Agricultural Policy Monitoring and Evaluation 2019

Chapter 18. Mexico

Support to agriculture

Trade liberalisation and domestic policy reforms in the 1990s led to a considerable reduction in the most production and trade distorting support, such as that based on output (including the MPS) and unconstrained use of variable inputs. Support to producers (PSE) accounted for 8% of gross farm receipts in 2016-18. The majority of transfers to producers were in the form of market price support (MPS), and support based on fixed capital formation and variable inputs. Most MPS goes to sugar as it represented 54% of total MPS.

General services (GSSE) expenditures focus on agricultural knowledge and innovation systems and large irrigation infrastructure – these areas absorbed 80% of GSSE spending in 2016-18.

Total support to agriculture was at 0.5% of Mexican GDP in 2016-18 (%TSE) – this percentage has significantly declined over time and is currently similar to the OECD average. Taxpayers provide 80% of these transfers, the remaining 20% coming from consumers. Consumer contribution to agricultural support is due to agricultural prices supported above international levels via price regulations and border measures.

Main policy changes

The government increased by an average of 23% the reference prices that serve to calculate the rates at which it provides support based on output via the Objective Income programme.

The new government, that took office in December 2018, has made several institutional and administrative changes to Mexico’s Secretariat of Agriculture and announced new agricultural policies. The Secretariat has been renamed Secretariat of Agriculture and Rural Development (Sectretaría de Agricultura y Desarrollo Rural - SADER); it has a smaller structure, with two under-secretariats instead of three, no delegations in the states and is set to operate in 2019 with a budget reduced by 20% compared to 2018.

The SADER concentrates its efforts in four key programmes whose main declared objective is to increase food security: 1) in-kind credits at zero nominal interest rate and no collateral demanded to livestock producers; 2) guaranteed minimum prices for small producers of maize, beans, wheat and milk; 3) subsidies to produce and use fertilisers; and 4) payments based on area for maize, beans, and wheat producers, targeting small and medium holders and indigenous communities. Implementation of these programmes is expected to be completed in 2019.

In November 2018, Canada, Mexico and the United States signed a new trade agreement, the Mexico-United States-Canada Agreement (called T-MEC in Mexico). This new agreement will come into effect after ratification by the three countries.

The US Department of Commerce announced plans to withdraw from the 2013 Suspension Agreement on Fresh Tomatoes (SAFT) from Mexico. The SAFT dates from 1996 and establishes a floor price for Mexican tomato imports into the United States in exchange of suspension of US antidumping investigations.

Assessment and recommendations

• Support to agriculture, expressed as a share on gross farm receipts, and the share of most distorting forms of support, significantly decreased since the 1990s, following Mexico’s pro-market agricultural policy reforms. However, this trend have been partly reversed since the 2000s, as some of the particularly distorting forms of support, mainly input-based and market price support, have gained weight.

• These forms of support are inefficient, too costly and can damage the environment.

• The majority of the new programmes —preferential credits, guaranteed minimum prices for small producers and incentives to produce and consume fertilisers— intend to target poor farmers. Nevertheless, they can end up being too costly for their objectives of helping small and poor farmers, threaten water and air quality by increased fertiliser use, crowd out private lending, and be too difficult to phase-out. Agricultural policy should not be the only instrument for helping the rural poor. Investments on public goods, innovation and extension services could be more effective to improve the livelihoods of smallholders and their productivity.

• Land reforms were implemented from 1990, but had limited practical impact. Most farms operate under social land tenure. Although perceived as socially necessary, some of the provisions related to social land tenure are among the factors constraining the sale and use of agricultural land.

• One of the main ecosystem services that Mexican small-scale farmers provide is the preservation and on-farm promotion of agrobiodiversity by utilising local plant genetic resources. A well-designed and targeted system of direct payments for those services could be a more cost-effective scheme for helping poor farmers, and could, at the same time, increase the resiliency of agricultural systems and the genetic diversity of plants.

• Input-linked support should be redirected towards the provision of public goods. Investing in electricity and road infrastructures, particularly in the southern part of the country, price and weather information systems, credit access, agricultural knowledge transfer and research and development could unleash the productivity potential of the agriculture sector, while improving its sustainability and profitability.

• Currently, few support programmes require compliance with good environmental practices. Decoupled payments such as those based on area could be improved by imposing environmental conditionality. Achieving the country’s commitments for greenhouse gas (GHG) emission reductions under the Paris Agreement on Climate Change will require additional efforts to improve agricultural practices and should go hand in hand with reducing local and regional environmental pressures, including related to water.

Figure 18.1. Mexico: Development of support to agriculture

Note: * Share of potentially most distorting transfers in cumulated gross producer transfers.

