19. Mexico
Support to agriculture
The PSE average in 2017-19 was 9.4% of gross farm receipts, about half of the OECD average. The majority of transfers to producers (60%) were in the form of market price support (MPS). Other important forms of support were those based on electricity use, the purchase of machinery and equipment and direct payments based on area. Sugar is the commodity with the highest MPS and represents 30% of total MPS. While trade liberalisation and domestic policy reforms in the 1990s led to a considerable reduction in the most production and trade distorting support, such as that based on output (including the MPS) and unconstrained use of variable inputs, those forms of support have increased since 2015.
General services (GSSE) expenditures represented 1.4% of agriculture’s value added and 9% of the TSE, lower than the OECD average. Most of those expenditures are directed to agricultural technical institutes and vocational agricultural schools (50%), and inspection and control activities (20%).
Total support to agriculture in Mexico as a percentage of GDP was 0.5% in 2017-19, similar to the OECD average. Taxpayers provide 60% of these transfers, the remaining 40% coming from consumers. Consumers’ contribution to agricultural support is due to agricultural prices supported above international levels via price regulations and border measures.
Main policy changes
A new government, that took office in December 2018, shifted the focus of its support programmes towards small-scale farmers living in poor areas (i.e. farmers with less than 20 hectares), and created three new support programmes targeting these groups of producers: (1) guaranteed minimum prices for producers of maize, beans, wheat, milk and rice; (2) cattle (in-kind) loans at zero nominal interest rate to bovine producers, with no collateral demanded; and (3) a fertiliser programme that distributes fertiliser to agricultural producers.
The emblematic programme of payments based on area, originally called PROCAMPO followed by PROAGRO and now Production for Wellbeing, was substantially modified: the scheme now only targets producers with less than 20 hectares and those in highly marginalised indigenous communities in the south-eastern states of the country. Coffee and sugar cane producers were also included in the programme’s register. The level of support remained at levels similar to previous years.
The Secretariat of Agriculture and Rural Development (SADER) is also working with the International Maize and Wheat Improvement Center (CIMMYT) and agricultural producers, to provide agricultural producers with information on weather forecasts and the most appropriate adaptation practices to minimise the impact of climate change.
A regulation that specifies labelling guidelines for food was amended making it mandatory to include information on sugar, sodium, fats, and caloric content per portion. After being approved by both legislative chambers and fought in tribunals due to an appeal by the food industry, the regulation is finally ready to be published in the Mexican Official Diary.
In December 2019, the Mexican Senate approved the Mexico-United States-Canada Agreement (called Tratado entre Mexico, Estados Unidos y Canada - T-MEC - in Mexico), to replace the former NAFTA from 1994.
Assessment and recommendations
Although Mexico’s PSE remains relatively low (8.5% in 2019), it is composed of the most distorting forms of support, in particular market price support. Recent shifts towards unconstrained input-based, output-based and market price support, have partially offset progress made in reducing potentially most distorting forms of support since the 1990s. Consequently, this share is now at 63%.
The majority of the new programmes —in-kind loans to livestock producers, guaranteed minimum prices for small-scale producers and transfers to consume fertilisers— are intended to target poor farmers. These risk becoming costly and inefficient measures for helping small-scale and poor farmers. Distributing fertiliser without consideration of soil needs can threaten water and air quality if applied beyond what is required. These forms of support can also crowd out private activity and may be difficult to phase-out.
Transitioning from those new schemes to schemes that promote agrobiodiversity by utilising local plant genetic resources, one of the main ecosystem services that Mexican small-scale farmers in poor areas provide, could be a more cost-effective mechanism for helping poor farmers, and could, at the same time, increase the resilience of agricultural systems and the genetic diversity of plants.
Investments in general services and infrastructure remain at low levels (1.4% of agriculture’s value added). In contrast, input-linked support, such as that provided for on-farm consumption of electricity, remains at high levels, distorting markets and threatening scarce water resources. Input-linked support should be redirected towards the provision of public goods like electricity and road infrastructures particularly deficient in the South and South-eastern regions, price and weather information systems, agricultural knowledge transfer and research and development. Support for the promotion of producer associations, market promotion and access for small-scale and poor farmers could also help to overcome some of the barriers they face related to scale. Strengthening the conditional cash transfers programme (now called Becas Benito Juarez) can also help to improve living conditions of poor farmers.
