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REV: MARCH 14, 2013
DAVID E. BELL
REGINA GARCÍA CUÉLLAR
CINTRA SCOTT
Agriculture in Mexico
On October 1, 2012, Francisco Mayorga had exactly two months left to serve as Mexico’s Secretary
of Agriculture. President-elect Enrique Peña Nieto would take office on December 1, 2012, marking
the end of President Felipe Calderón’s six-year term. As Mayorga sat in his office in the Benito Juárez
borough of Mexico City, he reflected on the challenges his successor would face.
“Mexican agriculture has been a success story over the last six years. Food production has grown
6.2% to a total nearing $50 billion, despite some severe weather and the rising cost of inputs such as
fertilizer. Agri-food1 exports brought in $87.7 billion over the last 5 years, which is 83% higher than
the value of exports over the first five years of the preceding administration. On the world stage,
Mexico stands out as the eighth largest food producer and the number one exporter of avocados,
watermelons, papayas, and guavas.2 And we’re the number two exporter of lemons, red tomatoes
and berries. Despite these successes, we import about $27 billion of agri-food or about 45% of our
domestic consumption! (See Exhibit 1 and 2.) In order to step up production and maximize our
potential, we must find solutions to meet some major challenges.”
“The first challenge is how to deal with the fact that about 50% of our arable land—the best 50%—
is held by small landholders—most just subsisting on less than two hectares. The communal land
system (known as ejido) makes these small plots hard to sell and hard for their owners to use as
guarantee for credits needed to invest in technology or other productivity enhancements. The second
challenge is climate change. Mexico is not the only country to be affected by climate change, but we
are especially vulnerable to weather pattern changes as 82% of our cultivated land still depends on
rain for irrigation. Thirdly, our arable land frontier is shrinking. Over-cropping and poorly applied
technology have caused 20% of our land to be eroded and 30% of the grazing land has eroded due to
communal overgrazing. Lastly, our distribution system is outdated. Farmers have few options when
they sell and are not able to directly profit from high prices; middlemen take much of farmers’
potential earnings.”
“For the latter half of the twentieth century Mexican food production outstripped domestic
demand. My predecessors offered price guarantees to help the farmers make it through those tough
times. After the implementation of NAFTA 3 in 1994, price guarantees were changed to subsidies to
help farmers deal with more competition from the United States. Those subsidies remain in place
today and take more than half of my budget. But now with Mexico—and the world—facing a food
deficit, our thinking and the role of government have to change. We should move away from food
subsidies and spend our money instead on the infrastructure needed for our farmers to be productive
and competitive. We need irrigation, extension services, and risk management tools. We need
financing and investment in technology, too.
________________________________________________________________________________________________________________
Professor David E. Bell and Senior Researcher Regina García Cuéllar and Research Associate Cintra Scott, both from the HBS Latin America
Research Center, prepared this case. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as
endorsements, sources of primary data, or illustrations of effective or ineffective management.
Copyright © 2012, 2013 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-5457685, write Harvard Business School Publishing, Boston, MA 02163, or go to www.hbsp.harvard.edu/educators. This publication may not be
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513-065
Agriculture in Mexico
“I wish my successor well, but the task is a difficult one. A solution to these problems must reach
beyond the agriculture ministry; it also has to involve cooperation from other government
institutions, the private sector, and farmers as well.”
Mexico
Mexico was a country of contrasts. In 2011 it had the 14th largest gross domestic product (GDP) in
the world, and it was the second largest economy and the second largest GDP per capita in Latin
America. However, the poorest 20% of the population accounted for only 3.9% of gross income, and
the nation’s Gini coefficient was relatively high at 0.517.4 In Mexico poverty was measured by the
National Council for Social Policy Evaluation or Coneval who counted 50% of the population as poor
(less than 2000 pesos per month); and 14% lacking access to proper or sufficient food.
Enrique de la Madrid, who was in charge of the agriculture transition team of Peña Nieto´s
administration commented:
Poverty in Mexico is concentrated mostly in the rural areas and food poverty is even more
concentrated there. Migration to the US used to be an escape valve for poverty in Mexico and
some years ago about 400 thousand persons migrated each year. Due to stricter border controls
and to the economic slowdown in the US, the net migration is now closer to zero. Food has
become more expensive and scarcer worldwide and its access through international trade is
less reliable. We need to find ways in which to produce more food locally. The government
must focus its policies and budget to boost food production in an efficient and sustainable
way.
In 2012, Mexico had about 25 million hectares of arable land, about 13% of its land mass,
contributing 3.5% of GDP and about 20% of employment. The south had the better land and
abundant water but smaller farms, growing mostly grain. The north had many big farms, low
rainfall, and most of Mexico’s irrigation. The north also had a significant positive: proximity to the
United States. Post-NAFTA there had been an explosion of exports to the US: Detroit was now only
48 hours away by truck. But the border was not always seamless. Some tariffs were still collected and
“sanitary barriers” were common.