Source: OECD (2019), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.

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Support to producers (%PSE) has declined considerably over the long term. During 2016-18, farm support was around 8% of gross farm receipts, less than half the OECD average. The share of potentially most distorting transfers has decreased significantly over time due to a decline in market price support (MPS), falling well below the OECD average (Figure 18.1). Relative to 2017, the level of support increased in 2018 due to a higher MPS, from a larger price gap as domestic prices decreased less than world prices (Figure 18.2), and increased budgetary payments. Prices received by farmers, on average, were some 3% higher than world prices; particularly large differences between sugar and other commodities persist with domestic prices for raw sugar substantially above international reference prices. MPS is the main component of Single Commodity Transfers (SCT) for sugar, dried beans, barley and pig meat. Other forms of product-specific support are particularly relevant for wheat, maize, sorghum, beef and veal, and coffee. Sugar has by far the highest share of SCT in commodity gross farm receipts (Figure 18.3). The expenditures for general services (GSSE) relative to agriculture value added were substantially lower than the OECD average.

Figure 18.2. Mexico: Drivers of the change in PSE, 2017 to 2018

Source: OECD (2019), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.

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Figure 18.3. Mexico: Transfer to specific commodities (SCT), 2016-18

Source: OECD (2019), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en.

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Table 18.1. Mexico: Estimates of support to agriculture

Contextual information

Mexico has a population of 124 million, ranks as the 11^th largest world economy and has a per capita GDP of USD 19 000, below average per capita GDP of countries covered in this report. Agriculture’s share on GDP has declined from 4.4% in 1995 to 3.4% in 2017. Trade is an important driver of Mexico’s economy: it represents 36% of GDP and has grown 12 percentage points in 20 years. Agro-food trade is a non-negligible fraction of total trade, both in terms of exports and imports, representing 7.7% and 6.3% of each, respectively. In the last two decades, the labour structure of the agriculture sector changed radically from 23% of total workforce in 1995 to the current 13%. While the crop sector still dominates in terms of its contribution to total value of production (58%), the participation of the livestock sector is important (42%).

Since 2015, Mexico registered a positive net agro-food balance. While, most agro-food exports are primary and processed for final consumption, more than half of agro-food imports are intermediate products for further processing.

Table 18.2. Mexico: Contextual indicators

	Mexico		International comparison
	1995*	2017*	1995*	2017*
Economic context			Share in total of all countries
GDP (billion USD in PPPs)	778	2 425	2.6%	2.4%
Population (million)	94	124	2.5%	2.6%
Land area (thousand km2)	1 944	1 944	2.4%	2.4%
Agricultural area (AA) (thousand ha)	106 195	106 236	3.5%	3.6%
			All countries1
Population density (inhabitants/km2)	48	63	48	60
GDP per capita (USD in PPPs)	8 351	19 093	7 642	21 231
Trade as % of GDP	24	36	9.9	14.7
Agriculture in the economy			All countries1
Agriculture in GDP (%)	4.4	3.4	3.3	3.5
Agriculture share in employment (%)	23.4	12.9	-	-
Agro-food exports (% of total exports)	7.3	7.7	8.1	7.5
Agro-food imports (% of total imports)	7.2	6.3	7.4	6.6
Characteristics of the agricultural sector			All countries1
Crop in total agricultural production (%)	62	58	-	-
Livestock in total agricultural production (%)	38	42	-	-
Share of arable land in AA (%)	21	21	33	34

Note: *or closest available year. 1. Average of all countries covered in this report. EU treated as one.

Source: OECD statistical databases; UN Comtrade; World Bank, WDI and national data.

Economic growth has remained relatively stable around 2% per year since 2014. The inflation rate rose in 2017 mainly due to energy and food prices linked largely to the liberalisation of the domestic energy market. In 2018, inflation decreased but it is still above the central bank’s objective of 3%. Unemployment rate has remained stable around 3% a year, although informality remains elevated at more than 50% of total employment.

Figure 18.4. Mexico: Main economic indicators, 1995 to 2018

Sources: OECD statistical databases; World Bank, WDI and ILO estimates and projections.

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Figure 18.5. Mexico: Agro-food trade

Note: Numbers may not add up to 100 due to rounding.

Source: UN Comtrade Database.

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Agricultural output in Mexico has been increasing predominantly due to the improvements in Total Factor Productivity (TFP), and to a limited extent to more use of intermediate inputs (fertiliser and feed) and primary factors. TFP growth between 2006 and 2015 is estimated similar to the global average, but much less dynamic than during the 1990s. Nutrient balances have increased at higher rates than OECD average, potentially impacting water and air quality. Water stress is well above the OECD average, and agriculture is partly responsible for this pressure due to its share on total water abstractions.

