With 22.2% of the population living in rural areas, it is not surprising that Mexico boasts one of the largest agriculture industries in the world. The sector makes up 2.4% of the country’s GDP and employs around 13% of the workforce, which represents around 3.3 million farmers and 4.6 million workers.
In 2011, Mexico exported more than 270 food products. According to the Secretariat of Agriculture (SAGARPA), agricultural exports exceeded $4 billion from January to February 2012, registering 8% growth compared to the same period the year before.
Among the products contributing to the total value of agricultural exports in February 2012 were malt beer, (8.1%), tomatoes (7.9%), asparagus (5.5%), and sugar (4.3%). Other revenue-generating crops include peppers, avocados, tequila and mezcal, bakery products, cattle, and vegetables.
These products together reported worldwide sales of more than $919 million, about 45% of total exports recorded by the sector in February 2012. The countries that demonstrated increased demand for Mexican products included Russia, China, Germany, and Hong Kong.
POLICY & PROJECTS
Since 2001, the application of agricultural policy has been focused on the Sustainable Rural Development Project. The object of this program is to encourage agribusinesses to adopt environmentally sustainable technology and support employment generation and diversification. This initiative is designed to integrate small-scale producers in the agricultural sector with national development, giving priority to marginalized areas in the rural economy.
Food safety is regulated primarily by SAGARPA and the Secretariat of Health (SALUD). The Secretariat of Economy also has some input, especially in the fields of labeling and biotechnology. Mexico has implemented policies that are aligned with international trade regulations.The country relies heavily on international agriculture groups as a basis for its standards, such as Codex, the World Organization of Animal Health (OIE), the North American Plant Protection Organization (NAPPO), and US regulatory agencies.
In 1993, Mexico implemented the Farmers Direct Support Program (PROCAMPO), the largest Mexican agricultural project. Originally designed to compensate staple crop producers who were expected to face declining prices after the signing of the North Atlantic Free Trade Alliance (NAFTA), the program provided cash transfers to farmers with land dedicated to the production of certain goods prior to the agreement. PROCAMPO has been in place for over 19 years, and although it has been modified several times it continues to provide a subsidy per hectare of land cultivated to all farmers who were originally subscribed.
As one of the main instruments of Mexican agricultural policy today, PROCAMPO seeks to improve the well-being of farmers by increasing and stabilizing their income. To accomplish this, the program provides decoupled direct support payments to help farmers overcome financial constraints that limit their capacity to make productive investments. By providing cash, PROCAMPO helps credit-constrained farmers invest in agricultural production and obtain higher returns on production. In this way, each peso transferred to a farmer may increase his or her income exponentially.
According to the Organization for Economic Cooperation and Development (OECD), Mexico’s producer support estimate (PSE) in 2010 was 12%, coming in higher than the US, but lower than in the EU, areas that scored 7% and 20%, respectively.
TRADE & RELATIONS
Bilateral trade between Mexico and the US reached $20 billion in 2011, making Mexico the second largest agricultural trading partner of the US. Mexico is the top export destination for wheat, rice, soy beans, apples, grapes, malt, potatoes, and pepper exports. It is the second export market for horticultural products, and the third-largest for pork, poultry, and eggs.
Agricultural exports and imports have dramatically increased since the creation of NAFTA in 1994. Full NAFTA implementation took place in 2008, when the Mexican government complied with NAFTA’s commitments to remove all import tariffs and administrative controls on corn, dry beans, milk powder, and sugar. The implementation of the NAFTA accords has opened Mexico’s agricultural sector to the forces of globalization and competition, allowing Mexico to import machinery, equipment, and supplies with practically no taxes and at a lower cost. It also allows the country access to the US and Canadian markets with perishable products that its northern neighbors have gradually stopped producing. According to the Secretary of Agriculture, Francisco Mayorga Castrañeda, the US has abandoned the production of avocados, citrus fruit, and tomatoes, because products from Mexico come from a less expensive source that produces all year round. This is leading to deeper integration between the two nations.