Of 3.6 million farms, 70% were less than 5 hectares and half were less than 2 hectares. The 25,000
farmers who owned more than 100 hectares had 30% of the total land (see Exhibit 4). Fully 50% of the
arable land in Mexico was used to grow white corn, a staple food used to make tortillas. Yields in the
south were in the 1-2 tons per hectares range whereas in the north yields approached the American
average of 12 to 15 tons per hectare. Combined with another 20% of land used to grow other grains,
the 70% of land growing grains comprised only 35% of the value added. (See Exhibit 5 for a
breakdown of value and land use in the agricultural sector.)
Sugar cane, alfalfa, and tomatoes were also among Mexico’s valuable crops (see Exhibit 6).5 In
terms of exports tomatoes, avocados, peppers, coffee, watermelons, papaya, berries and other tropical
fruits as well as garden produce were among the most important products. Fruits and garden
vegetables used only 10% of the arable land in Mexico, but brought in 39% of the sector’s value.
Gustavo Merino, Director of Financiera Rural—a development bank for the rural sector—
commented: “Exporting Mexican fruit and produce has been a success story for the past six years.
Now, 4 of every 5 tomatoes, 9 out of every 10 citrus fruits, and 7 of every 10 avocados consumed in
the U.S. comes from Mexico. If borders were to disappear, Mexico would become the most important
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Agriculture in Mexico
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provider of fruits and produce to the U.S. as we have a natural competitive advantage regarding
human-capital-intensive agriculture goods such as these.”
Food exports, only $8 billion in 2001, reached $22 billion in 2011 – twice as much as the revenue
from tourism, higher than all foreign direct investment, and almost as much as the money wired
home from Mexican ex-pats. But food imports were also high, leading to a net deficit of $2.8 billion
(see Exhibit 7). The leading import was grain at about $9 billion, mostly yellow corn for animal feed.
Mexicans were very protective about their domestic corn. Luis Tejado (MBA ´97 and founder of
Proteak teak growing firm) commented, “We are the genetic birthplace for corn. Corn is a way of life
for Mexicans. It has been a dietary staple for thousands of years.” As a result corn was the only crop
for which use of GMO seeds were not permitted. Yet with such substantial imports of American corn,
self-sufficiency concerns might dictate a different approach. Other crops that could add value were
oil seeds and palm oil. Francisco Gurría, former undersecretary of agriculture commented, “The
culture here is that someone cutting down a tree is a bad person, and there is widespread sentiment
for a program of reforestation, especially since forests are viewed as communal land. At the same
time we are against commercial plantations. Also, there is a lack of risk instruments such as a forest
insurance”. Tejado continued, “This is a legacy of a 1970’s World Bank grant to clear forest land to
use for farming. They added a clause requiring no reforestation. This is no longer binding – my
company has 12,000 hectares planted with teak – but the mindset is still there. Rubber and eucalyptus
(for paper board) are other plantation possibilities”. “Land here is half the price of Costa Rica, where
there are no roads, and half the price of Texas, and in many cases we are nearer to American
customers. Generally speaking,” he continued, “anything here that is not grain is hugely profitable,
especially if you have 80-100 hectares”.
Protein was another value added option. The main source of protein for Mexicans was eggs: they
led the world in egg consumption eating 22 kilograms per capita – slightly more than the next highest
source, chicken. Fish could be an important source of protein: Mexico had 11,000 kilometers of
coastline and three million square kilometers of ocean but Mexicans ate fish “only once per year -during holy week”.
Only 18% of Mexico’s arable land was irrigated. Irrigation systems made a huge difference to farm
productivity and helped protect agriculture from the deleterious effects of climate change (Exhibit 8).
The World Bank indicated that Mexico was particularly vulnerable to climate change—especially in
terms of rain fed cropland, water usage in agriculture, risk of extreme weather events, and uninsured
cropland.6 Mexico was more dependent on water for its agricultural sector than other countries. 77%
of Mexico´s water was used in its agriculture sector compared to 41% in the US, 18% in Russia, 12% in
Canada and 10% in France.7 “Reducing vulnerability to climate change is of utmost importance in
Mexico´s agricultural sector, considering the role the sector plays in food security and livelihoods of
rural populations,” the World Bank’s country note concluded.
De la Madrid continued, “most of our grains are produced in the north, where water is more
difficult to find, but with greater irrigation infrastructure. Some of the grain production in Mexico
could be done in the south where water resources are more abundant but where infrastructure is
poor. However, agricultural production in the southern states is carried out mostly at subsistence
levels, in family-owned production units with little access to irrigation systems. The southern states
also lack a strong organization amongst its producers. The government would need to improve
infrastructure in the south in order to increase food security in Mexico.”
From 2005 to 2012, consumer prices increased 36% but agriculture goods’ prices increased more
than 60%.8 In all, of items that made up the consumer basket –including energy- food was the item
3
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Agriculture in Mexico
whose price had increased the most. Price increases in food had been particularly noticeable in 2012.
