo Minsa, Sociedad Anonima Bursatil de Capital Variable


MMT Million Metric Tonnes


MTBE Methyl Tertiary Butyl Ether


Mw Megawatt


MXN Mexican Peso


NAC National Accord for the Countryside


NAFTA North Atlantic Free Trade Agreement


NGO Non-Governmental Organization


NTBs Non-tariff barriers


NTMs Non-Tariff Measures


OECD Organization for Economic Co-operation and Development


OTDS Overall Trade Distorting Support


PAPIR Programa de Apoyo a los Proyectos de Inversion Rural


PDR Rural Develpment Program


PEC Programa Especial Concurrente para el Desarrollo Rural Sustentable


PECC Programa Especial de Cambio Climático


PEMEX Petróleos Mejicanos


PROCAMPO Programa de Apoyo Directo al Campo


PRODESCA Programa de Desarrollo de Capacidades en el Medio Rural


PROFEMOR Programa para el Fortalecimiento de Empresas y Organización Rural


PROGRESA Programa de Educación, Salud y Alimentación


PRONASE Productora Nacional de Semillas


PTN Protocolo in Trade Negotiations


REMBIO Red Mexicana de Bioenergia


RME Rapeseed methyl ester


RTAs Regional Trade Agreements


SAGARPA Secretaría de Agricultura, Ganadería, Desarrollo Rural, Pesca y
Alimentación de México


SAGARPA-CONACYT Fondo Sectorial SAGARPA - Consejo Nacional de Ciencia y Tecnologia


SCT Secretaria de Comunicaciones y Transporte


SE Secretaria de Economia


SECTUR Secretaria de Turismo




xiiiexecutIVe.summaRY


SENER Secretaría de Energía


SHCP Secretaria de Hacienda y Credito Publico


SIAP Statistical Institute for Asia and the Pacific


SME Soy methyl ester


SNAP Supplemental Nutrition Assistance Program


SPS Sanitary and Phytosanitary Measures


SPS Systems Single Payment Scheme Systems


STPS Secretaria del Trabajo y Prevision Social


TBT Technical Barriers to Trade


TNCs Transnational Corporations


TPP Trans-Pacific Partnership


TPR Trade Policy Review


UMFFAAC Unión Mexicana de Fabricantes y Formuladores de Agroquímicos


UN United Nations


UNCTAD United Nations Conference on Trade and Development


UNEP United Nations Environment Programme


UNICA União da Indústria da Cana-de-Açúcar


UNIDO United Nations Industrial Development Organizations


UNFCC United Nations Framework Convention on Climate Change


U.S. United States of America


USDA United States Department of Agriculture


USTR Office of the United States Trade Representative


WTO World Trade Organization







xvexecutIVe.summaRY


EXECUTIVE SUMMARY


This work (Outlook) is the response by UNCTAD to a request made by SAGARPA to address the issue of
Mexican Agricultural Development and Policy with an integrated, holistic approach. The Outlook addresses key
issues affecting agricultural production and trade of those commodities identified by the Mexican authorities
as being of strategic importance for the country. It encompasses both macro- and micro-economic issues
with links to commodities, trade policy and trade agreements, competition and competitiveness, and food
and energy security. It also identifies complementary measures and enabling policies, such as infrastructural
investment, research and development, and trade facilitation. Furthermore, the Outlook demonstrates a close
integration with the national development outlook of Mexico, which ensures an ongoing consistency with overall
national development priorities, including enhancing food security, and reducing poverty, consistent with the UN
Millennium Development Goal 1.


Extensive primary research has been carried out to facilitate this diagnosis, including data collection, numerous
videoconferences, and interviews with many stakeholders within Mexico’s agricultural sector including various
Mexican government agencies. This component was coordinated by the SAGARPA, and the Permanent Mission
of Mexico in Geneva.


Agriculture remains a very important sector for Mexico. Despite the declining contribution of the sector to GDP,
and the shrinking of agricultural labour force, about half of the rural population was employed in the sector in
2011. Poverty in rural areas in Mexico is high and has been increasing. In 2008, 61 per cent of the rural population
(with an average annual income of 3,800 pesos) was classified as poor, as compared to a national rate of 45
per cent. In 2007, small farms represented approximately 73 per cent of total production units. Indeed, small
and medium producers employ a majority of rural population but their potential to provide a decent livelihood for
themselves and to constitute a viable base for expanding economic activity in rural areas is curtailed by a variety
of constraints. These include rising costs of factor inputs, land possession issues, adverse climatic conditions,
increasing competition from below-cost imports, structural rigidities and some public policies, which although
designed to benefit small and medium holders have not had the intended impact.


There is the need for public policy and private action (possibly Public-Private-Partnerships) to address the root
causes of the continued economic marginalization of small holders, and of agriculture generally, in order to
enhance the sector’s resilience and ensure food security.


It is in this context that this diagnosis was undertaken not only to provide extensive analysis and a comprehensive
discussion of the agricultural sector in Mexico but also to identify realistic policy recommendations that provide
workable solutions to enhancing the development impact of the agricultural sector. It is important, however, that
agricultural development is regarded as an opportunity within the Mexican economy to be exploited to create
jobs, reduce poverty and enhance food security, rather than a problem; and that SAGARPA can, and indeed
must, be an integral part of the rejuvenation and the sustainable development process of Mexican agriculture.


agricultural development, food security and poverty reduction


Mexico is the home of avocado and corn (or maize), with both having long histories which are deeply engrained in
Mexican culture and lifestyle. Agriculture remains the livelihood for an estimated eight million rural farmers (about
7 per cent of total population), who produce much of Mexico’s agricultural and food produce (agrifoods) for
export and domestic markets, on landholdings no bigger than five hectares. Mexico is among the world’s leading
agrifoods producer: ranked first in avocado, lemon and limes, third and fourth respectively for grapefruit and
corn, fifth for beans, coconut oil, oranges and poultry and sixth for sugar. However, owing to various factors, both
national and international, including trade and related policy reforms, Mexican agricultural production has suffered.
According to OECD data between 1993 and 2010, total agricultural employment in Mexico declined by 28 per
cent; agricultural wages have also declined during the last decades up to 2007, while wages in other sectors
have generally increased. Domestic agricultural production also appeared to have suffered during the period.
In a single year, the production of Mexican corn and other basic grains fell by half due, inter alia, to competition




xvi mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


from imports, and millions of peasant farmers lost their income and livelihoods. The recalibration of government
agricultural support in response to trade liberalization from the price-based CONASUPO programmes to the
direct transfer-based PROCAMPO programme, has had a limited impact on transforming Mexican agriculture. As
PROCAMPO payments were not targeted to where it was most needed, a significant portion of the fiscal support
went to large farm holdings, which oft-shielded them from external competition.


The opening up of the Mexican market following the complete removal of tariff and quota restrictions in 2008
owing to trade reforms under NAFTA and other trade agreements, was followed by an increase in Mexico’s
non-oil exports fourfold and expanded foreign direct investment by 14 times. However, the terms of trade for its
farmers, had declined. The influx of below-cost consumer goods and imports of key agrifoods – for which Mexico
has comparative advantage in producing them - either squeezed farmers out of production and into poverty, or
excluded them from high value markets. Rural poverty is a leading ‘push factor’ that is driving asset-poor rural
farmers to sell off their lands and migrate north of the border to U.S. in search of work and better lives.


The changing policy environment and agricultural markets may have also had a negative impact on the environment,
threatening the traditional agricultural ecosystem and biodiversity. In order to cope with reduced incomes, both
commercial and subsistence producers shifted into intensive agricultural farming systems including the cultivation
of high-yielding varieties of food crops. In the process, farmers abandoned the traditional milpa system which
included intercropping of food crops. Monoculture cultivation systems based on intensive use of agro-chemical
inputs gradually replaced low-input traditional systems that promoted agro-diversity and sustainable agricultural
production, which preserved Mexico’s rich germaplasm resources.


To reinforce the sustainability of small and medium-scale producers and to increase their competitiveness, the
introduction of irrigation and improved farm management practices, including the use of high quality seeds, fertilizer
and new technology, are necessary. However, programmes to deliver these services must be properly targeted in
order to get optimum results - higher yields and sustainable incomes for producers. Technological improvements
have qualitative benefits on products, including better output quality, homogeneity and predictability, which also
reduce the risks to output volatility. These characteristics not only increase the competitiveness of the commodity
sector and open market niches; they also facilitate to access working capital and agricultural credit for new
investments. Of key importance is the recognition of the fundamental dependence of profits on irrigation, as
negative margins are widely correlated with an absence of irrigation. With the exception of sugarcane, a lack
of irrigation negatively affects almost all crops, and reduces the competitiveness of broad sections of small and
medium-scale farmers, who depend on rain-fed agriculture. Negative margins are not only an indicator of the
low level of economic efficiency in the agricultural sector, but also of low annual family incomes for small farmers.


Lack of access to working capital through credit is a key constraint on improving agricultural productivity and
intensification of activities. Apart from a small number of small farmers that used private (Alianza) funds, many
have been unable to access state support to diversify into other profitable activities such as value addition.


While targeted investment in small-scale farmers is generally considered as the most cost-efficient instrument
for reducing poverty, in reality, both public policies and private actions have not fully exploited this potential.
There is the need for a public policy and private action to help improve infrastructure, access to credit and
technologies, business skills, supply-side capacities (e.g. food safety standards), and design and implement,
where appropriate and feasible, market-based innovative schemes (e.g. crop and weather insurance schemes)
for farmers. Without these transformations, the rural economy cannot generate sufficient income opportunities to
reduce poverty among vulnerable groups.


Government agricultural programmes have largely had a limited impact in promoting capacity building
investments or diversification out of agriculture and into other productive sectors of the economy. The corn
subsidy programme, for example, should be reviewed with the objective of enhancing targeting, with clearly
defined and closely monitored eligibility criteria, as well as time-bound exit strategies. Programmes should
also assist smallholder producer organisations have access to storage and warehousing systems, processing
facilities, contracting transport services, and inputs procurement. Improving research and extension services (e.g.,
‘train-the-trainer’ schemes) would help smallholder producers increase productive capacities, facilitate access




xviiexecutIVe.summaRY


to knowledge and high-yielding seed varieties, and increase efficient use of resources (e.g. water harvesting
techniques). Underinvestment in rural infrastructure (e.g., poor infrastructure and border facilities) contributes, in
part, to the weak international competitiveness of Mexican agriculture. Overall, logistical costs are twice as high
as they are in the U.S. and other OECD countries. The government should therefore increase public investment
in basic rural infrastructure.


Poor cash flows limit the small farmers’ investment, production, harvesting and marketing decisions. There is a
need to increase financial services and access to affordable credit to these farmers through public and private
credit schemes. Further develop the role of non-bank and semi-formal financial institutions, financing models
that focus on supply chain finance, and encourage the development of micro-finance institutions. Addressing
property rights (land tenure and access to water right) is key to helping small and medium producers to use their
land as collateral.


The WTO Agreements on Technical Barriers to Trade (TBT), and Sanitary and Phytosanitary (SPS), notwithstanding,
the SPS requirements embodied in regional trading agreements, set out the basic rules and guidelines for Mexico
to implement so that its exports meet the quality and technical regulations. Over the past 30 years, there has
been a proliferation of non-tariff measures (NTMs), particularly stringent food safety and quality standards, both
public (mandatory) and private (voluntary) standards, technical regulations and food laws applied in major markets
of export interest to Mexico. These NTMs, can, and have restricted trade, and increased the cost structure of
Mexico’s agrifood industry.


Mexico’s long history with trade-related phytosanitary problems dates back to 1914 when the U.S. imposed
quarantine restrictions on Hass avocados entering its markets. While Mexico has made considerable strides
in enacting food safety laws: Plant Production Law (revised 2008), and the federal General Health Act, to meet
export standards and quality requirements, considerable challenges remain. Over the past several years, food
safety-related trade problems, particularly border rejections as well as food- and water–borne illnesses in the
global food chain have increased. This reveals both sector and product, and systemic weaknesses in the
compliance capacities of Mexico.


The Government of Mexico, through SAGARPA and Health Ministry, had reformed and modernized its national
food safety laws and regulations to fully establish new public oversight of its agrifood supply chains. Given that
U.S. is its major trading partner in agrifoods, Mexico should periodically review and maintain its Agreement on
Food Safety Rules with the U.S., particularly the FDA.


trade, an important determinant for the agricultural sector


For Mexico, both agricultural exports and imports have increased significantly in recent years and are highly
concentrated towards the US, accounting for some three-quarters of its agricultural trade. The share of agricultural
trade with the US has not significantly increased since the early 1990s, although the composition of trade has
changed, as more staple crops and meats flow south and more beverages, seasonal fruits and vegetables flow
north. This development coincides with a change of the trade policy that has led to much more open markets,
especially within the NAFTA region. The European Union is the third largest market for imports and the second
largest market for exports from Mexico, followed by Canada and Japan. These four destinations account for
about 90 per cent of Mexico’s agricultural exports.


Despite the fact that Mexican agricultural exports to the world and the US grew 170 per cent, Mexico has been a
net-food and animal product importer since the 1980s as the rise of agricultural imports in recent years is significant
(200 per cent since 1995) and in the upper range of other countries’ average import growth. The increase of
imports of some particularly sensitive products such as corn, rice, beef, pork, poultry and beans are high. For
instance, imports of maize are 670 per cent higher in 2008-2010 than they were in 1991-1993, and imports of
beans have increased by 853 per cent. The main agricultural exports of Mexico are horticulture products, such as
tomatoes and fruits, whilst beer exports have also increased significantly. Mexico has a significant market share
in US agricultural imports of about 17 per cent. The importance of live cattle has decreased, though it remains
important.




xviii mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


Due to this increasing specialization the self-sufficiency ratio declined considerably for some essential food
products such as beans, maize, rice and wheat. The self-sufficiency ratio has increased significantly for most
vegetables such as tomatoes and many fruits, mostly citrus fruits. NAFTA has contributed to this increased
specialization.


Mexico has undertaken significant agricultural market reforms which includes a decrease of its trade barriers
since the early 1990s. Mexico is a founding member of the WTO. Mexico’s commitments under the WTO are
unlikely to have contributed to the increase in agricultural trade and in trade specialization.


Mexico’s external agricultural trade relations are dominated by bilateral agreements, which provide both
opportunities and challenges. Mexico is member of several RTAs with countries in the region and South America
as well as with several developed countries. Trade in agricultural products is, however, relatively small with
many of these partners. NAFTA that came into force in 1994 has eliminated all tariffs on agricultural products
between Mexico and the US. Other RTAs such as the one with the EU exclude sensitive products including often
those that are of export interest to Mexico. Tariff commitments have increased Mexican farmers’ exposure to
agricultural policies of its main trading partners. Thus, for example, any changes in US agricultural policy, such
as new US farm bills, have a direct impact on Mexican farmers. High subsidies in the US on products such as
maize, rice, sugar, sorghum and wheat during the late 1990s and early 2000s have led to significant losses for
Mexican farmers producing such commodities. It is likely that this contributed to low investments which in turn
are a major course for the low productivity in Mexico. However, consumers and exporters of fruits and vegetables
and certain processed products have benefited from the market opening. The government needs to review the
level of exposure to external shocks, to try and identify measures to limit the impact of such shocks and to ensure
fair market conditions as well as coherence between trade and development policies.


Globally there is a tendency to move away from border measures towards behind the border measures, including
allowing subsidies such as decoupled domestic support. The WTO agreement on agriculture provides flexibility
for support which could include income loss insurance, investment subsidies and other measures. There are no
commitments on domestic support in the important RTAs. Domestic support in agriculture would have a positive
impact on production and employment in agriculture but would impose a cost on other sectors.


With regard to offensive interests in free trade agreements including in those with trading partners that have
interesting and highly protected agricultural markets such as the EU and Japan it appears that Mexico’s agricultural
sector has not increased its exports to these partners at a higher pace than other countries and remains to have
a small market share (except within the US). Mexico also has signed RTAs with developing countries and in
few cases has been able to disproportionately increase its exports. However, exports to its developing country
trading partners and dynamic developing country markets remain very low. Despite many difficulties including
exclusion of sensitive products or competition from highly productive countries Mexico has proven to be very
competitive with certain products and should explore increasing exports to the markets with which it has trade
agreements markets.


Participation in new free trade agreements, Trans-Pacific Partnership, is currently being discussed. Although
Mexico has agreements with various TPP countries such as Chile, Peru and the US, it would be a far reaching
agreement and as such, Mexico should assess in detail its implications.


Due to the elimination of agricultural tariffs between the US and Mexico, NAFTA has contributed significantly to
market integration. However, in terms of standards and other measures regulating cross border trade the markets
are not fully integrated and do not have a common agricultural policy. Having preferential tariffs with its major
trading partners non-tariff measures become more relevant instruments determining market entry conditions,
such as the requirement to meet standards in export market. The standards that seem to be most problematic
to exporting firms and producers are labeling requirements, SPS measures and security/customs procedures.


Problems relate to difficulties to meet high official and private standards in developed country markets and grey
areas in trade rules disciplining them. Since Mexico’s main trading partners are all developed countries NTMs are
of particular interest to Mexico. Standards in export markets have to be met and Mexican producers could be
supported through appropriate agricultural extension services.




xixexecutIVe.summaRY


Mutual recognition and equivalence seem to have not worked well to overcome barriers identified. Working with
key trading partners towards harmonization of measures and regulation could be an interesting path to explore,
particularly for food packaging and nutrition labeling regulations which is very controversial in the current context
of trade with the US. This path could also be explored in the case of food safety, risk assessment and risk
reduction. Standardized and mutually facilitated customs procedures with its main trading partner are important.


From the import perspective, the issue of standards seems to be related to the weak domestic capacity to
enforce and verify quality regulations, which in turn can lead to a non-uniform application of requirements at
border ports of entry. From the point of view of producers, this situation is perceived as contributing to (1) unfair
competition with low quality and cheap imports of agricultural products, which affect the price and quality of
inputs along the value chain and (2) lack of consumer protection. To overcome these challenges, Mexico should
examine the need to strengthen quality control measures and enforcement in the domestic market to improve
consumer protection. Furthermore, a strong monitoring of import prices could detect potential “dumping”. One
particular concern is the increase of imports of animal parts, for example chicken parts in particular thighs and
legs, not meeting the taste of exporting countries’ consumers at low prices.


the competitive environment of the agricultural sector


A detailed assessment of competition issues in corn production and commercialization in Mexico, has helped
to identify impediments to agricultural development and policy options to address these. The possible existence
of particular restrictions to competition in the Mexican agricultural has been highlighted, namely the presence
of large suppliers of agricultural inputs (fertilizer, seeds, etc.) and buyers (such as processors and retail chains)
that might abuse their market power to the detriment of farmers and consumers. Starkly differing degrees of
concentration exist at different levels of the agricultural value chain as while both production and consumption
are highly atomised, agricultural commodities typically pass through a number of highly concentrated functional
markets between growers and consumers. The market value chains in Mexico are concentrated in the hands of
few medium- to large-scale private sector oligopolies, who also claim much of the benefits from domestic farm
support (subsidy) programs instituted by the Mexican government.


While overall there are 2 million producers of corn in Mexico, they can be divided into two categories: commercial
and traditional. It is estimated that the minimum surface for commercial corn production is around 30 hectares
per farmer, which means that only large and medium sized farms are actually in a position to participate in
commercial production. However, less than 6 per cent of all farmers in Mexico benefit from land possession of
more than 20 hectares and most of the larger farms are located in the Northern regions. The large majority of
small holders engaging in traditional farming are located in the Southern region where they either produce solely
for self-consumption or sell corn to persons living near their farms. The productivity of traditional farmers is
reported to be 15 to 20 per cent of the level of productivity of commercial farmers.


As local corn production freely competes with corn production in the US, it is reported that prices for corn
produced in Mexico are based on the corn future prices at the Chicago Mercantile Exchange plus international
and national transport costs that would occur when importing corn from the US minus cost for local transportation
from the production to the consumption point, which would not occur in the case of imports. This formula clearly
reflects the interchangeability of US and Mexican price from a demand side perspective. A recent study on this
issue concludes that these fears were well founded and that until the price peaks of agricultural products during
the recent food crisis, subsidised corn from the US eliminated for the lowest productivity smallholder in Mexico
any positive income from the sales of corn in the market place and forced them to retreat into subsistence.


There is an increasing use and dependency of commercial farmers on hybrid corn seeds and the market remains
highly concentrated to date with Monsanto holding a dominant position. This position was strengthened by the
liquidation of PRONASE in early 2000s as, according to a recent study, 95 per cent of the hybrid seeds planted
in 2009 were produced solely by Monsanto and Pioneer. In contrast to the large number of corn producers in
Mexico, corn processors GIMSA, S.A.B. de C.V (GIMSA) and Grupo Minsa SAB de CV (Minsa) have an estimated
market share of around 97 per cent. In such concentrated market, corn processors could take advantage of their
superior market power to pay less than international prices to local corn producers while charging international




xx mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


prices to local customers pressurize small domestic corn producers without storage or alternative buyers
or only honour favourable contractual obligations. Even in the absence of abusive practices by a dominant
company, which would be prohibited by competition law, highly concentrated markets are characterised by less
competition compared to less concentrated markets and can have a negative impact on prices and product
innovation. Continuing to actively enforce the Ley Federal de Competencia Económica in the agricultural sector
would help to address certain of the possible competition issues affecting corn production and processing. In
particular, continuing to vigorously assessing mergers that affect those agricultural markets that are already highly
concentrated will prevent further concentration through external growth.


Conversely, the Mexican market for agrochemicals is composed of more than 50 players and has been described
as highly competitive. However, as regards the key ingredients for potassium fertilizer, recent research suggests
the existence of a worldwide operating potash cartel which, although operating outside of Mexico, would have a
clear impact on the prices of potassium fertilizers in Mexico. With respect to the producers of agrochemicals that
are active in the production of active substances, (ii) the manufacture of the formulation from active substances
and inert ingredients, and (iii) the packaging of such formulations, a study from 2005 finds that at the time 75 to
80 per cent of the overall market were controlled by only six companies: Syngenta, Bayer, Monsanto, BASF, Dow
and DuPont. This relatively high level of concentration on the international level suggests that it may be worth
assessing the Mexican market for agrochemicals in more detail.


Concentration of market power, in both buyer and seller, given oligopolistic behaviour in Mexico’s agrifoods
sector, distorts markets and prices, which impacts negatively on the millions of ‘price-taking’ asset-poor farmers
and small- to medium-scale agritrade entrepreneurs. It is therefore imperative for the development of ‘new’
approaches to national competition policy that addresses the inconsistencies and the negative impacts of market
power concentration on both producer and consumer welfare. Enforcement of transparency and accountability
is central to this process. In this connection, apportioning of benefits and costs between the participants along
the different agrifoods value chains, and procedures and policies in that trading relationship. Further, in order to
restore some balance in the value chain the establishment and strengthening of producer organisations such
as cooperatives or farmers associations through information, incentives, and appropriate regulation should be
encouraged; easy and affordable access to market intelligence and price information, through market information
system that is accessible to smallholder, should be set up; and local rural and urban markets need to be better
integrated. Smallholder associations/cooperatives could also invest in storage facilities, which would allow for
certain flexibility when selling their harvest. Further, advocacy measures targeted at smallholders could increase
their capacity to denounce of anti-competitive conduct from which they suffer and to provide the CFC with the
required information to start an investigation.


the potential of bioenergy


The promotion of biofuels in conjunction with the agricultural sector in Mexico can help enhance income
opportunities and improve access to energy services. Mexico’s policies supporting sustainable development
open significant business and job opportunities for biofuels and bioenergy. In particular, residue streams from
agriculture can enhance value chains of agricultural products. This could considerably help rural areas improve
economic diversification while supporting a national transition to a low-carbon economy.


The use of residual by-products of agriculture to produce biofuels can add value to the lifecycles of agricultural
goods whilst addressing energy needs in rural areas. The large availability of agricultural residues in Mexico
improves prospects for the production of biofuels using low-cost, non-edible feedstocks. Other co-benefits
can also be tapped, such as employment creation, income generation and alternative energy solutions, while
safeguarding food security in Mexico. Potentials are estimated for the production of bioelectricity, biogas and
second-generation liquid biofuels using residue streams from the industrial processing of 13 agricultural products
in Mexico (corn, sugarcane, beans, wheat, rice, sorghum, coffee, egg, milk, beef, pork, poultry and fish). The use
of harvest residues as a feedstock was not considered due to their role in protecting soils against erosion and
their use as a natural fertilizer.




xxiexecutIVe.summaRY


Energy potentials considering residues from the 13 selected products only show a large under-utilized and
untapped potential: bioelectricity could produce 10.5 per cent of the yearly national electricity consumption
in Mexico; 2nd generation bioethanol could replace 6.3 per cent of gasoline used (in energy terms); biodiesel
produced via biomass-to-liquid technologies could replace 23.2 per cent of diesel demand; and biomethane
could meet up to 14 per cent of natural gas demand in the country.


By integrating energy and agricultural production, estimates suggest significantly increased income-generation in
rural areas. By considering residues from the 13 agricultural products analyzed, the production of bioelectricity,
bioethanol and biodiesel could generate between USD 2.2 and 4.1 billion in additional revenue for Mexican
agriculture. Biogas potentials could add another USD 234 million to revenue earnings.


The production of biofuels from agricultural residues could also provide important net employment opportunities
in Mexico, including from the development of bioelectricity (direct and indirect), bioethanol, biodiesel and
biogas. These jobs would provide better worker wages and offer higher-skilled employment opportunities than
the current average in Mexican agriculture. While the average revenue per job created in the entire Mexican
agricultural sector is USD 9.020 per employee, the equivalent in bioenergy has been estimated to average USD
57.400 per employee. Since many of the products analyzed are also cultivated in smallholder systems with low
remuneration, income diversification arising from the additional bioenergy revenue streams could help to reduce
rural poverty, seasonal fluctuations in agricultural employment and income, and rural emigration.


However, before these potentials can be realized, many regulatory and technological hurdles need to be overcome.
The legal framework for biofuels in Mexico has advanced since the publication of the National Biofuels Law in
2008. While it has prompted an interest in first-generation biofuel production, little attention has been paid to the
use of agricultural residues to produce biofuels or to foster technological options for 2nd generation biofuels.
Demand-pull instruments have been based on public procurement mechanisms that focus primarily on first
generation anhydrous ethanol, without including provisions to encourage second generation biofuel development
and production. The new strategy for anhydrous ethanol blending in the country calls for the company Petróleos
Mexicanos (PEMEX) to procure indicative amounts of ethanol to be blended into gasoline starting in 2012.
However, there are currently no foreseen minimum purchase requirements on biofuels produced from residues.


Moving beyond the current focus on first generation biofuels is very important. In order to tap the wealth of
resources existing in agricultural residues, the country may need a comprehensive framework to accelerate
technology development and demand for biofuels produced from residues. Since second generation biofuels
are not yet produced at commercial scales, the Mexican government has made efforts to support research, as
well as development and transfer of technologies in the sector. A number of programs are in place to support
rural investments and R&D efforts in biofuels activities, notably in biogas projects from anaerobic digestion. Even
as the government has sought to facilitate communication about existing instruments supporting production,
storage, transport and retail of biofuels, it remains unclear for producers which programs are best suited to
support development of biofuels made from agricultural residues. That, coupled with the lack of foreseeable
market opportunities for advanced biofuels in the country, leads to market uncertainty and discourages private
investments in research and development.


Clear strategies to bring down costs and investment risks, as well as to promote research and deployment of
second generation biofuel technologies, both indigenously and in cooperation with other countries, will be critical
for the realization of the potential economic gains identified in this Outlook. In addition, international cooperation
will be important to meet initial R&D costs, as well as to generate markets of sufficient size to exploit available
economies of scale. For that, Mexico can benefit from its ongoing biofuel partnerships in the Mesoamerican
region, and from cooperation with countries and regions engaged in advanced biofuels research and deployment,
such as the United States, Brazil and the European Union.


The institutional dimension also deserves attention. The rural policy approach in Mexico has sought to promote
dialogue and cooperation between different government ministries. An inter-ministerial working group composed
of Ministries of Energy, Agriculture, Economics, Finance and Environment has been established to define public
policies for biofuels. While a similar inter-ministerial structure has been set up to cater for rural policy matters, the




xxii mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


role of the energy ministry in the later has been unclear. For the realization of an integrative approach between
agriculture and biofuel production from residues, coordinated policies and common funding schemes will be
important, especially SAGARPA and the Ministry of Energy (SENER).


Mexico’s territorial heterogeneities call for solutions which are flexible enough to accommodate different residue
streams and produce different outputs to meet local energy demand, be it for transport, cooking or electrification
needs. In addition to the 13 agricultural products analyzed, policies and incentives should thus support production
from a wider spectrum of residues, including forestry and municipal waste.


If agricultural policy objectives including reform of existing rural investment programs, investment in research
and development, expansion of rural infrastructure; diversification of rural incomes, collectivization of atomized
smallholders, are met, then a second generation biofuels industry is not only attainable but represents a “low-
hanging fruit” that can quickly result in significant development gains.


conclusions


In conclusion, it is evident that the agriculture sector in Mexico can play an even greater role with respect to food
and energy security, trade growth, poverty alleviation and employment creation. The appropriate policy measures
to strengthen the agricultural sector depend on the specific objectives identified by policy-makers. Policies to
reduce poverty and migration from rural to urban areas may differ from those that increase export revenue or
maximize agricultural output. A stated objective is to use the existing policy space with a view to enhancing
Mexico’s benefits from its agricultural sector including in increasing the number of jobs in the sector, reduce
dependency on imports and promoting exports in agriculture. Priorities should be determined and an integrative
approach to agriculture-trade-energy policies is highly recommended with a view to achieving social, economic,
trade and energy goals. It is fundamental to recognize that that any given set of agricultural policies can address
issues across the range of topics discussed in this Outlook. It is important that Mexico should be cognizant of
and harness the potential of agriculture and its contribution to development, and in particular as a source of
employment and income creation in rural areas.


It is important to note the need for further research and analysis to complement this Outlook. Whilst many
stakeholders were consulted in order to facilitate the completion of this work, it is acknowledged that this
preliminary analytical effort should be followed by a more in-depth research with national institutions in order to
generate specific policy recommendations For instance, it should be recognized that the diagnosis needs to
be augmented with further work carried out in the field and that widespread stakeholder engagement needs to
take place before policy recommendations can be drawn. Moreover, there are obvious extensions to aspects
of this Outlook that would contribute to a wider agricultural policy reform such as on the competitive conditions
in sectors other than corn, or a more comprehensive energy policy. Furthermore, as the findings of the Outlook
are preliminary in nature, it would certainly benefit from a wider validation process among relevant stakeholders
in Mexico.


In going forward, UNCTAD can provide support to Mexico in terms further deepening of the diagnosis, technical
assistance and capacity building, as well as support the implementation and strengthening of certain measures
linked to agriculture development, and trade and related areas. UNCTAD could also help facilitate an exchange
of views among national stakeholders, as well as foster discussion of potential measures for implementation that
enhance agriculture development in Mexico.




xxiiiIntRoductIon.to.the.outlook


INTRODUCTION TO THE OUTLOOk


This work on Mexico’s agriculture development perspectives and outlook (Outlook) is the result of an overall
institutional response by UNCTAD to a request made by SAGARPA (Secretaría de Agricultura, Ganadería,
Desarrollo Rural, Pesca y Alimentación, or Ministry of Agriculture, Livestock, Rural Development, Fisheries and
Food) to address the issue of Mexican agricultural development in the medium to long term with an integrated,
holistic approach. It represents collaboration between UNCTAD’s Division on International Trade in Goods and
Services, and Commodities, and the Special Unit on Commodities, and the Government of Mexico.


The Outlook addresses different sectors affecting key agriculture outputs that are of strategic importance for
Mexico, as well as encompassing both macroeconomic and microeconomic issues with links to trade policy
and trade agreements, agriculture commodities, competition and competitiveness in agriculture, including food
security, and agriculture and energy security. The Outlook also identifies complementary measures and enabling
policies, such as infrastructural investment, research activities and trade facilitation. Furthermore, the Outlook
demonstrates a close integration with the national development outlook of Mexico, which ensures an ongoing
consistency with overall national development priorities, including poverty reduction, which is a major concern
particularly in the rural areas. It will endeavor to contribute to improving the Mexican economy and development
perspectives from the perspective of the agriculture sector.


Extensive primary research has been carried out to facilitate this diagnosis, including data collection, numerous
videoconferences with key stakeholders, interviews with many stakeholders within the Mexican agricultural
sector and various Mexican government agencies coordinated by the SAGARPA, all with the valuable support of
the Mexican authorities and the Permanent Mission of Mexico to the United Nations in Geneva.


In 2011, more than a fifth of Mexico’s population lived in small, rural localities and despite a downward trend at
a national level, more than half of the rural population is employed in the agricultural sector. In these localities,
average income is 3,800 pesos compared with 10,200 pesos in large communities and 61 per cent of the rural
population was classified as poor, in comparison to 45 per cent at the national level. Although fundamental to
rural employment, agriculture, forestry, fishing and agribusiness activities account for less than four per cent of
Mexican GDP. It is in this context that the diagnosis was undertaken and it is these statistics, in part, that this
Outlook aims to address. The aim of this Outlook is not only to provide extensive analysis and a comprehensive
discussion of the agricultural sector in Mexico but also to provide realistic policy recommendations that provide
workable solutions to outstanding issues within the agricultural sector. It is important however that agricultural
development is regarded as an opportunity within the Mexican economy and that SAGARPA can, and indeed
must, be an integral part of the reformation process and the continual evolution of Mexican agriculture.


The Outlook is organized in the following manner:


The first chapter of the Outlook discusses trade and trade policy issues. Recent developments in the trade of
agricultural products are examined. A disaggregated analysis elucidates on the structure of trade, highlighting
changes in the composition and direction of trade flows, and contributory factors are identified. It also explores
the link between changes in trade to Mexico’s food self-sufficiency and employment changes in the agricultural
sector. Further, this chapter examines Mexico’s agricultural trade policy, recognizing the importance of Mexico’s
participation in the NAFTA agreement, and the influence on recent trade developments. It also deals with the
potential effects of standards and measures, specifically SPS and TBT, on Mexico’s agricultural sector, the link
between trade policies and developments in the agricultural sector and a general equilibrium analysis of potential
policies to strengthen the agricultural sector. Lastly, the chapter concludes with suggested policy options and
recommendations in order to enhance Mexico’s benefits from its agricultural sector.


The second chapter of the Outlook provides an agricultural commodity policy review for Mexico, identifying
strategies for enhancing agricultural commodity production, competitiveness and trade, such that these
commodities act as drivers for growth and stimulate inclusive development (including linkages, poverty reduction
and food security). The Outlook notes that the agricultural sector’s multi-functionality and its intricate linkages with
other productive sectors of the economy offers solid prospects for sustainable livelihoods and poverty reduction




xxiv mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


for Mexican farm families. Further the sector is the principal depository for Mexico’s rich and diverse cultures,
history, landscapes and natural capital. However, agriculture’s declining importance, both in terms of GDP and
merchandise exports, pose profound impact on the prospects of Mexico’s broad-based economic growth and
sustainable development. It is prudent, therefore, to ‘get it right’ with both public and private policy reforms
and actions so that the sectors’ longstanding problems – e.g. poor infrastructure, lack of support services (e.g.
access to finance and credit), economies of scale, declining terms of trade, rising input costs (e.g. fertilizers), low
and declining public investment, economic marginalization of the sector, etc. – are addressed comprehensively,
so that agriculture regains its rightful place in Mexico’s economic and development agenda now and into the 21st
Century.


The third chapter of the Outlook focuses on competition issues relating to the Mexican agriculture sector. It
is noted that that in many developing countries the issues of food security and large scale employment in
the agricultural sector present significant challenges to enacting and enforcing competition policy. Although a
number of agricultural products are identified as having a significant economic contribution this chapter restricts
itself to the in-depth analysis of the production and commercialization of corn. Within in this context, the benefits
of competition are outlined as well as considerable public and private restrictions. Particular focus is paid to the
differing degrees of concentration at different levels of the agricultural value chain. Further, the chapter discusses
the manner in which issues can be addressed through the existing competition law and policy system, whilst
highlighting experiences from other countries in order to explore additional measures.


The fourth chapter offers a complementary approach on the role of biofuels for the Mexican agricultural sector.
Current Mexican agricultural policies regarding sustainable development present a considerable economic
opportunity for biofuels and bioenergy that employ residue streams from agriculture. Not only would these
industries deepen value chains of agricultural products, expand opportunities for rural job creation and enhance
income opportunities for people in rural areas but access to energy services would be greatly improved, often in
areas where it is lacking. This chapter analysze the application of technologies that would make a considerable
contribution to increased economic diversification in rural areas while promoting and supporting the move to a
national low-carbon economy.


The final section of this outlook offers a condensed summary of the conclusions arising from the analyses
presented in the four chapters of the Outlook. It serves to highlight that agricultural development in Mexico is a
complex of interactions that requires a holistic policy response, insofar as policy will have both direct and indirect
effects to many parts of the agricultural economy and the population that are dependent on the sector.




1chaPteR.I:.agriculture trade policy issues for mexico


cHaPter i


AGRICULTURE TRADE
POLICY ISSUES


FOR MEXICO




2 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


A. INTRODUCTION
Mexico has a large rural territory and population1 - the
largest population living in predominantly rural areas in
the OECD2. Farm employment, however, has dropped
dramatically in recent decades. Agriculture accounts
for about 14 per cent of employment in Mexico,3
down from more than 25 per cent in the early 1990s.
Furthermore, agriculture contributes only about 4 per
cent to its GDP which is half the level it contributed two
decades ago. Rural poverty is high with 61 per cent of
the people in rural areas living below the national rural
poverty line, compared to 46 per cent in urban areas.4


This development coincides with a trade policy that
has led to much more open markets, especially
within the NAFTA region, and significantly increased
trade in agricultural products. Although a shrinking
agricultural sector is not uncommon during the course
of development, the situation of the agricultural sector
in Mexico has been found unsatisfactory in terms of
employment and it has been argued that Mexico’s
external trade relations have an adverse impact on
the agricultural sector in Mexico, especially on the
production of basic food products. Particular concerns
of producers in Mexico are subsidies in some of its
major trading partners and technical standards. The
latter is a barrier on their exports while a weak capacity
to enforce and verify application of quality regulations
on imports is perceived to create unfair competition
with low quality and cheap imports as well as lack of
consumer protection.


Due to the heterogeneity of the agricultural sector in
Mexico, the impact of trade policy changes varies
for different groups of farmers and consumers. In
some areas, predominantly in north-western parts of
the country, larger commercialized farms operate. In
central and southern states farms are often smaller
and often produce for subsistence. The relative
importance of products for big and small farms varies
as well. According to Prina (2010), for smaller farms
fruits and vegetables are relatively more important than
for larger farms for which maize is more important.
Chapter I provides a comprehensive discussion of the
agricultural sector in Mexico.


This Chapter examines trade and trade policy issues.
Section B describes the recent development of
agricultural trade. Both exports and imports have
increased significantly in recent years. A disaggregated
analysis reveals that the composition of trade has
changed as well. Trade with its largest trading partner,


the US, has increased and more staple crops and
meats flow south and more beverages, seasonal fruits
and vegetables flow north. It is likely that NAFTA has
contributed to this development. Due to this increasing
specialization has the self-sufficiency ratio declined
for some essential products. If this is a concern for
the Mexican government, potential measures could
be discussed at the political and technical level.
The section attempts to link the changes in trade
to Mexico’s food self-sufficiency and employment
changes in the agricultural sector.


Section C examines Mexico’s agricultural trade policy.
Although this report is not focusing on NAFTA, due to
the weight and likely impact of trade with the US this
agreement plays an important role in the section on
trade policy as well as in the section describing recent
trade developments. The potential effect of standards,
specifically SPS and TBT, as well as other measures of
Mexico and its major trading partners, including NTMs
and subsidies, on Mexico’s agricultural sector is the
focus of Section D. The link between trade policies
and developments in the agricultural sector is analyzed
in Section E. Section F concludes and attempts to
develop policy options and recommendations with a
view to enhance Mexico’s benefits from its agricultural
sector including in increasing the number of jobs in the
sector and promoting trade in agriculture.


B. AGRICULTURAL TRADE


1. Aggregate agricultural
trade


Total merchandise exports were about US$ 298 bill.
and imports US$ 301 bill. in 2010. The United States
is by far the main trading partner. More than 80 per
cent are exported to the US. Import sources are more
diversified with the US accounting for about one half
of all merchandise imports.


Agriculture5 makes up about 6 per cent of Mexico’s
merchandise exports (about US$ 17 bill.) and less
than 7 per cent of its imports (US$ 21 bill.) in 2010
(Figure I.1). Agricultural exports and imports are
highly concentrated towards the US, accounting for
78 per cent and 74 per cent of its total merchandise
exports and imports, respectively, in 2010. The
share of agricultural imports sourced from the United
States increased before 1993 to a level of around
three-quarters (74 per cent in 1993) and fluctuates
since then around that level (Figure I.2). The share of




3chaPteR.I:.agriculture trade policy issues for mexico


Source: UN Comtrade


Imports Exports


.


0


5


10


15


20


25
19


90


19
91


19
92


19
93


19
94


19
95


19
96


19
97


19
98


19
99


20
00


20
01


20
02


20
03


20
04


20
05


20
06


20
07


20
08


20
09


20
10


Figure I.1: Mexican agricultural imports and exports, in US$ bill


Source: UN Comtrade


World US


0


5


10


15


20


25


19
90


19
91


19
92


19
93


19
94


19
95


19
96


19
97


19
98


19
99


20
00


20
01


20
02


20
03


20
04


20
05


20
06


20
07


20
08


20
09


20
10


Figure I.2: Agricultural imports from the world and the US in US$ bill
.Figure I.2: Agricultural i ports fro the world and the US, in US$ bill




4 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


Partner country
Export share


(%)
Share of Imports from Mexico in total


imports in partner country (%)


United States of America 77.8 15.4


European Union 4.6 0.2


Canada 3.4 4.2


Japan 3.1 1.1


Venezuela 1.3 1.6


Guatemala 1.2 11.0


China, Hong Kong 0.6 0.3


Australia 0.6 1.2


El Salvador 0.6 6.8


Colombia 0.5 2.5


Costa Rica 0.5 8.1


Honduras 0.4 5.2


Panama 0.4 5.1


Chile 0.3 1.6


Cuba 0.3 3.3


Table I.1: Export concentration of Mexico’s food exports and Mexico’s import share in total imports, 2010


Source: UNCTADStat.


exports to the United States decreased from values
between 83 per cent and 89 per cent between 1991
and 1995 to the current level of 78 per cent. Thus,
the share of agricultural trade with the US has not
significantly increased since the early 1990s, though,
the composition of trade has changed and for certain
staple food and meat products the share of US
imports has increased significantly.


Trade with Canada has been growing disproportionately
but remains at a low level. The share of imports from
Canada in total Mexican agricultural imports grew
from 3 per cent to 6 per cent between 1991 and
1995 to 8 per cent in 2010. The share of exports to
Canada increased from 1 per cent to 3 per cent. Due
to the increasing share of imports from Canada has
the share of total agricultural imports from NAFTA
markets increased slightly from 79 per cent to 82 per
cent since the implementation of NAFTA began in
1994 (Figure I.3). The total share of exports to NAFTA
markets decreased from 90 per cent to 81 per cent.
The European Union is the third largest market for
imports and the second largest market for exports
from Mexico, followed by Canada and Japan. These
four destinations account for about 90 per cent of
Mexico’s agricultural exports (Table I.1). Source: UNCTADStat


United States of
America


Canada


European
Union
(EU)


Chile


China


Others


Figure I.3: Imports of agricultural products in 2010




5chaPteR.I:.agriculture trade policy issues for mexico


The United States is by far the most important market
for Mexico’s agricultural exports and Mexico has a
significant market share in US’ imports of 15 to 17
per cent. In all other markets Mexico has a very low
market share in its partner countries’ imports except
perhaps in Guatemala where Mexico accounts for 11
per cent of its total imports.


Mexico became a net-food and animal product
importer during the 1980s. It had been a net exporter
before. The rise of Mexico’s agricultural imports in
recent years is significant and in the upper range of
other countries’ average import growth, though, not
extreme among developing countries. Since 1995 to
1997, Mexico’s imports increased by 201 per cent
until 2008 to 2010 and world imports of agricultural
goods increased by 130 per cent in US$ nominal
value terms.6 During the same period imports into
e.g. Brazil increased by 26 per cent, Chile, 207 per
cent, Colombia 124 per cent, Guatemala 278 per
cent, Peru 146 per cent and Turkey 147 per cent. The
total low and middle income countries import value
increased by 238 per cent between 1995-1997 and
2008-2010.7 As seen from the discussion of the share
of agricultural imports from the US, Mexican growth
rates of imports from the world and from the US are
very similar for agricultural products in Mexico (201
per cent and 199 per cent, respectively).


Aggregate agricultural exports to both the world and
the US have also been dynamic. For the period 1995-
97 to 2008-10 exports to the world grew 171 per cent
and to the US 170 per cent – thus less than imports.
The relation between import and export growth during
the recent two decades in Mexico depends on the
exact reference periods that are taken from the early
1990s until the late 2010s. Due to the overvaluation of


the Peso in the early 1990s the results may be biased
and the import growth underestimated if a starting
period before 1995 is taken.8 Taking the period 1991
to 1993 as the base period reveals that import growth
was lower than export growth (Table I.2).


Regional trade agreements (RTAs) usually lead to
trade creation and diversion effects, resulting in a
higher share of intra-RTA trade. Mexico’s imports
from Canada and the US have increased slightly from
79 per cent to 82 per cent (Table I.3). United States
imports from Mexico have increased from an import
market share of 11 per cent to 17 per cent between
1993 and 2010 and Canada’s share of imports from
Mexico from 2 per cent to 4 per cent. This confirms
the trade creation effect. The decreasing share of
Mexico’s exports to the NAFTA markets is explained
by the lower import growth rates in Canada and
the US and does not reflect loosing market shares.
However, the Mexican market share in Canada is still
very low.9


Reading example: 5 per cent of Mexico’s total imports
are from Canada; 8 per cent of US’ total exports are
exported to Mexico (US reporter, Mexico partner,
column exports).


To summarize, both aggregate agricultural imports
and exports have increased significantly in Mexico
with a slightly higher increase of imports if the base
period starts after the Peso crisis. Trade with the US is
dominating accounting for some three-quarters of its
agricultural trade. Mexican agricultural imports were
always higher than its exports since 1993 with both
the world and the US (except in 1995). Trade with
NAFTA partners was slightly more dynamic indicating
a small trade creation and trade diversion effect.



1995-97
US$ 1’000


2008-10
US$ 1’000


growth
%


UNCTADStat (SITC All food items) Exports 6'339'952 16'506'172 160


Imports 6'062'387 19'558'910 223


UN Comtrade (Def. WTO agriculture) Exports 5'947'594 16'141'772 171


Imports 6'971'344 20'988'250 201


1991-93 / 2008-10


UN Comtrade (Def. WTO agriculture) Exports 3’274’966 16'141'772 393


Imports 5’547’508 20'988'250 278


Table I.2: Agricultural exports and imports of Mexico for different periods and different data sources/definitions
(in US$ 1’000)


Source: UN Comtrade and UNCTADStat




6 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


2. Product specific trade


Liberalization of agricultural trade within the NAFTA
implementation period coincides with a changing
composition of traded agricultural goods with
more staple crops and meats flowing south and
more beverages, seasonal fruits and vegetables
flowing north. In that sense, NAFTA’s liberalization
of agricultural trade appears to have produced the
“expected” results (Wise, 2009). The major imports
from the US are cereals and soybeans meal for feed
and meat and byproducts for human consumption.
Table I.4 reflects the increase of imports of cereals and
meat from an already high share of those products in
total imports from the US in 1993.10


Notwithstanding the growth of aggregate imports
which is basically in line with many developing
countries’ growth of agricultural imports, imports of
some particularly sensitive products such as corn,
rice, beef, pork, poultry and beans are partly very
high. For all these products the US market share is
very high and for many of these products has it been
increasing since 1993. Imports of maize are 670 per
cent higher in 2008-2010 than they were in 1991-
1993. Almost all of the maize is imported from the US
(Table I.5). Similarly, beans imports have increased
by 853 per cent. Imports of wheat from the world
have increased by less, 192 per cent, but the share
of imports from the US increased from 58.9 to 76.1
per cent, showing that imports from the US have
increased disproportionately. Pork and poultry meat
import growth was also high at 664 per cent and 390
per cent, respectively.11


A concern that has been raised is the increase of
imports of animal parts, for example chicken parts
in particular thighs and legs, not meeting the taste of


exporting countries’ consumers at low prices. This


is a serious problem that many developing country


producer face. In Mexico, a concern regarding sanitary


issues has not been raised. Chicken is an example


but the same practice holds for other animal products


such as pork where bacon is kept in the exporting


country and other parts are exported.


Mexico’s agricultural exports to the US are estimated


at $13.6 bill., accounting for about 17 per cent of the


total value of US imports. The major exports are shown


in Table I.6. Horticulture products such as tomatoes


and fruits are the main exports. Beer exports have


increased significantly while the importance of live


cattle has decreased, though it remains important.


Shrimps and prawns are also major exports.


Mexico’s exports of organic products are about 3


per cent of its total exports (in 2007), predominantly


exported to the US. The most significant organic


export crop is coffee, followed by vegetables and


fruits as well as cocoa. Organic livestock production


in Mexico is still in the early stages of development.12


To summarize, the changing composition of


agricultural trade reveals a higher trade specialization


with more staple crops and meat flowing south and


more seasonal fruits and vegetables flowing north.


This is confirmed by a trade specialization index


calculated by Dimaranan, Hertel and Keeney (2003)


cited in Stiglitz and Carlton (2005, p. 221). Mexico


has actually become more dependent on imports in


program crops and meat/livestock between 1996-75


and 1986-98.


Reporter Partner
Imports Exports


1993 % 2010 % 1993 % 2010 %


Mexico United States 74 74 89 78


Canada 5 8 1 3


NAFTA 79 82 90 81


United States Mexico 11 17 8 12


Canada Mexico 2 4 2 4


Table I.3: Market shares of agricultural exports and imports in NAFTA


Source: UN Comtrade




7chaPteR.I:.agriculture trade policy issues for mexico


HS 2 digit Product 1993 % 2010 %


10 Cereals 15.4 19.0


02 Meat and edible meat offal 13.5 17.7


12 Oil seed, oleagi fruits; miscell grain 14.4 12.8


52 Cotton. 8.0 6.8


23 Residues & waste from the food industry; feed 4.9 6.0


15 Animal/veg fats & oils 7.3 5.4


04 Dairy prod; birds' eggs; natural honey 5.8 5.4


21 Miscellaneous edible preparations. 4.2 4.8


17 Sugars and sugar confectionery. 1.9 4.7


08 Edible fruit and nuts; peel of citron 3.5 3.5


Total agriculture (US$ bill.) 4.3 15.6


08 Edible fruit and nuts; peel of citron 3.5 3.5


Total agriculture (US$ bill.) 4.3 15.6


Table I.4: Top ten Mexican agricultural imports from USA, share in total agriculture imports from US


Source: UN Comtrade.


Imports from the world Share US imports of total imports


Volume Change Value Change Value Value


Average
2008-10


1991-93 to
2008-10


Average
2008-10


1991-93 to
2008-10


1991-93 2008-10


1’000 tonne % US$ mill % % %


Barley 104.4 -1.1 43.3 214.7 68.9 57.8


Beans 129.1 852.6 126.1 1330.0 92.4 90.8


Beef 318.9 70.2 1152.7 198.6 81.1 84.6


Coffee 8.0 218.8 54.8 912.3 45.2 54.6


Eggs 9.9 -10.6 33.2 159.8 82.0 99.9


Maize 8179.6 670.3 1854.6 947.7 99.0 99.3


Milk 309.5 22.4 654.4 91.8 34.9 75.5


Pork 478.4 664.1 843.3 791.5 78.3 90.5


Poultry 642.6 390.2 757.9 506.4 98.5 90.7


Rice 820.7 173.7 345.5 390.8 72.3 99.5


Shrimp 6.1 39.6 33.0 62.2 98.9 3.4


Sorghum 2101.0 -44.4 411.3 -3.9 99.4 100.0


Sugar c. 2.1 -98.3 0.6 -98.1 25.2 84.6


Sugar 4556.5 1031.5 649.7 413.1 43.5 73.9


Tuna 33.9 1121.5 71.2 1451.3 81.1 4.6


Wheat 3323.2 191.7 1006.8 484.0 58.9 76.1


Table I.5: Imports of selected agricultural products


Source: UN Comtrade, SITC classification of products see Annex.




8 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


3. Self sufficiency


Food trade coupled with a country’s production
and consumption determines the dependence on
food imports. The recent food price crisis has raised
concerns over the dependency on food imports.
Furthermore, one notion to decrease exposure to
food insecurity is to increase the self-sufficiency ratio.
Mexico is a net food importer with total food imports
being about 10 per cent higher than corresponding
exports. Exports of fruits and vegetables as well as
beverages are high while on the other hand imports
of cereals, meat and oil seeds are high. The self-
sufficiency ratio varies from product to product and has
changed over time. Calculating self-sufficiency ratios
at the product level is problematic for several reasons,
including due to a lack of consistent and coherent
production and consumption data.13 According to the
FAO who provides data for 102 products is Mexico
self-sufficient for 29 of these products (average 2005-
07). These products are mainly vegetables and fruits
as well as some beverages.


For the products of particular interest, the self-
sufficiency ratio is mainly below one and has decreased
from 1991-93 to 2005-07 (Table I.7). A sharp decrease


has been experienced for beans where Mexico used
to be self-sufficient in 1991-93 and where domestic
production now accounts for 84 per cent of domestic
consumption. For maize, rice and wheat the self-
sufficiency has also dropped significantly. About 28
per cent of the rice production is grown domestically,
a drop from 54 per cent. Among the meat products
where self-sufficiency has declined for all three meat
products, pig meat has experienced the highest
drop. Therefore, the self-sufficiency has declined
considerably for some essential products.


The self-sufficiency ratio confirms the tendency that
production and exports become more specialized
on certain products. The self-sufficiency ratio has
increased significantly for most vegetables such
as tomatoes and many fruits, mostly citrus fruits.
The aggregate ratios for vegetables and fruits have
increased to reach 1.49 and 1.11, respectively, in
2005-07.


Wise (2009) confirms this and shows that between
1990-92 and 2006-08 the import dependency of
Mexico for corn, soybeans, wheat, cotton, rice, beef,
pork and poultry has increased.


HS 2 digit Product 1993 % 2010 %


07 Edible vegetables and certain roots 38.1 30.3


22 Beverages, spirits and vinegar. 7.8 17.0


08 Edible fruit and nuts; peel of citr 12.3 14.9


17 Sugars and sugar confectionery. 1.3 8.7


19 Prep.of cereal, flour, starch/milk; 1.9 5.3


20 Prep of vegetable, fruit, nuts or o 5.0 5.2


01 Live animals 14.3 4.0


21 Miscellaneous edible preparations. 2.3 3.7


18 Cocoa and cocoa preparations. 0.7 3.4


03 Fish & crustacean, mollusc & other 11.2 2.8


Total (US$ bill.) 3.2 13.6


Table I.6: Top ten Mexican agricultural exports to USA, share in total agriculture exports to US


Source: UN Comtrade.




9chaPteR.I:.agriculture trade policy issues for mexico


4. Employment


Agriculture accounts for about 14 per cent of
employment in Mexico14 contributing about 4 per
cent to its GDP. In the early 1990s more than 25
per cent of employment was in agriculture and the
contribution to GDP was almost twice as high as it
is nowadays. In some areas, predominantly in north-
western parts of the country, larger commercialized
farms operate. In central and southern states farms
are often smaller and often produce for subsistence.
Employment in agriculture is very significant in the
poorer southern states: 40 per cent in Chiapas, and
close to 30 per cent in Oaxaca and Guerrero (Scott,
2010). Furthermore, agriculture does not only account
for direct employment in the primary sector but
agricultural production is also linked to employment
in other sectors such as those producing inputs
(upstream, e.g. fertilizer) and those in downstream
sectors (e.g. transport and other services sectors).


Between 1993 and 2010 total agricultural employment
in Mexico declined 28 per cent according to OECD
data.15 In 1993 about 8 million people were employed
in agriculture in Mexico and in 2010 5.8 million (Figure
I.4). These data are unfortunately not disaggregated


by agricultural sectors. Between 1991 and 2007 the
number of small producers has slightly increased
while the number of middle size and large producers
declined by almost 30 per cent. A large majority of
employment in agriculture are seasonal and non-
remunerated (family) workers. In 2007, only 421
thousand workers were permanently employed in
agriculture, similar to 1991. A significant change from
1991 to 2007 is that non remunerated family workers
in agriculture (minus 58 per cent) have been replaced
by remunerated seasonal workers (plus 151 per cent)
(Scott, 2010). A hypotheses discussed by Scott
(2010) is that family members have taken jobs outside
of agriculture in rural areas or migrated.


Wages in agriculture in Mexico have declined during
the last decades, except since 2007, while wages in
other sectors increased. Wages in the primary sector
are about one fifth to one quarter of wages in other
sectors (Scott, 2010; table 2). Income disparity and
poverty remain a challenge in Mexico. Most people
living below the poverty line live in rural areas.16 The
percentage of the rural population living below the
national rural poverty line is 61 per cent.17 This reflects
the low labour productivity in agriculture in Mexico
which is the result of lack of investment and low


1991-93 2005-07


Barley 0.86 0.67


Beans 0.99 0.84


Bovine Meat 0.90 0.84


Coffee 2.32 2.33


Eggs, total 0.99 0.99


Fish, Seafood, total 0.92 0.90


Maize 0.91 0.77


Milk – excl. butter, total 0.75 0.78


Pigmeat 0.90 0.78


Poultry Meat 0.87 0.81


Rice (Milled Equivalent) 0.54 0.28


Sorghum 0.51 0.70


Wheat 0.78 0.54


Table I.7: Self domestic production to domestic consumption ratio


Source: FAO Statistics, balance sheets.




10 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


exico, in million


0


1


2


3


4


5


6


7


8


9


19
93


19
94


19
95


19
96


19
97


19
98


19
99


20
00


20
01


20
02


20
03


20
04


20
05


20
06


20
07


20
08


20
09


20
10


Source: OECD Labour force statistics
Note: Break in 2004


Figure I.4: Employment in agriculture in Mexico, in million


capital intensity of production. See Chapter II of this
publication for a discussion of and ways to improve
productivity.


The relative importance of agriculture to Mexico has
declined as in other OECD and developing countries
(Figure I.5). During the development process,
productivity is increasing and more labour shifts to the
manufacturing or the services sector. In poor countries
agriculture often accounts for 50 per cent of GDP, in
wealthy countries this share is mostly below 10 per
cent. However, the relationship between income growth
and agricultural employment is extremely diverse.
Asia’s development path is mostly characterized by
fast growth with relatively slow agricultural exits, a
“labour-intensive green revolution” (Headey, 2010).
The decline of employment in Mexico appears higher
than in many other countries. According to World Bank
data the share declined between 1990-95 to 2005-10
by 45 per cent; more than in e.g. Brazil, Chile, Malaysia
or Turkey (Table I.8). In the World Bank classification
Mexico is in the upper middle income group where on
average the share of employment in agriculture to total
employment declined by 29 per cent. Furthermore,


the absolute share in Mexico is, with 14 per cent, at
the lower end compared to many other developing
countries in this group.


The structural adjustment of the rural economy with a
declining contribution of agriculture and an increasing
share of non-farm activities has increased significantly
the number of unemployed people in both rural
dispersed and rural semi-urban areas. Furthermore,
significant migration from rural areas to urban areas or
the US indicates a lack of employment opportunities.


It is difficult to identify causality between the loss of
jobs in the agricultural sector and trade and trade
policy changes. Several studies have accused NAFTA
for having had a negative impact on employment in
the agriculture sector in Mexico. Others, however,
point to the increased exports of fruits and vegetables.
Prina (2012) assesses in an econometric study the
impact of NAFTA-induced border price changes of
crops on agricultural employment in Mexico.18 She
finds that increases in the real price of vegetables
are associated with an increase in employment in
the cultivation of vegetables, whereas the drop in the
real price of corn reduces employment in the corn




11chaPteR.I:.agriculture trade policy issues for mexico


Country Average 1990-95 Average 2005-10 Change


Upper middle income 47 33 -29


Brazil 26 19 -29


Chile 17 12 -30


Malaysia 23 14 -37


Turkey 45 25 -43


Mexico 25 14 -45


Table I.8: Employment share in workforce 1990 to 2010


Source: WDI 2011.


,


0


10


20


30


40


50


60


19
90


19
92


19
94


19
96


19
98


20
00


20
02


20
04


20
06


20
08


20
10


Upper middle income


Brazil


Chile


Malaysia


Turkey


Mexico


Source: WDI 2011


Figure I.5: Employment share in workforce, 1990 to 2010


sector. Thus, the sharp increase of imports in cereals
and meat products has had a negative impact on
employment while the increase of exports of fruits
and vegetables as well as certain processed products
has had a positive impact on employment. Linking
the labour intensity with the change in exports and
imports indicates a mixed picture. Exports of fruits
and vegetables, a labour intensive sector, are high
and have increased significantly. About 41 per cent of
the total costs of production are labour costs (Table
I.9). Relatively less labour intensive products such
as cereals are major imports of Mexico. This could
indicate that employment losses due to increased


imports that have potentially replaced domestic
production may have been compensated partly by
increased employment resulting from higher exports
of other products. On the other hand, other labour
intensive products such as oil seeds are also among
major import.


The relative importance of products for big and
small farms varies. According to Prina (2010), for
smaller farms fruits and vegetables are relatively more
important than for larger farms for which maize is
more important. Organic products are predominantly
produced by small-scale farmers with an average of 3
hectares land.




12 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


C. TRADE POLICY
Mexico has undertaken significant agricultural market
reforms. Since the early 1990s Mexico has decreased
its trade barriers, shifted away from commodity
support to more decoupled forms of support and
encouraged market liberalization (OECD, 2006).


1. Multilateral trade
agreement


Mexico is a founding member of WTO and became
part of the General Agreement on Tariffs and Trade in
1986. Mexico has an average bound rate of 44 per
cent and in 2010 an average applied rate of 21 per
cent (simple averages for agricultural products). This
compares to an average applied rate of e.g. 13 per
cent in low and middle income countries, 15 per cent
in OECD countries, and 5 per cent and 11 per cent in
the US and Canada for agricultural products, respec-
tively. Many other countries, however, still have con-


siderably higher MFN agricultural tariffs. Turkey has 43
per cent, for example, and India has 32 per cent. Thus,
Mexico has relatively but not extremely high MFN ap-
plied agricultural tariffs. It has not reduced those MFN
applied tariffs during the last two decades (Figure I.6).


Sugars and confectionary, animal and dairy products
and coffee and tea attract the highest tariffs (Table
I.10). Applied rates are, for all product groups, below
their average bound levels.


The more disaggregated HS 6-digit level confirms that
for most products the applied rates are well below
the bound rates providing Mexico with some policy
space. Mexico has some tariff peaks in agriculture
with a maximum applied tariff of 254 per cent in the
sectors animal products and oilseeds, fats and oils.


For few products applied rates are up against the
bound rates so that Mexico has no possibility to
increase tariffs on those products. This includes
some cereals. The average bound rate of cereals and


Share of labour in total costs


Paddy rice 0.37


Wheat 0.24


Cereal grains nec 0.35


Vegetables, fruit, nuts 0.41


Oil seeds 0.43


Sugar cane, sugar beet 0.38


Plant-based fibers 0.21


Crops nec 0.42


Cattle,sheep,goats,horses 0.21


Animal products nec 0.18


Raw milk 0.19


Fishing 0.09


Meat: cattle,sheep,goats,horse 0.07


Meat products nec 0.05


Vegetable oils and fats 0.04


Dairy products 0.06


Processed rice 0.05


Sugar 0.08


Food products nec 0.10


Beverages and tobacco products 0.12


Table I.9: Labour output ratio in Mexico


Source: GTAP 8, “nec”: not elsewhere classified




13chaPteR.I:.agriculture trade policy issues for mexico


Bound Applied 2010


Animal products 64 41


Dairy products 63 35


Fruit, vegetables, plants 37 18


Coffee, tea 64 37


Cereals and preparations 45 20


Oilseeds, fats and oils 44 17


Sugars and confectionary 119 66


Beverages and tobacco 44 28


Cotton 39 5


Other agricultural products 28 7


All agriculture 44 21


Fish and fish products 35 17


Table I.10: Mexico tariffs by product group


Source: WTO, ITC, UNCTAD World Tariff Profiles 2010


o


Simple Weighted


0


5


10


15


20


25


30


35


40


45


19
91


19
95


19
97


19
98


19
99


20
00


20
01


20
02


20
03


20
04


20
05


20
06


20
08


20
08


20
10


Pe
r c


en
t


Source: UNCTAD Trains


Figure I.6: Average MFN applied tariff in Mexico




14 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


preparations is 45.1 per cent and the average applied
rate in that sector is 19.5 per cent.


Since most imports are under preferential agreements
and MFN tariffs have not been decreased and are
not particularly low in Mexico the significant increase
in imports of cereals and meat products has, in
general, not been caused due to Mexico’s WTO tariff
commitments.


2. Regional Trade
Agreements


Mexico is one of the world leaders in signing RTAs
and is now member of several RTAs with countries in
the region and South America, as well as with several
developed countries. Thirteen RTAs have been notified
to the WTO; and Mexico is signatory to the Global
System of Trade Preferences among Developing
Countries (GSTP).


Regional trade agreements have been notified for Chile,
Colombia, Costa Rica, EFTA, EU, GSTP, Israel, Japan,
Latin American Integration Association (LAIA), Northern
Triangle (El Salvador, Guatemala, Honduras), Nicaragua,
North American Free Trade Agreement (NAFTA), Peru,
and Protocol on Trade Negotiations (PTN).


