20. Mexico
Mexico’s Producer Support Estimate (PSE) for 2020-22 was equal to 11.3% of gross farm receipts, about a third of that in 1991-93 (31%) and lower than the OECD average. Although the PSE is relatively low, it mainly comprises potentially most-distorting forms of support. Market Price Support (MPS) and payments based on output and input subsidies decreased over the past 20 years from 77.9% in 2000-02 to 68.9% in 2020-22. While trade liberalisation and domestic policy reforms in the 1990s reduced these forms of support, MPS increased again after 2016. The ratio of producer to border prices (National Protection Coefficient, NPC) is 1.07, suggesting that domestic prices are an average 7% higher than those in international markets. Single Commodity Transfers (SCT) are highest for sugar, milk, poultry, and rice.
Budgetary transfers allocated to producers in 2020-22 were mainly for payments based on input use, particularly for electricity (pump groundwater for irrigation) and the fertiliser programme. Direct payments based on land are another important form of support used in two major policy instruments, the production for well-being programme (direct payments based on land); and the sowing life programme (direct payments based on area for afforestation and agroforestry). Payments based on input use and land represent 80% of total budgetary transfers to producers.
General services expenditures (General Service Support Estimate, GSSE) in 2020-22 equalled around 1% of agriculture’s value of production, and 8% of the Total Support Estimate (TSE), lower than the OECD average on both counts. Most of those expenditures are directed at agricultural innovation, extension, and training (55%, predominantly technical institutes and vocational schools), and development and maintenance of infrastructure, particularly on large hydrological works (37%). Total support to agriculture in Mexico was 0.6% of Gross Domestic Product (GDP) in 2020-22, well below the 1.3% observed in 1991-93.
Agricultural policies in 2022-23 focused on consolidating the implementation and reach of the main agricultural support programmes – part of a multi-year process. The emphasis is on supporting small-scale producers of basic grains such as maize, beans, wheat, milk, and rice, and supporting rural women, indigenous populations and vulnerable groups.
The most significant change occurred in the geographic coverage of the fertiliser programme, which had been implemented in only the five poorest states of the country. Implementation was expanded nationally as of 2023 while continuing to target the poorest communities of each state. The budget allocated to this programme increased from MXN 1.9 billion (USD 88.4 million) in 2020 to MXN 16.7 billion (USD 938.2 million) in 2023. Around 55% of beneficiaries of the programme are in communities with indigenous populations and 41% are women.
The guaranteed minimum price programme run by SEGALMEX was updated to support more than 117 000 small and medium-scale farmers. It purchased 9 million tonnes of maize and wheat, and 618 million litres of milk in 2022. Additionally, the maximum amount eligible to receive the guaranteed price increased from 20 tonnes to 35 tonnes of maize per farmer, while for milk it went from 25 litres to 30 litres per cow. The maximum amount for rice was reduced from 120 tonnes to 80 tonnes per farmer. For medium-sized farms whose production is not purchased by SEGALMEX, a price-hedging mechanism was introduced in 2021-22, where the difference between the guaranteed price and a reference price is covered by insurance, for which the government pays part of the premium. Lastly, the National Financing Agency for Agricultural, Rural, Forestry and Fisheries Development (FND) is under a dismantling process, which meant a suspension of credit granting in 2023.
The 2022 national adaptation guidelines for agriculture set out measures largely in alignment with good adaptation practices. However, more detailed and concrete actions embedded in the country’s agricultural policy instruments can be developed to strengthen the resilience of the sector and its adaptation to climate change. Moreover, more and better climate-change adaptation information, such as adaptation actions, and the use of agri-environmental indicators are key to assessing policy impact. Lastly, Mexico should consider reforming its electricity subsidies, which continue to encourage water overuse, and more broadly improve water management as this will be key for the future of agriculture under a changing climate.
Within its economy-wide targets to reduce greenhouse-gas (GHG) emissions by 22% and black-carbon emissions by 51% relative to business-as-usual (BAU) by 2030, a specific target for agriculture calls for an 8% reduction relative to BAU. Additional actions are needed to achieve this, as support and financing to increase the use of bio-digesters in livestock farms and conserve and restore grasslands are insufficient to deliver the needed results.