During the first three quarters of the year, average consumer price inflation was 4%. In contrast, food
price inflation was 13%.
Government Programs to Support Agriculture
Many government subsidies were directed at corn and other staples’ production to feed Mexico’s
112.5 million inhabitants. SAGARPA, the Mexican agriculture department, had an authorized budget
of 71.4 billion pesos, or about US$5.5 billion, in 2012 (see Exhibit 9) –the 5th spending item of the
Mexican Government after education, health, infrastructure and social programs. This was equal to
about 11% of Mexico’s total food share of GDP and 8% of the government’s budget. SAGARPA’s
programs had shifted significantly with the North American Free Trade Agreement, NAFTA, which
was designed to eliminate barriers to trade and investment between the US, Canada, and Mexico.
NAFTA’s implementation in 1994 meant the immediate elimination of tariffs on more than half of
Mexico's exports to the United States and more than one-third of U.S. exports to Mexico. Because U.S.
farmers tended to enjoy higher subsidies and lower production costs, Mexico exchanged its previous
agricultural programs, which were mostly in the form of price guarantees, for subsidies. Its main
subsidy program was called Procampo which gave $100 per hectare to each farmer per year (up to a
maximum of 100 hectares). This program cost about $1.1 billion per year. Another subsidy program
was Progan, under which a farmer received about $30 per animal per year, for a total of $335 million.
The second most important item in SAGARPA´s budget ($1.3 billion) was risk mitigation. The
largest component of risk-related spending was financing hedges for farmers. The purpose was to
encourage the practice of “contract farming” – a direct forward sale between farmer and buyer, rather
than simply selling to a middleman. SAGARPA also subsidized insurance and gave assistance to
farmers affected by natural disasters. Diesel oil also received a farmer subsidy of 2 pesos per liter.
Another sizable portion of the budget was allocated by the congress for pass-through to the
individual states.
One of the many government programs that had disappeared over time was the agriculture
extension service. “Thirty years ago we had a 26,000 person extension service, but now there’s noone,” said Gurría. “Farmers are not always so sophisticated, they need help and eliminating the
extension program affected those farmers. For example only about 25% of farmers use certified seed.
If that number was 60% our production problems would be over!”
A study by the Organization for Economic Co-operation and Development (OECD) found that
Mexico’s agricultural subsidies were the most regressive spending item in the government´s budget
exaggerating the income gap between rich and poor. Other commentators also saw problems with the
way the department’s budget was allocated:

The subsidies are aimed at supporting individuals. They should really be aimed at supporting
productivity solutions.

The success of the agriculture department has been measured in terms of how much money it
funnels to the industry. It ought to be measured in terms of how much good it does.

Mexico has a finance program for agriculture not an economic program.

The subsidies are distributed as cash, and not necessarily at harvest time when they are most
needed.
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Agriculture in Mexico
513-065
Secretary Mayorga pointed out that the structure of government impeded change: “Most of these
programs are mandated by Congress and are hard to change since there are a lot of farmers and they
vote. But also, a lot of the problems that we might say are the responsibility of this department are
not. Take milk for example: the Ministry of Social Programs has a (price distorting) subsidy for milk,
at the same time that the ministry of health says drinking milk is bad. Many aspects of farming are
actually under the control of the Ministry for the Economy: nutrition labeling for example: the
Economy Minister doesn’t believe in it!” Mayorga recalled an instance in the 1970’s when the then
president, keen to keep the price of milk low, mandated a price cap of 1 peso per liter. “Within
months, dairies slaughtered their herds.”
As most farmers did not have access to credit, middlemen were often the only source of credit to
farmers for seed and other inputs and they, in return, had to sell their production in bulk to the
middle man. This arrangement also cut off famers from knowledge of the market. Secretary Mayorga
continued, “A coffee grower in the most highly prized region of the country served visiting
dignitaries Nescafe rather than coffee from his own beans, unaware of the reputation of his crop! In a
commune that had access to export markets and where farmers understood quality standards, one
farmer separated his best lemons and took them to the exporter obtaining very good prices. Lemons
which were not standard in quality or size he sent to local markets obtaining a smaller but still good
price. The rest of his production was sold to a middle man. We need to set quality standards and
communicate them to farmers.”
Relatedly, De la Madrid talked about the beef, pork and poultry markets. “The meat industry is
now specializing in different cuts of the animal in order to maximize its value. For example, they are
sending the best cuts of beef and pork to Asia, obtaining extremely good prices. They keep the less
expensive cuts for local markets. This can only be done if we have high quality and sanitary
standards that allow Mexican production to access export markets”.
The Ejido
Well before the Spanish arrived in the sixteenth century, indigenous groups held land
communally and worked it collectively. During the sixteenth through the eighteenth centuries
communal land and collective cultivation were replaced by the hierarchical encomiendas and haciendas.