For Mayorga, the “nostalgia market” also drives consumers to demand Mexican products. Mexicans with purchasing power who have emigrated but maintain their eating habits can dramatically influence their home communities. In some specialized supermarket chains in the US, around 30% of the products are manufactured in Mexico or have labels in Spanish. “It is like walking into a Mexican grocery store and realizing the power of nostalgia that drives consumers to demand our products,” Mayorga explained in an interview with TBY.
DIVERSIFICATION & EXPORTS
By 1995, Mexico was exporting approximately 85% of its products to the US annually, according to Global Trade Atlas. Despite a historical dependence on the US in both imports and exports, the country is now looking for more dynamic markets, and countries such as China, Japan, Vietnam, and Indonesia are attracting Mexico’s attention. Mexico enjoys a number of free trade agreements (FTAs) with several countries to help boost export diversification. Through the Economic Partnership Agreement (EPA) signed with Japan in 2004, tariffs were lowered on a number of agricultural goods. The EPA has increased the amount of Mexican exports to Japan, and Japanese investment has sparked job creation in the country. Initially seeking concessions in beef, oranges, pineapples, and leather products, Mexican officials later established import quotas over a five-year period for pork, beef, chicken, oranges, and orange concentrate. The value of Mexico’s agriculture products exempt from import tariffs is expected to be less than 50% of its total agricultural exports to Japan.
A number of countries in Latin America and the Middle East are also potential markets for Mexican produce. In 2011, Mexico signed a new FTA with five Central American nations: Costa Rica, El Salvador, Guatemala, Nicaragua, and Honduras. This agreement is expected to boost Mexican exports to the region.
FRUIT & VEGETABLES
Mexico is one of the largest producers of fruit and vegetables worldwide, exporting $10 billion worth of goods annually. The country is ranked number one in the production of avocados, lemons, and limes. Other popular products include tomato, mango, pineapple, asparagus, and broccoli.
Although the US and Canada are the main recipients of fruit and vegetables, Mexico has pushed to increase its exports to the EU, and has participated in some of the most important fairs in the sector. In 2012, around 35 Mexican companies promoted their products at events such as Fruit Logistica, an organic trade fair staged in Germany. Fruits and vegetables represent 19.5% of agricultural exports from Mexico to the EU, with a total value of approximately €171 million. Lemons and onions were the main exported products to the region in 2011, with a significant year-on-year increase of 17%.
GRAINS & BEYOND
According to FAO in 2010, Mexico is the sixth-largest corn producer in the world, and white corn accounts for 75% of total production. Corn can be dual cropped, in both spring and fall. Approximately 77% percent of Mexican corn is obtained from the spring-summer season, and 65% percent of the corn is produced using dry land over irrigated farming. Approximately 70% of the total production comes from eight Mexican states: Sinaloa, Jalisco, Mexico State, Chiapas, Michoacán, Veracruz, Guerrero, and Chihuahua. In addition, corn production is divided into two categories: commercial and traditional. Large and medium-sized growers that produce white and yellow corn practice commercial production, while traditional production refers to small-scale and subsistence farmers who specialize mostly in white corn production.
Although legume production was affected by a severe drought in 2011, availability for 2012 is projected to be 209,000 tons, guaranteeing that supply meets demand estimated at 1.1 million tons. Mexican government officials promoted the planting of the pinto saltillo variety during the 2011-2012 fall crop cycle to guarantee seed availability for spring and summer. Currently, there are 167,000 hectares dedicated to bean crops, expected to produce at least 6,600 tons of seed. Growers traditionally plant the summer bean crop from March to August, and harvest from September to March. Given that more than 75% of Mexico’s legume crop is totally reliant on rain, weather continues to be the main factor in production. However, with government support and a strong workforce in the sector, Mexico is expected to overcome agricultural challenges, meet domestic demand, and extend its export capacity further afield in 2012 and beyond.
© The Business Year