Figure 18.6. Mexico: Composition of agricultural output growth, 2006-15

Note: Primary factors comprise labour, land, livestock and machinery.

Source: USDA Economic Research Service Agricultural Productivity database.

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Table 18.3. Mexico: Productivity and environmental indicators

	Mexico		International comparison
	1991-2000	2006-2015	1991-2000	2006-2015
			World
TFP annual growth rate (%)	2.8%	1.4%	1.6%	1.5%
			OECD average
Environmental indicators	1995*	2017*	1995*	2017*
Nitrogen balance, kg/ha	23.5	24.4	33.2	30.0
Phosphorus balance, kg/ha	1.2	2.1	3.7	2.3
Agriculture share of total energy use (%)	2.6	3.4	1.9	2.0
Agriculture share of GHG emissions (%)	20.2	14.9	8.5	8.9
Share of irrigated land in AA (%)	4.9	5.7	-	-
Share of agriculture in water abstractions (%)	84.8	76.3	45.4	42.5
Water stress indicator	15.6	18.3	9.7	9.7

Note: * or closest available year.

Source: USDA Economic Research Service, Agricultural Productivity database; OECD statistical databases; FAO database and national data.

Description of policy developments

Main policy instruments

For the period 2013-18, Mexico’s agricultural policy was framed within the Sectoral Development Programme for Agriculture, Fisheries and Food. The Programme was broadly oriented at boosting domestic production and strengthening food security, seeking greater self-sufficiency in principal grains and oilseeds. The Programme emphasises increased productivity, profitability and competiveness of the agriculture and food sector and sets the specific objectives on improving the productivity of small farms, reduction of water use, increased domestic production of agricultural inputs, extension, risk prevention and management, promotion of healthy food, financial inclusion, regional development, expanding information systems and modernising the Ministry of Agriculture.

The Sectoral Programme brought three main changes to programmes providing support to producers. First, PROCAMPO was replaced by Productive PROAGRO which continues to provide area payments, but unlike PROCAMPO that did not require production, the new payments are contingent on proved actual production outlays in, for example, machinery, certified seeds, fertilisers, insurance, and price hedging. Second, after more than 20 years of being stagnant in terms of beneficiaries, the list of beneficiaries was updated and expanded keeping total supported area. Finally, compared to the previous plan, the 2013-18 Sectoral Programme puts a stronger emphasis on investment and on-farm services support, particularly targeting poor and arid areas.

Mexico has reformed its agricultural policies over the last two decades, reducing border protection following its commitments within WTO, NAFTA and other trade agreements and implementing direct payment programmes. Mexican agricultural markets operate today under a fairly open trade regime as the majority of trade flows occurs within regional free trade agreements. However, domestic market price support and payments based on output are still maintained for some key commodities such as sugar, maize, wheat and sorghum. Market price support remains the largest component of support to producers.

Another important type of support takes the form of investment assistance, which mainly covers part of the investment cost or finances the credit guaranty for purchases of on-farm machinery and infrastructure for crop and livestock production, and for the technical upgrading of irrigation systems and cultivation of horticultural crops in greenhouses.

A range of programmes are targeted to small agricultural producers and, more broadly, the rural poor. A special investment support programme operates for small maize and bean growers. The Strategic Project for Food Security (PESA) provides investments and technical assistance, both at individual and community levels, to support farming in marginal and poor areas, by covering up to 90% of the investment costs mostly related to improving water and food supply in poor households, and 100% of technical assistance costs for making the food production and consumption in poor areas more sustainable.

Support for variable inputs is also significant and includes subsidies for price hedging, electricity, irrigation, and crop insurance. Payments based on area and livestock numbers are also important, mostly provided through two programmes: Productive PROAGRO which provides per hectare payments based on historical land area but contingent on production; and Productive PROGAN which offers per head payments based on historical livestock numbers and requires its beneficiaries to comply with certain environmental requirements.

A considerable part of Mexican territory is under social land tenure arrangements – ejidos, or agrarian communities – in which special management regimes govern both collective land and land plots granted to individuals. The most recent Agricultural Census (2007) reports that 69% of farms operate under social land tenure, representing 39% of agricultural land.

With slightly over half of the population below the national poverty line, food consumer subsidies are an important poverty alleviation instrument in Mexico. Poor families obtain basic staples through DICONSA rural shops, while the LICONSA programme sells milk at prices below market levels, and the SEDESOL programme provides conditional cash transfers.

