San Luis Potosí Agricultural sector analysis

Officials in San Luis Potosí look for ways to streamline and add value to Mexico's agricultural sector

Agriculture may never be able to compete with the manufacturing industry as a proportion of GDP, simply due to the relative volumes involved, but this does not detract from the importance of the sector in San Luis Potosí’s economic development.

Some 2.75m ha of San Luis Potosí’s 6.1m-ha surface area are potential agricultural areas, with around 1.85m ha currently being cultivated. Moreover, the Ministry of Agriculture, Livestock, Rural Development, Fisheries and Food (Secretaría de Agricultura, Ganadería, Desarrollo Rural, Pesca y Alimentación, SAGARPA) estimates that around 225,000 people in the state work in agricultural activities, with more than 35% of the state’s population estimated to be reliant on the sector. According to the Secretariat for Economic Development, this is despite just 4.7% of the state’s GDP coming from the primary sector.

As of the third quarter of 2016, only 7.5% of agriculture jobs were registered with the social security system, meaning the vast majority of rural jobs – generally self-employed producers of coffee, citrus fruits or cattle – in San Luis Potosí are informal. “Our challenge is to make the value of agricultural production in San Luis Potosí grow, and thus generate more respectable jobs,” Alejandro Cambeses, secretary of agricultural development and water resources, told OBG. “We must establish more areas of protected agriculture, look for new markets away from the US and Canada, and show our potential to and incentivise the arrival of agro-industrial companies,” he added.

Capitalising On Capacity

San Luis Potosí maintains a leading position in Mexico in the production of agricultural products. It ranks third in soy beans, tomato, sugar cane and orange production in Mexico, fourth in chilli, fifth in beef, and sixth in beans and goats. According to Gastón Santos-Ward, the state delegate for SAGARPA, investment in different areas has led to increased production in San Luis Potosí of certain products that were nowhere near as important in the state beforehand. To capitalise on this new capacity, San Luis Potosí must look to add value to its products, something the new administration has already started.

In the 12 months to September 2016 agricultural production volumes were down to 11.91m tonnes – below the state government’s target – but the value of production increased by 36% to MXN14.64bn ($882.4m). Volumes fell because of a 60,000-ha reduction in harvested area, but the value increased thanks to more commercially valuable products, such as dried chilli from Villa de Ramos. Cambeses told OBG that San Luis Potosí’s existing production capacity alone is attractive for potential companies, but adds that the state’s location – just like in the automotive sector – makes it an ideal choice.

Some potential added-value opportunities involve the product itself; Cambeses highlights using soy beans to make milk or flour, or taking the region’s high quality tomatoes to produce paste or sauce, for example. Furthermore, Cambeses told OBG that an international company is in discussions about a potential project to use San Luis Potosí’s vast sugar cane production, which reached 5.4m tonnes between October 2015 and September 2016, to make ethanol, and thus provide a renewable energy source in rural areas.

Protected Agriculture

Investment in the cultivating process is providing further opportunities. Tomato production has increased significantly in the state due to a wave of greenhouse construction.

SAGARPA estimates that each hectare of protected agriculture generates eight, better-paid jobs. San Luis Potosí officially has 901 ha of protected agriculture; however, surveys being carried out by the Secretariat of Agricultural Development and Water Resources (Secretaría de Desarrollo Agropecuario y Recursos Hidráulicos, SEDARH) estimate the actual number is closer to 1400 ha. “The building of greenhouses is turning the state into a powerhouse for tomatoes,” Santos-Ward told OBG. The potential in San Luis Potosí for protected agriculture, which allows for the adjustment of environmental conditions to suit different plants, is aided by strong infrastructure – four gas pipelines traverse the state – and a dry climate in the north, where a majority of the greenhouses are based.

“Protected agriculture allows for high productivity, better quality and therefore higher prices,” Cambeses told OBG. He is aiming to establish 50 ha of protected agriculture for each of the remaining five years of his term. As an added benefit, the new developments in the more remote Altiplano region are helping to stem migration from the countryside into the city. “It brings agriculture jobs to the people without requiring them to move homes,” he added.

San Luis Potosí is also using greenhouses to diversify its product base. Strawberries, for example, had previously not been a farmed commodity in the state. Yet production is beginning to take root thanks to a MXN4.6m ($277,200) investment, of which MXN900,000 ($54,200) has come from the state government, MXN2.03m ($120,700) from the producers themselves and MXN1.67m ($100,700) from private sector financing and investment.

Improved Irrigation

Another area of technology the state government has identified as a priority for adding value to products is modern irrigation, a process that helps to look after groundwater, reduce usage and make production more efficient. In San Luis Potosí irrigation is benefitting sugar cane, chilli and tomato producers, among others. “We have been growing in this area but can grow faster,” said Santos-Ward. When the current administration took office in September 2015, there were 51,384 ha of land in the state that could count on modern irrigation technology. The government is targeting a further 21,000 during its six-year period, and by end-2016 had already added 6408 ha, according to SAGARPA.

Contract Farming

Large companies are also finding opportunities in San Luis Potosí through contract farming, where Grupo Modelo, the Anheuser-Busch InBev-owned brewer, has come to an agreement to buy malt barley from 900 different producers in Villa de Arriaga. The government supported the MXN33.7m ($2m) investment by planting 9650 ha of barley with MXN9.6m ($578,600) of financial support in 2016, and will look to invest a further MXN13.7m ($825,700) in 2017 to bring the number of farmers to 1400.

For the beer maker, the model allows it to reduce costs by cutting down on imports of malt, which is by far the most costly ingredient in the alcoholic drink. For the producers, it guarantees not just a buyer, but also a price – at MXN4500 ($271) per tonne. The investment is set to significantly repay the state, with production estimated to have totalled MXN34.74m ($2.1m) in 2016. Similar models are being followed with vegetable oil company Tron Hermanos, which is buying sunflowers from 300 different producers in the region.

Meat Production

San Luis Potosí is also an important provider of meat – both beef and goat. At the larger end of the scale, meat company Grupo Gusi opened an abattoir and packaging facility in the Huasteca region, with a federally certified plant that has capacity to process up to 2400 cattle per day.

However, many cattle and goat farmers are small, individual producers making subsistence incomes from their produce, as is the case for 43.8% of businesses and individuals working in agriculture in the state. Therefore, attempts are being made to bring smaller producers together and eliminate, or at least reduce, the role of intermediaries between buyers and sellers, who in some cases are earning much more than the farmer, according to Santos-Ward.

Helping Small Farmers

One such programme being carried out to support goat farmers brings buyers and sellers together at markets, or allows small producers access to larger companies. “At the moment, around 20% of the agricultural industry is highly competitive, with access to credit, exports and technology,” Santos-Ward told OBG. “Therefore, one of the biggest areas of potential for the state is in bringing together small producers so they can achieve better prices, eliminate intermediaries and become more competitive.” In the case of goat farmers, this is not only directly improving their profits – which according to Santos-Ward are up by around 40% – but is in turn also allowing smaller producers to have more cash for investments, thus increasing productivity.

Bringing small farmers together has also worked well with honey producers in the state, according to Cambeses. “We have helped them multiply volumes by several times, eliminated intermediaries and organised producers together to enable them to reach better-paying markets,” he told OBG. Now around 90% of the honey produced in San Luis Potosí is exported to Germany, Cambeses added. Finding new markets is a key area of potential for the state. “Sometimes I feel we are very good at agricultural production, but not so strong when it comes to selling,” Santos-Ward told OBG. “That is why we are making efforts to reach new markets with events and promotions such as food shows.”