Trade in agricultural products is, however, relatively
small with many of these partners (see section above).
The RTA with Japan signed in 2004 includes agricul-
tural products, though sensitive products are exclud-
ed, and Mexico exports food products such as toma-
toes, garlic, onions, lemons and avocados. Since 2004
and 2010, Mexico could increase its share in Japan’s


imports only slightly from 1.0 to 1.1 per cent. The RTA
with the EU came into force in 2000 and includes also
agriculture. Mexico was, however, not able to increase
its share of EU’s food imports which remains stable
since 2000 at a low level of about 0.2 per cent. Sen-
sitive agricultural products excluded from the trade
agreement with the EU are one reason for the poor
performance. From Mexico’s 10 most important ex-
port products (at the HS 6-digit level; edible vegeta-
bles such as tomatoes, fruits such as avocados, sugar
products and beverages) only 2 products benefit from
full preferential treatment, i.e. zero tariffs (Table I.11).


The free trade agreement with Costa Rica, that includes
agriculture as well, entered into force in 1995. The share
in Costa Rica’s food imports coming from Mexico has
increased from 1995 to 2000 from 4.0 to 8.5 per cent
and has since then fallen slightly to 8.1 per cent.


Mexico, along with Canada and Japan, expressed
interest in joining the Trans-Pacific Partnership (TPP)
Agreement in November 2011 at the annual Asia-
Pacific Economic Cooperation (APEC) Leaders’
Meeting but have not yet joined the negotiations.19


The North-American Free Trade Agreement (NAFTA)
between Mexico, the United-States and Canada
came into force in 1994. Many tariffs were immediately
eliminated including a broad range of agricultural
products. More than half the value of agricultural
trade became duty free when the agreement went
into effect.20 Because of the sensitivity of agriculture,
the agreement featured an extended implementation
period for sensitive products where tariffs were
phased out over transition periods of 5, 10, or 15


HS code Preferential treatment in EU


220300 No


070200 Yes, but not duty free


220890 No


070960 Yes


080440 Yes


010290 No


170199 No


070990 Yes; many tariffs zero but not all duty free


170490 Yes, but not duty free


090111 MFN duty free


Table I.11: EU preferential treatment of Mexico’s 10 most important export products to the world


Source: UN Comtrade and UNCTAD Trains, 2010.




15chaPteR.I:.agriculture trade policy issues for mexico


years. Sensitive products of US exports to Mexico
included maize, dry edible beans, nonfat dry milk
and high fructose corn syrup. Sensitive products of
Mexican exports to the US included sugar and certain
horticulture products. For maize in Mexico the NAFTA
agreement had a 15 year phase-in period of tariff
reductions to protect the Mexican market from imports
of US maize. Import-sensitive sectors were protected
with longer transition periods, tariff-rate quotas, and,
for certain products, special safeguard provisions.
The phase-in was completed in 2008 and free trade
prevails for all agricultural products.21


In NAFTA agriculture has not been negotiated
trilaterally. While the US – Canada agreement allows
for exceptions and quotas on sensitive products such
as sugar, diary and poultry has the US – Mexico agreed
on a comprehensive liberalization schedule.


It is likely that the comprehensive liberalization
schedule with the US has had an impact on the
increase of imports from the US. The free market
access to the US has most likely also helped Mexican
exporters but the US has in general not very high
tariffs on agricultural goods. The average US applied
MFN tariff is 4.9 per cent compared to 21 per cent
in Mexico. On fruits and vegetables, the major export
product to the US, the average applied MFN rate is
low at 4.9 per cent. In many sectors where the US has
high tariffs, such as in dairy (16.2 per cent) Mexico is
not a major exporter. The preference margin for US
exports to Mexico is 31.1 per cent while the preference
margin for exports from Mexico to the US is with 5.4
per cent considerably lower (Table I.12). Thus, the tariff
preferences through NAFTA had, compared to the
relative value for US farmers, a relatively lower value
for Mexico’s agricultural producers.


The following table presents the average applied tariffs
on agricultural products in NAFTA.


Similarly, the preference margin for trade with Canada
is higher for exports from Canada to Mexico (16.7 per
cent) then for exports from Mexico to Canada (5.8 per
cent). The average applied tariffs on agricultural trade
between NAFTA members is not strongly preferential for
Mexico. The difference between the applied rates within
the NAFTA region and with the non-NAFTA members
varies little for Mexican exports. There are exceptions.
US imports of processed tobacco and processed
ground-nuts were protected by tariffs of 77 and 164 per
cent of the product price respectively. Mexico benefits
from preferences for those agricultural products to
access the US market related to the rest of the world.
On tobacco and tobacco products, however, Mexico
exported in 2010 only US$ 12 mill., down from US$ 27
mill. in 1995, while total imports of tobacco products
increased from US$ 1 mill. to US$ 58 mill. For processed
ground-nuts, the preferential rates for Mexico exports
are around 50 per cent of the MFN rate.


The NAFTA agreement includes also provisions in
other areas than tariffs. Some of these provisions
are discussed in the section on non-tariff measures.
Although tariffs have been phased out, there are no
limitations in the agreement concerning the use of
domestic support.


Mexico also benefits from preferential tariffs in the
EU market. The average preferential tariff (effectively
applied tariff) is 2.4 per cent compared to 7.2 per
cent had the same exports faced MFN rates. Exports
to Japan face a preferential tariff of 9.7 per cent
compared to a potential MFN level of 20.1 per cent.22
Likewise, Mexico offers trade preferences to its trading
partners with which it has a FTA.


Import country Export country Preferential tariff % MFN rate for export basket %


Mexico United States 0.0 31.1


Canada 0.0 16.7


United States Mexico 0.0 5.4


Canada Mexico 0.0 5.8


Table I.12 : Average applied tariffs in agriculture between the US, Canada and Mexico


Source: UNCTAD TRAINS Database, 2009 and 2010. MFN rate is the trade weighted average MFN tariff for the actual export
basket from the indicated export country. Preferential tariff is the theoretical rate since some products may face the MFN
level if they do not fulfill e.g. rules of origin requirements.




16 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


3. Current domestic support
policies


subsidies in the us


Total support for US agricultural producers has risen
and fallen since NAFTA was implemented in 1994.
The latest figure for producer support, according to
OECD estimates, is $26 billion. This is currently about
7 per cent of the total value of production, which is
around $339 billion. The decline shown in Figure I.7 is
attributable in part to an increase in commodity prices.
As some of the payments are countercyclical, in times
of high prices payments are reduced.


Total domestic support for US agriculture in 2010
was still significant, totally $133 billion. However, little
of this was paid to producers according to output
($1.9 billion) or input use (($9.6 billion). These are
the categories that are considered most production
distorting.


A larger component of support is through marketing
and promotion. This includes food stamps, now
called the Supplemental Nutrition Assistance Program


(SNAP), which provides targeted income support
for low income families. Most of the $70 bill. general
service support estimate and the $38 bill. consumer
support estimate is non-product specific food stamp
program support. Almost all of the domestic support
is provided by taxpayers rather than consumers.


There are further payments not based on output. These
are so-called decoupled payments. Payments based
on previous production are considered decoupled,
and are, supposedly, non-distorting as they don’t
affect current production. However, if farmers expect
future payments to be rebased on to production in
some future year, they may continue producing in
anticipation. In this way the distortions are locked in.


It is therefore difficult to assess how distorting the
US production subsidies are. A generalization that
production subsidies in the United States are not
highly distorting because little of the support is directly
related to output may not hold, especially not for every
commodity.


Of particular interest is maize, as both Mexico and
the United States grow this crop, and at the signing
of NAFTA Mexican producers were concerned about


0.00


10'000.00


20'000.00


30'000.00


40'000.00


50'000.00


60'000.00


19
90


19
91


19
92


19
93


19
94


19
95


19
96


19
97


19
98


19
99


20
00


20
01


20
02


20
03


20
04


20
05


20
06


20
07


20
08


20
09


20
10


Source: OECD


Figure I.7: Producer support in the US (US$ mill.)




17chaPteR.I:.agriculture trade policy issues for mexico


I. Total value of production (at farm gate) 339’075


II. Total value of consumption (at farm gate) 282’673


III.1 Producer Support Estimate (PSE) 25’551


A. Support based on commodity outputs 1’886


B. Payments based on input use 9’568


C. Payments based on current A/An/R/I, production required 5’638


D. Payments based on non-current A/An/R/I, production required 0


E. Payments based on non-current A/An/R/I, production not required 5’852


F. Payments based on non-commodity criteria 2’608


G. Miscellaneous payments 0


III.2 Percentage PSE 7


IV. General Services Support Estimate (GSSE) 69'849


H. Research and development 2'293


I. Agricultural schools 0


J. Inspection services 1'065


K. Infrastructure 4'297


L. Marketing and promotion 60'018


M. Public stockholding 24


N. Miscellaneous 2'152


V.1 Consumer Support Estimate (CSE) 35'390


O. Transfers to producers from consumers (-) -1'500


P. Other transfers from consumers (-) -1'160


Q. Transfers to consumers from taxpayers 38'050


R. Excess feed cost 0


V.2 Percentage CSE 14


V.3 Consumer NAC 1


VI. Total Support Estimate (TSE) 133'450


S. Transfers from consumers 2'660


T. Transfers from taxpayers 131'951


U. Budget revenues (-) -1'160


Table I.13: Mexico domestic support for agriculture, 2010 ($m)


Source: OECD.


lue




18 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


-2.00


0.00


2.00


4.00


6.00


8.00


10.00


12.00


14.00


16.00


18.00
19


90


19
91


19
92


19
93


19
94


19
95


19
96


19
97


19
98


19
99


20
00


20
01


20
02


20
03


20
04


20
05


20
06


20
07


20
08


20
09


20
10


%


Source: OECD


Figure I.8: Producer support for maize in the US as a percentage of production value


0


50


100


150


200


250


300


1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009


$/t


Mexico USA


Source: FAOSTAT http://faostat.fao.org/site/570/default.aspx#ancor


Figure I.9: Producer prices for maize




19chaPteR.I:.agriculture trade policy issues for mexico


being flooded with cheap imports of maize following
the removal of tariffs.


Domestic support for maize as a percentage of
production in the United States, according to OECD
estimates, is shown in Figure I.8. Product specific
support was very high in certain years and reached 16
per cent in 2005. Since then it has been decreasing
and reached a level close to two per cent in 2010.


Maize producer prices in US dollars are shown in Figure
I.9. Mexican prices were double US prices in 1994
when the NAFTA agreement was first implemented.
Some convergence appears to have occurred in the
first year, but little since then. Prices have generally
moved in the same direction, with the exception of
2008, when US prices fell.


Maize prices have risen in the United States, and
consequently, in Mexico, in part because of US
and EU policies on biofuels. The 2007 US Energy
Independence and Security Act specifies that a
proportion of the maize crop be used to produce
ethanol for use as a fuel. Some 40 per cent of the US
maize crop is diverted for this purpose, according to
the USDA.23 Stocks in 2011 are at their lowest level in
30 years, down to six month’s consumption. This not
only raises the price of maize, but also the prices of
other crops, such as vegetable oils and sugar which
are used in ethanol production, and wheat and coarse
grains which are a substitute as animal feed.


Other products that are important for Mexican
producers are also among the products on which


US support is concentrated. According to OECD’s
Producer Single Commodity Transfers estimate24
mainly crops (maize, wheat, rice, sugar, sorghum) and
milk are subsidized (Table I.14). In 2000 rice had been
subsidized by 37 per cent. Meat producers receive no
support that is directly linked to the production of the
corresponding product.


The data in Table I.14 on US producer support reflect
the countercyclical nature of some of the support,
indicating relatively low levels of support in 2010 and
higher levels in previous years. In 2000, for example,
both refined sugar and milk specific transfers were 50
per cent of the value of receipts from the sugar and
milk production.


To the WTO, product specific domestic support of
US$ 6.4 bill. has been notified by the US for 2008,
the latest available year (de minimis, i.e. support
below 5 per cent of the value of production, and
total AMS). Almost 98 per cent had been spent on
cotton dairy and sugar. Other products such as corn,
rice, wheat, sorghum and meat products received
very little (below de minimis levels) according to the
WTO notifications for 2008. However, a problem for
producers in developing countries is the potential
increase of support in developed countries if e.g.
world prices for commodities fall. Subsidies in the
US are currently well below its commitment levels
at the WTO. Furthermore, trade distorting domestic
support can be shifted between products as there are
currently now product specific commitments. Thus,
high amounts of support can be concentrated on few


1995 % 2000 % 2005 % 2010 %


Barley 29 4 12 4


Beef -0 0 0 0


Eggs 9 0 0 0


Maize 1 13 17 3


Milk 24 50 19 2


Pork -0 0 0 0


Poultry 1 0 0 0


Rice 24 37 6 2


Sorghum 4 14 15 4


Sugar, refined 38 50 44 28


Wheat 39 16 2 6


Table I.14: US producer support for selected products


Source: OECD.




20 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


I. Total value of production (at farm gate) 592'322


II. Total value of consumption (at farm gate) 638'453


III.1 Producer Support Estimate (PSE) 78'553


A. Support based on commodity outputs 21'864


B. Payments based on input use 39'822


C. Payments based on current A/An/R/I, production required 773


D. Payments based on non-current A/An/R/I, production required 3'781


E. Payments based on non-current A/An/R/I, production not required 12'312


F. Payments based on non-commodity criteria 0


G. Miscellaneous payments 0


III.2 Percentage PSE 12


III.3 Producer NAC 1


IV. General Services Support Estimate (GSSE) 10'984


H. Research and development 1'283


I. Agricultural schools 4'845


J. Inspection services 721


K. Infrastructure 2'828


L. Marketing and promotion 915


M. Public stockholding 0


N. Miscellaneous 392


V.1 Consumer Support Estimate (CSE) -21'382


O. Transfers to producers from consumers (-) -20'783


P. Other transfers from consumers (-) -5'444


Q. Transfers to consumers from taxpayers 4'746


R. Excess feed cost 98


V.2 Percentage CSE -3


V.3 Consumer NAC 1


VI. Total Support Estimate (TSE) 94'283


S. Transfers from consumers 26'227


T. Transfers from taxpayers 73'500


U. Budget revenues (-) -5'444


Table I.15: Mexico domestic support for agriculture, 2010 (MXNmn)


Source: OECD.




21chaPteR.I:.agriculture trade policy issues for mexico


products. Due to the absence of any tariffs between
the US and Mexico, any change in the US agricultural
policy has a direct impact on Mexican farmers. For
example, since the beginning of the implementation of
NAFTA three new farm bills were agreed (1996, 2002
and 2008).


In addition, products that do not receive direct
subsidies or only little may be indirectly subsidized
(Starmer et al., 2006) through subsidies on feed. Wise
(2009) argues that beef, pork and poultry have been
implicitly subsidized in the US through this mechanism.


mexican domestic support


Mexico supported its producers according to OECD
information with MXN 79 billion in 2010 (US$ 6.2 bill.)25,
12 per cent of the value of agricultural production,
which is about MXN 592 billion. The total support
estimate, which includes transfers from consumers,
was MXN 94 billion.


The largest items are support based on commodity
outputs and input use. Market price support is
provided primarily to poultry meat and sugar (MXN
5 billion each) and milk (MXN 3 billion). Subsidies
on input use include electricity (MXN 7 billion), price
hedging (MXN 9 billion) mainly on maize, sorghum and
wheat, and fixed capital formation (MXN 16 billion). On
farm services, which includes plant and animal health,
amounted to (MXN 5 billion) in 2010. Expenditure on
research and development is relatively low at (MXN
1.2 billion). During many years in the past, product
specific subsidies on crops were lower in Mexico than
in the US. For instance, maize support was 8.8 per
cent and support on Barley 0 per cent in 2005.


Official data notified by Mexico to the WTO on domestic
support are not available for recent years.26 In 2004,
Mexico reported a total of 1.4 billion of constant 1991
Pesos of product-specific support. Most of this, 954.5
mill. Pesos, falls under de minimis support (i.e. its value
is less than or equal to 10 per cent of the value of
production). The remaining 488.7 mill. Pesos support
on rice, safflower, cotton, coffee and beans, which
was above 10 per cent of the value of production, has
been notified under total AMS support. In absolute
terms, maize received the highest support, 418 mill.
Pesos, which was 29 per cent of the total product-
specific support in 2004.


Scott (2010) also notes that market price support
and output-linked payments have targeted mostly
traditional crops, particularly maize and other grains,


as well as raw sugar and some animal products like
milk and poultry meat. Fruits and vegetables, on the
other hand, have not received significant support,
but would have benefited from the liberalization of
agricultural markets.


4. wTO Doha Round
Negotiations


The Doha Round negotiations were launched in
2001 and agriculture is one of the most important
components of the single undertaking under which
negotiations on industrial and agricultural goods,
services and other issues take place. Until 2012,
no agreement has been reached and the future of
the Doha Round is uncertain.27 Mexico is an active
negotiator and member of the G-20, a group of
developing countries with a relatively wide range of
interests, including offensive and defensive interests.
A common interest of the group was a high level
of special and differential treatment for developing
countries, i.e. favoring a higher ambition for developed
countries in terms of reduction commitments than for
developing countries. Mexico is not a member of the
G-33 group that focuses on defensive instruments for
developing countries such as special products and a
special agricultural safeguard mechanism.


According to the draft modalities text, Mexico, as
a developing country, would have to apply a tariff
reduction formula to reduce bound rates. WTO
members had agreed28 on a tariff reduction formula
that classifies tariffs into four bands and applies larger
cuts for higher tariffs. DCs would undertake a two-
thirds cut of developed countries in the corresponding
band and thresholds for their tariff bands are more
favourable from a defensive perspective. Cuts on
highest tariffs in developing countries would be 47
per cent. A maximum average cut for DCs of 36
per cent, had been proposed. For Mexico, a large
majority of the bound tariffs would fall into the second
tier (tariffs between 30 and 80 per cent) with cuts of
38 per cent. Most Mexican bound rates are around
40 per cent. Reducing a tariff by 38 per cent gives a
new bound rate of 24.8 per cent, which would be for
most products higher than the current applied rate. A
couple of sensitive products (5.3 per cent of tariff lines
in DCs) where applied rates are up against or close
to bound rates could be excluded from full reduction
commitments29 and another 12 per cent of tariff lines
would also be allowed to be designated as Special




22 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


Products which are important for food security,
livelihood security and rural development with lower
or no tariff reductions. Thus, most applied rates and
those on sensitive products would not be affected.
However, it would reduce the policy space to change
the agricultural trade policy in future substantially.


Mexico’s biggest trading partners, the US, EU,
Canada and Japan would all have to make substantial
cuts in bound and applied rates. They also can select
sensitive products but those would most likely not
be the typical export products of Mexico but rather
temperate products produced in their countries.
Mexico would be negatively affected by preference
erosion since it has free trade agreements with its
most important trading partners. The effect for the
US market might be limited since the US has already
relatively low agricultural tariffs on most products.
However, since the preference margin is already
relatively low, competition on the US market could
increase.


On trade distorting domestic support cuts for the new-
ly created concept of Overall Trade Distorting Support
(basically AMS support, de minimis and blue box sup-
port) are proposed to by 80 per cent for the EU, 70
per cent for the United States and Japan, and 37 per
cent for developing countries such as Mexico. Each
component of the OTDS would have its own reduction
commitment or, in the case of developing countries.
Since Mexico has a AMS allowance, it would not be
excluded from the de minimis reduction commitment.
This would further limit Mexico’s flexibility to strength-
en its agricultural sector but probably enough possi-
bilities would remain. On “green box” support, the text
provides for clearer dissociation of direct payments
from production by fixing the historical base period so
as not to create an incentive for producers to expand
production. The reduction commitment for the US
would be a huge benefit for Mexico. Though the for-
mula has been criticized since it starts reductions from
an inflated base, the upper limit for the US would be
lower and there would be newly agreed product spe-
cific caps. Commitments for developed countries on
domestic support are probably the most important el-
ement for Mexico in the current round of negotiations
since those have not been bound in NAFTA. Even if
current subsidies are low due to high commodity pric-
es, they may rise again in the future.


On export subsidies, it had been agreed at the
WTO Hong Kong Ministerial Meeting (WTO, 2005)
to eliminate all forms of export subsidies, including


components in export credits, food aid and state
trading enterprises, in 2013. This agreement was, in
2005, a major success in the negotiations and would
have a positive though small effect for the agricultural
sector in Mexico.


To summarize, Mexico would, like all countries
except LDCs, lose flexibility if the Doha Round would
conclude along the lines of the current draft modalities
text. Furthermore, preference erosion could negatively
impact Mexico’s export to its main markets. However,
the positive elements such as domestic support
constraints in its neighboring country would probably
outweigh those negative effects.


D. IMPACT OF TECHNICAL
STANDARDS ON THE
AGRICULTURAL SECTOR
IN MEXICO


1. Standards and other
measures


As tariffs have been lowered over time, non-tariff
measures (NTM) to trade have become relatively
more important. Nicita-Olarreaga-Kee (2006) found
that NTMs contribute more than 70 per cent on
average to world protection. Since Mexico has free
trade agreements with its major trading partners,
US, EU, Canada, Japan, as well as several Latin-
American countries such as Guatemala and Chile,
where tariffs are below MFN levels or even eliminated,
other measures become more relevant instruments,
determining market entry conditions.


Restrictions applied at the border such as anti-
dumping measures and certain customs formalities
are NTMs, as well as certain behind-the-border
internal measures, such as certain customs
formalities, and can become barriers to trade and
discriminate against imports. Other examples
include technical standards, for instance health and
safety standards and environmental and consumer
information requirements. Fugazza and Maurer (2008)
confirm that technical measures account for a high
proportion (58.5 per cent) of NTMs that are covered in
the UNCTAD TRAINS database. Technical regulations
generally serve as a means to achieve legitimate public
policy purposes such as to protect human, animal and
plant life and health. Such measures may incidentally
or intentionally discriminate against imports in favor of




23chaPteR.I:.agriculture trade policy issues for mexico


domestic firms. . In this case, such measures would
increase the costs of producers disproportionately for
foreign suppliers. In the perception of many exporters,
domestic regulations are more problematic (than
border measures) for firms seeking to sell abroad.30
In addition to official standards and other measures
imposed by governments, private standards such as
those required by supermarket chains are becoming
increasingly important.


Two WTO Agreements, the Technical Barriers to Trade
(TBT) Agreement and the Sanitary and Phytosanitary
(SPS) Agreement, determine basic rules and guidelines
for WTO members in relation to international trade and
technical regulations and sanitary and phytosanitary
requirements. Both agreements encourage the use of
international standards and require scientific evidence
and risk assessment while at the same time recognizing
the sovereign rights of WTO members to set their own
standards and to take “precautionary” measures in case
of lack of scientific evidence. The interpretation and ap-
plication of measures have not been the same across
countries and given the complexity and heterogeneity of
agrifood production systems, as well as national inter-
ests and have thus led to many concerns raised in cor-
responding WTO committees as well as trade disputes.
The design and implementation of standards can have
a strong impact on international trade.


However, standards and their effect on trade are
difficult to assess. This section tries to analyze the
impact of such measures of Mexico’s major trading
partners on its agricultural sector. The section also
looks at Mexico’s measures related to trade to
protect the health and safety of its human beings and
animals. Domestic regulations that are relevant for
the production of safe food are discussed in chapter
2. .Macro-economic policies that are included in
extended taxonomies are not analyzed.


2. Standards and other
measures faced by
Mexico’s exports


2.1. Measures in the US


technical standards (sanitary and
Phytosanitary measures)


Sanitary and Phytosanitary standards (SPS) refer to
measures implemented nationally in order to ensure


that the country’s consumers are being supplied with
food that is safe to eat, as well as ensure animal and
plant health.


A study by Clemente Ruiz Duran31 on NTMs
affecting Mexican exports in different member
countries of APEC, highlighted that SPS measures
have an important impact reducing potential trade
opportunities in the US market for the following
products: live animals, meat, edible meat offal, dairy
products, eggs, coffee and cereals, sugar and fish,
crustaceans and mollusks.


In the context of this report (undertaken in 2011-2012),
interviews to several representatives of producers’
associations highlighted the perception that sanitary
and phytosanitary measures are the most important
type of non-tariff measure affecting Mexican exports
of agriculture products to the US.


In the case of poultry and pork meat, sanitary
requirements were cited as a major factor limiting
the exports to the US; delays and complicated long
procedures, by US authorities, to obtain certification
in the case of sanitary standards have also affected
Mexican exports of chicken.


In the case of pork, sanitary and phytosanitary
measures were cited a barrier impeding exports
from Mexico. They cite a zero increase in exports
from Mexico in spite of market access opening that
resulted from NAFTA. Producers underscored the fact
that Mexico has made a lot of progress in terms of
eradication of pests and diseases in the pork sector.
This lack of equivalence of pest and disease control
measures32 has also been raised by Canada, as an
issue of concern, which has affected Canadian beef
meat exports to the US market33.


A recent UNIDO (2011) report on border rejections
of agrifood imports confirms that sanitary and
phytosanitary standards as well as technical barriers
to trade are problematic for Mexico’s exports (see
Chapter II, Table II.18). The main reasons for U.S.
rejections of agrifood exports from Mexico were based
on sanitary and phytosanitary concerns.


The impact of SPS measures is also revealed by
observing the number of questions to the US in their
WTO Trade Policy Review (TPR). In this context,
Mexico raised questions regarding the lack of effective
equivalence of standards for meat, poultry and egg-
based products.




24 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


An important proportion of Mexico’s comments
related to due process and transparency in the
formulation of SPS. For instance, when posing
questions on measures related to security (i.e.
Biosecurity Act, Container Security Initiative), the main
concern appeared to be burdensome procedures
that may lead to delays in the clearance of goods.
Another source of concern, of a procedural nature,
related to situations of conflict between measures at
the subfederal level (which were perceived as being
more stringent) than those applied at the federal level.
Complex regulation and unclear and non-transparent
requirements and procedures were cited in the case of
procedures to ensure equivalence, the requirement of
site “re-inspection” and guidelines for risk assessment
in the case of products that are being imported for
the first time into US territory. Finally, questions also
sought to clarify situations where standards applicable
to disease control were different and more stringent
for foreign producers than for local producers.


technical standards (technical Barriers
to trade)


Technical regulations and standards set out specific
characteristics of a product — such as its size, shape,
design, functions and performance, or the way it is
labeled or packaged before it is put on sale.


Analyzing the disputes brought by Mexico against the
US and questions to the US in their TPR, labeling re-
quirements seem to be the most problematic techni-
cal barrier to trade faced by Mexico in the US. Con-
cerns were recorded regarding labeling requirements
applicable to: meat (including goat meat), poultry, gin-
seng, pecan and macadamia nuts. The main sources
of concern encompass: labeling requirements that
are different and more stringent for foreign producers
than for local producers and unclear procedures on
instances where labelling of GMOs is required.


An example is the Mandatory Country of Original
Labeling COOL in the US, which outlines requirements
for retailers to notify their customers of the country of
origin of beef (including veal), lamb, pork, chicken,
goat, wild and farm-raised fish and shellfish, perishable
agricultural commodities, peanuts, pecans, ginseng,
and macadamia nuts. Constituencies in Mexico
and Canada were of the view that COOL imposed
a tracking, segregating, and recording system that
increased significantly production costs, leading to
a drop in bilateral trade, due to American producers
avoiding the onerous and expensive labeling


requirements by choosing 100 per cent U.S. products.
This matter was brought to the WTO in 2010. WTO’s
Dispute Settlement Panel ruled, in November 2011,
that although the United States had the right to require
COOL regulations, specific requirements enacted in
2008, such as those calling for segregation of imported
livestock before processing, provide less favorable
treatment to Canadian and Mexican livestock. The
US appealed this decision in 2012 arguing, among
other issues, that its COOL labeling does not impose
unfavorable treatment of imported products.34


Issues related to due process and transparency also
raised many questions. For instance, Mexico posed
questions regarding whether the US did regulatory
impact assessment studies prior to introducing
technical regulations and whether these were available
to the public (including foreign nationals). Mexico
also raised questions regarding the extent to which
US technical regulations were based on international
standards. They also raised a concern over the fact
that the subfederal level can impose measures without
necessarily notifying them to the WTO, and which
could create a conflict between the standard at the
federal and subfederal level.


In the context of the WTO Committee, Mexico also
raised concerns regarding quality control checks and
certification along the supply chain, which are perceived
to lead to increased costs for producers and exporters.


other measures


According to WTO documents containing concerns
raised by Mexico with respect to the implementation
of WTO agreements, prior trade disputes35 and Trade
Policy Review records, agricultural exports of Mexico to
the US have been affected by antidumping measures
(fresh tomatoes), subsidies (including export subsidy
components and food aid related concerns, for corn,
milk), discriminatory taxes (orange and grapefruit
products and juices) and import prohibitions (shrimp).
Rules of origin and changes that affect the concept of
substantial transformation in NAFTA


These concerns are similar to concerns raised by
Canada in its bilateral trade relation with the US. In
this sense, it is worth noting that most of NAFTA’s
trade disputes between US and Canada have been
related to dumping (wheat, live cattle, beef and swine).
Like Mexico, Canada has raised concerns regarding
US labeling requirements, particularly regarding
requirements to inform consumers about origins of




25chaPteR.I:.agriculture trade policy issues for mexico


food products (chicken, goat, meat, ginseng and
macadamia) that imposed disproportionately high
costs along the value chain for imported products (see
Box 1). Canada has questioned US border security
measures that are deemed to have caused disruptions
to trade (due to security control) and increases costs
of trade36. During the latest TPR of the US, Canada
has also expressed concerns on the proliferation of
voluntary and private standards that seem to be
proliferating (and influencing imports) without a Code
of Practice or Governmental oversight37.


The Dolphin-safe certification is such a voluntary
standard. It is supposed to ensure that tuna is caught
by methods that do not harm dolphins and protect
the marine ecosystem. Arguing that these voluntary
standards had become a de facto discriminatory
measure, Mexico brought these to dispute settlement
in the WTO in 2008. Mexico claimed that the labeling
requirements were discriminatory and unnecessary.
The Panel found in 2011 that the US dolphin-safe
labeling requirements were more trade-restrictive
than necessary to fulfill legitimate objectives. Later the
Appellate Body found in 2012 that the US dolphin-
safe label violates WTO law by discriminating against
Mexican tuna.38


standards in naFta


Efforts to remove or discipline non-tariff measures
that negatively impact trade have been undertaken
by Mexico at the bilateral and regional levels. The
following box summarizes NAFTA commitments with
respect to technical standards: these include the
promotion of use of international standards and the
use of equivalence.


In practice, NAFTA has allowed differing levels
of standards to develop (as opposed to effective
equivalence). Vollrath39 (2004) notes that SPS-
related issues and standards remain contentious in
the context of NAFTA, in areas such as dairy, beef,
sugar, wheat, rice, corn and livestock due to lack of
harmonized product, health, safety and environmental
standards which, in turn, stem from differences in
national laws and regulations, divergent farm programs


and incompatible macroeconomic policies. Products


legally produced in one country in NAFTA cannot


automatically be sold in other NAFTA countries but


may require additional certification. This is a difference


to the EU where according to the “Cassis de Dijon


principle” goods produced legally in any member state


can be sold in any other EU country.


In conclusion, from the Mexican perspective, the


problem affecting agricultural exports to the US seem


to stem from a combination of the following factors: (i)


differing level of standards and lack of equivalence, and


(ii) procedural barriers (namely delays with certification


process). In this context, it appears that improving


compliance standards does not seem to be enough


to ensure increased exports from Mexico to the US.


attempt to quantify standards and
other measures in the us


Estimates of ad valorem equivalents (AVEs) of NTMs


confirm their importance for trade. Kee, Nicita and


Olarreaga (2004b)40 provide estimates of AVEs of core


measures (price and quantity control measures, tech-


nical regulations, as well as monopolistic measures,


such as single channel for imports) and agricultural do-


mestic support at the tariff line level for several coun-


tries including Mexico and its trading partners.


The United States’ simple average ad valorem


equivalent NTM for agricultural goods is 48 per cent


with a high variation between products. For the export


basket of Mexico, the average NTM is equivalent to


a 26.9 per cent tariff. 41 This is high compared to the


relatively low average MFN agricultural tariff (4.9 per


cent) and slightly higher than the average NTB for the


total agricultural imports from the world (23.9 per cent).


On fruits and vegetables, major exports of Mexico to


the US, NTBs are relatively high. Other Latin-American


countries such as Brazil and Colombia export products


to the US that face on average lower NTB.




26 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


Box I.1: NAFTA commitments with respect to technical standards


Basic.Rights.and.obligations


The NAFTA confirms the right of each country to establish the level of SPS protections that it considers appropriate and
provides that a NAFTA country may achieve that level of protection through SPS measures that:


are based on scientific principles and a risk assessment;


are applied only to the extent necessary to provide a country’s chosen level of protections; and do not result in unfair
discrimination or disguised restrictions on trade.


International Standards


To avoid creating unnecessary barriers to trade, the NAFTA encourages the three countries to use relevant international
standards in the development of their SPS measures. However, it permits each country to adopt more stringent, science-
based measures when necessary to achieve its chosen level of protection.


Equivalence


The three countries have agreed to work toward equivalent SPS measures without reducing any country’s chosen level
of protection of human, animal or plant life or health. Each NAFTA country will accept SPS measures of another NAFTA
country as equivalent to its own, provided that the exporting country demonstrates that its measures achieve the importing
country’s chosen level of protection.


Risk Assessment


The NAFTA establishes disciplines on risk assessment, including for evaluating the likelihood of entry, establishment or
spread of pests and diseases. SPS measures must be based on an assessment of risk to human, animal or plant life
or health, taking into account risk assessment techniques developed by international or North American standardizing
organizations. A NAFTA country may grant a phase-in period for compliance by goods from another NAFTA country where
the phase-in would be consistent with ensuring the importing country’s chosen level of SPS protection.


Adaptation to Regional Conditions


This section also establishes rules for the adaptation of SPS measures to regional conditions, in particular regarding pest-
or disease-free areas and areas of low pest or disease prevalence. An exporting country must provide objective evidence
whenever it claims that goods from its territory originate in a pest- or disease-free area or area of low pest or disease
prevalence.


Procedural.transparency


The NAFTA requires public notice in most cases prior to the adoption or modification of any SPS measure that may affect
trade in North America. The notice must identify the goods to be covered, and the objectives of and reasons for the
measure. All SPS measures must be published promptly. Each NAFTA country will ensure that a designated inquiry point
provides information regarding such measures.


Control, Inspection and Approval Procedures


The NAFTA also establishes rules governing procedures for ensuring the fulfillment of SPS measures. These rules allow the
continued operation of domestic control, inspection and approval procedures, including national systems for approving
the use of additives or for establishing tolerances for contaminants in foods, beverages or feedstuffs, subject to such
disciplines as national treatment, timeliness and procedural transparency.


Source: NAFTA agreement.


Importer Export basket Trade weighted average %


United States World 23.9


Mexico 26.9


Canada 33.1


Brazil 7.6


Colombia 10.1


Mexico World 33.7


United States 33.2


Canada 18.4


Table I.16: Average ad valorem equivalents of NTMs


Source: UNCTAD calculation based on World Bank estimates of NTMs.




27chaPteR.I:.agriculture trade policy issues for mexico


2.2. Measures in the EU and
Canada


The comments presented in the latest trade policy
review of the EU and Canada are revealing of sources
of concern regarding NTMs in the trade relation with
Mexico. These concerns coincide to a great extent,
with those observed in the case of the US, particularly
regarding the importance and incidence of SPS
measures and labeling requirements.


In the case of the EU, main sources of concern
regarding SPS measures relate to conditions to
trade products, particularly GMOs (beef, honey from
genetically modified corn and seeds derived from
GMO products) and exotic products (known as Novel
foods). The main source of concern is delay in approval
due to extensive requirements and long processes.


One area of concern regarding due process in SPS
measures relates to the provisional application of
trade restrictions in the event of a potential risk, even if
this risk cannot be fully demonstrated or quantified or
its effects determined because of the insufficiency or
inclusive nature of the scientific data.


Another problematic issue in the Mexico-EU trade
relation due to NTMs relates to tequila. Mexico is
concerned about the fact that EC imports and markets
beverages alleged to be tequila, which do not comply
with Mexican legislation on eligibility to use this name.
Mexico concern about the use of the appellation of
origin for tequila relates to potential fraud, adulteration
and counterfeiting of tequila. Mexico has also
expressed concern regarding EU export subsidies for
products derived from milk (refunds applicable to milk,
cheese and butter and aid scheme for private storage)
and for milk.


3. Measures applied by
Mexico on imports


On the import side, technical regulations and SPS
standards are important to guarantee the protection
of health of people, plants and animals. It appears
that Mexico has made a lot of effort to develop the
institutional and regulatory framework that deals with
the array of issues involved with technical regulations
and SPS standards. In addition, according to NAFTA
provisions, Mexico undertook commitments related
to reinforcing sanitary and phytosanitary measures in
order to guarantee the quality and safety of agricultural


products and procedures and mechanisms to mutually
recognize standards do exist and are being used.42


In the current context of increased fragmentation of
production in global value chains, such standards can
ensure imports of quality intermediate goods or raw
material that may be necessary to remain competitive.
However, in certain situations, these standards
can be perceived as barriers to trade that intend to
discriminate against foreign suppliers to protect the
domestic industry.


Disputes brought by trading partners, records of
Mexico TPRs and concerns voiced in meetings of the
agriculture, TBT and SPS committees provide a picture
of the perception of other trading partners regarding
measures used by Mexico that are considered
problematic. In this sense, measures considered
problematic include: antidumping (high fructose corn
syrup, live swine, beef and by-products and rice),
countervailing duties (olive oil) and domestic support.
The USTR (2010) also mentions issues regarding
customs and administrative procedures (e.g. non-
uniform application of requirements at border ports of
entry, and lengthy and burdensome procedures)43 as
a source of concern.


In the specific area of standards and technical
regulations, issues of concern include: lack of access
to information about requirements and delays to obtain
SPS certificates (black beans), restrictions introduced
to control pests and diseases (such as BSE).44 The
USTR (2010) also mentions uneven enforcement
of Mexican standards and labeling requirements
and inspection and clearance procedures that are
considered to be long, burdensome, non-transparent
and unreliable.45


attempt to quantify standards and
other measures in mexico


The ad valorem equivalent NTB in Mexico is on average
44 per cent and thus only slightly lower than the
corresponding value for e.g. the US (48 per cent, see
above). For the export basket of the US, the average
AVE NTB is 33.2 per cent and thus higher than the
average AVE NTB faced by Mexico on exports to the
US (26.9 per cent). The approach chosen by Kee,
Nicita and Olarreaga (2004b) is to predict imports
using factor endowments and observe its deviations
when NTBs are present. The quantity impact of NTBs
on imports is then converted into a price equivalent




28 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


by moving along the import demand curve using
estimated import demand elasticities.


Thus, according to these estimates, both Mexico
and the US have significant NTB on imports from
their NAFTA trading partners. The order of magnitude
is roughly in line with those of other countries. A
weakness of this quantification approach is that it does
not differentiate between different sources of imports.
Imports of the same product from NAFTA members
are assumed to face the same NTMs as imports from
non-NAFTA members. However, the fact that trade
disputes between NAFTA members are often brought
to the WTO rather than solved inside NAFTA indicates
that this could be a reasonable assumption.46
Nevertheless, limitations of this approach should be
kept in mind.


4. Sources of concern
for Mexico regarding
standards from the
domestic and import
perspective


Interviews conducted in the context of this Outlook
point to fact that, although legislation and institutional
frameworks are in place, there seems to be a problem
with implementation (namely inconsistent application of
regulations). The problem appears to stem from the lack
of capacity to enforce and verify application of quality
regulations. In turn, this is perceived as unfair competi-
tion with low quality and cheap imports of agricultural
products (particularly from the US, the main source of
agricultural imports) and lack of consumer protection.
Interviews conducted identified areas of weakness in
the case of milk, maize (including Genetically Modified
Maize), wheat, rice and soybeans and chicken.


In the case of milk, Mexico has quality regulations aiming
to ensure safety and nutritional value and appropriate
and accurate information for the consumers. However,
producers perceive that enforcement capabilities of
quality regulations (particularly regarding labeling)
remain weak. This situation could be perceived by
consumers as misleading them, and this in turn
favors consumption of imported goods. Producers
also noted that the lack of enforcement capability of
regulation also relates to the verification of production
costs. This situation leads to incapacity to address
unfair competition in instance of products imported
from the US that are produced below production


cost or subsidized. Producers believe that in order to
overcome these weaknesses, there is need to update
certain aspects of standards and to strengthen the
capacity to verify and enforce them.


In the case of genetically modified maize, Mexico
has in place a regulation that impedes production of
Genetically Modified Organisms (GMOs) but allows
imports of GM maize (whether for human consumption
but also as feed products), most of which come from
the US.47 In view of Mexican producers this regulatory
contradiction impedes developing local production.
Some producers believed the main area of weakness
was the lack of regulation regarding requirements for
cross border trade of transgenic maize and control of
toxins. Others suggested the weakness consisted of
relaxed enforcement of control measures for products
coming from the US, depending on food import needs.


In the case of maize, wheat, rice and soybeans,
quality regulation exists in Mexico but producers
pointed to a lack of consistency in their application
and enforcement, for instance quality regulation
seems to be overlooked in periods of shortages.
In the specific case of rice, Mexican standards are
developed and based on international standards and
are applied by buyers (processors). Rice producers’
are of the view that regulation is manipulated to obtain
lower prices (i.e. when grains are not according to the
standard a lower price is paid to the producer). This
problematique is particularly relevant for smaller and
“less technified” producers, who often have problems
with facilities to stock and dry grains, which in turn has
an impact in ensuring the quality of grains.


In the case of chicken, regulation exists regarding
quality, packaging, expiry date and labeling. In
addition, producers believe Mexico has a good
track record in terms of eradicating and controlling
pests and diseases that affect chickens. However, it
appears that imported chicken (that mainly come from
the US) complies with these regulation but national
products do not (because they believe the regulation
is complicated). This situation is perceived as inducing
consumers to prefer imported chicken over chicken
produced locally.


Policies for technical standards and
other measures


From the export perspective, problems faced by
Mexico with respect to standards and other non-tariff
measures are similar to the one of other exporting




29chaPteR.I:.agriculture trade policy issues for mexico


developing countries and related to grey areas in trade
rules disciplining them. Despite the fact that policies
aimed at protecting health and safety of people, animals
and plants, as well as the environment are considered
legitimate, the concern from the export perspective
relates to situations where such policies are perceived
as seeking to help domestic firms at the expense
of foreign firms. In the particular case of Mexico,
the standards that seem to be most problematic
to exporting firms and producers are labeling
requirements which can cause disproportionately
high costs for exporters, SPS measures and security/
customs procedures. This Outlook reveals that these
technical standards and other measures are very
relevant to the trade relation between Mexico and its
main trading partner, the US, but also apply to other
trading partners. Since Mexico’s main trading partners
are all developed countries with high standards and
additional private standards, the issue of NTMs is of
particular interest to Mexico.


Standards cannot easily be reduced in trade
negotiations. For example, private standards are not
developed in the context of governmental oversight
and reflect voters or consumers choices for healthy
and environmentally friendly products. On the other
hand, mutual recognition and equivalence seem to
have not worked well to overcome barriers identified.
Working together in the future with key trading partners
towards harmonization of measures and regulation
could be an interesting path to explore.


Technical knowhow on the market entry requirements
related to NTMs, particularly standards and technical
regulations, as well as the implementation of both
public (mandatory) and private (voluntary) food safety
certification schemes by small producers, processors,
packers and exporters in Mexico’s agrifood supply
chains is critical for export success. Sufficient
resources for training, innovation and technology
transfer and capacity building is needed. Several
of the trade agreements, for instance the SPS and
TBT agreements, call for technical assistance for
developing countries. This is important including in
light of the shift in the US from reaction and response
to prevention of food borne illnesses from the ‘farm to
fork’ (food Safety Modernization Act (FSMA), signed
into law in January 2011). The US Food and Drug
Administration (FDA) is mandated by the FSMA, under
the ‘importer compliance certification’ provisions, to
provide such assistance to foreign governments, such
as Mexico, so that these countries are able to add


value to their products, as well as improve process
management procedures – on- and off-form packing
and handling, storage, and shipment facilities. Tailor
made trainings, for instance for meet producers, and
internationally recognized public and/or private food
safety certification schemes could be implemented.
Potential adverse consequences on Mexico’s agrifood
production costs should be taken into account.


From the import perspective, the problem seems to
be related to the weak domestic capacity to enforce
and verify quality regulations, which in turn can lead to
a non-uniform application of requirements at border
ports of entry. From the point of view of producers,
this situation is perceived as contributing to (1) unfair
competition with low quality and cheap imports of ag-
ricultural products, which affect the price and quality
of inputs along the value chain and (2) lack of con-
sumer protection. A possibility is to introduce a grad-
ing system similar to the USDA grading system where
meat can (voluntarily) be classified according to quality
grades.


Overcoming these challenges require clearly
determined quality standard on imports, strengthening
enforcement and quality control measures in the local
market, strengthening the ability of producers and
exporters’ to comply with standards in key markets
and a good consumer protection.


E. LINkING TRADE, POLICY
AND DEVELOPMENT IN
AGRICULTURE


Mexico’s agricultural trade reform coincides with
increasing imports, decreasing employment in
agriculture and high poverty rates in rural areas.
Imports have increased from all major trading partners
and particularly from NAFTA members who supply
more than 80 per cent of Mexico’s agricultural imports.


Although tariffs with Mexico’s partners within RTAs
have been gradually reduced and MFN rates
remained relatively stable, many Mexican producers
have expressed concern about the removal of tariff
protection. In addition, although bilateral agreements
such as NAFTA the reduction of removal of bilateral
tariffs on both sides of the border have been specified,
there are no limitations in the agreements concerning
the use of domestic support (Wise, 2009).




30 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


agricultural subsidies


For a time the US subsidized maize production by
as much as $4.4 billion a year (in 2005).48 This is an
instance where tariffs have been reduced substantially
but domestic support contributes to distortions. Wise
(2009) analyzed the impact of US agricultural policy
on Mexican producers and assess to which extent
subsidized products were exported to Mexico at
prices below production costs between 1997 and
2005. Maize producers were by far the most heavily
affected with $6.6 billion in losses.


Maize is not the only product where US production
is benefiting from subsidies and which competes
with Mexican production. For eight products, maize,
soybeans, wheat, cotton, rice, beef, pork and poultry,
Wise (2009) estimates that subsidies in the US
caused losses of $12.8 billion for Mexican producers
for the period 1997 to 2005. His calculation is based
on dumping margins that are supposed to capture
not only the effect of direct subsidies but also other
subsidies that allow exports below production costs.
Livestock producers in the US who receive less
direct support, benefit from subsidies on two of its
most important feed mixture components, corn and
soybean (Starmer et al., 2006). Wise (2009) takes
these indirect subsidies into account by assuming
that they allow US farmers to export at prices below
their cost of production which has a negative effect
on those farmers in Mexico producing livestock and
not benefiting themselves from subsidized inputs
as they are using alternative feed such as domestic
feed or grazing. This dumping margin differs from the
producer subsidy equivalent calculated by the OECD.
For crops, the average dumping margin from 1997 to
2005 is between 12 per cent and 34 per cent, and for
meat products between 5 per cent and 10 per cent.


The calculation of losses for Mexican producers is
based on the assumption that the Mexican producer
prices were depressed by the same percentage as
the dumping margin. With this assumption, Wise
(2009) assess that the US subsidies eliminates, for the
lowest productivity smallholders, any positive income
from corn sales. Similarly, Polaski (2004)49 argues that
U.S. exports of subsidized crops such as corn have
depressed agricultural prices in Mexico. The rural poor
would have borne the brunt of adjustment to NAFTA.


Others, however, are positive and argue that agriculture
cannot be looked at separately within the context of
NAFTA. Hufbauer and Schott (2005) acknowledge that


expanded agricultural trade under NAFTA auspices
caused adjustment costs in Mexico but argue that
static and dynamic gains probably exceed adjustment
costs within Mexico by a factor of five or higher.
The World Bank (2004) argues that the reduction
in producer prices was rather a long-term trend and
cannot be blamed on NAFTA. McMillan (2006) reviews
quantitative literature on the impact of US subsidies
on Mexican prices. Several studies find smaller effects
than Wise (2009) discussed above. An adverse effect
of US subsidies on Mexican farmers is acknowledged
by most analysts but the degree to which prices are
negatively affected is controversial and varies from year
to year.


Suppressed commodity prices reduce the incentives
to invest in agriculture. A lack of investment in
infrastructure and research and development reduce
productivity growth in agriculture. Quantitative analysis
and case study evidence by FAO and UNCTAD
indicates that agricultural subsidies in developed
countries have been associated with rapidly increasing
food imports in developing countries, alongside the
decline in agricultural production (UNCTAD, 2008).


Producers in Mexico importing inputs such as feed for
livestock, e.g. grain and soybean, benefit from US sub-
sidized inputs. A concern of Mexican producers com-
peting with US products is that certain input prices are
still higher in Mexico than in the US. On average, prices
for soybeans, for example, in Mexico between 1993 and
2009 were 11 per cent higher in Mexico (Figure I.10).


Since 2005 product specific domestic support has
dwindled to very low levels. A major reason is the rise
of US commodity prices. The US maize prices, for
instance, have risen from a little over $2 per bushel
in 2001 to $8 per bushel in 2011. Some observers
have attributed part of this rise to the influence of US
and EU mandated biofuels polices (see section on
biofuels). For example, Babcock (2011) suggests US
maize prices were 17 per cent higher in 2011 than
they would have been otherwise.


US and Mexican maize is not completely substitutable.
The US produces mainly yellow maize which is used
as a stock feed. Mexico produces white maize which
is also used as a food for human consumption.


While previous US policies may have had a detrimental
effect on Mexican maize producers, the data suggests
this effect is now small or indeed may have reversed.
If the US policy which supports the production of
maize for ethanol production leads to higher prices,




31chaPteR.I:.agriculture trade policy issues for mexico


Table I.17: Average dumping margin of US exports to Mexico, 1997 to 2005


Product Dumping margin (%)


Beef 5


Cotton 38


Maize 19


Pork 10


Poultry 10


Rice 16


Soybeans 12


Wheat 34


Source: Wise (2009), page 16


0


50


100


150


200


250


300


350


400


450


19
93


19
94


19
95


19
96


19
97


19
98


19
99


20
00


20
01


20
02


20
03


20
04


20
05


20
06


20
07


20
08


20
09


Mexico US


Source: FAOstat


Figure I.10: Producer prices for soybeans in Mexico and the US between 1993 and 2009 (US$/tonne




32 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


the maize sector could benefit from that policy. While
beneficial for maize producers, higher maize prices are
likely to be detrimental for Mexican livestock producers
and consumers access to food. Wise (2012) assesses
that from 2006-2011, U.S. ethanol expansion cost
Mexico about $1.5 billion due to ethanol-related corn
price increases.


Despite these relatively new developments which
would need further analysis, the policies of many
of Mexico’s main trading partners to subsidize
agricultural production is negatively affecting those
Mexican producers producing the same products or
close substitutes. Commitments on upper ceilings
on tariffs, especially ambitious ones in RTAs, have
increased Mexican farmers’ exposure to agricultural
policies of its main trading partners.


agricultural tariffs and non-tariff
measures


NAFTA has not excluded agriculture from liberalization
and has most likely contributed to trade creation
between participating countries. Trade between
border countries, however, has been traditionally
high. Mexico’s imports of certain sensitive products
have increased significantly with likely adverse effects
on producers of those products. It is unclear to what
extent increasing exports of other products, notably
fruits and vegetables, as well as processed agriculture
products, can be attributed to NAFTA, due to relatively
low preference margins in the US. The highest tariffs
on imports outside of NAFTA are limited to very few
products like tobacco or ground-nuts for US’s imports
from Mexico. Traditional or historic business relations,
as well as cultural or geographical proximity, may
have contributed to the trend in agricultural trade.
Furthermore, it is unclear to what extent higher exports
of horticulture and processed products and lower input
prices for animal feed have compensated farmers
for increased imports of cereals and meat products.
Khor (2007) is critical about NAFTA and argues that
the increase in exports of some agricultural products
has not been strong enough to compensate for the
substitution of domestic agricultural products through
imports of others. Barron and Rello (2000) analyzed
the growing tomato agro-industry and argue that
vegetable exports have proved to be an alternative
to rural unemployment and are crucial to the survival
of entire villages. They are, however, critical of poor
working conditions.


Prina (2011) finds that NAFTA-induced tariff cuts caused
a reduction in the real Mexican border price of corn and
an increase in border price of tomatoes and melons.
Nicita (2009) finds that tariff liberalization in Mexico
decreased the price of a basket of agricultural goods.


Various non-tariff measures, such as quantitative
restrictions or rules of origin, may impede trade. Non-
tariff measures in the chapter in agriculture are related
to quotas for sugar, dairy, egg goods, poultry products
and special safeguard for fruits and vegetables, meat
and coffee.


Policies


The commitments on agricultural tariffs, the phase-out
of the possibility to use in NAFTA tariff rate quotas,
the fact that subsidies have not been addressed in
existing RTAs and that a successful conclusion of the
Doha round where subsidies would be limited is cur-
rently unlikely, leaves Mexico with few policy options
if the development of the agricultural sector is to be
changed. Some are discussed in the next section.


The need to strengthen the rural sector in Mexico is
evident with its high unemployment and poverty rates.
If the agricultural sector is strengthened it can also
have positive effects on non-farm activities in rural
areas such as upstream and downstream activities as
well as potentially related activities such as tourism.
Agriculture can make an important contribution to the
development.


UNCTAD (2011) argues that agricultural development
can facilitate economic take-offs, can promote higher
value addition and provide export-led growth opportu-
nities while generating positive externalities for society,
such as on poverty reduction, employment and food
security. World Bank (2008) earlier also argued that
agricultural development can make positive contribu-
tions to development. In recent years, agriculture has
contributed little to Mexico’s growth. Between 1996
and 2010 the contribution of agriculture to real GDP
growth was 2.6 per cent, considerably lower than the
contribution in, for instance, Brazil or Turkey. In devel-
oping countries on average, the contribution was with
5.7 per cent much higher (Table I.18).


The contribution to growth has to be looked at in
relation to the share of agriculture which is about 4
per cent in Mexico. If the agricultural sector would
be as dynamic as other sectors, the contribution to
growth should be similar to its share in GDP. This is
not the case in Mexico though this could change.




33chaPteR.I:.agriculture trade policy issues for mexico


Scott (2010) notes that gap between the national and
agricultural growth rates has narrowed in more recent
years. One factor is the high commodity prices though
it is uncertain whether the trend will continue. Many
analysts expect price levels to remain at relatively high
levels. This could also fuel investments in agriculture.


It is important though to increase productivity of
the agricultural sector. Agriculture in Mexico is the
least productive sector in Mexico while this is not
the case in many other Latin American countries
where agriculture is often more productive than e.g.
wholesale and retail trade, construction or even
business services (Rodrik and McMillan, 2011). On
reasons for the low agricultural productivity in Mexico
and measures how to increase it, see Chapter II of this
publication. Poverty in rural areas is correlated with a
low productivity. A reason for the unsatisfactory low
total growth in recent decades in Latin America has
been identified by Rodrik and McMillan (2011) as the
low contribution of structural change to growth. While
individual sectors became more productive, including
due to increased trade competitiveness, the overall
growth was low because there were no significant
employment movements in Latin America from low
productive sectors to high productive sectors or
employees even moved from high productive to lower
productive sectors.


What can the Mexican Government do to strengthen
its agricultural sector so as to increase employment
and food security while reducing poverty? The scope
for trade measures appears limited as Mexico has
committed itself in the WTO and in various regional
trade agreements (RTAs) to abstain from certain types
of measures. There is limited scope for increasing tariffs
on imports or reducing tariffs that its exports face.


If agricultural tariffs were to be raised, trade agreements
may need to be revised. Corresponding revisions


have been advocated including by presidential
candidates and discussed in the literature.50 Mexico
would probably have to offer Canada and the United
States something in return, and any benefits to the
agricultural sector could be offset by additional costs
to others sectors in Mexico. Because of the links
between grains, oilseeds and livestock, trade policies
raising prices for feedgrains could have negative
effects on livestock producers and consumers. Peters
and Vanzetti (forthcoming) assess the effect of an
increase of tariffs on imports from the US to MFN
levels. A reduction of imports from the US is partly
compensated by higher imports from other countries
as their products become relatively less expensive.
As a result of decreasing imports of most agricultural
products, domestic agricultural output increases by
2.5 per cent, with some sensitive products such as
meat and rice would increasing between 10 and 20
per cent. Employment in agriculture would increase
but at the expense of employment in industrial sectors.
Thus, there would be distributional effects.


Some countries complain that non-tariff measures
have been used in some cases to protect domestic
industries. Disputes at the WTO indicate different
perceptions of certain measures. However, using
measures other than allowed tariffs and other charges
should be only the case in exceptional circumstances.
Normally, “Members shall not maintain, resort to, or
revert to any measures of the kind which have been
required to be converted into ordinary customs
duties”, which includes all kinds of non-tariff measures
(Article 4 of the Agreement on Agriculture). Exceptional
circumstances could be, for instance, measures
“necessary to protect human, animal or plant life or
health” (Article XX, GATT) or other security exception
(Article XXI, GATT). Sanitary and phytosanitary (SPS)
measures should be applied only to the extent
necessary to protect human, animal or plant life


Contribution of Agriculture to real GDP growth %


Brazil 6.6


Mexico 2.6


Turkey 3.9


US 1.4


Developing economies 5.7


World 3.2


Table I.18: Contribution of agriculture to real GDP between 1996 and 2010


Source: UNCTAD calculation based on UNCTADstat.




34 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


or health and should not arbitrarily or unjustifiably
discriminate between Members. Members are
encouraged to base their measures on international
standards but may maintain or introduce measures
which result in higher standards if there is scientific
justification or as a consequence of consistent risk
decisions based on an appropriate risk assessment
(WTO, SPS agreement). Thus, it is important that
Mexico defends its export interests and ensures
standards on imports such as technical standards,
including SPS and technical barriers to trade (TBT),
that reflect Mexico’s appropriate level of health and
security protection.


An alternative policy is to provide additional domes-
tic support, or provide the same amount in a different
fashion, possibly better targeted to producers in need.
Input subsidies, on electricity or credit, for example,
have the advantage of distorting only one side of the
market, production, as opposed to two sides as do
output subsidies. Increasing domestic support would
increase the self-sufficiency ratio and have a positive
effect on employment in agriculture, but at the ex-
pense of the government’s budget and other sectors.
In general, output subsidies are distorting and move
resources into sectors where they are not used most
efficiently. External effects, however, may economi-
cally justify subsidies. For example, when rural urban
migration causes costs to the society that are not re-
flected in prices and when subsidies can reduce such
migration, certain subsidies may be rational. Distribu-
tion effects such as reducing poverty, most prevalent
in rural areas, may also be achieved with a strength-
ening of the agricultural sector by domestic support.


Mexico spends relatively little on research and
development in agriculture and has a low labour
productivity. It has been shown in studies that
increasing research and development can increase
the productivity of the agriculture sector and that this
policy can have a high rate on investment (Zepeda,
2001). Peters and Vanzetti (forthcoming) analyze
the effect of a hypothetical one per cent increase
in productivity of the Mexican agricultural sector.
Increasing productivity has the consequence of
increasing production and exports and decreasing
imports. Thus, it leads to higher self-sufficiency ratios
is agriculture. Employment effects are positive but
small. The impact on employment is also positive
but small. Total employment of unskilled labour in
agriculture increases by 1 per cent. The reason for a
significant change of exports and imports but small


positive employment effects is that an increase of
productivity leads to less factor demand for a given
output. Thus, if the real output increases only slightly
more than the productivity then the employment effect
is small.


Eliminating the payroll tax on agricultural labour is an
opportunity to increase employment in the sector.
Although the payroll tax in Mexico is on average
not very high, removing it leads to an increase in
employment of about 2.5 per cent in the agriculture
sector (Peters and Vanzetti, forthcoming).


alternative production techniques


Modern agricultural methods resulted in spectacular
increase in productivity but have hardly reached
small farmers in developing countries. Competitive
advantage in cereals requires scale effects. High value
crops (e.g. cut flowers, asparagus and broccoli) often
need high initial capital investments. Both require high
annual input costs and technological support.


Sustainable agriculture could be a good alternative for
some Mexican small scale farmers to increase their
productivity and rentability. It relies on techniques
such as crop rotation, compost and biological pest
control to increase soil productivity. Yields increase,
need less expensive inputs such as GMO seeds and
agro-chemicals and use locally available inputs and
technologies. Production is more labour intensive
than conventional agriculture thus having a positive
impact on employment and poverty reduction. In
Mexico, organic production is dominated by small-
scale producers. A UNCTAD/UNEP study confirmed
that this is an economically meaningful approach
for small farmers in developing countries to escape
the dependency on rising input prices with the side
effects of a positive impact on environment, climate
and employment (UNCTAD, 2008).


F. FINDINGS AND POLICY
RECOMMENDATIONS


Agriculture remains a very important sector for
Mexico. Mexico’s agricultural trade reform coincides
with increasing trade, decreasing employment in
agriculture and high poverty rates in rural areas.
Imports have increased from all major trading partners,
including those with which Mexico has a FTA. The bulk
of agricultural imports are imported under preferential
agreements, mostly with the US. Exports have also
increased. In terms of trade, a higher specialization




35chaPteR.I:.agriculture trade policy issues for mexico


has taken place with some products accounting for
the main share of import growth and others for the
main share of export growth. In recent decades, more
staple crops and meat products have been imported
and more fruits and vegetables and certain processed
agricultural products have been exported. While at the
aggregate level import growth was only slightly higher
than export growth since the early and mid-1990s,
import growth for certain sensitive products such as
maize, beans, pork and sugar was particularly high,
partly four to eight times higher in the late 2010s
than in the early 1990s. The self-sufficiency ratio for
important staple products such as wheat, maize, rice,
beans and meat declined.


Mexico’s trade policy has led to much more open
markets, especially within the NAFTA region. Tariffs
on agricultural products between the US and Mexico
have been eliminated but in terms of standards and
other measures regulating cross border trade the
markets are not fully integrated and do not have a
common agricultural policy. High subsidies in the US
on products such as maize, rice, sugar, sorghum and
wheat during the late 1990s and early 2000s have led
to significant losses for Mexican farmers producing
such commodities. The degree to which prices have
been affected is controversial and varies from year to
year. It is likely that this contributed to low investments
which in turn are a major course for the low
productivity in Mexico. Consumers and exporters of
fruits and vegetables and certain processed products
have benefited from the market opening. Non-tariff
measures are the dominant obstacle to exports. With
regard to exports to other markets, including dynamic
developing country markets, Mexico has not very
successfully increased its supply.


Agriculture could play an important role to increase
growth, food security, poverty alleviation and
employment creation. The appropriate policy
measures to strengthen the agricultural sector depend
on the specific objectives. Policies to reduce poverty
and rural-urban migration may differ from those that
increase export revenue or maximize agricultural
output. Some policy options may be limited by
Mexico’s commitments in trade agreements. A
stated objective is to use the existing policy space
with a view to enhancing Mexico’s benefits from its
agricultural sector including in increasing the number
of jobs in the sector, reduce dependency on imports
and promoting exports in agriculture. Priorities should
be determined because policies are unlikely to achieve


all three goals at the same time. With regard to trade
policies the following areas have been identified as
being important.


How trade policy can contribute to strengthen the
agricultural sector:


• Mexico’s external agricultural trade relations are
dominated by bilateral agreements which provide
opportunities and challenges. Differences in agri-
cultural support and productivities are challeng-
es. Since Mexican producers are not protected
through tariffs in the NAFTA region, for example,
any changes in US agricultural policy such as new
US farm bills have a direct impact on Mexican
farmers. The government should review the expo-
sure to external shocks, try to identify measures
to limit the impact of such shocks and ensure fair
market conditions as well as coherence between
trade and development policies.


• Globally there is a tendency to move away from
border measures towards behind the border
measures including allowed subsidies such as de-
coupled domestic support. The agreement on ag-
riculture provides flexibility for support which could
include income loss insurance, investment subsi-
dies and other measures. Domestic support would
have a positive impact on production and employ-
ment in agriculture but would impose a cost on
other sectors.


• Mexico has free trade agreements with a high
number of trading partners including those with
interesting and highly protected agricultural mar-
kets such as the EU and Japan. It appears that
Mexico’s agricultural sector has not increased its
exports to these partners at a higher pace than
other countries and remains to have a small market
share. Mexico also has signed RTAs with develop-
ing countries and in few cases has been able to
disproportionately increase its exports. However,
exports to its developing country trading partners
remain very low. Despite many difficulties including
exclusion of sensitive products or competition from
highly productive countries, Mexico has proven
to be very competitive with certain products and
should explore increasing exports to the markets
with which it has trade agreements markets.


• Participation in new free trade agreements is cur-
rently discussed, among them the Trans-Pacific
Partnership. Although Mexico has agreements
with various TPP countries such as Chile, Peru




36 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


and the US, it would be a far reaching agreement.
Mexico should assess the implications of such an
agreement.


Policies to strengthen productivity and alternative
production methods:


• Mexico has a relatively low productive agricultural
sector and spends relatively little on research and
development. Supporting activities that would lead
to a higher productivity has a positive effect on
output and exports. Imports would be lower and
thus the self-sufficiency rate would increase. The
impact on employment is likely to be small.


• Another promising approach are sustainable envi-
ronmentally friendly production systems that use
less synthetic fertilizers, reduce tillage and, in the
case of certified organic farming, may benefit from
price mark ups. Often these production processes
are more labour intensive and could thus create
or preserve employment. Especially since Mexico
focuses on sophisticated markets in developed
countries, shifting from conventional, industrial,
mono-culture based and high-external-input de-
pendent production to sustainable production
systems could be a good alternative for some
Mexican small scale farmers to increase their pro-
ductivity and rentability.


Standards and other non-tariff measures:


• Regarding exports, problems faced by Mexico with
respect to standards and other non-tariff measures
are similar to those of other countries. They relate
to difficulties to meet high official and private
standards in developed country markets and
grey areas in trade rules disciplining them. Since
Mexico’s main trading partners are all developed
countries NTMs are of particular interest to Mexico.
Standards in export markets have to be met and
Mexican producers could be supported through
appropriate agricultural extension services.