The Spanish crown granted encomiendas and haciendas, usually to noble men, soldiers, and
conquistadores.9 The encomienda—which comes from the Spanish verb “to entrust”—was a legal
system under which the Spanish crown granted a certain person10 (the encomendero) a specified
number of indigenous people for whom they were to take responsibility—in terms of providing food,
healthcare, education, and conversion to the Catholic faith. In exchange, encomenderos took tribute
from them, mostly in the form of labor. Haciendas were large plots of land or estates used primarily
for crop cultivation, but also for mining, raising livestock, and other productive activities. When the
Mexican Revolution began in 1910, about 2,000 families owned 87% of Mexico’s rural land. The
revolutionary hero Emiliano Zapata helped the government redistribute the land “to those who work
it”.
In 1917 under a new constitution and political system former haciendas were divided and
redistributed forming ejidos. Ejidos were communal land used for agriculture within which individual
members of the ejido (ejidatarios) farmed small parcels. Though ejidatarios had land to work, they did
not formally own it. Instead, they enjoyed “usufruct” rights —the right to farm and keep the yields.
This lack of formal ownership meant that the land could not be used as collateral (see Exhibit 10).
“The notion of land as an asset is so foreign that some farmers have moved to the city and simply
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513-065
Agriculture in Mexico
abandoned their land. This land tenure system is straight out of the Middle Ages,” added the
secretary.
Tejado commented, “If the lack of assets wasn’t a big enough hurdle for farmers to get credit,
most banks no longer will serve the rural sector (see below). This is a legacy of the fact that many
Mexican presidents have won election by promising to nullify farmer debts. Incoming president Peña
Nieto won the election by a total margin of 3 million votes, but won by a margin of 5.4 million votes
among farmers.”
Luis Madrazo, head of the development banking unit at the Ministry of Finance commented,
“While in the north there are mainly large farms that grow high value agricultural products with
advanced technology, in the south, small farms and ejidos are growing commodities with poor yields
and technology. In part that’s because maize has the advantage of being easy to grow, easy to store,
and edible – as tortillas. Even today many regard it as a national disgrace that we import so much
corn. Mexicans are now strong advocates of free trade except when it comes to our food!”
In 1992, in the lead up to the NAFTA, Article 27 of the Mexican constitution was reformed
allowing ejido land to be sold through a mechanism that first granted ejidatarios certificates for their
land parcels and then granted ownership if they met certain conditions. From 1992 to 2012, only 14%
of the 31,843 ejidos had sought full ownership rights and only 2.6% of the 10 million hectares of all
ejidos had been sold.11 Tejado explained:
The 1992 change in the law allowed individual parcels of land to be sold. However, the
selling process is very difficult to pull off. First, a two-thirds majority of the members of the
ejido, usually 50-100 farmers, has to approve the sale. And this has to be done at a meeting
attended by at least 75% of the members. This is often nearly impossible to do as many of the
ejido owners either live in the US or in the cities. As a result, what little of the ejido land that
has been sold is near to the cities and has been sold to land developers.
Financing for Agriculture
Mexico had two public institutions to help finance its rural sector: Trust Funds for Rural
Development (FIRA for its Spanish initials12) and Financiera Rural. FIRA was a second-tier
development bank offering credits and guarantees, as well as other supports to the agriculture and
agribusiness sectors. It was managed by Mexico’s central bank (Banco de México). In 2010, FIRA lent
102.9 billion pesos (US$8.0 billion) for agricultural and rural financing. About 79% of these funds
were channeled through commercial banks. That same year, FIRA also guaranteed about 59.4 billion
pesos (US$4.6 billion) in credits as a means to share risk with commercial banks and encourage their
lending to rural producers.
Financiera Rural was not a savings bank; it was a first- and second-tier development bank also
offering loans, guarantees and supports for the creation of creditworthiness in the rural sector. In
2010, Financiera Rural lent approximately $24.0 billion pesos (US$1.9 billion) through direct credits,
second-tier rural financial intermediaries, and various indirect credit programs. From its inception in
2003 through August 2012, Financiera Rural had reached more than 184,000 rural borrowers.
There was still much work to be done to fund Mexico’s rural sector. Total financing to Mexico’s
rural sector represented just 23% of the nation’s primary-sector GDP. To compare, financing in Chile
and Brazil represented 60% and 45% of their primary-sector GDPs, respectively. Moreover, twothirds of all funding to Mexico’s agricultural sector came from the rural development banks and just
one-third was provided by private commercial banks. (See Exhibit 11 for the public and private
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Agriculture in Mexico
513-065
funding to the sector over time.) Commercial banks still saw Mexico’s rural sector as risky, especially
with the presence of ejidos limiting or complicating property rights, scarce financial education, and
extreme weather, to name a few problems. Moreover, only 17% of Mexico’s rural municipalities had
any banking services available.13 Through the years, the fraction of private sources financing the
rural sector had dropped from 78% in its peak in 1994, to around 34% in 2012.