Mexico’s climate pledge to the Paris Climate Conference in December 2015 includes both unconditional and conditional targets. Mexico has committed to unconditionally lower GHG emissions by 25% and black carbon emissions1 by 51% of business as usual (BAU) levels by 2030. Depending on international support, the GHG target could increase to as much as 40%. In order to achieve such targets, the general strategy for the agriculture sector promotes the adoption of technologies that improve the sustainability of the sector and the use of biodigesters in livestock farms as well as conserving and restoring grasslands.

Domestic policy developments in 2018-19

In May 2018, the government increased by an average of 23% the reference prices that serves to calculate the rates at which it provides deficiency payments via the Objective Income (Ingreso Objetivo) programme. Through this programme, the government fixes target prices for contracted production of maize, wheat, sorghum, soybeans, safflower, canola, cotton, rice and sunflower. If the contract price is lower than the target price, the government pays the difference. The new government that took office as of December 2018, has laid out plans to impose minimum price policies that could potentially increase the transfers related to market price support.

The new government has also made several institutional and administrative changes to Mexico’s Secretariat of Agriculture and announced new agricultural policies. The Secretariat has been renamed Secretariat of Agriculture and Rural Development (Sectretaría de Agricultura y Desarrollo Rural - SADER). The move is part of the government plan to decentralize the federal administration. The new Secretariat is structurally smaller, with two under-secretariats instead of three, no delegations in the states and is set to operate in 2019 with a budget 20% smaller than the one it received in 2018.

The SADER has announced that it would concentrate its efforts in four key programmes whose main declared objective is to increase food security: preferential credits, guaranteed minimum prices for small producers, incentives to produce and consume fertilisers, and payments based on area. Implementation of the programmes is expected to be completed in 2019.

In-kind credits at zero nominal interest rate and no collateral to livestock producers with less than 35 heads and honey producers with no more than 200 hives are provided to farmers located in 13 states: Veracruz, Oaxaca, Chiapas, Guerrero, Yucatán, Campeche, Tabasco, Quintana Roo, Michoacán, Jalisco, Tamaulipas, Nayarit and Zacatecas.

Guaranteed minimum prices will be granted to small producers of maize, beans, wheat and milk. Announced minimum prices are between 26% (wheat) to 58% (maize) higher than observed farm gate prices in 2018. The eligibility criteria vary for different commodities: maize producers with no more than 5 hectares with a cap of 20 tonnes per producer; bean producers with no more than 20 rain-fed hectares or 5 irrigable hectares, with a cap of 15 tonnes per producer; wheat and rice producers of any size with a cap of, respectively, 100 tonnes and 120 tonnes per producer; milk smallholder producers who sell their product to LICONSA – support is capped at 15 litres per day, per cow, and eligible producers are those owning 100 cows or less.

The National Fertiliser Programme encompasses two strategies. One is to increase the domestic production of phosphate and nitrogen fertilisers by subsidising PEMEX, the state-owned oil company, and the second one is to distribute fertilisers to small producers located in poor areas.

Finally, payments based on area will target small and medium producers and include producers from indigenous communities. Producers holding no more than 0.2 irrigable hectares or 5 rain-fed hectares will receive MXN 1 600 (USD 85) per hectare and per growing season. Producers with land holdings of between 0.2 irrigated hectares and 5 irrigated areas or holding between 5 and 20 rain-fed hectares will receive MXN 1 000 (USD 53) per hectare and per growing season.

Additionally, the government announced the fusion of LICONSA and DICONSA into SEGALMEX (Seguridad Alimentaria Mexicana) or Mexican Food Security. SEGALMEX will be in charge of administering the guarantee minimum price support programme for farmers and the distribution of fertiliser according to the National Fertiliser Programme.

Trade policy developments in 2018-19

In November 2018, Canada, Mexico and the United States signed a new trade agreement, the Mexico-United States-Canada Agreement (called T-MEC in Mexico). This new agreement will come into effect after ratification by the three countries. T-MEC preserves the existing agriculture commitments for Mexican products from the North American Free Trade Agreement (NAFTA).

The US Department of Commerce announced plans to withdraw from the 2013 Suspension Agreement on Fresh Tomatoes (SAFT) from Mexico. The SAFT dates from 1996 and establishes a floor price for Mexican tomato imports into the United States in exchange for suspension of US antidumping investigations. The SAFT has been renegotiated several times and its current version will expire in May 2019. If the United States officially withdraws from the suspension agreement, antidumping investigations are set to resume, potentially affecting tomato producers, mostly located in the state of Sinaloa.

Note

← 1.  Black carbon is particular matter formed by the incomplete combustion of fossil, biofuels and biomass; it is a short-lived but powerful climate warming pollutant.