• Mutual recognition and equivalence seem to have
not worked well to overcome barriers identified.
Working with key trading partners towards har-
monization of measures and regulation could be
an interesting path to explore, particularly for food
packaging and nutrition labeling regulations, which
is very controversial in the current context of trade
with the US. This path could also be explored in
the case of food safety, risk assessment and risk
reduction. Standardized and mutually facilitated
customs procedures with its main trading partner
are important.


• From the import perspective, concerns exist over
(1) unfair competition and (2) lack of consumer
protection. To overcome these challenges, Mex-
ico should examine the need to strengthen qual-
ity control measures and enforcement in the do-
mestic market to improve consumer protection.
Furthermore, a strong monitoring of import prices
could detect potential “dumping”. If a company
exports a product at a price lower than the price
it normally charges on its own home market, it is
said to be dumping the product. This allows the
importing country to take certain measures.


UNCTAD can provide support, first, by an indepth
analysis of several aspects identified in this Outlook such
as the employment effects of increased specialization
and technical standards and other measures in specific
sectors. Another area could be analyzing the link of the
agricultural sector to other sectors such as upstream,
e.g. fertilizer, and downstream sectors, e.g. retailer
and transport, including other extension services.
Second, technical assistance and capacity building
could support the implementation and strengthening
of certain measures linked to trade and related areas.
Monitoring external trade and related aspects such as
concentration and diversification could be supported
technically. UNCTAD also provides support for
organic certification bodies. Third, exchange of views
and potential measures could be discussed with all


stakeholders.




37chaPteR.I:.agriculture trade policy issues for mexico


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39chaPteR.I:.agriculture trade policy issues for mexico


Product MFN (%)


Paddy rice & proc rice 2.59


Other cereals 0.43


Sugar 26.00


Oilseeds 6.54


Vegetable oils and fats 4.95


Vegetables and fruit 4.72


Other crops 3.63


Milk -


Dairy products 18.48


Cattle and sheep 0.29


Pigs and poultry 0.74


Ruminant meat 7.92


Non-ruminant meat 3.23


Other processed agriculture 4.11


Annex 1: US MFN tariffs on Mexican agricultural imports


ANNEXES


Source: GTAP 8




40 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK
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41chaPteR.I:.agriculture trade policy issues for mexico


Product / Description HS Import quantity 2010 tonnes


Change
quantity


(Mexico data)
%


Change
quantity
(US data)


%


Import value
2010


US$ mill.


Change value
(Mexico data)


%


Raw cane sugar, in solid form 170111 142 -99 -94 0.2 -97


Eggs 0407, 0408 10502 -93 -95 35.5 231


Grain sorghum 1007 2252495 -44 -41 427.6 -3


Beef 0201, 0202 168795 104 155 713.5 222


Rice 1006 840497 279 379 318.8 575


Wheat and meslin 1001 2606002 318 420 628.7 752


Meat and edible offal of poultry 0207 668054 375 262 760.6 459


Milk 0401, 0402 184843 484 533 433.4 1048


Coffee; coffee husks and skins; cof 0901 7843 575 228 31.0 1940


Maize (corn) 1005 7844736 742 870 1572.6 1151


Meat of swine, fresh, chilled or
frozen 0203 447925 844 889 876.2 993


Dried kidney beans, incl. white peas 071333 108471 869 604 104.1 1319


Annex 3: Change of imports of selected products between 1991 - 1993 and 2008 - 2010


Source: UN Comtrade; Change is based on the increase of average imports between 1991 and 1993 and 2008 and 2010.


UN Comtrade (reporter Mexico) UNCTADStat


Barley 124.4 24.4


Beans 748.0 509.1


Beef 714.0 716.8


Coffee 318.0 218.0


Eggs 286.5 186.5


Maize 386.1 320.9


Milk 209.0 132.1


Pork 2272.7 591.9


Poultry 473.4 591.9


Rice 406.7 306.7


Shrimp 451.0 444.5


Sorghum 168.1 71.4


Sugar c. 6.6 -


Sugar 1499.6 1399.6


Tuna 1860.6 2330.2


Wheat 394.0 297.0


Annex 4: Comparison of data sources, change in imports from 1995 to 2010




42 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


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SITC Rev.3 ProductDescription HS


Barley 043


Beans 05423 Dried kidney beans, incl.
white peas


071333


Beef 011
01251
01252
01681
0176


Beef 020
0202


Coffee 071 Coffee; coffee husks and
skins; cof


0901


Eggs 025 Eggs 0407
0408


Maize 044
04721
05677
08124
4216
59212


Maize (corn) 1005


Milk 0221
0222
02241


Milk 0401
0402


Pork 0122
0161


Meat of swine, fresh, chilled
or frozen


0203


Poultry 0123 Meat and edible offal of
poultry


0207


Rice 042 Rice 1006


Shrimp 03611


Sorghum 0453 Grain sorghum 1007


Sugar cane 06111
06151


Raw cane sugar, in solid
form


170111


Sugar 061


Tuna 03414
03423
03713


Wheat 041
046
08126
59217


Wheat and meslin 1001


Annex 6: Product definition


Source: UNCTADstat






cHaPter ii


AGRICULTURE COMMODITY
POLICY REVIEw


FOR MEXICO




46 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


A. INTRODUCTION
Mexico is the home of avocado and corn (or maize),
with both having long and protracted histories, which
are deeply engrained in Mexican tradition, culture and
lifestyle. Agriculture value added – as per cent of GDP
– in Mexico had fallen over the past 2 decades – 1991
(7.5 per cent), 2001 (4.2 per cent), 2010 (3.9 per cent).
However, agriculture is the lifeline for an estimated eight
million rural farmers (or 7 per cent of total population),
3.4 million of them small-scale farmers who cultivate
farm holdings of 5 ha (or 12 acres) or less,and
produce much of Mexico’s agricultural and food
produce (agrifoods) for export and domestic markets,
on landholdings no bigger than five hectares. Mexico
is among the world’s leading agrifoods producer:
ranked first in avocado, lemon and limes, grapefruit
(3rd), corn (4th), and beans, coconut oil, oranges and
poultry (5th). The market value chains in Mexico are
concentrated in the hands of few medium- to large-
scale private sector oligopolies, who secure much
of the benefits from domestic farm support (subsidy)
programs instituted by the Mexican government.


Mexico is Latin America’s second largest economy
after Brazil. It is highly liberalized, export-oriented and
is ranked number 10 in world merchandise trade.
In 2010, Mexico exported US$ 298 billion worth of
merchandise, representing 2.5 per cent of global
trade, and 28.9 per cent of its GDP. Its agricultural
and food (agrifoods) products51 exports in 2010 were
valued at US$18.8 billion, of which $14.4 billion (76.6
per cent) was destined for the U.S. market.52 NAFTA
contributed to further opening up the Mexican market
following the complete removal of tariff and quota
restrictions in 2008. This had increased Mexico’s
non-oil exports fourfold and expanded foreign direct
investment by 14 times. However, the terms of trade
for its farmers, had declined. The influx of below-cost
consumer goods and import key agrifoods – for which
Mexico has comparative advantage in producing
them, interacted with other factors affecting Mexican
agricultural production and contributed to squeezing
farmers out of farming and into poverty or excluded
them from high value markets. Grinding rural poverty
is a leading ‘push factor’ that is driving millions of
asset-poor rural farmers to sell off their lands, leave
homes and families and migrate north of the border to
U.S. in search of work and better lives.


Trade liberalization offers Mexico’s agricultural sector
distinct opportunities for broad-based economic


growth, increase employment and incomes, curb
migration, provide sustainable livelihoods and reduce
rural poverty. Value addition and diversification of
products and export markets are central to export
success. Concrete moves to increase agrifoods
exports to China as well as the nine-member countries
of the proposed Trans-Pacific Partnership Agreements,
are steps in the right direction. The settlement of the
long-standing, long-haul trucking dispute between
U.S. and Mexico, and the push by global companies
operating in China to ‘reshore’ manufacturing back to
Mexico in the wake of surging productivity-adjusted
wages, offer solid development prospects for Mexico
in the medium- to long-term. It is Mexico’s proximity
to the global superpower, the U.S., that offers lower
logistical and transportation costs which is driving this
structural shift.


While targeted investment in small-scale farmers
is generally considered as the most cost-efficient
instrument for reducing poverty, in reality though,
both public policies and private actions have not
fully exploited this potential. It is therefore incumbent
on public policy and private action to help improve
infrastructure, access to credit and technologies,
business skills, supply-side capacities (e.g. food
safety standards), and design and implement, where
appropriate and feasible, market-based innovative
schemes (e.g. crop and weather insurance schemes)
for farmers.


Against this backdrop, this chapter reviews (i) the
current public policies and support programs and
services, (ii) market value chains, (iii) food security,
(iv) market access and agrifoods standards, and
(v) proposes public and private policy choices to
refashion government policies to address the root
causes of the continued economic marginalization
of agriculture, enhance its resilience, ensure food
security, and improve the welfare of millions of farming
families in Mexico.


B. OVERVIEw:
MEXICO’S RURAL
AND AGRICULTURAL
DEVELOPMENT POLICY


This section provides an overview of rural and agricultural
development policy in Mexico since the beginning of
the 1990s. During this period Mexico’s rural economy
has experienced important transformations, marked
by a steady decline of agriculture’s importance and a




47chaPteR.II:.agriculture commodity policy review for mexico


corresponding increase in non-agricultural activities.
But despite its dwindling share of Mexican GDP and
export earnings, agriculture continues to be a major
employer and source of livelihood in many rural areas.


1. Theoretical framework


Indeed, much of the literature on pro-poor rural
development recognizes that thriving rural economies
with a low incidence of poverty avoid deemphasizing
agriculture in favour of non-farm activities. Instead,
these economies thrive by fostering mutually
reinforcing income opportunities for rural inhabitants
across three sectors (J. R. Davis 2006):


• Agriculture;


• Non-farm activities driven by agriculture; and


• Autonomous non-farm activities.


Sustainable poverty reduction requires that the rural
poor capture at least a living wage from a country’s
overall economic activity. Therefore, the linkages
between agriculture and non-farm activities must be
strengthened and the three sectors above developed
in concert, so that a country’s economic growth is felt
in rural areas, providing inhabitants with opportunities
of sufficient income to motivate them to stay and to
continue to participate in the rural economy.


Along with generating increased economic activity,
successful rural development therefore also involves
increasing the remuneration of rural inhabitants.
Since small farmers are not price setters, they cannot
simply demand a higher price for the same product,
produced at the same cost. Instead, farmers and
other rural inhabitants must improve their productivity
and/or convert to higher value added activities.


These transitions require investments, often by the
state, in productivity and human capital enhancements,
as well as in the conversion to higher value added
activities.


Without proactive oversight, these increased
opportunities often fail to reach the population
segments they target, for example, those who are
less educated and more geographically isolated;
young adults and women, or anyone excluded from
important social organizations or networks.


To ensure that opportunities reach the rural poor
and other target segments, successful state poverty
reduction strategies restrict their assistance on the
basis of either financial need and/or social exclusion.


The analysis contained in this chapter proceeds
according to this general theoretical framework,
namely that government rural development
programmes should aim to provide more numerous,
diversified and remunerative income opportunities to
rural inhabitants, with access priority given to poor
and excluded groups.


2. The rural sector


In 2011, 22 per cent of Mexico’s population lived in
rural areas defined as localities of fewer than 2,500
inhabitants (see Table II.1).53 In dispersed rural areas,
agriculture is the main source of employment, with 44
per cent of the population occupied in the primary
sector.54 However, the agricultural labour force in
Mexico has been shrinking since 1996 (see Table
II.2). As well as shrinking, Mexico’s rural population is
ageing more rapidly than the urban population, due
mainly to relatively high rates of out-migration of the
labour force to cities and to overseas destinations, in
particular to the USA.


Despite their importance to rural employment,
agriculture, forestry, fishing and agribusiness activities
represented just 4 per cent of Mexico’s GDP in 2011.


Poverty in Mexico is high, especially in rural areas, and
has been increasing. In 2008, 61 per cent of the rural
population was classified as poor, as compared to a
national rate of 45 per cent. Average income in the
same year was 3,800 pesos compared with 10,200
pesos in communities of over 15,000 inhabitants.
Figure II.1 (a) and (b) shows that, at the federal level,
the states with the largest populations often also
have the highest share of their population earning an
income below the minimum welfare line, for example:
Chiapas, Guerrero, Oaxaca, Zacatecas, and Veracruz.
This implies large variations between the rural north
and rural south.


The average size of land holdings in the agricultural
sector is 8 Ha, although this average hides an increasing
polarisation of farm sizes, with small farms (under
5 Ha) and large farms (100 Ha or larger) increasing
their share at the expense of middle-sized farms (see
Table II.3). For example, small farms represented
approximately 66 per cent of total production units in
1991, a proportion that increased to 73 per cent by
2007.


Small and medium producers employ a majority of rural
population. However, their potential to provide a decent




48 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK




A. Population with income below the minimun


welfare line
B. Federal population in 2010


Source: CONEVAL estimates based on MCS-ENIGH 2008 and 2010.
Note: Estimates for 2010 using growth factors adjusted for the final results of Population and Housing Census 2010, estimated by


INEGI.


Figure II.1: Income disparities between Statestween States


Size (Millions) Annual growth rate (%)


1996 2001 2006 2011 1996-2001 2001-2006 2006-2011


Total population 93.9 101.3 107.8 114.8 1.5 1.3 1.3


Agricultural population 24.5 23.6 21.6 20.0 -0.9 -1.6 -1.6


Total labour force 36.4 40.7 46.3 49.6 2.3 2.6 1.4


Labour force in agriculture 8.7 8.6 8.4 9.8 -0.3 -0.4 -1.2


Table II.2: Population and labour force size


Source: FAOstat


Share (%] Annual growth rate (%)


1996 2001 2006 2011
1996-
2001


2001-
2006


2006-
2011


Rural population
(% of total population)


26.3 25.0 23.4 21.9 -1.1 -1.3 -1.3


Labour force in agriculture
(% of total labour force)


23.8 21.1 18.2 15.7 -2.5 -2.9 -2.9


Females
(% of labour force in agriculture) 12.5 12.0 12.3 12.3 -0.8 0.6 0.0


Source: FAOstat


Table II.1: Rural population and agriculture labour force




49chaPteR.II:.agriculture commodity policy review for mexico


livelihood for themselves and to constitute a viable
base of economic activity in rural areas is curtailed by
many constraints, including rising costs of input (e.g.
agrochemicals, fertilizers, and appropriate technologies),
increasing competition from below-cost imports, and
structural rigidities (e.g. concentration of agrifoods input
markets, and buyers and sellers). In addition, poor soil
and water use practices magnify the negative effects of
climate change on production, particularly among small
producers that are dependent on rain-fed cultivation.
This feeds a vicious cycle of increasing rural poverty, lack
of opportunities and out-migration. The key features of
the Mexican rural economy are presented schematically
in Figure II.2.


Rigid land tenure is one of the main obstacles
to agricultural development. Following the first
agrarian reform initiated at the beginning the 20th
century, Mexico’s land tenure is characterized by
the coexistence of private property and social


property which includes ejidos and communal land,
and represents more than half of the national land.
Unclear definition of property rights for the communal
land, caps on the land areas, which can be owned
by commercial farmers and limitations to private
ownership of land inhibit investment and finance in
the agricultural sector. Despite the land tenure reforms
carried out in the 1990s to strengthen private property
rights, further reform of regulations may be needed to
make the land market more flexible.


Another important obstacle is the trade barriers aiming
to control domestic prices before 1990. The trade
restricting measures, including import license and export
tariffs, were imposed to support domestic market prices
of agricultural commodities. According to OECD, import
licenses covered 38 per cent of agricultural products in
the late 1980s. The high export tariffs not only prevented
farmers from integrating into the world market, but also
discouraged agricultural production resulting in low


Size of production unit
(in hectare)


Share of total farmed area in 2007
(in %)


Share of total production units in 2007
(in %)


Under 2 6.5 47.3


2 – 5 11.0 24.8


5 – 20 27.3 22.0


20 - 50 15.3% 4.0


50 -100 10.6 1.2


Over 100 29.3 0.7


Table II.3: Mexican farm structure characteristics


Vulnerability to
climate charge


Geographic
dispersion of
communities and
ethnic diversity


Weak bargaining
power for small
farmers


High rates of
rural-urban
migration


Limited
integration into
high value
agricultural
chains


Limited
smallholder
access to credit


High production
inputs costs


Increasing
dependency on
imported food


Mexican rural sector
Characteristics


Figure II.2: Mexico rural sector characteristics




50 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


productivity and investment in the agricultural sector.
When the agriculture market was liberalized under the
NAFTA, Mexican producers were unable to compete
with their counterparts in the US.


3. Agricultural and rural
development programmes
and institutions


To overcome the development challenges facing its
rural and agricultural sectors, the Mexican government
has implemented a collection of well-funded national
programmes, several of which have endured for many
years.


Since the early 1980s, these programmes have gener-
ally followed the country’s overall process of trade lib-
eralization. The liberalization process began as part of
the International Monetary Fund’s (IMF) recommended
reform package after it bailed out Mexico’s govern-
ment during the country’s 1982-3 debt crisis.


Since that time, Mexico’s liberalization programme
has continued to advance, albeit with periods of
rapid change balanced by periods of consolidation.
Progress has manifested into a succession of free
trade-related agreements that Mexico has signed with
trading partners, such as: the General Agreement on
Tariffs and Trade (GATT) in 1986; the North American
Free Trade Agreement (NAFTA) in 1994; and bilateral
agreements with the US in particular in the early
2000s, on deepening NAFTA-related liberalization.


Although it represents just one milestone in Mexico’s
longer liberalization process, NAFTA is rightly regarded
as a watershed moment in the reform of Mexico’s
agricultural policies.


CONASUPO


Prior to 1994, Mexico’s agricultural policies were
centred in the state’s vast National Company for
Popular Subsistence (CONASUPO). The Mexican
government formed CONASUPO in 1965 to
consolidate all of its food regulatory activities into a
single entity. Over the following 30 years, CONASUPO
executed the government’s far reaching intervention
programme in the agricultural sector.


CONASUPO’s two broad objectives were to promote
the international and domestic trade of agricultural
products, as well as guarantee the livelihoods of
low-income farmers. It accumulated a vast network
of subsidiaries involved in activities throughout the


value chain. At its peak prior to the 1982-3 crisis,
CONASUPO regulated markets; supported prices
for eleven crops;55 provided subsidized processing,
logistics and marketing services; and distributed
subsidized food to low-income families. In 1981, its
producer supports, as a per centage of the total crop
value, amounted to 20 per cent for rice, 66 per cent
for the all-important corn crop, and 110 per cent for
barley (Yunez–Naude 2003).


After the debt crisis, its operations were reduced, but
slowly, such that by 1990 it was still active, and even
dominant, in its core portfolio of price support and
marketing activities. In 1991, the government created
a separate marketing agency named Support Services
for Agricultural Marketing (ASERCA) under the Ministry
of Agriculture. At first, ASERCA assumed only some
of CONASUPO’s marketing responsibilities, but its
importance as the institutional structure that would
remain after CONASUPO was steadily unwound.


Post-naFta transition to ProcamPo


A major transition came in 1994, when the Mexican
government eliminated domestic price supports for
corn, which reduced CONASUPO’s marketing role to
a minimum. It continued to act as a more circumspect
buyer of last resort for corn and beans until its final
liquidation in 1999.


At the same time, as it eliminated price supports in
1994, the Mexican government also removed the
second pillar of CONASUPO’s activities – its income
support programmes for farmers. The government
transferred these funds to a new Program of Direct
Payments to the Countryside (PROCAMPO), under
ASERCA.


Ostensibly, PROCAMPO inherited the same objectives
from its predecessor CONASUPO programmes,
namely: a) to improve the competitiveness of Mexican
agricultural exports, now in the new NAFTA zone; and
b) to guarantee the livelihood of small farmers. Initially,
the Mexican Government gave PROCAMPO a set
term of 15 years, ending in 2008, when it intended to
have fully implemented its NAFTA obligations. But the
programme continues as of the spring-summer 2012
growing season.


More important than the institutional shuffle was the
fundamental change in the vector of the government’s
income support programmes. Under previous CO-
NASUPO programmes, income support to farmers
was transmitted through prices, quotas and subsidized




51chaPteR.II:.agriculture commodity policy review for mexico


inputs and services. The big trading companies in the
agricultural value chains dominated the marketing of
major crops and were therefore the main beneficiar-
ies of government market price support. By contrast,
PROCAMPO payments are calculated based on eligi-
ble land (cultivated before 1993 with one of nine key
crops56) and paid as a direct transfer to the producer.


The roster of eligible parcels was established based
on land use as of August 1993 and no new eligible
lands were added after 1994. The roster covers
approximately 95 per cent of the cultivated area in
Mexico that were planted with the target crops in 1993.
Of these eligible lands, PROCAMPO support was paid
on an average of 14 million ha per year. In value terms,
for example, PROCAMPO paid MXN 963 per ha during
the autumn winter season in 2005 (OECD 2006).
PROCAMPO’s budget has remained at approximately
$1 billion through the late 2000s. Since its inception,
PROCAMPO has therefore been Mexico’s largest
agricultural programme, representing approximately
half of its agricultural support expenditures.


To receive PROCAMPO disbursements, farmers who
either own or have usage rights for eligible parcels
must prove that the land for which they are claiming
payment is being used for agricultural production (i.e.
fallow parcels are ineligible). Farmers can apply for two
payments per year under PROCAMPO, based on two
growing seasons.


In the early 2000s, almost 90 per cent of PROCAMPO
recipients cultivated fewer than five ha of land to be
eligible. These smallholders received approximately
half of the total PROCAMPO disbursements. This
smallholder profile corresponds more or less to that
of the ejidatarios that participate in PROCAMPO: 84
per cent of ejidatarios participated in the programme
in 2000, receiving payments for an average of five ha
each (Cord & Wodon 2001).


Gender is another important dynamic of the PROCAMPO
programme. PROCAMPO issues its payments to the
right-holders of eligible land, of which approximately 90
per cent are men (Ruiz-Arranz et al. 2006). To address
this imbalance, the PROGRESA programme, created in
1997 (see below), was designed to channel payments
to households through women.


Other than the biannual review of eligibility and
production proof, the implementation of PROCAMPO
included little follow-up or monitoring (Paul Winters &
Benjamin Davis 2009; Ruiz-Arranz et al. 2006). For
example:


• The proof of planting was rarely visually verified;


• There was little follow-up on whether the crops
were eventually exported, sold locally or con-
sumed by the producer household; and


• There was little follow-up on how the subsidy was
used, for example for productivity enhancing in-
vestments or for consumption.


alianza


In 1996, the Mexican government launched the
Alliance for the Countryside (Alianza), a program
of matching grants for productive investments and
support services to help farmers diversify into export
crops.


After the final liquidation of CONASUPO in 1999,
Alianza became Mexico’s second-largest agricultural
support programme, after PROCAMPO. That said, its
budget is only about 20 per cent of the PROCAMPO
budget, and only 10 per cent of ejidatarios participate
in the Alianza matching grants programme (Cord &
Wodon 2001).


Progresa / oportunidades


In 1997, to complement the production-oriented
PROCAMPO and Alianza programmes, the
Mexican government launched the Program of
Education, Health and Food (PROGRESA, renamed
Oportunidades in 2002). The programme was initially
implemented for poor households in rural areas, but
due to its success, it was expanded to urban areas
in 2001.


Oportunidades aims to reduce poverty among
vulnerable populations by targeting specific vectors by
which poverty is transmitted from one generation to
the next, for example by improving infant and toddler
nutrition; increasing school enrolment rates among
children; and enabling employment mobility for young
adults entering the workforce (Oportunidades 2008).


Oportunidades targets predominantly women and
children and channels its assistance through mothers
(Ruiz-Arranz et al. 2006). It provides poor families
with direct cash transfers to offset children’s school
enrolment fees, as well as fees for the family to visit
medical clinics.


After its creation, the Oportunidades continued to
grow over the next decade. In 2008 it distributed
slightly less than $4 billion to five million Mexican
families across the country (Oportunidades 2008).




52 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


Approximately three million of these families live in rural
areas, representing just under half of all rural families
(Skoufias 2005).


Unlike PROCAMPO, Oportunidades has specific,
long-term objectives. Indeed, since it aims to reduce
the intergenerational transmission of poverty, it has
yet to receive definitive results from its first phase of
operations, despite its 15 years of operation.


To stay focused on its plan and identify any necessary
adjustments to its activities, Oportunidades has
implemented a robust monitoring function that
includes an annual external evaluation of the impacts
of its various programmes.


Pec


By the early 2000s, frustration was high among rural
populations in Mexico about the lack of progress on
poverty and economic development in rural areas. This
discontent coalesced around the peasant movement
El Campo no Aguanta Más (“The Countryside Can
Stand no More”). Along with demands to halt the
expansion of NAFTA, the movement called on then-
President Vicente Fox to commit new funds and new
policies to rural development and food security.


For the Mexican government, pressure from the
peasant movement coincided with the expansion of
agricultural subsidies in the US as part of the US Farm
Security and Rural Investment Act of 2002 (the US
Farm Bill).


In early 2003, the Mexican government passed the
Agro-Food Armour (AFA), a set of policies designed
to counteract the protections contained in the US
Farm Bill. The AFA contained a safety net scheme for
producers of grains and oilseeds, as well as subsidies
on inputs, among other provisions.


Then, in April 2003, the Mexican government signed
the National Farm Agreement (Acuerdo Nacional para
el Campo) with farmer and peasant organizations.
The National Farm Agreement set out a number of
principles related to rural development, food security
and food self-sufficiency.


To preserve a comprehensive vision of rural
development, such as the one framed in the NAC, the
Mexican government grouped all of its programmes
related to rural development into its Special Concerted
Program for Sustainable Rural Development (PEC).
Since 2003, the PEC summarizes and oversees rural
programmes undertaken by a variety of ministries,


including the PROCAMPO, Alianza and Oportunidades
programmes.


In 2006, the total budget of the projects grouped under
PEC was approximately MXN 130 billion, equivalent to
43 per cent of the government budget and 2 per cent
of Mexico’s GDP. Of this total, Oportunidades was the
single largest programme, at approximately MXN 30
billion, and PROCAMPO the second largest at MXN15
billion. Allianza’s budget within the PEC was MXN 6
billion (OECD 2007).


agricultural outcomes


Despite the advent of NAFTA and the recalibration of
government agricultural support from the price-based
CONASUPO programmes to the direct transfer-based
PROCAMPO programme, Mexican small stakeholders
in agriculture have not fully benefited from such
changes and approaches.


The prices farmers receive for their crops have fallen
somewhat, but analysis by Yunez-Naude and Taylor
(2006) suggest this is more or less a continuation of
a general convergence between Mexican and world
prices that preceded PROCAMPO.


Similarly, food imports have made inroads into the
Mexican market since the advent of NAFTA and
PROCAMPO, worsening the country’s agricultural
trade deficits. Moreover, NAFTA appears to have had
a major impact on domestic agricultural production.
For example, the corn imports have led to the dramatic
decline of corn production in Mexico. Within one year,
the production of Mexican corn and other basic grains
fell by half, and millions of peasant farmers lost their
income and livelihoods (IAASTD Global Report, 2009).
The increasing reliance on imports is the continuation
of a trend that began before 1994 (Taylor et al. 2004).


The liberalization of trade and agricultural markets
may have had a negative impact on the environment,
threatening the traditional agricultural ecosystem
and biodiversity in Mexico. A case study from El
Colegio de Mexico found that to cope with the
income reduction, both commercial and subsistence
producers expanded the intensive cultivation of hybrid
maize varieties and abandoned the traditional milpa
system where maize, beans, squash and other crops
are intercropped. Monoculture cultivation became
thus the main feature of the production system, agro-
chemical inputs developed into a necessity, and the
old method based on agro-diversity starts to break
apart (Wise 2007). Monoculture hybrid maize appears




53chaPteR.II:.agriculture commodity policy review for mexico


attractive to producers because it increases yields
and needs less land and labour inputs. However,
monoculture maize requires high level of agro-
chemical use, which pollutes environment and leads
to the loss of local gene varieties.


Because PROCAMPO payments were not linked to
need, a significant portion of them went to owners of
large farms. This state support has served to protect
large farms somewhat from competition in NAFTA
export markets from Canadian and US producers.


Small farmers have in general not used state support
to diversify into other activities or crops, apart from a
small number that used Alianza funds to convert to
fruit and vegetable export crops. Corn remains the
staple crop among small farmers, who produce it for
subsistence and to sell to a healthy domestic demand.


Altogether, government agricultural programmes have
largely failed to spur capacity building investments or
to a diversification of activities among small farmers.
Without these transformations, the rural economy
cannot generate sufficient income opportunities to
overcome poverty among vulnerable groups; much
less dissuade young workers from migrating to the
city.


Regarding productivity and diversification investments,
many producers cite a lack of access to working
capital through credit as a key constraint on improving
and intensifying their agricultural activities.


4. Rural finance


Credit and rural development are linked. In Mexico,
new demands for financial services are emerging from
a process of rural structural transformation that is,
to some extent, bypassing smallholder farmers. The
process of specialization and formalization in terms of
international product standards compliance, demands
comparatively sophisticated financial services.


On the other hand, the rural population, which is
comprised of household-farms with varying degrees of
access to non-agricultural occupations, are struggling
to diversify their sources of income and to manage
risks (financial and climatic) and uncertainty. A different
set of demands for financial services emerge from
such households. These typically smallholder farmers
are often trapped in a vicious cycle of rural capital
formation (see Figure II.3). These farmers demand a
variety of comparatively simple services, such as safe


and convenient savings/deposit facilities, inexpensive
mechanisms to transfer funds, and progressive
access to loans with improving terms and conditions.
In Mexico there are diverse banking systems that
seek to cover the demands for rural, agricultural and
livestock credit.


One of the main issues for small and medium-
scale producers is access to financial services. In
2008, 52 per cent of ‘municipios’ (smallest Mexican
administrative entity) lacked any access to financial
institutions. It is further estimated that only 25 per cent
of adults have access to financial services. This 75
per cent rate of financial exclusion in Mexico is very
high by international standards. In other countries of
the OECD, for example, the average rate of financial
exclusion is only 8 per cent


This is further illustrated in Figure II.4, which shows
that the credit granted by Mexican commercial
and development banks for agricultural, livestock,
forestry and fisheries activities declined sharply during
the period 2003-2004, and although it has since
recovered steadily, it has not returned to 2003 levels.
This was primarily due to the near total disappearance
of development bank lending in the sector since the
third quarter of 2004. Therefore, the overall growth in
the value of credit granted to the agricultural sector is
due almost entirely to the growth in commercial bank
credits.


Low Investment
Rate


Low Per Capita
Income


Low
Productivity


Low Savings
Rate


Figure II.3: Schematic of rural capital formation trap




54 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


Similarly, Figure II.4 shows that credit granted by
development banks for agricultural, livestock, forestry
and fisheries activities in Mexico declined from 3
per cent of the total portfolio of their loans in 2003
to 0.03 per cent in 2011; the equivalent proportion
for commercial banks fell from 2.2 per cent in 2003
to 1.5 per cent in 2011. In recent years, private
commercial banks have reduced their loan portfolio in
the agricultural sector due to:


• High default rates;


• Lower loan repayment rates; and


• Relatively small size of loans.


As such, rural inhabitants tend to borrow from informal
lenders, who tend to offer loans with shorter terms
and higher interest rates than do lenders in the formal
sector.


Compounding the paucity of financial services in rural
areas is the fact that the financial services offered are
often ill-adapted to the needs of agricultural producers,
especially to the needs of small and medium-scale
producers. Loan interest rates are too high and
maturities too short for smaller producers to employ
credit in developing their productive capacities.


This lack of adaptation stems from an observed lack
of interest on the part of financial institutions in Mexico
in lending to the agricultural sector in general, and to
small and medium-scale producers in particular. The
few private banks that operate in the agricultural sector
only deal with large-scale producers and, occasionally,
with producer cooperatives. Existing lenders have
therefore failed to capitalize on the potential demand
for financial services in rural areas.


Financiera Rural,57 Mexico’s development finance
institution for rural areas, has a mandate to improve
access to finance in rural areas, but its services only
reach small farmers indirectly. The stringent regulatory
requirements and cost imperatives have driven
Financiera Rural to focus on the financial services of
large farmer cooperatives. Nonetheless, Financiera
Rural does seek to develop financial service provision
in rural areas, notably through non-bank financial
institutions and capacity-building for rural financial
intermediaries. Table II.4 compares the key features
of financial services offered by Financiera Rural with
those of its predecessor, Banrural.


Micro-finance institutions do exist in rural areas of
Mexico, but they tend to focus mainly on rural non-
farm activity. This is in part due to a regulatory regime


Source: SIAP with figures on funding and financial information of financial intermediaries of Banco de México
forestry and fisheries activities: 2003 – 2011 (nominal balances in millions of pesos (Mexico’s central bank).


Figure II.4: Quarterly credit granted by commercial and development banks for agricultural, livestock, forestry and
fisheries activities: 2003 – 2011 (nominal balances in millions of pesos




55chaPteR.II:.agriculture commodity policy review for mexico


that does not recognize the structural and operational
differences between micro-finance institutions and
large commercial banks. As such, micro-finance
institutions are often constrained in lending to small
and medium-scale farmers because of a scarcity of
accepted collateral among these potential borrowers.
Typically, small farmers have little else but their land
with which to guarantee the repayment of a loan. Most
of these producers are on land that is under Ejido-type
tenancy and whose title is not accepted as collateral
by financial institutions.


The scarcity of rural credit also constrains small
producers by limiting the number of risk-management
tools at their disposal. Agricultural insurance is largely
unavailable to small and medium-sized producers,
as it is most often tied to credit.58 The government
recently put in place a form of insurance for natural
disasters but this has been described by producers
as insufficient taking into account the many types of
risk they face.


Although this section does not disc-uss the potential
impact of NAFTA on agricultural producers and
rural financial intermediation, it is nonetheless clear
that many of NAFTA-related reforms taken by the
government since 1994 impact the rural sector, for


example: (i) the privatization of common property
land, (ii) decoupled transfer payments for subsistence
crops; (iii) the withdrawal of the state from supplying
agricultural inputs and buying outputs, and (iv) the
dismantling of price supports. Perhaps most pertinent
to rural financial intermediation in Mexico, the 1995
devaluation of the peso resulted in drastic declines in
the value of agricultural credit provided by both the
development and commercial sectors.


Figure II.5 shows that the credit provided by
development banks to the agricultural sector –– as
a share of total credit portfolio –– witnessed a sharp
decline between 2003 and 2005. This could probably
be explained by the following two facts: (i) the culture
of non-reimbursement of loans among agricultural
clientele which resulted in a high ratio of non-performing
loans; and (ii) the withdrawal of government support
in agricultural production and marketing in line with
the rules under NAFTA. As a result, the 2002-2003
witnessed a restructuring of rural finance landscape:
the closure of Banrural and the creation of Financiera
Rural in 2003.


From the interviews that UNCTAD’s Special Unit
on Commodities conducted during September to
December 2011 with key rural financial stakeholders,


Banrural
(1975-2003)


Financiera
(2003 to present)


Financiera types of credit Sector specific programs


Development bank focused on
agricultural activities


New Development Agency
focuses on rural productive
projects


Inventory Credits (Depository
Receipts). (Prendario)


PROCAMPO (government
guaranteed);


Preauthorized credit lines for
specific products.


Funding through “unlimited”
access to loans from the Federal
Government;


Highly vulnerable to political
pressures to lend.


Legally banned from taking
deposits, loans or market
funding. It must maintain
endowment value over time to
sustain operations.


Mid-term loans (for any
purpose). (Simple);


Working capital. (Avío)


Agro-industry providers;
Microcredit;


Credit Unions; Other financial
intermediaries


Inefficient cost structure;
operating costs over 100%
of operating income 29% of
Non-Performing Loans (average
1991-2002).


Operates with credit
processes that apply
international best practices. It
has spread payment culture
among clients;


Efficient cost structure 2.88%
Average of Non-performing
loans (2003 – 2006)


Long-term, asset-backed
loans. (Refaccionario);


Factoring (Factoraje)


Specific product programs:
sugar cane, rice, cotton;


Regional programs


Table II.4: Key features of Financiera Rural




56 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


Source: SIAP with figures on funding and financial information of financial intermediaries of Banco de México (Mexico’s central bank).


Figure II.5: Credit given by commercial and development banks to the agricultural sector as a share of total credit
portfolio, 2003-2011


and from the data presented in Section 2 of this
Chapter, it is clear that Mexico’s rural population
requires the following financial services:


•. Intermediation, involving the mobilization and
transfer of savings from surplus to deficit units. It
comprises the provision of safe, liquid and conven-
ient savings (deposit). facilities and expanded ac-
cess to.credit facilities, with all products tailored to
the needs of the rural population.


•. savings. facilities, which allow wealth to be kept
in a durable form while remaining liquid and readily
accessible.


•. credit.for consumption smoothing and for invest-
ment in agricultural production, as well as for mar-
keting, processing and input supplies.


• Locally accessible systems for transacting pay-
ments.and transferring remittances.


• General insurance.as well as cover against vari-
ability in output (especially as agriculture is largely
weather-dependent) and price and marketing un-
certainty.


The importance of credit for the agricultural sector
has often been stressed, particularly as justification
for the failed state and donor-supported subsidised
credit programmes of the 1950-1980s (Richter et al.
2006). To some extent, the Mexican rural economy is
characterised by financial fragility.59 Therefore, a lack
of access to credit tends to be a binding constraint for
small farmers, often limiting investment in productivity-
enhancing technology and inputs, as shown in this
Chapter where very low input often use accounts for
low yields.


Mexican financial markets have the potential to
contribute to increased quantity and quality of
investment in the rural economy. Moreover, improved
access to payments systems offered by Mexican
financial institutions would allow rural producers
and traders to participate in modern, more efficient
commodity trading systems that offer better prices
and reduce corrupt practices (Richter, Boucher and
Woodruff, 2006). It is clear that with greater rural
financial deepening, these institutions could also
provide low-cost, low-risk channels for transfer of
remittances, which are crucial to the coping strategies




57chaPteR.II:.agriculture commodity policy review for mexico


of most Mexican rural households. Despite their
vulnerability, Mexican rural households lack access
to any formal insurance, and thus rely primarily on
informal safety nets. Therefore, they are highly risk
averse, which discourages investment in productivity
enhancement (Richter, Boucher and Woodruff, 2006).


A close look at the distribution of financial institutions
shows a strong regional inequality. Poor states in the
South and South East are particularly affected by financial
exclusion. In the entire state of Chiapas, for example,
there are only 30 bank branches. This means a ratio of
branch to population of 1:160,000. In comparison, the
state of Nuevo Leon in the North has one bank branch
for every 5,500 inhabitants. In terms of cultivated area,
Table II.5 shows a large difference between the Federal
district with other states. This is a reflection of its high
urbanisation, with an understandably high concentration
of non-agricultural activities.


Innovations in the financial system, financial organization,
financial administration and processing and financial
products, as well as the productive use of remittances


will contribute to improving the service offered by
financial institutions in Mexico to their rural clientele.


Financial.system.innovations at the macro level are
aimed at creating a reliable, fair and enforceable legal
and regulatory framework, including standardised
accounting procedures together with politically and
institutionally independent supervisory bodies whose
decisions are strictly enforced. This is crucial in an
environment where there may be a close relationship
between enterprises, banks and state institutions. At
the same time, macro-economic stability is essential
for an efficiently functioning financial system.


The term financial.organisation. innovation refers
to changes in the structure, management, and legal
form of an institution. The restructuring of banking
organisations, with regard to the development of their
capability in dealing with new market segments (e.g.
rural clientele) is particularly important for the loan
departments of rural development banks in most
developing countries. In the case of Mexico, would
it be a more promising option to either establish
new micro-finance organisations (institution building)


Source: SIAP with figures on funding and financial information of financial intermediaries of Banco de México (Mexico’s central bank).
Note: The federal entity registered matches the credit recipient’s place of residence.


A. Commercial and Development Banks B. Development Banks


Figure II.6: Total credit granted by commercial and development banks to agriculture, livestock, forestry and fisheries
activities per federal entities




58 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


State Land use for Agriculture
No. of bank branches per 15km x15 km


of cultivated area


Distrito Federal 2 408 1082.98


Quintana Roo 4 653 33.18


México 1 836 27.29


Nuevo León 2 331 22.32


Baja California Norte 7 536 16.68


Yucatán 1 838 16.16


Morelos 13 343 15.10


Querétaro 19 042 11.65


Jalisco 372 11.14


Baja California Sur 11 943 10.66


Tabasco 14 822 9.81


Aguascalientes 10 642 9.38


Colima 9 035 9.01


Coahuila 18 799 8.67


Guanajuato 10 352 7.67


Campeche 16 273 6.55


Sonora 2 705 6.37


Puebla 5 140 6.01


Veracruz 8 160 4.97


Tlaxcala 15 175 4.80


Michoacán 15 492 4.69


Hidalgo 3 562 4.31


Guerrero 1 037 4.24


Chihuahua 12 845 4.21


Tamaulipas 19 079 4.07


Nayarit 10 602 3.64


Sinaloa 3 856 3.63


San Luis Potosí 20 505 2.98


Oaxaca 2 954 2.68


Durango 22 812 2.09


Zacatecas 2 262 1.17


Chiapas 18 768 0.48


Source: SIAP with figures on funding and financial information of financial intermediaries of Banco de México (Mexico’s central bank).
Note: The number of bank branches divided by the cultivated area in square kilometers, multiplied by 215 km2 equals to an area of


15x15 km, considered a reasonable travel distance to the closest bank office.


Table II.5: Number of bank offices per radius of 15 km of cultivated area per state 2011




59chaPteR.II:.agriculture commodity policy review for mexico


or to strengthen already existing rural financial
intermediaries (institution strengthening)? In Mexico,
the upgrading of, for instance, credit cooperatives into
more commercially oriented banking intermediaries
geared towards the small and medium private
enterprise could be an important innovation, which
to some extent has been encouraged by Financiera
Rural. The most promising options are either to
establish new micro-finance organisations (institution
building) and/or to strengthen existing rural financial
intermediaries such as credit cooperative systems
(institution strengthening).


Process.innovations focus on improving organisational
and service distribution aspects of financial institutions,
such as the simplification of financial transactions. A
process innovation in the area of improved marketing
would be a participatory client approach. To ensure that
process innovations are beneficial to all rural clients, the
target group ought to be included in the design process
of rural institution building.


Financial.product.innovations are defined as new or
modified financial services that have not existed in the
market before or differ substantially from existing ones.
For example, an often emphasised product innovation
is the introduction of flexible savings facilities in rural
financial intermediation. At the rural enterprise level,
deposit schemes reduce the risk of seasonal income
shortfalls, since stress periods can be bridged through
accessing savings. Rural finance schemes that offer
savings contracts are important in improving the capital
and income situation of the rural population. Also,
medium- and long-term loan schemes will be necessary
to restructure Mexico’s private agricultural sector.


Remittances, both domestic and from abroad, are
of growing importance in the livelihoods of rural
households. The key delivery mechanisms, which exist
to transfer remittances both domestically and abroad
include the following formal and informal intermediaries:
small businesses, large corporations, individual
entrepreneurs, and individuals carrying money home
themselves. Hernandez-Coss (2005), in a study of
the US-Mexico remittances corridor on shifting from
informal to formal transfer systems, identified three
stages of basic operations of remittance systems:
origination, system operation and distribution. His
study shows that remittances sent by traditional
channels such as money orders have lost ground
to electronic transfers. In addition, large immigrant
populations helped create a market and competition
for transfer services, therefore reducing transaction


and transfer costs. Interestingly, Hernandez-Coss
(2005) notes that the longer the migrant stays in the
USA, the more the remittances decrease over time. The
use of the “Matrícula Consular”60 was also identified as
one of the key innovations that helped open the door
of formal banking institutions. The study also shows
that the cost of international financial transfer systems
in rural parts of Mexico may be higher than formal
channels, but transactions are faster and delivery is
door-to-door. For most Mexican migrants, although
the cost of the service is important, cultural familiarity
with the channel plays a key role.


Formal money transfer costs range from 4 to 20 per
cent of the value sent, the price of which depends on
the presence of informal networks, aggregate volume
and competition, as well as the presence of banking
institutions and technology. There is rising interest in
promoting systems that reduce the cost of transferring
remittances, as well as strengthening the link between
the flow of remittances and rural enterprise and
community development (Orozco 2003; Orozco 2002).
The following incentives encourage the productive use
of remittances:


• Preferential conditions to import equipment or to
access capital goods;


• Business counseling and training services to re-
turning migrants; and


• Entrepreneurship programmes.


To help maximize potential benefits of remittances,
government and donors need to address transaction
cost and access issues related to monetary transfers
by launching initiatives with bilateral and multilateral
partners to address the physical and regulatory
barriers that may exist.


C. AGRICULTURAL
COMMODITIES:
COMPETITIVENESS AND
VALUE CHAINS ANALYSIS


1. Background


The previous section provided an overview of rural de-
velopment in Mexico and showed how the role of agri-
culture in the national economy has been decreasing.
While agriculture remains the main source of income
for approximately 20 per cent of the population, the
sector experienced a sharp decline over the last twen-




60 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


ty years with its contribution to GDP (agriculture, hunt-
ing, forestry and fishing) decreasing from 7.5 per cent
in 1990 to 4 per cent in 2011. However, in terms of
international competitiveness, the sector maintained
or even slightly increased its strength with a share of
global agricultural commodities exports, growing from
1.2 per cent in 1995 to 1.4 per cent in 2010.


This section discusses the competitiveness and diver-
sification of Mexico’s agricultural sector by focusing on
15 products. It begings with presenting a summary of
the evolution of key variables of these selected prod-
ucts, including their production values, prices, yields,
incomes and participation in international trade. Then
cost, yield and technology data of the selected crop
products is used to estimate gross margins61 and as-
sess their competitiveness at the producer level. The
section then turns to global value chains and the role
of smallholder farmers62 and how they could capture
higher values. For this purpose the value chains of
three key products, namely: coffee, maize and wheat
are analyzed. These products have high economic
and social implications on the agricultural sector in
terms of their relative weight in agricultural output or
international trade, the number of production units in-
volved, their geographical coverage or concentration,


or importance in domestic consumption. The market
segment of high-value agriculture (HVA) products will
then be discussed in the context of product standards
and the functioning of international agro-food mar-
kets. The section will conclude with an assessment
and policies on how smallholder farmers in Mexico
can enhance their competitiveness and better inte-
grate into global agricultural value chains.


2. Agricultural and foods
products of strategic
importance to Mexico


Mexico identified 15 agricultural and food products
(agrifoods) that are of strategic importance for its
agricultural sector (in terms of their contribution to
production values63 and/or growth potential). These
agrifoods include eight crops (barley, coffee, maize,
dry beans, rice, sorghum, sugarcane and wheat), five
livestock products (beef, eggs, milk, pork and poultry)
and two fisheries products (shrimp and tuna). Those
selected agrifoods64 made an important contribution
to Mexico’s total production value of crops, livestock
and fisheries in the period 1990 to 2009 (on average


Source: SIAP
Note: A production unit can be engaged in the cultivation of more than one crop.


Barley


Wheat grain


Sorghum grain


Sugar cane


Cherry coffee


Dry beans


Maize grain


0 500’000 1’000’000 1’500’000 2’000’000 2’500’000 3’000’000


Figure II.7: Number of production units engaged in production of selected crops, 2007




61chaPteR.II:.agriculture commodity policy review for mexico


Source: UNCTAD calculations based on SIAP data
Note: The ratio of production to total population was computed to each year to benchmark the production of staple foods on


population growth. This helps to calibrate raw production figures to interpretable trends.


0


200


400


600


800


1'000


1'200


1'400


1'600


19
90


19
91


19
92


19
93


19
94


19
95


19
96


19
97


19
98


19
99


20
00


20
01


20
02


20
03


20
04


20
05


20
06


20
07


20
08


20
09


Maize grain Sorghum grain Wheat grain


Figure II.8: Evolution of selected crop production (1990-2010 in kgs per caput)


65 per cent). Therefore, the analysis of these agrifoods
has the potential to provide important insights into
agricultural production patterns and competitiveness
in Mexico.


It is important to note that to achieve the objectives of
the diagnosis, quantitative and qualitative analysis was
carried out but several limitations were encountered.
No single measure was sufficient to lead to meaningful
interpretation of production patterns, efficiency of the
marketing system and competitiveness of selected
agrifoods. Therefore, a combination of tools has been
used in the analysis to reach a conclusion about
marketing and product competitiveness. The main
analytical methods used include: descriptive statistics,
gross margins analyses, price and operational
efficiency analyses. Given that more detailed data
were available for crops than for livestock and fisheries,
crop analysis is broader and provides the main basis
for the evidence-based recommendations.


2.1. Agrifoods


Agrifoods production has a long tradition in Mexico.
The distribution of agrifoods production depends
not only on climatic conditions and soil quality of


the area but also on the importance of the crop
for self-subsistence or marketability. Figure II.9
illustrates where the eight selected agrifoods were
predominantly cultivated in 2009 (a state is highlighted
when it produced more than 10 per cent of national
production in that year).65 Coffee, wheat and sorghum
production were particularly concentrated in a few
states while maize was produced throughout the
country. Sugarcane and coffee are perennial crops
while the other crops are grown predominantly during
seasons. In 2007, more than 4.1 million production
units were engaged in the production of these crops
(see Figure II.8) with some units being engaged in the
cultivation of more than one. Multi-cropping as well
as drawing income from several activities (different
agricultural activities or combining agricultural with
non-agricultural activity) work for many smallholder
farmers as essential insurance mechanisms. A
comparison between principal production areas and
incomes below the minimum welfare line (see Figure
II.8) shows that coffee is predominantly grown in the
states with a high share of low-income population
(compared to the national average), while wheat is
mainly produced in the more prosperous state.




62 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


agrifoods production


In terms of production values, the share of the eight
selected agrifoods in the total current production value
of all crops averaged 42.1 per cent during 1990 and
2009. Maize generated the highest value (see Figure
II.8), followed by sugarcane, sorghum and wheat. Rice
and barley accounted for the smallest shares. While all
crops registered increases of production values, a large
part of this was the result of the sharp rise of commod-
ity prices from 1995 to 2008, reflecting the international
commodity boom. Farmgate prices increased similarly
across all products with the exception of coffee, whose
price increased exponentially from 1994 to 2000 before
the sector entered a severe international crisis.


Figure II.8 indicates that the relative production of
wheat has dropped continuously from a per caput
level of 916 to 1,032 kgs in 1990-1996 down to 473
to 623 kgs in 2006-2009. After a lowest performance
at or below 400 kgs per caput in 2003 and 2004,
wheat production has somewhat improved later in the
decade to over 600 kgs per caput. As for maize, the
per caput production remained at about 200 kgs of the
past two decades. That of sorghum has continuously


oscillated between 182 kgs and 205 kgs over the past
two decades. Over two decades, Mexico has not
improved the production of its staples, with respect to
consumption needs of the population.


agrifoods yields


Turning to yields per harvested ha, which are a crucial
indicator of productivity and competitiveness, it is
observed that between 2000 and 2009 the yields of
maize and dry beans increased by more than 30 per
cent while coffee recorded a downward trend (-23 per
cent). The yields of the other crops varied between -4
per cent and 11 per cent. The comparison between
Mexico’s yield to global averages (Figure II.10A and
B) shows that Mexico has a comparative advantage
in sorghum and wheat production, while for rice,
sugarcane, dry beans and barley yields are at a similar
level to the world average, especially in recent years.
On the contrary, yields of maize and coffee production
are below the world average which is partly explained
by maize and coffee being produced by many small
production units that lack access to adequate
technology.


Figure II.9: Main producing states of selected crops, 2009




63chaPteR.II:.agriculture commodity policy review for mexico


Source: FAOstat


Figure II.10B: Yields of dry bean, coffee and rice: Mexico compared to World, 1995-2010


1.6


1.4


1.2


1.0


0.8


Beans, dryC offee, green Rice, paddy


0.6


0.4


0.2


19
85


19
87


19
89


19
91


19
93


19
95


19
97


19
99


20
01


20
03


20
05


20
07


20
09


-


Source: FAOstat


Figure II.10A: Yields of selected crops: Mexico compared to World, 1995-2010


-


0.5


1.0


1.5


2.0


2.5


3.0


19
85


19
87


19
89


19
91


19
93


19
95


19
97


19
99


20
01


20
03


20
05


20
07


20
09


Barley Maize Rice, paddy


Sorghum Wheat




64 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


agrifoods technologies


Access to and use of technologies has a major
impact on the productivity of production and thus
competitiveness. Production methods which comprise
controlled irrigation, fertilizers and improved seeds
lead to higher yields (see next subsection). However,
during the period 1980-2010, production volumes of
irrigated maize, dry beans, sorghum and sugarcane
were lower than production volumes that did not
benefit from irrigation. This suggests that access
to this technology was still limited. For maize and
sugarcane the gap has generally narrowed. Coffee
irrigation is largely non-existent. Wheat production
without irrigation is very low as it can barely grow
without water and is thus economically unsustainable.
Given that wheat is predominantly produced in the
northern states where little rainfall is recorded, one
can infer that irrigation for many wheat producers is
available. Regarding fertilizer and improved seeds,
the available information is limited. However, it can
be said that due to the fact that the price of fertilizer
increased particularly rapidly (in 2008 urea registered
a 59.3 per cent, potash a 184.8 per cent and dap
a 123.6 per cent increase), input-dependent forms
of agriculture have become less profitable. The next
subsection estimates the impact of fertilizers on unit
costs in Mexico.


agrifoods labour inputs


Coffee and sugarcane are highly labour intensive
crops: in 2009 coffee required 124 eight-hour (jornales)
working days per ha and sugarcane 100, while all other
selected crops only required 5. Of the total eight-hour
working days that were required to grow the selected
crops, coffee production absorbed more than 40 per
cent, followed by sugarcane (around 30per cent) and
maize (around 17per cent). Rice and barley (less than
1per cent) generated the least employment. This is not
only the result of coffee and sugarcane being more
labour intensive crops but also linked to the fact that
both are perennial crops while the others are grown
during seasons. In terms of average monthly income,
wheat (~MX$ 2280), sugarcane (~MX$ 2110) and
sorghum (~MX$ 2030) generated the highest monthly
incomes in the second quarter of 2011. At the lower
end were coffee (~MX$ 880), maize (~MX$ 760) and
dry beans (~MX$ 600). Thus, two of the lowest income-
providing crops are at the same time major employers
(coffee and maize), while the second most important
employment generator - sugarcane - produced one of
the highest incomes. Some of these incomes are very
low and risk leaving the producer or the daily worker in
poverty. It should, however, be noted that the farmers
drawing incomes from these crops may be engaged
in more than one activity.


2 500


2 000


1 500


1 000


500


0
Maize Sugar cane Dry beans


2005 2011


Wheat Rice Sorghum Coffee,
cherry variety


Source: SIAP


Figure II.11: Average monthly income (MX$), selected crops




65chaPteR.II:.agriculture commodity policy review for mexico


international trade of agrifoods
products


With regard to international trade, in the period 1991
to 2010 Mexico’s imports of the eight profiled crops
from the world and from the United States evolved
similarly, that is, they increased at similar rates from
both sources. This is not surprising, as a very large
share of imports to Mexico originates from the United
States. Of the selected products, beans, maize and
coffee recorded the steepest increase (1,330 per cent,
950per cent and 910per cent, respectively)66. In terms
of values, maize and wheat were the principal import
crops. The imports of the selected products accounted
for more of the import bill than they generated foreign
exchange. On average in 1991-1993 imports of these
products amounted to more than US$ 1 billion while
they generated US$ 450 million in terms of exports, and
in 2008-2010 these imports increased to an average
of US$ 4.5 billion while they only generated US$ 1.9
billion of foreign exchange, therein registering growth
rates of more than 330 per cent for imports and 320
per cent for exports. As shown in Figure II.12, Mexico’s
trade in these crops with the US and the world has
evolved similarly with both groups. Coffee was clearly
the main export product at the beginning of the period
(see subsection value chain for further discussion) but


it lost its predominant role to sugar/sugarcane as the
principal foreign exchange earner and is also closely
followed by wheat. Rice, wheat and maize exports
were very dynamic but they started from a low base.
Exports were less concentrated in terms of destination
markets than the imports. A detailed discussion of
international trade is presented in Chapter I.


2.2. Livestock


Approximately 314,000 production units were
engaged in animal breeding and exploitation in 2007.
Given that livestock production is less dependent on
weather or soil conditions, it is not surprising that it
is far less concentrated than the production of crops.
Only egg production shows a high concentration,
notably in Jalisco and Puebla.67 Figure II.14 depicts
the states that produce more than 10 per cent of
national total for one of the profiled livestock products
(beef, pork, poultry, milk and eggs).


livestock production values


Production values of the selected livestock products
were stable and similar at the beginning of the 1990s
(Figure II.13). Thereafter, they started a steady increase
with a broadening gap. This is largely explained by the


0


500


1'000


1'500


2'000


2'500


3'000


3'500


4'000


4'500


5'000


Imports from world:
crops


Imports from USA:
crops


Exports to world:
crops


Exports to USA:
crops


AVG 91-93 AVG 08-10


Source: UN Comtrade


Figure II.12: International trade of selected crops (in US$ million) between Mexico and the world and the world and
with the US, 1991-2010




66 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


Source: UNCTAD calculations based on FAOSTAT


Figure II.13: Per caput production of beef, poultry and pork in Mexico, 1980 – 2010 (in kilograms)


Figure II.14: Main producing states of selected livestock and fisheries products, 2009




67chaPteR.II:.agriculture commodity policy review for mexico


underlying evolution of prices, given that farmgate
prices depict a similar pattern with relatively stable
prices at the beginning of the 1990s, followed by
sharp increases and widening gaps. In 2009, the
main product in terms of value was poultry meat,
closely followed by beef and cow milk. Although
egg production has the lowest value, it is crucial for
national consumption given that Mexico’s per capita
egg consumption is the highest in the world.68


As regards production, Figure II.13 shows the per
caput production of key Mexican livestock products
– beef, poultry and pork – between 1980 and 2010.
During this period, per caput pork production dropped
dramatically, from 18-20 kgs to level out at around 10
kgs thereafter. Chicken meat production increased
exponentially from 6 kgs to 23 kgs per caput during
this period. Meanwhile beef production had stabilized
at around 15 kgs per caput since the late 1980s, after
an increase at the start of the 1990s. This trend is
consistent with the number of cows in Mexico, which
has been hovering around seven million animals per
year since 2005. 69


In spite of zero tariff and quota restrictions under
NAFTA to US, the largest destination market for
Mexico’s livestock products, per caput production of
beef and pork has remained static relative to poultry


for the period 1990 to 2010. This trend may be
explained by the lack of investments by small-scale
ranchers in the haciendas of Mexico where cattle is
raised on Common lands with ill-defined ownership,70
high feed costs and adverse weather conditions,
particularly severe drought which limits water supplies
for cattle. Furthermore, price competition from below-
cost imports from U.S. and Canada, particularly after
NAFTA, had contributed to small-scale livestock
producers having to exit or leave the industry.71 For
instance, U.S. exports of beef and veal to Mexico had
increased 278 per cent and 707 per cent in the period
1990-2005 and 2006-20008, respectively.72 Concerns
over food safety and animal-related illnesses, and
increased rejections of Mexican livestock products
at U.S. borders, may have also contributed to the
stagnant production of beef and pork.


On the other hand, per caput production of poultry
remains high in spite of the food safety issues in US,
because the structural changes – increased vertical
integration, substantial protection even after NAFTA73,
and concentration in the hands of few dominant play-
ers74 – in the supply chain as well as the high domestic
demand in Mexico. It is estimated that domestic de-
mand account for over 65 per cent of total production.


Source: SIAP


Figure II.15: Average monthly income (MX$), selected livestock and fisheries, 2005 - 2011




68 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


livestock labour inputs


In terms of labour use, during 2000 to 2009 beef
production accounted for approximately 70 per cent
of the total eight-hour working days of the five selected
livestock products, followed by milk (~19 per cent) and
pork (~9 per cent). Labour use for beef production
also surpassed the crop with the highest labour use
(coffee). Labour use of poultry and eggs was marginal.
Thus relatively little labour input generated a high
production value of poultry. Average monthly incomes
generated by these products during the second
quarter of 2011 are for almost all ‘products’ higher
than for the selected crops (compare to Figure II.11).


However, from these data one cannot derive how
much time was allocated to each product and thus
whether producing the product constituted a full time
activity or allowed deriving income also from other
activities. Moreover, data are only available on an
aggregated level, thus they do not show differences in
farm size, locational and enterprise type factors. Egg
production generated the highest monthly incomes
(MX$ 3,540), closely followed by poultry breeding and
exploitation for meat (MX$ 3,470), then swine breeding
and exploitation (MX$ 3,050), milk (MX$ 2670) and
cattle breeding and exploitation for meat (MX$ 2,080).
Average income generated from swine/pork and


poultry registered a steep increase between 2005 and
2011 (47.2 per cent and 35.4 per cent, respectively)
while the average monthly income for eggs slightly
decreased (-3.7 per cent). It should be noted that
beef/cattle, which is the activity with the highest labour
use, produced the lowest monthly livestock income.
On the other end, egg production, which recorded a
marginal labour use, generated relatively high average
monthly incomes.


international trade of livestock products


Livestock imports to Mexico from the rest of the world
and the United States again show a similar evolution
given that the United States is also the main trading
partner for these products. Between 1995 and 2010,
meat and milk imports amounted on average 20 per
cent of the total food import bill while egg imports
were marginal. Pork and poultry imports from the rest
of the world as well as the United States (and milk
imports from the United States) increased by more
than 450 per cent from 1991-2010. The imports of
the selected livestock products consumed much
more foreign exchange than the respective exports
generated (see Figure II.16), however, imports grew by
260 per cent between 1991 and 2010 while exports
registered stronger growth of almost 1,570 per cent.


0


500


1'000


1'500


2'000


2'500


3'000


3'500


4'000


Imports from world Imports from USA Exports to world


Exports to USA


AVG91-93 AVG08-10


Source: UN Comtrade


Figure II.16: International trade of selected livestock products, 1991-2010 (in US$ million)




69chaPteR.II:.agriculture commodity policy review for mexico


Moreover, the destination markets of livestock exports
were less concentrated than for imports. Beef and
pork are the principal livestock export products but
they are not as important foreign exchange earners
as the principal crop export products (coffee, sugar
or wheat) but they have been dynamic and increased
greatly in the reporting period. Although egg exports
remain marginal despite their recent increase, they
benefit from exceptionally strong domestic demand.


2.3. Fisheries


Four coastal states account for the near totality of tuna
fisheries (93 per cent) and two states for almost 80 per
cent of shrimp fisheries (see Figure II.17).75


Fisheries production values


Data for production values are only available for the
period 2005 to 2009. During this period, on average,
the production/fisheries value of shrimp and tuna
accounted for 53.4 per cent of the total fisheries
production value, with shrimp contributing almost
eight times more than tuna. This latter finding is driven
by significantly higher prices of shrimp. The longer
time series of fishing volumes (Figure II.17) show that
until 2004 tuna production/fishing exceeded shrimp


fishing, but that thereafter shrimp fishing increased
sharply while tuna fishing continued its downward
trend.


Fisheries labour inputs


In 2008, shrimp fishing was undertaken by around
45,000 people or 30 per cent of the total personnel
occupied in fisheries while tuna fishing only occupied
2,000 people. The latter tend to be organized in larger
economic units. As shrimp fishing generated only more
than double the eight-hour working days than tuna
fishing in 2010 (3.7 million versus 1.7 million eight-hour
working days), many shrimp fisheries do not pursue
this activity at a full time basis year around.76 No dis-
aggregated data are available for average monthly in-
comes. As shown in Figure II.15, for the fisheries as a
total, the monthly average income in the second quar-
ter of 2011 stood at MX$ 2910 which is 8 per cent
higher than in the equivalent quarter in 2005.


international trade in fish and fishery
products


Shrimp and tuna imports to Mexico increased during
the period 1991 to 2010. While the United States
used to be the trading partner of almost the totality


Source: FishStat Plus FAO


-


50'000


100'000


150'000


200'000


250'000


19
90


19
91


19
92


19
93


19
94


19
95


19
96


19
97


19
98


19
99


20
00


20
01


20
02


20
03


20
04


20
05


20
06


20
07


20
08


20
09


20
10


Shrimps, prawns


Figure II.17: Production volumes of selected fisheries, 1990-2010




70 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


of these imports at the beginning of the 1990s,
this has changed dramatically. They now account
for less than 5 per cent. Shrimp and tuna imports
account for a very small share of the food import bill,
but shrimp is an important foreign exchange earner
(with the United States being the predominant export
market). Destination markets of tuna exports are
more diversified than those of shrimp. Although less
important in terms of value, tuna has been a more
dynamic export product, recording a growth rate of
almost 400 per cent in the reporting period. In total,
Figure II.18 shows that fisheries generated more
foreign exchange than they absorbed through imports.
This finding contrast with those of the selected crops
and livestock products.


3. Technologies and
competitiveness of
selected agrifoods
production and trade


The present context of economic openness of the Mexican
economy, with the ensuing growth in access to imported
crops, is putting pressure on the competitiveness of
Mexican agricultural sector. This threatens the livelihoods
of small and medium-scale farmers that are highly
dependent on this activity as it represents the main
source of their annual income, and whose productive
capacity and crops yields are, in general, less competitive
compared to international standards.


To reinforce the economic sustainability of these small
and medium-scale producers and to increase their
competitiveness, the introduction of irrigation and
improved farm management practices, including the
use of high quality seeds, fertilizer and new technology,
are increasingly necessary. These practices must be
precisely targeted to generate the best possible impact
on higher yields and sustainable incomes for producers.


