Government Agricultural Policy

Mexico Table of Contents

In the years after World War II, Mexico followed a relatively moderate import-substitution policy. By striking a relative balance between industrialization and growth of agricultural output, the government was able to maintain a steady rate of agricultural output and exports and to restrict its external borrowing requirements for many years.

In an effort to resolve Mexico's long-standing conflict between promoting agricultural production for export and for domestic consumption, the government followed a dual strategy between 1940 and 1965; it promoted large-scale commercial agriculture while redistributing land to the rural poor. Government policy favored large producers because export agriculture provided foreign exchange needed to finance industrialization. Extensive public investment in irrigation projects primarily benefited northern areas, where large private farms were concentrated, while rain-fed subsistence farming predominated in the central, southwest, and lower Gulf of Mexico regions. Larger farms produced for the lucrative export and agro-industrial markets, while traditional farmers grew the less profitable staple crops. The government sold basic food crops through its National Company for People's Sustenance (Compañía Nacional de Susistencias Populares--Conasupo) retail outlets, maintaining low purchase prices in order to maintain domestic political stability and justify low urban wages. Until the 1970s, Mexico was largely self-sufficient in basic staple crops.

Partly in response to changing market conditions, the production of staple commodities stagnated and then declined after 1965, while production of feed crops, livestock, and export products expanded. The agriculture sector's problems resulted partly from reduced public investment, as the government shifted resources to urban areas and failed to collect sufficient tax revenue. The government responded to declining staple output in 1971 with new agrarian reform legislation intended both to encourage production and to increase rural employment. The law authorized ejidos to move beyond basic crop cultivation into mining, forestry, fishing, agro-industry, commerce, and tourism.

Despite such measures, agricultural output failed to grow by more than 2 percent during the 1970s even though domestic food demand steadily increased as a result of population growth, growth in personal income resulting from the oil boom, and the government's provision of consumer subsidies for basic foods in order to improve the nutrition of the poor. The government raised producer prices and began to increase public spending in support of rain-fed production by small producers. Supply failed to keep pace with demand, however, and by 1980 Mexico had become a net food importer.

In 1980 President López Portillo signaled a new emphasis on production of staple crops for domestic consumption over export-oriented agriculture by establishing the Mexican Food System (Sistema Alimentario Mexicano--SAM) (see Rural Society, ch. 2). This program sought to build a strong productive base for Mexican agriculture in order to reduce the country's dependence on food imports from the United States and restore self-sufficiency in basic staples. Its main beneficiaries included landless peasants and small farmers, mainly in rain-fed areas. Additionally, the program provided subsidized "baskets" of basic foods to some 19 million undernourished Mexicans. Production priorities and goals were set for each region: wheat would be grown in the north, corn in the southeast highlands, rice in the Gulf of Mexico region, and beans throughout. Conasupo's retail outlets would distribute the food. As a result of the debt crisis, the de la Madrid administration abolished SAM in 1982.

In the late 1980s, the Mexican government began to emphasize reform and modernization of the agricultural sector (see table 8, Appendix). President Salinas moved to reduce credit costs, root out corruption and inefficiency in agricultural institutions, and raise guaranteed prices for certain products. The government's increased investment in agriculture and its 1991 reform of the land tenure system helped to attract substantial new private investment to agriculture between 1990 and 1994.

Building upon its 1991 land reform measures, the Salinas administration announced in October 1993 the details of a new agricultural income support plan, the Program of Direct Rural Support or Procampo. Starting with the 1994 growing season, Procampo replaced current price supports for basic grains with direct cash payments of 12 billion new pesos (US$3.5 billion), representing an 83 percent increase over supports paid in 1993. About 70 percent of Mexico's cultivated land was subsidized. The program was initially funded from the fiscal surplus that had accumulated since the late 1980s.

Procampo was intended to improve agricultural planning decisions and promote capitalization of the rural sector. It marked the abandonment of Mexico's traditional policy of agricultural self-sufficiency in favor of a more market-oriented system in which individual producers rather than government bureaucrats would make basic production decisions. The program also sought to offset producer subsidies in other countries, reduce domestic commodity prices to levels consistent with world market prices, encourage crop diversification and conservation, boost the competitiveness of the domestic food processing sector, and encourage the modernization of Mexico's agricultural production and marketing channels.

Initial beneficiaries of Procampo included 3.3 million growers of corn, beans, sorghum, wheat, rice, soybeans, and cotton, which together accounted for 70 percent of Mexico's arable land. Barley and safflower producers were added to the program in autumn 1994. The new subsidies were based on the size and productivity of land holdings and were paid to both commercial and subsistence growers. The government claimed that the new program would cover some 2.5 million farmers who had not benefited from the previous price support system. The 800,000 farmers who did benefit from that system received both the price subsidies and the new Procampo subsidy for an eighteen-month transitional period.

In addition to price supports, growers of program crops received in the spring and summer of 1994 a general support payment of 330 new pesos per hectare, which rose to 350 new pesos per hectare in the fall and winter of 1994. Starting in April 1995, the Procampo support payments were gradually reduced in order to bring food prices into line with market conditions. Meanwhile, direct payments under the program increased, although at a slower rate than the decline in price supports. Total support to agricultural producers fluctuated between a minimum level ensuring adequate income for subsistence farmers and a maximum level that would guarantee profitability for commercial producers.

Funding for Procampo was expected to remain steady for ten years, until 2003, and then decline over an additional five years until the program's termination in 2008. Procampo's fifteen-year duration was intended to give farmers adequate time to adopt new technologies, develop producer associations with other farmers or private agribusiness firms, and rationalize land use. To encourage alternative crop production, Procampo would continue to provide area support payments to growers who decided to change from program crops to alternative crops or livestock, forestry, ecological, and aquaculture activities throughout the fifteen-year phase-out period.

Procampo's reform of agricultural prices was expected to encourage a shift away from production of corn and dry beans and toward wheat, soybeans, and other products such as fruits and vegetables. Its impact was likely to be greatest in northwestern and northeastern Mexico and the Bajío region of west-central Mexico, where in the late 1980s and early 1990s many growers had switched from production of rice, cotton, sorghum, oilseeds, and wheat to the more profitable corn and dry beans. The direct payments were also expected to slow rural migration to cities and provide needed capital to impoverished subsistence farmers. Some government critics alleged that Procampo was intended to generate rural support for the ruling PRI.

During 1995 the government introduced a new agricultural support program, the Alliance for the Countryside (Alianza para el Campo), as an adjunct to its APRE program with labor and business. The alliance program presaged the devolution of responsibility for agricultural support to state governments, and it reinforced Procampo by expanding from ten to fifteen years the period during which direct cash subsidies would be paid to producers of various basic food crops. The new program also sought to improve credit flows to farmers from Banrural and other state agencies.

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Source: U.S. Library of Congress