Corn-Producing Sector in Mexico and Sustainability

Alejandro NadalCentre for Economic Studies

El Colegio de México

OSISA – CCS-UKZNWinter School on Rethinking Sustainability,

Development and Economic JusticeSouth Africa, Durban, July 2013

OVERVIEW - Main Features

• Importance of small scale producers, both small commercial farmers or subsistence producers

• 3 million direct producers• 15 million persons depend directly on corn• Approximately 8 more million depend indirectly

(commerce, transportation) on corn production• Large employment generator• Crucial staple

– Nixtamal process: only used in Mexico & Guatemala– Converts bound niacin into free niacin

Zea mays: Mexico is centre of origin of corn

• Vavilov in Mexico (1930, 1932): Mexico is the centre of origin of corn (Zea mays)

• Mexico is the centre of domestication of corn from “teosinte” (Zea mays parviglumis) around 7,000 years BPT

• Mexico is the centre of greatest genetic variability of corn• Mexican corn germplasm: 51 racial complexes and more

than 9,000 varieties (38% of accessions at CIMMYT) plus 388 varieties of wild relatives (teosinte and tripsacum)

• Today: high risk of genetic erosion– Degradation of milpa systems– Migration induced by economic warfare– Large scale agri-business model (including for ethanol)– GMOs: moratorium, contamination (Oaxaca), authorization

Corn small scale producers and genetic variability

• Mexican producers using traditional methods on rain-fed land rely heavily on genetic diversity as a strategy for survival

• Genetic variability of corn = most important technological asset of small scale corn producers in Mexico

• Sowing different varieties, with different abilities to withstand a range of environmental conditions, offers insurance for an adequate harvest: this requires sophisticated handling of a complex set of inter-relations between seed characteristics, soil quality, surrounding topographic features, weather and climate, etc.

• Milpa: complex intercropping system (it’s core is made of three crops: corn (Zea mays), beans (Phaseolus vulgaris) and squash (Cucurbitacea spp.)

Genetic variability of corn in Mexico

• Global importance: Mexican germplasm has been used to improve more than 45 varieties of corn used worldwide

• Critical in context of climate change• In situ conservation performed by three million

small scale producers in Mexico: curators of germplasm

• Ex situ in germplasm banks not enough in the long haul– Static conservation (in situ is dynamic)– Lack of adequate information in accessions’ passports

In situ Conservation of Genetic Resources

Maize in Mexico: well adapted to complex tapestry of agro-ecosystems. Due to strong genetic X environment interaction, maize is well adapted to the harsh and varied conditions of Mexico’s lanscapes

Mexican corn germplasm is the single most important technological asset of poor (small-scale) producers

HYV’s unable to compete with landraces. GMO’s may be in the same situation (Berthaud, Goodman, García Barrios, etc.),

Justifying Corn in NAFTA

• Government’s justification for including corn in NAFTA: it would be cheaper to import than to produce domestically

• These three million producers were defined by GOM as “inefficient” and too costly (subsidies and price floor support mechanisms)

• In addition, the GOM argued that these subsidies were distorting prices of corn and affected consumers of final maize products (tortillas)

Corn in NAFTA

• Tariff rate quota system over 15 year period• Tariff-free quota to expand at 3% p.a.• Initial tariff at 206% ad valorem (phase out)• Price floor support and import quotas to be

eliminated immediately and…• Replaced by income deficiency systems (à la

Dunkel)• Support for producers during this period

would be maintained constant in real terms

The NAFTA Project: expected results

1. Increments in corn imports

2. Reductions in domestic prices

3. Diminished output

Reallocation of productive resources: land, capital and labor

Corn in NAFTA: TRQ and Imports (1989-2004)

0

1000

2000

3000

4000

5000

6000

700019

89

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

Th

ou

san

d m

etri

c to

ns

The Implementation of Corn in NAFTA

• Tariff for over quota not implemented: de facto total liberalization took place on January 1, 1994

• Transition period truncated to 36 months (domestic and international prices alligned)

• Producers’ prices dropped 50% first years of NAFTA• PROCAMPO’s real value dropped 45%• Investments in hydro infrastructure collapsed• Credit for agriculture at all-time low• TODAY: international prices have increased (food crisis) due

to biofuel production in the USA and to a lesser extent financial speculation in futures markets

International Corn Prices

International Corn Prices2000 - 2012

Evolution of international prices of corn

• World demand (China)?• What about market power concentration?

– Archer Daniels Midland, Cargill, Bunge, Louis Dreyfus (ABCD) control more than 40% of world trade in grains

• Ethanol and biofuel production, especially in the US• Financial speculation in Chicago Mercantile Exchange

– US CTC continues to deregulate commodities’ futures markets– Big players in energy trading entering commodities trade: Vitol

(largest independent oil trader) has hired team from Viterra (Toronto). Viterra was bought by Glencore, largest global commodity speculator

Financial speculation and commodity markets

Source: UNCTAD’s Policy Brief No. 25 Calculated with data from Bloomberg

Financial speculation and commodity markets

Source: UNCTAD’s Policy Brief No. 25 Calculated with data from Bloomberg

PROCAMPO: Real Value and Beneficiaries

200.00

220.00

240.00

260.00

280.00

300.00

320.00

340.00

360.00

380.00

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

1994

Pes

os/h

a

2,400

2,500

2,600

2,700

2,800

2,900

3,000

3,100

3,200

3,300

3,400

Tho

usan

d be

nefic

iarie

s

Pesos/Ha Beneficiaries

Mexico: Investment in Hydro-agricultural Infrastructure (1991-2003)

0

200

400

600

800

1,000

1,200

1,400

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Milli

on P

esos

199

4

0

5

10

15

20

25

30

35

40

45

Tho

usan

d he

ctar

es

Federal budget appropriations Surface converted to irrigation

Trends in Mexican Agriculture

Banrural: Credit for Agriculture

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

1994 1996 1998 2000

Mill

ions

of

peso

s fo

r to

tal c

redi

tCommercial Bank

Loans for Agriculture

0

10000

20000

30000

40000

50000

1994 1997 2000

Mill

ion

1994

pes

os

Total Agriculture Livestock

Declining government credit

Declining commercial credit

New Irrigated Surface, 1991-2001

0.0

10.0

20.0

30.0

40.0

50.0

1991 1993 1995 1997 1999 2001

Tho

usan

d h

ecta

res

Trends in Mexican Agriculture:Declining Investment

Declining Subsidies for Maize (Amber Box)

Real Maize Subsidies 1994-2002

1,500

1,750

2,000

2,250

2,500

2,750

3,000

3,250

3,500

1994 1995 1996 1997 1998 1999 2000 2001 2002

mill

ion

s 19

93 p

eso

s

Source: OECD, Agricultural Policies in OECD Countries: Monitoring and Evaluation, 2003; author's calculations.