High-value, export-oriented crops have enabled Mexico's agro-industry to expand

In recent years Mexico has emerged as a successful exporter of non-traditional crops such as avocados, berries and tomatoes. In 2018 during his first term in office, President Andrés Manuel López Obrador, better known by his acronym AMLO, made promises to reduce the country’s dependence on grain imports. However, as of mid-2019 the new administration has not introduced any drastic measures such as import controls or market-wide price support for stable products. Instead, AMLO has focused on recalibrating Mexico’s farm support policies while working within the existing framework established by the North American Free Trade Agreement. Although many industry analysts are sceptical that AMLO will achieve his aim of complete self-sufficiency in food production, as long as the new administration continues to support export industries, Mexico looks set to improve its trade surplus and decrease its reliance on imports.

Subsidies

In July 2019 AMLO announced that MXN7.7bn ($398.2m) in direct aid will be given to farmers through cash-transfer programmes over an undefined timeline. “It will be delivered directly from the Treasury to the producer,” he told local media. The new administration’s agricultural support programmes are designed to focus on low-income rural producers rather than large, industrial-scale farms. “Before this, aid stayed at the top level and did not take smaller farmers into account,” AMLO said.

AMLO has also promised growers that more aid programmes will be rolled out in the coming years. “We are just getting started,” he said. “As soon as there are more resources we will use them to help producers, and we will achieve food self-sufficiency.”

However, some sector stakeholders are concerned that the programmes may impact long-term productivity. “Subsidies need to be managed effectively as they can be damaging to both producers and productivity if they are not implemented in a strategic and transparent way,” Iñigo Pérez-Rasilla Bayo, CEO of agriculture finance company Sofagro, told OBG. “The main focus should be on the collective modernisation of the countryside, rather than merely compensating for growers’ low productivity.”

Others have voiced similar concerns and have commented on the lack of a government strategy for agri-business. “I do not see there being any largescale, integrated agri-business programme that can guarantee an increase in production or productivity,” Marco Galindo, director of economic research at the Agri-Business Council, told OBG. “Current policies are focused on providing direct economic aid to small producers. They have cut the resources available to the Ministry of Agriculture, and are instead using the funds to directly subsidise small producers and their families, but these resources will not necessarily be linked to agricultural projects.”

However, AMLO’s plans for the sector appear to be more of an incremental shift than a transformation of Mexico’s long-standing policies and openness to trade. “It is still early to say how much change the new administration will introduce,” Alberto Cué llar, director of economic studies at the Ministry of Agriculture and Rural Development (Secretaría de Agricultura y Desarrollo Rural, SADER), told OBG. “The government’s rhetoric suggests that there will be a lot of change. Although the goal is food self-sufficiency, in real terms the policies of the past are still in effect. If there is going to be major change the budget will also need to be altered.”

Exports

The government has not yet made any indication that it will be making significant changes to export-focused segments. Some industry analysts have argued that in order for the sector to move forward, the new administration will need to find a balance between supporting small-scale farming communities without hindering larger, export-focused agri-business firms. “The country’s most exciting agricultural products are export-oriented,” Cuéllar told OBG. “Non-staple crops such as avocados, tomatoes and berries are much more dynamic segments than grain production.” The country has also seen success exporting agro-industrial products such as beer and tequila. According to local media, Mexico was the world’s fourth-largest beer producer and the largest beer exporter in 2018. The country produced around 10.2bn litres of beer, 4bn of which were exported – with the US the main destination, accounting for 70% of beer exports. In 2018 beer exports grew by 19% compared to the previous year, when 3.4bn litres were sent abroad. It is estimated that the country’s beer segment, which generated $21bn in revenue in 2018, will be worth $28bn by 2023. The beer segment relies heavily on grains, hops, yeast and other imported crops from the US and Europe, but this is sustainable as the value itself is created in Mexico and a significant portion of total revenue is generated through exports. The segment has created new opportunities for domestic agricultural producers to grow wheat to be used in brewing. The tequila industry is another example of how a locally produced crop, agave, has been successfully transformed into a high-value export product. Between 2008 and 2018 exports of 100% agave tequila grew from 35.9m litres per year to 115.3m litres, according to the Tequila Regulatory Council.

Success Stories

According to the central bank, Banco de México, the top-five agricultural exports in the first four months of 2019 were beer, tomatoes, avocados, berries, tequila and beef. “Mexico specialises in the production of fruits, berries, avocados, tomatoes, cucumbers and chillies. These are the products that have grown significantly in terms of exports, ” Armando Aguilar, director of international trade negotiations at SADER, told OBG.

In 2018 tomato exports were worth a record $2.3bn, an increase of 13.3% on the previous year. Some 99.7% of Mexican tomato exports went to the US. Avocado exports reached $2.4bn in 2018, down from 2.7bn in 2017, but the volume exported increased by 21%, from 990,000 tonnes to 1.2m tonnes. Exports of berries increased by 264% between 2014 and 2018, and were worth $2.1bn in 2018. In that year the US alone imported $365.4m of Mexican berries. Exports of Mexican beef have also expanded rapidly in recent years. Fresh and chilled beef exports were worth $1.1bn in 2018, up by 8.2% on the previous year, while frozen beef exports generated $183m – up 31% compared to 2017. According to figures from SADER’s Agri-Food and Fisheries Information Service, Mexico posted a trade surplus in a number of other segments in 2018, including peppers ($1.2bn), bread products ($999m), sugar ($605m) and cucumbers ($521m).

Grain

Although many segments have delivered a positive trade balance in recent years, the country still remains heavily reliant on grain imports. In 2018 Mexico exported $500m of grain, but it imported $8.9bn worth of the crop, creating a net trade deficit of $8.4bn. According to the 2017 National Agricultural Survey, which was published in July 2018 by the National Institute of Statistics and Geography, the country produced 23.1m tonnes of corn, 3.2m tonnes of wheat, 1.2m tonnes of beans and 124,500 tonnes of rice; however, current levels of production are not sufficient to satisfy domestic demand. Although Mexico produces enough white corn, soy and rice, the country relies heavily on US imports of beans and wheat, and imports around 75% of yellow corn, which is used to feed livestock.

While it is unlikely that President López Obrador will achieve his goal of complete food self-sufficiency by the time his current term in office ends in 2024, it is likely that the agriculture sector will be able to consolidate and expand its existing trade surplus. As it stands the administration’s main focus is on expanding community outreach rather than on supporting agri-business, and there is little indication that this will change in the near term.