Mexico diversifying agricultural trade partners and implementing sustainable practices

After decades of lacking a robust, strategic sector roadmap, Mexico launched the 2017-30 National Agricultural Plan that addresses everything from targeted crop varieties to trade partners and investment. One of the principal reasons that led the Ministry of Agriculture, Livestock, Rural Development, Fisheries and Food (Secretaría de Agricultura, Ganadería, Desarrollo Rural, Pesca y Alimentación, SAGARPA) to develop the strategy was concerns over the re-negotiation of the North American Free Trade Agreement (NAFTA). A primary goal of the plan is to diversify agricultural export markets, especially among Trans-Pacific Partnership (TPP-11) countries, the EU, Brazil and Argentina.

Trade

Despite having a healthy trade book composed of many agricultural products, a category where Mexico suffers a deficit is grains (see overview). As the country currently depends on the US for the majority of its grain imports, Mexico is looking to establish relationships with more diversified source markets, such as Argentina, Brazil and Russia. A signal of Mexico’s pledge to diversify came with the import of 30,000 tonnes of wheat from Argentina in December of 2017 after phytosanitary authorities approved the purchase.

Actively engaging with countries that are already signatories of agreements with Mexico will be fundamental in expanding export markets. According to the business promotion agency ProMéxico, Mexico has access to a potential market of over 1bn consumers in countries that comprise 60% of global GDP. Mexico has 12 free trade agreements with 46 countries, 32 reciprocal investment promotion and protection agreements with 33 countries, nine economic complementation and partial scope agreements within the framework of the Latin American Integration Association, and entered into the revised TPP-11. Mexico is also an active participant in various multilateral and regional associations, such as the World Trade Organisation, APEC and the OECD. “Commercially, it does not serve us to have trade agreements with many different countries and regions if we do not actively use them,” Armando Leonardo Aguilar Peña, director of international trade negotiations at SAGARPA, told OBG. “If we do not take advantage of these agreements, then we will be at a disadvantage. We cannot only focus on the US market; there are others we need to consider. We must start thinking of a world without the US as a trade partner.”

The National Agricultural Plan also aims to ensure that private investment from agricultural producers remains safe and that there are alternative markets for these companies if one country slows its purchases. Markets considered to have strong growth potential include Colombia, Chile, Peru, Brazil and Argentina, due to their complementary production processes.

A related goal is to increase both foreign and domestic investment to scale up production and meet the potential new demand from markets targeted in the National Agricultural Plan. The aim of the plan is to increase the value of agricultural production from MXN366.6bn ($19.8bn) in 2016 to MXN391.7bn ($21.2bn) in 2018, MXN443.2bn ($24bn) in 2024 and MXN500.3bn ($27bn) by 2030.

Super Surplus

Illustrating the importance of the sector, Mexico recorded an agricultural product trade surplus of $5.4bn in 2017 – a position the country aims to preserve. “We definitely expect to maintain the surplus in the commercial balance. Even with the re-negotiation of NAFTA and other trade talks, product flows have been stable,” Aguilar told OBG. “We expect to increase agriculture exports to new markets such as Singapore, Australia, New Zealand, the Middle East, China and other Asian destinations.”

A key to maintaining and building on the surplus could be further tapping the countries of the TPP-11, which was officially put into practice in early 2018. The agreement has opened six new markets to Mexican exporters: Singapore, Australia, New Zealand, Malaysia, Vietnam and Brunei Darussalam. At the same time, Mexico will be looking for additional providers of various imported goods. Items of focus are meat and dairy products, as well as soy and its derivatives. Argentina and Brazil are being considered as potential import partners for these products. Overall, strategic trade crops highlighted in the National Agricultural Plan are grains and flour, white and yellow maize, coffee, sugarcane, beans, fodder, oats, cocoa, oils (canola, sunflower and safflower), chickpea, sorghum, rice and apples.

Sustainable Shift

Trade partners are not only concerned with what is produced, but how it is produced. Therefore, another major theme of the National Agricultural Plan is aligning production practices with the UN’s 2030 Agenda for Sustainable Development. This goes hand-in-hand with the focus of diversifying trade partners, as experts in the agriculture industry view the moves towards sustainability as partially driven by consumer and market pressures. “Europe, Japan and China are becoming very strict with the sustainability aspect of agriculture production, and are even requiring that producers show how their goods are made,” Marco Antonio Galindo Olguín, director of economic studies at the National Agricultural Council, told OBG.

Economic engagement at the community and regional level is a major part of promoting sustainable production practices. In 2011, with the support of the World Economic Forum, Mexico launched the New Vision for Agri-food Development partnership, which works with small producers of four commodity groups to enhance production conditions. The scheme garners private investment to guide smallholder farmers towards effective and safe production and distribution.

Tech & Organics

New technologies and practices are being implemented to enhance crop production. For example, visual recognition technology can identify exactly which parts of fields or greenhouses require more fertiliser or where drip irrigation systems are needed. “Producers are trying to use agro-chemicals in a more precise manner, and more precision many times leads to less use of these chemicals,” César Ramón Contreras Monjarás, sub-director of commercial and agri-food policy at SAGARPA, told OBG.

While their use may be more targeted, many farmers still apply agro-chemicals for various reasons, and the companies that make them are working to balance the demands of both producers and consumers. “In spite of the growth of more advanced farming methods such as precision agriculture, the use of fertilisers and pesticides remains widespread throughout Mexico,” Martin Toscano, managing director of Evonik Mexico, told OBG. “Fortunately, chemical companies are boosting their research and development capabilities to develop more advanced, effective and ecologically friendly products which increase crop yields and reduce negative environmental impacts.”

With consumers worldwide demanding fewer agro-chemicals and more natural practices, Contreras also noted that new technologies will play a fundamental role in organic production in Mexico. According to him, the efficient use of space for organic farming is increasing. New vertical hydroponic technologies are being implemented to limit the outward sprawl of fields and instead allow farmers to save on space and water. This kind of resource management is essential in the organic food industry, where chemicals are not used.

Water & Land Use

Greenhouses, in particular, use water-conservation technologies, and through their application, large investments are under way to make Mexico a year-round producer of key crops. “Greenhouse growing is becoming increasingly technological, and large capital flows are going into this kind of production,” Galindo told OBG. “The idea is to be more efficient and reduce waste. For example, the irrigation systems are literally per plant and per drop. These new watering systems are key to increasing efficiency.”

Major investors in this type of technology have been large niche crop producers, with avocado and berry companies showing significant interest. However, the use of advanced technologies does increase the cost of production and is therefore looked at as a longterm investment. According to the US Department of Agriculture (USDA), in 2017 avocado producers in Michoacán state displayed a range of production costs from just over MXN70,000 ($3780) per ha when using basic technology to MXN90,000 ($4860) per ha when specialised irrigation techniques were used.

According to Aguilar, Mexico also needs to promote proper land-use management. The USDA cites that a reason for this movement stems from the destruction of hectares of forest due to illegal logging for wood products, as well as the unauthorised conversion of forest land to avocado plantations, particularly in Michoacán. The USDA indicates that part of the deforestation is a result of the high profits of planting avocados and selling them in the international market as opposed to leaving the forest land untouched or logging legally.

Regulations for the environmental impact studies required of agricultural producers need to be broadened, says Contreras, and correct land and water use must be enforced to a higher degree. These practices are vital for the sector to be sustainable and profitable.