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SAGARPA
Agricultural Finance

Mexico's agricultural programs reflect the heterogeneity of the country's agricultural sector. Producers range from large commercial operations to small, subsistence-oriented farms. Accordingly, some Mexican farm programs are geared more for advanced commercial operations, others are designed to advance less developed operations, and still others are available to virtually all producers. In many instances, Mexico's agricultural programs are designed to address perceived gaps and bottlenecks in the agricultural economy. This is particularly true in agricultural finance, where the participation of commercial banks is small compared with the United States.

SAGARPA

The Secretariat of Agriculture, Livestock, Rural Development, Fishing, and Food (SAGARPA—Secretaría de Agricultura, Ganadería, Desarrollo Rural, Pesca, y Alimentación) is Mexico's counterpart to USDA. For 2009, SAGARPA has an authorized budget of nearly 70.7 billion pesos, or about US$5.4 billion.

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Almost 70 percent of SAGARPA's budget is devoted to four programs.

• The Program of Direct Support for the Countryside (PROCAMPO—Programa de Apoyos Directos para el Campo) accounts for about 23 percent of SAGARPA's budget for 2009. This program, launched in 1994, was originally designed to provide transitional assistance to Mexican producers during the implementation of the North American Free Trade Agreement (NAFTA) and to eliminate guaranteed prices for basic staples. Currently, any producer who cultivates a legal crop on eligible land or uses that land for livestock or forestry production or some ecological project can receive PROCAMPO payments, which are made on a per hectare basis. Eligible land is defined as having been cultivated with corn, sorghum, beans, wheat, barley, cotton, safflower, soybeans, or rice in any of the three agricultural cycles prior to August 1993. According to operational rules published April 8, 2009, the standard PROCAMPO payment rate is 963 pesos (about US$73) per hectare for both the fall-winter and spring-summer agricultural cycles. For the spring-summer agricultural cycle, however, producers with modest landholdings receive a higher payment rate. For instance, the spring-summer payment rate equals 1,300 pesos (US$99) for producers with less than 5 hectares of eligible land.

• The Program of Direct Supports for Attention to Structural Problems encompasses a wide variety of support for the agricultural and fishing sectors. The program contains an important subprogram called the Subprogram of Direct Supports to Target Income and Commercialization (Target Income and Commercialization Subprogram, for short) that provides countercyclical assistance in a fashion similar to the U.S. marketing loan program. The Target Income and Commercialization Subprogram guarantees participating producers of selected crops that their income from the market will not fall below a certain level. So far, the Mexican government has defined target incomes for 11 crops (see table). This subprogram also includes support to ease the costs associated with commercialization (e.g., storage, transportation) of these crops. Other activities within the Program of Direct Supports for Attention to Structural Problems include the subsidization of diesel fuel and gasoline purchases made by the agricultural and fishing sectors, price insurance, and the provision of collateral. When all of these activities are taken into account, the program is responsible for about 19 percent of SAGARPA's 2009 budget, with nearly three-quarters of the program's budget allocated to the Target Income and Commercialization Subprogram.

Crops supported By Mexico's Target Income Subprogram

• The Program for the Acquisition of Productive Assets accounts for almost one-fifth (19 percent) of SAGARPA's 2009 budget. Formerly known as Alianza para el Campo (Alliance for the Countryside), the program encompasses a broad range of extension-like activities. Examples include:
• providing grants and technical assistance to producer groups and organizations for improvements to farm and ranch operations and cooperative ventures in production, storage, and marketing;
• supporting agricultural mechanization and technical improvements to irrigation;
• helping marginal producers to switch to more productive activities;
• financing research, development, and technology transfers to improve the supply chains of specific commodities; and
• promoting food safety and the achievement of sanitary and phytosanitary standards.