Mexico should enhance activities in training, technology transfer and adoption, and capacity building related to sustainable agriculture, and promote related techniques. This is even more important given that Mexico’s significant agrobiodiversity resources need better protection. More needs to be done to encourage sustainable production. Climate-smart practices, zero till, crop diversification, soil recovery, and others are relevant in this context. Traditional knowledge should be acknowledged as a valuable resource. Moreover, transitioning to schemes that promote agrobiodiversity using local plant genetic resources (a main ecosystem service that small-scale farmers in poor areas provide) could be more cost-effective in helping poor farmers and increase the resilience of agricultural systems and the genetic diversity of plants.
Mexico’s efforts to reorient its payment schemes to focus on vulnerable populations is a remarkable development – particularly the tailored and targeted nature of new and old policy instruments – and follows previous OECD recommendations. This includes area-based Production for Wellbeing payments that target small and medium-size producers and those in marginalised, indigenous communities in the poorest states; the expanded and more-targeted Fertiliser Programme; and the Sowing Life programme supporting small farmers’ agroforestry projects in poor municipalities.
Despite these efforts to reorient payments, improvements are needed to ensure that programmes deliver on their sustainability objectives. The Fertiliser Programme should only tackle market imperfections that limit poor farmers’ access to fertiliser, inputs, or credit and could be accompanied by training in good agricultural practices. To improve implementation, the fertiliser programme should systematically consider soil characteristics and nutrient needs when distributing fertilisers. The Sowing Life programme needs to ensure that it does not incentivise farmers to deforest their parcels to become beneficiaries. One way is to offer complementary payments for environmental services that work as incentives to preserve existing forests. In addition, the efficiency of these programmes would be improved by parallel development of a zoning system that identifies land use based on agri-climates and soil fertility. Moreover, conditioning payments on the implementation of sustainable farming practices could reduce the sector’s environmental impact. Support to producer organisations (e.g. co-operatives), and output and input market access for small-scale and poor farmers could also help overcome barriers related to scale.
Mexico’s support to agriculture is relatively low, yet most of it is potentially most-distorting, such as MPS for products like sugar, milk, and poultry. MPS has been increasing since 2016, after some decrease due to reforms in the 1990s and 2000s. Given the transition to targeted policies already mentioned, the objectives of remaining MPS policies can be re-evaluated. Mexico should consider gradually phasing out price regulations for sugarcane and continue efforts to re-orient payments towards schemes targeting poor smallholders and environmentally sustainable practices.
Public allocations to general services and public goods are limited even though these can improve the sector’s performance and create an enabling environment. In particular, the sector would benefit from greater investments in extension and technical assistance services, price and weather information systems, better agricultural knowledge, innovation systems, and agricultural research and development.
Overview of policy trends
Starting in the 1980s, reforms to price support reduced its prominence in the policy mix. In 1988-89, guaranteed prices for wheat, sorghum, barley, rice and oilseeds were eliminated. After the enactment of the North American Free Trade Agreement (NAFTA) in 1994, guaranteed prices for maize and beans were phased out and the government withdrew from procurement and marketing except for beans and maize, for which government involvement was reduced but not eliminated.
The old system of market supports was replaced by a new one of direct income support payments (PROCAMPO) based on historic cultivated crop area, which was given to all farm sizes. During this period of trade liberalisation, subsidies for financial instruments to reduce financial risks (price hedge instruments) were also put in place. Input subsidies for seeds, fertiliser, pesticides, machinery and diesel fuel were reduced in the 1990s, but the input subsidy for electricity to pump groundwater was maintained.
In 2018 direct payments were redirected to target small and medium-scale farmers located in poor regions of the country. Minimum guaranteed prices for staple crops were reinstated in the form of government purchases of crops from a limited number of farmers, mainly smallholders, at a minimum price. Crops purchased under this intervention were then distributed to poor households at subsidised prices in both rural and urban areas. The Procampo programme was renamed “Production for Wellbeing” and reformed to provide support only to small and medium scale farmers, with particular focus on those located in poor communities. Furthermore, subsidies for large farms and food processors to encourage price hedging were dismantled.