The modifications made to the scheme of payments based on area, Production for Wellbeing, to focus on producers with less than 20 hectares and those in highly marginalised indigenous communities in the South-eastern states of the country, are a useful step towards an improved targeting of the programme.
The environmental impacts of the sector could be reduced by conditioning payments to the implementation of sustainable farming practices and by removing input subsidies, such as the electricity subsidy that incentivises unsustainable irrigation.
While the share of agricultural greenhouse gas (GHG) emissions to total GHG emissions has decreased in Mexico since 2000, the share of these emissions is still large relative to other OECD countries. Mexico’s agriculture GHG emissions target (-8% below a business as usual scenario in 2030, compared to an overall target of -25%) can help to improve the sector´s environmental performance and to global mitigation efforts; however, support and financing for the main strategies to achieve the target, such as increased use of biodigesters in livestock farms as well as conserving and restoring grasslands, have been reduced since 2018.
Policy responses in relation to the COVID-19 outbreak
Agricultural policies
Support programmes of the Secretariat of Agriculture and Rural Development (SADER) will be maintained during the contingency and the National Water Commission in collaboration with SADER are working to making sure programmes related to the conservation and restoration of water infrastructure in the agricultural sector are also maintained during the sanitary emergency.
The programme “Sembrando Vida” that distributes plants and inputs for agroforestry projects to producers with incomes below the poverty line, will be expanded to include 200 000 more recipients.
Agro-food supply chain policies
SADER works in collaboration with the members of productive chains to make sure food supply, inventories and distribution are not disrupted. Particular attention is put on key productive chains such as grains, horticulture, poultry, beef, fisheries and aquaculture.
Digitalisation services have been expanded for speeding up food imports. Up to 60% of the administrative import processes are now done remotely by the Centre for Documentation and Judgement (CDD) of the National Service for Health, Safety and Agri-food Quality (SENASICA).
The government has recommended reinforcing hygiene inspection systems in food production units and is encouraging consumers to follow hygiene practices when handling and preparing food.
The agricultural ministries of Honduras, El Salvador, Costa Rica, Guatemala, Mexico, Nicaragua, Panama, the Dominican Republic, as well as members of the Inter-American Institute for Cooperation in Agriculture (IICA), proposed to create an inventory of products ready to be exported and food transportation protocols for making sure food is distributed where it is lacking.
Agricultural ministries of 25 Latin American countries have signed a ministerial declaration where they committed to the provision of technical and financial assistance for producers; make sure wholesale markets work properly; implementing emergency programmes to prevent food waste and the well-functioning of food banks; monitoring logistic chains, particularly those that involve several countries; introduce and encourage the use of e-commerce; make sure fiscal and trade policies put in place by governments do not disrupt trade flows and maintain “real-time” monitoring of markets in association with the private sector to co-ordinate “real-time” responses.
Meetings with the agricultural ministries of Colombia, Chile, Peru, Bolivia and Ecuador have been held to share sanitary protocols, measures and experiences to mitigate the impacts of COVID-19 in the agri-food sector.
Other
The government has committed to not increase fuel prices. VAT refunds will be provided in advance.
Note: * Share of potentially most distorting transfers in cumulated gross producer transfers.
Source: OECD (2020), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), https://doi.org/10.1787/agr-pcse-data-en.
Support to producers (%PSE) has declined considerably over the long term. During 2017-19, farm support was around 9% of gross farm receipts, less than half the OECD average. The share of potentially most distorting transfers has also decreased over time due to lower market price support (MPS), but given the increased importance of support based on output and unconstrained variable inputs in recent years, the share is still high at 63% (Figure 19.1). Relative to 2018, the level of support decreased in 2019 due to lower budgetary support (Figure 19.2). Prices received by farmers, on average, were some 9% higher than world prices; particularly large differences between sugar and other commodities persist with domestic prices for raw sugar substantially above international reference prices. MPS is the main component of Single Commodity Transfers (SCT) for sugar, dried beans, pig meat and poultry meat. Support based on output is particularly relevant for wheat, maize, sorghum, rice, soybeans and milk. Sugar has by far the highest share of SCT in commodity gross farm receipts (Figure 19.3). The expenditures for general services (GSSE) relative to agricultural value added were substantially lower than the OECD average.