• The Program for the Sustainable Use of Natural Resources in Primary Production accounts for about 8 percent of SAGARPA's 2009 budget. This program encourages producers to utilize sustainable practices that minimize or reverse environmental damage caused by the agricultural, livestock, and fishing sectors. Examples of practices fostered by the program include sustainable use of land and water, conservation of native plant genetic resources, promotion of biodiversity, efficient and productive use of natural resources, sustainable use of fishing and aquacultural resources, and management of environmental disruptions. An important component of this program is the Program of Sustainable Livestock Production, Cattle Regulation, and Apiculture (PROGAN—Programa de Producción Pecuaria Sustentable y Ordenamiento Ganadero y Apícola). PROGAN seeks to enhance productivity and technological adoption among livestock and apicultural producers to help reduce their environmental impact. It provides direct payments, which vary based on scale of production, on a per-head basis for eligible livestock production practices (see table). Over two-thirds of the program's 2009 budget is devoted to PROGAN.

PROGAN payment rates, 2008

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Agricultural Finance

In the area of agricultural finance, Mexico counts upon several government financial institutions to augment the activities of the commercial banking sector. FIRA (Funds Instituted in Relation with Agriculture—Fideicomisos Instituidos en Relación con la Agricultura) was created in 1954 by the Mexican government to offer credits, guarantees, training, technical assistance, and support of technology transfer to Mexico's agricultural, forestry, fishery, and rural sectors. This second-tier, government-owned fund is managed by Banco de México, Mexico's central bank.

Since 1999, FIRA has pursued a new business model that considers the financial needs of the entire food system, including some non-agricultural activities in rural areas. To accomplish this task, FIRA has developed new products, such as structured financial instruments and inventory financing. It has also fostered a wider distribution network for its funds that includes various non-bank lending institutions, including Limited-Purpose Financial Societies (SOFOLES—Sociedades Financieras de Objeto Limitado), Multi-Purpose Financial Societies (SOFOMES—Sociedades Financieras de Objeto Múltiple), financial leasing companies, warehouse companies, and credit unions. Additionally, FIRA provides agribusiness consulting and sector-specialized information and analysis.

For 2007-12, FIRA has developed a strategic plan whose main objective is to assist in building and sustaining a globally competitive agricultural sector. One focal point of the plan is small producers, who account for 95 percent of all producers in Mexico. By enhancing their access to credit and providing training and technical assistance, the plan seeks to integrate small producers into value chains.

In 2008, FIRA lent 7.7 billion pesos (US$6.9 billion) for agricultural and rural financing, benefiting over 1.9 million producers. About 81 percent of these credits were channeled through commercial banks. That same year, FIRA also guaranteed nearly 6.3 billion pesos (US$5.7 billion) in credits, supporting the efforts of over 914,000 borrowers. Of this financing, FIRA devoted 34.7 billion pesos (US$3.1 billion) to about 1.85 million small producers and guaranteed 24.8 billion pesos (US$2.2 billion). Over 75 percent of these funds were channeled through commercial banks. At the close of 2008, the assets of FIRA's four constituent funds totaled about 106.6 billion pesos (US$7.7 billion).

Another important government institution in agricultural finance is Financiera Rural. This entity replaced Banco Nacional de Crédito Rural (BANRURAL), which was dissolved in 2003. Financiera Rural's primary mission is to make loans to agricultural producers and rural financial intermediaries, to facilitate capacity building among producers, and to foster the development of rural financial intermediaries.

Unlike BANRURAL, Financiera Rural is not a bank and does not offer savings accounts. Rather than disperse funds through its own network of offices, Financiera Rural does so through branches of affiliated banks. It also operates programs to distribute credit through other entities and to facilitate contract agriculture.

In 2008, Financiera Rural provided 23.7 billion pesos (US$2.1 billion) in financing to Mexico's agricultural, livestock, and rural sectors, benefiting over 166,000 producers and businesses. Over 50 percent was funded through direct credits. The rest was channeled indirectly through second-tier rural financial intermediaries (21 percent) and various indirect credit programs (28 percent). Of this financing, Financiera Rural granted 12.7 billion pesos (US$1.1 billion) to nearly 102,000 small producers and businesses.