Producer support, PSE was mostly comprised of market price support until end of 1990s. After this period, the share of market price support declined while that of budgetary support grew, until 2016 when market price support and input-based support again became the largest components of producer support (Figure 20.4)
Main policy instruments
Agricultural support policies in Mexico are guided by the Sectoral Programme for Agriculture and Rural Development 2019-2024. The current Sectoral Programme focuses on several objectives: improve agricultural productivity for food self-sufficiency; bring down poverty rates in rural areas; increase the income of small-scale agricultural producers; develop an inclusive, sustainable, healthy, and nutritional agri-food system; and promote a sustainable use of soil and water.
Farmers’ support policies in Mexico are delivered via three main programmes: 1) guaranteed prices for small-scale farmers for staple grains; 2) payments based on area under the programme “Production for Wellbeing”; and 3) fertiliser programme. Other relevant support policies include those directed to consumers in vulnerable areas via the distribution of staple foods, and sanitary and phytosanitary measures for early detection of pests and diseases.
For the Guaranteed Minimum Prices Programme, prices are granted to small and medium-sized producers of maize, beans, wheat, milk, and rice, defined as those with up to 30 rain-fed hectares or 5 irrigated hectares. Guaranteed minimum prices are lower than market prices and try to address market failures encountered by farmers. These market failures are created by lack or limited infrastructure like rural roads, storage facilities, market information, or lack of co-operatives, this situation constrains farmers who end up selling at low prices their products to middlemen. In this sense, guaranteed prices set a minimum price that must be paid to farmers but that is still below market prices.
For small-scale farmers of wheat and rice, SEGALMEX (the agency in charge of food security in Mexico) buys directly or pays the difference between the reference and guaranteed prices. For medium-scale maize producers (those with more than 5 hectares of rain fed), support is provided through a price hedging mechanism, where the difference between the guaranteed price and a reference price is covered by an insurance for which the SEGALMEX pays part of the premium. The reference price is calculated as the sum of the average future price of maize published in the Chicago Board of Trade, and a commercialisation fee based on transportation costs determined by SEGALMEX. In all cases, there are limits based on volume to the support a single farmer can receive. Lastly, under SEGALMEX, small-scale maize producers are eligible for a transportation subsidy.
The state enterprise DICONSA operates the Rural Supply Program (PAR), with SEGLMEX as provider of food. The PAR programme aims to facilitate physical access to product of the basic food basket to improve the food security of the population living in the rural areas in poverty conditions. DICONSA has fixed or mobile convenience stores and sells staple food to vulnerable populations at reduced prices. DICONSA distributes and sells the products purchased by SEGALMEX such as beans, rice, and maize, among other basic products at subsidised prices in its stores located in vulnerable and poor rural and urban populations. DICONSA can also purchase some of its products directly from smallholders. Another state enterprise, LICONSA, buys milk from small-scale producers, then processes and distributes it in established stores in limited quantities at subsidised prices for low-income consumers included in social programs. Both DICONSA and LICONSA support food actions for vulnerable poor populations.
In 2022, LICONSA institution that provides fortified milk to vulnerable populations, had 6.2 million beneficiaries, distributing 808 million litres of milk with an estimated average of 11 litres of milk per household per month. Around 60% of all beneficiaries were women. This programme reached around 3.5 million children between 0 and 15 years old. People with chronic diseases, with disabilities and over 60 years old are permanent beneficiaries of the programme. In 2022, DICONSA that buys from smallholders and sells the products through its convenience stores to vulnerable populations, covered 25 881 communities, of which 12 273 are in indigenous communities. It is estimated that DICONSA benefited about 23 million inhabitants throughout the country.
The Production for Wellbeing programme focuses on area-based payments that target small and medium-scale producers, including from indigenous communities. Payment rates decrease with farm size increments and differ by product. The products covered are grains (e.g. maize, rice, beans, wheat), amaranth, chia, sugarcane, coffee, cocoa, nopal-cactus, honey and milk. Furthermore, these programmes have a gender and indigenous component, as the programme stipulates that at least 28% of beneficiaries need to be women, and 45% of beneficiaries need to be in the 1 033 municipalities with indigenous populations.
