MEXCELLENT PROSPECTS

Mexico 2014 | AGRICULTURE | REVIEW: AGRICULTURE

Mexico's agriculture sector is shaking off the challenges of climate change and livestock diseases to produce impressive yields and high-value products.

The Mexican agricultural sector faces challenges such as climate change threatens crops, foreign competition reduces profit margins, and safety concerns reduce demand for Mexican livestock products abroad. However, increasing exports, Mexico's comparative advantage in high-value goods, and technological and investment related developments are all bolstering the long-term outlook of the country's agricultural sector. The sector contributes 3.6% to national GDP, and employs 13.4% of the labor force. Mexico's Secretariat for Food and Competitiveness announced that in 2013, the country had exported agricultural and livestock products valued at some $11.3 billion, a 4% annual increase over 2012. These exports were in the form of more than 290 food products, delivered to at least 160 countries around the world. Sales of red tomatoes increased by 8.7% with sales of $1.86 billion; avocados increased by 24.5% and amounted to $1.23 billion, and bell peppers, which rose by 12.3%, totaled $876 million in exports. Almost 85% of Mexico's agricultural exports went to its five major markets: the US, Japan, Canada, Venezuela, and Guatemala.

AGRICULTURAL REFORM

Speaking in early 2014, President Peña Nieto promised timely implementation of the agricultural reforms of the preceding year. The Mexican government has budgeted $25 billion for the country's agricultural industry, and has laid out a comprehensive seven-point strategy to raise productivity. By introducing legal certainty regarding land ownership, establishing partnership schemes such as agribusiness clusters, and contract farming, the plan will boost the productivity of small- to medium-sized farmers and allow them to competitively sell their products to global and local markets. Only 15% of the fertilizer currently used by Mexican farmers is manufactured domestically. By boosting local fertilizer production, the reforms hope to increase availability and lower costs, especially for smaller operations that are unable to afford internationally produced fertilizer. The third point deals with standardizing and improving seed quality. Doing so is expected to open up new markets, and safeguard the health of Mexican consumers. With climate change making irrigation water increasingly hard to come by, the reforms are seeing new irrigation systems—which are four times more effective than rainwater—introduced to farms across Mexico. Access to these new systems, and other farming technology is being facilitated through new credit schemes promoted by the government.

In 2013, less than 10% of Mexico's agricultural production units had access to credit, making the reforms a timely development. President Peña Nieto is implementing these credit reforms through the establishment of a specialized private regional bank, and an agricultural stock exchange with both futures and physical markets. During the first year of the Peña Nieto administration, the government insured 12.1 million hectares, and almost 10 million head of cattle, representing an increase of 30% and 40% over the previous year, respectively. The sixth area of agricultural reforms involves synchronizing the supply and demand of products, as increases in production are often failing to translate into higher incomes for many Mexican farmers. A final dynamic of agricultural reform fits into President Peña Nieto's efforts to modernize Mexico's legal framework, which he argues, will make the countryside able to compete and succeed in the most demanding markets.

MEET THE MEAT

Mexico's pork industry is slowly recovering from a battering inflicted by the 2009 swine flu outbreak, which triggered bans on pork products by some countries of export. In 2013, pork exports reached 86,294 tons, registering a 3% increase over 2012. As of 2014, Mexico exported 77% of its pork to Japan and 10% to South Korea. Exports to China are on hold due to a regulatory ban; however, the industry is close to instituting the correct certification, and Chinese demand should boost exports even further. Avian influenza shook Mexican poultry production when the disease broke out in 2012 and 2013. The outbreaks forced the industry to modernize, and investments in climate-controlled poultry barns and biodigesters are now being used to prevent new outbreaks. According to the USDA Foreign Agriculture Service, commercial broiler meat is projected to surpass 3 million metric tons in 2015.

