RECENT POLICY DEVELOPMENTS IN THE MEXICAN AGRICULTURAL SECTOR Andrés Casco Flores

1. RECENT POLICY DEVELOPMENTS IN THE MEXICAN AGRICULTURAL SECTOR Andrés Casco Flores San Diego, California Febrero 2000

2. SAGAR ESTRUCTURE OF THE GROSS DOMESTIC PRODUCTION 1998 p/ Other Activities 20.8% Agriculture, forestry and fisheries Services 5.8% 68.2% Processe Food, Beverages and Tobacco 5.2% FUENTE: Elaborado con base en datos del INEGI. p/ Cifras preliminares correspondientes al PIB trimestral. OUTSTANDING ASPECTS OF THE RURAL ECONOMY IN MEXICO • For the period 1994-98, the share of the agri-food sector in the Gross Domestic Production was on average 11.4 per cent .

3. SAGAR 30% of the producers 70% of the producers Total 0-2 2-5 5-10 10-18 >18 ha ha ha ha ha Total Income 100.0 100.0 100.0 100.0 100.0 100.0 Agriculture 40.9 16.8 26.8 37.7 44.9 61.8 Livestock 9.2 5.4 8.0 9.6 10.3 10.5 Non Agriculture Activities 36.4 57.8 49.6 35.8 28.5 24.3 Migration from Mx to US 13.5 20.0 15.7 16.9 16.2 3.4 OUTSTANDING ASPECTS OF THE RURAL ECONOMY IN MEXICO • Productivity in units of less than 5 ha. ranges from 0.5-2.3 tons. • Productivity in larger units migh reach 8-10 tons.

4. SAGAR AGRICULTURAL POLICY IN MEXICO AND SUPPORT PROGRAMS IN THE RURAL SECTOR PROCAMPO • Applicable since 1994 for supporting the income of the producers of grains and oilseeds. • The eligible crops are: maize, beans, wheat, sorghum, rice, soybean, safflower, cotton and barley. • The elegible acreage must be used in crops, livestock, forestry or conservation uses. • PROCAMPO has benefit an average of 13.7 millions of ha. annually. More than half of the total acreage benefited belongs to producers with less than 10 ha. per unit of production, and represents more than one fourth of their income.

5. SAGAR ALIANZA PARA EL CAMPO • This Program operates under a decentralize scheme. The decisions are taken at local level in an Agriculture State Council. • Federal and State support complement producers investments. • The main programs of Alianza para el Campo are: • Ferti-irrigation Rural Equipment • Mechanization Elementary Technical • Improved Seeds Assistance • Genetic Improvement Training and Extension • Prairies

6. SAGAR MARKETING SUPPORT PROGRAM FOR GRAINS AND OILSEEDS • The main objectives of this Program are: • offset the negative factors that have an effect on the marketing of grains and oilseeds, and • support under a selective approach, targeted to products and regions with structural problems. • In 1999, marketing support payments, for specific regions, were granted to soybeans, rice, wheat, sorghum, cotton and maize. • Marketing supports are allocated through public auctioning. • Buyers that requires the lowest subsidy and commits themselves to pay a certain price to the producer receive these supports

7. SAGAR RISK MANAGEMENT SUPPORT PROGRAM • The main objective of this program is to support producers expected harvest income, through hedging instruments for management of risks related to the fluctuations in the international prices. • The eligible crops for receiving supports for hedging are: MAIZE COTTON WHEAT SORGHUM SOYBEANS

8. SAGAR THE EXTINTION OF CONASUPO • Since the crop season Spring-Summer 1998/99, CONASUPO ceased to buy corn and beans. • In the past, CONASUPO bought to producers at a guarantee price. It operated the warehouses in production and consumption areas, and was in charge of the whole logistics. • CONASUPO supplied maize to the “tortilla industry” at subsidized prices. • In December of 1998, price controls for “tortillas” were abolished.