With limited access to finance and deep structural deficiencies, Mexico’s farmers have had a hard
time applying newer technologies to improve yields. Madrazo commented “Most of the financing is
going to the large producers while small producers, including ejidos, despite government support and
development banks best efforts simply don´t have enough collateral which affects their
creditworthiness and reduces their financing options. The fact that small producers are not being able
to access credit worsens productivity differentials as small ejido owners cannot afford important
productivity boosters such as irrigation infrastructure, improved seeds or other important inputs.”
Building Public/Private Alliances
Reaching a solution in the Mexican agricultural sector was not easy and there was no consensus as
to how it could be achieved. Some believed that the solution had to come from the private sector
who had the means and the incentives to invest profitably in the sector. They regarded the ejido as
part of the problem and thought that buying out ejido land was the only realistic solution. Others
believed that ejidos could be –and in many instances were - productive. Cruz Lopez, who had been
President for the National Farmers´ Confederation,14 said:
The solution for the Mexican agriculture sector cannot come from eliminating ejidos. It has
to come from cooperative or integral solutions that involve all ejido farmers working for the
same objective. Barley ejido producers in the north of the country were able to coordinate with
buyers and among themselves to increase their production. They were able to organize to buy
the seed together, find credit and find sellers to get better conditions for their barley. They
even set up a local beer brewer that used malt made from their barley. Sugar cane growers
also were able to organize to increase sugar production in Mexico. Mexican soft drinks bottlers
used to import sugar and now are buying Mexican sugar from ejidos. There are many
examples where ejido growers have been able to organize to increase their productivity.
Carlos Rello, founder of Bio-Sistemas Sustentables, a Mexican venture that produced organic
fertilizers from organic waste, commented: “What Mexico needs is a definite solution to its land
tenure problems. We need to find peaceful ways in which social property can become as productive
as private property. Also, we need to simplify the legal process through which social property can
become private property without neglecting farmers' rights. Training and education to farmers are of
utmost importance so that farmers in the social sector can achieve the same productivity and benefits
as in the private sector. The timing has to be now; we have to complement the 1992 Reform so that
farmers can reap the full benefits from their land!”
Cotton: The Vision 2020 Project
Mexico was endowed with excellent conditions for growing cotton. Its land and its climate were
such that the average cotton yield in Mexico was 1,352 kg per hectare – the fourth highest worldwide
(after Australia, Brazil, and Turkey).15 Cotton farmers earned twice to four times what sorghum or
wheat producers earned. Cotton was intensive in human capital; it was the largest employment
generator in rural areas. While wheat harvesting employed 5 laborers per hectare, cotton employed
110.
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513-065
Agriculture in Mexico
Cotton was produced in Mexico as early as the sixteenth century. But in the 1960´s cotton
production reached its peak when almost 900,000 hectares were planted, satisfying all internal
consumption and allowing exports of 2 million bales (a bale weighed about 480 pounds). Mexico was
the fifth largest cotton producer worldwide. However, as a result of trade liberalization, low access
to technologies such as genetically modified cotton seeds and other sustainable production
technologies, all cotton plantations were virtually eliminated by the early 1990´s. It had been popular
in large farms to the north but the lack of irrigation began to bite and the very popularity of cotton
created a virtual monoculture that led to a devastating pest problem, causing farmers to turn to other
crops. Later in the decade, the use of biotech seeds helped improve yields, reduce the use of
pesticides from 14 applications per hectare to less than 2 thus increasing profitability, and improve
the quality of life for farmers in a framework of sustainable agriculture. As a result, the cotton crop
somewhat recovered. By 2010, Mexico planted 107,000 hectares of cotton.
The USDA estimated that cotton consumption in the Mexican textile industry was about 2 million
bales in 2011 of which 1.4 million was imported from the United States. The domestic production of 1
million bales supplied the remainder, the rest being exported to countries in Asia.
In the United States cotton was a 15-17 million bale crop. Before its textile industry evaporated in
the face of Chinese imports, domestic consumption was about 11.5 million bales but was now down
to about 3.5 million. The US government gave subsidized loans to cotton farmers and cotton
purchasers and gave direct payments to cotton growers, irrespective of market prices. Government
subsidies to American farmers averaged 12% of the production value. For example, in the year 2000,
at the bottom of cotton prices, cotton growers received $4.6 billion in direct subsidies. Even when
prices began to increase, American cotton growers still received $3.5 billion supplementing a $4.3billion-harvest year. American cotton subsidies were so large and extensive that in 2010 Brazil won a
lawsuit through the World Trade Organization (WTO) obtaining the largest WTO compensation
payment in its history.16
Looking for an integrated solution in the Mexican cotton industry, in 2010 various stakeholders
grouped together to pursue the goal of increasing cotton production in Mexico in order to achieve
self-sufficiency and also to improve the competitiveness of the overall cotton chain including input
suppliers, farmers and the textile industry. The working group consisted of 11 members that came
from supply companies such as Monsanto and Bayer, cotton and cotton gin farmers, members of the
National Textile Chamber that included fabric, denim, and thread producers, as well as government
representatives from the Agriculture and Economy Ministries and from Fira and Financiera Rural.