However, the way to reach higher crop yields to
produce a positive impact on margins is not a simple
task. It raises important data measurement and sample
size requirements, as well as interpretation concerns,
since yields, along with the technology used, are
affected over the course of time by exogenous factors
such as rainfall. Agriculture practices such as mixed
(inter-) cropping and multiple or continuous harvesting
also affect the output.


From the producer’s perspective, productivity
improvements rely on two basic elements: the increase
in productivity (better yields) and the reduction of unit
costs. This latter factor is key to ensure competitive
margins for small and medium-scale farmers, since
they are basically price takers and lower unit costs
strengthen competitiveness in the context of prevalent
price fluctuations.


The introduction of new technologies must prioritize
these two elements. In order to contribute towards a fo-
cused and efficient implementation of policies aimed at
increasing the competitiveness of the agricultural sec-
tor, this section analyzes the impact of different tech-


Source: UN Comtrade


0


50


100


150


200


250


300


350


400


Imports from world Imports from USA Exports to world Exports to USA


AVG91-93 AVG08-10


Figure II.18: International trade of selected fisheries products, 1991-2010 (in US$ million)




71chaPteR.II:.agriculture commodity policy review for mexico


BMF Pump irrigation, improved seeds, fertilizer applied


BCF Pump irrigation, indigenous seeds, fertilizer applied


BMS Pump irrigation, improved seeds, fertilizer not applied


BCS Pump irrigation, indigenous seeds, fertilizer not applied


GMF Surface irrigation, improved seeds, fertilizer applied


GCF Surface irrigation, indigenous seeds, fertilizer applied


GMS Surface irrigation, improved seeds, fertilizer not applied


GCS Surface irrigation, indigenous seeds, fertilizer not applied


TMF Rain-fed, improved seeds, fertilizer applied


TMS Rain-fed, improved seeds, fertilizer not applied


TCF Rain-fed, indigenous seeds, fertilizer applied


TCS Rain-fed, indigenous seeds, fertilizer not applied


Table II.6: Technology combinations


nologies and agricultural management practices in the
competitiveness of Mexico eight main crops. Based on
national panel data for 200577 provided by the Mexican
government, for each crop, a comparison was made of
yields and unit production costs from different combi-
nations of technologies (for which data were available)
based on the following three production variables:


• Irrigation: pump irrigation (B), surface irrigation (G)


or rain-fed (T)


• Fertilizers: applied (F) or not applied (S)


• Seeds genetic improvement: indigenous (C) or improved (M)


Table II.6 lists the technology combinations assessed:


Barley Coffee Corn Beans Rice Sorghum Sugar Cane Wheat


Tons/
Ha


$/Kg.
Tons/
Ha


$/Kg.
Tons/
Ha


$/Kg.
Tons/
Ha


$/Kg.
Tons/
Ha


$/Kg.
Tons/
Ha


$/Kg.
Tons/
Ha


$/Kg.
Tons/
Ha


$/Kg.


BMF 7.50 1.54 6.32 1.64 2.05 4.55 4.61 1.62 8.67 1.45 84.25 0.33 6.90 1.52


BCF 4.18 1.96 1.39 6.43


BMS 5.00 1.04


BCS 1.65 4.69


GMF 8.50 1.10 5.83 1.47 1.88 6.08 8.33 2.33 9.63 1.14 98.71 0.23 6.15 1.50


GCF 3.66 2.14


GMS 2.25 1.44 4.50 1.19


GCS 2.50 1.51 1.50 5.16


TMF 3.15 2.16 2.50 4.25 2.62 2.53 0.75 7.54 3.50 1.70 4.92 1.51 51.00 0.22 2.50 2.61


TMS 1.41 2.97 0.54 5.11 2.50 1.42


TCF 2.00 2.15 5.00 2.54 2.48 2.74 0.64 7.51 71.25 0.27 2.40 2.85


TCS 1.58 2.27 1.50 2.86 0.63 8.21


Average 5.29 1.74 3.03 3.02 3.28 2.13 1.22 6.14 5.48 1.89 5.87 1.29 76.30 0.26 4.49 2.12


Min 2.00 1.10 1.58 2.27 1.44 1.44 0.54 4.55 3.50 1.62 2.50 1.04 51.00 0.22 2.40 1.50


Max 8.50 2.16 5.00 4.25 6.32 2.97 2.05 8.21 8.33 2.33 9.63 1.51 98.71 0.33 6.90 2.85


Source: SAGARPA.


Table II.7: Yields and unit costs per crop and technology combination


The average yields (Tons/ha) and unit costs ($/kg) for each combination of technology available are the following:




72 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


3.1. Technology impacts on yields


Regarding the impact on yields of the different
combinations of technologies, results suggest that, in
general terms, the introduction of methods comprising
controlled irrigation (B) and (G), as well as fertilizers
and improved seeds, have positive impacts on yields
per ha.


Controlled irrigation provides a significant increase in
yields in most of the crops analysed. In the case of
wheat, barley and maize, the introduction of controlled
irrigation (pump or surface) increases the yields in
almost 150 per cent. The availability of water for these
crops in very specific stages of their development
is vital for the plant growth and the grain formation,
which is a critical factor to obtain higher yields that
cannot be controlled in rain-fed plantations.


Accordingly, the greatest dispersion in yields is
observed in the rain-fed group (T), normally associated
with producers with less resources. In this group, the
high dependence on seasonal availability of water has
negative effects on predictability of output, increasing
the risk margin for small producers. This is the case
of cherry coffee, typically produced mainly by small
farmers in the South of Mexico (Chiapas, Puebla,
Oaxaca, Veracruz) and which rely mainly on rainfall for
water supply. In these states, the effects of climate
change on rain can have a negative impact on the
yields and the quality of their production, damaging
the annual income for many poor familiesResults
also indicate that, in order to obtain higher yields,
the variables “fertilizers” and “seeds” are mutually
dependent. That is, the application of fertilizers gives
rise to increases in yields per ha, which are higher when
improved seeds are used. Likewise, improved seeds


Technology change impact Tons/ha. All


From Tons./Ha w/Fert w/lmp. Seed w/Fert+Seed w/irrig. B w/Irrig. G w/Irrig. G


BMF 6.32


BCF 4.18 2.15


GMF 5.83 0.50


GCF 3.66 2.16 0.51


GMS 2.25 3.58


GCS 2.50 1.16 -0.25


TMF 2.62 3.71 3.21


TMS 1.44 1.17 0.81 4.38


TCF 2.48 -1.03 1.70 1.19 3.35


TCS 1.50 0.97 -0.06 1.11 1.00 4.32


Table II.8: Impacts of technological improvements on yields in maize


Source: SAGARPA, UNCTAD calculations.


,


0.0


2.0


4.0


6.0


8.0


10.0


BMF GMF TMF TCF


Barley -Tons/há


0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0


BMFB CF GMFG CF GMSG CS TMFT MS TCF TCS


Corn -Tons/há


0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0


BMF GMF TMFT CF


Wheat -Tons/há


Source: SAGARPA, UNCTAD calculations


Figure II.19: Effects of selected technologies on yields of wheat, barley and maize




73chaPteR.II:.agriculture commodity policy review for mexico


translate into better yields mainly when fertilized, which
confirms that good quality seeds can only develop to
their full productive potential in an environment that
allows them to do so. Hence, with many crops, best
yields are obtained when combining technological
upgrades (simultaneously introducing more than one
“technological variable”).


A good example of the abovementioned relation is
seen in the case of maize (see Table II.8). In the group
of surface irrigation (G), the estimated increase in yields
is 3.58 tons/ha when adding fertilizers to improved
seeds, and only 1.16 tons/ha when adding it to
indigenous seeds. The switch from indigenous seeds
to improved seeds but without the use of fertilizers
(GCS) generates a loss in yields (-0.25 tons/ha), which
reverts to a rise of 2.16 tons/ha when fertilizers are
added. The combined effect of fertilizers and improved
seeds generate an increase of 3.33 tons/ha.


3.2. Technology impacts on unit
costs


The analysis of technological impacts in unit costs
confirms, to a considerable extent, what has been
said about yields, especially in the case of grasses or
extensive crops– with substantial economies of scale–


like barley, maize and wheat. As seen in the graphs
below, for these crops, the introduction of irrigation
technologies has positive effects in reducing unit
costs.


Nevertheless in certain crops, although technological
improvements in irrigation bring about better output
levels, yield growth is not proportional to associated
cost increases, and unit costs rise. For example, in
sugarcane production, unit costs grow significantly
when introducing pump irrigation.


Introducing fertilizers and improved seeds has
mixed impacts in unit costs. It is not evident that
the widespread use of these inputs will always have
positive effects in crops competitiveness. Depending
on the initial technological situation, the cost increase
associated with the innovation may be proportionately
superior to its results in terms of yields, generating a
reduction of unit margins. While at producer’s level
this may amount to better total profit margins (when
the increase in yield is proportionately superior to the
decrease in unit margin in absolute terms), high unit
costs widen the vulnerability of margins to falling sale
prices.


For example, in the case of rain-fed (T) maize (see Table
II.9), adding fertilizers or improved seeds separately
varies unit costs increases in -$0.12/kg and $0.11/kg,


Barley S/kg


-


0.5


1.0


1.5


2.0


2.5


BMF GMF TMFT CF


Corn S/kg


-
0.5
1.0
1.5
2.0
2.5
3.0
3.5


BMF BCF GMF GCF GMS GCS TMFT MS TCFT CS


Wheat S/kg


-


0.5


1.0


1.5


2.0


2.5


3.0


BMF GMF TMFT CF






-
0.1
0.1
0.2
0.2
0.3
0.3
0.4


BMF GMF TMFT CF


Sugar Cane S/kg


, Figure II.20: Effects of selected technologies on unit costs of wheat, barley, maize and sugarcane




74 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


Technology change impact Tons/ha. All


From Tons./Ha w/Fert w/lmp. Seed w/Fert+Seed w/irrig. B w/Irrig. G w/Irrig. G


BMF 1.64


BCF 1.96 -0.31


GMF 1.47 0.17


GCF 2.14 -0.67 -0.18


GMS 1.44 0.03


GCS 1.51 0.63 -0.07 -0.04


TMF 2.53 -0.88 -1.06


TMS 2.97 -0.45 -1.53 -1.50


TCF 2.74 0.23 -0.78 -0.60 -1.27


TCS 2.86 -0.12 0.11 -0.34 -1.35 -1.39


Table II.9: Impacts of technological improvements on unitary costs in Maize


Source: SAGARPA, UNCTAD calculations.


respectively. The mutual dependence of both inputs
is confirmed: their combined introduction generates
a decrease of $-0.34/kg in unit costs. The same
«combined effect» is evident in irrigated maize (G).


Therefore, technological changes and new practices
may have different effects in yields and unit costs. Their
impact varies significantly with types of crops, initial
technological situation and implementation method
(combined or separate introduction) of technological
inputs.


Preliminary results demonstrate that the design of
efficient policies aimed at increasing the agricultural
sector’s competitiveness has to be crop-based and
must take into account the initial technological level
of the producer (or producing area), as well as the
combination effects of technology changes applied.
Since farmers in Mexico do not all have the same
realities, the impact of the same policy can differ
widely on their margins, which can lead to poor results
at a national level.


Nevertheless, it must be considered that– apart
from its effects in higher yields and lower unit
costs– technological improvements have qualitative
benefits on products, including better output quality,
homogeneity and predictability, which also reduce the
risks of output volatility. These characteristics not only
increase the competitiveness of the commodity and
open better market niches but also facilitate its use
as collateral to access to working capital financing or
even to new investments in technology.


3.3. Technology impacts on
margins


The purpose of this part is to estimate the producer’s
margins for the selected 8 crops and-- in each case-
- the effect of different types of technology on these
margins. This exercise gives a broad mapping of the
profitability of these crops in the Mexican agriculture
sector, as well as a quantification of the impacts that
the different technologies methods can have on the
producer’s margins.


Establishing an indicative producers’ sales price is
crucial to calculate margins, since with the same unit
costs, unit margins may differ considerably depending
on sales prices. These can vary greatly depending on
the geographical area, the distance to consumption
centers and the potential import centers, as well as
on the concentration of supply in a region. To capture
these differences among markets, annual average
prices per state and crop published by the SIAP are
used. Likewise, to reflect more accurately the margins,
the difference between production and harvest/sale
periods must be taken into account. In this case, since
the production costs of spring-summer 2005 and
autumn-winter 2005/2006 correspond to harvests
sold mainly in 2005 and 2006, the average prices for
both years were used.


In Mexico, the farmgate prices of the eight crops
show important differences among states. Higher
production areas closely related to main trade
channels tend to have greater influence in price
formation. On the contrary, in remote areas lacking




75chaPteR.II:.agriculture commodity policy review for mexico


good transport infrastructure and in which production
is internally traded, including through retail sale, prices
may be extremely high or very low. For example, wheat
prices are lower in the North ($1.7/kg in Sonora, Baja
California), an area which concentrates 60 per cent
of the crop’s national production and is very exposed
to imports from the United States, and higher in the
South ($2.6/kg in Chiapas, Veracruz, Oaxaca), an
area that accounts for 1 per cent of national wheat
production. On the other hand, more geographically
concentrated crops have more uniform prices. For
example, sugarcane prices show an 8 per cent
deviation from average.


According to Table II.10, estimated margins of the eight
main crops differ widely. Sugarcane shows the higher


margins per ha with a maximum of $ 13,438, and
coffee the lowest with a minimum of $ 4,064. Within
crops, there are also wide dispersions depending on
the technologies used, especially in sugarcane, barley
and wheat.


Figure II.21 shows a clear positive correlation
between technology and profits in most crops,
especially in maize, wheat and beans. The analysis
also corroborates the effectiveness applying fertilizers
together with improved seeds. For example, in the
case of maize and beans, the gains amount to $0.3/
kg and $1.7/kg, respectively.78


But the most evident conclusion of this exercise
is the dependence of profits on irrigation. With the
exception of sugarcane, negative margins are highly


-
-
-
-
-
-


TCFT CS


1.0
0.8
0.6
0.4
0.2


0.2
0.4
0.6


BMF BCF GMF GCS TMFT MS TCFT CS


Corn $/kg.


-1.5


-1.0


-0.5


-


0.5


BMF GMF TMF TCF


Wheat $/kg.


-2.5
-2.0
-1.5
-1.0
-0.5
-
0.5
1.0
1.5
2.0
2.5


BMFB CF BCSG MF GCST MF TMS


Beans $/kg.


GMSGCF


Source: SAGARPA, UNCTAD calculations


Figure II.21: Effects of selected technologies on margins earned on corn, wheat and beans


Barley Coffee Corn Beans Rice Sorghum Sugar Cane Wheat


$/kg $/ha $/kg $/ha $/kg $/ha $/kg $/ha $/kg $/ha $/kg $/ha $/kg $/ha


BMF 0.29 2’152 0.06 382 1.83 3’758 0.23 1’051 -0.02 -161 0.04 3’591 0.14 954


BCF -0.26 -1’089 0.30 420


BMS 0.18 924


BCS 1.73 2’858


GMF 0.76 6’431 0.30 1’757 0.96 1’804 -0.12 -1’012 0.33 3’221 0.14 13’438 0.11 674


GCF -0.17 -636


GMS 0-06 132 0.13 591


GCS 0.40 1’009 1.75 2’628


TMF -0.09 -286 -1.63 -4’064 -0.57 -1’480 -0.13 -95 0.15 512 -0-07 -359 0.16 8’186 -0.91 -2’282


TMS -0.91 -1’317 0.98 524 -0.15 -369


TCF -0.12 -238 -0.26 -1’312 -0.74 -1’843 0.09 59 0.09 6’347 -1.14 -2’743


TCS -0.05 -79 -0.86 -1’298 -1.84 -1’147


Average 0.21 2’015 -0.65 -1’818 -0.27 -438 0.63 1’201 0.08 184 0.07 641 0.11 7’891 -0.45 -849


Min -0.12 -286 -1.63 -4’064 -0.91 -1’843 -1.84 -1’147 -0.12 -1’012 -0.15 -369 0.04 3’591 -1.14 -2’743


Max 0.76 6’431 -0.05 -79 0.40 1’757 1.83 3’758 0.23 1’051 0.33 3’221 0.16 13’438 0.14 954


Table II.10: Margins per crop and per crop and technology combination ($/kg and $/ha)


Source: SAGARPA, UNCTAD calculations.




76 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


concentrated in the rain-fed group. These figures
confirm that the lack of irrigation affects almost all
crops, and represents a limitation that threatens
the competitiveness of broad sections of small and
medium-scale farmers, who depend on rain to grow
their crops.


Negative margins are not only an indicator of the low
level of economic efficiency in the agricultural sector,
but also of the low annual family income received by
small farmers. In calculating these margins, unit costs
data incorporate all necessary production activities at
market value, including the cost of activities normally
performed by small farmers with their family group
such as preparing the soil, applying fertilizers and
herbicides or manual harvesting, among others.
Since, in practical terms, small farmers production
decisions are limited to cash flow criteria, these costs
are not considered into their real cash outflows. Thus,
only the result of the comparison between how much
they receive and how much they paid is relevant for
them to produce year by year, since this difference
represents the retribution for their work and, at the
end, their annual income.


For example, in the case of coffee in Mexico (which
only shows negative margins) the following figures
were found:


• Technology level: TCF (rain-fed agriculture)


• Total cost: $12,721/ha


• Yield: 5.0 tons/ha


• Sales price: $2.28/kg


• Revenue from sales: $11,409/ha


• Profit: $ - 1,312/ha


The unit margin is negative; but the costs of manual
activities-- carrying, pruning, weeding, application of
fertilizers, etc.-- add up to $12,000/ha (of $12,721/
ha of total costs). Since these activities are normally
performed by the farmers and their families, their direct
profit (in cash terms) is: $12,000 -$1,312 = $10,688
per ha. Farmers owning 5 ha of land would have an
annual income of $ 53,444 or $ 4,100 dollars. Since
this is their main source of income, they will continue
producing despite negative margins.


That is why these economic inefficiencies, reflected
in negative economic margins, tend to perpetuate
themselves in small-scale farmers and poverty. As
their annual income reaches the level of subsistence,
farmers are unable to undertake significant changes in


their productions systems. They face restrictions such
as the impossibility to introduce structural changes
in their lands (because of the need for investments
and the limitations embedded in the type of soil
or the geographical area), their lack of knowledge
(or of means of access to knowledge) to switch to
more profitable crops, and the cultural attachment to
agriculture, as the sole source of income for the whole
family.


4. Value chain analysis


The following section provides an analysis of the value
chain of three main crops- wheat, coffee and maize.
They have been selected due to the high economic
and social implications that these activities have in the
agriculture sector, which is reflected in their weight in
the sector’s output, the large number of production
units involved, their extensive or highly concentrated
geographical coverage and their importance in Mexican
consumption. In terms of production dispersion, maize
is produced practically in all the country, while 80 per
cent of wheat production is concentrated in the north
and northwest region, and almost all the coffee comes
from the south and southwest. In 2009, these three
activities accounted for almost a third of all 8 hours
working days reported for the 15 profiled products.


Commercialization and final consumption of these
products have a relevant social impact on Mexican
families, as they are not only a major source of income
and auto-consumption for small producers, but also a
key component of the Mexican daily diet. Wheat and
maize represent over 90 per cent of family expenditure
in cereals and are by far the most important crops
imported. Coffee is produced in one of the poorest
regions of Mexico, mainly by small holders (often
indigenous), for whom it represents the main source
of work and annual income for entire family groups.


Therefore, the mapping of these value chains would
be broadly representative of the main relations, actors
and market structures that are currently operating in
the agricultural sector.


4.1. wheat value chain


The wheat value chain (depicted in Figure II.22) is
composed of four stages: (i) production, (ii) storage
and trading, (iii) processing, and (iv) final commer-
cialization. Wheat is not consumed raw; it requires a
transformation process, starting with milling in order




77chaPteR.II:.agriculture commodity policy review for mexico


to produce flour. The flour industry is thus a strategic
segment in the wheat value chain. The main demand
for wheat comes from this industry, which in turn pro-
vides the raw material to the final-product producers,
which are dominated by the bread industry. The qual-
ity of these final products depends on the quantity and
quality of the protein present in the grain.


Primary production -- crop growing -- occurs in more
than 20 states. The main producer states are Sonora,
Sinaloa, Baja California, Guanajuato, Michoacán,
Chihuahua, Jalisco and Tlaxcala, in the northwest of
the country, accounting for more than 90 per cent
of national wheat production. The autumn-winter
season represents almost 90 per cent of yield for the
agricultural year, and the spring-summer season, the
remaining 10 per cent. This is due to the fact that
the crop requires the greater humidity and milder
temperature prevalent in northwest and north states in
the later months of the year. Therefore, the bulk of the
annual harvest (almost 85 per cent) is concentrated
between May and June,and, according to the Census
of Agriculture 2007 (INEGI), 53.575 production units
were involved in the wheat crop, resulting in an
average area of 13 ha each.


In wheat production, there is high differentiation
depending on the industrial use and final product for
which the crop is intended. As said, the quality of
the final product relies on the type of flour used and,


ultimately, on the content and quality of protein in the
grain.


The most common grain type produced in Mexico
is durum wheat. The national production of durum
wheat meets the demand of specific national industrial
sectors (mainly pasta manufacturers) and is even
exported. However, national wheat production falls
short of the demand for bread making wheat-- a
softer type of wheat.79 Thus, the processing industry
is constantly turning to the international market for
supply. In 2005, the national production of group V
wheat (hard or durum) accounted for 44.4 per cent
of total national wheat production; that of the group
III (soft), for 53.2 per cent; and those of the groups I
and II (hard and semi-hard), for 1.0 per cent and 1.3
per cent, respectively. As a general rule, durum wheat
reaches better prices in the international market and,
in consequence, in the national market. Lowest prices
are paid for soft wheat.


Imports to cover the bread-making demand come
mainly from North America (75 per cent of them from
the United States). There are three main entry areas:
the Mexican Gulf (Veracruz and Yucatán), the border
with the United States (Tamaulipas, Sonora, Coahuila
and Chihuahua) and the Pacific (Michoacán y Colima).
Wheat coming from the U.S. enters mainly through the
former two areas, which in 2010 concentrated 52 per
cent and 32 per cent of total imports, respectively.


Process


Actors Input suppliers FarmersI ntermediariesW heat processorsF lour processorsW holesalers
stekramrepuS.cosa srellim egraLstnegA edarTsredloh llamSsremraF Retailers


stekramrepuSseirekaBsrellim lacol dna llamSsevitarepooc srecudorPsredloh egraLyrtsudnI


stnaruatseRsrotarobale atsaPsretropxEsevitarepooC srecudorP


Transport companies Small shops


Local Markets


Pre-production


- Inputs (land, plants,
labour, fertilizers,


machinery)
- Extersion services


Local wheat
production


Storage


Final and
domestic


consumption


Wheat Industrial
processing


- Milling


Flour Industrial
processing


- Bread industry,
- Pasta elaboration,


- Cookies,
others


Imports
(Wheat)


Animal
feeding


Exports
(Wheat)


Marketing and
final


distribution


Imports
(Flour)


Primary production Wheat ProcessingStorage and trading Final comercialization


Transport


Transport




Figure II.22: Wheat value chain




78 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


Wheat trading involves three basic channels: (a)
commission agents (brokers); (b) traders, credit unions
and agricultural associations; and (c) producers selling
directly to the milling industry. The former two channels
concentrate most of the volumes; however it depends
in the region. For instance, Baja California is dominated
by brokers, who buy the grain to the milling industry
or for trading companies, whereas in the Northwest
area, trading companies prevail, acquiring the wheat
to re-sell it to the agro-industry. Direct sales to agro-
industry, through farm organizations or individual
producers, are mechanisms that are not relevant due
to their high degree of dispersion80


Installed milling capacity includes 93 active mills (each
with a daily capacity oscillating from 40 to 1,600
tonnes), which are mainly grouped in the Millers´
National Association (Cámara Nacional de la Industria
Molinera de Trigo, CANIMOLT) that represents more
than 80 per cent of the national milling industry.
According to this association, in 2010 the wheat
supply for the milling industry reached 5.7 million
tonnes, of which 60 per cent came from imported
sources and 40 per cent from national production. It
should be mentioned that many mills are far away from
production areas-- increasing wheat transport costs--
and closer to consuming areas, to the advantage
of the bread industry, which sees its transport cost
reduced. Table II.11 shows that Northwest region


concentrates 71 per cent of the wheat production and
consumes only 9 per cent, while 55 per cent of the
wheat consumption is done in the Metropolitan, South
and Southwest regions of Mexico.


In 2010, production of flour for final consumption was
of 4,256 tonnes, and final consumption covered bread
- artisan and industrial - (67 per cent), cookies (12
per cent), pasta (10 per cent), tortilla and others (11
per cent). Commercialization of end products to end
consumers is mainly done by big supermarket chains
and small neighborhood shops.


As mentioned above, wheat products are important in
the Mexican diet. According to data from the National
Survey on Household Income and Expenditure,
in 2000-2004, 19 per cent of household current
expenditure on food and drink was allocated to cereals
and, from this percentage, 41 per cent corresponded
to wheat products.


According to figures from SIAP (SIAP 2007) for 2006,
the average farmer’s price represents only 39 per cent
of the final product sold to the consumer. Taking as a
reference the average production cost for wheat in the
2005 sample data, the gross margin for the producers
would represent around 5 per cent of the total margin
of the value chain. Likewise, that margin is about 8 per
cent of the selling price for producers.


2010 Production (%) Milling Consumption (%) Floor Consumption (%)


Northwest 71 9 11


North 10 14 13


Center - West Region 18 22 27


Metropolitan Region, South-South West 2 55 48


Total 100 100 100


Table II.11: Wheat production, milling and flour consumption in Mexico, 2010


Source: CANIMOLT.


$/kg. - 2006 Cost Price Margin % Marg/Price % Marg/Com. Mg


Producer 1.82 1.98 0.16 8 5


Wholesale 1.98 3.62 1.64 45 50


Retailer 3.62 5.09 1.47 29 45


Commercialization Margin: 3.27


Producer Price / Final price: 39%


Table II.12: Distribution of price margins along wheat value chains


Source: SIAP.




79chaPteR.II:.agriculture commodity policy review for mexico


Likewise, and according to the SAGARPA,81 primary
wheat production represents only 8 per cent of the
total value of the wheat chain, while the industrialization
of wheat reaches 91 per cent, corresponding to 20
per cent milling, biscuits and pastries to 19 per cent
and 51 per cent bakery, figures that confirms the low
participation of the wheat producers in the value chain.


strengths and weaknesses of the wheat
value chain


Strengths:


• Products derived from wheat are staple foods, and
domestic consumption is likely to increase. (Per
capita consumption: Mexico 48 kgs vs. 180 kgs
per year recommended by FAO).


• Geographic location near world’s largest wheat ex-
porter (USA) allows an easy access to ensure the
annual supply of wheat for milling industry and to
cover the consumer’s requirements of quality.


• Local yields are above the world average, and
there is high potential to improve them by incorpo-
rating new technology and varieties.


weaknesses:


• The Pricing formula, based on import parity, trans-
mits the volatility of international prices and ex-
change rates to the internal market (C. Salazar - V.
Suarez).


• The distance between production areas and con-
sumption areas increases transportation costs
and, according to the price formula, reduces the
reference price paid to producers.


• Small production units prevent substantial im-
provements in competitiveness. These are repre-
sented in high production costs and low margins.


• Wheat production is not adapted to the varieties re-
quired for the local consumption, depending on im-
ports to supply the quality required by the market.


• There is a lack of organization of small farmers.
Moreover, there is a certain degree of politicization
of existing producer organizations, whose objec-
tives may differ from the objective to boost agricul-
ture (C. Salazar).


• Poor logistic infrastructure and high transportation
costs.


• Underutilized rail network with high tariffs.


• Transportation must be done mainly by land,
which limits the charge to a maximum of 61 tons
of payload.


• Excessive participation of intermediaries in com-
mercialization.


• Commercialization margins show that producer’s
low gross margin represents a small proportion of
the total value chain, discouraging production.


Regarding market operation, there are certain
segments in the value chain where concentration of
market power in the hands of a few players is evident,
which may reduce competitiveness. In the presence
of market concentration, increases in prices and
costs are distributed asymmetrically along the value
chain: the most concentrated sectors (input suppliers,
intermediaries, millers or wholesalers) may defend
or increase their margins by transferring upstream
or downstream cost variations, affecting consumer
prices or producer margiIn fact, transnational
grain traders have had increasing influence in the
production, storage and transportation of bulk wheat
(V. Suarez-CANIMOLT). This is because their higher
operation volumes allow the integration of the local
transport systems with the U.S. (rail transport in
combination with the operation in port facilities), which
can determine the origin of the wheat consumed,
and can influence domestic prices, as well as the
production and marketing of domestic wheat by the
sales of seeds, fertilizers and the storage provision.


Similarly, according to miller’s organization information
(CANIMOLT), some degree of concentration has
been formed in the flour processing sector, where
there are large customers who impose their purchase
conditions and price on small and medium millers.


The atomization of wheat farmers is a structural
negative element in the value chain. It prevents
producers from organizing themselves to increase
their power in buying inputs and selling their products
to the processing industry. In practical terms, the
local demand for wheat may be met by the trading
companies and brokers, who are able to manage big
volumes and provide the type of grain that the milling
industry requires. Furthermore, the easy access to
imports of wheat from the U.S. makes arbitration
possible for these big buyers, and the fact that most
of the Mexican wheat harvest is concentrated in a
short period of time limits the possibilities for small
producers to negotiate better prices.




80 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


general recommendations


The integration of small and medium producers
necessarily require a more effective and representative
organization. This would optimize the use of state
benefits for increased yields, the purchase of inputs
at convenient prices, the access to better storage
facilities and the acquisition of technology that would
ultimately improve production margins.


Along with the abovementioned, improvements
in infrastructure and logistics would have a direct
impact on the selling price of the producer. Low
value added products such as agricultural grains
are the most sensitive to logistical operation costs.
Therefore reducing transport costs from producers
to consumers would be particularly beneficial. To this
end, it would be advisable to study a way to improve
rail infrastructure.


Moreover, the concentration of market power in
certain stages/actors of the value chain should be
revised, since it is likely that there is exploitation of
oligopsony power in which only a few large buyers
can exert a great deal of control over the sellers and
can effectively drive down prices. This is likely to
occur especially during harvest periods, when small
producers are forced to sell their production to meet
their financial requirements.


4.2. Coffee value chain


As mentioned above, coffee has accounted for the
highest number of crop working days in Mexico and,
in 1995, it was the main export product of the selected
crops for this diagnosis. At the turn of the century, the
sector entered a severe crisis and lost large market
shares in both the world and the U.S., and it has yet
to recover its former strength.


The sector had already struggled adjusting to the
changing international market environment when the
clauses of the International Coffee Agreement were
suspended from 1989 onwards and countries were
forced to move from a quota system with regulated
prices to a free market system.82 The crisis had
important implications on all agents of the sector and
foremost the coffee growers. While coffee prices have
recovered during the recent commodity boom, the
sector is still in the process of restructuring and finding
ways to better integrate into its global value chain.


In 1995, Mexico was the fourth largest coffee
producer in the world but by 2010 it had fallen to


the 7th place, following Brazil, Vietnam, Indonesia,
Colombia, Ethiopia and India. Almost the totality of its
production is exported. Approximately 70 per cent is
exported in the form of green coffee to mainly U.S.
and the European Union (EU), where green coffee is
processed to the final product. The remaining 30 per
cent are processed by the domestic coffee processing
industry before it is predominantly shipped abroad.
Domestic coffee demand has been increasing but
remains low compared to international per capita
consumption.


Coffee is grown by approximately 350,000 producers
(2007 census) in 12 states with more than 90 per cent
of production being concentrated in Chiapas (~36 per
cent), Veracruz (~25 per cent), Puebla (~20 per cent)
and Oaxaca (~11 per cent). While these states offer
a suitable climate and land in terms of altitude, the
areas tend to be difficult to access, have only basic
infrastructure and a large part of their population is
trapped in extreme poverty. More than 90 per cent of
coffee producers are smallholder (and often indigenous)
farmers who own less than 5 ha (in 2004 the average
coffee farm land stood at less than 1.5 ha).


Figure II.23 depicts Mexico’s coffee value chain,
distinguishing between the production and distribution
process and the main actors that are involved at each
stage.


Access to extension services are an important
ingredient for efficient coffee production and support
is needed already at the pre-production stage. In the
early 1990s, however, the national institutional support
provided to coffee producers was partly dismantled
when the Instituto Mexicano del Café disappeared
abruptly and extension services and research were cut.


Coffee growers were not only left with less support
from specialized institutions, the sector also suffered
from internal and international migration which
reduced the availability of daily workers, on whom their
production depends. However, compared with other
crops, labour input for coffee growing is relatively low.
Given their small farm size, most coffee growers have
rarely access to insurance or credit which would allow
them to invest in new coffee plants and technology
(e.g. irrigation system, machinery for harvesting and
processing, fertilizers, etc). These factors keep their
production costs high. While they receive subsidies,
the funds are barely linked to value addition (interview
with G. Barreda, leader of coffee producers) and thus
the incentives are inefficient.




81chaPteR.II:.agriculture commodity policy review for mexico


They grow predominately Arabica coffee and little Ro-
busta coffee. Many farmers sell the fresh coffee cher-
ries to the local market without adding higher value to
the product through dry or wet processing. The price
they can get often only covers the cost of harvesting
(Perea & Rivas 2008), which is one of the main cost
elements but barely exceeds 40 per cent of the total
coffee production cost. Those farmers who process
the cherries to Pergamino coffee capture more value
but are often unable to recover their costs due to poor
selection, quality and certification. However, many
farmers do not have a choice other than dry process-
ing as their farms are too far from the market and thus
part of their harvest would perish during transport if
the coffee cherry beans were not processed. Given
that machinery for humid processing requires more
capital, poorer farmers tend to process the cherries
mainly with the cheaper but lower value dry method
(in Chiapas, for instances, the installed capacity for
dry processing surpassed the capacity for humid
processing by a factor of more than 2.5 in 2002).


Another constraint for many coffee growers is their lack
of market information, such as the international coffee
market price set by the New York Coffee Exchange.
Given that many farmers are not, or only poorly
organized, in cooperatives, they are at the risk that
intermediaries exploit this asymmetry of information
by offering below market prices. It is estimated that


in several countries middlemen and brokers keep a
high percentage of profits (agrocafe.org). As shown in
the previous subsection, on average coffee producers
operate with a negative gross margin, thus they sell at
a price that does not cover their full production cost.
Coffee production has thus become an activity that
leaves many smallholder farmers in poverty. It should,
however, be noted that many farmers engage in multi-
cropping or pluri-activities to reduce their risk and
vulnerability to decreasing coffee prices.


The limited capacity of producer cooperatives is a
particular constraint in terms of negotiating prices,
managing coffee processing, grading and certifying,
contracting for warehousing and transport, marketing
the product and providing extension services. Due to
these inefficiencies, only 3-4 per cent of production is
managed by these organizations. Perez and Echanove
(2006) maintain that access to storage and marketing
systems have always worked as entry barriers for
producers, whereas capital has been the main barrier
for engaging in value-adding processing.


Approximately 30 per cent of coffee producers sell
their cherry coffee to intermediaries who transport the
cherries to agents (exporters or domestic processing
industry) that process them to green coffee (mostly
by the humid method). Given that rural transport
infrastructure is inadequate, internal transport costs are




Process


Actors Input suppliers FarmersI ntermediariesW heat processorsF lour processorsW holesalers
stekramrepuS.cosa srellim egraLstnegA edarTsredloh llamSsremraF Retailers


stekramrepuSseirekaBsrellim lacol dna llamSsevitarepooc srecudorPsredloh egraLyrtsudnI


stnaruatseRsrotarobale atsaPsretropxEsevitarepooC srecudorP


Transport companies Small shops


Local Markets


Pre-production


- Inputs (land, plants,
labour, fertilizers,


machinery)
- Extersion services


Local wheat
production


Storage


Final and
domestic


consumption


Wheat Industrial
processing


- Milling


Flour Industrial
processing


- Bread industry,
- Pasta elaboration,


- Cookies,
others


Imports
(Wheat)


Animal
feeding


Exports
(Wheat)


Marketing and
final


distribution


Imports
(Flour)


Primary production Wheat ProcessingStorage and trading Final comercialization


Transport


Transport




Figure II.23: Coffee value chain




82 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


significant (ECLAC 2005) and, for many smallholders,
a barrier to integrate vertically with processors and
buyers. The latter, both national and transnational
companies, increasingly purchase coffee beans
based on quality criteria. To meet these criteria and to
successfully participate in this value chain, knowledge
of quality requirements, plots in suitable altitude, skills
and equipment to produce higher quality coffee, as
well as access to recognized grading and certification
systems are essential.


Only 30 per cent of Mexico’s coffee production
is processed domestically. The national industry
produces both caffeinated and decaffeinated
products, in the form of soluble, roasted and milled
coffee (decaffeinated products account for an
important share). For the production of soluble
coffee Robusta coffee is imported. A large share of
the processed coffee products is then also exported.
Coffee demand in Mexico has increased but remains
low by international standards (in 2010 1.2 kg per
person per year compared with an annual per capita
consumption of 4.1 kg per year in the US, 6.8 kg
in Germany or 5.8 kg in Brazil). Large coffee estate
owners have financial resources to process (humid
processing, grinding, roasting) and export their own
harvest and thus capture a larger share of the value.


Most of Mexico’s coffee production is exported, mainly
through transnational corporations (TNCs). TNCs
usually purchase and export green coffee, thus the bulk
of the value addition occurs outside Mexico. However,
some TNCs have coffee processing industry plants in
Mexico. According to Hernandez (2005), five TNCs
(namely AMSA, Jacobs, Expogranos, Becafisa-Volcafé
and Nestlé) dominate this part of the chain through
their local branches. They fix prices for producers,
warehouses and local processors, set quality standards,
grade coffee beans, take over part of the warehousing
and marketing, and can buy future contracts to lower
their exposure to coffee price volatility.


Only very few smallholder farmers are directly linked
to TNCs. According to the interview with Mr. Barreda,
leader of coffee producers, there have recently
been some initiatives, under the corporate social
responsibility programmes of TNCs, which aim to link
firms to farmers and improve the latter’s productivity,
access to technology and livelihoods. This approach
responds to an increasing awareness and sensitivity
of consumers in developed markets about social
and environmental concerns. Thus, traceability and
monitoring have become more important. This requires


that coffee quality can be certified by trusted agents. In
some cases, exporters directly engage with producers
wherein the latter produce according to international
standards and receive inputs from the former (contract
farming). This could be an interesting opportunity for
organic and fair trade coffee which are growing niche
markets. The current coffee production method of low
input is very suitable in this context. In fact, Mexico
could already successfully position itself as the second
largest organic coffee producer in the world.


With the liberalization of the coffee market, the
coffee value chain has become buyer-driven (Pérez &
Echánove 2006; Ponte 2002). Currently, the market
is concentrated and dominated by a few TNCs which
start with supplying inputs to growers and end with
selling the final product to consumers. The TNCs
benefit from the weak capacity of coffee producers to
organize and negotiate.


In the destination markets, importers of Mexico’s
green coffee and other coffee products buy large
quantities and hold inventories to sell gradually
through numerous small orders. They thus exert great
influence on the type of green coffee that is sold on
the market. The foreign coffee processing industries
then capture large shares of the value chain. The
location of coffee-grinding production is in general
highly centralized, based on easy access to seaports.
According to Agrocafe the highest profit margin is
achieved by roasters. Technological development
has enabled processers to produce a standardized
product with coffees from different origins, varieties
and qualities and therein better ensure stable delivery
of their product (with also lower quality inputs).


Retailers tend to be highly concentrated. In the United
States, for instance, Kraft, Procter & Gamble and
Nestlé maintain 60 per cent of the total green bean
volume. To meet the demand and the high quality
standards of consumers in developed country,
retailers and importers apply stringent sanitary and
phytosanitary (SPS) measures, and food safety
and quality requirements, not forgetting, divergent
technical regulations and food laws on producers and
exporters in producing countries.


This market structure affected very negatively coffee
growers in Mexico and enabled the non-farmer
participants of the coffee value chain to capture a
large share of the added value. Some estimates are
as follows:




83chaPteR.II:.agriculture commodity policy review for mexico


As mentioned earlier, Mexico lost market shares of the
global coffee market. Over the last decade production
capacity and volumes increased significantly in
Brazil and Viet Nam due to the use of more efficient
technology, mechanization of harvesting, provision
of technical assistance, availability of credit, amongst
other factors. This resulted in that in 2009 yields in
Brazil were approximately 4 times higher and in Viet
Nam more than 6 times higher than in Mexico (FAO).
Their production methods and institutional frameworks
could provide important insights into how smallholder
producers in Mexico could benefit better from global
coffee value chains.


In sum, the analysis suggests that the coffee value
chain of Mexico has suffered from several weaknesses:


• Atomized production pattern inhibiting economies
of scale


• Institutionally and technically weak capacity of co-
operatives / producer organizations to integrate
producers and share price information, negotiate
prices and contracts, buy inputs, set up ware-
houses to sell product when prices are favour-
able, lower transportation costs by selling in larger
quantities, provide extension services, etc


• Lack of credit and insurance to the sector, thus in-
ability to invest and improve production methods.
Banks often do not accept Government backed
guarantees (fondos de garantía).


• Large part of value addition occurs outside Mexico


• Lack of certification programmes


On the other side, Mexico’s coffee sector offers several
natural strengths, including:


• Suitable soil and climate for coffee production


• Accumulated experience of coffee production


• Being an internationally recognized coffee produc-
ing country


general recommendations


• Enable smallholder farmers to better organize
themselves in producer cooperatives so as to in-
crease their negotiation power and benefit from
economies of scale.


• Support coffee sector initiative funded by gov-
ernment (US$ 4 million) which aims at increasing
competitiveness and productivity of the sector, at-
tracting investment, enabling technological trans-
fer, better integrating into value chains, setting up
of a certification programme (together with Nestlé)
and accounting for the preservation of the natural
environment.


• Support producer organizations that provide train-
ing/extension services to growers with the help of
agronomists, engineers and agricultural techni-
cians. Train cooperatives in handling contract and
delivery agreements and requirements, post-har-


Farmers MX Production cost cherry coffee 4.25/kg Veracruz, TMF technology (rain-fed,


improved seeds, fertilizer applied)


Farmgate price cherry coffee 2.26/kg


Producers of green coffee
(intermediaries, producer cooperatives)


Production cost green coffee USD 2.1/kg SEM study covering 2001-2005,


adjusted average for Meso America


Price paid to grower


(green coffee)


33.38/kg For exports, ICO


Consumer price MX Roasted coffee 97.6/kg Estimate, metropolitan area


Soluble coffee 204.31/kg Estimate, metropolitan area


Retail price USA Roasted coffee 78.33/kg


Retail price Germany Roasted coffee 97.50/kg


Table II.13: Price estimates for coffee: 2005 (in Mexican Pesos)


Source: International Coffee Organization, SAGARPA, Banco de México, SEM (2010)




84 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


vesting handling, upgrading the skills of washing
station mangers, and facilitating the introduction of
new washing technology that uses less water than
the current system.


• Encourage producer cooperatives to collaborate in
contracting transportation and warehousing serv-
ices and collecting and sharing market information
and technical assistance.


• Strengthen domestic production by linking small-
holder farmers and cooperatives to industry. This
will enable increasing local value addition and ben-
efiting from higher margins (roasted and soluble
coffee generate higher margins). Also stimulate
domestic coffee consumption to lower depend-
ence on foreign markets.


• Strengthen rural financial sector, including micro-
finance and non-bank financial initiatives, to in-
crease loan funds for marketing and investments
in production and processing, including purchase
of new and more productive coffee plants, fertilizer
and machinery.


• Assist producers to position their product in inter-
national trade fairs. This also required creating a
distinctive Mexican coffee label.


• Improve and extend certification programmes,
especially for organic products (e.g. Fair Trade). A
study on linking Ethiopian coffee producers83 to in-
ternational markets demonstrated the importance
that consumers attribute to quality production be-
ing traced to origin with substantial buyer monitor-
ing and involvement with coffee growers. This will
also allow for product differentiation.


• Link subsidies to producers productivity and value
addition and not to size of land or sales volume
(Parea and Rivas, 2008).


4.3. Corn value chain


The corn (or maize) value chain is composed of four
stages: (i) production, (ii) storage and trading, (iii)
processing and, (iv) final commercialization (Figure
II.25).


In 2010, Mexican corn production reached 22.4
million tons, mainly distributed in two varieties: white
maize, which constitutes 91 per cent of the total, used
primarily for human consumption, and yellow maize,
with 9 per cent, used especially for animal feed and
other industrial purposes (Financiera Rural 2011).


Annual production volumes are distributed along the


year. Seventy per cent are obtained from the spring-
summer season, which harvest falls mainly between
November and February, and 30 per cent comes from
the autumn-winter cycle which harvest is concentrated
between May and June. Maize production is obtained
in all states, however 14 of them account for 90 per
cent of the national total.


At a national level, there are about 2.5 million farmers
engaged in growing corn, of which 85 per cent of them
use land holding no bigger than 5 ha. Thus, in Mexico
coexist two production systems with different charac-
teristics: a system of commercial production with high
technology, irrigation and intensive inputs, and whose
yields are equal to those of U.S. producers (Sinaloa,
Sonora, Jalisco, Tamaulipas); and a system generally
oriented to auto-consumption and small commercial
production, with low yields, with rain-fed irrigation, as-
sociated with small farms under 5 ha and intensive
family labour (Chiapas, Guerrero, Hidalgo, Mexico,
Morelos, Puebla , Oaxaca, Veracruz, Yucatan).


As shown in Table II.14, the raise in production
volumes of the last decade are explained only by the
higher yields achieved by the group of irrigation crops
that reached an average of 7.3 tons per ha, while the
production from rain-fed areas, mainly associated with
the second group of producers mentioned above has
remained almost constant at 2 tons / ha.


The vulnerability of the Mexican production to climatic
factors is significant, and it is closely related to the
quality of seed and the method of irrigation used.
Improved seeds provide a better adaptation to the
different and sometimes extreme weather conditions
and soil qualities used for corn production. Despite
their well-known benefits, only 30 per cent of the
agricultural land is planted with them. In terms of the
water, in 2010 the proportion of rain-fed area was
82 per cent and contributed with only 54 per cent
of total production. That year, the loss associated to
this method (defined as the percentage of sown area
affected on the total area sown) reached 11 per cent,
whereas in the case of the irrigated area it was only
1 per cent. These percentages - which might vary
depending on the presence and intensity of weather
events such as El Nino or La Niña84- indicate that small
holders that depend on rain, apart from having lower
yields, must assume higher risks due to the loss of
crops, increasing the gap between the two groups of
producers in terms of margins and competitiveness
(see margins comparison of this Chapter.




85chaPteR.II:.agriculture commodity policy review for mexico


Year
Area (M. Ha) PROD.


Mtons.
YIELDS (Ton/ha)


Sown Harv. Irrigated Rain fed Average


2000 8.4 7.1 17.6 5.5 1.9 2.5


2003 8.1 7.5 20.7 6.2 2.2 2.8


2006 7.8 7.3 21.9 6.8 2.1 3.0


2010 7.8 7.1 22.4 7.3 1.9 3.1


Table II.14: Maize production in Mexico


Source: SIAP-SAGARPA.


With respect to consumption, in 2010 total corn
consumption reached about 30 million tons: 74 per
cent (22 mill tons.) of white corn and 26 per cent of
yellow corn. Eighteen million tons of white corn, or
approximately 60 per cent of the total production,
were intended for human consumption, 12 of which
through the milling industry and 6 million thought direct
auto-consumption. The rest (4 mill tons) corresponds
mainly to livestock consumption, seed and others.
The yellow corn is mainly consumed by the livestock
feed production industry, and to a lesser extent, by the
starch and the cereal industries.85


Despite the increase in production volumes, Mexican
corn production is not sufficient to fulfill the local
demand and the country must import about 25 per
cent of its consumption. In 2010, imports reached
a total of 7.8 million tons, mainly of yellow corn from
USA, which ranked Mexico as the second world largest
importer of corn, a situation that makes it vulnerable to
international price changes. On the other hand, corn
exports are almost exclusively of white corn, which in
2010 amounted to 0.6 million tons. The main export
destinations were Venezuela and Colombia.


Storage and trading are performed by different
methods: (i) direct purchases of processing companies
(mainly from the two major flour groups MINSA and
MASECA), (ii) purchases from traders that transport
the volumes purchased to urban areas for resale, (iii)
purchases of regional storage companies that store
the grain for deferred sales, and (iv) other direct sales
to livestock producers associations or processing
industries (e.g. starch production).


For local selling prices, the import parity rule is
applied. ASERCA is the institution responsible for
setting the domestic prices, based on the price of
the futures exchange in the closest month to delivery
plus the standard basis of the consumer zone minus
the regional basis. Consequently there are many
different prices, depending on the producing zone.


The elimination of tariffs as a result of NAFTA benefited
the processing sectors of the value chain; however,
it also eliminated the protection for corn producers
sectors, which had to compete openly against heavily
subsidized U.S. producers. The convergence between
local and international prices had adverse and
uneven effects in domestic producers, as commercial
producers are compensated with programs to
support commercialization or access to technology,
while small-holders in general have not had enough
Government support.


The processing of corn for human consumption plays
a key role in the value chain. In 2010, it accounted for
almost 67 per cent of the total corn devoted for final
consumption, providing the main raw material for tortilla
elaboration. The milling and flour elaboration industry
is concentrated in few companies. The MASECA
Industrial Group has 71 per cent of the market share,
and it is followed by the MINSA group, with 24 per
cent. The rest is distributed among Harimasa, Cargill,
Molinos Anahuac, and other small players. On the
contrary, the tortilla elaboration industry is scattered all
over the country, with around 80,000 players such as
small local mills and tortilla producers.


The processing of corn for livestock has grown
significantly in the last years due to the relevance
acquired by the poultry and porcine industries, as
mentioned previously. Processing industries for
livestock are classified in independent, dedicated
to feed production for sale to other industries, and
integrated, producing only food for poultry and egg
production (Bachoco and Pilgrim’s Pride). Therefore,
with the support of the livestock industry, some corn
producers could increasingly focus their efforts in
producing yellow corn. This could represent a new
business option.


With regard to the final consumption, corn is one
of the most important components of the Mexican
diet, especially for the lowest income segment of the




86 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


$/kg. - 2006 Cost Price Margin


Producer 1.93


Wholesale 1.93 4.89 2.96


Retailer 4.89 5.76 0.87


Commercialization Margin: 3.83


Producer Price / Final price: 34%


Table II.15: Distribution of price margins along corn value chains


Source: SIAP.


seinapmoc tropsnarTyrtsudni deeS Local Markets


Process


Actors Input suppliersF armers Intermediaries Wheat processors Flour processors Wholesalers
srecudorp allitroT.cosa srellim egraLstnegA edarTsredloh llamSsremraF Retailers


Inputs industryL arge holders Producers cooperatives Small and local millersL ivestock food producersR estaurants


sretropxEsevitarepooC srecudorP Small shops


Pre-production


- Inputs (seeds,
labour, fertilizers,


machinery)
- Extersion services


Local corn production Storage


Final and
domestic


consumption


Corn Industrial
processing


- Nixtamal Milling


Tortilla elaboration


Imports
(Yellow corn)


Exports
(White corn)


Marketing and
final


distribution


Exports


Primary production Corn ProcessingStorage and trading Final comercialization


Transport
Transport


Corn Foor
Starch


Corn oil


Tortilla
Cereals


Livestock feed


Figure II.24: Maize value chain


%


, Otros


24


71%


5%


MINSA MASECA Harimasa, Cargill


Source: Secretaría de Economía 2012


Figure II.25: Main companies in corn flour subsector




87chaPteR.II:.agriculture commodity policy review for mexico


population. In 2010, households in lowest income
decile devoted about 10 per cent of their total food
and beverages expenditures to tortilla, compared to
only 3.1 per cent among households in the highest
income decile. Also, tortilla consumption is significantly
higher in rural areas (220 gm/d in 2010, compared to
155 gm/d in urban areas).86


value chain margins


According to figures from SIAP, in 2006, the average
farmer’s price represented only 34 per cent of the
final product. In the same year, the total value of the
agro-industrial chain of corn for human consumption
reached $ 90,871 millions of pesos. The primary
sector accounted for 36 per cent of that figure, and
the secondary sector for the remaining 64 per cent.
Within the chain, the most important activity is that of
the milling industry, which contributed with 38.8 per
cent of the gross value.


strengths and weaknesses of the value
chain


Strengths:


• As with the wheat, the geographic location, near
the world’s largest corn exporter (U.S.), allows for
an easy access to imports, which can ensure the
annual supply. However, subsidized farmers in the
US are strong competitors.


• There is still room to increase yields by incorporat-
ing wider irrigation infrastructure, new technology
and varieties.


• Products derived from corn are staple foods, and
local animal feed consumption (fuelled by the poul-
try and porcine industries) is likely to increase yel-
low corn consumption.


• White corn, which is the main grain for human
consumption, is completely supplied by local
production.


weaknesses:


• Mexico is currently the second largest importer of
yellow corn in the world, a fact that places it in
a very sensitive position against changes in inter-
national corn prices, world inventory variations, or
even agricultural policies or subsidies especially
applied in the US.87


• High vulnerability of domestic production to cli-
matic factors, which primarily affects the rain-fed
areas that belong to the largest number of small
producers.


• High market concentration in some segments of
the value chain, such as trading, flour industry, fi-
nancing, marketers, and inputs to farmers (certi-
fied seed, agrochemicals, fertilizers, etc.)


• Very small size of production units, which pre-
cludes improvements in production methods, and
a better organization among small farmers.


• Commercialization margins show that producer’s
price represents a small proportion of the total
chain margin, and that the wholesaler receives the
higher proportion.


general recommendations


• Search for incentive schemes targeted at improv-
ing yields, especially in rain-fed areas. The wide
difference observed between the irrigated and non
irrigated land indicates that the potential to expand
yields is significant. These schemes should include
the creation of incentives to build irrigation infra-
structure where water is available, or the utiliza-
tion of improved seeds resistant to extreme water/
weather regimes where water is scarce. Likewise,
shifting production to other crops in rain-fed areas
where corn is not viable must be considered.


• There is evidence of market concentration in the
value chain. This should be analyzed, as it might
impede free competition. As in the case of wheat,
in the corn value chain there is a concentration of
market power in certain stages/actors. It is likely
that there is an exploitation of an oligopsony or oli-
gopoly power, and this could be affecting the pri-
mary production stage. This concentration seems
to exist not only in the marketing/ processing of
grains, such as the corn milling industry, but also in
the sale of inputs and seeds to farmers. In the case
of seeds, in the recent years the entry and massive
expansion of transnational corporations has gen-
erated a significant concentration: in 2009, 95 per
cent of planted hybrid seeds were produced only
by Monsanto and Pioneer.88


• Promote research for the development and expand
the utilization of improved seeds. The production
and distribution of improved seeds is an important
source of technology transfer to producers and,




88 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


along with irrigation and efficient use of fertilizers, it
has positive impacts on yields.


• Strengthen the link between smallholder
farmers and cooperatives and the agro-industry.
Interesting opportunities could arise of stimulating
the link between yellow corn producers and the
pig and poultry industry. Supplier development
programmes could result in valuable technology
transfer, higher margins (avoiding intermediaries)
and would also reduce the imports dependency.


• Strengthen, recapitalize, and revitalize small-scale
agricultural producer organizations, for example,
cooperatives such as the Avocado Producers and
Export Packers Association of Michoacán. Over
the long term, this would increase the farmer’s
negotiation power, give rise to economies of scale,
allow small producers to participate in technology
transfer and supplier development programmes,
as well as in instruments designed to avoid the
negative effects of volatility in their selling prices.


5. Small-scale farmers
participation in high-value
agriculture and food chains


Several countries have moved into producing non-
traditional agricultural products to diversify their
agricultural exports and increase foreign exchange
earnings (Narrod et al. 2007). High value agricultural
(HVA) products, such as fruit and vegetables or
processed foods, offer interesting market opportunities
and benefit from several advantages, including year-
round demand in developed markets (as well as
increasing demand from developing countries), higher
income elasticities of demand in most cases and lower
price volatility than many ‘traditional’ commodities (J.
R. Davis 2006). HVA products have both downstream
linkages in terms of employment they generate for
producing and selling the demanded goods, and
upstream linkages if the required specialized inputs
such as fertilizer, seeds, etc, are produced with local
labour.


However, HVA products are demanding in terms of
their supply chains due to the perishable nature of
the products and the stringent food safety standards
and other specific standards in importing countries
or in the modern sector in developing countries (e.g.
supermarkets). For retail sectors these standards
have turned into minimal entry requirements (before


commercial factors such as price competitiveness,
volumes, regularity of supplies, etc). These non-tariff
barriers and how they impact on the functioning of
agro-food markets will be discussed in chapter 2 of
this report. this section focuses on how HVA products
can turn into sustainable market opportunities for
smallholders.


With increasing incomes, consumers not only become
more demanding in terms of quality and safety
standards, they also show more interest in tracing
the products back to their origins. To this awareness
technological improvements have greatly contributed
as they enabled more rigorous monitoring of the
chain. These trends are further nurtured by the media
and thus required food retailers and their counterparts
to adjust.


In their efforts to adjust to new standards of food safety
and satisfy requirements of grading, consistency and
supply schedule, Narrod et al. (2007) argue that
smallholder farmers in developing countries face four
distinct problems:


• How to produce safe food;


• How to be recognized as producing safe food;


• How to identify cost-effective technologies for re-
ducing risk; and


• How to be competitive with larger producers.


To participate in the value chains of HVA products,
large amounts of information and investments are
required. In addition, relationships, networks, skills
and coordination mechanisms matter greatly. This
has led to the co-existence between traditional and
modern urban and export markets with the latter two
having more integrated and durable relationships
within the supply chain, often on a contractual basis
with a high degree of cooperation between buyers,
exporters and growers on technology, information
and sometimes even finance. Buyers often work very
closely with farmer groups or with their own farms by
providing training and technical support to facilitate
compliance with the required standards, invite experts
to train farmers on integrated pest management, pack
hygiene, and establishing and maintaining a functional
traceability system.


In this context supermarkets have increased their
market shares. They tend to procure food from a few
large-scale suppliers, which help them standardize the
products. Similarly multinational firms have increased
their presence in sourcing countries with higher




89chaPteR.II:.agriculture commodity policy review for mexico


Traditional Sector Modern Sector


Production
Large number of producers of varying sizes, with


significant presence of smallholders


Fewer number of large scale farms (high input
systems e.g. IPM varictics, irrigation, etc), some
operating out-grower schemes with 3rd pary
audited GAP systems, and full traceability


Packhouses


Producers use non-audited packhouse systems,


producing product for a range of customers


using manual systems


Fully audited (BRC or HACCP11 certified)


packhouses, often with automated grading and


packaging systems)


Transport May have refrigerated transport
Refrigerated transport from pakhouse to market


or export point


Traders


Local traders oftern collect from a large number


of rural farmers, and then sort for exporter’s


demands, No traceability


No intermediary traders in the chain


Processors
Minimal semi-processed products, usually


confined to trimming and simple packaging


Processing plants to produce ready-to-eat


and ready-to-cook, frozen or chilled fruits and


vegetables. Oftern prepared into slices and


cacuum-packed. Implementation of HACCP and


audited by 3rd party.


Experter
Deal with range of players, often directly with


farmers and traders


Export agents are used if the processing plant


does not export directly.


Transport to expoert market
Transport vy sea or air - but sometimes


problems with guaranteeing air freight space


Transport by sea or air, Air-freight managed


either through own company or with firm


contract with air companies.


Importer
Importer suppling wholesale, catering and some


retail outlets.


Dedicated category manager will procure for whole
supermarket chain, manages producers to ensure
quality assurance, compliance with its requirements,
responsible for technology development and
informatin flows. May also seek new produc lines.


Wholesalers
Wholesale markets play an important role in the


marketing chain in some importing countries.
Bypasses wholesale markets.


Retailers Local retailers and superjmarkets.


Supermaket chains with high demands in relation to
GAP, due diligence and traceability. Often with own
in-house codes of practice and/or EUREPGAP, due
regard also given to environmental and social welfare
of all players in the supply chain.


Consumers Local and international consumers. Impoerts.


Overseas consumers. USA, EU and Japan are


main export markets, but regional markets are


becoming more important (e.g. Middle East).


Table II.16: Horticulture marketing chain


Source: Davis, J. (2006).90




90 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


involvement in the production, marketing and trade
of food in producing countries. These developments
exemplify that HVA value chains are strongly buyer-
driven with greater levels of governance and vertical
integration between retailers, their buyers and
producers. Table II.21 summarizes stakeholders and
key characteristics of the horticulture marketing chain
for the traditional and the modern sector.


Production, transaction and marketing costs of
sourcing from smallholders are high. The post-harvest
facilities involve lumpy investment and entail economies
of scale, hence, competitiveness is achievable only
with high volumes. The dominant transaction cost
in linking with smallholders is the cost of monitoring
compliance with the International Food Safety
Standards (IFSS) and the insistence on traceability
by importers. The traceability and residues limit
requirements further disadvantage the smallholders as
they cannot access or benefit from technical support
services (e.g. quality inspection and certification,
testing laboratories) given that they generally imply
a cost (Davis, 2006). This inhibits smallholders to
refine products and make them marketable. Therein,
governments as well as the international research
community can play an important role by conducting
and disseminating research on market requirements,
demand and expectations, developing appropriate
technologies and systems and building public-private
sector research partnerships which account for the
evolving standards and incorporate smallholders in
their processes. By comparison, larger farmers can
invest in specialized skills needed to comply with
agrifoods safety standards and quality requirements
(Collins 1995).


Access to finance and information to engage in
HVA production practices and establish the required
infrastructure and management system are inevitable.
Given that a switch to new products entails a relatively
high risk for small-scale producers in terms of becoming
more indebted and uncertainty regarding the marketing
of their outputs, public policy has an important role to
play. A supportive environment is therefore essential
to support the establishment of appropriate legal,
regulatory and food control frameworks, land tenure,
credit and water use systems.


Furthermore, collective action offers a means to over-
come some of these barriers. For this purpose small-
holders need to get well organized in producer groups
which can pool resources and exert their negotiation
power. They can address the following bottlenecks:


• Undertake investments to coordinate supply and
upgrade hygienic conditions at the farm/packing
house. Closely monitor handling and hygiene
practices during harvesting, grading and packing.
Set up testing laboratories.


• Disseminate information related to international
food safety standards.


• Enforce standards: Certification is expensive and
smallholders cannot individually bear the costs.


• Provide training and other technical support for
production.


Producer organizations tend to have a comparative
advantage in the activities related to production. For
marketing activities, such as installation of cold chains
and pre-cooling facilities, it can be more efficient to
collaborate with specialized marketing agents who are
also connected to exporters.


With regards to market access and agrifood safety
and quality standards, Mexico, like so many other
developing countries, do not have the institutional
capacity, much less, the financial and technical
resources to meet and enforce both mandatory public
standards and voluntary private standards (Loader
& Hobbs 1999). Chapter I Section D and Chapter II
Section E detail the Mexico’s agrifoods production and
trade in the light of the global proliferation of standards,
technical regulations and laws, including examples of
recent food safety violations and its impact on trade.


6. Policy recommendations:
enhancing competitiveness
and integration into global
agrifood value chains


This section analysed 15 agricultural commodity
products that are of strategic importance to Mexico’s
agricultural development with the objective of assessing
the sectors competitiveness. It was found that over
the last ten years Mexico improved crop yields for two
commodities (maize and dry beans) while for coffee,
yields plummeted especially at the beginning of the
decade. This latter finding is particularly worrisome as
coffee yields also performed poorly in comparison to
the global average, while for maize a slow catch-up
process is observed. On the positive side, at the global
level Mexico has a potential comparative advantage
in sorghum and wheat production. The sector as a
whole could maintain or even increase its strength




91chaPteR.II:.agriculture commodity policy review for mexico


with a slightly increasing share of global agricultural
commodities exports


Technology is a key input for competitiveness. The
analysis of the technological aspects of crop production
showed that controlled irrigation, fertilization and
application of improved seeds have positive effects
on yields and margins of most of the selected crops.
Controlled irrigation was identified as the main factor
for producing higher yields (especially for seasonal
crops), while the lowest yields were observed when
only rain-fed irrigation was available. This is particularly
a constraint for small and low-income farmers as they
tend to be limited to this type of irrigation. Results
also indicated that fertilizers and seeds are mutually
dependent, thus the highest yields are obtained when
technological upgrades are simultaneously combined
(introducing more than one technological variable).


Then gross margins are analyzed and found that
results varied greatly by crop and by the combination
of technology. Of concern was the existence of
negative margins per ha particularly in the rain-
fed irrigation group, in which the vast majority of
smallholder farmers are included. Moreover, monthly
average income per worker data revealed that crops
generated very low incomes that risk leaving farmers
in poverty. Average incomes of livestock producers
were significantly higher. However, income data were
only available at an aggregate level and thus income
disparities by farm size could not be identified.


Thus for many smallholder farmers making a living
of their agricultural activity is a challenge but at the
same time they are rational agents. The fact that many
of these producers operate with negative economic
margins is indicative of (i) their production decisions
responding to cash flow criteria (what I receive minus
what I pay) with subsidies compensating and masking
inefficiencies, (ii) a presence of multi-cropping where
smallholder farmers draw income from the production
of several crops or agricultural activities; and (iii) a
presence of pluri-activities, combining agricultural and
non-agricultural sources of income. Multi-cropping
and pluri-activities and thus diversifying income
sources work as an insurance mechanism as they
allow farmers to spread risk.


In order to improve their prospects, smallholder
farmers need to strengthen their productive capacities
and find ways to better integrate into global agricultural
value chains. They face many constraints that limit
their ability to produce efficiently enough to provide


a decent livelihood for themselves and to constitute a
viable base of economic activity in rural areas.