Source: OECD (2020), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), https://doi.org/10.1787/agr-pcse-data-en.
Source: OECD (2020), “Producer and Consumer Support Estimates”, OECD Agriculture statistics (database), https://doi.org/10.1787/agr-pcse-data-en.
Contextual information
Mexico has a population of 125 million, ranks as the 11th largest world economy and has a per capita GDP just below the average of all countries covered in this report. Agriculture’s GDP share has remained stable at 3% since 2000. In contrast, its role in the national employment has declined over the past two decades: while agriculture employed more than 17% of the labour force in 2000, it represented less than 13% in 2018. Trade is an important driver of Mexico’s economy: it represents 37% of GDP and has grown 13 percentage points since 2000. Agro-food trade is an important fraction of total trade, both in terms of exports and imports, representing 7.4% and 5.9% of each, respectively. While the crop sector still dominates in terms of its contribution to total value of production (58%), the participation of the livestock sector is important (42%).
Since 2015, Mexico has registered a positive and growing net agro-food balance. Whereas most agro-food exports are primary and processed for final consumption, more than half of agro-food imports are intermediate products for further processing.
Economic growth slowed down since 2015 and was almost 0% in 2019. The inflation rate has declined since its most recent peak in 2017. The unemployment rate has remained stable at around 3% a year, although informal employment remains elevated at more than 50% of total employment.
Sources: OECD statistical databases; World Bank, WDI and ILO estimates and projections.
Note: Numbers may not add up to 100 due to rounding.
Source: UN Comtrade Database.
Agricultural output in Mexico has been increasing predominantly due to Total Factor Productivity (TFP) growth, and to a limited extent to growth in primary factors and more use of intermediate inputs (fertiliser and feed). TFP growth between 2007 and 2016 is estimated slightly below the global average, and much less dynamic than during the 1990s. In contrast to the trend observed in the OECD area, nutrient balances have increased in the last decade, potentially impacting water and air quality. Greenhouse gas (GHG) emissions represent 15% of total GHG emissions, a figure that is almost double the OECD average. Water stress is well above the OECD average, and agriculture is partly responsible for this pressure due to its share on total water abstractions.
Note: Primary factors comprise labour, land, livestock and machinery.
Source: USDA Economic Research Service Agricultural Productivity database.
Description of policy developments
Main policy instruments
Agricultural support policies in Mexico are guided by five-year sectoral programmes. The new Sectoral Programme for Agriculture and Rural Development (2019-2024) is currently being drafted although many of the specific support programmes are already functioning.
Since 2019, agricultural policy focuses on four main programmes: (1) in-kind livestock credits with no collateral, (2) guaranteed prices for small-scale farmers, (3) payments based on area, and (4) a fertiliser programme. Except for payments based on area, the rest of the programmes are new and covered in the section on Domestic Policy Developments 2019-20.
The “Production for Wellbeing” programme focuses mostly on area based payments which target small and medium producers, including producers from indigenous communities. Payment rates are decreasing with farm size. Producers with no more than 0.2 irrigable hectares or 5 rain-fed hectares or those located in marginalised and highly marginalised indigenous communities receive MXN 1 600 (USD 85) per hectare per growing season. Producers with land holdings of between 0.2 irrigated hectares and 5 irrigated areas or holdings between 5 and 20 rain-fed hectares receive MXN 1 000 (USD 53) per hectare per growing season. In contrast, coffee producers and sugar cane producers receive yearly payments of MXN 5 000 and MXN 7 300 (USD 265 and USD 387), respectively, irrespective of the plot size.
Two other relevant support programmes include the Agriculture Development Programme and the Livestock Development Programme. Both provide investment assistance to cover part of the cost for purchases of on-farm machinery, inputs and infrastructure for crop and livestock production and cultivation of horticultural crops in greenhouses. The Agriculture Development Programme focuses on small and medium size farming operations while the Livestock Development Programme is open for all registered livestock operations. The Livestock Development Programme provides support for the maintenance and reconversion of meadows and rangelands as well as for the control, handling and use of animal excreta in livestock operations.