All these stakeholders met at least once a month and worked together to create a “Cotton Master Plan
of Mexico Vision 2020.”
Josemanuel Madero, head of Latin America North for Monsanto, was an enthusiastic proponent
of the Vision 2020. Madero had returned to Mexico in 2009 after spending several years working in
agriculture in Argentina, Australia and the United States. “Argentina produces 50% more corn than
Mexico using half the land. But Argentina farmers use more than 90% biotech seed. The regulation of
biotech seed here in Mexico was a nightmare, not science based, without timelines, predictability,
clarity and repeatability and progressed independently state by state! The bottom line here is that
restoring self-sufficiency in cotton makes Mexico a winner including all stakeholders mainly in the
rural economy. The textile industry faces stiff competition from China and would benefit from a lowcost domestic supply as well as an integrated value chain. The United States may well cut back on
cotton production to free up land for corn. And the farmer can make much more profit. A cotton
farmer using biotech seed can double its profitability by making 25,000 pesos per hectare profit
compared to 10-15,000 with conventional seed and compared to 12,000 pesos with maize or wheat. It
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Agriculture in Mexico
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is also more sustainable with less use of pesticides.” “Mexico used to be a major producer and world
player of cotton and can be again” he said. “I think it is entirely realistic to get production back to
900,000 hectares at an average production cost of about 50-55 cents per pound. Moreover we can do
it in a way that will be a road map for how to improve Mexican agriculture as a whole. The Cotton
Master Plan Vision 2020 is an attempt to institute a system solution. Farmers working with buyers.
Setting standards. Getting buy-in from banks. This is the first time ever that the industry in a crop
system has got together to work together in clearing away hurdles that stand in the way of us being
more effective with a common vision. Mexico has a huge potential for becoming an agricultural
powerhouse and turning to the rural sector to ignite an engine for economic growth is critical,”
Madero said.
The goal was to increase the area planted with cotton up to 900,000 hectares in 2020 and to
achieve self-sufficiency in cotton as early as 2015. The team worked to improve the regulatory
framework that allowed biotech cotton to be sold commercially, increase financing, certify cotton,
and improve commercialization as well as train farmers and give them technical support to achieve
crop potential.
In the two years, starting from a first meeting in February 2010, that the group had been working,
much progress had been made. One early accomplishment, in October 2010, was an agreement with
the Ministry of the Environment and the Ministry of Agriculture who were responsible for granting
permissions for use of biotech seeds. Often the permissions were received months after the planting
period was over. The regulators had agreed to a “best practices regulatory framework” developed
jointly with the private sector. In part this meant that existing technologies in seeds, once in a
commercial phase, would no longer need annual re-approval and that experimental and pilot phases
of new technologies would be strictly analyzed based on technical and scientific information. This
gave certainty to both producers and seed companies and opened the door for investments in
research and development and access to new technologies Land already dedicated to producing
cotton had increased from 107,000 hectares in 2010 to 160,000 in 2012 doubling cotton production and
was expected to be 250,000 hectares by 2013. The land and infrastructure was readily available to
increase this ultimately to 350,000 hectares. However, there were still a number of roadblocks that
had to be solved before the February/March agricultural cycle began. Farmers wanted guarantees
that if they grew cotton they would have a market for it and access to competitive financing. One
large grower suggested that if the government wanted to increase cotton production it should offer a
price guarantee of 85 cents per pound as well as providing subsidies for price hedges.
A second major problem was the lack infrastructure such as warehousing and cotton gins.
Warehousing was needed for depositing bales being used for collateral, to consolidate shipments
from smaller farms, and, most importantly, to store for delivery throughout the year. Most farmers
looked to the government to set up such facilities as was the case in the United States. There were no
large efficient traders as there were in the United States. In addition to charging high margins they
paid only after 30-90 days. A few traders had been early players in the Cotton Project but had since
left.
“It’s a chicken and egg situation”, said Jaime Mijares of Monsanto. “The textile buyers want to see
stable production of high quality cotton before they commit to buying domestically. At the same time
farmers won’t make the investment before they have a market.” “But like any new venture”, added
Madero, “if we agree on a vision, communicate the plan, and deliver on commitments we can
gradually win over the doubters and turn this into a virtuous circle and transform positively millions
of lives in the rural sector. The cotton program in Mexico is the most successful program we have
had that includes the whole supply chain.”
9
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513-065
Agriculture in Mexico
The Cotton 2020 Vision work group had met several times with Peña Nieto´s agriculture
transition team. The work group had presented several concrete proposals that could be enacted in
the next few months. The Cotton 2020 Vision plan had been replicated to corn in Mexico with the
objective of achieving self-sufficiency by 2020. Moreover, the same plan had been applied in
Guatemala and Honduras with exceptional results. “We have helped farmers increase their profits
from $700 in an agriculture cycle to more than $4,000” added Madero.