The following policy recommendations are proposed
to mitigate these constraints:


Facilitate access to credit and better
technology


The lack of access to credit has been responsible for
blocking investment in improved production methods
and other infrastructures. Smallholder producers are
caught in a vicious cycle of poor productivity, low
returns, insufficient income, and underinvestment. As
a result, they cannot access better technologies, such
as fertilizers, irrigation systems or improved seeds,
and are often poorly mechanized using inefficient and
old machinery. State mandated credit schemes and
models of contract farming could be envisaged in this
context.


enhance skills - training and access to
information


Many producers lack knowledge of the most efficient
production methods and relevant information for
their production decisions, such as price information.
Therefore the availability of extension services
and sharing of information are essential. Some
governments have successfully implemented farmer
field schools with «train the trainer» schemes. As
mentioned in the case of coffee, a market potential
exists in organic niche markets given that adopted
production methods already follow agro-ecological
approaches.


encourage strengthening of producer
cooperatives / farmers associations


Given the small production volumes of smallholders,
they forego scale economies and cannot exert
bargaining power. Through being better organized
in producer cooperatives or farmers associations,
they could benefit from pooled input buying, setting
up recognized grading and certifying systems,
contracting warehousing and transport services, and
negotiating prices with intermediaries, processors and
exporters.


capture more value of the value chains
(vertical integration)


Underinvestment is evident not only in production itself
but also in further steps of the value chain where it




92 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


further penalizes producers, such as the lack of storage
facilities and access to basic processing facilities. This
is critical for producers who are therefore forced to
sell their production immediately following harvest,
which dramatically lowers their bargaining power with
regard to potential buyers. Concerning processing
facilities such as simple drying, grain producers have
only very limited access as it requires investment and
additional skills. This inhibits them to retain more value
added from their production as well as to have greater
bargaining power with regard to buyers. To facilitate
efficient trading and marketing, reliable and secure
warehouses are of high importance.


target subsidies


Currently subsidies are not benefiting smallholder
farmers (there is leaking from the targeted smallholders
to the non-targeted large famers). Targeting should be
enhanced with clearly defined eligibility criteria to be
closely monitored and time-bound exit strategies.


For southern smallholder farmers, the key challenge
is to devise institutional arrangements which are able
to reduce transactions costs and also induce a much
stronger strategic commitment to investing in the
required specific (and co-specific) assets. The way
forward is likely to involve a rethinking of the role of the
Mexican state (at sub-national, national and international
levels) and of the roles of producer organizations and
other stakeholder (including trader) associations.


Actions will need to have two aims: (i) to determine
and elaborate an agreed way in which the state and
other powerful chain actors can initiate deliberative
processes and take a lead in encouraging appropriate
asset-specific investments to support the market
integration of smallholders into higher value markets. (ii)
Initiate through public-private partnerships institutional
developments which will have the state and other
stakeholder (prominent among these major producers,
exporters and supermarkets) acting as equal partners
with producer organizations in formulating sectoral
policies.


D. FOOD SECURITY: IN THE
CONTEXT OF MEXICO’S
AGRICULTURAL POLICIES
AND TRADE


Food security has been a crucial concern in recent
years, both at the national as well as the international
level. This section analyzes food security issues


in Mexico with respect to international food price
increases and volatility and how it affected households
in rural and urban areas. It explores ways in which
food security can be improved through national and
international policies.


FAO (2003) defines food security as the situation
where all people, at all times, have physical, social and
economic access to sufficient, safe and nutritious food
that meets their dietary needs and food preferences
for an active and healthy life. Given that expenditure
on food items constitutes for many families on lower
incomes the bulk of their household expenditure, food
security is closely associated with the evolution of food
prices. It is thus not surprising that the increasing food
prices, which since 2006 have risen by approximately
70 per cent, put pressure on the food consumption
of millions of people and have even created food
riots and social unrest in several developing countries
(UNCTAD 2012). The World Bank and FAO estimate
that between 119 to 180 million additional people have
been pushed into hunger as a result of the 2008 food
crisis. Figure II.26 depicts the prices of three important
staples - wheat, maize and rice - and a composite
food price index which show that prices have not only
been increasing sharply but also been volatile.


Food poverty in Mexico, defined as the ‘incapability to
obtain a basic food basket,90 even if using the entire
household’s available income for buying the goods
in said basket’, has been on a declining trend since
1996 (CONEVAL). The food crisis of 2008, however,
pushed the percentage of the population in food
poverty up from 13.8 per cent in 2006 to 18.2 per
cent in 2008 (latest available data). At the same time,
undernourishment (population whose food intake
is insufficient to meet dietary energy requirements
continuously) remained at a prevalence rate of below
5 per cent (World Bank). Thus, while the food intake
in terms of calories was not negatively affected - in
fact, on average, the daily food supply and dietary
energy consumption increased (FAO) - the type of
food consumed (food basket) had to be adjusted.


It could be expected that rising food prices have
different impacts on urban and rural populations, as
urban dwellers are mainly net food purchasers and thus
fully exposed to the immediate negative consumption
effect of rising food prices (UNCTAD 2012). However,
in Mexico the share of food consumption expenditure
in total household consumption is significantly higher
in rural than in urban areas, which puts the rural
population at higher risk of rising food prices (Figure




93chaPteR.II:.agriculture commodity policy review for mexico


II.27). Moreover, CPI data for 46 cities suggest that
food prices in Mexico City, which is by far the main
metropolitan area, were not higher than in other cities.
In fact, rather than a distribution by size of city, there
is a geographical distribution, i.e. the food CPI tends
to be highest in the Border States of the North and
lowest in the South. This pattern may be the result of
a high level of competition amongst food suppliers in
Mexico City combined with more demand and higher
transaction costs (i.e. transport costs for getting food
to markets) in Northern than Southern states.


Securing sufficient access to food is not only an
issue of domestic food production but also one
of international trade as most countries, including
Mexico, procure large amounts of food through
imports. Such integrated markets led to price shocks
on world markets being globally transmitted through
the international trading system to domestic markets.
This was particularly the case for wheat, rice and
maize, but also for agricultural input prices such
as fertilizers. Given that the latter have increased
particularly rapidly (in 2008 urea registered a 59.3 per
cent, potash a 184.8 per cent and dap a 123.6 per


cent increase), input-dependent forms of agriculture
have become less profitable.


Rising food prices have had a strong impact on
the food import bills, especially in countries whose
currency did not appreciate against the US dollar (such
as the Mexican peso). In these cases, the import bills
increased as a result of prices and not of volumes. The
higher food import bills negatively affected the trade
and current accounts and put strains on responsible
macroeconomic management. In Mexico, the food
import bill increased and reached as a share of GDP
approximately 2 per cent in 2008 and 2009. Moreover,
its food trade balance plummeted to -0.5 per cent of
GDP in 2008, which was in stark contrast with the
majority of the countries in South and Central America
that are net food exporters.


Several countries adopted measures (see Table II.17)
to mitigate the direct impact of rising food prices on
their populations’ food security. While in the short run
the protectionist measures delayed the transmission
of the price inflation on the international market to
domestic consumers, they came at a high cost in the
medium run, even for food exporting countries. Once


-


100


200


300


400


500


600


01
-2


00
1


07
-2


00
1


01
-2


00
2


07
-2


00
2


01
-2


00
3


07
-2


00
3


01
-2


00
4


07
-2


00
4


01
-2


00
5


07
-2


00
5


01
-2


00
6


07
-2


00
6


01
-2


00
7


07
-2


00
7


01
-2


00
8


07
-2


00
8


01
-2


00
9


07
-2


00
9


01
-2


01
0


07
-2


01
0


01
-2


01
1


07
-2


01
1


01
-2


01
2


Wheat Maize Rice Food price index


Source: UNCTADStat
Note: Wheat: United States, n°2 Hard Red Winter (ordinary), FOB Gulf, Maize (Maize): United States, yellow n°3. Rice, Thailand,


white milled, 5 per cent broken, nominal price quotoes, FOB Bangkok.


Figure II.26: Recent food rice spikes, 2001-2011




94 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


the measures could no longer be maintained food had
to be procured from international markets where prices
were still high and thus the transmission produced a
strong price shock on the domestic market. Moreover,
the measures worsened the relations between the
exporting country and its import-dependent trading
partners and decreased incomes of domestic
producers as they had to sell at lower domestic prices
(set by price controls). Naturally, the net food importing
countries suffered most and had to rely on their foreign
exchange reserves to cover the increasing import bills.


The government of Mexico announced three types of
measures to alleviate the impact of rising food prices
on the poor in May 2008: cut or eliminate import tariffs
on some food products, including maize, wheat,
rice and soy meal, provide more support to farmers
to increase production, as well as provide further
support to families on low incomes. The president also
announced the creation of a strategic maize reserve.91
In the previous month Mexico established a food
support programme in priority areas, which aimed at
improving nourishment and nutrition in households in


very isolated areas not covered by other Government


food programmes. Moreover, in June of that year the


government, in accordance with industry, decided to


freeze the prices of more than 150 food products until


the end of the year.92


Food prices have not only been increasing, they have


also been marked by high volatility, especially since


2006. This generated additional challenges, such as


fluctuating revenues from food exports which made


fiscal planning more difficult, farmers facing higher


uncertainty which made optimal production decisions


almost impossible, and the increased risks associated


with volatility worked as a disincentive for farmers’


willingness and ability to invest. Thus, while the


combination of rising and volatile food prices triggered


a series of measures that provided some relief in the


short term, they did not address structural problems


of agriculture and rural development in the country,


a symptom of which could be the continued internal


migration from rural to urban areas.


Source: World Bank (undernourishment), CONEVAL (food poverty), FAO (share of food consumption expenditure to total household
consumption)


0


5


10


15


20


25


30


35


40


1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008


Undernourishment Food poverty


Food consumption expenditure - National Food consumption expenditure - Rural


Food consumption expenditure - Urban


Figure II.27: Percentage of undernourished population, food poverty and consumption expenditure on food in Mexico,
1992-2008




95chaPteR.II:.agriculture commodity policy review for mexico


Consumption Production
Management and regulation of food


markets


Possible responses:


• Food assistance


• Cash transfers


• Food for work


• Price subsidies


• Price controls


• Taxes


Possible responses:


• roducer input subsidies


• Lower taxes


• Other support


Possible responses:


• Lower import tariffs


• Export bans / tariffs


• Build-up of food reserves


• Price support


• Import bans or raise tariffs


Mexico's response:


• Food support programme in priority


(isolated) areas not covered by other


Government programmes


• Price controls


Mexico's response:


• A 10% increase in credit for the rural


sector through Financiera Rural and


FIRA


Mexico's response:


• Lower or eliminate import tariffs in third


country markets.*


• Maize reserve


* Tariff were eliminated under NAFTA in 2008.


Table II.17: Policy responses to rising food prices, 2008-2010


Source: (UNCTAD forthcoming; ECLAC 2010)


-7'000'000


-6'000'000


-5'000'000


-4'000'000


-3'000'000


-2'000'000


-1'000'000


-


1'000'000


2'000'000
19


95


19
96


19
97


19
98


19
99


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00


20
01


20
02


20
03


20
04


20
05


20
06


20
07


20
08


20
09


20
10


,


Source: UNCTADStat


Figure II.28: Mexico’s food trade balance, 1996-2010 (iin US$ 1,000)




96 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


Policy recommendations: for increasing
food security and agricultural
productivity


To improve food security in a sustainable manner
actions are required at both the national and
international level. On one hand, Mexico needs to raise
its agricultural productivity and implement institutional
mechanisms that can prevent or quickly react to food
shortages, while on the other hand, the international
community should also assume responsibility for
setting up mechanisms that limit sharp price spikes
and curtail severe volatility of food prices.


As discussed in the previous section a country’s ag-
ricultural productivity is the result of a combination of
natural (including climatic) and locational factors which
determine crop suitability and accessibility to markets.
During 1995 and 2010 Mexico’s agricultural sector as
a whole could maintain its strength with a slightly in-
creasing share of global agricultural commodities ex-
ports. In terms of cereal yields (Figure II.29), however,
Mexico’s productivity was in general below the world
average except during the last decade when the gap
nearly closed. Climate change has the potential to ag-
gravate agricultural productivity when it hampers land
productivity and/or decreases the availability of ar-
able land. The country benefits from rich soils and a
favourable climate for agriculture with regular rainfall
and more than 50 per cent of agricultural land, part of
which can be cultivated perennially. However, several
interviewees pointed out that agriculture has been in-
creasingly affected by phenomena of climate change
such as unusual frosts in the North, more flooding in the
South, severe droughts and land degradation. Given
its geographic location, Mexico is close to one of the
main markets in the world (United States)93 and has the
potential to be well connected to the east as well as
the west. However, this competitive advantage is partly
offset by higher land and maritime transport costs in
Mexico than, for instance, the United States (IMC n.d.).


The adoption of technology is a major driver of
productivity. As shown in Section C.3 of this Chapter,
the introduction of methods comprising controlled
irrigation, fertilizers and improved seeds has positive
impacts on yields per ha. Access and use of
technology, however, varies greatly amongst farmers.


In order to increase domestic food production, Mexico
should adopt policies that stimulate agricultural
productivity. But the development of agriculture as the
basis for enhanced food security and poverty reduction


requires extending the analytical and programmatic
perspective beyond the narrow confines of farming
to encompass a macroeconomic perspective that
emphasizes the importance of generating an increasing
agricultural surplus, which requires agricultural labour
productivity growth to exceed the growth of labour’s
own consumption requirements by an increasingly larger
margin’ (UNCTAD, 2011). An agricultural surplus does not
only generate non-agricultural growth from the demand
as well as the supply side, but also tends to lower the
system’s exposure to food-price inflation. Following the
discussion in the previous section, policy should aim to
enable farmers to better integrate into global value chains
and also participate in high value added agriculture
products which generate higher incomes.


With regard to institutional mechanisms to prevent or
quickly react to food shortages, Mexico could establish
an emergency fund, which could rapidly disburse
resources when relevant criteria are met. Secondly,
setting up more and efficient warehouse receipt
systems would enable farmers to store their produce
and sell when prices start rising, thereby increasing
their incomes and resources for investment, lowering
the volume of food that perishes, and facilitating their
access to credit if warehouse receipts are accepted as
collateral. Thirdly, as part of financial innovations, the
government could further expand its hedging strategy
for grains and other crops, which aims to protect
farmers from price volatility. The current programme
consists of buying options contracts and providing
subsidies to producers and the Mexican food industry
farmers, but the strategy may expand to trading in
over-the-counter markets.94 Fourth, lessons could
also be drawn from successful experiences with
food-for-work programmes. Botswana, for instance,
implemented a food access programme consisting
of human supplementary feeding and cash for work
(public work schemes), with the notable result that
even in the country’s worst drought no death of hunger
was recorded (Asefa 1991).


At the international level, several initiatives have
been taken to address food insecurity, notably
through the G20. In the Final Communiqué of the
G20 Leaders Summit (November 2011) and the
Ministerial Declaration of the G20 Agriculture Ministers
entitled ‘Action Plan on Food Price Volatility and
Agriculture’ (G20 2011), a series of recommendations
and commitments were put forward for stimulating
agricultural development and mitigating food price
increases. They include, amongst other




97chaPteR.II:.agriculture commodity policy review for mexico


• Better regulation and supervision of agricultural fi-
nancial markets based on the endorsement of the
IOSCO recommendations to improve regulation
and supervision of commodity derivatives markets


• Investment in and support for research and devel-
opment of agriculture productivity


• Launch of the ‘Agricultural Market Information
System’ (AMIS) to reinforce transparency on agri-
cultural products’ markets, and within this frame-
work establish a ‘Rapid Response Forum’


• Development of appropriate risk-management
instruments and encouragement of vulnerable re-
gions to integrate risk assessment and manage-
ment strategies into their agricultural development
programmes95


• Development of appropriate humanitarian emer-
gency tools; food purchased for non-commercial
humanitarian purposes by WFP not to be subject
to export restrictions or extraordinary taxes


• Adoption of the International Research Initiative for
Wheat Improvement (IRIWI)


• Launch of a Global Agricultural Geo-Monitoring
Initiative


• Creation of an enabling environment to encourage
and increase public and private investment in agri-
culture, including public-private partnerships


• Promotion of sustainable crop diversification and
agricultural systems


• Upholding of the ‘Principles for Responsible Agri-
cultural Investments’


• Finalization of the Doha Development Round


The issue of setting up grain reserves has also been
receiving renewed attention from policy makers as part
of these discussions. In this context, it may be useful
to incorporate lessons learned from existing systems
and the challenges that were faced by the recent food
crisis in the design of such supranational grain reserves.
Therein, new regional reserves initiatives should aim
for the following: (i) setting achievable objectives,
(ii) identifying feasible scale and components, (iii)
identifying mix of commodities to stockpile, and (iv)
aligning interest of exporters, importers, rich and poor


4.5


-


0.5


1.0


1.5


2.0


2.5


3.0


3.5


4.0


19
61


19
65


19
69


19
73


19
77


19
81


19
85


19
89


19
93


19
97


20
01


20
05


20
09


MexicoWorld Latin America and Caribbean


)


Source: FAOstat


Figure II.29: Aggregate Mexican cereal yields compared with world and regional averages, 1961-2010 (in tones/Ha)




98 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


neighbors (UNCTAD forthcoming) The existing system
in the Latin American and Caribbean region called
Latin American and Caribbean Emergency Response
Network (LACERN) could be further developed along
these lines. Currently it serves, as its name suggests,
as an emergency response (SWAC 2010).


E. AGRIFOOD STANDARDS,
TECHNICAL REGULATIONS
AND LAwS, AND TRADE


1. Proliferation of standards
in agrifood production
and trade and food safety
incidences relevant to
Mexico


Over the past 30 years, there has been a proliferation
of stringent food safety and quality standards, both
public (mandatory) and private (voluntary) standards,
often complex technical regulations and food laws in
the marketplace, applied especially in major developed
and emerging economies. This phenomenal rise in
standards is reflective of the heightened public policy
responses of governments in the wake of global
concerns over human and animal health (sanitary),
plant protection (phytosanitary), climate change
(environment), ethics (fair trade) and more. The global
media is replete with news of the agrifood industry
being inundated with rising incidences of food- and
water–borne illnesses in the global food chain. These
include, among others, Escherichia coli (E.coli)
bacteria (in food and water), Listeria monocytogenes
(avocados), ‘mad cow disease’ or BSE–Bovine
Spongiform Encephalopathy (beef), avian flu (poultry),
melamine (infant milk), Salmonella typhimurium
(peanuts), Salmonella Enteritidis (shell eggs), Listeria
(avocados), growth hormones (feedstock), and
pesticide residues (fruits and vegetables).96 Many
of these food- and water-borne illnesses have been
documented – press, electronic media, studies,
research and analysis – as prevalent in the global
agrifood supply chains. In the context of this report,
Mexico’s agrifood trade with U.S. and other countries
has been linked to some high profile incidents of food
borne illnesses. Tables II.23 and II.24 highlight some of
the food safety and phytosanitary problems related to


Mexico’s agrifood trade in the U.S. market.97 Section
D in chapter I discusses in detail the issue of standards
and other non-tariff measures in international trade.
This section focuses on food safety standards linked
to Mexico’s domestic production and administration.


These have led to human fatalities, rising health –
insurance and hospitalization – costs, major food
recalls, and filing of expensive lawsuits.98 Also the
costs to the food industry tend to increase in tandem
with the rising panoply of NTMs. These costs,
both direct and indirect, are linked to production,
adjustments, research and analysis, technology
and innovation, and inputs (e.g. energy). Also there
are costs which are associated with regulatory (e.g.
sanitary and phytosanitary) compliance99, standards
and certification, audits and conformity assessment
systems, and third party validation programmes. The
resultant high costs not only squeeze profit margins
and deteriorate the terms of trade of Mexican farmers,
but raise the overall cost structure of the economy,
with the industry (e.g. higher adjustment costs for
food processors) and consumers having to pay higher
prices at the retail end of the supply chains.


A recent UNIDO (2011) report on border rejections
of agrifood reveals sector and product, as well as
systemic weaknesses, in compliance capacities in
a group of countries, including Mexico. During the
period between 2002 and 2008, the total EU and U.S.
border rejections of food products, although small in
terms of value, averaged $72 and $71 million per year,
respectively. Nuts and seed dominated ($55 million)
the EU rejections. Meanwhile fish and fishery products
($47 million) and fruits and vegetable ($21 million)
dominated U.S. rejections. During this period, the total
number of U.S. border rejections of food products
from Mexico totaled 11,926, with an annual average
1,500 rejections. Mexico accounted for 25 per cent of
U.S. rejections of fruits and vegetables. The U.S. unit
rejection rate100 for herbs and spices was much higher
than any of the other commodities analyzed over the
period 2004-08. Mexico, Sri Lanka, Canada, Thailand
and Guatemala recorded unit rejection rates above
one. In fact, Mexico had the highest U.S. unit rejection
rate of almost three rejections per $1 million of exports
over the period 2006-08. The main reasons for U.S.
rejections of agrifood exports from Mexico ranged
from filth unsanitary (3,476 rejections), labeling (3,328),
pesticide residues (2,109), unauthorized food additive
(1,475), microbiological contaminants (1,328), and the
lowest (1 case) for adulteration.101




99chaPteR.II:.agriculture commodity policy review for mexico


Table II.19 highlights selected incidences of food safety
and trade issues, in particular, food borne illnesses,
linked to Mexico’s agrifood trade with U.S. during the
period 2003-2012.


2. Mexico’s food safety laws
and agrifood trade


Mexico’s food safety laws are anchored on (1) the
Plant Production Law (revised 2008), and (2) the
federal General Health Act. The Plant Protection Law
authorizes the Secretaría de Agricultura, ganadería,
Desarrollo Rural, Pesca y Alimentación de México
(SAGARPA) – the Agriculture Secretariat – to regulate
plant health, implement systems to reduce risks
contamination, including minimum sanitary measures
and defines good agricultural practices (Buenas
Prácticas Agrícolas – BPAs) in agrifood production.
Implementation of BPAs and BPMs are not mandatory.
The Secretaría de Salud (Health Secretariat) exercises
its powers with respect to food safety through the
Comisión Federal para la Protección Contra Riesgos
Sanitarios (Federal Commission for Protection Against
Health Risks (COFEPRIS).


These laws do not mandate traceability of agrifood
‘from farm to fork’. However, the voluntary Programa de
buenas practicas agricolas (BPA) y de empaque (BPM)
require farms and packing houses to cover good agri-
cultural practices for production, storage, packing and
maintain records of fresh fruit vegetables from the field
to the store. Whether these schemes integrated the
HACCP approach or HACCP-based hazard analysis
in their development remains unclear. However, during
the period 2006-2008, 1047 farms and 294 packers
had implemented BPA and BPM, respectively.


In 2003, the México Calidad Suprema (MCS)
brand was established for a wide-range of agrifood
products. It is operated by growers, packers and
producer organizations. The program specification
covers; health, food safety and quality, product
traceability and management. To be certified, fresh-
cut processors must have HACCP in place, and must
be in compliance with BPA and BPM requirements.
Farms and packers certified by MSC have exported
fresh produce to the U.S. Mexico had also developed
MexicoGAP, which covers only fruits and vegetables. It
is operated by MCS. As of 30 April 2010, GlobalGAP,
upon which MexicoGAP is benchmarked, reported 24
farms certified to MexicoGAP.102


There are considerable challenges in the marketplace
in terms of food safety and quality requirements,
not forgetting technical regulations and food laws
that Mexico agrifood producers and exporters must
comply with or meet in order to export, particularly to
the U.S. which is by far its largest destination market
for its agrifood products. There are also significant
challenges facing Mexican agrifood producers,
packers and exporters entering the U.S. market in
particular, and markets of its other trading partners.
The next section provides key areas that require
attention from all sectors – public and private actors,
particularly those organizations engaged in Mexico’s
agrifood supply chain.


3. Policy recommendations:
towards improving
standards compliance


The Government of Mexico, through SAGARPA and
Health, should keep on track with its reform and mod-


Country Fruits and Vegetables Fish and Fishery Nuts and Seeds Herbs and Spices


Mexico 24.6 (23) 5.2 (2) 1.3 (20) 1.0 (13)


China 26.7 (25) 53.0 (23) 1.2 (19) 0.5 (6)


India - 11.6 (5) 1.9 (30) 3.6 (47)


Brazil 7.3 (7) 4.9 (2) - 0.7 (9)


Total 106.4 234.8 6.4 7.7


Table II.18: Value of US border rejections of agrifood products from selected countries 2004-2008
(US$ Millions % of total)105


Source: UNIDO (2011). Trade Standards Compliance Report 2010 (www.unido.org/tradestandardscompliance). Data from Tables 3,
9, 15 and 21.


Notes: (i) The totals may not add up to hundred percent because data from other countries are not included here.
(ii) - (das) means negligible




100 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK
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ci


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tifi


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lts


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at


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ai


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ap



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lm


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gi


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xa
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SA


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ap



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lle


d
by


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e


co
m


pa
ny


, A
gr


ic
ol


a
Za


ra
go


za
, I


nc
..,



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cA
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ex
as


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ci


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co


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at


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ai


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ex


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t p
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od


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re


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et


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t l


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ln


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os


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m


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ta
m


in
at


io
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of
p


ap
ay


as
im


po
rt


ed
fr


om
M


ex
ic


o.




101chaPteR.II:.agriculture commodity policy review for mexico
Pe


rio
d


Ag
rif


oo
d


Pr
od


uc
t


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od


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af


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ad


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ilk


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or


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ilk


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ul


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ex


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m


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c


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ex


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14



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ai


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ua


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at


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ex


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ic


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e


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st


rib
ut


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w


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d


a
to


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l o


f $
48


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rt


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ic


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a


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ra


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al


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ilk


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is


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th
e


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rm


ul
a


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tr


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) i
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ei
r w


ay
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is


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bu


to
rs



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ho
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ig


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un


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vo


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uc
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im


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ca


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uc
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ci


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c.



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ug


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t 2


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e


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ic


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o


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ls


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om


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ex


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r c


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in


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gh
le


ve
ls


o
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ea
d.


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ve


m
be


r
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03
Gr


ee
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ns
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pa
tit


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iru


s


in
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en



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m


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S.


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ta


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s



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sy


lv
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,


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nn


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e
an


d
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or
gi


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at
hs


, 6
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ln


es
se


s
an


d
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9


im
m


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iz


at
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n
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ct


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ue


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e
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pa
tit


is
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o
ut


br
ea


k.
T


he
o


ut
br


ea
k


w
as


li
nk


ed
to


th
e


co
ns


um
pt


io
n


of


gr
ee


n
on


io
ns


th
at


o
rig


in
at


ed
fr


om
M


ex
ic


o.
C


U.
S.


F
DA


a
nd


C
en


te
rs


fo
r D


is
ea


se
C


on
tro


l (
CD


C)
in


sp
ec


to
rs


v
is


ite
d


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rm


s
in


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ex


ic
o,


a
cc


om
pa


ni
ed


b
y


of
fic


ia
ls


fr
om


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ex


ic
o.


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FD
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an
d


CD
C


co
nfi


rm
ed


th
e


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pa


tit
is


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o


ut
br


ea
k


w
as


c
au


se
d


by
g


re
en



on


io
ns


fr
om


M
ex


ic
o,


a
fte


r t
ra


ci
ng


it
s


so
ur


ce
to


fa
rm


s
in


M
ex


ic
o.



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e
Go


ve
rn


m
en


t o
f M


ex
ic


o
sh


ut
d


ow
n


th
e


fo
ur


fi
rm


s
th


at
e


xp
or


te
d


gr
ee


n
on


io
ns


to
th


e
U.


S.
fo


r f
ai


lin
g


to
m


ee
t g


oo
d


ag
ric


ul
tu


ra
l p


ra
ct


ic
es


in
th


ei
r


pr
oc


es
si


ng
fa


ci
lit


ie
s.


E


U.
S.


a
nd


M
ex


ic
o


au
th


or
iti


es
e


ng
ag


e
in


jo
in


t p
ro


gr
am


s
to


e
ns


ur
e


sa
fe


a
nd



qu


al
ity


a
gr


ifo
od


e
nt


er
in


g
U.


S.
, a


nd
im


pr
ov


e
th


e
he


al
th


o
f c


iti
ze


ns
o


n
bo


th


si
de


s
of


th
e


bo
rd


er
. F


or
e


xa
m


pl
e,


th
e


Go
ve


rn
m


en
t o


f M
ex


ic
o


im
pl


em
en


ts


a
gr


ow
er


in
sp


ec
tio


n
pr


og
ra


m
o


n
a


re
gu


la
r b


as
is


in
o


rd
er


to
p


re
ve


nt


fu
rth


er
o


cc
ur


re
nc


es
o


f t
he


s
am


e
‘a


t t
he


s
ou


rc
e.


D
F


ou
r


M
ex


ic
an


c
om


pa
ni


es
im


pl
ic


at
ed


in
th


e
H


ep
at


iti
s


A
o


ut
br


ea
k


w
er


e;
D


os
M


S
al


es
d


e
M


ex
ic


o,
lo


ca
te


d
in


M
ex


ic
al


i a
nd


S
an


L
ui


s
R


io
C


ol
or


ad
o;


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gr


ic
ol


a
La


L
ag


un
a,


o
r


S
un


F
re


sh
, o


f
E


ns
en


ad
a;


T
ec


no
ag


ro
In


te
rn


at
io


na
l i


n
S


an
L


ui
s


R
io


C
ol


or
ad


o
an


d
E


ns
en


ad
a,


a
nd


A
gr


o
In


du
st


ria
s


V
ig


or
in


T
iju


an
a,


O
jo


s
N


eg
ro


s
an


d
S


an
Q


ui
nt


in
, B


aj
a


C
al


ifo
rn


ia


C
6


60
c


on
fir


m
ed


c
as


es
o


f H
ep


at
iti


s
A


in
P


itt
sb


ur
gh


, P
en


ns
yl


va
ni


a.
T


he
v


ic
tim


s
w


er
e


lin
ke


d
to


c
on


su
m


pt
io


n
of


g
re


en
o


ni
on


s


‘s
al


sa
’ –


a
t t


he
B


ea
ve


r
Va


lle
y


M
al


l C
hi


C
hi


’s
re


st
au


ra
nt


. F
D


A


an
d


C
D


C
tr


ac
ed


th
e


so
ur


ce
o


f t
he


g
re


en
o


ni
on


s
to


tw
o


fa
rm


s
in


M
ex


ic
o.


C
hi


C
hi


’s
re


st
au


ra
nt


fi
le


d
fo


r
ba


nk
ru


pt
cy


, a
nd


c
lo


se
d


al
l i


ts
re


st
au


ra
nt


s
in


S
ep


te
m


be
r


20
04


. T
hi


s
H


ep
at


iti
s


A


ou
tb


re
ak


is
c


on
si


de
re


d
to


b
e


th
e


la
rg


es
t i


n
U


.S
. h


is
to


ry
.


E
H


ow
ev


er
, M


ex
ic


an
o


ffi
ci


al
s


ha
ve


m
ai


nt
ai


ne
d


th
at


th
er


e
w


as
n


o
ev


id
en


ce
li


nk
in


g
th


e
H


ep
at


iti
s


A
o


ut
br


ea
k


to
g


re
en


o
ni


on
s


or
ig


in
at


in
g


fro
m


M
ex


ic
o.




N
ot


es
:


(i)
T


he
to


ta
ls


m
ay


n
ot


a
dd


u
p


to
h


un
dr


ed
p


er
ce


nt
b


ec
au


se
d


at
a


fro
m


o
th


er
c


ou
nt


rie
s


ar
e


no
t i


nc
lu


de
d


he
re


.
(ii


) –
(d


as
h)


m
ea


ns
n


eg
lig


ib
le


.




102 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


ernization of the national food safety laws and regula-
tions, in order to fully establish new public oversight of
its agrifood supply chains. Overcoming trade-related
standards compliance challenges needs innovative
technical assistance. It also requires additional re-
sources – financial and technical assistance – for train-
ing, innovation and technology transfer, and capacity-
building on the ground for farmers, producers, packers
and exporters. Technical knowhow on the market en-
try requirements of NTMs, particularly standards and
technical regulations, as well as the implementation of
both public (mandatory) and private (voluntary) food
safety certification schemes by small producers, proc-
essors, packers and exporters in Mexico’s agrifood
supply chains is critical for export success.


Given the direction of trade for agrifood to the U.S.
market, it is imperative that Mexico periodically review
and maintain its agreement on food safety rules with
the U.S. In reviewing the agreement, as and when
necessary, it is necessary to invoke provisions on
technical and financial support for Mexican agrifood
sector so that it strengthens, ‘at the source’, the
scientific and public health risk related to food safety
regulation before the products arrive in the U.S.
market. This would entail reviewing the provisions
under NAFTA and other free trade agreements Mexico
has with other countries


As the US shifts focus away from reaction and
response to prevention of food borne illnesses from the
‘farm to fork’ (Food Safety Modernization Act, FSMA,
signed into law in January 2011),, the Government
of Mexico may consider engaging in consultative
dialogue with its U.S. counterparts, the FDA, and seek
technical and financial support in order to continue its
reforms, improve, and scale-up its national food safety
programs. The FDA is mandated by the FSMA, under
the ‘importer compliance certification’ provisions,
to provide such assistance to foreign governments,
such as Mexico, so that these countries are able
to add value to their products as well as improve
process management procedures – on- and off-form
packing and handling, storage, and shipment facilities.
Improvements to the process or system management
entail the development and implementation of the
science- and risk-based HACCP procedures and
standards which is purported by FSMA. This type
of strategic assistance programs – through FMSA
provisions – would most certainly assist Mexico tot
develop and implement prudent preventative measures
so that food borne diseases and trade consequences


are prevented at the ‘at the source’. Doing so will
also help improve the public (consumer) confidence
knowing that the preventative measures should be
able to halt, if not safeguard, the borders so that the
agrifood products that do enter the U.S. market are
safe and healthy. However, in the implementation of the
FSMA provisions, it is imperative that FDA be aware of,
and takes into account the adverse consequences it
may have on the Mexico’s agrifood industry costs, its
impact on domestic food prices, product diversity, and
options for diversification.


Assistance sought from these avenues should then be
invested into Mexico’s agrifood sector to develop and
implement credible internationally recognized public
or private food safety certification schemes. This is
important, given the credence the U.S. FDA gives
to the use of third-party certification programs for
extending its oversight of imported agrifood and feeds.


Finally, there should be joint programs – e.g. seminars,
capacity building training programmes, etc., – in
conjunction with key Mexican authorities, both public
and private, and major trading partners, U.S., Canada,
China, Japan and others. For example, given the
economic importance of meat and meat products
trade between U.S. and Mexico, it may be prudent for
the key partners in U.S. (e.g. American Meat Institute)
and the Agriculture Secretariat (SAGARPA, Mexico)
to conduct tailor-made seminars and training at key
border crossing locations (e.g. Reynosa, Tijuana,
Nuevo Laredo, Ciudad Juarez) to help familiarize
customs authorities with U.S. food safety systems and
the safety requirements of meat and meat products.
This is made all the more urgent and necessary in
the light of the October 2011 invocation of the cross-
border trucking provisions under NAFTA by the U.S.


F. MAjOR PUBLIC AND
PRIVATE POLICY ACTIONS:
TOwARDS REVITALIzING
AND ENHANCING THE
COMPETITIVENESS AND
GROwTH OF MEXICO’S
AGRIFOODS SECTOR, AND
SUSTAINABLE RURAL
DEVELOPMENT


Agriculture’s declining importance, both in terms of
GDP and merchandise exports, and its continued




103chaPteR.II:.agriculture commodity policy review for mexico


marginalization in the public policy, particularly the
neglecting of small-scale farmers in agricultural
support services and programmes pose profound
impact on the prospects of Mexico’s broad-based
economic growth and sustainable development. In
the main, federal government-sponsored agricultural
and rural development support programmes and
services channeled through key government agencies
– e.g. SAGAPA – are lacking, if not, insufficient to
raise the competitiveness of small-scale farmers,
spur sectoral growth and reduce rural poverty. What
is more: significant proportions of the federal support
programmes and services accrue to large-scale
producers and firms engaged in Mexico’s agricultural
sector, which are well organized and resourced, and
command considerable political clout to influence
government policy.


Despite this, the sector’s multi-functionality and its
intricate linkages with other productive sectors of
the economy offers solid prospects for sustainable
livelihoods and poverty reduction for the millions
of Mexican farm families. Further the sector is the
principal depository for Mexico’s rich and diverse
cultures, history, landscapes and natural capital. It is
prudent, therefore, to ‘get it right’ with both public
and private policy reforms and actions so that the
sectors’ chronic problems – e.g. poor infrastructure,
lack of support services (e.g. access to finance and
credit), economies of scale, declining terms of trade,
rising input costs (e.g. fertilizers), low and declining
public investment, economic marginalization of the
sector, etc. – are addressed comprehensively, so
that agriculture regains its rightful place in Mexico’s
economic and development agenda now and into the
21st Century.


In drawing together the disparate elements to map
out the major recommendations for both public and
private policy actions, first the case for policy reform
is made, and second the parameters for policy reform
in key areas of Mexico’s agricultural and food sector
are elaborated.


1. The case for policy reform


The various subsidies that constitute government
support to agriculture were introduced at different
times and for different reasons. Despite the existence
of the Special Programme (PEC), there is no clear
policy coherence between these government
programmes and support measures. By far the largest


agricultural subsidy is PROCAMPO, which is a system
of direct payments per hectare unrelated to need,
price or production. This subsidy is poorly targeted,
with 29 per cent of the total going to the top income
decile and 57 per cent going to rural populations.


According to SAGARPA, the current agricultural support
system lacks both efficiency and effectiveness and
is not results-oriented. The objectives of the various
support measures are inconsistent and the PEC has not
succeeded in creating clear overarching policy goals and
implementation guidelines. It is common knowledge,
that there has not been sufficient investment in the
provision of public goods, particularly rural infrastructure,
information and communication services, single
payment scheme (SPS) systems, soil conservation, and
agricultural research and extension services.


Rural development legislation (e.g. AFA and NAC) as
well as the PEC programme have been unsuccessful
in coordinating and harmonising the various agencies
and programmes under their purview. According to
SAGARPA, 52 public programmes that support rural
development show significant areas of duplication, 19
indicate complementarities and 4 a cross-purpose.
Therefore, the governance structures of current policies
lack enforcement coordination across the various
actors proactively engaged in these programmes to
effect change and realize the stated objectives. This
situation is not at all helped by the shortages in human
capital and material resources, which in turn impede
programme implementation, as well as its monitoring
and evaluation. As a result, there is little conformity
of programmes with deadlines and objectives.
Importantly, it is also recognised that there is a need
to create a system to ensure popular consultation for
programme design and for effectiveness monitoring.


The major problem with regard to the current policy
environment, insofar as it concerns the agrifood
small-scale producers and producer organizations,
beyond the lack of support for productive capacity
development, is the lack of policy reliability and
predictability.


In terms of rural finance, the Financiera Rural has put
in place a number of initiatives to improve the access
of producers to financial services and products.
However, currently these initiatives are not reaching the
intended targets –– small-scale farmers. This is partly
due to the strict regulations that govern the conduct of
its operations, and the paucity of commercial banking
services in rural areas.




104 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


There is a clear need to reform the current situation of
Mexico’s agricultural sector. In particular, the situation of
smallholder producers must be improved. Productive
and efficient small farmers are central to effective rural
development, as they are both significant contributors
to domestic food security, as well as of the engines
of rural economic activity that can counteract poverty
and emigration. Building a prosperous rural sector
therefore requires smallholders to not only carve out a
decent livelihood from their farming activities, but also
sustains the natural capital into perpetuity.


2. Parameters for policy
reform


Policy reforms and line activities have two objectives:
(i) to define and implement means and ways, either
unilaterally or collectively (e.g. strategic partnerships),
to induce appropriate asset-specific investments
that supports integration of smallholders into
higher value markets, and (ii) to initiate institutional
reforms through public-private partnerships, and
non-governmental organizations (NGOs) including
producer-organizations, towards formulating sectoral
policies that impact them (farmers).


To achieve these objectives, the suggested
parameters for policy reform ihave been grouped nto
eight actionable themes:


• Expand access to finance among rural popula-
tions;


• Develop risk-management options;


• Build productive capacity;


• Resolve commodity value chain imbalances;


• Improve market access and compliance with agri-
foods standards;


• Recommit to basic rural infrastructure and other
public goods;


• Address international trade imbalances, and


• One-stop-shops’ for rural services delivery.


2.1. Expand access to finance
among rural populations


• Improve access by:


a. Encouraging private financial institutions in


better serving the rural areas through incen-
tives, infrastructure provision, and by better
publicizing the real savings potential of the
rural population.


b. Facilitating state mandated credit schemes


c. Developing the role of non-bank financial
institutions in the provision of basic financial
services in rural areas (e.g. post offices, petrol
stations, corner shops, etc.) through incen-
tives, appropriate regulation, and information
campaigns.


d. Helping to expand the use of ICTs to improve
rural banking through infrastructure provi-
sion, appropriate regulation, and information
campaigns.


• Encourage the development of more appropriate
financial products to meet the needs of producers
through incentives, regulation, and information.


• Address issues related to land tenure to help small
and medium producers to use their land as collateral.


• Develop financing models that focus on building
credit arrangements around the supply chain itself.
For instance, use ‘factoring’ as a tool to finance
trade, in order to help small-scale producers and
agribusiness improve their cash-flow and profit
margins, and enhance their linkage with other lu-
crative sectors such as tourism.


• Encourage the development of micro-finance and
other semi-formal financial institutions through a
multi-tier structure of financial regulation.


2.2. Develop risk-management
options


• Develop innovative and adequate agricultural in-
surance scheme for small and medium produc-
ers either through direct state provision or through
PPPs, such as weather index insurance products
as a means of avoiding the problems associated
with traditional crop insurance. 103


• Ensure appropriate regulation of contract farming
to allow speedy judicial action in case of non-pay-
ment.


• Assess the feasibility of developing commod-
ity exchanges to help agricultural sector players,
including small producers, reduce their transac-




105chaPteR.II:.agriculture commodity policy review for mexico


tion costs and address the key challenges in their
market: access to price information and price risk
management (through hedging). The commodity
exchanges can also facilitate access to finance by
using warehouse receipt systems and improve the
quality of agricultural products through specially
defined programmes that help them meet the nec-
essary public and private standards.


2.3. Build productive capacity


• Assist smallholder producer organisations in ac-
quiring access to storage and warehousing sys-
tems and basic processing facilities, contracting
transport services, buying inputs, among others,
either through support or through direct provision
and user fees.


• Improve the research and extension system with
a clear objective of helping smallholder producers
to increase their productive capacities. Extension
services should facilitate access to knowledge
about improved production techniques, improved
seed varieties, or more efficient resource use (e.g.
water harvesting techniques). For this purpose
some governments have successfully imple-
mented farmer field schools with ‘train-the-trainer’
schemes.


• Revise subsidy system. Targeting should be en-
hanced with clearly defined eligibility criteria to be
closely monitored and time-bound exit strategies.


2.4. Resolve commodity value
chain imbalances


• Encourage the establishment and strengthening
of producer organisations such as cooperatives or
farmers associations through information, incen-
tives, and appropriate regulation.


• Facilitate easy and affordable access to market in-
telligence and price information to ensure that pro-
ducers receive a fair price from buyers. Enhance
market transparency schemes.


• Set up a market information system that is acces-
sible to smallholder producers.


• Seek to better integrate local rural and urban mar-
kets.


• Concentration of market power – in both buyer
and seller – given oligopolistic behaviour in Mexi-


co’s agrifoods sector, distorts markets and prices,
which impacts negatively on the millions of ‘price-
taking’ asset-poor farmers and small- to medium-
scale agritrade entrepreneurs. It is therefore im-
perative for the development of ‘new’ approaches
to national competition policy that addresses the
inconsistencies and the negative impacts of mar-
ket power concentration on both producer and
consumer welfare. Enforcement of transparency
and accountability is central to this process. In this
connection, apportioning of benefits and costs be-
tween the participants along the different agrifoods
value chains, and procedures and policies in that
trading relationship.


• Reduce the quasi-monopoly situation of buyers and
processors through stricter application of compe-
tition law and/or encouraging new market partici-
pants (e.g. large producer cooperatives). Competi-
tion policy is discussed in detail in Chapter 3.


2.5. Improve market access and
compliance with agrifoods
standards


• SAGARPA should keep on track with its reform
and modernization of the national food safety laws
and regulations, in order to fully establish new pub-
lic oversight of its agrifoods supply chains.


• Relevant authorities in Mexico should periodically
monitor, review and maintain its Agreement on
Food Safety Rules with the U.S. Where feasible
and mutually beneficial for contracted parties, in-
vocation of necessary provisions on technical and
financial support that strengthens ‘at the source’
the scientific and public health risk related to food
safety regulation in Mexico, is central to this proc-
ess, before the agrifoods products arrive in the
U.S.; its biggest export destination market.


• Mexico should examine provisions under NAFTA
and other free trade agreements it has with oth-
er countries, in order to explore and source out
trade-related technical assistance packages that
are available to her, under such agreements in-
cluding the WTO-led Aid for Trade Initiative and
other development assistance frameworks.


• Mexican authorities, both public and private,
should work closely with their counterparts in U.S.,
particularly the FDA, as the latter is mandated to
implement and facilitate compliance, in developing




106 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


countries, trade-related food safety regulatory pro-
visions and develop standards as enshrined in the
‘new’ Food Safety Modernization Act (FSMA).104


2.6. Recommit to basic rural infra-
structure and other public goods


• Enhance provision of rural public goods accord-
ing to careful needs assessment and with priority
to the needs of smallholder producers. Many rural
areas in Mexico remain very poorly connected to
transport networks. Rail networks have been pri-
vatised, leading to severe underinvestment in rural
service provision. Access to water and electricity
can be problematic in some areas. Port and bor-
der facilities are also inefficient, which contributes
to Mexican agriculture’s lack of international com-
petitiveness. Overall, logistical costs are twice as
high in Mexico as they are in the US and other
OECD countries. Thus, the Mexican government
should increase its budget allocation for public in-
vestment in basic rural infrastructure.


• Mexico has low research spending in general
and research into agriculture represents only 6.6
per cent of government spending on science and
technology. There is furthermore almost no private
spending on research and development in this
sector in Mexico. Total spending on agricultural
R&D amounts to only 0.17 per cent which is con-
siderably lower than in Brazil or Chile. Moreover,
research is poorly targeted to the actual needs of
smallholder producers. Research is generally un-
dertaken in academic institutions that are poorly
linked to the producers.


2.7. Address international trade
imbalances


• This is a delicate area given the commitments
of Mexico under the WTO and NAFTA but steps
should be taken to correct some of the biggest
imbalances that affect the agricultural sector.


• Greater efforts should be made to ensure that na-
tional certification is duly recognized in other mar-
kets, especially in the United States, to allow Mexi-
can products to be exported there.


• Emphasis should be placed on further diversifying
Mexico’s agricultural export markets to take ad-
vantage of new opportunities and reduce depend-
ence on the United States market.


2.8. ‘One-stop-shops’ for rural
services delivery


• The government of Mexico may opt to establish
‘One-stop-shops’ in rural areas where service
delivery is poor or non-existent. This innovative
citizen-centric service model will provide the ru-
ral- and agricultural-population of Mexico with a
single access point, whether through front office,
telephone, website or other delivery channels. The
‘One-stop-shops’ models are already been imple-
mented in a number of countries such as U.S.,
Canada, United Kingdom and Australia. Key is-
sues in setting up a government ‘One-stop-shops’
include a clear understanding of the needs of the
targeted customers, breaking down the siloed
government structures to one that is connected
to the needs of the people, and efficiently delivers
programmes and services to meet these needs,
including the millions of farm families in Mexico




107chaPteR.II:.agriculture commodity policy review for mexico


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111chaPteR.III:.competition policy issues in mexico and agriculture development


A. INTRODUCTION
It is expected that markets, which are characterised by effective competition not only deliver the best outcome
for consumers in terms of product quality, variety and prices, but also offer fair chances to participate in the
economic process to enterprises. While competition is considered to be the driving force for a thriving market
economy, it is not always present in practice and needs a policy framework to be adequately protected and
promoted. Restrictions to competition may be private as well as public in nature. Anticompetitive agreements
between market players, such as price fixing and market sharing, the abuse of dominant position and mergers
that lead to a substantial lessening of competition are considered as common forms of private restrictions to
competition. Public restrictions to competition include, for instance, government policies and actions that restrict
access to specific markets, distort the interplay between supply and demand, institute legal monopolies or treat
economic actors unequally. In particular but not only, state aid may lead to such distortions of competition of
a public nature. Even in well-established market economies, restrictions of competition can be found in many
industry sectors, including agriculture.


As regards the agricultural sector, two features make it particularly sensitive: firstly, the imperative of ensuring
food security and secondly, the fact that in many developing countries, the agricultural sector accounts for
a large share of employment. For this reason, governments may be hesitant to leave the agricultural sector
to the free play of market forces and put in place special regulatory regimes that may have an impact on
competition, for instance, state interventions to guarantee minimum and maximum prices for a country’s main
agricultural products.105 Within the European Union, for example, the agricultural sector is regulated by the single
Common Market Organisation for all agricultural products, which essentially comprises a complex system of
rules concerning public intervention in agricultural markets, quota and aid schemes, marketing and production
standards, and provisions on trade with third countries.106 This legal framework replaces the formerly existing 21
different, product specific Common Market Organisations. Similarly, the agricultural sector in the United States
has been subject to specific regulation that evolved over time with today’s government intervention in agricultural
markets taking the form of price floors,107 State purchases of excess supply and the limitation of supply.108 In
other cases, States have introduced statutory marketing boards as central purchasing entities for agricultural
products with the aim of setting central purchasing prices.109 For instance, in Tanzania, so-called crop marketing
boards have the responsibility of regulating prices and distribution dynamics for major cash crops such as coffee,
cotton, cashew nuts and tobacco.110 Furthermore, a number of competition laws provide for exceptions of the
agricultural sector or for specific exemptions, e.g. for producers organisations.111


These general remarks on the benefits of competition, the sources of threats to competition and the particular
sensitivity of the agricultural sector, being made, the present chapter is dedicated to an assessment of competition
issues in selected agricultural markets in Mexico with a view to identify impediments to agricultural development
and policy options to address these.


At the outset of this Outlook, the possible existence of particular restrictions to competition in the Mexican
agricultural was highlighted, namely the presence of large suppliers of agricultural inputs (fertilizer, seeds, etc.)
and buyers (such as processors and retail chains) that might abuse their market power to the detriment of farmers
and consumers. It is true that starkly differing degrees of concentration at different levels of the agricultural
value chain constitute competition concerns not only in Mexico, but can be described as a common feature
of many agricultural systems. The OECD points out that while in most agricultural markets, both production
and consumption are highly atomised, agricultural commodities typically pass through a number of highly
concentrated functional markets between growers and consumers.112 This phenomenon has been illustrated as
follows:


Furthermore, the OECD reports that a similar feature can be observed in upstream markets: «Multitudes of
growers in many agricultural industries are often caught between upstream and downstream bottlenecks.
Growers are often ‘price takers’ both when they are purchasing essential inputs ad when they are selling their
product.”113


cHaPter iii


COMPETITION POLICY
ISSUES IN MEXICO
AND AGRICULTURE


DEVELOPMENT




112 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


A. INTRODUCTION
It is expected that markets, which are characterised
by effective competition not only deliver the best
outcome for consumers in terms of product quality,
variety and prices, but also offer fair chances to
participate in the economic process to enterprises.
While competition is considered to be the driving
force for a thriving market economy, it is not always
present in practice and needs a policy framework to
be adequately protected and promoted. Restrictions
to competition may be private as well as public in
nature. Anticompetitive agreements between market
players, such as price fixing and market sharing, the
abuse of dominant position and mergers that lead to a
substantial lessening of competition are considered as
common forms of private restrictions to competition.
Public restrictions to competition include, for instance,
government policies and actions that restrict access
to specific markets, distort the interplay between
supply and demand, institute legal monopolies or treat
economic actors unequally. In particular but not only,
state aid may lead to such distortions of competition
of a public nature. Even in well-established market
economies, restrictions of competition can be found
in many industry sectors, including agriculture.


As regards the agricultural sector, two features make it
particularly sensitive: firstly, the imperative of ensuring
food security and secondly, the fact that in many
developing countries, the agricultural sector accounts
for a large share of employment. For this reason,
governments may be hesitant to leave the agricultural
sector to the free play of market forces and put in place
special regulatory regimes that may have an impact
on competition, for instance, state interventions
to guarantee minimum and maximum prices for a
country’s main agricultural products.105 Within the
European Union, for example, the agricultural sector is
regulated by the single Common Market Organisation
for all agricultural products, which essentially
comprises a complex system of rules concerning public
intervention in agricultural markets, quota and aid
schemes, marketing and production standards, and
provisions on trade with third countries.106 This legal
framework replaces the formerly existing 21 different,
product specific Common Market Organisations.
Similarly, the agricultural sector in the United States
has been subject to specific regulation that evolved
over time with today’s government intervention in
agricultural markets taking the form of price floors,107
State purchases of excess supply and the limitation


of supply.108 In other cases, States have introduced
statutory marketing boards as central purchasing
entities for agricultural products with the aim of
setting central purchasing prices.109 For instance, in
Tanzania, so-called crop marketing boards have the
responsibility of regulating prices and distribution
dynamics for major cash crops such as coffee, cotton,
cashew nuts and tobacco.110 Furthermore, a number
of competition laws provide for exceptions of the
agricultural sector or for specific exemptions, e.g. for
producers organisations.111


These general remarks on the benefits of competition,
the sources of threats to competition and the particular
sensitivity of the agricultural sector, being made, the
present chapter is dedicated to an assessment of
competition issues in selected agricultural markets
in Mexico with a view to identify impediments to
agricultural development and policy options to
address these.


At the outset of this Outlook, the possible existence
of particular restrictions to competition in the Mexican
agricultural was highlighted, namely the presence of
large suppliers of agricultural inputs (fertilizer, seeds,
etc.) and buyers (such as processors and retail chains)
that might abuse their market power to the detriment
of farmers and consumers. It is true that starkly
differing degrees of concentration at different levels
of the agricultural value chain constitute competition
concerns not only in Mexico, but can be described
as a common feature of many agricultural systems.
The OECD points out that while in most agricultural
markets, both production and consumption are highly
atomised, agricultural commodities typically pass
through a number of highly concentrated functional
markets between growers and consumers.112 This
phenomenon has been illustrated as follows:


Furthermore, the OECD reports that a similar feature
can be observed in upstream markets: «Multitudes of
growers in many agricultural industries are often caught
between upstream and downstream bottlenecks.
Growers are often ‘price takers’ both when they are
purchasing essential inputs ad when they are selling
their product.”113


In the following, the above mentioned concerns
will be assessed, as well as further competition
issues that possibly affect the Mexican agricultural
sector. Consecutively, it shall be analysed how those
competition issues can be addressed through the
existing competition law and policy system in Mexico




113chaPteR.III:.competition policy issues in mexico and agriculture development


and what type of further measures might be required.
In this context, experiences from other countries will
be taken into account.


Thirteen products were identified by the Government
of Mexico for the Outlook as priority products for
closer scrutiny. While it would be desirable to carry
out a thorough assessment of all these 13 product
markets, this exercise would go beyond the scope
of the current diagnosis. Therefore, corn production
and commercialisation have been chosen for more
detailed assessment within the framework of this
chapter. Nevertheless, Section B provides an overview
of market concentration in selected agrifood products.


By way of introductory remark, it further needs to
be emphasised that while this diagnosis can identify
some of the possible competition issues affecting
corn production and commercialisation in Mexico,
our assessment is by no means exhaustive. Certain
forms of anti-competitive practices, such as cartels
are secretive by nature. Thus, their detection requires
strong investigative powers, which are outside the
jurisdiction of UNCTAD. Furthermore, being based on
desk research, findings from stakeholder interviews
and data provided by SAGARPA, the findings in this
Outlook are preliminary in nature and would need to
be carefully validated by stakeholders in Mexico.


B. MARkET
CONCENTRATION IN
SELECTED AGRIFOOD
PRODUCTS: AVOCADO,
BEEF, CORN, PORk AND
POULTRY


In the case of Mexico, the concentration of market


power114 in the hands of a few vertically integrated


firms, particularly in livestock (e.g. beef, egg production


and pork) and crops (e.g. corn flour milling), portrays


an oligopolistic situation. The often complex array of


vertically integrated firms – acting as buyers and sellers


– control almost all processes from the ‘farm to fork’.


The growth and modernization of these agribusiness


firms, for example, supermarkets in the retail sector,


often proceed under radar of public policy, with


minimum government intervention and support. This


section, therefore, focuses on market concentration


in selected agricultural and food products – avocado,


beef, corn (maize), pork, and poultry – of Mexico.


Source: OECD


Consumers


Retailers


Food manufacturers


International traders


Domestic trader/processor


Smallholder/estate




114 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


1. Avocado


Avocado, like corn (maize), is native to Mexico.
Mexico has the comparative advantage in producing
avocados.115 Mexico and U.S. are the world’s largest
producers of avocado, accounting for 68 per cent and
15 per cent of global production, respectively. Over
70 per cent of Mexico’s Hass variety of avocado is
consumed locally, and the balance, 30 per cent, is
exported largely to U.S. (75 per cent), Japan (10 per
cent) and Canada (7 per cent). Production of export-
quality Hass avocados is concentrated in the state
of Michoacán (88 per cent), followed by Jalisco and
Sinoloa. Michoacán is forecast to produce 1.25 million
metric tons in the 2011-12 crop-year (June-July).
Avocado Producers & Exporting Packers Association
of Michoacán (APEAM) is solely responsible for
exporting Hass avocados from the state of Michoacán.


During the 2011-12 crop-year, Mexico exported more
than 781 million pounds of Hass avocado to the U.S.,
25 per cent more than the previous year. Exports of
avocados to U.S. is forecast to increase, on the back
of burgeoning demand, by more that 5.6 per cent (or
(825 million pounds) during the 2012-13 crop-year.
Hass avocado exports to U.S. had increased over the
years following the complete removal of the import
ban on Hass avocados on 31 January 2005.116 An
import ban on Mexican avocados was first imposed in
1914 over phytosanitary concerns, which were proven
later to be scientifically untrue.117 There are 56,645
ha cropped with Hass avocados are certified by the
U.S. authorities – Animal Plant Health and Inspection
Services (APHIS) – to export the product duty-free to
U.S markets.


Avocado production is concentrated in the state of
Michoacán. Avocado is a staple for Mexican’s, and
thus over 70 per cent of the produced in Mexico is
consumed locally.118 In 2010, the Mexican avocado
export market size was 248,643 metric tons, valued
at US$600 million.


In terms of market share, Calavo de Mexico Sa de CV
controls 11 per cent of the export market, followed
by 4 other major firms accounting for 25.7 per cent.
The balance, 63 per cent, is taken up by small- to
medium-sized avocado packing houses, who directly
supply U.S.-based firms.


Burgeoning demand for Mexican avocados, both
locally and in the U.S., has had a strong and
positive impact on the industry. The boom in the
avocado industry has boosted local businesses and
employment, driven investments in technologies and
equipments, while trucking fleets, packing plants,
sanitary inspectors and orchard workers thrive in the
industry which injects about $400 million annually
into the local economy, a 50 per cent increase from
10 years ago. Even Mexico’s major competitor firm,
Calavo Growers Inc., California, has stepped-up
capital investments in Uruapan, Michoacán – the heart
of Mexican avocado production – by upgrading and
expanding its packinghouse facility to keep up with
strong consumer demand in U.S.119


The growth is explained by the opening of the U.S.
market to Mexican avocados, rising incomes and
growing Hispanic population in U.S. That being said,
however, a large part of this success could be appor-
tioned to the implementation of APEAM’s fully integrat-
ed market programs. APEAM’s avocado promotion
drive includes massive advertizing blitzes across U.S.,
increased awareness to help retailers drive demand in-


Company Market share (%)


Calavo de Mexico SA de CV 11


Mission de Mexico SA de CV 8


Frutas Finas de Tancitaro SA de CV 7


Empacadora Agroexport SA de CV 6


Global Frut 5


Others 63


Total 100


Table III.1: Market Share of Avocado Export Volumes, 2010


Source: USDA Grain Report (25 May 2011)




115chaPteR.III:.competition policy issues in mexico and agriculture development


store, strong brand – “Avocados from Mexico” – pro-
motions, and e-blasts that reach millions of consum-
ers.120 APEAM is aggressively targeting the Japanese
markets in order to diversity its export markets. Break-
ing into the 1.34 billion consumer-market of China
should be pursued as it would most definitely change
the dynamics of the avocado industry in Mexico.


2. Beef


Mexico is the natural market for U.S. beef exports –
chucks and round cuts, given Mexico’s geographical
proximity, burgeoning economy and rising middle-
class, and big population with an appetite for meat
consumption, for U.S. beef exports, particularly chuck
and round cuts which have minimum market potential
in U.S.


Mexico’s beef sector is diverse in terms of cattle
production, beef processing, and domestic marketing.
Small-scale ranchers are highly fragmented and raise
calf-cow on grass or pasture. Big producers, on the
other hand, are more concentrated and use feedlot
operations121 (as discussed in beef value chain analysis
in this chapter). Mexico’s domestic market is still very
much carcass-based, where beef is sold through small


butcher shops clustered together in public markets. In
recent years, however, supermarkets have increasingly
taken over retail sales of beef in major urban centers.
Retail sale of beef is therefore more concentrated in
supermarkets than in small butcher shops.122


In 2010, the market size for feedlot beef production
was 1.75 million metric tonnes, and valued at
approximately $8.75 billion. Three companies –
Grupo VIZ (16 per cent), Grupo GUSI (6 per cent) and
Praderas Huasteca (5 per cent) – capture 27 per cent
of feedlot processing capacity. The balance, 89 per
cent, is scattered among smaller feedlot operations
(USDA, 2012). The market share of these companies
is shown in Table III.2.


3. Corn


Corn (or maize) is a native crop – like avocado – to
Mexico, and it is the most important staple food – as
corn tortillas – for Mexican’s.123 Sinaloa is Mexico’s
biggest maize-producing state. Roughly three million
Mexican families (or 15 per cent of Mexico’s 105
million people) grow corn, 85 per cent of whom have
landholdings no bigger than 5 ha (USDA Grain Report,
2011, p.7). Mexico primarily produces white corn, over


Company Market share (%)


Grupo VIZ 16


Grupo GUSI 6


Praderas Huasteca 5


Others 89


Total 100


Table III.2: Market Share of Feedlot Beef Production, 2010


Source: USDA Grain Report (25 May 2011)


Corn Flour Production Volume, 2010 Corn Starch Production Volume, 2010 Animal Feed Processing Volumes, 2010


Company Market share (%) Company Market share (%) Company Market share(%)


Gruma SAB de CV 75
Corn Products


International Inc.
65 AMEPA, AC 30


Grupo Minsa SAB de CV 15
Controladora ADM SA de


CV [Almex]
35 CONAFAB 22


UNA 20


Others 10 Others 29


Total 100 100 100


Table III.3: Market share in selected corn products - flour, starch and animal feed, 2010


Source: USDA Grain Report (25 May 2011)




116 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


85 per cent of which is consumed locally by people,
and the balance is processed into animal feed. Yellow
corn, imported largely from U.S., is used primarily
for livestock feed and industrial use ––corn starch,
cereals, and snacks. Mexican farmers use seeds
from their native corn species, which are stored from
harvest to harvest.124 Commercial corn production
is undertaken mostly by medium–to large-scale
growers, who apparently wring most of the benefits
out of Government support (subsidy) programs such
as the US$869.2 million Forward Contract Program.125


Prolonged severe drought, in more than seven
decades, battered 70 per cent of Mexico and its
agricultural production sector in 2010. The financial
loses accruing to the corn sector is estimated at
US$710 million.126 Mexico’s total corn production
estimate for the 2011-12 crop-year was revised
downward to 18.6 million metric tons (MMT). For
the next crop year (2012-13), Mexico is forecast to
produce 21 MMT, from an estimated of 7 million ha.
Mexico is the fifth largest corn producer in the world
after U.S., China, the E.U., and Brazil.


The removal of all tariff and quota restrictions under
NAFTA had opened the floodgates for imports into
Mexico. Corn imports increased eightfold, pushing
down domestic prices as much as 40 per cent, and
forcing over 750,000 farmers to quit farming. This had
led to nationwide protests (in 2006 and 2008) and
ongoing campaigns such as “Sin maíz, no hay país”
(“Without corn, there is no country”).127


During the 2011-12 crop year, Mexico imported 11.5
MMT of corn, up 45 per cent from 7.9 MMT in the
2010-11 crop year. Of this, U.S. supplied 10.5 MMT,
making U.S. the most dominant player in Mexico’s
corn market, but also reveal the extensive dependency
of Mexico on its closest neighbor. A closer look at the
10.5 MMT of corn imported from U.S. reveal the extent
of Mexico’s high import-dependency: 91 per cent of
imports, 34 per cent of total supplies, and 35 per cent
of domestic consumption. From U.S.’s perspective,
Mexico is its second largest export market, after
Japan, accounting for 16 per cent of the U.S. corn
exports (USAD, 2012, p.3).


As detailed in the ‘Maize Value Chain’ (see Chapter
II), Mexico’s corn market value chain can be broken
down in five levels: producers (or farmers); silo owners
(store maize); traders (sell and market maize); millers
(process maize for different uses); and end users. The
maize value chain is highly concentrated in corn flour


milling and corn starch processing.


In terms of market share, Gruma SAB de CV and Corn
International Inc., dominate the corn flour and corn
starch subsectors, controlling 75 per cent and 65 per
cent of production, respectively. In 2010, the market
size for corn flour and corn starch were approximately
$500 million and $358 million, respectively. Production
of corn starch uses 2.3 MMT of yellow corn yearly. Up
to 95 per cent of yellow corn for starch preparation is
imported from U.S. (USDA Grain Report, 2011).


The animal feed processing sector is rather evenly
distributed among three companies – Amepa AC,
Conafab and UNA – controlling 72 per cent of the
market. Other small- to medium-sized firms account
for the remaining 28 per cent. In 2010, the market
size, total animal feed consumption was 24.85 MMT,
valued at about $5 billion. Mexico is one of the world’s
largest animal feed producers, accounting for 27.3
MMT in 2010 or 3.8 per cent of world production
(USDA Grain Report, 2011).


