TBY talks to Francisco Mayorga Castrañeda, Secretary of Agriculture, on developing Mexico’s agriculture sector.
TBY The support programs of the Secretariat of Agriculture, Livestock, Rural Development, Fisheries and Food (SAGARPA) include investment development, risk prevention, knowledge transfer, sustainability, and PROCAMPO. Which of these has been the most successful in improving local agriculture?
FRANCISCO MAYORGA CASTRAÑEDA I think that the policies that Mexico implements are aligned with international trade regulations. At a global level, the World Trade Organization (WTO) regulates the amount of subsidies that a government channels to the agriculture sector, as well as the type of subsidies. Not all varieties of subsidies are allowed. For example, export restrictions are not permitted, and export subsidies are also prohibited. Mexico upholds these commitments. PROCAMPO is a subsidy for farmers that is expensive, but generalized. The WTO considers PROCAMPO a “green” subsidy, because we do not distort the market or force farmers to produce a particular product. Under PROCAMPO, farmers have the absolute freedom to produce whatever they wish. We do not encourage production by giving production subsidies. In 2011, we began a rural extension program that links universities and research centers to farmers in order to better understand how 21st-century agriculture should be practiced. Students receive technical knowledge, as well as training in economics and environmental protection. We also have programs for migrants residing in the US who send remittances to their families in Mexico’s rural areas. We encourage them to use these remittances to improve productivity, and thereby create jobs.
How important is SAGARPA’s geographical range in terms of exports?
Our range is very important because Mexico has historically depended on the US, in both imports and exports, and now we are seeking more dynamic markets, such as China, Japan, Vietnam, Indonesia, Thailand, and Malaysia. A number of countries in Latin American and the Middle East are also potential markets for Mexico. Japan is a country that imports billions of dollars worth of food every year. Mexico and Japan have signed an economic partnership agreement (EPA), and thus we have preferential access to the Japanese market. Mexican products such as avocado, pork, and beef have been very successful in Japan. We have a large number of free trade agreements (FTAs) with several countries, and this definitely helps our export diversification.
In your opinion, what role could biotechnological applications play in the agricultural sector and what degree of penetration do these applications currently have?
We have been making progress in the application of genetically modified cotton, soybean, and canola. We are about to begin planting genetically modified corn in some regions, especially in the northern irrigated areas where there are opportunities to strictly control crops. Mexico needs to increase its production, and to do so we have to incorporate new technology. In terms of biotechnology, we have developed various fertilizers for crops and medication for livestock. This branch of science is developing very fast, and it affects two aspects of the production chain, whether they are organic products or genetically modified inputs.
How is SAGARPA creating financial schemes that will increase the level of investment in the agricultural sector?
Mexico has a sui generis system of land ownership. There are private landowners, and ejidos, or cooperatives. SAGARPA has guarantee funds from the National Guarantee Fund for Agriculture, Forestry, Fisheries, and Rural Areas (FONAGA) that support banks in financing small producers. We also offer the banks a guarantee credit for primeras pérdidas, or first losses. SAGARPA provides insurance schemes and programs that provide a subsidy for the acquisition of certain assets that improve the productivity of a farmer or rancher.
What role does Central America play in Mexican exports, and what strategy has SAGARPA implemented to increase exports to this region?
Central America is a very interesting market, as it requires inputs or raw materials to develop and process its primary products such as fruits, coffee, rubber, and vegetables. Mexico is able to provide the markets of Central America with machinery and manufacturing tools. We also export cheese, yogurt, and bread, and other retail goods. Mexican retailers are beginning to enter Central America, such as OXXO and 7-Eleven Mexico. Central America is also becoming very attractive for global companies, such as Nestlé, which is establishing large factories in Mexico in order to export products to Central America. On November 22, 2011 we signed a new FTA with five Central American nations (Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua), which will boost Mexican exports to the region.
In what way is the North American Free Trade Agreement (NAFTA) benefitting agricultural activities in Mexico?
NAFTA assists in two different ways. Such as with the case of Central America, it allows us to import machinery, equipment, and supplies practically without any tax expenses and at a lower cost. Also, it allows us to access the markets of the US and Canada with perishable products, for the most part, that North America has gradually stopped producing. For example, the US has abandoned the production of avocados, citrus fruit, and tomatoes because it is easier to find a less expensive source in Mexico that can produce year round. Therefore, the integration grows deeper day by day. There is also the fact that in Mexico, as well as in the US, we have a huge market that we call the “nostalgia market.” For example, there are those Mexicans who have emigrated but maintain their eating habits and look forward to enjoying Mexican cuisine. They have excellent purchasing power, and can have a huge influence on their home communities. These are the sort of consumers who have also been extending their consumption habits to other communities in the US. For example, Tex-Mex cuisine is now found in all parts of the US, and this is creating opportunities that our producers are capturing. I have been in large supermarket chains, such as Fiesta Mart in the US, where perhaps 30% or 40% 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.
The agriculture sector comprises 5% of Mexico’s GDP. In your opinion, what role will this sector play in five years?
The ratio of agricultural activity as a component of global GDP is decreasing. For example, agriculture in the US has only a 2.8% share of the economy, despite it being a very powerful segment. The same is happening in Mexico; agriculture will lose its share of GDP. However, I believe that the value-added of agricultural production and industry will grow, especially as Mexican food products become more popular around the world. UNESCO added traditional Mexican cuisine to its World Heritage list, and this opens up market opportunities for our producers. We’re seeing more and more Mexican cuisine offerings turn up in Russia, China, and South America, and it’s an interesting opportunity for development.
Mexico imports 30% of its food production needs. How is SAGARPA promoting food security in Mexico?
I believe we have a serious productivity issue because many of the small producers are members of cooperatives. In 2012, President Calderón began a program called Masagro, focusing on the vast majority of Mexican producers who own five hectares or less. To reduce poverty levels in this sector, Masagro will provide technical education. Mexico also heavily depends on vegetable oil imports, purchasing 95% from other countries. We are striving to begin local production in the southeast of the country. We are also promoting the planting of oil palm, as well as the cropping of canola and safflower. We continue to improve our technological development. Mexico is extending its pork and beef exports to markets around the world, and very soon we will be present in China. The final arrangements to export pork to this country are almost complete. If we continue to import low-cost products for our population, we can carry on exporting high-cost products to markets with the right purchasing power. We will not stop importing; Mexico will continue to be one of the major importers of food. However, as we become a stronger exporter, we will surely balance the
© The Business Year