Mexico Policy

SAGARPA
Agricultural Finance
OECD Support Estimates 

Mexico’s agricultural programs reflect the heterogeneity of the country’s agricultural sector. Producers range from large commercial operations to small, subsistence 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 2018, SAGARPA has a budget of 72.1 billion pesos (about 3.8 billion U.S. dollars). Roughly three-fifths (58 percent) of this amount is devoted to three programs: 

  • The Program of Promotion for Agriculture (Programa de Fomento a la Agricultura) accounts for about 23 percent of the budget. Its main aim is to incentivize productivity improvements at the farm level. Priority is given to regions with medium-to-high productive potential, priority crops, and market potential. The program has six components: productive agricultural capitalization; integral strategies for public agricultural policy; research, innovation, and technological development; productive improvements to soil and water; a direct-payment program called PROAGRO Productivo; and renewable energy development.
  • The Program of Supports for Small Producers (Programa de Apoyos a Pequeños Productores) accounts for about 22 percent of the budget. Its general objective is to help small producers to increase food availability. The program features 11 components, ranging from rural food security to the development of young farmers.
  • The Program of Supports for Marketing (Programa de Apoyos a la Comercialización) accounts for about 13 percent of the budget. This program’s stated objective is “to fortify the organization and development of markets and the productive and commercial agroalimentary chain through the granting of incentives and services for the marketing of domestically produced crops, the managing of market risks, commerical promotion, the network of commercial ties, and the promotion of exports of agricultural, aquacultural, and fishing products.”

Source: USDA, Economic Research Service using data from SAGARPA, Mexico’s Secretariat of Agriculture, Livestock, Rural Development, Fishing, and Food.

PROAGRO Productivo (part of the Program of Promotion for Agriculture) provides direct payments to producers, with the aim of giving them the liquidity to invest in productive activities on their holdings. It is the successor to the Program of Direct Support for the Countryside (PROCAMPO—Programa de Apoyos Directos para el Campo), a direct-payment program launched in 1994 that was originally designed to provide transitional assistance to Mexican producers during NAFTA’s implementation and the elimination of guaranteed prices for basic staples. For 2018, PROAGRO Productivo’s payment rates range from 180 to 1,600 pesos per hectare (about 9.55-84.85 U.S. dollars), depending on farm size and access to irrigation. Click here for Data on PROAGRO Productivo Payment Rates for 2018.

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 Agricultural Finance  

In the area of agricultural finance, Mexico counts on 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 nonagricultural activities in rural areas. To accomplish this, 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 nonbank 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 2013-18, FIRA has developed a strategic plan with six objectives: 

  1. Promote access to financing for those producers with viable projects that lack access or have insufficient access to credit.
  2. Foster long-term credit to boost the productivity of rural producers.
  3. Promote financing in areas of public policy interest.
  4. Expand and strengthen the network of financial intermediaries, with the strategies of a second-tier bank.
  5. Link credit to government programs.
  6. Guarantee the sustainability of FIRA’s assets. 

One area of public policy interest is small and medium-size producers—an area that intersects with the objectives to promote access to financing and to boost productivity, as well as other areas of public policy interest such as gender equity. By enhancing the access of such producers to credit and providing training and technical assistance, the plan seeks to integrate them more into agribusiness and marketing. 

In 2017, FIRA lent 222.6 billion pesos (11.8 billion U.S. dollars) for agricultural and rural financing, benefiting about 1.5 million producers. Of this amount, 175.0 billion pesos (9.2 billion U.S. dollars) was devoted to discounts, while 47.6 billion pesos (2.5 billion U.S. dollars) corresponded to guarantees without discounts. (The subtotals in dollars do not add up to the total amount due to rounding.) About 80 percent of these funds were channeled through commercial banks. 

Another important governmental institution in agricultural finance is Financiera Nacional de Desarrollo Agropecuario, Rural, Forestal, y Pesquerio (FND). This entity (formerly named Financiera Rural) replaced Banco Nacional de Crédito Rural (BANRURAL), which was dissolved in 2003. FND’s mission is to increase financing at the first tier—via the delivery of resources to direct beneficiaries—and at the second tier—via the delivery of resources through Rural Financial Intermediaries—for any economic activity carried out in rural communities under 50,000 inhabitants that improves their quality of life. 

Unlike BANRURAL, FND is not a bank and does not offer savings accounts. Rather than disperse funds through its own network of offices, FND does so through branches of affiliated banks. It also operates programs to distribute credit through other entities and to facilitate contract agriculture. In 2016, FND provided about 63 billion pesos (3.3 billion U.S. dollars) in financing to Mexico’s agricultural, livestock, and rural sectors, benefiting some 492,000 producers and entrepreneurs, 71 percent of whom were women. 

OECD Support Estimates  

Agricultural support estimates calculated by the Organisation of Economic Co-operation and Development (OECD) provide a common framework for evaluating the size of government support to agriculture. The Total Support Estimate (TSE) measures “the annual monetary value of all gross transfers from taxpayers and consumers arising from policy measures that support agriculture, net of the associated budgetary receipts, regardless of their objectives and impacts on farm production and income, or consumption of farm products.” In 2016, Mexico’s TSE equaled about 99.8 billion pesos (5.3 billion U.S. dollars). This estimate includes some agriculture-related activities that take place outside of SAGARPA, and it does not cover some activities of SAGARPA that the OECD does not count as government support to agriculture. 

The TSE has three components: 

  1. The Producer Support Estimate (PSE), “the annual monetary value of gross transfers from consumers and taxpayers to support agricultural producers, measured at farm gate level,”
  2. The General Services Support Estimate (GSSE), “the annual monetary value of gross transfers to general services provided to agricultural producers collectively (such as research, development, training, inspection, marketing, and promotion),” and
  3. Transfers to consumers from taxpayers (TCT), the “annual monetary value of gross transfers to consumers of agricultural commodities, measured at the farm gate level, arising from policy measures that support agriculture, regardless of their nature, objectives or impacts on consumption of farm products.” 

Of Mexico’s TSE in 2016, the PSE accounted for 79 percent, the GSSE accounted for 11 percent, and TCT accounted for 10 percent.

The leading forms of agricultural support in Mexico are: (1) payments based on input use (48 percent of TSE in 2016) and (2) payments based on noncurrent levels of area, animal numbers, revenue, or income, production required (13 percent). Among payments based on input use, those based on nonconstrained input use or involving fixed capital formation (reductions in onfarm investment costs of buildings and equipment usually only accessible to large producers) are considered by the OECD to be market distorting. In Mexico, these particular types of payments based on input use have decreased over the past several years, after having increased significantly during the previous decade.

Market Price Support (MPS) is calculated “by adding together the price transfers to producers from consumers and taxpayers, minus the contribution that producers make to these transfers.” For an individual commodity, these price transfers are estimated by multiplying the market price differential (MPD) by the quantity of domestic supply, where the MPD is the difference between the domestic market price and the border price of the commodity, measured at the farm gate level. In 2016, raw sugar accounted for 34 percent of Mexico’s MPS, followed by milk (22 percent). Tariffs on agricultural imports from various non-NAFTA countries are the main policy that corresponds to Mexico’s MPS. Another way to consider the level of Mexico’s agricultural support is to compare it to the value of the country’s agricultural production using a measure called the percentage PSE, which equals the amount of producer support divided by the sum of transfers from taxpayers to producers plus the value of agricultural production. During 2014-16, Mexico’s PSE was in the range of 8-11 percent, roughly the same level as the U.S. PSE and at about half the OECD country average. 

Click here for Data on Mexico's Total Agricultural Support Estimate, 2013-2016