4. Pork


Pork is the second-most popular meat consumed in
Mexico, second only to poultry. Chilled and processed
pork are most preferred, of which hot dogs and ham
top the list. Mexico appeases its burgeoning domestic
demand for pork with imports. In 2010, for example,
Mexico imported 786 million kgs of pork and pork
products from U.S. (85 per cent) and Canada (13 per
cent), at the cost of US$1.42 billion.128


During the same year (2010), Mexico’s pork and hog
production was 1.17 million tonnes carcass weight
of 100 kgs (worth $2.92 billion) and 16 million pigs
(worth $2.5 billion), respectively. Rising feed costs,
particularly that of grains, which account for some
60 per cent of hog production costs, dampens the
terms of trade for hog producers. This situation is
aggravated further by the U.S. government’s biofuel
mandates, which ensures that subsidized maize is
diverted to animal feed.


The hog industry is highly fragmented with about one
million registered producers. In terms of market
share, Granjas Carroll de Mexico and Grupo Porcicola
Mexicano (Kenken) account for 10 per cent and 7 per
cent, respectively. The balance, 83 per cent, is taken
up by the multitudes of small and medium-scale firms.




117chaPteR.III:.competition policy issues in mexico and agriculture development


Hog (pig) Production, 2010 Pork Production, 2010


Company Market share (%) Company Market share (%)


Granjas Carroll de Mexico 10 Grupo Porcicola Mexicano (Keken) 10


Grupo Porcicola Mexicano (Keken) 7 Grupo Kowi SA de CV 8


Others: 83 Norson 7


Sonora Agropecuaria 6


Grupo Bafar 5


Others 64


Total 100 Total 100


Table III.4: Market Share of Hog and Pork Production, 2010


Source: USDA Grain Report (25 May 2011)


5. Poultry


At present, Tyson de Mexico–– the world’s largest
integrated producer, processor and marketer, along
with Pilgrim’s Pride and the Mexican company
Bachoco, control up to 52 per cent of chicken
production in Mexico, thanks largely to favorable
foreign investment rules under NAFTA.129 Tyson is the
number three chicken processor and top producer of
‘value added’ poultry products in Mexico, serving the
retail and foodservice industries.130


Jalisco is Mexico’s largest poultry producing region,
accounting for over 3 million metric tonnes of poultry
products – meat and shell eggs – per year. The broiler
meat and table eggs market size (in 2010) was valued
at US$4.91 billion and US$2.47 billion, respectively


C. STATUS OF
COMPETITION IN CORN
PRODUCTION AND
COMMERCIALISATION IN
MEXICO


As described in the value chain assessment
conducted within the framework of Chapter II of this
publication,131 the corn value chain is composed of
four stages: (i) production, (ii) storage and trading,
(iii) processing, and (iv) final commercialisation. In the
following, these four stages will be assessed from a
competition policy perspective.


The assessment of the production stage will have a
look at production volumes at national and regional
level, the structure of production units including the


Table III.5: Market Share of Broiler Meat and Egg Production, 2010


Broiler Meat Production, 2010 Table Egg Production Capacity, 2010


Company Market share (%) Company Market share (%)


Industrias Bachoco SAB de CV 38 Proteina Animal (Proan) 13


Pilgrim’s Pride S de RL de CV 14 Industrias Bachoco SAB de CV 8


Tyson de Mexico 12 El Calvario 6


Others 36 Empresas Guadalupe 5


Others 68


Total 100 100


Source: USDA Grain Report (25 May 2011)




118 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


production methods applied by different types of
producers, import competition from the US, different
key inputs for corn production, as well as State aid
related to corn production.


1. Production


overall corn production in mexico


With a production volume of around 23 million
metric tons, Mexico is the fifth largest producer of
corn worldwide.132 Its production grew considerably
between 1990 and 2009, as shown by Figure III.1.
In fact, the Mexican production of corn in 2009 was
equal to 164 per cent of the level of production in
1990. Nevertheless, with a yearly corn consumption
that has grown to approximately metric tons 30 million,
Mexico is a net importer of corn.133


Mexico’s corn production falls into two main
categories, corn for human consumption (mainly white
corn) and forage corn (mainly yellow corn). Around 8


million metric tons of the white corn production is used
for human consumption, predominately in the form of
tortillas. The rest of the white corn production is used
for animal feed, which means that yellow and white
corn are substitutes with respect to this use. Prices
for white and yellow corn differ significantly, with white
corn being more expensive. However, when white
corn is being used for animal feed, producers can only
achieve the equivalent of the price for yellow corn,
given that animal feed users would only pay the price
for yellow corn.134


Figures III.2 and III.3 provide an overview of Mexico’s
production volume and value of corn for human
consumption and for feed. In particular, Figure III.2
reflects the stark increase of prices during the food
crisis starting in 2006. Furthermore, a comparison of
the two tables reveals that the production volume of
forage corn has grown much stronger in the period
from 1990 to 2009 than the production volume of corn
for human consumption.


35.000.000


Source: SAGARPA


0


5.000.000


10.000.000


15.000.000


20.000.000


25.000.000


30.000.000


19
90


19
92


19
94


19
96


19
98


20
00


20
02


20
04


20
06


20
08


Agricultural Year


M
et


ric
to


ns


United Mexican States


Northwest


Northeast


Center West


Center
South Southeast


Figure IIII.1: Overall corn production in Mexico




119chaPteR.III:.competition policy issues in mexico and agriculture development


Figure III.2: Mexican Corn Production for Human Consumption


0,00


10,00


20,00


30,00


40,00


50,00


60,00


70,00


80,00


19
90


19
91


19
92


19
93


19
94


19
95


19
96


19
97


19
98


19
99


20
00


20
01


20
02


20
03


20
04


20
05


20
06


20
07


20
08


20
09


Agricultural Year


Volume (millions of tons) Value (billions of pesos)


Source: SAGARPA


Figure III.2: Mexican corn production for human consumption


n


0


1


2


3


4


5


6


7


8


9


10


19
90


19
91


19
92


19
93


19
94


19
95


19
96


19
97


19
98


19
99


20
00


20
01


20
02


20
03


20
04


20
05


20
06


20
07


20
08


20
09


Agricultural Year


Volume (millions of tons) Value (bilions of pesos)


Source: SAGARPA


Figure III.3: Mexican forage corn production




120 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


corn production per province


Among the five regions,135 the Center West region
accounts for the largest share in the total corn
production (24 per cent in 2009), followed by the
Northeast, Northwest and Center regions, each
accounting for 21 per cent of the total corn production
in 2009. The South Southwest region accounts for the
lowest share in the overall production of corn (13 per
cent in 2009), see Figure III.4.


While the regions have a similar share in the overall
production of corn, with the exception of the region
South Southwest, the picture differs when considering
the subcategories of corn for human consumption
and forage corn.


As regards the production of corn for human
consumption, the region Northwest had the largest
share in the production volume in 2009 (28 per cent),
followed by the region Center West with a share of 25
per cent and the region Center with 20 per cent. The
share of the region South Southeast accounted for 16
per cent in 2009 and the one of the region Northeast
for 11 per cent. Remarkably, the region Northwest
had the lowest share in production of corn for human
consumption in 1990 and achieved the largest share
in 2009, as shown by Figure III.5. This is mainly due


to the increase of production in Sinaloa, the only
state within Mexico which succeeded to increase its
production volume through an increase in productivity
as opposed to an increase through an enlargement of
the production area.136


While the region Northeast had the lowest share in the
production volume of corn for human consumption,
it accounted for nearly half of the production volume
of forage corn in 2009 (49 per cent), followed by the
regions Center West (25 per cent) and Center (22
per cent). Production of forage corn in the regions
South Southwest and Northwest did not contribute
significantly to the overall production of forage corn in
2009. Their shares were 4 per cent and around 0 per
cent at that point in time, see Figure III.6. This overview
also shows a significant increase in the production
volume of forage corn in the regions Northeast,
Center West and Center, with the first of these regions
experiencing the starkest growth.


A comparison of Figures III.5 and III.6 allows to draw
the conclusion that the provinces Northwest and
South Southeast are specialised in the production
of corn for human consumption, while the region
Northeast specialises in the production of forage corn.
As to the two provinces Center and Center West, no
particular specialisation can be observed.


Northwest
21%


Northeast
21%Center West


24%


Center
21%


South Southeast
13%


Source: SAGARPA


Figure III.4: Overall corn production per province in 2009




121chaPteR.III:.competition policy issues in mexico and agriculture development


0


1.000.000


2.000.000


3.000.000


4.000.000


5.000.000


6.000.000


7.000.000


8.000.000


19
90


19
92


19
94


19
96


19
98


20
00


20
02


20
04


20
06


20
08


Agricultural Yea r


M
et


ric
to


ns


Northwest


Northeast


Center West


Center


South Southeast


Source: SAGARPA


Figure III.5: Corn production for human consumption per province


Figure III.6: Forage Corn Production per Province


Northwest


Northeast


Center West


Center


South Southeast


0


500.000


1.000.000


1.500.000


2.000.000


2.500.000


3.000.000


3.500.000


4.000.000


4.500.000


5.000.000


19
90


19
92


19
94


19
96


19
98


20
00


20
02


20
04


20
06


20
08


Agricultural Year


M
et


ric
to


ns


Source: SAGARPA


Figure III:6. Forage corn production per province




122 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


Production units


While, overall, there are 2 million producers of corn
in Mexico, they differ significantly in terms of size,
production methods and productivity. Production
methods can be divided into two categories:
commercial and traditional. Commercial farmers
would typically use machinery, fertilizers, improved
seeds and irrigation, while traditional farmers would
use modern agricultural technologies only to a limited
extend, if at all. It is estimated that the minimum
surface for commercial corn production is around 30
hectares per farmer,137 which means that only large
and medium sized farms are actually in a position to
participate in commercial production. However, less
than 6 per cent of all farmers in Mexico benefit from
land possession of more than 20 hectares138 and
most of the larger farms are located in the Northern
regions. The large majority of small holders engaging
in traditional farming are located in the Southern region
where they either produce solely for self-consumption
or sell corn to persons living near their farms.139
The productivity of traditional farmers is reported to
be 15 to 20 per cent of the level of productivity of
commercial farmers.140 Yields achieved in some of
the Northern States are around 10 to 11 metric tons
per hectare and are comparable to the US, whereas
yields achieved in the South are of 1 to 1.5 metric tons
per hectare.141 The average yield for corn production
for human consumption equalled 2.8 metric tons per
hectare in 2007.142


1.4. Import competition


Since the domestic production of corn is not sufficient
to fulfill local demand, Mexico has to import about 25
per cent of its consumption.143 Nearly the entirety of
Mexico’s corn imports originates in the US. In fact, in
the period from 2008 to 2010 the share of imports
from the US equaled 99.3 per cent of Mexico’s overall
corn imports.144 This is not only due to geographical
proximity between the US and Mexico and the fact
that the US are the largest corn producer worldwide,
but also to the elimination of tariffs and quota for
agricultural products between these two countries
since the end of NAFTA transition periods on 1
January 2008.145


As a consequence of this liberalisation of agricultural
trade, today local corn production in Mexico freely
competes with corn production in the US. This has
a major impact on the formulation of corn prices in


Mexico. In this context, it is reported that prices for
corn produced in Mexico are based on the corn
future prices at the Chicago Mercantile Exchange
plus international and national transport costs that
would occur when importing corn from the US minus
cost for local transportation from the production to
the consumption point, which would not occur in
the case of imports. This formula clearly reflects the
interchangeability of US and Mexican price from a
demand side perspective.


While strong import competition generally benefits
domestic consumers in terms of lower prices and
greater supply stability, it increases the competitive
pressure on local producers. In instances of great
differences in the levels of productivity of local and
foreign producers, import competition may cause
severe challenges for the domestic industry. In fact,
import competition from the US caused great fear
among Mexican producers at the signing of NAFTA:
taking into account US agricultural subsidies as well
as high levels of productivity in the US, Mexican
corn producers were indeed concerned about the
competition by U.S. corn producers and the risk of
being flooded with cheap imports of corn following
the removal of tariff protection. A recent study on this
issue concludes that these fears were well founded
and that until the price peaks of agricultural products
during the recent food crisis, dumping by subsidised
corn from the US eliminated for the lowest productivity
smallholder in Mexico any positive income from
the sales of corn in the market place and forced
them to retreat into subsistence.146 Furthermore,
the assessment of margins realized by Mexican
producers per crop and technology combination also
shows that smallholders who produce corn according
to purely traditional production methods (rain fed,
indigenous seeds, fertilizers not applied) cannot
realize positive margins.147 Nevertheless, the present
diagnosis concludes in Chapter I of the Outlook that
while previous US policies may have had a detrimental
effect on Mexican corn producers, the data suggests
that this effect is now small or may have reversed.


inputs


Inputs for the corn production vary significantly
depending on the production method that is used.
While traditional production of corn does not need
irrigation, agrochemicals (fertilizers and pesticides)
and machinery, industrial production heavily depends
on these inputs in order to realize higher yields. Both




123chaPteR.III:.competition policy issues in mexico and agriculture development


types of production require land, seeds and manpower
as basic inputs.


The level of competition in input markets, as well as
possible anticompetitive practices in these markets,
has a clear impact on the economic situation and
productivity of producers. For instance, high input
prices caused by collusion among input producers
lead to higher production costs, which are likely to
reduce margins of growers, as they are hardly in a
position to pass on higher costs to their buyers. In
the following, it will be assessed to what extent
competition issues possibly affect the various input
markets for corn production.


Land tenure


During the stakeholder interviews carried out for the
purpose of this Outlook, the limited size of production
units was mentioned several times as one of the most
restricting factors for traditional farmers to become
more productive and participate in the commercial
market. Land possession can therefore be considered
as a crucial barrier to entry the commercial corn
production. 148 For this reason, it is worth assessing
the Mexican land tenure system in more detail.


Land redistribution following the Mexican revolution is
at the origin of today’s strong fragmentation of arable
land in Mexico and the large number of smallholder.
Contrary to today’s situation, land tenure was highly
concentrated when Mexico declared independence
in 1810: 97 per cent of the land was in the hand of
few privileged farmers, 2 per cent corresponded to
small holdings and 1 per cent belonged to indigenous
peoples and communities.149 Under the slogan “land


Ejidal
33%


Communal
3%


Private
63%


Colony
1%


Public
0%


Source: SAGRAPA


Figure III:7: Land possession regime


and liberty”, farmers who took part in the Mexican
revolution of 1910 claimed for a redistribution of land.
In the original version of its Article 27, the Mexican
constitution acknowledged the need for a land
reform and the first of a series of land reforms and
redistributions took place in 1917. This essentially
let to the creation of three different types of land: (i)
public land owned by the nation and assigned to
public institutions, (ii) social land that comprised the
subcategories of ejido and communal land, and (iii)
private land. Figure III.7 gives an overview of today’s
distribution of the different types of land.


The regimes of social and private land tenure are of
particular importance for the agricultural sector. Ejido
land is land granted by the state to groups of peasants
called ejido. While individual members of the ejido
could be allocated a parcel of land to work, this right
of use or exploitation did not amount to ownership.
The ultimate ownership of the land remained with the
ejido as a group.150 Until the agrarian reform of 1992,
it was not possible to transfer ownership of ejido
land. However, with the view to reverse the strong
fragmentation of rural land tenure, the 1992 reform
introduced a specific legal procedure to privatize
ejido land. As a consequence, ejido land has lost its
characteristics of strict social property. The possibility
to privatize ejido land was accompanied by the end
of the state’s constitutional obligation to redistribute
land to peasants. Communal land, the second type
of social land, is land that was restituted by the state
to traditional communities or peasants or indigenous
groups, in recognition of the fact that they were in
possession thereof before the agrarian reform of 1917.
As in the case of ejido land before 1992, communal
land cannot be alienated.


As regards the category of private land, it should be
pointed out that private ownership in land may not
exceed 300 ha for an individual. Since the reform of
1992, commercial companies, however, may own 25
times the amount of rural land to which an individual is
entitled. Taking into account that the land possession
of the majority of Mexican farmers is below 5 ha, this
legal limitation does not appear to very relevant in
practice.


In summary, it can therefore be stated that while the
strong fragmentation of land tenure and the small
size of most farms stems from land redistribution
following the Mexican revolution, today’s legal system
would theoretically allow farmers to acquire larger
land possessions (up to the size of 300 ha). It is




124 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


however assumed that the economic situation of most
smallholder detains them from seizing this opportunity.


Seeds


Seeds used for corn production in Mexico can be
divided into traditional varieties and hybrids.151 It
is estimated that today around 30 per cent of the
agricultural land is plated with hybrid seeds.152 Whereas
traditional varieties stem from centuries of selection
and breeding of seeds by farmers using parts of their
harvests as seeds for the next season, hybrid seeds
stem from industrial crossing of selected lines of corn.
Whilst such hybrids offer specific advantages such as
higher yields and stronger resistance against vermin,
these advantages can only be fully obtained from the
first generation of plants produced with those hybrid
seeds and decrease with later generations. In practical
terms, this means that farmers using hybrid seeds
need to buy these for every season and cannot use a
part of their harvest for the next season. Furthermore,
prices for hybrid corn seeds are significantly higher
than traditional seeds. Based on these reasons, the
Mexican competition authority found in its decision on
a merger between Monsanto Company (Monsanto),
Asgrow Mexicana, S.A. de C.V (Asgrow Mexicana)
and Cargill de México, S.A. de C.V (Cargill Mexico) 153
that traditional corn seeds and hybrid seeds cannot
be considered as close substitutes and therefore
constitute different relevant markets.154


As regards the market for hybrid seeds, in the same
decision, the Mexican competition authority found that
Monsanto through its (indirect) subsidiaries Asgrow
Mexicana and Semillas Híbridas, S.A. de C.V. (Sehisa)
held a market share of 47.1 per cent. The notified
acquisition of Cargill Mexico’s intellectual property
rights and other assets necessary for the production
of hybrid corn seeds combined with a non-compete
clause would have let to an increase of Monsanto’s
market share up to 59.9 per cent, while the rest of
the market was divided between three competitors
holding more than 1 per cent of the market (Híbridos
Pioneer, S.A. de C.V. (Pioneer) - 17.3 per cent,
Ceres Internacional , S.A. de C.V - 9.2 per cent, and
Productora Nacional de Semillas «PRONASE» - 5.1
per cent) and 17 small competitors each holding
a market share of less than 1 per cent. Against this
background, the Mexican competition authority came
to the conclusion that the notified transaction would
significantly lessen competition and prohibited the
transaction. Upon appeal of the notifying parties, the


transaction was later approved with the condition that
the brand Cargill would not be used by Monsanto and
that a production plant of Cargill Mexico would be
divested within 12 months together with a commercial
license to use the intellectual property and know
how for the production of Cargill Mexico’s hybrid
corn seeds. Furthermore, a similar license free of
charge was to be granted to universities and research
institutes. While this decision was taken more than 10
years ago, it nevertheless suggests that the market
for hybrid corn seeds remains highly concentrated
to date with Monsanto holding a dominant position.
This assumption is strengthened by the fact that
PRONASE, the government run seed producer, exited
the market of hybrid corn seed production due to
its liquidation that started in the early 2000s. In fact,
according to a more recent study, 95 per cent of
the hybrid seeds planted in 2009 were produced by
Monsanto and Pioneer only.155


While competition laws generally do not prohibit that a
company holds a dominant position/significant market
power, the abuse of such position, e.g. through
excessive or predatory pricing, tying and bundling
etc., is typically considered as anti-competitive and
therefore prohibited. However, even in the absence
of abusive practices by a dominant company, highly
concentrated markets are characterised by less
competition compared to less concentrated markets,
which can have a negative impact on prices and
product innovation. While the stakeholder interviews
have not revealed any indications for abusive practices
in the market for hybrid corn seeds, the likelihood
of a very high market concentration suggests the
possibility of a low level of competition which could
be expressed by prices above the competitive level,
lower quality of seeds or less product innovation.


In contrast, the market for traditional seeds is not
characterised by the same level of concentration,
given that any local producer can keep a part of the
corn harvest for the purpose of using it personally or
selling it as seeds for the next season.


Agrochemicals


Corn farmers in Mexico use agrochemicals, that is to
say fertilizers and pesticides, to significantly different
extents. As mentioned previously, traditional and
organic farming methods only use agrochemicals very
scarcely, if at all, whereas industrial corn production
depends heavily on agrochemicals to realise high yields.




125chaPteR.III:.competition policy issues in mexico and agriculture development


At first glance, it appears that the Mexican market for
agrochemicals is not characterised by the same level
of concentration as the market for hybrid seeds. The
industry association AMIFAC (Asociación Mexicana
de la Industria Fitosanitaria, A.C.), which according to
its 2009 annual report represents 70 per cent of the
Mexican market for agrochemicals, lists amongst its
members 12 multinational producers of original agro-
chemicals, one importer, 21 producers of generic agro-
chemicals and 16 distributors. In addition, the industry
association UMFFAAC (Unión Mexicana de Fabricantes
y Formuladores de Agroquímicos, A.C.) groups the
main Mexican agrochemical companies. This means
that more than 50 players are active in the Mexican
market for agrochemicals, which has been described
as highly competitive.156 Furthermore, while stakehold-
er interviews have revealed a great concern about the
high concentration in corn processing, a similar con-
cern has not been voiced with respect to the market for
agrochemicals. This first impression does however not
exclude the possibility of anti-competitive structures/
behaviour in the Mexican markets for agrochemicals.


Based on the enforcement practice of other
jurisdictions, an in-depth assessment of markets
for agrochemicals in Mexico would firstly require
identifying the respective relevant markets, which
starts with a distinction between fertilizers and
pesticides. As regards, fertilizers further categories
can be distinguished, which may constitute separate
relevant markets, for instance, organic and mineral
fertilizers (the latter including subcategories for straight
nitrogen, phosphorus and potassium fertilizers, as well
as compound or blended fertilizers).157 In particular, as
regards the key ingredients for potassium fertilizer,
recent research suggests the existence of a worldwide
operating potash cartel: it appears that three Canadian
potash producers do not only operate an export cartel
(which benefits from a specific exemption under
Canadian competition law), but also collude with
further potash producers from Russia and Belarus in
order to limit output and thereby control prices. 158 The
alleged potash cartel - even though operating outside
of Mexico, would have a clear impact on the prices of
potassium fertilizers in Mexico.


As regards pesticides, a closer assessment of the
competition situation in Mexico would likewise
require the definition of relevant markets taking into
account the different production stages of plant
protection products: (i) the production of active
substances, (ii) the manufacture of the formulation


from active substances and inert ingredients, and (iii)
the packaging of such formulations. The case law
of the European Commission suggests that different
active ingredients are not substitutable and form
separate product markets, while formulated products
can be distinguished according to their purpose, e.g.
herbicides, insecticides, etc.159 With respect to the
producers of agrochemicals that are active in the these
segments, a study from 2005 finds that at the time 75
to 80 per cent of the overall market were controlled
by only six companies: Syngenta, Bayer, Monsanto,
BASF, Dow and DuPont.160 This relatively high level
of concentration on the international level suggests
that it may be worth assessing the Mexican market for
agrochemicals in more detail.


In summary, it can be stated that while the Mexican
markets for agrochemicals have been described as
highly competitive, there may be impediments to
competition in these markets that originate outside
of Mexico given the relatively high concentration of
pesticide producers worldwide and the possible
existence of an international potash cartel, which
concerns inputs for at least one type of fertilizers.


Water


The assessment of the impact of technology on the
competitiveness of eight selected crops carried out
within the framework of Chapter II of this publication
has clearly shown that irrigation is the key input to
profitably produce corn in Mexico. Even if traditional
farmers use improved seeds and fertilizers, they do
not realize positive margins unless they switch from
rain fed production methods to irrigation.161 However,
today the irrigated land represents only about 30
per cent of the total cultivated lands in Mexico. It is
estimated that there is an irrigation potential of some
10 million hectares in the country, approximately 60
per cent more than the area with irrigation facilities
at present.162 Thus, the increase of productivity of
corn production in Mexico would create an important
demand for increased irrigation.


In this context, it is reported that while there is some
private and state governments’ investment participa-
tion, financing new irrigation, drainage and flood control
works, depends mainly on the federal government.163
In fact, in the past most of Mexico’s water infrastruc-
ture works were built by CONAGUA, Mexico’s National
Water Commission.164 In other words, farmers depend
on the provision of infrastructure for irrigation by the
State. Otherwise, they are left to continue growing




126 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


corn on rain fed fields. For this reason, the assessment
of competition issues affecting irrigation as an input for
corn production is closely linked to the assessment of
government support and State aid programs in the ag-
ricultural sector. Indeed, there are allegations that State
aid has been concentrated on the Northern regions,
which would allow the respective states to benefit from
well-functioning irrigation systems today, while farmers
in the South would have been neglected.


Furthermore, CONAGUA states a shortage of water
available for different types of uses in Mexico, which
will grow considerably until 2030, see Figure III.8.


In this context, it is also important to highlight that
different types of water users, such as growers,
manufacturers and private households compete
with each other for the scarce resource. Competing
interests will have to be balanced and a political
comprise for the distribution of water will be necessary.


state aid


State aid is considered to be one of the main tools
to implement industrial policies (shaping certain
industry sectors, facilitating the establishment of
national champions, supporting disadvantaged
economic players etc.). State aid is also used to
remedy consequences of natural disasters - or even
economic crises, such as the recent financial and
economic crisis, in which governments felt compelled
to intervene in order to safe banks and remedy the
economic downturn by stimulus packages. However,
from a competition perspective, State aid creates the
significant risk that the granting State favours certain
economic actors over others and thereby distorts
competition. Taking into account this threat and
acknowledging that there is a magnitude of definitions
for State aid across different legal systems; the OECD
that a government measure would generally be


Source: CONAGUA, 2030 Water Agenda


Figure III.8: Current situation and challenge for 2030 for balanced supply and demand for water




127chaPteR.III:.competition policy issues in mexico and agriculture development


considered as State aid if it involves a certain degree
of selectivity i.e. if it is directed towards a specific
industry sector or a specific enterprise and thus
susceptible of significantly distorting competition.165
Being afraid of the detrimental impact of national State
aid on competition, in particular regional competition
regimes, such as the community law of the European
Union, often contain a general prohibition of State
aid with clearly defined exceptions and an ex-ante
notification procedure for national aid.166 However,
also national competition regimes may incorporate
specific provisions on State aid or be complemented
by specific State aid laws, which may give the
competition authority advisory powers with respect to
the design of State aid regimes in order to ensure that
aid does not distort competition.


As described in Chapter II of this publication,167 the
Mexican agricultural support policies, including sub-
sidies for corn production, have significantly changed
over time. Prior to 1994, the National Company for
Popular Subsistence (CONASUPO) regulated agri-
cultural markets, supported prices for eleven crops
(including corn), provided subsidised processing, lo-
gistics and marketing services, and distributed sub-
sidised food to low-income families. In 1981, CO-
NASUPO’s producer supports, as a percentage of the
total crop value amounted to 66 per cent for corn.
However, this level of subsidies was not sustainable
and CONASUPO’s activities were slowly reduced
and it was finally substituted by a new government
institution created in 1991, the Support Services for
Agricultural Marketing (ASERCA) that is affiliated to
SAGARPA. Furthermore, in 1994, the Mexican gov-
ernment eliminated all domestic price support for corn
and transferred CONASUPO’s income support pro-
gramme as a new Farmers Direct Support Program
(PROCAMPO) to ASERCA, which still operates today
and actually constitutes the main pillar in Mexico’s ag-
ricultural support policies. The budget of the second
largest support programme Alianza amounts to only
20 per cent of the PROCAMPO budget. By contrast to
the former CONAPSU programme, PROCAMPO pay-
ments are calculated based on eligible land (cultivated
before 1993 with one of the nine key crops) and paid
as direct transfer to the producer. It is reported that in
the early 2000s, almost 90 per cent of PROCAMPO
recipients cultivated fewer than five ha of eligible land.
These smallholder received approximately half of the
total PROCAMPO disbursements.


Notwithstanding the fact that large farmers in the
Northern parts of Mexico are sufficiently profitable, the
selection criterion for PROCAMPO payments clearly
favours lager farmers with significant tenure of eligible
land over smallholder. Furthermore, it is estimated that
the agricultural subsidies paid in the past have actually
failed to increase productivity of small farmers and to
improve their overall economic situation. For these rea-
sons, PROCAMPO has been heavily criticized for not
pursuing agricultural development, but instead admin-
istering poorness and maintaining political control.168


Taking into account the huge difference in the size
of land tenure of Mexican corn farmers, it has to be
admitted that the selection criterion for PROCAMPO
payments, which on its face does not look as if it
would favour any particular agricultural enterprise,
clearly confers a competitive advantage on large,
industrialized farmers in the Northern region.


2. Storage and trading


As described in the corn value chain assessment,
storage and trading are performed by different
methods: (i) direct sales to processing companies
(mainly from the two major processing companies,
see below), (ii) sales to traders that transport the
volumes purchased to urban areas for resale, (iii) sales
to regional storage companies that store the grain for
deferred sales, and (iv) other direct sales to livestock
producers associations or processing industries (e.g.
starch production).


Taking into account the fact that in agricultural
commodity markets, demand and supply are both
inelastic (which means that in times of food price
increases, consumers can hardly consume less and
producers of food commodities can usually only try to
increase production in the next growing season), the
OECD has highlighted the importance of storage and
transport to commodity market outcomes: «The effect
of storage is that it significantly increases the flexibility
of the market. In times of abundance, the operator
of the storage facility will purchase commodities so
the price will not fall so low. In periods of shortage,
the operator of the storage facility will make additional
stocks available above the amount produced that
season. […] Enabling or facilitating market participants
such as co-operatives of farmers to invest in storage
and preventing dominant players from abusing their
position in relation to storage can significantly improve
commodity market outcomes.”169




128 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


In stakeholder interviews it has been indicated that in
particular in the Southern regions of Mexico, storage
capacity was insufficient.170 This would actually create
an additional challenge for smallholder in this region
since they do not have any flexibility as to when to sell
their harvest and therefore are even more vulnerable
with respect to strong buyer power in downstream
markets, as described below.


3. Processing


In contrast to the large number of corn producers in
Mexico, there are only few companies that are engaged
in the processing of corn. The two major ones are
GIMSA, S.A.B. de C.V (GIMSA) and Grupo Minsa SAB
de CV (Minsa). According to the information available
on its website,171 GIMSA is engaged principally in
the production, distribution, and sale of corn flour in
Mexico under the MASECA® brand name. It owns
18 plants located throughout the country with which
it serves mainly industrial, retail, and wholesale corn
flour customers and has an estimated annual corn
flour capacity of 2.8 million metric tons.172 GIMSA’s
market share is estimated to be over 70 per cent.173
Minsa is also principally engaged in the production
and sale of corn flour and related products under the
brand name Minsa. It owns and operates six corn
flour plants located in Mexico and two plants located
in the United States.174 Minsa distributes its products
to the manufacturers of corn-based products, as well
as to the Mexican government, retailers, wholesale
supply markets, supermarket chains and food service
clients. It estimates its own market share in the corn
flower market at around 27 per cent.175 Further corn
processing and flour producing companies present in
Mexico176 include Cargill Mexico, a subsidiary of the
transnational Cargill Group, as well as two smaller
players. Molinos Anahuac SA de CV started as a family
business in 1993 and has meanwhile two productions
site in Mexico as well as one in the US.177 The fifth is
Hari Masa S.A. de C.V that indicates to have yearly
production capacity of 80,000 metric tons.178 Based
on this basic information of the corn processing
market, there is no doubt about its high concentration
of the corn processing market. In particular, taken
into account that the smaller processors have limited
geographical presence and milling capacity, most
farmers appear to be in a situation where in the
best case, they can sell their corn to the two major
processors.


According to interview findings, there are two main
types of contracts between corn producers and
processors. The first type of contract benefits from
a subsidy by ASERCA. The specific subsidy («Apoyo
a la Agricultura por Contrato»)179 applies to futures
contracts between corn producers and processors
which are registered with ASERCA. It is reported that
only those small farmers that are part of an agricultural
organisation/ producers’ association actually benefit
from this scheme.180 The second type of contract
is concluded directly between corn producers and
processors without any intervention of ASERCA.


It is reported that theoretically, prices for corn produced
in Mexico are based on the corn future prices at the
Chicago Mercantile Exchange that are closest in time
to the date of the physical harvest plus international
and national transport costs which would occur
when importing corn from the US minus cost for local
transportation from the production to the consumption
point. This formula is based on strong import
competition by corn produced in the US. However,
it is alleged that corn processors take advantage of
their superior market power compared to the corn
producers, as well as the fact that many local producers
do not have good knowledge about international
prices, and pay less than international prices to local
corn producers while charging international prices to
local customers.181 In this context, it is equally alleged,
that corn processors sometimes refuse to source
locally and thereby put small domestic corn producers
in the difficult situation to store their harvest over long
periods given that they don’t have alternative buyers,
e.g. from abroad. Another allegation is that the corn
processing companies only honour their contractual
obligations towards the smaller producers if they
are actually favourable for them and that there are
hardly any legal or economic remedies in the event of
contract breaches.


While these allegations cannot be verified within the
scope of this diagnosis, it needs to be pointed out that
the corn processing market is highly concentrated
with a few companies only and it is not unrealistic that
buyers in a oligopsony take advantage of their buyer
power.182


4. Final commercialisation


Corn is mainly processed into maize flour and maize
dough (nixtamal), which serve both as basis for maize
tortillas - one of Mexico’s most important stable




129chaPteR.III:.competition policy issues in mexico and agriculture development


Box III.1: An overview of the Mexican Federal Competition Commission’s prosecutions of anticompetitive agreements
in the markets for maize tortillas


In 1997, the Union of Maize Tortilla of the Mayan Zone and other independent producers promoted concerted practices
to distribute the market for these products. The agreement was supported by the municipal authority and intended to
maintain exclusivity for certain producers in geographic areas in the municipality of Carrillo Puerto in Quintana Roo. The
firms tried to stop the distribution of tortillas in the municipality by the owners of two stores. The Commission decided that
the concerted action of the firms and the performance of the Municipal Authority constituted violations to the FLEC. In this
case, the Commission sanctioned individuals and advised the government of Quintana Roo to abstain from participating
and supporting actions that would harm competition in the tortilla market. File: IO-041-1996.


In 1999, the Commission carried out in Baja California and the region of the Comarca Lagunera two investigations against
tortilla producers for agreeing to fix prices. The agreements were facilitated by regional business organizations. The Com-
mission determined that the maintenance of these mechanisms eliminated price competition. Both investigations were
concluded after the associations involved agreed to, to inform their members about their freedom to set prices for their
products. Files: IO-001-1999 and IO-002-1999.


In 2001, the company Club Cadena Maíz Tortilla, SA de CV (Camato), which gathers producers, millers and manufacturers
of maize tortilla, suggested its affiliates to fix the price of maize tortillas in the Federal District and metropolitan area. At that
time, Camato represented 17 thousand producers and millers of maize, which supplied 10% of the domestic market and
5.8% of 12 thousand tortillerías of Mexico City. The Commission determined that Camato members could not regarded
as a single economic agent and therefore, instructions or suggestions on the price of the tortilla issued that Organization
constituted and infringement to the FLEC. The Commission ordered the suspension of the practice and imposed a fine.
Files: IO-02-2000 and RA-40-2001.


In 2002, the government of the state of Yucatan filed a complaint before the Commission against leaders of the Trade Asso-
ciation of Tortilla Manufacturing in Yucatan for publishing in the local media a new price for maize tortillas in the region. The
FLEC provides that recommendations of trade associations to its members intended to fix, raise, agree or manipulate the
price of goods or services, or exchange information with the same purpose are evidence of an infringement to the FLEC.
During the investigation, the leaders recognized that the trade association had no power to fix or establish official prices of
maize tortillas, and reported not knowing the accuracy of newspaper’s reports. However, the Commission got access to
several transcripts of the trade association meetings proving that its members had gathered to exchange information on
the sales and price of maize tortillas and as a result of such meetings had agreed on the sale price of the good. Also, from
information published by the Bank of Mexico and price monitoring conducted by the Federal Attorney’s Office of Consumer
Protection, it could be established that the price of maize tortillas in several municipalities of Yucatan had increased after
the trade association published the new price for maize tortillas. This provided the evidence that the producers had agreed
increases in the price of tortilla. The investigation ended with the commitment by the leaders of the trade association to
cease the anti-competitive agreements, and report to its members that the association had no authority to regulate prices
of maize tortilla and that that agreements among competitors to fix prices constituted a violation of the FLEC. Finally, the
group pledged to monitor the behaviour of its members in order to prevent agreements among competitors. Also, the trade
association agreed to send to the Commission a copy of the meetings minutes. File: DE-07-2002.


Sources: Contribution from Mexico to Session I of the OECD Global Forum on Competition, 27 January 2012, DAF/COMP/GF/
WD(2012)43


foods. There are about 65 thousand tortilla stores in
Mexico, so-called tortillerías which have a combined
share of 75 per cent of the market for tortillas while
the combined share of supermarkets in this area is
around 7 per cent. However, it is expected that the
supermarkets’ share will rise in the future. Although the
market for tortilla production is very fragmented with
many players, there have been several documented
cases of price fixing and other cartel behaviour over
recent decades. In its submission to the OECD Global
Forum on Competition 2012, the Mexican Federal
Competition Commission has summarized these


cases, in Box III:1.


In addition, in 2010, the Commission investigated
regulatory restrictions that impacted on the well-functioning
of the markets for production, commercialisation and
distribution of tortillas.183 Within the framework of this
investigation, the Commission detected 98 municipal
regulations containing elements that restricted
competition in the tortilla market and estimated the
loss consumers were suffering from these public
impediments on competition. This investigation let to
an advisory opinion by the Commission on how to prevent
regulatory restrictions of competition in the markets




130 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


for production, commercialisation and distribution of
tortillas.184


In 2012, the Commission prosecuted a market sharing
cartel concerning the sales of tortillas using motor
vehicles in the city of Tuxtla Gutiérrez.185 This cartel
was formed between associations of tortilla producers
and representatives of the municipality.


5. Summary of possible
competition issues
affecting corn production
and commercialisation in
Mexico


First of all, it can be concluded that as many other
agricultural markets around the world, the Mexican
markets for corn production and commercialisation
are characterised by starkly differing degrees of
concentration along the agricultural value chain. While
both production and consumption of corn are highly
atomised, upstream markets for key inputs such as
hybrid seeds and downstream processing of corn
are highly concentrated. There are two dimensions
of this specific industry structure. In those markets
that are characterised by a high level of concentration,
competition is likely to be reduced, which would have
a negative impact on prices, product quality and
innovation. Furthermore, from a vertical perspective,
the strong difference in concentration along the
different parts of the value chain causes strongly
diverging levels of market/negotiating power between
input providers and farmers and between farmers and
processors. This puts producers, and, in particular but
not only, the huge number of smallholder engaging in
traditional farming mainly located in Southern Mexico,
in the position of ‘price takers’ and makes them
vulnerable to possible abuse of market power by
hybrid seeds producers and corn processors. Indeed,
there have been allegations of abusive behaviour of
corn processors, which however cannot be verified
within the scope of this diagnosis.


Secondly, taking into account insufficient storage
capacity of small farmers, there is potential to improve
bargaining situation of smallholder vis-à-vis the buyers
of corn by introducing sufficient storage capacity.


Thirdly, there are factors outside of Mexico which have
an impact on competition in the Mexican markets
for corn production and commercialisation: (i) corn
producers face strong import competition from the


US, which in the past may have amounted to dumping
and may have caused the least productive smallholder
to exit the market and retreat into subsistence. (ii) In
addition, while the Mexican markets for agrochemicals
have been described as highly competitive, it cannot
be excluded that the fact that only six companies
control 75 to 80 per cent of the worldwide markets
for agrochemicals and the possible existence of a
worldwide cartel for potash (the key ingredient for
potassium fertilizer) have an impact in Mexico.


Fourthly, PROCAMPO’s Farmers Direct Support
Programme favours large farms by way of its selection
criteria of eligible land size compared to smallholders
and thereby distorts competition to the detriment of
smallholders.


Furthermore, as regards water as a key input for corn
production, farmers face strong competition from dif-
ferent users (industry and private household) and there
is a gap between supply and demand. Growers will
depend on public support for building the infrastruc-
ture necessary to expand the surface of irrigated land.


Finally, as regards the stage of the final
commercialisation, there are several documented
cases of price fixing and market sharing among the
producers of tortillas - at times even with involvement
of municipal representatives. Furthermore, a number
of municipal regulations that restrict competition in the
commercialisation of tortillas have been identified by
the Mexican Federal Competition Authority.


D. LEGAL AND
INSTITUTIONAL
FRAMEwORk OF
MEXICO’S COMPETITION
REGIME


1. The Federal Law of
Economic Competition and
the Federal Competition
Commission


Mexico’s competition policy was introduced as part
of the country’s reform initiative to develop a market
based economy, which started in the-mid 1980s. The
Mexican competition law (Ley Federal de Competencia
Económica - LFC) that constitutes the legal framework
of Mexico’s competition regime was adopted in 1993.
It is enforced by the Mexican Federal Competition




131chaPteR.III:.competition policy issues in mexico and agriculture development


Commission (CFC) that was established in the same
year.


The CFC comprises the Plenum that is formed by five
Commissioners including the Commission’s President
and the Executive Secretariat. While the Plenum is the
adjudicative body, the Executive Secretariat is charged
with the operative and administrative functions of the
CFC. It conducts the proceedings under the LFC and
prepares the decisions by the Plenum.


The LFC fully applies to the agricultural sector in Mexico.
The general exemption of Article 6 LFC applies only
to associations and cooperatives directly exporting
their products and fulfilling specific conditions. As
such it can be considered as an exemption for certain
export cartels, but not as an exemption for agricultural
cooperatives.


Under the title «absolute monopolistic practices»,
Article 9 LFC prohibits the following anticompetitive
agreements, which are commonly qualified as hard-
core cartels and which constitute the most egregious
forms of competition law infringements: price-fixing,
output restriction, market sharing and bid-rigging.
These absolute monopolistic practices are per se
prohibited and null and void by law.


A second category, so-called “relative monopolistic
practices” (Article 10 LFC) are prohibited, if their object
or effect is to unduly eliminate other market players,
impede substantially their market access or confer
exclusive advantages to one or several persons.
The following practices fall in this second category:
exclusive distribution agreements and non-compete
clauses, resale price maintenance, tying and bundling,
the prohibition to sell competing products, refusal to
deal and the exercise of joint pressure on clients or
supplier, as well as any other act that unduly restricts
competition. For the finding of a relative monopolistic
practice, it is further required that the market player
under scrutiny enjoys substantial market power.
Therefore, the prohibition of relative monopolistic
practices is similar to the prohibition of the abuse of a
dominant position in other jurisdictions.


In addition, the LFC establishes mandatory merger
control above certain thresholds. Mergers that would
substantially lessen competition are to be prohibited
by the Mexican Competition Authority.


The LFC does not contain specific provisions on State
aid, and in Mexico there is not separate law dedicated
to State aid. However, as part of its advocacy functions,


the CFC is empowered to issue advisory opinions on
competition issues either ex officio or upon request of
other parts of government, which could be used to
render advice on State aid issues.


2. The CFC’s enforcement
record in the agricultural
sector


Within the framework of this Outlook, it needs to be
mentioned that the CFC has actively enforced the
LFC in the agricultural sector. So far, it has reviewed
40 mergers in the agricultural sector, carried out 11
investigations in potentially anti-competitive behaviour
affecting the agricultural sector, and issued 4 advisory
opinions on competition issues in agriculture. Some
of its decisions are reflected in this Outlook. Further
information on the individual cases is published on the
CFC’s website.


3. Remedies under the
LFC against possible
competition issues
affecting corn production
and commercialisation


As evidenced by the CFC’s case law, specific
competition issues affecting corn production and
commercialisation have been remedied through
enforcement of the LFC. Thus, the question arises
whether further competition issues possibly affecting
corn production and commercialisation which have
been identified in this Outlook can as well be remedied
through enforcement of the LFC.


Prevention of further increases
in concentration in already highly
concentrated input and processing
markets through the lFc’s merger
control regime


A further increase in concentration in corn input and
processing markets through external growth, i.e.
through mergers and acquisitions, can be prevented
by a strict application of the LFC’s merger control
regime. With its decisions in the Monsanto/Asgrow/
Cargill merger, the CFC has shown that it takes its
merger control function seriously and that it is not
afraid of enforcing the law against large market
players. However, it also needs to be pointed out that




132 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


it is not possible to address already existing levels of
high concentration through merger control.


remedies under the lFc to address
abuse of market power by dominant
suppliers


As noted, the LFC does not contain any remedy to
address a high level of market concentration as such.
However, the prohibition of relative monopolistic
practices allows remedying abuses of market power
by dominant suppliers of corn producers like tying and
bundling or the prohibition to use competing products
from other suppliers. This is of particular relevance for
the market for hybrid seeds, which is characterised
by a very high level of concentration, with Monsanto
being likely to hold a dominant position. In other
words, the LFC allows the CFC to intervene when
abuses of market power by dominant input suppliers
become apparent.


remedies under the lFc to address
collusion among suppliers


Although the present diagnosis has not unveiled
indications for collusion, such as price fixing and
market sharing, among Mexican input suppliers, for
the sake of comprehensiveness, it shall be mentioned
that the LFC would allow to prosecute such type of
collusion among suppliers as absolute monopolistic
practice.


Taking into account that Mexican corn producers
are also exposed to collusion among input suppliers
located outside of Mexico, as well as to collusion
among raw material suppliers for agricultural inputs
outside of Mexico (such as the possible potash cartel),
the question arises whether such conduct would
be captured by the LFC’s prohibition of absolute
monopolistic practices. In fact, several competition
laws also apply to foreign conduct under the condition
that it produces a measurable impact on domestic
markets. However, experience has shown that, in
practice, the prosecution of foreign anti-competitive
conduct is a difficult process and generally requires
close cooperation with other competition authorities
that can assist in this task.


remedies under the lFc to address
abuse of buyer power


With respect to the high concentration of the corn
processing market and the allegation of abusive


behaviour of large processors vis-à-vis small suppliers
(such as paying prices below the competitive level
and not honouring their contractual obligations), the
question arises to what extent the LFC allows to
remedy abusive behaviour of powerful buyers.


This question is to be put in the context of the ongoing
debate to what extent competition law should deal
with abuse of buyer power, which is intrinsically linked
to the debate on the objectives of competition law and
policy. If maximizing consumer welfare is conceived
as the sole objective of competition law and policy,186
the abuse of buyer power will only be considered as a
competition issue if it harms consumers, for instance,
if it can be demonstrated that the payment of prices
below the competitive level by a monopsonist leads to
the production of low quality products as producers
do not realize sufficient margin to keep up production
standards. Consequently, in the absence of any
consumer harm, competition law and policy could
not be used to help producers who are subject to
the abuse of buyer power. However, if the objective
of competition law and policy is defined as the
protection of competition as an open process, not
only consumer harm, but also producer harm can be
taken into account to assess whether the use of buyer
power is to be considered abusive.187


Having this general debate in mind, the question
needs to be assessed whether the abuse of buyer
power would be captured by the prohibition of
relative monopolistic practices in Article 10 LFC. This
would firstly require that the respective buyer enjoys
substantial market power according to Articles 11,
13 LFC. From the reading of the respective Articles,
it is not entirely clear whether the Mexican concept
of substantial market power covers substantial buyer
power. With this respect, the objectives pursued by
the LFC may provide some guidance for interpretation.
According to its Article 2, the LFC shall protect the
competitive process and free competition through the
prevention and elimination of monopolies, monopolistic
practices and further restrictions to the effective
functioning of the markets for goods and services. It
thus appears that the LFC is not exclusively concerned
with maximizing consumer welfare, but it also aims at
protecting the competitive process as such for the
benefit of all participants. This consideration would
allow understanding the concept of market power
in Articles 11, 13 LFC to include buyer power. As
a consequence, one could argue that buyers with
substantial market power meet the first condition




133chaPteR.III:.competition policy issues in mexico and agriculture development


of the prohibition of relative monopolistic practices
according to Article 10 LFC. Secondly, it would be
required that the behaviour of the economic agent
who enjoys substantial buyer power corresponds to
one of the specifically prohibited forms of abusive
behaviour, or that it falls under the general prohibition
in Article 10 VII LFC. While it appears that the specific
examples of prohibited practices relate to situations
of dominant suppliers, the general prohibition of any
act that unduly harms or impedes the competitive
process and the free competition in production,
manufacture, distribution and commercialisation of
goods and services would allow capturing as well
abusive behaviour of buyers who restricts competition.
Based on this understanding of the LFC, it may be
possible to prosecute abuses of buyer power under
the Mexican competition law.


In this context, it should though be mentioned that the
CFC in the past considered that the former version of
Article 10 LFC did not capture discriminatory pricing
practices by buyers with substantial market power.188
However, as the CFC mentioned in the respective
submission to the OECD, at that time “Mexico’s
experience regarding complaints on problems arising
from buyer power was quite limited.” Furthermore,
Article 10 LFC was amended since then. Thus, it might
be possible that the CFC would understand Article 10
LFC differently today.


While there seems to be theoretically a possibility to
remedy abuse of buyer power through the enforcement
of Article 10 LFC, it needs to be pointed out that
cases that deal with the abuse of market power are
very difficult to prove in practice. In particular, cases
of pricing below or above the competitive level are
challenging for competition authorities that shall not
assume the role of price regulators.


It therefore, can be summarized that the prospects of
remedying abuse of buyer power under the LFC are very
uncertain.


remedies under the lFc to address
anticompetitive behaviour affecting the
final commercialisation of corn


The LFC prohibits price fixing and market sharing, which
have been found in the market for commercialisation
and distribution of tortillas, as absolute monopolistic
practices. The CFC’s case law shows that this type
of anti-competitive behaviour has been actively
prosecuted.


use of the cFc’s advocacy power in
order to support the design of pro-
competitive state aid schemes in the
agricultural sector


By means of its advisory functions, the CFC could
render support to eliminate possible distortions
caused by the current design of agricultural subsidies
schemes and help to design pro-competitive aid
schemes.


summary


The LFC’s merger control regime allows the prevention
of any increase in concentration of already highly
concentrated agricultural market through external
growth. However, it does not provide for any means to
remedy existing high levels of concentration which are
unfavourable to competition. Furthermore, while the
LFC allows prosecuting hard core cartels (absolute
monopolistic practices) and the abuse of substantial
market power by suppliers (relative monopolistic
practices), it is doubtful whether it allows to effectively
prosecute the abuse of buyer power. Finally, the CFC’s
advisory function can be used to support the design
of pro-competitive schemes for agricultural subsidies.


E. FINDINGS AND POLICY
RECOMMENDATIONS


1. Findings


status of competition in corn
production and commercialisation in
mexico


• The Mexican markets for corn production and
commercialisation are characterised by starkly
differing degrees of concentration along the value
chain. While both production and consumption of
corn are highly atomised, upstream markets for
key inputs, such as hybrid seeds, and downstream
processing of corn are highly concentrated. This
may lead to a low level of competition with a negative
impact on prices, product quality and innovation
in those markets that are highly concentrated. It
further causes strongly diverging levels of market/
negotiating power between input providers and
farmers and between farmers and processors. As
a consequence, corn producers find themselves in
the position of ‘price takers’ who are vulnerable to




134 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


the possible abuse of market power by hybrid seeds
producers and corn processors. Indeed, there have
been such type of allegations, which however
cannot be verified within the scope of this diagnosis.


• Small farmers do not have sufficient storage
capacity, which further weakens their bargaining
situation vis-à-vis the buyers of corn.


• Certain factors outside of Mexico may impact on
the status of competition in the Mexican markets
for corn production and commercialisation: (i)
import competition from the US; (ii) a small number
of transnational companies controlling 75 to 80 per
cent of the worldwide markets for agrochemicals;
and (iii) the possible existence of cross-border
anticompetitive practices in upstream raw material
markets (alleged potash cartel).


• The current design of specific agricultural subsidy
schemes appears to favour large farms compared
to smallholders and could thereby distort competi-
tion.


• Different users (agriculture, industry and private
household) compete strongly for the key input
water. Growers will depend on public support for
building the infrastructure necessary to expand the
surface of irrigated land.


• At the stage of final commercialisation, there are
several documented cases of price fixing and
market sharing among the producers of tortillas
- at times even with involvement of municipal
representatives. Furthermore, a number of
municipal regulations that restrict competition in
the commercialisation of tortillas were identified by
the Mexican Federal Competition Authority.


legal and institutional framework of
mexico’s competition regime


• The LFC constitutes the legal framework of Mexi-
co’s competition regime. It is enforced by the CFC.


• The LFC’s merger control regime allows to prevent
any increase in concentration of already highly
concentrated agricultural market through external
growth.


• However, the LFC does not contain any remedy
to address a high level of market concentration as
such.


• While the LFC allows to prosecute hard core
cartels (absolute monopolistic practices) and the


abuse of substantial market power by suppliers
(relative monopolistic practices), it is doubtful
whether it allows to effectively prosecute abuse of
buyer power.


• The CFC’s advisory function can be used to
support the design of pro-competitive schemes
for agricultural subsidies.


As evidenced by its case law, the CFC has been
actively enforcing the LFC in the agricultural sector.


2. Policy recommendations


The proposed policy recommendations aim at
addressing the possible competition issues affecting
specifically corn production and commercialisation
in Mexico. If similar issues exist in other agricultural
markets, the same type of measures might be useful.
However, this would need to be assessed on a case-
by-case basis. Following this Outlook, the status of
competition in further agricultural markets could be
assessed by SAGARPA in cooperation with the CFC.


strengthening existing associations/
cooperatives of small corn growers and
supporting the establishment of new
associations/cooperatives


As discussed in this Outlook, the existing market
structure of a huge number of corn producers facing
highly concentrated upstream and downstream
market cannot be changed through competition law
enforcement. Therefore, further policy measures are
needed. One option is to strengthen the market position
and negotiating power of smallholders by grouping
their demand and supply via farmers’ associations/
cooperatives. Those associations/cooperatives could
also invest in storage facilities, which would allow for
certain flexibility when selling their harvest.


In fact, Mexico has already embarked on this road
as reported in a submission to the OECD Policy
Roundtable on Competition and Regulation in
Agriculture: Monopsony Buying and Joint Selling:
«Small firms are permitted to co-ordinate some
activities by joining together in «integrating companies»
created under a program administered by the
Economic Ministry. The program is designed to help
small and medium sized firms in several economic
sectors to take advantage of scale economies and
purchasing efficiencies in order to attain bargaining
power in the provision, commercialization, financial




135chaPteR.IV: agriculture and Biofuels as a contriButor to rural development


and technology markets. The CFC considers that
firms participating as partners of shareholders in such
en entity are not acting as competitors. Consequently,
their price standardization practices are not considered
illegal under the LFC. Currently, 210 integrating firms
exist in the agricultural sector and eight of them are
considered successful.»189


It appears recommendable to carefully assess why
only 8 out of 210 integrating firms were considered
successful at that time and use the respective results
to design appropriate measures to strengthen existing
farmers’ associations/cooperatives and support the
establishment of new ones in areas, where farmers’
are not yet well organized for economic purposes.


In this context, it should also be mentioned that
strengthening cooperatives in the agricultural sector is
a policy option also pursued by other countries. E.g.
the government of Odisha in India adopted a specific
law for the establishment of co-operatives of sugar
growers. This law also provides for a mechanism to
ensure that the co-operatives and their members do
not engage themselves in exclusionary practices.190


Promoting new entry in highly
concentrated corn input and processing
markets


Changing the market structure of highly concentrated
corn input and processing markets would require new
entry. This could be promoted through supportive
policy measures, e.g. co-operatives and associations
of farmers could be supported to invest not only in
storage facilities, but also in processing facilities, so
that a larger number of players would be present in the
highly concentrated processing markets. As for input
markets, such as the market for hybrid seeds, support
for research and development might incentivize new
entry.


enabling small corn producers to grow
and compete successfully in commercial
markets through pro-competitive state-
aid schemes


As discussed in this Chapter, as well as in Chapters I
and II, there is a large array of reasons why small corn
producers today are unable to grow and successfully
compete in commercial markets. These reasons
include amongst others small possession of arable
land, use of traditional farming methods, insufficient
rural infrastructure, lack of rural financing, etc. Public


investment in infrastructure and further public support
will be needed in order to enable smallholders
to successfully enter commercial corn markets.
Experience has however shown that it is crucial that
respective state aid schemes be designed in a pro-
competitive manner and do not lead themselves
to further distortion of competition. By means of its
advocacy function, the CFC could render its support
to design schemes for pro-competitive agricultural
subsidies.


continuation of an active enforcement
of the mexican competition law in the
agricultural sector, including production
and commercialisation of corn


Continuing to actively enforce the LFC in the agricultural


sector would help to address certain of the possible


competition issues affecting corn production and


processing. In particular, continuing to vigorously


assessing mergers that affect those agricultural markets


that are already highly concentrated, e.g. the market for


hybrid corn seeds and the corn processing markets, will


prevent further concentration through external growth.


Furthermore, corn producers could be encouraged to
bring to the CFC’s attention any indication of absolute
or relative monopolistic practices in input markets,
which would allow the CFC to initiate respective
investigations and prosecute these practices, if there
is sufficient proof.


The CTC could further use its good working relations
with other competition authorities in the region and
worldwide to jointly address competition issues
originating outside of Mexico, but impacting on the
Mexican agricultural sector.


strengthening competition advocacy in
the agricultural sector


As mentioned above, the CFC’s support to design pro-
competitive agricultural support programmes would
be very beneficial. In addition, competition advocacy
targeted at the various players of the agricultural value
chain would increase their awareness of and respect for
competition law requirements. Furthermore, advocacy
measure targeted at smallholders could increase their
capacity to denounce of anti-competitive conduct
from which they suffer and to provide the CFC with
the required information to start an investigation.




136 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


exploring ways to prevent and remedy
possible abuses of buyer power


For several grain markets, there are no more than
two to three buyers/processors that control the
near totality of the market. Thus a few large buyers
can exert a great deal of control over the sellers and
prices (commercialization and processing). This is
likely to occur especially during harvest periods, when
small producers are forced to sell their production
to meet their financial requirements. Ultimately for
smallholders to either enter or remain in high-value
or potential export markets, the Mexican government
needs to encourage the larger processing, integration
and supermarket industries to use the small-scale
sector. Both exporters and buyers in the main urban
areas need to be flexible in allowing smallholders
time to adapt to changing conditions and standards.
Research has shown that small-scale growers did not
represent such a high risk as the many supermarket or
other retailers might suppose, and also that standards
could be met cost effectively if the correct approach to


division of management responsibility between farmer,


depot and product market operatives (supermarkets,


wholesalers, exporters, etc.) were adopted. There


is need to consider way to reduce concentration


of market power in certain stages/actors of the


agricultural commodity value chain.


For instance, taking into account that the market for


corn processing is highly concentrated with allegations


of corn processors not honouring their contractual


obligations vis-à-vis small corn producers, it could be


explored with the CFC to which extent such possible


abuses of buyer power could be prosecuted under


Article 10 LFC. Additionally, alternative ways to prevent


and remedy such situations should be thought of; e.g.


establishing a complaint mechanism at ASERCA if


contracts that benefit from an ASERCA subsidy are


not honoured.




137chaPteR.IV: agriculture and Biofuels as a contriButor to rural development


A. INTRODUCTION
Agriculture remains a major source of employment and income in rural Mexico. Rural regions, however, have
experienced declining income when compared to urban areas of the country. Employment patterns have also
been prone to seasonal fluctuations, with large numbers of workers gainfully employed only during harvest
seasons. Moreover, the quality and availability of energy services in rural Mexico are far inferior to those available
in urban areas.


Expanding opportunities for rural job creation, raising farmers’ income levels and improving rural energy services
are key rural development goals for Mexico. The country seeks to achieve these goals within a sustainable
development policy framework emphasizing food security and rural development, while promoting a diversified
and secure energy supply.


This Chapter demonstrates that the promotion of biofuels in conjunction with the agricultural sector development
in Mexico can help enhance income opportunities and improve access to energy services. Mexico’s policies
supporting sustainable development open significant business opportunities for biofuels and bioenergy using
residue streams from agriculture, while at the same time deepening value chains of agricultural products. This
could considerably help rural areas enhance economic diversification while supporting a national transition to a
low-carbon economy.


The use of residual by-products of agriculture to produce biofuels can add value to the lifecycles of agricultural
goods whilst addressing energy needs in rural areas. This Chapter examines prospects for the production
of biofuels using low-cost, non-edible agricultural residues, paying special attention to employment creation,
income generation and alternative energy solutions, while safeguarding food security in Mexico. Potentials are
estimated for the production of bioelectricity, biogas and second-generation biofuels using residue streams from
the industrial processing of 13 agricultural products in Mexico (corn, sugarcane, beans, wheat, rice, sorghum,
coffee, egg, milk, beef, pork, poultry and fish). The use of harvest residues as a feedstock was not considered
due to their role in protecting soils against erosion and use as a natural fertilizer.


Energy potentials from the residues of the 13 products analyzed shows a large under-utilized and untapped potential:
bioelectricity could produce 10.5 per cent of the yearly national electricity consumption in Mexico; 2nd generation
bioethanol could replace 6.3 per cent of gasoline used (in energy terms); biodiesel produced via biomass-to-liquid
technologies could replace 23.2 per cent of diesel demand; and biomethane could meet up to 14 per cent of
natural gas demand in the country.


By integrating energy and agricultural production, estimates suggest significantly increased income-generation
in rural areas. By considering only residues from the 13 agricultural products analyzed, the production of
bioelectricity, bioethanol and biodiesel could generate between USD 2.2 and 4.1 billion in additional revenue for
Mexican agriculture. Biogas potentials could add another USD 234 million to revenue earnings.


The production of biofuels from agricultural residues could also provide substantial net employment opportunities
in Mexico. Bioelectricity from agricultural residues could add over 39.000 new jobs (direct and indirect); bioethanol
over 49.400 jobs; biodiesel 71.700 jobs and biogas 4.000 jobs. These jobs would provide better worker wages
and offer higher-skilled employment opportunities than the current average in Mexican agriculture. While the
average revenue per job created in the entire Mexican agricultural sector is USD 9.020 per employee, the
equivalent in bioenergy has been estimated to average USD 57.400 per employee. Since many of the products
analyzed are also cultivated in smallholder systems with low remuneration, income diversification arising from
the additional bioenergy revenue streams could help to reduce rural poverty, seasonal fluctuations in agricultural
employment and rural emigration.


However, before these potentials can be realized, many regulatory and technological hurdles need to be
overcome. Some of these challenges an ways of addressing them will be examined in the Chapter.


Mexico’s territorial heterogeneities call for solutions which are flexible enough to accommodate different residue


cHaPter iv


AGRICULTURE AND
BIOFUELS AS A


CONTRIBUTOR TO
RURAL DEVELOPMENT




138 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


A. INTRODUCTION
Agriculture remains a major source of employment
and income in rural Mexico. Rural regions, however,
have experienced declining income when compared
to urban areas of the country. Employment patterns
have also been prone to seasonal fluctuations, with
large numbers of workers gainfully employed only
during harvest seasons. Moreover, the quality and
availability of energy services in rural Mexico are far
inferior to those available in urban areas.


Expanding opportunities for rural job creation,
raising farmers’ income levels and improving rural
energy services are key rural development goals for
Mexico. The country seeks to achieve these goals
within a sustainable development policy framework
emphasizing food security and rural development,
while promoting a diversified and secure energy
supply.


This Chapter demonstrates that the promotion of
biofuels in conjunction with the agricultural sector
development in Mexico can help enhance income
opportunities and improve access to energy services.
Mexico’s policies supporting sustainable development
open significant business opportunities for biofuels
and bioenergy using residue streams from agriculture,
while at the same time deepening value chains of
agricultural products. This could considerably help
rural areas enhance economic diversification while
supporting a national transition to a low-carbon
economy.


The use of residual by-products of agriculture to
produce biofuels can add value to the lifecycles of
agricultural goods whilst addressing energy needs
in rural areas. This Chapter examines prospects
for the production of biofuels using low-cost, non-
edible agricultural residues, paying special attention
to employment creation, income generation and
alternative energy solutions, while safeguarding
food security in Mexico. Potentials are estimated for
the production of bioelectricity, biogas and second-
generation biofuels using residue streams from the
industrial processing of 13 agricultural products
in Mexico (corn, sugarcane, beans, wheat, rice,
sorghum, coffee, egg, milk, beef, pork, poultry and
fish). The use of harvest residues as a feedstock was
not considered due to their role in protecting soils
against erosion and use as a natural fertilizer.


Energy potentials from the residues of the 13 products
analyzed shows a large under-utilized and untapped


potential: bioelectricity could produce 10.5 per cent of
the yearly national electricity consumption in Mexico;
2nd generation bioethanol could replace 6.3 per cent
of gasoline used (in energy terms); biodiesel produced
via biomass-to-liquid technologies could replace 23.2
per cent of diesel demand; and biomethane could meet
up to 14 per cent of natural gas demand in the country.


By integrating energy and agricultural production,
estimates suggest significantly increased income-
generation in rural areas. By considering only residues
from the 13 agricultural products analyzed, the
production of bioelectricity, bioethanol and biodiesel
could generate between USD 2.2 and 4.1 billion in
additional revenue for Mexican agriculture. Biogas
potentials could add another USD 234 million to
revenue earnings.


The production of biofuels from agricultural residues
could also provide substantial net employment
opportunities in Mexico. Bioelectricity from agricultural
residues could add over 39.000 new jobs (direct
and indirect); bioethanol over 49.400 jobs; biodiesel
71.700 jobs and biogas 4.000 jobs. These jobs would
provide better worker wages and offer higher-skilled
employment opportunities than the current average
in Mexican agriculture. While the average revenue
per job created in the entire Mexican agricultural
sector is USD 9.020 per employee, the equivalent
in bioenergy has been estimated to average USD
57.400 per employee. Since many of the products
analyzed are also cultivated in smallholder systems
with low remuneration, income diversification arising
from the additional bioenergy revenue streams could
help to reduce rural poverty, seasonal fluctuations in
agricultural employment and rural emigration.