Under the Wellbeing programme, small-scale farmers (those with up to 5 rain-fed hectares) receive a payment per hectare of MXN 2 000 (USD 100); medium-scale farmers (those between 5 and 20 rain-fed hectares or up to 5 irrigated hectares) receive MXN 1 200 (USD 60) per hectare, and both small and medium-scale producers of chia and amaranth receive MXN 3 000 (USD 150) also per hectare. For 2023, the Production for Wellbeing programme is expected to reach more than 2 million smallholders and medium-scale farmers; of which around 57% of beneficiaries are in municipalities with indigenous population, 34% are women, and 61% are located in the poorest regions of the country in the south.
The Fertiliser Programme provides up to 600 kg per year of nitrogenous and phosphate fertiliser to small-scale producers of maize, beans, rice, or any other crop with cultural and economic impact at the state or regional level holding no more than three hectares and located in highly marginalised communities of the country. The programme was launched in 2019 in the state of Guerrero and expanded in 2021 to the states of Morelos, Puebla, Tlaxcala, and Chiapas (some of the poorest states in the country). In 2023 the programme has been further expanded to the whole country (see below). In addition, a key input subsidy is provided for on-farm electricity consumption for water pumping via reduced electricity tariffs.
The Secretariat of Wellbeing (Social Development Ministry) operates the Sowing Life programme, which supports agroforestry projects implemented by small-scale farmers (having up to 2.5 hectares of available land) located in poor municipalities. The programme provides direct payments, in-kind support (e.g. plants, seeds, sowing tools and nurseries) and technical support for afforestation and agroforestry projects.
Investments in general services or public goods are mostly allocated to agricultural knowledge and innovation systems, hydrological infrastructure and on animal and plant health inspection and control. Investments in hydrological infrastructure have been for rehabilitation and maintenance of off-farm irrigation systems. SENASICA, the agency in charge of implementing sanitary measures in the agri-food chain, implements sanitary and phytosanitary campaigns and measures for early detection of pests and diseases. This programme supports inspection and monitoring projects of sanitary risks, control and prevention of pests and diseases, inspection of goods that are transported in the country, implementation of systems for reducing contamination risks in production units and promotion of good sanitary practices.
In terms of climate change mitigation, agriculture contributes around 13% of GHG emissions in Mexico. The country’s pledge to the Paris Climate Conference in December 2015 includes unconditional and conditional targets. Under the 2020 update of its NDC, Mexico committed to unconditionally lower GHG emissions by 22% and black carbon emissions by 51% relative to BAU by 2030. Agriculture GHG emissions reduction targets are -8%. Depending on international support, this could increase to 36% of total emissions and to 70% of black carbon emissions. To achieve these targets, the agricultural sector strategy promotes agricultural practices adapted to climatic and environmental conditions such as soil conservation and reduced burning of residues considering community and scientific knowledge; and adopting agroforestry, agroecology and biodigesters on livestock farms.
Lastly, Mexico continues to use its free trade agreements that involve more than 50 countries, and a large share of Mexico’s agricultural trade occurs under these agreements for both agricultural products and inputs.
Climate change adaptation policies in agriculture
The Strategic Plan for Climate Change on Agriculture Plan Estratégico de Cambio Climático del sector Agroalimentario, PLECCA) was produced in 2022 and identify the agricultural sector as requiring particular focus for adaptation efforts. Alongside agriculture, they point out the need to strengthen the country’s water and food security, and to conserve and recover natural ecosystems and the ecological functions and environmental services they provide, among others (Agricultura, 2022[1]).
Climate-change adaptation strategies include promoting sustainable production and consumption practices, incorporating climate risks into value chains, addressing sanitary and phytosanitary risks, protecting native crops, and promoting financing mechanisms targeting the negative impacts of climate change. In addition, the government aims to strengthen the adaptive agricultural capacity of at least 50% of municipalities most vulnerable to climate change, establish early-warning and risk-management systems at every level of government, and reach a 0% net deforestation rate by 2030.
Agricultural technical workshops have been created since 2019, in the states of Chiapas, Campeche, Mexico, Oaxaca, Puebla, and Yucatan. At these discussion roundtables (MTA), producers, technicians, academics, and the federal government discuss climate-change risks and their incidence on crops, and aim to define the main adaptation practices to be promoted by the government. These practices include changing planting seasons, diversifying plant varieties, promoting practices to retain soil moisture and improve its fertility, and integrating pest/disease management.
