Corn-Producing Sector in Mexico and Sustainability

1. Corn-Producing Sector in Mexico and Sustainability Alejandro Nadal Centre for Economic Studies El Colegio de México OSISA – CCS-UKZN Winter School on Rethinking Sustainability, Development and Economic Justice South Africa, Durban, July 2013

2. OVERVIEW - Main Features • Importance of small scale producers, both small commercial farmers or subsistence producers • 3 million direct producers • 15 million persons depend directly on corn • Approximately 8 more million depend indirectly (commerce, transportation) on corn production • Large employment generator • Crucial staple • Nixtamal process: only used in Mexico & Guatemala • Converts bound niacin into free niacin

3. Zea mays: Mexico is centre of origin of corn • Vavilov in Mexico (1930, 1932): Mexico is the centre of origin of corn (Zea mays) • Mexico is the centre of domestication of corn from “teosinte” (Zea mays parviglumis) around 7,000 years BPT • Mexico is the centre of greatest genetic variability of corn • Mexican corn germplasm: 51 racial complexes and more than 9,000 varieties (38% of accessions at CIMMYT) plus 388 varieties of wild relatives (teosinte and tripsacum) • Today: high risk of genetic erosion • Degradation of milpa systems • Migration induced by economic warfare • Large scale agri-business model (including for ethanol) • GMOs: moratorium, contamination (Oaxaca), authorization

4. Corn small scale producers and genetic variability • Mexican producers using traditional methods on rain-fed land rely heavily on genetic diversity as a strategy for survival • Genetic variability of corn = most important technological asset of small scale corn producers in Mexico • Sowing different varieties, with different abilities to withstand a range of environmental conditions, offers insurance for an adequate harvest: this requires sophisticated handling of a complex set of inter-relations between seed characteristics, soil quality, surrounding topographic features, weather and climate, etc. • Milpa: complex intercropping system (it’s core is made of three crops: corn (Zea mays), beans (Phaseolus vulgaris) and squash (Cucurbitacea spp.)

5. Genetic variability of corn in Mexico • Global importance: Mexican germplasm has been used to improve more than 45 varieties of corn used worldwide • Critical in context of climate change • In situ conservation performed by three million small scale producers in Mexico: curators of germplasm • Ex situ in germplasm banks not enough in the long haul • Static conservation (in situ is dynamic) • Lack of adequate information in accessions’ passports

6. In situ Conservation of Genetic Resources Maize in Mexico: well adapted to complex tapestry of agro-ecosystems. Due to strong genetic X environment interaction, maize is well adapted to the harsh and varied conditions of Mexico’s lanscapes Mexican corn germplasm is the single most important technological asset of poor (small-scale) producers HYV’s unable to compete with landraces. GMO’s may be in the same situation (Berthaud, Goodman, García Barrios, etc.),

7. Justifying Corn in NAFTA • Government’s justification for including corn in NAFTA: it would be cheaper to import than to produce domestically • These three million producers were defined by GOM as “inefficient” and too costly (subsidies and price floor support mechanisms) • In addition, the GOM argued that these subsidies were distorting prices of corn and affected consumers of final maize products (tortillas)

8. Corn in NAFTA • Tariff rate quota system over 15 year period • Tariff-free quota to expand at 3% p.a. • Initial tariff at 206% ad valorem (phase out) • Price floor support and import quotas to be eliminated immediately and… • Replaced by income deficiency systems (à la Dunkel) • Support for producers during this period would be maintained constant in real terms

10. The NAFTA Project: expected results 1. Increments in corn imports 2. Reductions in domestic prices 3. Diminished output Reallocation of productive resources: land, capital and labor

12. The Implementation of Corn in NAFTA • Tariff for over quota not implemented: de facto total liberalization took place on January 1, 1994 • Transition period truncated to 36 months (domestic and international prices alligned) • Producers’ prices dropped 50% first years of NAFTA • PROCAMPO’s real value dropped 45% • Investments in hydro infrastructure collapsed • Credit for agriculture at all-time low • TODAY: international prices have increased (food crisis) due to biofuel production in the USA and to a lesser extent financial speculation in futures markets

13. International Corn Prices

14. International Corn Prices 2000 - 2012

15. Evolution of international prices of corn • World demand (China)? • What about market power concentration? • Archer Daniels Midland, Cargill, Bunge, Louis Dreyfus (ABCD) control more than 40% of world trade in grains • Ethanol and biofuel production, especially in the US • Financial speculation in Chicago Mercantile Exchange • US CTC continues to deregulate commodities’ futures markets • Big players in energy trading entering commodities trade: Vitol (largest independent oil trader) has hired team from Viterra (Toronto). Viterra was bought by Glencore, largest global commodity speculator

16. Financial speculation and commodity markets Source: UNCTAD’s Policy Brief No. 25 Calculated with data from Bloomberg

17. Financial speculation and commodity markets Source: UNCTAD’s Policy Brief No. 25 Calculated with data from Bloomberg

21. Trends in Mexican Agriculture Declining government credit Declining commercial credit

22. Trends in Mexican Agriculture:Declining Investment

23. Declining Subsidies for Maize (Amber Box)