However, before these potentials can be realized,
many regulatory and technological hurdles need to
be overcome. Some of these challenges an ways of
addressing them will be examined in the Chapter.


Mexico’s territorial heterogeneities call for solutions
which are flexible enough to accommodate different
residue streams and produce different outputs to meet
local energy demand, be it for transport, cooking or
electrification needs. In addition to the 13 agricultural
products analyzed, policies and incentives should
thus support production from a wider spectrum of
residues. Moreover, an optimal rural energy policy
should consider a broader set of residues including
forestry and municipal waste.




139chaPteR.IV: agriculture and Biofuels as a contriButor to rural development


B. BIOFUELS AS A DRIVER
OF RURAL DEVELOPMENT
IN MEXICO


In order to provide additional dimensions to Mexico’s
agricultural development outlook, this chapter seeks
to explore the country’s potential to enhance its
agricultural development through the production of
biofuels produced from agricultural residues. This
chapter assesses the potential benefits of promoting
biofuels production from agricultural residues in Mexico
to expand employment and income opportunities in
rural areas, as well as to diversify the set of economic
activities available for rural populations and steer the
country’s energy mix towards more sustainable energy
sources.


While biofuels can be an alternative source of energy for
transport, cooking and electrification, their production
based on dedicated, large-scale crops such as
sugarcane, corn and palm carries a number of risks
to environmental and social systems (UNEP, 2009).
Therefore, the production of biofuels from agricultural
residues could act as an additional competitive
force in rural areas, while at the same time avoiding
the risks bound to bioenergy based on dedicated
crops. In the Mexican context, the well-known biofuel
production pathway based on the usage of cereals
should be avoided given the country’s reliance on
corn as a primary foodstuff and source of nutrition,
and its large trade deficit in cereals. In this regard, new
technological options are being developed to enable
the cost-efficient conversion of agricultural waste
into biofuels, promoting renewable energy concerns
without jeopardizing food security.


Adapting models for sustainable biofuel production
and use to the realities of Mexico holds the potential
to improve the country’s national accounts. Although
Mexico is an oil producing and exporting country,
declining reserves and limited refining capacity has
led to a growing dependency on gasoline imports.
Furthermore, as the agricultural sector faces a rising
dependency on imported fossil fuels, a cost burden
emerges and impact on the overall competitiveness
of agriculture. Mexico has already sought alternatives
by introducing legislation to raise native biofuel
production capacities (Mexican Congress, 2008).
Since 2009 the Mexican Ministry of Agriculture has
introduced support schemes for the development of
renewable energy and biofuels, and since 2010 there
have been incentives for heat and power generation


based on biomass (SAGARPA, 2009; SENER,
2009a). However, targeted support measures are
still not in place to stimulate large scale usage of
agricultural residues to produce surplus electricity
to the national grid, ethanol, biodiesel or biogas.
Given the Government’s priority of ensuring energy
security without compromising food security and
environmental sustainability, biofuels produced from
agricultural waste could be a viable option provided
that the necessary rigorous assessment of alternatives
is undertaken.


As a contribution to the diversification of energy
sources, particularly as a result of new technologies
that allow for the use of agricultural waste in electricity
co-generation and as non-agricultural feedstock for
biofuels191, this chapter complements the broader
agricultural development outlook in the country
by assessing the option to produce biofuels from
agricultural residues. Based on a set of 13 key
agricultural and livestock products of interest identified
by the Government (corn, sugarcane, beans, wheat,
rice, sorghum, coffee, egg, milk, beef, pork, poultry,
and fish), this chapter is structured in four parts: An
exploration of the rationale for biofuel production
from residues in Mexico; A survey of current and
emerging technology options which allow conversion
of agricultural residues into biofuels; A quantitative
scoping exercise to estimate the national potential for
the production of biofuels based on residue streams
from 13 agricultural products of interest; and an
analysis of the progress made thus far in Mexico in the
area of biofuel production from agricultural residues.
Policy recommendations are then discussed in the
conclusion.


C. RATIONALE FOR BIOFUELS
FROM AGRICULTURAL
RESIDUES IN MEXICO


Mexico’s rural areas account for more than 80 per cent
of the land in the country and are home to 22 per cent of
the population192. In dispersed rural areas, agriculture
is the main source of employment with 44 per cent
of the population occupied in the primary sector.
Overall, agriculture accounted for about 14 per cent of
employment in Mexico, in 2011.193 The availability of
employment in rural areas varies according to harvest
seasons, causing income-pressure on laborers during
off-seasons (Figure IV.1). Rural and rural semi-urban
municipalities respectively accounted for 25 per cent
and 43 per cent of the average national GDP per




140 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


Source: Khatiwada and Silveira, (2010)


Box IV.1: The potential of developing economies to develop energy potentials from agricultural residues


Nepal is a poor economy with a yearly per-capita income of only US$ 350 and a high share of its population living in rural


areas. The country faces tremendous problems to secure the supply of petroleum products necessary to meet the national


demand for the transport, residential and industrial sectors. NOC (Nepal Oil Corporation) is the state owned venture re-


sponsible for oil imports and the only supplier of oil products in the market. According to NOC, 752,446 m3 of petroleum


products (diesel: 39.8% and gasoline: 13.1%) were imported from India in 2006/2007, mainly to meet transport needs. The


number of vehicles in the country is increasing at an average rate of 13.5% per year since 1990/1991,and more than 56%


of the vehicles are registered in the Kathmandu Valley, the capital city of Nepal.


By having an established sugarcane production, the country has a large installed capacity for sugar and ethanol produc-


tion. Still, it is the production of ethanol based on a by-product of sugarcane (molasses) which possesses the most inter-


esting prospect for Nepal. At present conditions, 18,045 m3 ethanol can be annually produced from molasses in Nepal


without compromising the production of primary food products from sugar cane such as sugar, chaku and shakhar. The


effects for the country can be manifold. By introducing biofuel blends such as E20, as much as 14% reduction in gasoline


imports could be achieved, which can be translated in an economy of US$ 10 million to the country’s national accounts.


Furthermore, the activity can provide an incentive for improved yields in sugarcane production, and help develop the in-


dustrial sector. This, in turn, will have a positive effect in terms of job and income generation in the rural areas where 85%


of the Nepalese population currently lives. Improvement of agricultural practices for sugarcane could also have an indirect


and positive effect on improving other agriculture activities. Furthermore, the use of ethanol in the transport sector will have


a positive environmental effect while reducing CO2 emissions and combating pollution in the Kathmandu Valley. Nine sugar


mills were operational in Nepal in 2010, with the total installed capacity of 17,050 cane-tonnes per day. One of the sugar


mills only has a 30 m3/day molasses-based ethanol plant installed but it is not operational yet due to inadequate support


from the government and lack of a joint commitment of all stakeholders.


4'000'000


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Source: SIAP


Figure IV.1: Total employment in Mexican agriculture between 2005 and 2010, by season




141chaPteR.IV: agriculture and Biofuels as a contriButor to rural development


capita in the country (INAFED, 2000). In spite of recent
reductions in rural poverty levels since the mid-1990s,
61 per cent of population in rural areas live below
the national rural poverty line.194 Furthermore, the
contribution of main rural activities (agriculture, forestry
and fisheries) to GDP declined from 8 per cent in 1990
to 4 per cent in 2011.


Compounding to their relative poverty, rural
populations in Mexico suffer from lack of infrastructure
- the provision of health, communications and energy
services is logistically difficult and expensive for
local authorities. This has led to a situation where
full electricity coverage has not yet been achieved;
electrification rates in Mexico were 87 per cent in
2000, 95 per cent in 2004 and 97 per cent in 2008, yet
still 3.5 million people in rural areas of southern states
remain unserved because of distance from the grid,
small size of communities and general poverty (World
Bank, 2004; World Bank, 2008). These figures do not
take into account access to other energy services,
such as clean cooking technologies for isolated areas,
which results in a pattern of low-efficiency biomass-
based cooking which is often detrimental to the health
of women and the youth (Masera et. al., 2005).


The rural landscape in Mexico has unique
characteristics. The land tenure system is based on
small properties (ejidos) which developed after the
1910 Mexican revolution. This turned a large part of
the country’s peasants into small landowners bound by
collective property rights.195 Therefore many properties
are small scale, with farmers unable to replicate
extensive plantation modalities such as those in place
in Brazil. This is compounded by a limited availability
in rain-fed areas in Mexico, as 60 per cent of its
territory is arid or semi-arid in nature (Herrera-Arreola
et al., 2008). The large majority of small agricultural
producers in Mexico are still poorly diversified, with
efforts concentrated in low value-added crops which
are highly vulnerable to price shocks.


Despite their relative economic and social hardships,
as well as structural specificities, rural areas in Mexico
are endowed with abundant natural resources, which
are often underexploited (OECD, 2007). If potentials
are realized, biomass resources may deliver to up to 16
per cent of the total energy consumed in the country
(Islas et. al., 2006). By better utilizing these assets,
Mexico could improve its rural income and promote
employment, ultimately strengthening national growth.
The development of rural energy potentials based on
residue streams of current agricultural products presents


an additional opportunity to meet one of the main goals
of the Mexican Program for Rural Development, which
seeks to diversify the rural economy and increase its
economic and social resilience to regional and global
market shocks (ECLAC, 2007). Previous studies show
that rural areas can deliver substantial contributions
to enhance energy services, while at the same time
fostering income and employment opportunities for
local populations (Box IV.1).


The case for residue utilization is strengthened by
Mexico’s trade preferences within NAFTA. Since
Mexico enjoys advantageous conditions for its
agricultural exports to the US, producing biofuels
directly out of dedicated crops such as sugarcane
and corn would cause trade-offs with missed export
opportunities. As an example, the membership in
NAFTA allows Mexico to trade sugar with the US
under contract #14 of NYSE instead of the common
international sugar contract #11. The existence of a
developed sugar industry in Mexico with favourable
trade conditions makes it costly and therefore unlikely
that bioethanol be produced at large scales based
directly on sugarcane. Consequentially, the option of
utilizing by-products of sugarcane processing, such
as bagasse, could emerge as a more interesting
bioenergy pathway for the country.


Adding to the motivations to consider energy
alternatives is the current decreasing state of
Mexico’s oil production (Kerr, 2011). Mexico’s energy
matrix is strongly dominated by fossil fuel energy,
whose imports are growing in order to meet national
demand. While Mexico has been traditionally a large
oil producing country, decreasing extraction and
limited refining capacity have constituted a situation
of reliance on gasoline imports, and a reduced export
margin for diesel (Figure IV.2). In 2008, Mexico relied on
other sources (imports and stocks) to meet domestic
demand for gasoline. As Mexico is a net exporter of
diesel and gasoline imports have been on the rise in
recent years, from an energy security perspective,
action towards reducing dependency on gasoline
is a priority. This puts special emphasis on ethanol
initiatives, especially those which avoid conflicts with
food security and do not reduce agricultural export
opportunities in the country.196


Enabling an economic transition from fossil to
renewable sources of energy is already a stated goal of
the Mexican energy strategy (SENER, 2012). Gradual
increases in gasoline and diesel prices between 2009
and 2012 have brought fossil fuels in Mexico closer




142 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


0


200


400


600


800


1000


1200


1400


1600


1800


Gasoline Diesel


PJ


Production Final Consumption


Source: International Energy Agency (2008)


Figure IV.2: Gasoline and diesel in Mexico: Native production and consumption


to subsidy-free levels (AMEGAS, 2012; GIZ, 2011).
As gasoline and diesel fuel become sources of tax
revenue, additional resources brought by taxation
could theoretically be used to cross-subsidize second
generation biofuels pertinent to the conversion of
agricultural residues. In general, the necessity for
subsidies will strongly depend upon the technology
development, reductions in production prices, and the
reference price for fossil fuels (IEA, 2010).


In addition to its domestic mismatch between energy
production and demand, Mexico’s commitments to
climate change mitigation and air pollution make the
case for alternative sources of energy. The country’s
fourth communication to the UNFCCC indicated
its consideration of biofuels as an instrument to
reduce emissions (p. 193) and improve air quality
(p. 197). The current oxygenate used in Mexican
gasoline is MTBE, a petroleum-derived product which
improves the combustion of gasoline in automotive
engines. Despite the positive burning performance
of MTBE, which contributes to improved air quality,
the concentration of this chemical in water sources
has prompted worries in the United States about its
potential carcinogenic effects.197, 198 A shift towards
residues-based and sustainably-produced ethanol
could help reduce health risks in areas of high vehicle
density, while at the same time contribute to reducing
the carbon intensity of Mexican transport.


In addition to the landscapes in rural areas and
international trade, the legal framework for renewable
energy in Mexico is already supportive of alternative
biofuel options. A federal law for the promotion of
biofuels was introduced in early 2008, focusing
primarily on first generation biofuels; and in the national
energy strategies from 2007-2012 and 2012-2026,
emphasis was given to energy conversion of residues.
These core documents, in addition to their focus on
energy diversification and environmental sustainability,
indicated rural development as an important goal for a
biofuel policy in the country (SENER, 2009b; SENER,
2012). A more in-depth analysis of the legal framework
for biofuels in Mexico is presented in the next section.


1. Legal framework for
Biofuels and rural
development in Mexico


Investigations towards the development of biofuels
in Mexico falls within broader strategies for national
development, climate change and new sources of
energy. In November 2006, an ambitious evaluation
of the potential and feasibility of bioethanol and
biodiesel was published by the Mexican Secretariat of
Energy (SENER). The study was financed by the Inter-
American Development Bank (IADB) and the German
Technical Cooperation Enterprise (Gesellschaft Für




143chaPteR.IV: agriculture and Biofuels as a contriButor to rural development


Technische Zusammenarbeit - GTZ, now GIZ). This
initial 600-page study was the technical base for
subsequent laws aiming at a systematic promotion of
biofuels in Mexico (SENER, 2006).


In 2007, the country adopted its National Development
Plan (Plan Nacional de Desarrollo), stating the
Government’s intention to diversify the primary sources
of energy in the country for the period between 2007
and 2012.199 At the same time, the plan promoted
the uptake of renewable energy to secure affordable
energy supply for consumers. As a complement to its
broader development strategy, Mexico launched the
Sectoral Energy Program for the same planning period
of 2007-2012, which emphasized the promotion of
renewable sources of energy (p.33). 200 Still in 2007,
President Felipe Calderón put forward Mexico’s
Climate Change Strategy (Estratégia Nacional de
Cambio Climático) which strengthened the call for
alternative energy sources to promote decarbonization
in the Mexican economy.201


In April 2007, the Mexican Congress approved an
initial version of a law aimed specifically at promoting
biofuels in the country. However, later in 2007, the
law proposal suffered a setback, as President Felipe
Calderón vetoed the bill with the argument that too
much emphasis was put on the usage of corn and
sugarcane for biofuel production, downplaying other
options such as algae and cellulosic processes based
on residues (APEC, 2008). The biofuels law (Ley de
promoción y desarrollo de los bioenergeticos) was
reformulated and presented again to the congress
in early 2008, being finally adopted on February 1st
of that year. The final law text was approved without
specific references to maize (corn), going as far as to
forbid the usage of such feedstock in the production
of ethanol in the country (Mexican Congress, 2008).


In January 2009, the Government published a study
on low carbon technologies and a plan for clean
technology investment in the country (World Bank,
2009a, World Bank, 2009b). While the documents
did not have a direct rural focus, both mentioned
biofuels and better management of production
residues as sectors of interest to promote low-
emission development in Mexico, amongst which
were advanced biofuels. The documents provided a
basis for a refined Special Climate Change Program
(Programa Especial de Cambio Climático – PECC),
which was adopted in August 2009 (SEMARNAT,
2009).


The Mexican biofuels law states that corn can only be
used for ethanol production if there is a national surplus
and domestic demand has been met.202 According to
Felix (2008), the Mexican biofuels law aimed to fully
expand on constitutional articles 25 and 27, especially
on section XX that discusses the state planning tool of
the federal executive to orient economic development,
particularly in the rural sector.


Following the adoption of the biofuels law, the Mexican
government introduced an initial strategy for biofuels
in the country based on four guiding documents: (1)
The introduction program for biofuels, (2) The inter-
ministerial strategy for biofuels,203 (3) The regulation
of the biofuels promotion and development law and
(4) The requirements for the issuance of permits
concerning biofuels activities. 204, 205, 206


While the framework for biofuels in Mexico sought
goals of economic decarbonisation and sustainability,
its primary aim was to tackle worries related to energy
dependency in the country. The strategy for biofuels
which followed the 2008 law in Mexico focused on using
bioethanol to substitute for the oil-derived gasoline
oxygenate MTBE. The plan called for the introduction
of ethanol blends in the main metropolitan areas of the
country: Guadalajara, Monterrey and finally Mexico
City. Problems with the ethanol procurement process
made it difficult to secure the volumes of ethanol
needed, which prompted a re-evaluation of the large-
scale introduction program for biofuels in the country.


In face of the challenges faced in procuring ethanol as
envisioned in the initial plans drawn in 2009, SENER
introduced a revised approach for the introduction
of biofuels in the country, publishing a new strategy
in December 2011 (Figure IV.3). The new strategy,
which also focuses on anhydrous ethanol, sets lower
and upper targets for the amounts of anhydrous
ethanol to be blended into gasoline to be adopted
from 2012 until 2015. The new strategy also grants
PEMEX more freedom on tendering processes and
on deciding upon which regions to perform blending
with gasoline (in contrast with the earlier predefined
plan for a stepwise blending in Guadalajara, Monterrey
and Mexico City). The strategy focuses primarily on
procuring ethanol from national producers, making no
mention to whether foreign producers will be able to
bid on supply contracts (SENER, 2011).


An additional law adopted in 2008 in Mexico set the
framework for renewable electricity. The Ley para
Aprovechamiento de las Energías Renovables y




144 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


Financiamiento para la Transición Energética (LAERFTE)
provides a national strategy and financial instruments
to promote energy transition in the country, aiming at
35 per cent share of renewable energy in Mexico by
2024 (LAERFTE, 2008). A subsequent program (2009)
entitled Programa Especial para el Aprovechamiento
de las Energías Renovables, details the payment
mechanisms and incentives for producers generating
electricity from renewable sources, including biomass
(REMBIO, 2011).


2. Current state of biofuels
in Mexico


Mexico has already introduced a framework for bio-
fuels in the country, but concrete market develop-
ments have been uneven. Legislation efforts have had
a strong focus on bioethanol promotion and blending
in order to replace gasoline oxygenates (MTBE). How-
ever, partially due to issues in the procurement process
for ethanol, more progress has been actually achieved
on the sides of the mainstream strategy for biofuels;
examples include the usage of biodiesel for public
transportation in the state of Chiapas and the steps
taken towards biofuel usage in Mexican aviation (REM-
BIO, 2010; ASA, 2012). There have been a number of
biogas projects in the country, either financed by indig-
enous schemes or through CDM activities, amounting
to 721 biodigestors by 2011 (REMBIO, 2011).


The Mexican biofuels law has laid some of the
foundations for a biofuels industry in the country.
Supply-side support mechanisms have been
introduced by the Agricultural Secretariat (SAGARPA)
through a MXN 1 billion (USD 71 million) co-financing
scheme for investments in biofuels projects.207 On
the other hand, the absence of mandatory biofuel
utilization targets produces demand insecurity,
especially for second generation technologies. The
only concrete initiative adopted was the indicative
blending targets, through an initial 6 per cent ethanol
blend with gasoline in the city of Guadalajara in 2012
(176 million litres/year), to be subsequently expanded
to Monterrey (133 million litres per year) and Mexico
City (493 million litres per year) (SENER, 2009b; USDA
2009, p. 5). In this sense, the 2008 biofuels law and
subsequent strategy can be seen as initial steps
towards a broader framework to create a country-
wide blend mandate to realize the full potential of the
biofuels sector in Mexico.


Technical considerations for the adoption of biofuels
were addressed by a decree (Diario Oficial, 2009 p.1),
which established technical norms for the concession
of permits related to the production, storage, transport
and retail of anhydrous ethanol and biodiesel.
Interestingly, the same document uses only two terms
when referring to biofuels: anhydrous ethanol and
biodiesel. The allusion to anhydrous ethanol refers
to ethanol which will be blended into gasoline. No
consideration is made towards hydrated ethanol


Figure IV.3: Development of a policy for biofuels in Mexico




145chaPteR.IV: agriculture and Biofuels as a contriButor to rural development


(E100) or E85, a sign that no high blend (separate
choice at pump stations) is planned for Mexico.


Mexico’s new national program to introduce anhydrous
ethanol mentions explicitly its intention to generate
market conditions favourable to the development of
biofuels (SENER, 2011). According to Felix (2008),
the Mexican legislation characterized biofuels with
an independent legal definition, attributing them a
separate legal framework for regulation, not limited
by the traditional fuel regulations in place. Adding to
this, the Mexican biofuels law attributed regulatory
competences to different government agencies in
order to coordinate future steps in the matter (Felix,
2008). However, the absence of mandatory blending
targets and the lack of specific incentives for residue-
based biofuels have been considered a possible
shortcoming of the Mexican biofuel law (USDA, 2009).


Empirical evidence points to the need for specific
support in large renewable energy projects. 208 Hira and
Oliveira (2009) indicated that the Brazilian sugarcane
industry received substantial targeted government
support in the initial years of the Brazilian biofuel
program (Proalcool). The support was subsequently
phased out as costs decreased with larger production
scales (Goldemberg et al, 2004). The Swedish
biofuels strategy introduced tax-breaks to promote
ethanol sales, as well as grants for consumers willing
to purchase flex-fuel vehicles (Pacini and Silveira,
2010). In Mexico, the format and scope of support
mechanisms are sometimes overlapping. There are
two sets of incentive “pools” which could in principle
be used to the development of bioenergy from
agricultural residues.


The first set of incentives consists of existing programs
in place to support rural producers and the fisheries
sector in order to promote rural development. These
programs are:


• Programa para la Adquisición de Activos Productivos;


• Programa de Apoyos Directos al Campo;


• Programa de Inducción y Desarrollo del Finan-
ciamiento al Medio Rural;


• Programa de Uso Sustentable de Recursos Natu-
rales para la Producción Primaria;


• Programa de Atención a Problemas Estructurales
(Apoyos Compensatorios);


• Programa de Soporte (sanidad, asistencia técnica,
transferencia de tecnología, etc.);


• Programa de Atención a Contingencias Clima-
tológicas;


• Programa de Fortalecimiento a la Organización
Rural.


Detailed rules on the programs can be obtained at the
website of the Mexican Secretariat of Agriculture, Rural
development, Fisheries and Food (SAGARPA). Most
of the support is oriented to promoting agricultural
production and supporting services (financing,
health, technical assistance, technology transfer,
and organization amongst others). As a possible
application in biofuels, the Programa de Atención a
Problemas Estructurales considers offering support
to seed exports and oily seed surpluses. However,
according to the Mexican Government, the support is
not frequently applied. This constellation of programs
can be confusing for producers as there is no clear
objective to provide finance, research support or
demand instruments for advanced, residue-based
biofuels. The biofuels law delegated to the Energy
Secretariat (SENER) the competence of market
oversight and fuel blending, to be done in partnership
with the Mexican state oil company PEMEX. The
key function of fuel purchaser and blender indicates
PEMEX as major player in the market, as many of the
key conditions for market access are dependent on
its tendering rules (UNICA, 2009). The monopsonistic
character of PEMEX gives it an important role as a
purchaser of biofuels made from agricultural residues,
if tender requirements evolve in this direction.


The second set of incentives consists of targeted
support mechanisms for biofuels and agroindustry
development. Four trust funds for risk-sharing offer
investment co-financing schemes covering from 14
– 20 per cent of total costs (FIRA); 30-50 per cent
(FIRCO); up to 50 per cent (FOCIR) while support
from the SAGARPA-CONACYT fund is granted
on a discretionary basis, with co-financing amounts
depending on individual project characteristics.


• FOCIR: up to MXN 200 million


• FIRA: up to MXN 200 million


• FIRCO: up to MXN 500 million


• Sectorial Fund SAGARPA-CONACYT: up to MXN
100 million


Together those instruments amount to MXN 1 billion
(USD 71 million). The instruments support investments
in sustainable natural resource management linked
to biofuels production. While the initial strategy for




146 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


the introduction of ethanol proposed in 2009 lacked
mandatory blending targets (thus reducing the
propensity for investors to take risks even supported
by co-financing schemes), the new strategy introduced
in 2011 has partially addressed this by establishing
minimum biofuel blending targets starting in 2012
(SENER, 2011). Yet, investors and producers seeking
to develop biofuels activities based on agricultural
residues, could still find it difficult to identify which of
those programs might be best suitable to support
research, development and deployment of biofuels
made from residual biomass, since the main national
strategy focuses on first-generation ethanol.


Since second-generation biofuels technologies
are not yet commercially available, efforts made
by the Mexican government through the Ministry of
Agriculture (SAGARPA) have focused on research,
development and technology transfer aiming at
validating technologies suitable for residue conversion.
There are, however, no demand-pull instruments in
the near future, as no provisions in the new ethanol
introduction strategy calls for PEMEX to purchase
advanced, residue-based ethanol until 2015, the last
planning year of the new biofuels strategy (SENER,
2011).


3. Improved usage of
natural resources and
diversification of rural
income


In the background of efforts to improve residue
management and develop bioenergy potentials,
the broader pursuit of sustainable development in
rural areas of Mexico requires a number of policy,
governance and technical components. Rural
populations have access to many potential sources
of renewable energy ranging from water and air
streams to alternative uses of their agricultural and
livestock products (and residues), which could be
converted into biofuels. A number of initiatives and
legal instruments have been put in place during the
last decade in Mexico, with the objective to improve
and diversify the economy of rural areas. This section
briefly covers the existing legal framework for rural
development in Mexico, analyzing how biofuels could
help achieve its strategic goals.


Different challenges have been identified for rural
policies in Mexico (OECD, 2007). Those include
poverty alleviation, provision of basic public services,


strengthening and diversification of the rural economy,
as well as better exploitation of untapped cultural,
natural and energetic resources. Mexico has taken
steps to coordinate action in those areas. In 2001, it
published the Law for Sustainable Rural Development
(LDRS), which called for the creation of a horizontal
coordination body at the federal level, the so-called
Inter-Ministerial Commission for Sustainable Rural
Development (CIDRS), as well as the establishment
of a participatory body for civil society (Councils for
Sustainable Rural Development), and the elaboration
of a Special Concerted Program for Rural Development
(PEC), which was updated in 2007 (SAGARPA,
2001; PEC, 2007). The financial resources allocated
to the rural budget (PEC) have emphasised social
policy (poverty alleviation, education and health) and
productive support. The latter, under objective 6 of
the PEC, calls for measures which enhance economic
and environmental lifecycle performance of crops,
by means of diversification of income sources for
rural producers, as well as promotion of access to
electricity and development of bioenergy resources
(PEC, 2007, p. 27).


The Mexican Ministry of Agriculture and Livestock
(SAGARPA) is in charge of a major sub-component of
the PEC named Rural Development Program (PDR).
The PDR is undertaken by the Undersecretary of Rural
Development of SAGARPA, and as its name indicates,
it seeks rural development outside the boundaries
of agriculture, livestock and fisheries which are also
part of the mandate of the ministry. PDR contains
three main sub programmes: the program of support
to rural investment projects (PAPIR) which seeks
to support capital investments; the program of
development of rural capacities (PRODESCA) which
seeks to develop human capital; and the program
for strengthening rural enterprises and organisation
(PROFEMOR) which devotes itself to the construction
of social capital. In parallel, the Mexican Ministry of
Agriculture (SAGARPA), has introduced in 2010
resources amounting to MXN 1 billion (USD 71 million)
with the purpose of supporting investments in the
production of biofuels.209 In developing bioenergy
potentials from residue streams, all three initiatives
have fundamental roles to play in enabling the
deployment of cost-effective and socially-inclusive
technologies and production models for agricultural
residue management, adding value to the current
lifecycles of agricultural products by allowing better
usage of residue streams.




147chaPteR.IV: agriculture and Biofuels as a contriButor to rural development


However, an OECD report from 2007 identified issues
with the governance of the PEC which should be
improved, including the need for clearer leadership,
responsibility attribution among government agencies
and coherence of various actions to enhance efficiency
of rural spending (OECD, 2007 p. 21). In order for
Mexico to achieve its rural policy objectives, the
involvement of ministries that do not have a rural focus
is important. While a level of cross-ministerial work has
been done through inter-service commissions, the
components of the Mexican rural policy dealing with
energy are also not clearly incorporating important
stakeholders. According to the same OECD report
(p. 34), while ministries in charge of education, health
and environment have significant impact on rural
development, other ministries related to economic
policy such as the Ministry of Economy (SE),
Transportation and Communications (SCT), Finance
(SHCP), Tourism (SECTUR), Labour (STPS) and Energy
(SENER) have had low rural focus (see Figure IV.5).


In the context of the Inter-secretarial Commission
established to define strategies for biofuels, there
has been close cooperation between SAGARPA,
SENER, SE, SHCP and SEMARNAT, seeking an
integrated approach to the construction of a national
policy in field. However, there has been a degree of
separation between two key actors in the delivery of
policy documents, namely the energy and agricultural
Ministries, which is counterproductive to the
development of a sustainable biofuels industry based
on agricultural residues. The main policy undertaker in
biofuels matters has been the Ministry of Energy, which
spearheaded both the first and second strategies for


Rural Strategy


Old Approach New Approarch


Objectives Equalisation, farm income, farm competitiveness
Competiveness of rural areas, valoraisation of


local assest, explotation of unused resources


Key target sector Agriculture


Various sector of rural economies (ex rural


tourism, manufacturing, ICT industry, ecosystem


services, energy, etc.)


Main tools Subsidies Investments (public and private)


Key actors National governments, farmers


All levels of government (supra-natural, national,


regional and local), various local stakeholders


(public, private, NGOs)


Table IV.1: The strategy toward the main development concerns of rural areas in Mexico


Source: Adapted from OECD (2007, p. 117)


Economic


An integral
vision


of rural areas


Environmental


SocialDemographic


Figure IV.4: The strategy toward the main development
concerns of rural areas in Mexico


anhydrous ethanol blending in the country (SENER,
2009; SENER, 2011). Cooperation has been gradually
improving with the joint effort between SAGARPA
and SENER to map production potentials of first-
generation ethanol in the country (SENER, 2011).
A better degree of coordination between energy,
rural and agricultural policies - as well as mutual
accountability for their results - could help improve
the effectiveness of public resource usage towards
developing rural areas in Mexico, with positive impacts
on income and employment creation.


Similarly, private investment could take on a much
bigger role in promoting agricultural development, by




148 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


making larger investments possible in public service
delivery and business development in diversified,
non-core agricultural activities such as biofuels.
Investments in infrastructure and innovation, coupled
with improved consistency between policy efforts
in agriculture, environment, rural development and
poverty alleviation, are likely to be the most important
challenges facing regulators seeking to strengthen
rural development in Mexico. The critical issue for
policymaking is to find innovative ways in which rural
properties can benefit from the energy resources
that are available to them, especially in terms of
employment and income creation.


4. why avoiding a sole focus
on dedicated bioenergy
crops might be a good idea
for Mexico


Some aspects compound to the difficulties of estab-
lishing dedicated crop-to-energy models in Mexico.
Those include the characteristics of land tenure laws in
the country, the context of its international trade, geo-
graphical conditions, sustainability aspects, and diffi-
culties encountered by recent policy efforts in the area.


4.1. Land tenure and food
security


In face of the characteristics of the rural landscape in
Mexico,210 the implementation of dedicated models
of agroenergy faces several difficulties, since there
are clear limits to scale when compared with large-
scale systems such as those adopted in Brazil or in
the United States (Valle, 2011). Geographic conditions
compound to that; while Mexico receives large
amounts of solar radiation which favours agriculture,
61 per cent of the country is covered with arid or semi-


Figure IV.5: Ministries and resources involved in rural policy in Mexico


Source: OCED, 2007; based on PEC, 2007


Figure IV:5: Ministries and resources involved in rural policy in Mexico




149chaPteR.IV: agriculture and Biofuels as a contriButor to rural development


arid land, making large extents of its territory unsuitable
for non-irrigated agriculture (SENER 2006, p. 119).
Small scale production poses economic and logistic
challenges, but could be socially rewarding. New
transport systems must be put in place to allow for
more dispersed feedstock (residues) inflows towards
cooperatives or processing sites. However, residues
collected at industrial processing sites of crops and
livestock can profit from significant scale effects which
could offset the problem of feedstock dispersion.


It is important to learn from examples of other countries
and regions which have implemented biofuel models in
contexts sharing similarities with Mexico’s agriculture.
There have been experiences with small-scale biofuel
production models in Brazil, India, Colombia, and
some countries in Africa.


A national-level fuel blending program using small-
scale production exists in Brazil for the biodiesel
sector (Lehtonen, 2009). The Brazilian Biodiesel
Program consists of both large and small scale
producers (mostly soybeans) and as of 2012 fulfils a
5 per cent blend mandate in the Brazilian diesel pool.
In order to maintain the control of land with small
farmers, the program attracts small producers by
granting access to a special credit mechanism which
reduces the borrowing costs, which would otherwise
be prohibitively high in conventional financing
channels.211 Scale is achieved by an auctioning
system, in which accredited companies purchase
feedstock from large and small producers, processing
and selling the biodiesel for buyers like Petrobras.
Participating companies receive a contractual bonus
if they purchase raw materials from family agriculture
holdings (Soares et al, 2007). The Brazilian program,
however, has very little participation of 2nd generation
production technologies, nor uses agricultural residues
as its main source of inputs.


In India, the International Crops Research Institute for
the Semi-Arid Tropics (ICRISAT) also develops activities
in the promotion of alternative energy crops and small-
scale bioenergy farming. ICRISAT’s BioPower initiative
focuses on three points: enabling small-scale bioenergy
farming; identifying comparative advantages and
technologies suitable for resource-limited bioenergy
production; and aspects of sustainability. The initiative
identifies sweet sorghum as the focus crop for ethanol
production given its suitability for dry climates and
degraded lands. In addition, the initiative promotes
investments in pro-poor bioenergy projects.


Colombia is another example of a country with
ongoing experience in small-scale biofuel activities.
The country has two demand-creating instruments for
biofuels, in the form of blending mandates for ethanol
(E10) and biodiesel (B5). The Colombian strategy
gives priority to small scale pilot projects instead of
larger plants. In face of the production based in small
scale projects, logistic issues have been reported in
routing feedstocks to the processing centres (USDA
2009). While Colombia has engaged in research on
2nd generation biofuels using agricultural residues,
most feedstocks consist of jatropha and sugarcane
plantations (Proexport, 2010, p. 12).


In Africa, the potential of small-scale biofuel
production has been assessed by the United Nations
Department of Economic and Social Affairs. The
survey highlighted examples of experiences with
jatropha-based biodiesel in countries of sub-saharan
Africa like Ghana, Mozambique, Tanzania and Zambia
(UNDESA, 2007 p. 21-13). However, unlike Brazil and
Colombia, the small-scale experiments in Africa did
not seek country-wide fuel blend mandates; output
was intended towards other markets such as cooking,
fuels for electric generators and illumination.


Therefore, alternative approaches to large-scale
production could make better sense in the Mexican
context. In addition to issues of scale and production
ownership, the issue of technology is very important
to enable residue conversion models. If proper models
are implemented with adequate technologies, the
utilization of agricultural residue carries less risk to
food security since the food vs. fuel dilemma can be
avoided (Rosillo-Calle and Johnson, 2010). Residue
utilization would at the same time enhance product
lifecycles in Mexican agriculture, promoting the
competitiveness of Mexico’s rural landscape.


4.2. Avoiding trade-offs with
current agricultural exports


Adding to the specificities of Mexico’s rural land tenure
regime, the country’s agricultural exports could also
suffer from the large-scale production of ethanol
in the country. As an example, the context of the
highly attractive sugar market in NAFTA represents
a costly trade-off for the production of sugarcane-
based ethanol, as that would compete with sugar
exports and necessarily cause some level of missed
export opportunities. Mexico trades sugar with the US
under contract #14 of NYSE instead of the common




150 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


international sugar contract #11. The access of
Mexican sugar producers to the higher sugar quota
price of the United States may make the domestic
sugarcane-ethanol route uneconomic (at least while
the gap between the US sugar price and the world
sugar price exists).


4.3. Overcoming supply hurdles


A national strategy for the introduction of biofuels
followed the biofuels law adopted in 2008. The plan
has been focused on using bioethanol for gasoline
blending purposes, aimed at ultimately substituting the
oil-derived gasoline oxygenate MTBE in the country.
The program design called for a stepwise introduction
of ethanol blending in the main metropolitan regions in
Mexico: first in Guadalajara, then Monterrey and finally
Mexico City (SENER, 2009b).


An initial attempt to purchase ethanol for the
Guadalajara phase of blending was initiated via
a tendering process from PEMEX (n. 18576112-
022-09). The conditions for this tender included a


minimum requirement of 50 per cent domestically-
produced ethanol. The supply contract, however, was
not signed, at least in part due to high prices of sugar
which exacerbated the opportunity cost of ethanol
production in the country, making the production
of ethanol uneconomical for the tender winners (El
Universal, 2012). In face of these developments,
the main biofuels introduction program is being re-
evaluated, and a new tendering process for ethanol
is being designed for launch in 2012 (SENER, 2012).


4.4. Emerging sustainability
requirements


Since the mid-2000s, a great debate emerged on
the wisdom behind the promotion of large-scale
biofuels production and consumption strategies for
energy security and environmental reasons (Schmitz,
2007). Risks of enlarged biofuel production were
strengthened by the lack of sound science in the area,
such as uncertainties regarding the lifecycle emissions
of biofuels production, their indirect impact on land
use, possible conflicts with land rights in developing


Source: EC, 2009; Hodson et al, 2010, p. 217; US EPA, 2010; Junginger et. al., 2010; RSB, 2010; SAGARPA, 2009.


Box IV.2: The emergence of regulatory bonuses for trade of biofuels made from residues


The pressing need to make biofuel strategies compatible with overarching social, economic and environmental objectives
has prompted the emergence of a number of sustainability schemes in recent years. In particular, GHG balances in life-
cycles of biofuels are increasingly scrutinized, and thresholds of “acceptable” performance have been adopted in both
Europe and the US.


In Europe, a sustainability Scheme for biofuels was adopted in 2009 and determined a number of criteria which biofuels
should meet in order to be certified as sustainable, which is an effective pre-condition for market access in all 27 European
Memberstates. The European Renewable Energy Directive (RED) provided a regulatory “premium” for some types of biofu-
els. Art. 21 of the RED states that biofuels originating from cellulosic or lignocellulosic non-food material (the basis of 2nd
generation biofuels), as well as those made from waste and residues will count double towards the 10% national renewable
energy obligations in the transport sector, on an energy basis.


Regional actions also signal sustainability as one of the future market conditionalities to be faced by prospective biofuel pro-
ducers. The US state of California has launched an evaluation of the carbon-intensity of biofuels, and in 2009 the California
Air Resources Board (CARB) published favourable indexes for those based on cellulosic materials and agricultural residues.
According to Junginger et al (2010), the adoption of sustainability criteria in Europe and elsewhere is seen by biofuel traders
as a possible market barrier which will tighten biofuel trading conditions worldwide. Biofuels produced from agriculture resi-
dues, however, profit from much more benevolent certification procedures than those based on dedicated energy crops.


Mexico is a member of the Global Bioenergy Partnership (GBEP) which has among its goals the transformation of biomass
use towards more efficient and sustainable practices. The sustainability policy for biofuels in the country is in similar to the
fundamentals proposed by the Roundtable on Sustainable Biofuels (RSB), which also considers streamlined certification
procedures for biofuels produced from agricultural residues. The authority in charge of biofuels sustainability is the secre-
tariat for the Environment and Natural Resources (SEMARNAT), which cooperated with the agriculture ministry (SAGARPA)
in outlining the national strategy for biofuel sustainability published in 2009. Some provisions are made, such as the social
dimensions of potential conflicts with food affordability, the creation of information systems and a ban on conversion of
forest areas to dedicated biofuels crops.




151chaPteR.IV: agriculture and Biofuels as a contriButor to rural development


countries, as well as potential pressures on biodiversity
and water sources. In face of those risks, a number
of sustainability requirements for biofuels emerged
around the world. Such requirements are, in practice,
already becoming preconditions for the production
and trade of biofuels in some regions (UNICA, 2012,
EC, 2009, UNCTAD, 2008a). Some types of biofuels,
such as those based on cellulosic or lignocellulosic
non-food material, as well as those made from waste
and residues, tend to receive a bonus in sustainability
requirements, such as what can be observed in
the European Union, where biofuels from residues
count double towards Europe’s 10 per cent national
renewable energy obligations in the transport sector,
on an energy basis (Hodson et al., 2010).


Under these difficult circumstances, instead of
promoting a costly sugarcane or corn-based output
shift towards ethanol production, Mexico could look for
alternatives which would avoid socio-economic trade-
offs that would otherwise be inevitable. Hence other
forms of agricultural models or alternative feedstocks
could be more suitable to the Mexican reality.


D. TECHNOLOGICAL
OPTIONS FOR RESIDUES
CONVERSION TO
BIOFUELS IN MEXICO


There are numerous benefits of using agricultural
residues to produce biofuels. Biomass production
is inherently rural and labour intensive, and this may
offer the prospects for new employment associated to
the lifecycle of agriculture. The potential for producing
rural income by production of high-value energy
carriers (such as liquid and gaseous fuels) is attractive,
as those fuels could be used both domestically,
displacing imported fuels, as well as for exports, both
of which generate income.


By realizing the potentials currently missed in residue
streams from agriculture, Mexico can complement its
demand for a broad spectrum of products presently
derived from petroleum (Figure IV.6). By consequence,
this can generate new income opportunities in rural
areas, more employment, improvements in energy and
food security, as well as a reduction in the overall reliance
of the national economy on fossil energy. Biofuels
derived from residues can even help improve cooking
technologies used in areas subserviced by electricity
grids and gas distribution networks (Figure IV.7).


However, in order for these potentials to be realized,
technology options have to be deployed, up-scaled
and researched.


This section aims at providing an overview of biofuel
production technologies, with special focus on those
which may be useful in the conversion of feedstock
inputs similar to agricultural residues from the key
products of interest in this Outlook (corn, sugarcane,
beans, wheat, rice, sorghum, coffee, egg, milk, beef,
pork, poultry, and fish). By looking into the pros and
cons of current and emerging technologies used in
the production of biofuels, as well as their respective
states in Mexico, this section gives special attention to
those which have the largest potential to be applied in
conversion from agriculture residues.


1. First-generation biofuel
technologies


Biofuels of first generation consist of three main
types. The first corresponds to petroleum-gasoline
substitutes produced via biological fermentation of
starch and sugar-rich crops (e.g. corn, sugar beet,
sugarcane). The second type relates to petroleum-
diesel substitutes, such as straight vegetable oil and
biodiesel (e.g. FAME, FAEE, RME and SME) produced
by trans etherification of plant oils and fatty residues
(e.g. soy, palm, jatropha, used cooking oil and animal
fats). The third type corresponds to natural gas
substitutes such as biogas, generally produced via
anaerobic digestion of organic matter (Monreal, 2008;
UNCTAD, 2008; IEA, 2010).


First generation processes are based on mature
technologies, relying on relatively simple processing
equipment, modest investment per unit of production
and can achieve favourable economics at smaller
production scales. They represent the bulk of
commercial biofuels today.


In spite of their relative ease of production, first
generation biofuels have important limitations in the
context of this diagnosis, especially given Mexico’s
limited availability of non-arid farmland. According
to UNCTAD (2008b), starch-based first generation
biofuels have the lowest land use efficiency. When
measured in the energy production achievable with
one hectare of land, sugar-based first generation
biofuels fare slightly better, with about the double of
the land-use efficiency. Second generation biofuels,
discussed in the next section provide an additional
increase of 50 per cent or more in land-use efficiency.




152 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


Biofuel


First Generation


Second Generation


Petroleum Fuel


Biodiesel


Ethanol


Butanol Butanol


Ethanol


Mixed alcohols


Methanol


Fischer Tropsch


Green Diesel


Dimethyl ether


Biocrude


Green Diesel


Gasoline


Kerosene


Diesel


LPG*


Crude oil


Source: UNCTAD (2008b)


Figure IV.6: Substitutability of biofuels with common petroleum derived fuels


BiofuelC ooking Fuel


Alcohol Alcohol Gel


LPG


DME


Kerosene


Natural Gas


DME


FTL


Biogas


Source: UNCTAD (2008b)
Note: Fuels listed as cooking fuels above are made from fossil fuels today. Some of these fuels can also be made from biomass.


Figure IV.7: Substitutability of biofuels for clean fossil fuels used for cooking




153chaPteR.IV: agriculture and Biofuels as a contriButor to rural development


In terms of net energy balances, first generation
biofuels have generally lower performance (i.e. require
higher amounts of fossil energy inputs for each unit
of energy output delivered) than second generation
biofuels.


Most first generation biofuel production processes
depend on crops with dual usage as both energy
and food purposes, augmenting risks related to
food security and affordability in Mexico. While first-
generation processes might promote employment in
production areas, the jobs created usually command
low wages (REMBIO, 2011). In addition to the social
risks arising from competition between the food and
energy markets, an additional economic argument
adds caution on the usage of first-generation biofuels
in country. While production based on dual-purpose
crops (food and fuel) provide ample markets, the
usage of crops for biofuel purposes imply in somewhat
uncompetitive production due to the high costs of
feedstock (SENER, 2006; UNCTAD, 2008b). With
second-generation feedstocks, such as the bulk of
agricultural residues, this trade-off is avoided.


As of 2012, Mexico does not produce first generation
anhydrous ethanol for energy purposes. However,
hydrated ethanol (96 per cent ethanol, 4 per cent
water content) is produced in modest amounts,
based mostly on sugarcane and on the conversion
of molasses (leftovers from sugar production), which
have dual usage as food sweeteners. While 96.4
per cent of the national production of molasses was
destined for exports (mainly towards the USA), 3.6 per
cent went to the production of 14.5 million litres of
ethanol in 2009, used mostly in beverages, cosmetics
and medicine production (REMBIO, 2011). The relative
small ethanol production contrasts with the installed
production capacity, which according to the Mexican
Chamber of the Sugar and Ethanol Industry consists
of 91.8 million liters/year for 14 sugarcane mills with
distilling facilities in Mexico (USDA-FAS, 2007). This
potential is underutilized partly because of attractive
sugar markets in NAFTA, what prompts producers to
often choose routing sugarcane into sugar production.


As of 2012, the Mexican Government has been
attempting to advance its strategy for the introduction
of bioethanol in the country. After an unsuccessful
attempt in 2010, PEMEX is preparing another tender
process to introduce ethanol blends in the country. The
tendering process is ongoing as of 2012, seeking to
guarantee supply of anhydrous ethanol for blending
levels between 36.8 and 46 million liters (SENER, 2011).


In contrast with ethanol, Mexico is already producing
first-generation biodiesel for energy purposes. Two
major experiences, the biodiesel production program
Chiapas Bioenergetico in the state of Chiapas, and
ENERGEX’s program of biodiesel production based
on animal fat residues and waste oils, in Cadereyta,
Nuevo Leon, are two examples of initiatives aimed at
delivering transportation energy (REMBIO, 2010). In
Chiapas, the main feedstocks for biodiesel production
were African-palm crops, jatropha and residual
vegetable oils. The biodiesel produced was used to
power 113 public transportation buses in the city of
Tuxtla Gutierrez, both via blends with conventional
diesel (B5 and B20), as well as in pure biodiesel form
(B100, since 2010). In Nuevo Leon, the ENERGEX
program operated until 2011 and was strongly based
on fat residues from animal origin, as well as recycled
vegetable oils. Demand-pull was provided by PEMEX
Refinacion, which used the biodiesel as an additive to
its ultra-low sulfur diesel. PEMEX ceased to purchase
biodiesel from ENERGEX in late 2011, prompting the
end of the program.


Some first generation technologies can however
be readily applied to convert non-food biomass.
Examples consist of biogas production via anaerobic
digestion of biomass, and biodiesel production from
residual animal fats and vegetable oil. Those can be
both relatively straightforward to deploy if coupled
with conducive incentives.


Concerning biogas, there were 721 biodigestors in
Mexico as of 2010, of which 367 are in operation and
354 are in construction. About 8 per cent of the of the
pig farms in the country had biodigestor facilities to
process manure, but of those only 20 per cent had
electric generators using the biogas produced, and 30
per cent of the generators were still not operational. This
resulted in a total biogas-fired electricity production of
only 5.7MW, while the national potential is estimated
to reach 3000MW (SENER, 2010). Examples of
agricultural sites producing biogas include the pig
farm El Chancho in Cadereyta, Nuevo Leon and the
Poultry farm La Estrella, in Leon, Guanajuato. Most
of the biodigestors in the country (563) are financed
through participation in CDM projects, while others
(154) rely on support from the Mexican fund for shared
risks (FIRCO). Only 4 biodigestors are financed by an
USAID-backed initiative named methane to markets
(Metano a Mercados) (REMBIO, 2011; IRRIMEXICO,
2009).




154 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


2. Second-generation biofuel
technologies


Biofuels of second generation can be classified in
three main types (UNCTAD, 2008b). The first type
corresponds to those produced via biochemical
processes delivering petroleum-gasoline substitutes,
such as alcohols (e.g. ethanol or butanol) produced
by enzymatic hydrolysis. A second type of gasoline
substitutes are those produced when biomass is
subject to thermochemical processes, including
methanol, Fischer-Tropsch gasoline and mixed
alcohols. A third type of second-generation biofuels
can be classified as petroleum-diesel substitutes
produced by thermochemical processes, such as
Fischer-Tropsch diesel, Dimethyl ether and other
varieties of green diesel.212


While second-generation biofuels are mostly based
on lower-cost, residual and non-edible biomass,
they still depend on skilled human capital and
sophisticated technologies for their production. These
results in larger capital costs per unit of production
when compared to biofuels produced through first-
generation processes (UNCTAD, 2008b). On the other
hand, lower-cost feedstocks tend to offset the greater
capital intensity of second generation and bring costs
down once technologies mature, akin to the cost-
learning process seen in the Brazilian ethanol industry
(Goldemberg, 2004).


Much of the potential held in agricultural residues, how-
ever, depends on emerging technological solutions.
Unlike sugar, starch and oil-rich plants (e.g. sugarcane,
corn and soybeans), agricultural residues like foliage,
straw, leftover cereal shells, slaughter residues and
residual oil often require more complex - and costly -
conversion methods to be turned into useful biofuels.


Second-generation biofuels are not yet produced
at commercial scales. Yet, a number of pilot and
demonstration plants have been announced or set up
in recent years, with research ongoing in places like
North America, Europe, Brazil, China and Thailand and
Mexico, all of which have the level of human capital
necessary to investigate and deploy technologies
associated to second generation processes (IEA,
2010; REMBIO, 2011). There is one documented
experience with thermochemical production
processes (gasification) in Universidad Autonoma
de Mexico, which is, however, at experiment level
(Masera et. al., 2006).


In face of a number of parallel efforts being undertaken
in many countries to improve technologies and bring
down costs of second generation biofuels, it might
be difficult and costly for Mexico alone to engage
in all R&D, demonstration and deployment phases
of second-generation technologies applicable to its
agricultural context. Given the necessity to develop
2nd generation processes which are suitable for the
Mexican context, it could be highly interesting for
the country to engage in regional and international
cooperation, aimed at scaling up potential markets,
promoting technology transfer and sharing of R&D
costs.


Furthermore, as suggested by UNCTAD (2008b)
and Andersen (2011), for successful technology
adoption and adaptation, it is essential for Mexico
to have a technology innovation system in place, as
well as mechanisms to allow regional cooperation
and scales beyond Mexico’s indigenous markets.
One possible innovation platform in those lines could
be the nascent Mesoamerican biofuels program
(Box III.3). An innovation system refers to people
involved in a broad set of activities and institutions,
including (a) research universities/institutes generating
fundamental knowledge and assimilating knowledge
from the global community; (b) industries with the
capacity to form joint ventures with foreign companies
and to introduce innovation and learning into shared
technologies; (c) government agencies able to
recognize and support the required research and
technology adaptation needs; and (d) a technology-
informed public policymaking system. Under those
premises, there is an important role for the national
government in fostering the development of biofuels
industries in the country, advancing the goals laid out
in the legislation already in place (SENER, 2012).


Since first generation biofuel technologies often depend on
edible crops as feedstock and can conflict with Mexico’s
land tenure and food supply, special emphasis of public
efforts on second generation biofuels may be appropriate.
The development of competitive second generation
biofuel industries could be facilitated (especially in
large countries such as Mexico or in regional clusters
of smaller countries as in the Mesoamerican region) by
the establishment of regulatory mandates for biofuel
use, as a complement to public procurement efforts to
introduce biofuels via PEMEX tenders. Direct financial
incentives – including grants for research, development
and demonstration, or biofuel price subsidies – could
also be considered, but clear “sunset” provisions and/




155chaPteR.IV: agriculture and Biofuels as a contriButor to rural development


or subsidy caps (e.g. tied to oil prices and with finite
durations) should be designed into such provisions.
Policies supportive of international joint ventures would
also help provide access to intellectual property owned
by international companies. With a natural favourable
climate for biomass production, developing country
partners in such joint ventures might contribute host
sites for demonstration and first commercial plants,
as well as avenues for entering local biofuels markets
(UNCTAD, 2008b).


Research and development of second generation biofuels
is likely to be costly, but Mexico can profit from international
partnerships, such as the Mesoamerican region, to
both share R&D costs and provide mutual demand for
advanced biofuels in a broader geographic area.


3. Solid biofuels


Solid biofuels are those originating from biomass,
with uses ranging from residential applications such
as firewood and charcoal for cooking purposes, to
more sophisticated uses such as industrial-scale,
high-pressure combustion of processed sugarcane
bagasse, corn stover, forestry residues and solid
municipal waste.213 Solid biofuels are usually used for
the production of heat (which has numerous industrial


and district-heating applications) and electricity,
substituting or complementing the usage of fossil fuels
such as coal and natural gas (Karkania, 2012). Recent
increases in prices of oil and natural gas strengthen
the demand for briquettes and pellets in large markets
such as the European Union (Pellets-Woods, 2012).


Simple, unprocessed agricultural residues such
as straw, bagasse, corn stover and rice rusk can
be used as feedstock for simple combustion and
energy generation in processing sites, albeit at limited
efficiency. However, the same types of residues
can be processed by undergoing dehydration and
compression to improve combustion performance
and energy density. Once processed, residues can be
transformed into higher value briquettes and pellets,
which can cater for heating and electricity-generation
purposes, as well as be transported for exports over
transcontinental distances. In Mexico, agricultural
residues have a large potential to contribute to
production of solid biofuels, even as some of the
residual post-harvest biomass is required to remain in
the fields as a fertilizer and protection against erosion.
Still, as of 2012, there is no large-scale production
or demand for briquettes and pellets, nor a broad
regulatory effort beyond the LAERFTE to promote non-
fossil (e.g. biomass-based) cogeneration in the country


Box IV.3: Mexico’s international cooperation on biofuels technology


Mexico has had significant cooperation with multilateral banks and international agencies to survey its potential for a biofu-
els industry. The German Technological Cooperation Enterprise (GTZ) helped in the development of Mexico’s 2006 study
on biofuels potential. Shortly after that, private investors and government-backed groups approached the Inter-American
Development Bank (IADB) for loans relating to the production of a sweet sorghum-based ethanol mill and jatropha-based
biodiesel. PEMEX also applied for financing from the IADB in order to train its distributors and service providers.


Private market agents already have cross-border business relations in the Mexican sugarcane industry. The Brazilian com-
pany DEDINI, a large industrial equipment supplier for ethanol and sugar processes, had large commercial transactions
with the Mexican group Piasa in 2007. High level meetings took place between Presidents Lula and Felipe Calderon, who
in August 2007 signed a cooperation agreement for producing biofuels, including research cooperation on advanced and
residue-based biofuels. Soon after, the Mexican government invited a Brazilian technical mission to discuss ethanol, which
took place via the Mexican export promotion agency (ProMexico) in 2009.


Mexico has also engaged in biofuels cooperation with other countries in the Latin American Region. The Mexican state
of Chiapas is participating in the Mesoamerica project, aimed at promoting inter-regional connections of transport, tele-
communications and energy networks in Central America. A special initiative within the project is the Mesoamerican bio-
fuels program (Programa Mesoamericano de Biocombustibles), which is based on the installation of pilot plants for the
production of biofuels using non-food feedstocks. The project is developed in partnership with a network of universities
responsible for research and technology transfer. At the first stage, three biofuel plants were installed in Central America
(Honduras using palm, El Salvador using castor beans and one pending in Guatemala using Jatropha). These plants were
financed by the government of Colombia. The next stage aims to install three additional biofuel plants in Mexico, Panama
and Dominican Republic as well as the establishment of the Mesoamerican network of biofuels research and development.


Sources: SENER (2006), Midiacon (2007), IADB (2009), UNICA (2011), Mesoamerica (2011).




156 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


(SENER, 2012). Adding to that, some limitations on
agricultural residues have been mentioned, such as
the seasonal availability of residues (dependent on
harvest periods), high geographic dispersion, ash
contents and competition for other usages, such as
animal feed (REMBIO, 2011, p. 32).


4. Categorization of residue
types from the 13
products of interest


In a simple conceptual framework, there are two main
phases where agricultural residues are produced. The
first phase occurs when crops are harvested, with resi-
due flows consisting of large amounts of residual bio-
mass in form of straw, foliage. The second phase re-
lates to the industrial processing of agricultural products,
where crop products such as cereals or residues pro-
duced by livestock in confinement produce residue flows
such as husks, shells, manure and slaughter residues.


Apart from new income and employment
opportunities, one of the advantages of biofuel
production from agricultural residues lies in the fact
that those production pathways do not compete with
food crops. However, agriculture should not be seen
as a residue-generator - the residues produced are
often necessary for the upkeep of fields, due to their
fertilizing and erosion-shielding properties.


In crops where advanced, highly mechanized
harvesting technologies are applied (e.g. soy, corn,
beans, sorghum, sugarcane, rice, wheat and coffee),
harvest is made with specialized machinery which
collects only the biomass of interest, for example, the
cereal grains or sugarcane stalks. What remains in
the field, mostly straw, is beneficial to the field since
it provides fertilizer to the soil, as well as protection
against erosion. The biomass which remains on the
ground not only can be passed on to future crops,
but also conveys protective attributes to the soil. For
example, residual straw protects against erosion,
provides nutrients for the soil, shields against solar
irradiation (limiting thermal variances and improving
water performance, what helps microorganisms to
thrive), and acts as a physical buffer against raindrop
impact and wind shear, primary drivers of erosion
(USDA, 2006). Furthermore, in warm conditions
like those present in most of Mexico, degradation
of residues is accelerated - thus, surface ground
protection is not fully guaranteed even if residues are
maintained on the soil.


As argued, residues at the field level do not represent
an environmental problem, as they become natural
fertilizers and provide protection against the elements.
However, residues produced at the post-harvest
phase have different, more polluting dynamics. There
are different types of industrial residues produced by
the products of interest in this Chapter.


Soy, sorghum and corn usually do not produce
residues at the industrial phase. When the grains
are routed towards production of animal feed, the
grains are basically crushed with little or no residues
left. The same happens during oil extraction, where
basically all components of the grains are used. Other
products, however, generate substantial amounts
of residues when undergoing industrial processing.
In the case of sugarcane, while straw remaining on
the field plays a positive role as a fertilizer, during
the juice-extraction phase in mills, large amounts of
bagasse are produced. Independently if sugarcane
is used to produce sugar or ethanol, bagasse will
always be produced, at a proportion of about 230kg
per ton of sugarcane harvested (UNCTAD, 2012).
While this is already used by many sugarcane mills
in Mexico as a source of energy for industrial boilers,
the low efficiency in many boilers represents a large
untapped potential to develop this resource for
improved heat and electricity usage. Furthermore,
dehydrated sugarcane bagasse is a proven feedstock
for pellet production, and can also be processed with
gasification technologies which employ skilled labour
and deliver high value-added bioliquids (Kumar et al,
2009).


The industrial processing of rice generates a large
amount of residues. About 22 per cent of harvested
rice corresponds to husks, which have high energy
content. About 500 kg of rice husks corresponds,
in energy, to the equivalent of a barrel of oil. Usages
include pelletization, direct burning for heat and
electricity purposes, as well as conversion into second
generation biofuels. Coffee beans when processed
result in 10-15 per cent oil, which can be used to
produce biodiesel. While promising, those pathways
still require research.


Finally, one of the main producers of residues with
bioenergy interest are activities concerning intensive
livestock breeding in confined spaces. Stable washing
processes, areas for milking cattle, pigsties and
aviaries make large amounts of outflowing residues,
which include manure and slaughter residues from
cattle, swine, poultry and fish production. Animal




157chaPteR.IV: agriculture and Biofuels as a contriButor to rural development


residues produced in those systems can be classified
in three main types: agroindustrial residues produced
during processing of feed, fibers and leather; residual
waters from product washing, boiling, pasteurization,
cooling and equipment washing; and solid residues like
process leftovers and trash from packaging materials,
and mud from residual water treatment facilities.


If untreated, animal residues can be harmful to the
environment when directly disposed into waterways.
They can contain fat, organic and inorganic solids,
in addition to chemicals added during processing
operations. Nevertheless, all organic residues can be
used in biodigestors to produce methane (biogas).214
Residues from biodigestion serve as an odorless
fertilizer which can be used in crops without risking
toxicity to soils, saving resources by reducing the
need for chemical fertilizers.


A summary of the residues produced by each of the
13 products of interest in this chapter can be seen on
Table IV.2.


It is important to remember that a number of traditional
uses for agricultural residues occur in Mexico.
Common types of use include animal feed and
natural fertilizer. According to the International Energy
Agency (2010), the main sources of feedstocks for
second generation biofuels in Mexico derive from
harvesting and processing agricultural crops. For
example, large potential exists in the huge quantities
of residues produced after the harvest of sorghum
in the more arid regions of Tamaulipas, Guanajuato,
and Michoacàn, and sugarcane in the tropical sub-
humid and humid regions. However, considering the
competing uses of the residues as feed for livestock or
as fertilizer, the amount of unused residues (or harvest-
phase residues which could be safely extracted from the
field) is significantly smaller. Residues from processing
sugarcane (bagasse) or maize (corncobs) form another
potential major source of biomass residues. However,
these have other uses; for example, bagasse is often
used for power and heat production.


In general, it must be considered that the use of
sugarcane and maize straw (harvest-residues) in
Mexico could lead to higher expenditures to achieve
an equalized nutrient and humus balance, resulting
in an increase in the environmental impact if harvest
residues are used for production for second generation
biofuels. On the other hand, since 97 per cent of
dry straw is burnt before harvest and 50 per cent of
sugarcane tops and leaves are burnt after harvest,


current contribution of cane residues to nutrient
cycles in Mexico can be seen as limited. Therefore, the
removal of this biomass for second generation biofuels
might not significantly reduce nutrient contribution in
areas where humus return is limited to nutrients in
the ash. The environmental impact of removing maize
stalks could be low as well, since most of them are
grazed or harvested to be used as fodder (IEA, 2010).
The optimal level of extraction of harvest residue
for biofuel purposes is location-specific and needs
additional research (Cruse and Herndl, 2009).


E. MAPPING OF BIOFUEL
POTENTIALS FROM
RESIDUES OF 13
AGRICULTURAL
PRODUCTS


In this section, the biofuel production potentials were
estimated based on low-cost residues for the 13 agri-
cultural products analyzed in this chapter. The estima-
tions sought to produce figures for bioelectricity pro-
duction, liquid biofuels (bioethanol and biodiesel), as
well as biogas from agricultural and livestock residues.
The calculations took into account those residues with
low social trade-offs in their usage, particularly those
which do not have dual use as food products. This
approach was taken in order to focus the assessment
on alternatives which would avoid the «food vs. fuel»
dilemma. Additional calculations were made to extrap-
olate the potential income and employment creation
which could be triggered by the development of biofuel
potentials from the 13 products analyzed in Mexico.


Estimations are conservative, as only industrial-phase
residues were considered. This approach was used
due to at least three reasons: the larger residue-density
at industrial / processing plants; the often-polluting
characteristic of residue flows at processing sites
(e.g. water contamination from untreated manure in
confined livestock production); and the role played by
harvest-phase residues (straw) in soil cover, fertilization
and protection against erosion. Results can be seen in
Table IV.3. Results are compatible with other studies
assessing the residue-to-biofuels potential in Mexico
(IEA, 2010; REMBIO, 2011).


Residues from agricultural sectors beyond the
thirteen products of interest were not considered in
the assessment. In addition to that, the calculations
also did not consider other large feedstock bases




158 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


Sources: Questionnaires with Mexican producers, expert interviews


Table IV.2: Residues from production of 13 selected agricultural products in Mexico


 




159chaPteR.IV: agriculture and Biofuels as a contriButor to rural development


such as forestry residues and solid municipal waste.
It is safe to assume that overall potentials would be
much greater when also considering these mentioned
residues from other agricultural products in Mexico.215


Estimation results should be taken with caution,
since results depend on assumptions which may not
be uniform for the total production of the products
analyzed. The adopted conversion factors between
biomass residues and their energy potentials, while
based on specialized sources, are always subject
to debate and could vary depending on regional
characteristics of crops and livestock produced.
Additionally, as in any theoretical potential, the capacity
to deliver the potentials identified ultimately depends on
various aspects of technological capacity, agricultural
market dynamics, investment and conducive policy
frameworks for bioenergy development.


The estimations did not consider agricultural residues
which have a dual use as food, nor residues from
harvest-phase of crops (which serve as a natural
fertilizer to the fields). Figures in Table IV.3 also did
not consider resources from forestry or municipal
waste. Even so, the survey found large biofuel and
bioelectricity production potentials based on low-cost
agricultural residues for the 13 products analyzed in
the country.


The production of biofuels from agricultural residues
could also boost income in rural areas. By considering
only residues from the 13 agricultural products
analyzed, the production of bioelectricity, bioethanol
and biodiesel could bring between USD 2.2 and 4.1
billion in additional revenue for Mexican agriculture.
Biogas potentials could add another USD 234 million
in revenue.