De la Madrid also believed in comprehensive and inclusive solutions. “I believe that through
collaborative participation between the private sector, the government and the producer
organizations, we can produce more food in a sustainable and competitive way. Mexico should aim
to provide a larger portion of the world’s food needs. The challenge is to decide what to produce,
where to do it, with what resources, and to establish specific commitments from each party
involved”. Looking forward to the next administration, he said, “what Mexico needs is a
comprehensive and rational business strategy for agriculture, with a more effective use of budget”.
10
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Agriculture in Mexico
Exhibit 1
513-065
Agricultural Production and Population Growth
Producción
Production (eje izq)
Population (eje der)
Población
Millones
Mm
tonsde
toneladas
250
205 213
200
239
224 230 228
254 251
Millones de
Mm
inhabitants
habitantes
238 246 232 239
112
184
115
125
120
115
103
110
150
105
98
100
100
95
50
90
0
80
85
2000 01 02 03 04 2005 06 07 08 09 2010 11 12e
Source: SIAP-SAGARPA via Financiera Rural September 2012 presentation to the Harvard Club of Mexico, presented by
Gustavo Merino, Sub-Secretary of Agriculture.
Exhibit 2
Production, consumption and trade of basic food items
2006 - 2012 Average (million tons)
Production
21.48
6.46
3.76
1.1
0.14
0.11
0.4
0.28
Exports
0.27
0
0.89
0
0
0
0
0
Imports
9.22
2.04
3.48
0.14
4.03
0
0.19
0.83
Consumption
30.43
8.5
6.35
1.24
4.17
0.11
0.59
1.11
Imports as % of
Consumption
30.3%
24.0%
54.8%
11.3%
96.6%
0.0%
32.2%
74.8%
Total
Bovine cattle
Pigs
Chicken
Eggs
33.73
1.71
1.16
2.69
2.41
1.16
0.07
0.06
0.01
0
19.93
0.31
0.69
0.48
0
52.5
1.95
1.79
3.16
2.41
38.0%
15.9%
38.5%
15.2%
0.0%
Total
7.97
0.14
1.48
9.31
15.9%
Corn
Sorghum
Wheat
Beans
Soy
Safflower
Cotton
Rice
Source: SIAP and USDA.
11
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513-065
Agriculture in Mexico
Exhibit 3
Source:
Productivity of Mexican States
INEGI, 2009, via SAGARPA presentation 2012.
12
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Agriculture in Mexico
Exhibit 4
513-065
Distribution of Agricultural Lands
LAND
28.7 mm hectares
PRODUCTION UNITS
3.6 mm production units
29.3%
MÁS DE 100 HA
10.6%
MÁS DE 50 A 100
15.3%
MÁS DE 20 50 HA
MÁS DE 5 A 20 HA
27.3%
MÁS DE 2 A 5 HA
11.0%
6.5%
HASTA 2 HA
0.7%
MÁS DE
100 HA
MORE
THAN
100 HA
1.2%
MÁS50
DEto
50100
A 100HA
4.0%
MÁS 20
DE 20
to50
50HA
HA
MÁS DE
20 HA
5 5toA 20
HA
22.0%
MÁS DE
HA
2 2AA55HA
HASTA
2 HA
LESS
THAN
2 HA
24.8%
47.3%
Fuente: Elaboración propia con información del VII Censo Agrícola, Ganadero y Foresta. INEGI
Fuente: Elaboración propia con información del VII Censo Agrícola, Ganadero y Foresta. INEGI
Source: 2007 Agricultural Census, from SAGARPA / Financiera Rural documents.
Exhibit 5
Value and Land Use in the Agricultural Sector
Source: SIAP-SAGARPA via Financiera Rural September 2012 presentation to the Harvard Club of Mexico, presented by
Gustavo Merino Director of Financiera Rural.
13
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513-065
Exhibit 6
Agriculture in Mexico
Top Agricultural Products and their Relative Contribution to the Sector
Resto de pecuarios
Huevo 1%
Egg
Corn
Carne de
Maíz
Pork
porcino
5%
12%
Livestock and related activities
contributed 43% of the value of
the agricultural (primary) sector:
264 billion pesos.
6%
Leche de
Milk 9%
bovino
5%
Sorgo
4% Sorghum
Aguacate
3% Avocado
Pastos
3% Grasses
Carne de
Beef 10%
bovino
Agricultural crops contributed 57%
of the value generated by the
sector: 355 billion pesos.
Alfalfa
2% Alfalfa
Wheat
2%Trigo
11%
Carne de
Poultry
ave
Sugar
Caña decane
azúcar
27%
Rest of
agricultural
Resto deproducts
cultivos agrícolas
Source: Financiera Rural September 2012 presentation to the Harvard Club of Mexico, presented by Gustavo Merino, SubSecretary of Agriculture.