The National Soil Strategy for Sustainable Agriculture (ENASAS) was developed in 2022 to promote the sustainable management of agricultural soils. The strategy is currently informing policy instruments for the conservation and restoration of degraded agricultural soils. The strategy is promoted by the National University (UNAM) in co-ordination with the Ministry of Agriculture and the Global soil Partnership (FAO). Also in 2022, the Soil Doctors programme was implemented in Michoacán, Puebla, and Morelos to promote a self-sufficient system for training farmers in the sustainable management of agricultural soils.
The Water Footprint Working Group was set up in 2022 with the participation of several water related public institutions to explore the development and implementation of estimation and reduction systems for the water footprint of the agricultural sector. The Working Group is implementing a pilot program with different models to estimate the water footprint of agricultural crops in seven Irrigation Districts in the states of Sonora, Chihuahua, Guanajuato, Jalisco, Hidalgo, and the Lagunera Region. The water footprint in these entities will be estimated for crops such as maize, wheat, beans, barley, avocado, walnuts, alfalfa, and agave.
Domestic policy developments in 2022-23
Agricultural policies continued to focus on consolidating the implementation and reach of the main agricultural support programmes, such as the fertiliser programme and the guaranteed minimum price programme. Implementation of the Production for Wellbeing programme remained unchanged, its emphasis remained on supporting small-scale producers of basic grains such as maize, beans, wheat, and rice, as well as support for rural women, indigenous population, and vulnerable groups.
The most significant change occurred in the geographic coverage of the fertiliser programme, which used to be implemented in five of the poorest states of the country only; as of 2023 implementation began throughout all national territory, while continuing to target the poorest communities of each state. The budget allocated to this programme, which had amounted to MXN 1.9 billion (USD 88.4 million) in 2020, was increased to MXN 2.2 billion (USD 108.4 million) in 2021 and to MXN 16.7 billion (USD 938.2 million) in 2023, an almost nine-fold increase within two years in nominal terms. For 2023 the programme is expected to also increase and reach 3 million hectares, benefiting 2 million smallholders. Around 55% of beneficiaries of the programme are in communities with indigenous populations and 41% are women.
The guaranteed minimum price programme run by SEGALMEX was updated to support 117 118 small and medium-scale farmers and to acquire 9 million tonnes of maize and wheat and 618 million litres of milk in 2022. Prices for maize went from MXN 6 278 (USD 312.2) to MXN 6 805 (USD 338.4) per tonne; for beans, from MXN 16 000 (USD 795.6) to MXN 17 340 (USD 862.2) per tonne; for wheat, from MXN 6 900 (USD 343.1) to MXN 7 480 (USD 372) per tonne; for rice, from MXN 7 300 (USD 363) to MXN 7 913 (USD 393.5) per tonne; and lastly, for cow milk, from MXN 9.2 (USD 0.46) to MXN 10.6 (USD 0.53) per litre. Additionally, the maximum amount eligible to receive the guaranteed price increased from 20 tonnes to 35 tonnes for maize, while for milk it went from 25 litres to 30 litres per cow. For rice the maximum amount was reduced from 120 tonnes to 80 tonnes.
For medium-sized farms whose production is not purchased by SEGALMEX, a price hedging mechanism was introduced in 2021-22, where the difference between the guaranteed price and a reference price is covered by an insurance for which the government pays part of the premium. For wheat, the guaranteed price for these medium-scale producers (i.e. those with more than 8 hectares) increased from MXN 6 400 (USD 318.2) to MXN 6 938 (USD 345) per tonne. For maize medium-scale producers (i.e. those with more than 5 and less than 50 hectares), the incentive corresponds to the difference between the guaranteed price for small producers and the reference price (also calculated by SEGALMEX). Eligible quantities are limited to a maximum of 600 tonnes of maize and 200 tonnes of wheat.
In 2023 a decree was published that announced the dismantling of the National Financing Agency for Agricultural, Rural, Forestry and Fisheries Development (FND), which meant a suspension of credit granting in 2023 after its reduction by 35.1% in 2022 compared to 2021.