Based on the 13 products surveyed, bioelectricity
could produce 10.55 per cent of the yearly national
electricity consumption in Mexico; second generation
bioethanol could replace 6.33 per cent of gasoline
used (in energy terms); biomass-to-liquid biodiesel
could replace 23.22 per cent of diesel demand and
biogas could make up to 14.03 per cent of natural gas
demand in the country.


Biofuels from residues could also deliver substantial
employment to Mexican agriculture. Bioelectricity
from agricultural residues could add over 39.000 new
jobs (direct and indirect), bioethanol over 49.400 jobs;
biodiesel 71.700 jobs and biogas 4.000 jobs. Those
jobs would have better wages and demand higher
qualification than the current average in Mexican


agriculture. While the average revenue per job created
in the entire Mexican agricultural sector is USD 9.020
per person employed, equivalent in bioenergy has
been estimated to average USD 57.400 per employee
(Bacon and Kojima, 2011).


Before becoming reality, those potentials depend
on the establishment of conducive frameworks to
accelerate technology development and demand for
biofuels produced from residues. Comprehensive
policy frameworks to bring down costs and investment
risks, as well as research and deployment of second
generation biofuel technologies, either indigenously or
in cooperation with other countries, will be critical for
the realization of those potentials. Policy efforts should
also go beyond the 13 products of interest, targeting
all agricultural residues, as well as forestry products
and municipal waste.


This section did not attempt to estimate the
investments necessary to realize the production
potentials, nor did it attempt to forecast production
costs for biofuel production. Except for the figures
for bioelectricity and biogas, potentials are heavily
dependent on second generation technologies. While
estimations of production costs for advanced biofuels
already exist (IEA, 2010, REMBIO, 2011), the final
cost in Mexico will ultimately depend on technology
development and learning curves associated to
the level of deployment and market size for biofuels
produced from residues. As of 2012, technological
research in second generation biofuels is still limited
in Mexico, with no commercial production in place yet.


F. FINDINGS AND POLICY
RECOMMENDATIONS


Expanding opportunities for rural job creation,
raising farmers’ income levels and improving rural
energy services are key rural development goals for
Mexico. The country seeks to achieve these goals
within a sustainable development policy framework
emphasizing food security and rural development,
while promoting a diversified and secure energy
supply. The promotion of biofuels in conjunction with
the agricultural sector development in Mexico can
help. Energy potentials from the residues of the 13
products analyzed shows a large under-utilized and
untapped potential for generating more sustainable
energy sources including from bioelectricity, second
generation bioethanol, biodiesel and biomethane.
Development of these energy sources could also




160 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


Source: UNCTAD calculations, based on parameters collected from Mexican producers, the Mexican Service for Agriculture and
Fisheries (SIAP), expert interviews and specialized literature. Considering 100 per cent of unused residues for each biofuel
conversion option; 20 per cent conversion efficiency assumed for bioelectricity production. Liquid biofuel production implies
usage of second generation biofuel technologies (ethanol and biodiesel) and biogas production considers anaerobic digestion
processes. Estimations do not take into account the following types of residues identified in Table 1: edible by-products, high-
value residues or harvest-phase residues. Additional income generation is estimated using 2011 market prices in Mexico for
electricity, ethanol, diesel and natural gas. Employment creation factor is based on (Bacon and Kojima, 2011), consisting of
17.4 jobs per million USD in revenue.


Table IV.3: Biofuel production potentials based on residues from 13 agricultural products in Mexico


 




161chaPteR.IV: agriculture and Biofuels as a contriButor to rural development


contribute to income-generation in rural areas, provide
new employment opportunities. However, before
these potentials can be realized, many regulatory and
technological hurdles need to be overcome.


The legal framework for biofuels in Mexico has
advanced since the publication of the National Biofuels
Law in 2008. While it has prompted an interest in first-
generation biofuel production, little attention has been
paid to the use of agricultural residues to produce
biofuels or to foster technological options for second
generation biofuels. Demand-pull instruments have
been based on public procurement mechanisms that
focus primarily on first generation anhydrous ethanol,
without including provisions to encourage second
generation biofuel development and production. The
new strategy for anhydrous ethanol blending in the
country calls for the company Petróleos Mexicanos
(PEMEX) to procure indicative amounts of ethanol to
be blended into gasoline starting in 2012. However,
there are currently no foreseen minimum purchase
requirements on biofuels produced from residues.


Moving beyond the current focus on first generation
biofuels is very important, In order to tap the wealth
of resources existing in agricultural residues, the
following strategic considerations are important:


a. Mexico may need to develop a comprehensive
framework to accelerate technology development
and demand for biofuels produced from residues.
Since second generation biofuels are not yet
produced at commercial scales, the government
has made efforts to support research, as well
as development and transfer of technologies in
the sector. A number of programs are in place
to support rural investments and R&D efforts in
biofuels activities, notably in biogas projects from
anaerobic digestion. Even as the government has
sought to facilitate communication of instruments
supporting production, storage, transport and retail
of biofuels, it remains unclear for producers which
programs are best suited to support development
of biofuels made from agricultural residues. That,


coupled with the lack of foreseeable market
opportunities for advanced biofuels in the country,
leads to an atmosphere of market uncertainty
which discourages private investments in research.


b. Clear strategies to bring down costs and
investment risks, as well as to promote research
and deployment of second generation biofuel
technologies, both indigenously and in cooperation
with other countries, would be critically needed
for the realization of the potential economic gains
identified from second generation biofuels based
agricultural residues. In addition, international
cooperation will be important and needs to be
mobilized to meet initial R&D costs, as well as
to generate markets of sufficient size to exploit
available economies of scale. For that, Mexico
can profit from its ongoing biofuel partnerships in
the Mesoamerican region, and from cooperation
with countries and regions engaged in advanced
biofuels research and deployment, such as the
United States, Brazil and the European Union.


c. Policy efforts should also go beyond the 13
products of interest, targeting all agricultural
residues, as well as forestry products and municipal
waste.


d. The institutional enabling environment also deserves
attention. The rural policy approach in Mexico
has sought to promote dialogue and cooperation
between different government ministries. An inter-
service working group composed of Ministries
of Energy, Agriculture, Economics, Finance and
Environment has been established to define public
policies for biofuels. While a similar inter-ministerial
structure has been set up to cater for rural policy
matters, the role of the Energy Ministry (SENER)
n the later has been unclear. For the realization of
an integrative approach between agriculture and
biofuel production from residues, there is need
for coordinated policies and common funding
schemes will be important, especially between


SAGARPA and SENER.




162 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


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tecnologico. Available at: http://www.bioenergeticos.gob.mx/descargas/Programa-Produccion-Sustentable-
Bioenergeticos-PROINBIOS.pdf


SAGARPA (2009) Programa de Producción Sustentable de Insumos para Bioenergéticos y de Desarrollo
Científico y Tecnológico.


Schmitz, Norbert. (2007) Certification to ensure sustainable production of biofuels. Biotechnology Journal, Vol. 2, Issue
12, pp 1474-1480.


SEMARNAT (2009) Special Climate Change Program 2009-2012 Mexico. Available at: http://cc2010.mx/
assets/001/5026.pdf


SENER (2006) Potenciales y Viabilidad del Uso de Bioetanol y Biodiesel para el Transporte en Mexico. Joint GTZ,
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SENER (2006) Potenciales y Viabilidad del Uso de Etanol y Biodiesel para el Transporte en Mexico. Available at: http://
www.bioenergeticos.gob.mx/descargas/SENER-BID-GTZ-Biocombustibles-en-Mexico-Estudio-completo.
pdf


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Transición Energética. Available at: http://www.cre.gob.mx/documento/1570.pdf


SENER (2009b) Programa de Introduccion de Bioenergeticos. Available at: http://www.energia.gob.mx/res/0/
Prog%20Introd%20Bioen.pdf


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ategiaNacionaldeEnergiaRatificadaporelHCongresodelaUnion.pdf


SENER (2011) Programa de Introducción de Etanol Anhidro. Available at: http://www.energia.gob.mx/res/169/
etanol_anhidro.pdf


SENER (2012) Estrategia Nacional de Energia 2012-2026. Available at. http://www.sener.gob.mx/res/PE_y_DT/




165chaPteR.IV: agriculture and Biofuels as a contriButor to rural development


pub/2012/ENE_2012_2026.pdf


SENER (2012) National Energy Strategy 2012-2026.


Silveira, S., Khatiwada, D. (2010), Ethanol Production and Fuel Substitution in Nepal Opportunity to Promote Sustainable


Development and Climate Change Mitigation. Renewable and Sustainable Energy Reviews 14, pp 1644-1652


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siteresources.worldbank.org/INTLAC/Resources/MEDEC_Executive_Summary_Spa.pdf


The World Bank (2009b) Clean Technology Fund Investment Plan for Mexico. CTF/TFC.2/8. January 2009.


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www.unctad.org/en/docs/ditcted20081_en.pdf


UNCTAD (2008b) Biofuel production technologies: status, prospects and implications for trade and development.


UNCTAD (2012) Questionnaires applied with Mexican agricultural producers of 13 products of interest, delivered in


February 2012.


UNDESA (2007) Small-Scale Production and Use of Liquid Biofuels in Sub-Saharan Africa: Perspectives for Sustainable


Development. Background Paper n. 2. Commission on Sustainable Development, Fifteenth Session.


UNDP (2007) Human development report: Mexico 2006-2007. Migration and human development.


UNEP (2009) Towards sustainable production and use of resources: Assessing Biofuels. International Panel for


Sustainable Resource Management.


UNICA (2011) Mexico wants expanded relations with Brazil to develop its own ethanol industry. Available at: http://english.
unica.com.br/noticias/show.asp?nwsCode=%7B96ACD82F-EAA5-4DB8-AEF3-1A71523BDBBC%7D


UNICA (2012) Sustainability Initiatives for Bioenergy: A «Universe» in constant expansion


US EPA (2010) Life cycle analysis of Greenhouse Gas Emissions from Renewable Fuels


USDA (2006) Crop Residue Removal for Biomass Energy Production: Effects on Soils and Recommendations. Soil


Quality - Agronomy Technical Note 19. United States Department of Agriculture. Available at: http://soils.usda.
gov/sqi/management/files/sq_atn_19.pdf


USDA (2009) Mexico Bio-fuels Report 2009. Global Agricultural Information Network, United States Department
of Agriculture.


USDA-FAS (2007) Mexico: Bio-Fuels Annual Report, 2007. United States Department of Agriculture - Foreign
Agricultural Service).


Valle, Valeria Marina. (2011) Biofuels: A Cure or a Curse? Implications of Increased Production and Consumption in


Mexico and the United States. Latin American Policy 2, issue 2 pp 182-221.


World Bank (2004) Poverty in Mexico: An assessment of Trends, Conditions and Government Strategy.


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http://siteresources.worldbank.org/EXTENERGY2/Resources/OffgridGuidelines.pdf


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Carbono.






167conclusIon.and.maIn.PolIcY.RecommendatIons.to.the.outlook


CONCLUSION AND MAIN POLICY RECOMMENDATIONS TO
THE OUTLOOk


A. CONCLUSION
The Outlook has highlighted some of the challenges and opportunities for Mexican agriculture development and
trade and related policies, both historically and contemporarily, and suggested areas where improvements can
be made. It suggests that the current agricultural support system is insufficiently results-oriented, whilst lacking
both efficiency and effectiveness. There needs to be a coordinated approach to agricultural policy, both in terms
of institutions and direction. There is weak coherence between the numerous subsidies, despite the existence
of the Special Programme (PEC), and there exists no clear, long-term policy behind them. Eligibility criteria need
to be more rigorously assessed, as subsidies are often poorly targeted with only a small majority going to rural
populations. A lack of human and material resources associated with these programmes leads to suboptimal
monitoring and evaluation procedures of stated objectives and time-bound exit strategies should be adhered
to, as there is often little conformity with deadlines. The introduction of single payment scheme (SPS) systems
could go some way to alleviating these problems. Aid schemes, subsidizing agricultural output or providing
input subsidies could be carried out in a pro-competitive manner so as not lead to unnecessary distortions
of competition. The need to create a system to ensure popular consultation for programme design and for
effectiveness monitoring is self-evident and there is scope to create partnerships and institutional developments
that may have the state and other stakeholders (e.g. major producers, exporters, supermarkets etc.) acting as
equal partners with producer organizations in formulating and implementing sectoral policies.


Further, the objectives of the numerous support measures are often inconsistent and the PEC has yet to succeed
in creating clear, comprehensive policy goals and operative guidelines. At present, the governance structure
of agricultural policy is not strong enough to ensure coordination across the various stakeholders and achieve
the programmes’ objectives. Policy cooperation, common funding schemes and in general, coordinating and
harmonising the various agents and programmes will be important.


The situation of agricultural producers needs to be improved as productive and efficient small farmers are the
drivers of rural economic activity and the key to domestic food security and to effective rural development,
counteracting poverty and emigration. A number of issues regarding small farmers need to be urgently
addressed including, inter alia the possession of arable land, the use of traditional farming methods, insufficient
rural infrastructure, lack of rural financing, a lack of market power, government control of prices of agricultural
products and trade liberalization.


Some of the key policies should address farmers’ needs in terms of access to knowledge about improved
production techniques, improved seed varieties, soil conservation or more efficient resource use (e.g. water
harvesting techniques). Indeed, a wholesale shift from industrial, mono-culture based production, which is
highly dependent on external inputs, to sustainable production systems could be a good alternative for small
scale farmers in order to increase productivity and rentability. This approach may reduce the use of synthetic
fertilizers, reduce tillage and, in the case of certified organic farming, may benefit from higher price mark ups.
Efficiently enforced standards certification systems would be a prerequisite for organic framers but would also
aid conventional farmers in terms of quality grading. Indeed, from an import perspective, the domestic lack
of capacity to enforce and verify quality regulations leads to an inconsistent application of regulations, which
is detrimental to domestic producers and erodes consumer protection when cheap, low-quality agricultural
products are imported.


In order to facilitate private rural investment in agriculture, the lack of access to commercial banking services in
rural areas should be addressed, especially given the decline in development banking. The expansion of access
to finance among rural populations could be achieved through encouraging private financial institutions, the
use of state mandated credit schemes and ICTs, developing micro-finance and enhancing the role of non-bank
financial institutions or other semi-formal financial institutions. By addressing the issue of land titling, small and




168 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


medium producers will be able to use their land as collateral. Furthermore, farmers should be supported with
the development of risk-management options such as agricultural insurance, regulation of contract farming and
commodity exchanges.


Public investment in infrastructure and further public support will be needed in order to enable farmers to
successfully enter commercial agricultural markets. There is a necessity to build productive capacity, to increase
access to storage and warehousing systems and to basic processing facilities, recommit to basic rural transport
infrastructure to remedy poor connectivity to transport networks. Furthermore, reliable access to water and
electricity is not universal and investment is required to guarantee supply to those in the poorest areas.


There is an urgent need to address and resolve commodity value chain imbalances, including a reduction in
the quasi-monopoly situations of input suppliers, buyers and processors. This may be done through stricter
applications of competition law, vigorously assessing mergers that affect already highly concentrated agricultural
markets, continual close monitoring of firms that already exist in those markets and by encouraging new entry
into highly concentrated input and processing markets. It would be beneficial to encourage the establishment
of new producer organizations, such as cooperatives or farmers associations, and to strengthen existing ones,
through information, incentives and appropriate regulation. Indeed, it is important that resources, such as a
market information system, transparency schemes and internationally recognized certification systems, are
accessible to smallholder producers. Encouraging larger processing firms and supermarkets to source from
small-scale producers may be beneficial under an appropriately structured scheme.


Support may be given for investments in storage and processing facilities by these co-operatives and associations,
so that issues of concentration in the processing markets may be addressed, and support for research
and development might incentivize new entry into agricultural input markets, such as hybrid seeds. Further,
competition advocacy targeted at key players within the agricultural value chain would increase their awareness
of, and respect for, competition law and policy. Advocacy measures specifically targeted at smallholders would
increase their capacity to denounce of anti-competitive conduct and to engage the CFC in order to start an
investigation. Alternative measures, such as a complaints mechanism, should also be considered.


Mexico has a relatively low productive agricultural sector and spends relatively little on the research and
development of agriculture science and technology. Research is generally undertaken in academic institutions that
are poorly linked to the producers and is so often poorly targeted to the actual needs of smallholder producers.
By supporting activities that lead to higher productivities, output and exports would increase whilst lowering the
need for imports, increasing the self sufficiency rate.


Some policy options may be limited given the WTO and NAFTA commitments of Mexico but this does not
preclude measures being taken that affect the agricultural sector. There is a strong need to address international
trade imbalances as agricultural trade reform has coincided with increasing imports, decreasing employment in
agriculture. Whilst committed to the NAFTA agreement, the US has revised and amended the Farm Bill on a
number of occasions. Mexico needs to continually monitor these changes, be aware of their effects, proactively
respond and observe how they may repackage their own domestic policies, consistent with NAFTA, in a similarly
effective manner.


Further, emphasis should be placed on additional diversification of Mexico’s agricultural export markets to take
advantage of new markets, thereby reducing dependence on the United States. Indeed, trade with developing
countries appears to present a good, albeit competitive, opportunity for Mexico’s exports. Working towards
harmonization of measures and regulations with key trading partners, particularly for food packaging and nutrition
labeling regulations, may address important concerns of food safety, risk assessment and risk reduction and
open up new export opportunities. Greater efforts should be made to ensure that national certification is duly
recognized in other markets, especially in the United States, to facilitate Mexican exports. Port and border
facilities are also inefficient, which contributes to Mexican agriculture’s lack of international competitiveness


It has been demonstrated that it is critical that there is a clear, continuously evaluated structure to any set of
policies applied to Mexico’s agricultural sector but it is equally important that any policy package form a coherent
whole. Policy options that may achieve reductions in rural poverty or lower rural to urban migration could, in




169conclusIon.and.maIn.PolIcY.RecommendatIons.to.the.outlook


principle, differ from those that increase export revenue or maximize agricultural output. The interdependence
of agricultural policies, in terms of poverty, employment, trade, competition, infrastructure etc., needs to be
addressed in order for reforms to achieve a significant degree of the potential for success.


There is significant potential for energy extraction from the residuals of thirteen key agricultural products, in terms
of bioelectricity, bioethanol, biodiesel and biomethane. It is estimated that revenues of between USD 2.4 and 4.3
billion could be generated for Mexican agriculture and given that many of the thirteen products are cultivated in
smallholder systems, bioenergy revenue streams could significantly increase income-generation and (skilled) job
opportunities within rural areas and help reduce rural poverty, seasonal fluctuations in agricultural employment
and rural emigration. It is important that Mexico is cognizant of the potential of biofuels as a contributor to rural
development, in particular as a source of employment and income creation in rural areas.


There are many challenges that need to be met, however, before the potential of second generation biofuels
can be realized. Many regulatory and technological objectives need to be addressed including initializing a
comprehensive framework to accelerate the evolution and adoption of related technology and demand for
biofuels produced from residues. Regarding the latter, the inclusion of minimum purchase requirements within
public procurement mechanisms would encourage second generation biofuel production. There are existing
rural investment programs but they are too numerous and complex that it is unclear which if any, would provide
support for biofuel production. International cooperation will be fundamental in terms of both research and
development of related technologies (cost reduction, speed of development) and through the creation of large
markets in order to exploit available economies of scale. Most importantly, second generation biofuel adoption
will only become widespread after considerable strategic, political and economic integration between energy and
agricultural production.


It is important to note the need for a further research and analysis to compliment this Outlook and elaborate
specific policy recommendations. Whilst many stakeholders were consulted in order to facilitate the completion
of this work, it is acknowledged that much of the research and analysis carried out could be characterized as
‘deskwork’. It should be recognized that the Outlook needs to be augmented with further work carried out in the
field and that widespread stakeholder engagement, in terms of an advocacy process, needs to take place before
policy recommendations are acted upon. Moreover, there are obvious extensions to aspects of this Outlook that
would aid agricultural policy reform. For example, the third chapter analyses the corn market from a competition
perspective and although it is expected that many features of this market are replicated across those for other
agricultural products, it is not assumed that these markets are perfectly homogenous and it would be beneficial
to analyze the competitive framework in the markets of other key agricultural products. Likewise, the fourth
chapter explores the biofuel potential of exploiting waste from thirteen agricultural products. A comprehensive
energy policy would consider a more extensive set of exploitables, including forestry and municipal waste.


Lastly, any newly implemented policies should include clear objectives that may be appraised after a pre-specified
time period. In this manner successful programmes and mechanisms may be replicated and weaknesses can be
addressed and resolved. To this end, UNCTAD may again be of assistance to Mexico in furthering the diagnosis
of Mexico’s agriculture development.


B. MAIN POLICY RECOMMENDATIONS


The Outlook provides a number of preliminary policy recommendations to strengthen Mexico’s agricultural sector
into a dynamic component of sustained growth and inclusive development. These are highlighted below.


to.use.trade.policy.to.strengthen.the.agricultural.sector,.the.following.are.suggested:


1. The Government should review the exposure of Mexico’s agricultural sector to external shocks, including to
any changes in US agricultural policy such as new US farm bills that have a direct impact on Mexican farmers,
to identify measures to limit the impact of potentially negative shocks and ensure fair market conditions for
agriculture production and trade as well as coherence between trade and development policies.




170 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


2. Mexico has proven to be very competitive with certain agricultural exports and should explore means
of increasing such agriculture exports to the markets with which it has trade agreements, despite many
difficulties faced including exclusion of sensitive agricultural products from trade agreements to which
Mexico is a party, or competition from highly productive countries.


3. Mexico should assess the implications – benefits and costs - on its agriculture production and exports
of its participation in far reaching new free trade agreements such as the Trans-Pacific Partnership that is
currently discussed so as to integrate aspects that bring net benefits to Mexico.


4. Flexibilities provided under the WTO Agreement on Agriculture, such as allowed subsidies which could
include income loss insurance, investment subsidies and other measures, can be used more effectively to
bolster agriculture production and employment while paying due attention to potential costs such support
can impose on other sectors.


5. At the same time current Mexican agricultural subsidy programmes need to be reformed to target more
the small-scale farmers as they appear to not have benefited much.


6. Mexico should explore trade-related technical assistance provisions and packages that are available under
trade agreements like NAFTA, the WTO-led Aid for Trade Initiative and other development assistance
programmes to build up its agriculture section.


to.strengthen.agricultural.productivity.and.production,.as.well.as.competitiveness.and. integration.
into.agrifood.value.chains,.the.following.are.proposed:


7. Mexico should consider augmenting public (and private) expenditure on agriculture research and
development to foster higher agricultural sector productivity with positive effects on output and exports.


8. Alternative agricultural production systems that are sustainable and environmentally friendly, use less
synthetic fertilizers, reduce tillage and, in the case of certified organic farming, may benefit from price
mark ups should be enhanced. Often such production processes are more labour intensive and could
thus create or preserve employment, as compared to conventional, industrial, mono-culture based and
high-external-input dependent agricultural production systems.


9. Government should facilitate smallholder farmers’ access to credit and appropriate technology. Input
suppliers and output processors may also consider providing credit to smallholders in areas where access
to financial services is unavailable.


10. Government should continue with its regulatory and institutional reforms to support the rural sector,
including the Savings and Rural (BANSEFI) Project which has increased the capacity of the Savings and
Credit Institutions in Mexico.


11. Increased public investments in tailor-made financial services – credit, savings, insurance and market
intelligence – are required to scale up existing innovations to improve the quantity and quality of the
services so that they meet the demands of smallholder farmers. These services may be best channelled
through self-help groups, producer organizations like cooperatives to be more cost effective.


12. Agricultural producer organizations – such as cooperatives – should also be strengthened, well-resourced
and functional to help farmers benefit from scale economies, increase bargaining power (hence prices),
pooling of resources to buy inputs (e.g. fertilizers), reduction of transaction costs, and expansion of supply-
side capacities and competitiveness.


13. The Government and private sector should join forces and forge partnerships where applicable to make
readily available to agricultural producers, including agrifood value chain participants, key information
– such as prices, market intelligence, weather, input markets and technologies –through ‘information
kiosks’, mobile phones, and ‘train the trainer’ schemes that enables the producers to make informed on-
and off-farm decisions regarding planting, harvesting and marketing.


14. Enhanced and improved provision of reliable and secure warehouse facilities for storage and basic




171conclusIon.and.maIn.PolIcY.RecommendatIons.to.the.outlook


processing of agricultural products, which is critical to increasing value addition, negotiating better prices,
and facilitating efficient trading and marketing. This also enables farmers to store their produce and sell
when prices rise, thereby increase their incomes, and facilitate access to credit where warehouse receipts
are accepted as collateral.


15. Focus on capturing more value of the agricultural value chains via vertical integration. Public-private
partnerships should be encouraged that support the integration of smallholders into higher value markets.


to. enhance. food. security,. the. following. is. proposed. (in. addition. to. the. above. mentioned. policy.
recommendations.on.enhance.productivity.and.production):


16. At the national level, Mexico needs to raise its agricultural productivity, implement early warning systems
and other mechanisms that prevent and/or respond promptly to food shortages.


17. Regional and international mechanisms are also needed to mitigate food shortages such as through
regional or supranational grains reserves or emergency funds, and curtail severe volatility of food prices.


18. The Government could further expand its current hedging strategy for grains and other crops, which aims
to protect farmers from price volatility.


19. The Government should explore ways to solicit resources from the G20, where feasible, to integrate
the recommendations embodied in the ‘Action Plan on Food Price Volatility and Agriculture’, including
the Agricultural Market Information System (AMIS) which aims to reinforce transparency on agricultural
products’ markets.


to. address. compliance. with. agricultural. standards. and. other. non-tariff. measures. that. hinder.
agriculture.development.the.following.can.be.considered:


20. Agricultural standards in Mexico’s main export markets, which are mostly developed countries, have to
be met and Mexican producers should be supported in meeting these standards through appropriate
agricultural extension services.


21. Working with key trading partners towards harmonization of measures and regulation could be an
interesting path to explore, particularly for food packaging and nutrition labeling regulations which is very
controversial in the current context of trade with the US. Standardized and mutually facilitated customs
procedures with its main trading partner are also important.


22. From the import perspective, Mexico should examine the need to strengthen quality control measures and
enforcement in the domestic market to improve consumer protection. Furthermore, a strong monitoring of
import prices could detect potential “dumping” and seek remedial actions.


23. SAGARPA should keep on track with its reforms and modernization of the national food safety laws and
regulations, in order to fully establish new public oversight of its agrifoods supply chains.


24. Mexican authorities, both public and private, should work closely with their counterparts in US, particularly
the FDA, on ensuring compliance in trade-related food safety regulatory provisions and develop standards
as enshrined in the ‘new’ Food Safety Modernization Act (FSMA).


25. Mexico should periodically monitor and review its Agreement on Food Safety Rules with the U.S. Where
feasible and mutually beneficial for contracted parties, Mexico could invoke and utilize necessary provisions
on technical assistance and support that strengthens ‘at the source’ the scientific and public health risk
related to food safety regulation in Mexico.


to.address.possible.competition.issues.affecting.specifically.corn.production.and.commercialisation.
in.mexico.(and.if.similar.issues.exist.in.other.agricultural.products,.the.same.type.of.measures.might.
be.useful),.the.following.is.proposed:.


26. Strengthening of existing associations/cooperatives of small corn growers and supporting the establishment




172 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


of new associations/cooperatives to strengthen their market position and negotiating power in dealing
with highly concentrated upstream and downstream market that cannot be changed through competition
law enforcement.


27. Promoting new entry in highly concentrated corn input and processing markets through supportive policy
measures, for instance by supporting co-operatives and associations of farmers to invest in storage
facilities as well as processing facilities, so that a larger number of players would be present in the highly
concentrated processing markets. As for input markets, such as the market for hybrid seeds, support for
research and development might incentivize new entry.


28. Enabling small corn producers to grow and compete successfully in commercial markets through pro-
competitive state-aid schemes, including public investment in infrastructure and further public support/
aid. Experience has however shown that it is crucial that respective state aid schemes be designed in a
pro-competitive manner and do not lead themselves to further distortion of competition. By means of its
advocacy function, the CFC could render its support to design schemes for pro-competitive agricultural
subsidies.


29. Continuation of an active enforcement of the Mexican competition law in the agricultural sector, including
production and commercialisation of corn, would help to address certain of the possible competition
issues affecting corn production and processing. In particular, continuing to vigorously assessing mergers
that affect those agricultural markets that are already highly concentrated, e.g. the market for hybrid corn
seeds and the corn processing markets, will prevent further concentration through external growth.


30. Corn producers furthermore could be encouraged to bring to the CFC’s attention any indication of absolute
or relative monopolistic practices in input markets, which would allow the CFC to initiate respective
investigations and prosecute these practices, if there is sufficient proof.


31. The CTC could further use its good working relations with other competition authorities in the region
and worldwide to jointly address competition issues originating outside of Mexico, but impacting on the
Mexican agricultural sector.


32. Strengthening competition advocacy in the agricultural sector, targeted at the various players of the
agricultural value chain would increase their awareness of and respect for competition law requirements.
Furthermore, advocacy measure targeted at smallholders could increase their capacity to identtify anti-
competitive conduct from which they suffer and to provide the CFC with the required information to start
an investigation.


33. Prevent and remedy possible abuses of buyer power by considering measures to reduce concentration of
market power in certain stages/actors of the agricultural commodity value chain, especially as for several
grain (including corn processing) markets, there are no more than two to three buyers/processors that
control the near totality of the market and can exert a great deal of control over the sellers and prices
(commercialization and processing). For example, the Mexican government can encourage the larger
processing, integration and supermarket industries to use the small-scale sector to enable them to either
enter or remain in high-value or potential export markets. Both exporters and buyers in the main urban
areas could be flexible in allowing smallholders time to adapt to changing conditions and standards.
Explore with the CFC the extent to which the possible abuses of buyer power could be prosecuted under
Article 10 LFC. Or establish a complaint mechanism at ASERCA if contracts that benefit from an ASERCA
subsidy are not honoured.


to.foster.promotion.of.biofuels.in.conjunction.with.the.agricultural.sector.development.in.mexico,.and.
move.beyond.the.current.focus.on.first.generation.biofuels,.the.following.is.proposed:.


34. Development of a comprehensive framework to accelerate technology development and demand
for biofuels produced from residues because; (a) a number of programs are in place to support rural
investments and R&D efforts in biofuels activities, notably in biogas projects from anaerobic digestion,




173conclusIon.and.maIn.PolIcY.RecommendatIons.to.the.outlook


however it remains unclear for producers which programs are best suited to support development of
biofuels made from agricultural residues; and (b)coupled with the lack of foreseeable market opportunities
for advanced biofuels in the country, this leads to an atmosphere of market uncertainty which discourages
private investments in research.


35. Promote clear strategies to bring down costs and investment risks, as well as to promote research and
deployment of second generation biofuel technologies, both indigenously and in cooperation with other
countries.


36. Foster international cooperation to meet initial R&D costs, as well as to generate markets of sufficient
size to exploit available economies of scale. In this regard, Mexico can make use of its ongoing biofuel
partnerships in the Mesoamerican region, and from cooperation with countries and regions engaged in
advanced biofuels research and deployment, such as the United States, Brazil and the European Union.


37. Examine opportunities that go beyond the 13agricultural products surveyed in this Outlook would be of
interest, such as targeting all agricultural residues, as well as forestry products and municipal waste.


38. There is need for coordinated policies and common funding schemes, especially between SAGARPA
and SENER, fostering an enabling institutional environment for the realization of an integrative approach
between agriculture and biofuel production from residues.




174 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


ENDNOTES


1 See Chapter II, Section B.2


2 OECD Rural policy reviews Mexico 2007 p. 14.


3 World Development Indicators 2011; FAO reports that the agricultural population is 19 per cent in 2008,
down from 30 per cent in 1990.


4 World Bank Development Indicators, 2012. Data for 2010.


5 WTO definition of agricultural trade.


6 Data here are based on UN Comtrade data. The starting period has been chosen to be 1995 because of the
Peso crisis which led to extreme changes of import values before that period.


7 The import growth is affected by many elements including trade policy changes, transport cost changes,
population growth and changing consumption and production patterns. Thus, the comparison with the
import growth of other countries is not a clear indicator whether a trade policy change did or did not have an
impact.


8 For example, comparing three- and five-year averages from 1991 to 1993 (1990 – 1994)) with 2008 to 2010
(2006 - 2010) reveals that both exports and imports were similarly dynamic with a slightly higher increase
of exports. Exports grew by 393 per cent from 1991-93 to 2008-10 while imports grew by 278 per cent.
Data are based on UN Comtrade data reported by Mexico. Results, but not broad pattern, depend on
whether data reported by the US or Mexico are used and which definition of agriculture is used, e.g. the
WTO definition based on HS classification or another frequently used definition based on SITC classification.
UNCTADstat, and a slightly different definition of agriculture where fish products are included but some other
agriculture raw materials are not, confirms that imports of food items grew at a higher pace than exports (223
per cent for imports and 160 per cent for exports) from 1995-98 to 2008-10. The above stated pattern, that
in some periods between the 1990s and late 2010s average export growth was higher than import growth
and vice versa in other periods remains valid using different data sources.


9 The average MFN rate in Mexico has not decreased since the implementation of NAFTA. It remains relatively
stable at around 20 per cent for the simple average. It is possible, however, that the non-NAFTA trade which
accounts for about 20 per cent of agricultural trade is not MFN-trade but under other preferential schemes.


10 Since Table I.4 focuses on shares in total imports, the valuation of the Peso during the Peso crisis has a
small impact only and therefore the base year 1993 could be taken. Relative price changes, however could
influence the ranking.


11 Even though trade data quality is usually relatively good analyzing specific commodities can be problematic.
Controlled and consistent data, e.g. from UNCTADstat, are not available for all of the above shown
disaggregated products and start only in 1995. The annex compares changes in imports and exports using
various data sources. Imports from the US reported by Mexico are compared with US exports to Mexico
reported by the US and exports to the world are compared with corresponding mirror data from all of
Mexico’s trading partners. Where possible, data were also compared with UNCTADstat data. Data partly
vary significantly. For example, Mexico reports an increase of beans from the US by 1306 per cent while
the US reports only an increase of 573 per cent (in US$). In general, however, the data show very similar
patterns. Maize imports from the US is an example where one reports an increase of 950 per cent and the
other one of 1033 per cent, a small discrepancy for such a long time period. Also for exports are patterns
gathered from Mexico’s data from UN Comtrade in line with those reflected in mirror data. High discrepancies
in per centage changes are observed where the base is very low, e.g. for barley exports.


12 www.Organic-World.net.




175endnotes


13 The difficulties are not discussed here. Despite the efforts by the FAO to collect the data and to make them
consistent have they to be taken with caution.


14 World Development Indicators 2011; FAO reports that the agricultural population was 21.9 per cent in 2011,
down from 30 per cent in 1990; OECD statistics report 13.1 per cent employment in agriculture as a share
of total civilian employment, down from 25.7 per cent in 1993; Mexico National Employment Survey ENOE
reports 13 per cent for 2008 (Scott, 2010).


15 ILO data confirm the order of magnitude for the period 1995 to 2008.


16 Mexico Agriculture Policy Review, Agriculture and Agri-Food Canada.


17 World Bank Development Indicators.


18 Prina (2011) finds that NAFTA-induced tariff cuts caused a reduction in the real Mexican border price of corn
and an increase in border price of tomatoes and melons (see section 5).


19 Bridges Weekly Trade News Digest, Volume 16, Number 17, 2nd May 2012.


20 Fact sheet on NAFTA, USDA 2008.


21 The Mexican tariff schedule for 2009 includes a tariff of 15 per cent on US imports for HS “21069006”. This
is most likely an error.


22 Since the EU, Canada and Japan have many specific tariffs, tariff data respond to 2009 for which ad valorem
equivalents are available. Data based on UCTAD Trains database.


23 http://www.usda.gov/oce/commodity/wasde/


24 Producer Single Commodity Transfers (producer SCT): the annual monetary value of gross transfers from
consumers and taxpayers to agricultural producers, measured at the farmgate level, arising from policies linked
to the production of a single commodity such that the producer must produce the designated commodity in
order to receive the transfer. OECD (2008): OECD’s PRODUCER Support Estimate and Related Indicators of
Agricultural Support: Concepts, Calculations, Interpretation and Use (The PSE Manual)


25 Exchange rate from USDA ERS 12.64.


26 Domestic support under the WTO agreement on agriculture differs from the OECD definition.


27 See UNCTAD 2010 and 2011 and earlier versions of the annual report to the Trade and Development Board
of UNCTAD on the Evolution of the International Trading System.


28 In this section this does not mean formally agreed but rather reflects the view of the Chair where he saw an
agreement or a possible agreement. The draft modalities text was welcomed in 2008 by all sides.


29 As a form of compensation, tariff rate quotas would have to be expanded. Peters and Vanzetti (2011),
Agriculture Negotiations: Do Sensitive Products undermine Ambition?


30 A comparative analysis carried out by OECD of 12 business surveys around the world capturing perceptions
about trade barriers, in particular NTBs, found that technical measures (including health and phytosanitary
regulation) and customs rules and procedures are areas of shared concern for the companies participating in
the surveys. Other broad categories of NTBs reported relatively consistently across surveys are internal taxes
or charges and competition-related restrictions on market access (i.e., monopolistic trade measures, such
as state trading, distribution restrictions as well as restrictive business practices). OECD (2005), Looking
Beyond Tariffs: The Role of Non-Tariff Barriers to World Trade, OECD Trade Policy Studies, Paris, p. 21.


31 Ruiz Duran, Clemente (2004). APEC NTBs to Mexican imports. Universidad Autonoma de Mexico


32 i.e. lack of a situation where a trading partner can demonstrate that its domestic measures achieve the same
level of food safety/consumer protection of another trade partner


33 Agriculture and Agri-Food Canada (2009). NAFTA: outcomes, challenges and prospects




176 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


34 Reuters Press Release (2012) and Shook Hardy & Bacon LLP, Mark Anstoetter and Madeleine McDonough
(2012).


35 Brought by Mexico against the US or where Mexico participated as a Third Party


36 Agriculture and Agri-Food Canada (2009). NAFTA: outcomes, challenges and prospects


37 WTO (2010). Trade Policy Review of the United States. Records (Concerns raised by Canada)


38 ICTSD (2011 and 2012) and WTO (2012).


39 Vollrarth, Thomas (2004). «Gauging NAFTA’s success and confronting future challenges»


40 Kee, Hiau Looi, Alessandro Nicita and Marcelo Olarreaga (2004b), “Ad-Valorem Equivalents of Non-Tariff
Barriers”, The World Bank, Washington DC.


41 The estimates are not differentiated by trading partner, i.e. it is assumed that Mexico and, say, the EU face
for one and the same product the same NTB for exports to the US. If preferential trade agreements comprise
measures that significantly reduce NTBs among members the actual trade NTB that trading partners face
would differ. Since NAFTA includes few measures to address NTBs and these do not appear to significantly
reduce NTBs on within NAFTA trade it is assumed that Mexico and non-NAFTA members face the same
NTB. Data quality for NTBs is poor and results have to be taken with caution.


42 WTO (2008).


43 USTR (2010).


44 Bovine spongiform encephalopathy.


45 Ibid.


46 NAFTA has dispute settlement procedures which are used. McRae and Siwiec (2010) argue that the WTO
dispute settlement system has been influenced by the NAFTA system and that the WTO system is used more
due to advantages in procedural matters and possibility of retaliation.


47 Most recently the Mexican government approved the commercial planting of transgenic soybeans (Wise,
2012). Without going into the risks and opportunities of GMO this paragraph points to the discrepance
between import and production rules.


48 OECD 2010.


49 Polaski (2004), Brief Submitted to the Canadian Standing Senate Committee on Foreign Affairs: Mexican
Employment, Productivity and Income, A Decade after NAFTA.


50 See e.g. DTB Associates and AgRisk Management. Implications for the U.S. and Mexico of Mexico
Withdrawing Certain Agricultural Products from NAFTA. 2006


51 Includes exports food and food products, fish and raw materials.


52 WTO (2012), International Trade Statistics 2011.


53 The connotation, localities, is more associated with the degree of dispersal or density of the rural population.


54 OECD (2007)


55 The 11 crops covered by the various CONASUPO programmes were: barley, beans, copra, corn, cotton,
rice, sesame, sorghum, soybeans, sunflower and wheat.


56 The nine qualifying PROCAMPO crops are: white corn, beans, rice, wheat, sorghum, barley, soybeans,
cotton and cardamom.


57 «Financiera Rural» is a state-owned financial institution which provides rural credit to agricultural cooperative
societies and individual producers.




177endnotes


58 Some farmers can mitigate crop yield risk by means of crop insurance, where claims can be made if the yield
is below a pre-determined average. However, traditional insurance is not feasible in most rural communities
because the high cost of intensive monitoring to avoid the moral hazard problem implies high premiums (to
ensure sustainability) and most farmers cannot afford them. Only high-risk farmers, who may need insurance
to access credit, will have sufficient incentive to buy insurance, implying that adverse selection becomes a
major problem. Thus, in many developing countries, crop insurance has, in the past, been promoted as part
of government credit programmes and cases of success are few and far between.


59 An economy in which most entrepreneurs with bankable projects have equity which is very small in relation
to the size of their financing requirements, as a result of poverty and lack of capital markets.


60 “Matricula” are named from the Spanish (lat. matricula) word «matricula,» which means to register. The cards
originally were made for identification of Mexican nationals when they are outside of Mexico, for use when
re-entering Mexico, and to track Mexicans living abroad. They are issued by the Mexican government. Most
are issued in Mexican consulate offices located in the United States.


61 Gross margins will refer to revenues minus variable costs given that no data is available on overheads, capital
investment or cost of borrowed capital.


62 We follow the definition of smallholder /small-scale farmers proposed by Davis (2006). He notes that there
is no universally agreed definition of small-scale farms in developing countries, but that in much of the
development literature, farms of less than five ha are considered “small”. In general these farms have limited
capital or other assets. A small-scale farmer derives its livelihood from a holding of < 5ha and around 10 to
20 heads of livestock (although often there is < 2 or none at all). Small-scale farmers may practice a mix of
commercial and subsistence production (in crops or livestock), where family provides the majority of labour
and the farm provides the principle source of income.


63 For crop and livestock products, this is the arithmetic product of production volume and current farmgate
price. For fisheries, it is the arithmetic product of production volume and current first hand price.


64 Only core and no derivative products are included. More specifically the products are: Grain barley; cherry
coffee; grain maize; dry beans; rice, paddy; grain sorghum; sugarcane; grain wheat; beef carcass; pork
carcass; poultry carcass; cow milk; eggs; tuna; and shrimp.


65 Barley: predominantly produced on the central Plateau (Hidalgo, Tlaxcala) Beans: predominantly produced
in the central states of Zacatecas and Durango . Coffee: predominantly produced in the southern states
of Chiapas, Puebla and Oaxaca and the Gulf coast state of Veracruz Maize: a principal product in most
federal states with a production concentration in Sinaloa and Jalisco on the Pacific coast Rice: predominantly
produced in the Caribbean region (Campeche) Sorghum: predominantly cultivated in the north-eastern state
of Tamaulipas and central state of Guanajuato Sugarcane: predominantly produced in the coastal states of
Veracruz and Jalisco Wheat: Production concentrated in the northern states of Sonora, Baja California and
the central state of Guanajuato


66 Growth rates are based on moving averages of 2008-2010 to 1991-1993


67 In Jalisco, in particular, climatic conditions for egg production are very favourable due to the altitude with
lower average temperature and humidity. Moreover, the relative proximity to the main market, Mexico City,
represents another comparative advantage. The dominant form of production is commercial in battery egg.


68 www.elsitioavicola.com/articles/1912/el-sector-de-gallinas-ponedoras-de-maxico


69 Michael L. Galyean, Christian Ponce and Jennifer Schutz (2011), “The future of beef production in North
America”, Animal Frontiers – The review magazine of animal agriculture, Vol. 1, No.2, October 2011
(http://animalfrontiers.fass.org/content/1/2/29.full.pdf)


70 Common land accounts for up to sixty per cent of Mexico’s land use for livestock production.




178 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


71 The exit of small-scale beef and pork producers from the industry not only adversely affects costs, but also
competitiveness and consumers choices in terms of product diversity and prices


72 Wise, T.A. (2007), “Policy Space for Mexican Maize: Protecting Agro-biodiversity by Promoting Rural
Livelihoods”, Global Development and Environment Institute Working Paper No. 07-01, Tufts University,
Massachusetts, USA..


73 The poultry sector was substantially protected before NAFTA (2004). Although NAFTA called for removals of
all tariff and quota protection, Mexico and U.S. negotiated sa safeguard mechanism which allowed Mexico
to protect its poultry industry up to year 2008.


74 In 2004, three producers accounted for up to 60 per cent of Mexican poultry production, of which, two
are U.S.-based firms: Tysons and Pilgrims Pride, with high foreign direct investments in meat- and broiler-
production subsectors.


75 The analysis of this section focuses on capture fisheries


76 Need for data verification: Production units involved in tuna fishing may be counted in fisheries (and not only
in tuna fishery) and/or there may be underreporting as mentioned by Mr. R. Ruiz in interview. Total number of
eight-hour working days reported in tuna fishing cannot be obtained with only 2000 people employed.


77 This was the most recent and complete dataset available for the analysis.


78 It results from the difference between TCS technology and TMF


79 There are soft, hard and semi-hard wheat types.


80 Plan Rector Sistema Producto Nacional Trigo. SAGARPA 2005.


81 Plan Rector Sistema Producto Nacional Trigo. SAGARPA 2005


82 www.ico.org/history.asp


83 http://www.acdivoca.org/site/Lookup/WRSpring06-Page5-7-ValueChainCoffee/$file/WRSpring06-Page5-
7-ValueChainCoffee.pdf


84 El Niño creates drought conditions in the central south and heavy rains in some parts of the north region,
causing a more humid winter. Meanwhile the Niña provokes excessive rains in central and south regions,
while in the North the effects are mixed from droughts and normal rainfall, however, winter rains are absent.


85 Figures from Secretaría de Economía 2012.


86 Secretaría de Economía 2012.


87 According to González, García, Matus y Martínez (2011); a 10 per cent reduction in the corn planted acres
in the US would increase the import price in Mexico by 8.7 per cent, and a 10 per cent increase in oil prices
would increase world demand for corn, raising the price by 20.4 per cent.


88 See Luna et al. 2012


89 Davis, J. (2006) How can the poor benefit from the growing markets for high value agricultural products?
Natural Research Institute, Kent, UK. (http://www.fao.org/docs/eims/upload/210971/global_issues_paper.
pdf)


90 Composition of basic food basket: http://www.coneval.gob.mx/cmsconeval/rw/pages/medicion/
Pobreza_2010/Lineas_de_bienestar_07022012.en.do. In terms of price evolution, the CPI of the basic
food basket increased much less than the food price index depicted in Figure 26.


91 Source: El Universo, 26 May 2008 http://www.eluniverso.com/2008/05/26/0001/14/934F3C262E344A38A
75F591A6310CEC5.html


92 Source: CNN Expansion, 18 June 2008 http://www.cnnexpansion.com/economia/2008/06/18/mexico-
congela-precios-150-alimentos




179endnotes


93 Potential impact of membership of NAFTA will be discussed in Chapter 2.


94 Source: http://www.commodities-now.com/news/agriculture-and-softs/4454-mexico-eyes-new-ideas-for-
grains-hedging.html


95 This would imply to help governments, firms and farms to develop their capacity to evaluate risk and
ways of managing it. More specifically, it means to develop, in connection with the private sector,
hedging strategies for international humanitarian agencies to optimize food procurements, counter-
cyclical instruments and mechanisms for vulnerable countries to access financing in the event of
external shocks, weather index insurance, and possible guarantee instruments to facilitate contract
farming to enhance price predictability in the food chain


96 UNCTAD, March 2011 (TD/B/C.I/MEM.2/15; p.8).


97 The data presented in Table 18, in particular, does not necessarily imply or mean that Mexico is the source
of or responsible for all the foodborne illnesses in the U.S. market. On the contrary, Bill Marler, the leading
attorney in foodborne illness in U.S. contends that “the vast majority of food- and water-borne outbreaks in
the U.S. are caused by agrifood products grown, raised or manufactured in the U.S.” http://www.marlerblog.
com/case-news/mexico-warns-about-us-grown-salmonella-tainted-cilantro/


98 In the U.S., foodborne disease cause an estimated 48 million illnesses and 3,000 deaths per year. The U.S.
economic costs are estimated at $152 million to $1.4 trillion each year.


99 Agrifood producers, traders, exporters and manufacturers are subject to multiple levels of regulatory
compliance at all levels – firm, national, regional and international.


100 The unit rejection rate is the number of rejections per US$1 million of exports over the period 2002-08. The
measure takes account of changes in the volume of exports such that it provides a direct measure of the
rate of non-compliance. It is presented as a moving average to smooth out often appreciable year-on-year
variations.


101 UNIDO (2011). Trade Standards Compliance Report 2010 (www.unido.org/tradestandardscompliance).


102 GlobalGAP (formerly EurepGAP) is the dominant certification requirement for entry into the EU market.
A HACCP-based food safety program, it includes requirements respecting environmental protection,
occupational health and safety criteria on farms, and awareness and responsibility regarding socially related
issues.


103 Weather index insurance refers to the insurance which is linked with an objectively measurable index such
as rainfall rather than the actual loss. A distinctive feature of this type of insurance is that it eliminates the
costly claim and verification process associated with traditional insurance products and allows for the issue
of payout automatically based on the trigger threshold. Weather index insurance can be purchased by
governments and relief agencies for disaster relief purpose. It is also used by small producers to manage the
crop weather risk and have access to finance. In recent years, index-based weather insurance schemes
have been piloted in a number of developing countries, such as Malawi and Ethiopia.


104 The FDA is mandated by the FSMA, under the ‘importer compliance certification’ provisions, to provide
trade-related technical assistance to foreign governments (e.g. Mexico), so that these countries are able to
add value to their products, and improve process management procedures, such as packing and handling,
storage, and shipment facilities.


105 For the assessment of several agricultural regimes from a competition law perspective, including Argentina,
Brazil, Chile, Colombia, the European Union, Mexico, the United States, see Agricultural Exceptions to
Competition Law by Juan David Gutiérez R., 2010.


106 Council Regulation (EC) No 1234/2007 of 22 October 2007 establishing a common organisation of agricultural
markets and on specific provisions for certain agricultural products (Single CMO Regulation).




180 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


107 The level of agricultural subsidies in the United States, in particular for the production of corn, is discussed
in Chapter I.C.3 of this publication.


108 Agricultural Exceptions to Competition Law by Juan David Gutiérez R., 2010, pages 197 to 202.


109 Competition and Commodity Price Volatility, OECD Background Note, DAF/COMP/GF(2012)2/Rev1, page
20.


110 UNCTAD Voluntary Peer Review of Competition Law and Policy: A Tripartite Report on Tanzania, Zambia and
Zimbabwe, page 69 of the report on Tanzania, forthcoming June 2012.


111 Competition and Commodity Price Volatility, OECD Background Note, DAF/COMP/GF(2012)2/Rev1, page
20.


112 Ibid, page 14.


113 Ibid, page 15.


114 Market power is defined as the ability of the firm or groups of large firms to manipulate the price and quantity
of the goods (and services) they sell by virtue of being one of the few players in the marketplace.


115 Generous rainfall in the state of Michoacán – the world’s largest producer of avocado, and thus nullifying the
need for expensive irrigation systems, coupled with lower labour costs compared to the three U.S. avocado-
producing states – California, Florida, and Hawaii.


116 Avocados from Mexico are allowed to enter all U.S. states expect for three avocado-producing states –
California, Florida, and Hawaii. Mexico supplies approximately 17–20 million pounds of Hass avocado to the
U.S. market on a weekly basis.


117 Evidence suggests that were strong economic incentives for rent-seeking behavior from avocado-producer
organizations that opposed the imports of Mexican avocados (see Russell L. Lamb, 2006, p.166-168).


118 Mexico’s per capita consumption of avocado is about 6.6 kgs, relatives to U.S. and Chile, with 1.86 kg and
5.58 kg, respectively.


119 Calavo Growers Inc. is agricultural cooperative with more than 2,300 growers as members, and markets
more than half of the California crop. Calavo procures, prepares and markets avocados and other food
products to wholesalers, supermarkets, and restaurants around the world (www.calavo.com).


120 Avocado Export Co. in Michoacán had hired additional workers on relatively higher wages, invested $40
million in computerized avocado sorting system to increase efficiency.


121 About 1.5 million head (cattle) are fed through feedlots that are distributed across several smaller centers of
feedlot production.


122 The four top grocery retail supermarket chains in Mexico are Wal-Mart, Hipermercado Soriana, and Chedraui.


123 The consumption of white corn and tortillas account for about 40 per cent of average caloric intake.


124 Mexico has up to 60 traditional species of corn. Only 25 per cent of the corn planted by farmers in Mexico
comes from commercially sold seed.


125 The subsidy program, operated by SAGARPA, supported 13 commodities in 2011, with corn, wheat and
sorghum receiving 50 per cent, 24 per cent and 20 per cent of the coverage, respectively.


126 A total of 1.2 million ha planted to corn was damaged by the severe drought, which is 87.4 per cent higher
compared to 2010.


127 “Without corn, there is no country” is the popular campaign slogan on banners used by Mexican civil society
including farmers not only against the end of tariffs – under NAFTA – on corn imports from the U.S. in 2008, but
also against genetically modified (corn) seeds threatening food sovereignty, biodiversity, lifestyles and culture. On
tariffs, Mexico had gradually reduced its tariffs on corn since 1994, when they stood at more than 200 per cent.




181endnotes


128 The long-standing, long-haul trucking dispute between U.S. and Mexico ended in July 2011. Part of the
agreement impels Mexico to reduce tariff duty from 5 per cent to 2.5 per cent on pork imports from U.S. The
reduction in tariff is expected to increase the volume of U.S. pork and pork products destined south of the
border to Mexico.


129 Under NAFTA all tariff and quota restrictions where eliminated in 2004. Poultry products – meat and eggs –
were not included in the ‘original’ list for final tariff elimination in 2008. Instead, it was slated for zero tariffs
and import quotas for 2003. However, the influx chicken – leg quarters – imports from U.S., the Mexican
government – under pressure from the industry – asked for a safeguard to restore tariff protection up to
2008, which was granted.


130 USDA, “Market Concentration in Selected Agricultural Food Subsectors—Mexico,” Gain Report MX1042, 25
May 2011. [http://gain.fas.usda.gov/pages/default.aspx]


131 Chapter II.C.4.3.


132 Ranking of the five largest corn producers in 2010 according to the statistics of the FAO available at http://
faostat.fao.org: (1) United States of America: 316.165.000 metric tons; (2) China: 177.540.788 metric tons;
(3) Brazil: 56.060.400 metric tons; EU 27: 48.060.647metric tons; (5) Mexico: 23.301.900 metric tons.


133 See Table I.7.


134 See Interview with José Cacho, MINSA.


135 The following five regions are distinguished for the purposes of this study: Northwest (Noroeste) Baja California,
Baja California Sur, Sonora, Sinaloa and Nayarit; Northeast (Noreste) Chihuahua, Coahuila, Durango, Nuevo
León, Tamaulipas and Zacatecas; Center West (Centro Occidente) Aguascalientes, Colima, Guanajuato,
Jalisco, Michoacán, Querétaro and San Luis Potosí; Center (Centro) Distrito Federal, Estado de México,
Guerrero, Hidalgo, Morelos, Puebla and Tlaxcala; and South Southeast (Sur Sureste) Campeche, Chiapas,
Oaxaca, Quintana Roo, Tabasco, Veracruz and Yucatán.


136 Secretaría de Economía, Análisis de la Cadenca de Valor Maíz-Tortilla: Situación Actual y Factores de
Competencia Local, April 2012, page 14.


137 Interview with representative from the corn processing industry.


138 See Table II.3.


139 Interview with representative from the corn processing industry.


140 Ibid.


141 Ibid.


142 SIAP with figures from the Agricultural Livestock Census 2007.


143 See Chapter II.C.4.3


144 See Chapter I.5


145 Agricultural Dumping under NAFTA: Estimating the Costs of U.S. Agricultural Policies to Mexican Producers
Timothy A. Wise, 2010, page 2.


146 Ibid, page 36.


147 See Table II.10


148 Interview with representative from the corn processing industry; Interviews with representatives from
associations of grain producers.


149 See Land Tenure, Housing Rights and Gender in Latin America by UN Habitat, 2005, page 29.


150 Ibid, page 36.




182 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


151 Note that the production of genetically modified corn is currently tested. Once allowed, there might be a third
category of corn seeds, i.e. genetically modified corn.


152 Perspectivas de Desarrollo de la Industria semillera de Maíz en México by Bethel Luna Mena et al., 2012.


153 CNT-114-98.


154 In competition law assessments, the concept of the relevant market is used to define those products and
services that actually or potentially compete with each other and therefore constitute the market that is
relevant to measure competition. The relevant market is commonly defined from a demand side perspective
by applying the so called SSNIP-test that asks whether in the event of a Small but Significant (5-10 per cent)
Non-transitory Increase in Price, a buyer of a specific product would switch to a specific alternative product.
If yes, both products are considered to belong to the same relevant market. In specific circumstances, this
demand-side assessment is complemented by supply-side considerations, in particular the possibility for
producers to easily switch to the production of an alternative product, if the price for this alternative product
increases significantly.


155 Perspectivas de Desarrollo de la Industria semillera de Maíz en México by Bethel Luna Mena et al., 2012.


156 See Mexico Special Report 2009 by Speciality Chemicals Magazine in cooperation with Global Business
Reports, page 8 available at http://www.gbreports.com/admin/reports/Mexico_Special_Publication_
SCM0909.pdf.


157 For a definition of relevant markets in the field of fertilizers, see e.g. the merger decision of the European
Commission in the Case No. COMP/M.4730 YARA / KEMIRA GROWHOW.


158 For the details of the alleged cartel, see the presentation: «Price instability and competition law: the case of
the potash cartel» by Frederic Jenny, 2012, available at http://www.oecd.org/dataoecd/56/9/49737333.pdf.


159 See merger decision of the European Commission in the case COMP/M.6141 CHINA NATIONAL
AGROCHEMICAL COOPERATION / KOOR INDUSTRIES / MAKHTESHIM AGAN INDUSTRIES; available at
http://ec.europa.eu/competition/mergers/cases/decisions/m6141_20111003_20310_2025936_EN.pdf.


160 Corporations and Pesticides by Barbara Dinham in The Pesticide Detox, Towards a More Sustainable
Agriculture, by Jules Pretty, 2005, page 55.


161 See Table II.9


162 See Country Profile Mexico of the International Commission on Irrigation and Drainage, available at http://
www.icid.org/cp_mexico.html.


163 Ibid.


164 See National Water Program 2007 - 2012 «CONAGUA in Aaction», available at http://www.conagua.gob.
mx/home.aspx


165 Background Note for the OECD Policy Round Table on Competition, State Aids and Subsidies, 2010, DAF/
COMP/GF(2010)5, page 9.


166 See Articles 107 - 109 of the Treaty on the Functioning of the European Union and respective secondary
legislation, available at http://ec.europa.eu/competition/state_aid/legislation/provisions.html.


167 See Chapter II.B.3.


168 Interview with representative from an association of grain producers.


169 Competition and Commodity Price Volatility, OECD Background Note, DAF/COMP/GF(2012)2/Rev1, p. 12-13.


170 Interview with representative from the corn processing industry.


171 http://www.gimsa.com/htmli/index.htm


172 http://www.gruma.com/vIng/Relacion/relacion_informacion_gimsa.asp?idEmpresa=2




183endnotes


173 Secretaría de Economía, Análisis de la Cadenca de Valor Maíz-Tortilla: Situación Actual y actores de
Competencia Local, April 2012, page 20.


174 See information provided on MINSA by the Financial Time Market Data, available at http://markets.ft.com/
Research/Markets/Tearsheets/Business-profile?s=MINSAB:MEX (visited on 4 April 2012).


175 Interview with representative from the corn processing industry.


176 See GIMSA’s annual report 2010, page 22.


177 See information provided at the company’s website: http://macsa.us/page2.html.


178 See information provided at the company’s website: http://www.harimasa.com/index.html.


179 See information available at ASERCA’s website: http://www.aserca.gob.mx/artman/publish/article_2254.
asp


180 Interview with representative from an association of grain producers.


181 Interview with representative from an association of grain producers.


182 For instance, in a background paper for a meeting dedicated to the treatment of buyer power under
competition law, the German Federal Cartel Office points out that a monopsonist can abuse its buyer power
by reducing demand and thereby pushing prices below the competitive level. This abuse of buyer power may
lead to reduced investment and innovation by producers, given their loss in profit, see Bundeskartellamt,
Nachfragemacht im Kartellrecht - Stand und Perspektiven, Tagung des Arbeitskreises Kartellrecht am 18.
September 2008 - Hintergrundpapier, pages 2 to 4.


183 Secretaría de Economía, Análisis de la Cadenca de Valor Maíz-Tortilla: Situación Actual y Factores de
Competencia Local, April 2012


184 Advisory Opinion PLENO-MCE of 11 March 2010 of the Mexican Federal Competition Commission.


185 Decision DE-014-2010 of 22 March 2012 of the Mexican Federal Competition Commission.


186 This position is, for instance, favoured by Prof. Steven C. Salop in discussing the objectives of US antitrust
law: «the true consumer welfare standard would condemn conduct if it actually reduces the welfare of
buyers, irrespective of its impact on sellers,» see Question: What is the Real and Proper Antitrust Welfare
Standard? Answer: The True Consumer Welfare Standard, page 1, available at http://govinfo.library.unt.edu/
amc/public_studies_fr28902/exclus_conduct_pdf/051104_Salop_Mergers.pdf. Note, however, that this
view is opposed by Gregory J. Werden, Senior Economic Counsel, Antitrust Division of the U.S. Department
of Justice in Monopsony and the Sherman Act: Consumer Welfare in a New Light. Werden argues that the
objectives of the Sherman Act included inter alia remedying losses which farmers in the U.S. incurred due to
trusts with significant buyer power reducing the farmgate prices for agricultural products such as cattle, while
raising prices charged to consumers.


187 This is for instance the position traditionally attributed to German competition law, see see Bundeskartellamt,
Nachfragemacht im Kartellrecht - Stand und Perspektiven, Tagung des Arbeitskreises Kartellrecht am 18.
September 2008 - Hintergrundpapier, page 13.


188 See Mexico’s submission to the OECD’s Roundtable on Buying Power of Multiproduct Retailers in 1998,
DAFE/CLP(99)21, page 201.


189 Mexico’s contribution to the OECD Round Table on Competition and Regulation in Agriculture: Monopsony
Buying and Joint Selling, 2004, DAF/COMP(2005)44, page 128.


190 OECD Round Table on Competition and Commodity Price Volatility, DAF/COMP/GF(2012)2Rev1, page 33.


191 Biofuels are considered in this document to be liquid and gaseous fuel made from plant and animal residues
that can be used as a substitute for fossil fuels. This broad definition of biofuels includes biodiesel, bioethanol,
heating pellets and biogas.




184 mexico’s agriculture develoPment: pERSpECTIVES AND OUTLOOK


192 FAOstat, 2011. See Chapter 2.2 of this paper, p. 70


193 World Development Indicators 2011.


194 World Bank Development Indicators, 2012. Data for 2010.


195 In 2007, 5.6 million Mexicans were land owners (ejidatarios, comuneros, or posesionarios), what correspons


to 5.2 per cent of the population in that year. Source: SIAP, IX Censo Ejidal 2007.


196 In Mexico, the food national food security index achieved 92.8 in 2010, after decreasing to 91.8 during the


heights of the financial crisis between 2008 and 2009. Source: SIAP and Bank of Mexico.


197 http://www.epa.gov/mtbe/water.htm


198 See: Erdal and Goldstein (2000) and CRS (2006)


199 Plan Nacional de Desarrollo 2007-2012. Avaliable at: http://pnd.presidencia.gob.mx/


200 http://www.sener.gob.mx/webSener/portal/index.jsp?id=57


201 Avaliable at: http://www.semarnat.gob.mx/Documents/Estrategias_libro_completo_compress2.pdf


202 There was an attempt to limit the price volatility of a corn product of primary importance as a staple food


for the Mexican population (tortillas) in Mexico in early 2007. The so-called Tortilla Price Stabilization Pact


introduced caps for the price of a kilogram of tortillas, as to try to maintain the affordability for the poor. See:


http://www.presidencia.gob.mx/buscador/index.php?contenido=28666


203 See: http://www.ine.gob.mx/descargas/est_intersecretarial_bioenergeticos.pdf


204 See: http://www.energia.gob.mx/res/0/Progper cent20Introdper cent20Bioen.pdf


205 See: http://sener.gob.mx/webSener/res/9/Reg_LPDB_DOF_180609.pdf


206 See: http://www.dof.gob.mx/nota_detalle.php?codigo=5119506&fecha=13/11/2009


207 See: http://www.bioenergeticos.gob.mx under section Apoyos.


208 The German feed-in tariff system for renewable electricity, the Proalcool program in Brazil, and hydroelectric


capacities in Scandinavia are among the technologies which received initial public support before reaching


market competitiveness.


209 See: http://www.bioenergeticos.gob.mx/index.php/apoyos.html (in Spanish).


210 See Chapter 2.2 of this paper.


211 Programa Nacional de Agricultura Familiar (PRONAF). See: http://www.ceplac.gov.br/radar/Artigos/artigo26.


htm (In Portuguese)


212 Thermochemical processes also include gas-to-liquid technologies, also known as syngas or biomass


gasification. See Kumar et. a.l (2009)


213 Charcoal can also be used for industrial applications, replacing fossil coke as a reducing agent for the


metallurgical industry. See (REF)


214 In Mexico, most biodigestor facilities rely on support from CDM credits.


215 For illustration, the potential of sustainable forestry biomass for energy purposes has been estimated to


reach 1923 PJ/year, which corresponds to 26.2 per cent of Mexico’s total primary energy supply in 2009


(7312 PJ).




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