14
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Agriculture in Mexico
Exhibits 7a and b
513-065
Imports, Exports, and the Trade Balance from 2000 through 2011.
a. Agricultural exports and imports, in millions of U.S. dollars
30,000
25,000
20,000
Exports
15,000
Imports
10,000
5,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
2012 figures were estimated.
b. Annual accumulated trade balance for agri-food totals, in millions of U.S. dollars
-1,000
-2,000
-3,000
-4,000
Trade Balance Total
-5,000
-6,000
-7,000
-8,000
2012 figures were estimated.
Source: Banco de México, INEGI, el Servicio de Administración Tributaria y la Secretaría de Economía, SIAP-SAGARPA, via
Grupo de Trabajo de Estadísticas de Comercio Exterior.
15
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513-065
Exhibit 8
Agriculture in Mexico
Yields of Irrigated and Non-irrigated Lands (in tons per hectare)
Irrigated
National
Product
Non-irrigated
Average
Maximum
Average
Corn
2.9
8.6
6.1
2.1
Sugar cane
69.6
117.1
84.5
59.7
75
146.1
75.2
40.7
Alfalfa
Average
Wheat
5.5
7
6
1
Tomato
41.7
173.6
46.9
22.8
Source: SIACON (SIAP-SAGARPA) via Financiera Rural September 2012 presentation to the Harvard Club of Mexico,
presented by Gustavo Merino, Sub-Secretary of Agriculture.
Exhibit 9
Ministry of Agriculture approved budget for 2012 (million dollars)
SAGARPA Approved budget for 2012
$
5,491
100%
Funds for states
$
358
7%
Program to support investment in infrastructure
$
668
12%
Programs to aid farmers´ incomes
Procampo
Subsidies for infrastructure that use diesel, subsidies for diesel consumption, coffee
growers subsidies and small producers subsidies
$
1,410
Program for risk prevention (insurance)
Agriculture by contract (subsidies for prices hedges)
Resources for farmers that live in areas affected by natural disasters and subsidies or
subsidies for purchase of insurance that covers against natural disasters
Other programs such as guarantees, subsidies for sanitation investments, etc
$
Program for training and development of capabilities
$
228
4%
Program for sustainable development
Progan
Rest of programs for sustainable development such as land reconversion into sustainable
development, use of sustainable energies, subsidies for sustainable fishing, etc.
$
561
10%
Program for the developlement of agriculture and fishing markets
$
55
1%
Reaserch institutes and universities
$
388
7%
Administrative expenses
$
499
9%
26%
1,132
80%
277
20%
1,325
24%
$ 654
49%
$ 242
$ 430
18%
32%
$ 335
60%
$ 226
40%
Source: SAGARPA, PEF 2012 Aprobado, November 2011.
16
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Agriculture in Mexico
Exhibit 10
513-065
Land Ownership in Mexico
Source: Ministry of Agrarian Reform
Exhibit 11
Public and Private Financing to Mexico’s Agricultural Sector (1980 to June 2012)
Source: Bank of Mexico, FIRA, and Financiera Rural via via Financiera Rural September 2012 presentation to the Harvard
Club of Mexico, presented by Gustavo Merino, Sub-Secretary of Agriculture.
17
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513-065
Agriculture in Mexico
Endnotes
“Agri-food” as a category included the primary sector of agriculture plus the industries of food, beverages,
and tobacco.
1
2
Source: SIAP based on tons exported in 2011.
3
North American Free Trade Agreement.
4A high Gini coefficient indicates a high level of income inequality, 0.000 corresponds to perfect equality and
1.000 to perfect inequality with one person having all the income. Source: Index,
www.indexmundi.com/facts/indicators last viewed 9/14/2011.
5
Source: SIACON (SIAP-SAGARPA).
6 “Climate Change Aspects in Agriculture:
Mexico Country Note,” 2009, the World Bank, online at
http://siteresources.worldbank.org/INTLAC/Resources/257803-1235077152356/Country_Note_Mexico.pdf,
accessed October 2012.
7 Source: Conagua from presentation to the Harvard Club of Mexico, presented by Gustavo Merino Director
of Financiera Rural.
8 Source: Banco de México using the national consumer price index (INPC) and the national consumer price
index for agricultural and livestock products index. www.banxico.org.mx last viewed 10/18/2012.
Conquistador was Spanish for conqueror, referring to the soldiers, explorers, and adventurers who worked
to expand the Spanish Empire in the sixteenth, seventeenth, and eighteenth centuries.
9
10
Usually conquistadores and Spanish soldiers, but also occasionally women and indigenous notables.
11
Source: Agrarian Reform Ministry.
12
FIRA stood for Fideicomisos Instituidos en Relación con la Agricultura.
13
Source: Comisión Nacional Bancaria y de Valores (CNBV).
Confederación Nacional Campesina was the largest agriculture organization in Mexico and represented 3
million agriculture workers.
14
15
USDA 2011, Foreign Agricultural Service –Cotton World Markets and Trade Monthly Circular
16 Arthur A. Daemmrich and Aldo Musacchio, “Brazil: Leading the BRICs?”, Harvard Business School case,
9-711-024, August 2011.
18
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