Additional support is provided for on-farm consumption of electricity and for coping with market volatility. Support for managing market volatility and improving market access is directed to small and medium size producers for:
financing price risk management instruments
promoting contracts in agriculture
complementing producers’ target income
promoting quality certification
acquiring training and technical assistance
financing the construction and rehabilitation of grain and oilseed storage systems
financing the development of organisational, administrative, business, commercial, operational and financial capacities.
Food consumer subsidies remain as an important poverty alleviation instrument in Mexico. Poor families obtain basic staples through DICONSA rural shops, while the LICONSA programme sells milk at prices below market levels.
Mexico’s climate pledge to the Paris Climate Conference in December 2015 includes both unconditional and conditional targets. Mexico has committed to unconditionally lower GHG emissions by 25% by 2030. Reductions excluding black carbon will come from transport (-18%); electricity generation (-31%); residential and commercial electricity consumption (-18%); oil and gas (-14%); industry (-5%); agriculture (-8%) and waste (-28%). Depending on international support, the GHG target could increase to as much as 40%. In order to achieve such targets, the general strategy for the agricultural sector promotes the adoption of technologies that improve the sustainability of the sector, and the use of biodigesters in livestock farms as well as conserving and restoring grasslands. The strategy also considers adaptation measures to protect communities from adverse impacts of climate change, such as extreme hydro meteorological hazards (e.g. tropical cyclones, thunderstorms, floods, drought, heatwaves and others), as well as to enhance the resilience of infrastructure and biodiversity-rich ecosystems. To do this, the government aims at strengthening the adaptive capacity of at least 50% of municipalities “most vulnerable” to climate change, establish early warning systems and risk management systems at every level of government (local, state, national) and reach a 0% net deforestation rate by 2030.
Domestic policy developments in 2019-20
The Mexican Government is currently drafting the new Sectoral Programme for Agriculture and Rural Development 2019-2024, which is to guide the implementation of the National Development Plan for the period 2019-24 and replace the previous Sectoral Development Programme for Agriculture, Fisheries and Food 2013-2018. The strategic guidelines of the Sectoral Programme for Agriculture and Rural Development 2019-2024 will focus on three objectives: (1) improve agricultural productivity for food self-sufficiency, (2) bring down poverty rates in rural areas, and (3) increase small-scale agricultural producers’ incomes. New support programmes include guaranteed minimum prices, in-kind livestock credits with no collateral and a fertiliser programme.
Guaranteed minimum prices are granted to maize, beans, wheat, milk and rice producers and are set at levels above market prices. The eligibility criteria vary for different commodities but are mainly intended to support small and medium size producers of maize (maize producers with no more than 5 hectares producer), beans (producers with no more than 20 rain-fed hectares or 5 irrigable hectares) and milk (milk producers owning 100 cows or less). The programme supports wheat and rice producers of any size, while supported milk producers must also sell their product to LICONSA, a state enterprise that purchases, processes and distributes milk at subsidised prices. In all cases, there are limits to the amount of support that a single farmer can receive. Under this programme, maize producers are also eligible for a transportation subsidy. SEGALMEX (Mexican Food Security), the institution in charge of the rural shops DICONSA (selling basic staples in poor localities) and LICONSA, purchase maize and beans directly from producers. In order to do that, it has been renting storage space to complement its storage infrastructure. For wheat and rice producers, SEGALMEX pays producers the price difference from the market price they obtain.
The Livestock Credit Programme with no collateral provides in-kind credits to bovine, ovine, caprine, porcine, and honey small producers. Producers receive a certain amount of animal units and pay back the same amount of animal units after four years. Bovine producers can borrow up to 10 heifers and 1 stud. Ovine and caprine producers can borrow up to 50 heads and 2 studs. Porcine producers can borrow up to 20 heads and 1 stud and honey producers can get up to 200 hives. While a national programme, it is focused in 13 states: Campeche, Chiapas, Guerrero, Jalisco, Nayarit, Michoacán, Oaxaca, Quintana Roo, Tabasco, Tamaulipas, Veracruz, Yucatán and Zacatecas. Producers who enter into this scheme can also obtain up to MXN 100 000 (USD 18 800) to invest in equipment and infrastructure, up to the same amount to invest in seeds, fertiliser and herbicides to rehabilitate pastures and forage production, and up to MXN 9 500 (USD 504) to invest in protein-rich feed. For honey producers, support for beekeeping equipment for protection, handling and extraction is capped at MXN 20 000 (USD 1 060) and support for feed is capped at MXN 40 000 (USD 2 120). Under this scheme, farmers can also apply for technical support, which is provided by a government-funded network of livestock experts. During 2019, the first year of operation, this programme granted support only to bovine producers.