Following a December 2020 decree, through which the country started phasing out the use of glyphosate and genetically modified (GMO) maize for human consumption, another decree published in February 2023 and coming into effect on 1 January 2024 prohibits the use of GMO in white maize used for human consumption (maize dough and maize tortilla). The use of GMO in yellow maize used for the agroindustry and for animal feed remains possible. The government argues several aspects for this measure: 1) to safeguard human health; 2) protect the environment and in particular biodiversity given the country’s role as a major centre of origin for maize; and 3) ensure food security for poor rural populations as poor and indigenous farmers use traditional maize varieties for self-consumption that can be polluted.
Domestic policy responses to Russia’s war of aggression in Ukraine
Following the inflationary pressures caused by the war in Ukraine, a decree with a package against inflation and shortage (APECIC) signed in May 2022 reduced to zero import tariffs for 21 basic basket products (e.g. vegetable oils, rice, tuna, pork, poultry, beef, some horticultural products, dry beans, milk, lemon, sardines, grains, among others) and 5 strategic agricultural inputs (maize and wheat flour, sorghum, wheat and maize). Moreover, administrative procedures were relaxed to facilitate the imports of such goods; this rule change does not exempt compliance with sanitary and food safety requirements. This decree, that aims to reduce domestic inflation, was extended twice in October 2022 and in January 2023, and expanded to incorporate more food products, personal hygiene products, animal feed and agricultural inputs (e.g. such as live bovine animals, beef, swine and poultry meats, tuna, sardines, milk, eggs, potatoes, tomatoes, onions, carrots, dry beans, citrus, apples, wheat, maize, rice, sorghum, pasta, bread, canned vegetables, some fertilisers, toilet paper, among others).
In January 2023, a 50% export tariff was introduced by decree on white maize intended for human consumption (1005.90.04). The aim of this measure is to contain price increases of this staple grain. The decree, which is to remain in force until 31 December 2023, complements the above-mentioned tariff elimination on basic foodstuff imports.
Mexico is heavily dependent on fertiliser imports, a quarter of which used to originate from Russia. Mexico continues, in the short term, to rely on its FTA partners to procure the national demand. The country is investigating longer-term options to replace imported fertilisers, such as expanding the use of local organic and bio-fertilisers, as well as to increase national production of mineral fertilisers.
Mexico had a population of 128 million in 2021, ranks as the 13th largest world economy and has a per capita GDP just below the average of all countries covered in this report. Agriculture’s contribution to GDP has increased slightly since 2000 from 3.3% to 3.9% in 2021. Despite the decline over the past two decades, however, agriculture’s share of total employment remains comparatively high at more than 12.2% in 2021. Trade is an important driver of Mexico’s economy; in 2021 it represented 39.2% of GDP and has grown 14.8 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 5.1% of each, respectively.
Economic growth has been slowing since 2010 and stalled in 2019. As a result of the COVID-19 pandemic and related restrictions, economic output fell by 8.1% in 2020. After rebounding growth in 2021, economic growth in 2022 declined to 2.5%, resulting in economic output remaining below the pre-pandemic level. Inflation registered a high level of 7.9% in 2022, while the unemployment rate fell to 3.3%.
Since 2015, Mexico has registered a positive and growing net agro-food balance reaching USD 10.8 billion surplus in 2021. 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.
Mexico’s significant agricultural output growth, around 3%, over the past decade was due predominantly to the increased use of primary factors, notably capital and land. In addition, total factor productivity (TFP) grew by 1.2% per year between 2011 and 2020, slightly faster than the world average. Increased use of intermediate inputs, notably fertilisers and feed, contributed less to the output growth.
In contrast to the average trend observed in the OECD area, nutrient balances in Mexico have increased in the last decade and reached nearly 35 kg/ha for nitrogen and 4 kg/ha of phosphorus in 2021. Agricultural GHG emissions represent 19% of the country’s total, which is higher than the OECD average and is also above its relative contribution to the country’s economy. Water stress is well above the OECD average, and agriculture is partly responsible for this pressure due to its high share of total water abstractions.