9. SAGAR PRICES OF TORTILLA 1996-1999 4.00 3.50 3.00 2.50 CURRENT 2.00 Pesos per Kilo REAL 1994=100 1.50 1.00 0.50 0.00 1996 1997 1998 1999 PRICES OF TORTILLA

10. SAGAR TRANSITIONAL SCHEMES FOR MAIZE • In most production areas, the market has substituted efficiently the role of CONASUPO. The “tortilla producers” have become a Key player in this market. • Marketing problems have appeared in those states that generate large surpluses and are far from main consumption areas (especially Sinaloa and Chiapas). • Maize of Sinaloa and Chiapas was included in the marketing support Program operated by ASERCA. • In Sinaloa, three auctions were made for the Autumn-Winter season. The private sector purchased the total amount for this crop.

11. SAGAR DIRECT ALLOCATION AUCTION MARKETING SUPPORTS FOR MAIZE ALLOCATED BY ASERCA

12. SAGAR TRANSITIONAL SCHEMES FOR MAIZE IN CHIAPAS • In Chiapas, conditions are more difficult for the development of a free market. • Lack of knowledge of marketing instruments (marketing loans, options, futures, etc). • Lack of producer organizations with entrepreneurial skills. • Deficiencies in railroads and problems in the transport system.

13. SAGAR SHARE 1994 40.5% 1995 21.8% 1996 8.7% 1997 18.8% 1998 13.4% 30.0 25.0 20.0 15.0 Million Tons 10.0 5.0 PURCHASES 0.0 1998 1994 1995 1996 1997 PRODUCTION CONASUPO´S PURCHASES OF NATIONAL PRODUCTION OF MAIZE

14. SAGAR TRANSITIONAL SCHEMES FOR MAIZE IN CHIAPAS • Marketing support program was granted through ASERCA to main buyers under an auction system, as well as through direct allocation for firms located in the area. • A trust operated by the State Government has purchased a large part of the crop. It is financed by a credit line; it only purchases on account of the interested buyers. • SAGAR has designed a program to train producer organizations in marketing and provides some support to induce marketing cooperatives.

15. SAGAR TRANSITIONAL SCHEMES FOR MAIZE IN CHIAPAS • Former CONASUPO infrastructure in the State will be transferred to producers, in a way that enhances the formation of marketing cooperatives. The medium term objective is to create conditions similar of those of Sinaloa. • CONASUPO operated 200 warehouses in the State of Chiapas. Under the new scheme only 102 warehouses were enabled by the State Trust. This fact shows that CONASUPO’s infrastructure was larger than strictly necessary. • The estimated crop production for this season is 450 thousand tons. So far 350 thousand tons have already been marketed by private purchasers.

16. SAGAR INTERNATIONAL VS DOMESTIC PRICES OF MAIZE 1994-1999 1,600.0 1,400.0 1,200.0 1,000.0 CBOT DOMESTIC Pesos per Ton 800.0 600.0 400.0 200.0 INTERNATIONAL VS DOMESTIC PRICES OF MAIZE 1994-1999

17. SAGAR Milk Powder Imported by CONASUPO (Metric Tons) 200,000 174,381 161,440 158,941 180,000 148,610 160,000 135,059 140,000 120,000 100,000 80,000 60,000 40,000 20,000 0 1994 1995 1996 1997 1998 Source: SECOFI AUCTION FOR IMPORTS OF MILK POWDER • Until May of 1999, CONASUPO was the sole importer of milk powder to supply private processors and social programs for low income population.

18. SAGAR AUCTION FOR IMPORTS OF MILK POWDER • Since the second half of 1999, import certificates are allocated directly to the final user. • The allocation of quotas is based on historical consumption of each firm (for infra-marginal quantities). • For complementary requirements, additional import certificates are auctioned. The result of these auction provide information on market conditions. • DICONSA is also allowed to import directly milk powder for its social program.