The Fertiliser Programme grants support to producers of maize, beans or rice holding no more than three hectares located in highly marginalised localities in the state of Guerrero. Up to 450 kg of fertiliser per hectare can be granted per producer a year.
The emblematic scheme of payments based on area, Production for Wellbeing, was substantially modified: the scheme now targets producers with less than 20 hectares and those in highly marginalised indigenous communities in the south-eastern states of the country. Coffee and sugar cane producers were also included in the programme’s register.
Congress is in the process of approving the new Law of the National Financing of Agricultural Development (Financiera Nacional de Desarrollo Agropecuario, FND, formerly Financiera Rural), which contemplates the merger of the latter with three other financial and insurance promotion entities of the sector: AGROASEMEX, FIRCO and FOCIR. This would integrate, in a single entity, the services of credit granting, price insurance, crop and animal insurance, risk sharing and financing of projects to add value to primary products.
By the end of 2020 the Marketing Support Program of the Agency for Marketing Services and Market Development (ASERCA), which during 2019 operated under the name of Social and Sustainable Markets, is to be dismantled. Contractual agriculture schemes should then be in charge of the above-mentioned FND, with the ambition to link the price risk management systems with the granting of credit to the sector.
For 2020, the Agriculture Development Programme, the Livestock Development Programme and the Fisheries and Aquaculture Development Programme are to be merged and to face substantial budgetary cuts.
The administrative and institutional restructuring of the Secretariat (Ministry) continues in 2020. The approval of new regulations of the Secretariat of Agriculture and Rural Development (SADER) is still pending, but the Government expects the Under-Secretariats for Rural Development and Food and Competitiveness to be eliminated and to be replaced by an Under-Secretariat for Food Self-Sufficiency.
In January 2020, the regulation that specifies labelling guidelines for food was amended making it mandatory to include information on sugar, sodium, fats, and caloric content per portion. Processed food products will now follow the labelling guidelines.
One of the priority objectives of the current draft of the Sectoral Programme for Agriculture and Rural Development 2019-2024 is the “Transition to Sustainable Agriculture for Present and Future Well-being”. It aims to promote sustainable production, the restoration of ecosystems and adaptation to climate change, as well as the use of clean energy in the agricultural and aquaculture-fishing sector.
To prevent the expansion of agricultural land, support to agriculture does not include support in areas classified as non-agricultural. SADER, in collaboration with the Ministry of the Environment and Natural Resources (SEMARNAT), has designed a platform called “National System for Consultation on Concurrent Incentives” (SINECI), which is to help avoiding support for productive activities on properties located in Natural Protected Areas and in priority areas for conservation.
SADER is also in the process of designing the National Strategy for the Conservation and Sustainable Use of Pollinators (ENCUSP), which is to be released in the first half of 2020. SADER is also working with the International Maize and Wheat Improvement Center (CIMMYT) and agricultural producers, to provide information on weather forecasts and the most appropriate adaptation practices to minimise the impact of climate change.
Trade policy developments in 2019-20
In December 2019, the Mexican Senate approved the Mexico-United States-Canada Agreement (called Tratado entre Mexico, Estados Unidos y Canada - T-MEC - in Mexico), to replace the former NAFTA from 1994. The Agreement was approved by the US Senate in January 2020 and by the Canadian Senate in March 2020. Some of the differences with NAFTA, are that T-MEC establishes that grading standards for agricultural products will be non-discriminatory (they cannot be used to discriminate among products from member countries). There are new provisions that promote enhance the transparency of the basis used to set sanitary and phytosanitary measures for agricultural products. It also intends to boost agricultural biotechnology and gene editing trading, by promoting co-operation, information sharing and other trade rules in those areas. The United Kingdom and Mexico have started to engage in discussions with a view to signing a trade agreement.
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