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. Mexico’s current presidential administration (2018-24) has emphasized policy initiatives focused on small- and medium-scale farmers. This reorientation of the Mexican Government’s activities concerning agriculture is accompanied by a reallocation of resources dedicated to such activities.
SADER and the Special Concurrent Program
The Special Concurrent Program for Sustainable Rural Development (PEC—Programa Especial Concurrente para el Desarrollo Rural Sustentable) is a budgetary instrument the Mexican Government uses to plan and implement its activities in the area of agriculture and rural development. The PEC covers activities implemented by several cabinet ministries, including the Secretariat of Agriculture and Rural Development (SADER—Secretaría de Agricultura y Desarrollo Rural), Mexico’s counterpart to USDA.
When measured in nominal U.S. dollars (not adjusted for inflation), the PEC’s overall budget since 2017 has held roughly steady, in the neighborhood of $US 17 to $US 18 billion, while SADER’s budget was reduced from $US 3.9 billion in 2017 to $US 3.4 billion in 2019. For 2020, a budget of $US 17.3 billion for the PEC and $US 2.4 billion for SADER has been approved.
For 2019, SADER was allocated a budget of 65.4 billion pesos (about $US 3.4 billion). About two-thirds (66 percent) of this amount was dedicated to six programs:
- The Production for Wellbeing Program (Producción para el Bienestar) accounted for about 17 percent of the budget. This program channels direct payments to producers of corn, dry beans, wheat for bread, rice, and other grains. For 2019, the payment rates were either 1,000 or 1,600 pesos (about $US 52 or $US 83) per hectare, depending on farm size and access to irrigation. Payments are generally limited to 20 hectares.
- The Rural Development Program accounted for about 15 percent of the budget. The program seeks to improve the productivity of producer groups and organizations in communities with a high or very high level of marginalization through extension services, investment projects, and the further application of technology.
- The Sustainable and Social Agricultural Markets Program accounted for about 13 percent of the budget. This program incorporates several incentives for selected crops—including a marketing incentive, a complementary incentive to ensure that a target income per metric ton is achieved, an ad hoc incentive provided “under extraordinary circumstances” to address marketing problems, and incentives to construct or renovate grain collection centers and equipment.
- Guaranteed Prices for Basic Food Products accounted for about 11 percent of the budget. Under this program, the Mexican Government reestablished guaranteed prices for white corn, dry beans, rice, wheat for bread, and milk but limited their availability to small- and medium-scale producers or, in the case of rice and wheat, to specified quantities of production.
- The Livestock Credit on Your Word Program (Programa de Crédito a la Palabra) accounted for about 8 percent of the budget. This microcredit program is designed to support small- and medium-scale livestock producers and can be used to acquire infrastructure and livestock and ensure a supply of quality meat and milk products.
- The Fertilizer Program accounted for 3 percent of the budget. The program seeks to promote national food security by providing up to 450 kilograms of fertilizer per hectare for as many as 3 hectares per producer to qualifying growers of corn, dry beans, rice, coffee, and sugarcane in municipalities with a high or very high level of marginalization.
In the area of agricultural finance, Mexico has traditionally counted upon several government financial institutions to augment the activities of the commercial banking sector:
- Funds Instituted in Relation with Agriculture (FIRA)—Fideicomisos Instituidos en Relación con la Agricultura);
- National Financier of Agricultural, Rural, Forestry, and Fishing Development (FND—Financiera Nacional de Desarrollo Agropecuario, Rural, Forestal, y Pesquero); and
- Capitalization and Investment Fund of the Rural Sector (FOCIR—Fondo de Capitalización e Inversión del Sector Rural).
Mexico’s budget for 2020 allocates to FND all funding that previously would have gone to these three entities, suggesting their possible combination soon.
FIRA 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.
One area of public policy interest is small and medium-sized 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 2018, FIRA lent 287.6 billion pesos ($US 14.9 billion) for agricultural and rural financing, a real increase of 23 percent from 2017. Of this amount, 82.6 billion pesos ($US 4.3 billion) was devoted to long-term credit balance, a real growth of 12 percent from 2017. This increase is to promote productivity through financing capital goods, and modernization for agriculture and fisheries. 66.1 billion pesos ($US 3.4 billion) corresponded credit funding for small businesses and families. (The subtotals in dollars do not add up to the total amount due to rounding.)
FND (formerly named Financiera Rural) was created as a replacement for 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 2018, FND provided about 74.7 billion pesos ($US 3.8 billion) in financing to Mexico’s agricultural, livestock, and rural sectors.
FOCIR’s mission is “to support and complement the economic capacity of rural producers and their economic organizations, to encourage the development and consolidation of rural and agro-industrial companies, through investments, long-term investment, in a temporary and minority form, that trigger projects of high potential and social benefit,” according to the fund’s website.
OECD Support Estimates
Agricultural support estimates calculated by the Organization of Economic Cooperation and Development (OECD) provide a common framework for evaluating the size of government support to agriculture. The Total Support Estimate (TSE) measures “the annual monetary value of all gross transfers from taxpayers and consumers arising from policy measures that support agriculture, net of the associated budgetary receipts, regardless of their objectives and impacts on farm production and income, or consumption of farm products.” In 2018, Mexico’s TSE equaled about 1,082 billion pesos ($US 56.2 billion). This estimate includes some agriculture-related activities that took place outside of SADER, and it does not cover some activities of SADER that the OECD does not count as government support to agriculture.
The TSE has three components:
- 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,”
- 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
- 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 2018, the PSE accounted for 82 percent, the GSSE accounted for 9 percent, and TCT accounted for 9 percent.
The leading forms of agricultural support in Mexico are: (1) payments based on input use (39 percent of TSE in 2018) and (2) payments based on non-current levels of area, animal numbers, revenue, or income, production required (9 percent). Among payments based on input use, those based on non-constrained input use or involving fixed capital formation (reductions in on-farm investment costs of buildings and equipment usually only accessible to large producers) are considered by the OECD to be market distorting. In Mexico, these types of payments based on input use decreased over the past several years, after increasing 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 2018, raw sugar accounted for 65 percent of Mexico’s MPS. 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 2016-18, Mexico’s PSE was in the range of 7-8 percent, roughly the same level as the U.S. PSE and about half the OECD country average.