Although fisheries constituted only about 0.4% of GDP, developments in the industry are worth noting as they could impact future export growth. In 2013, outbreaks of early mortality syndrome (EMS) decimated the stocks of Mexican shrimp farmers, with production volumes for 2013 plummeting to 55,000 metric tons, down from 120,000 tons in 2012. Even with better monitoring systems, EMS still ravaged production in two states in early 2014. Yet as the shrimp business flounders, tilapia production took off, outstripping shrimp production by 30,000 tons in 2013. According to the Secretariat of Agriculture, Livestock, Rural Development, Fisheries, and Food (SAGARPA), tilapia production is expected to reach 87,000 tons in 2015 and considering its current growth rate of 53.3%, tilapia production could reach 100,000 tons by 2016. Given that Mexico currently imports 60,000 tons of tilapia from China, the potential for domestic production far exceeds current infrastructure. And although shrimp is expected to recover by 2018, the 2014 forecast remains flat at 60,000 tons in 2014.

INTERESTING CROPS

Over the past decade avocadoes emerged as a crucial export product for Mexico. In the first six months of 2014 avocado exports increased by 29% over the same period of last year. According to SAGARPA, 353,000 tons of avocados, worth $794.4 million, were shipped between January and June. Four out of every five Avocados consumed in the US comes from the state of Michoacan alone, with 515,000 tons sent north during the 2012-2013 growing season. During the same time period, 72% of total exports went to the US, however, exports to China rose a stunning 724% compared to the first six months of 2013, and sales reached almost $3 million. According to the Mexican Association of Avocado Producers and Packers (APEAM), 629,000 metric tons of avocados were produced in the 2012-13 period registering a 39% increase from the previous year.

Regarding a more problematic plant, Mexican tequila is not only causing headaches for revelers the morning after, but also for producers as agave prices have shot up over 500% since 2012 due to shortages that are expected to last for up to five more years. Current agave production is dependent on market conditions that prevailed seven to 10 years ago. Production follows the seven to eight year growth cycles of the plant, and from 2005 to 2010, production levels reached historical highs. This in turn decreased the immediate incentives to grow, leading to the current paucity in harvests. Companies like Olmeca, which controls 70% of its agave supply, are better positioned to weather the current scarcity due to prudent planting; however, conditions are already translating into higher prices at the cash register and lower profits, especially on lower grade tequila.

INVESTING IN R&D

Donations by Carlos Slim and Bill Gates are enabling researchers at Mexico's International Maize and Wheat Improvement Center (CIMMYT) to advance the genetic modifications of grains in an effort to combat global hunger. And while CIMMYT's high-tech strategies are attracting criticism, the center's enhanced research budget propels it to the forefront of genetic farming research. Researchers at the center apply technology developed through other genetic research to the germ plasm. The center is now a leader in this research sector because of its massive gene banks, which store 28,000 varieties of maize and 120,000 varieties of wheat. Fish farming is also evolving to suite Mexico's arid climate and water shortages. In 2013, Storvik Biofloc Mexico began operations on a contained system for land-based fish farming without water emissions, and minimal energy consumption. The new aquaculture method does not require draining, which lets farmers grow fish closer to their target markets. The Mexican government is subsidizing aquaculture development by providing up to 50% of the financing, as well as low interest loans for further costs. In Morelos, Mexico, pig farming is also taking the initial steps towards reducing carbon emissions by installing a biodigester, which is a closed tank that stores the waste from the farm's 17,000 animals. The tank prevents around 6,000 tons of methane and other greenhouse gasses from entering the atmosphere. The biodigester project has received partial financing and advice from the Shared Risk Trust (FIRCO), an entity created by the Agriculture Secretariat. In addition to the pig farm in Morelos, by June 2013, FIRCO was partly financing or providing advising for around 800 projects across Mexico. Together, these clean technology projects are expected to prevent 589,000 tons of CO2 being released into the atmosphere, equivalent to taking 294,000 vehicles off the road for a year.