MEXICO: THE IMPACT OF SLOWER AGRICULTURAL GROWTH

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP89S01449R000200150001-1
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 21
• Document Creation Date: December 27, 2016
• Document Release Date: July 9, 2012
• Sequence Number: 1
• Publication Date: March 1, 1988
• Content Type: REPORT

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Mexico: The Impact of Slower
Agricultural Growth
A Research Paper
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PAGE NUMBERS //
zoTAL NUMBER OF OOPIES
DISSE24 DATE
EXTRA COPIES
MORD CENTER 3?/? 3,5-
JOB NUMBER 4-7: --CT 634
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ALA 88-10017
March 1988
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Mexico: The Impact of Slower
Agricultural Growth
A Research Paper
This paper was prepared by Office
of African and Latin American Analysis, with a
contribution by Office of Global
Issues. It was coordinated with the Directorate of
Operations.
Comments and queries are welcome and may be
directed to the Chief, Middle America?Caribbean
Division, ALA
Secret
ALA 88-10017
March 1988
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Mexico: The Impact of Slower
Agricultural Growth
Scope Note This assessment is part of a series of papers that examine structural
economic problems in Mexico and their implications for the United States.
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iii
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ALA 88-10017
March 1988
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Summary
Information available
as of 16 March 1988
was used in this report.
Mexico: The Impact of Slower
Agricultural Growth
The growing inability of Mexican agriculture to feed its people is creating
serious economic and political problems for Mexico City and increasing the
pressure on rural Mexicans to emigrate illegally to the United States.
Declining rates of agricultural production have made Mexico increasingly
dependent on food imports, generated substantial rural underemployment,
and prompted a vast influx of peasants into the urban centers.
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Agricultural output has slackened during the last several decades largely
because of government policies that favor consumers over producers and
heavy industry over agriculture. As a result, farm employment and output
have stagnated and Mexico has started to run agricultural trade deficits.
Moreover, government policies favoring large agricultural producers of
export crops have hampered the production of basic staples. Although the
Mexicans have taken some steps to correct the disincentives to agricultural
production and to stimulate peasant farming, we believe the problem is
likely to worsen significantly in the coming years.
We judge that government policies will continue to hold down agricultural
growth, confronting Mexico City with a number of problems:
? Poor profitability. Continued price and export controls, as well as
budgetary constraints on hiking real prices paid to farmers, make it
unlikely that profit margins will increase significantly for many basic
foods. Thus, production of grains, oilseeds, meat, and dairy products
probably will not keep pace with demand.
? Growing underemployment and unemployment. A sluggish pace of
agricultural growth, together with demographic trends and a lack of
land, will create a larger pool of surplus farm labor, but nonagricultural
sectors will not be able to absorb them as they did during Mexico's boom
years.
? Rural to urban migration pressures. Low incomes and insufficient
employment opportunities will prompt hundreds of thousands of peasants
to migrate to urban centers each year, straining the cities' ability to meet
demands for housing, electricity, potable water, sewage disposal, and
roads.
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? Widening income gaps. Mexico City's desire to sell basic foods to urban
workers at low prices, its unwillingness to release staple crops from rigid
controls, and fragmentation of already small plots probably will continue
to tip the economic scales against peasants.
On the political side, peasants' dissatisfaction with government policies
probably will grow, but we believe they lack the clout to garner significant
concessions from the ruling party. A number of leftwing parties have tried
to capitalize on peasant discontent, but it is unlikely they could seriously
challenge the ruling party's domination of the countryside. The govern-
ment's control of land titles, credit, and inputs, as well as its ability to co-
opt peasant leaders, probably will keep most peasants in line. As urbaniza-
tion and industrialization proceed, peasants stand an even smaller chance
of influencing government policymakers because agriculture's role in the
economy will diminish. As the ruling party continues to evolve from its
peasant origins, it probably will give greater weight to satisfying demands
from urban workers and the middle class.
Mexico's increasing dependence on imported foods is likely to create a
growing market for US exporters as well as some minor trade frictions.
Food demand almost certainly will pick up once Mexico emerges from a
slight recession this year. Shortfalls in grains, oilseeds, meat, and dairy
products probably will boost demand for imports from the United States,
already Mexico's most important source of agricultural imports. Mexico
City's reluctance to lift most agricultural import licenses, however, sug-
gests that the government will continue to protect domestic producers from
US competitors. Mexican officials may seek to offset the adverse effects of
rising imports on its agricultural trade balance by pressing the United
States for fewer restrictions on Mexican exports of fruits and vegetables.
The poor outlook for peasant farming and the rapid growth of the working-
age population suggest that the number of illegal immigrants to the United
States will grow. From Mexico City's perspective, illegal immigration is an
important safety valve as well as a source of foreign exchange. Consequent-
ly, the Mexicans probably will continue to denounce the new US immigra-
tion bill that aims at deterring illegal workers from crossing the border.
Mexican officials also are likely to focus on alleged US exploitation of
illegal workers to deflect public attention from the domestic roots of the
issue.
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Contents
Page
Scope Note
111
Summary
Introduction
1
Dimensions of the Problem
1
Underlying Factors
4
Inappropriate Government Pricing Policies
4
Emphasis on Heavy Industry
5
Favoring Large Producers
5
Policy Changes Under de la Madrid
7
Reducing Disincentives to Production
7
Increasing Land Use
8
Prospects and Implications
8
Obstacles To Improving Agriculture's Performance
8
Outlook
9
Political Implications
10
Implications for the United States
10
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Figure 1
Principal Agricultural States
Tijana
Baja Ca iforn
Noite
son..
Chihuahua
r-si Chihuahua.
United States
Coahuila C:, k
5.
.),...) i Monterrey. u..?.
?::Ni.ueeoyno,......,1,
`e, ?,..
Sinsaloa \ Durango I..4) --,,,. ..?J
.4N1 ....."??
Zacatecas. ? cramaul as
.,
' :\h...t_ (Mexico.
San Luis
-4 Jalisco
Cruz
1,MiChOaca; fif,..r
/6 {
????\.? tPueb(14eS0,....? eracruz
Guerrero ..)
Oaxaca
?
North
Pacific Ocean
0
0
Vegetables and wheat
Corn
Coffee
Beans
Citrus fruit
490 Kilometers
400 Miles
1. Aguascalientes
2. Guanajuato
3. Queretaro
4. Hidalgo
5. Tlaxcala
6. Mexico
7. Distrito Federal
8. Morelos
Gulf of Mexico
Bahia de
Campeche
Meile----'n
Yucatan,'
...-
Qui na
Ro
Ca peche \
..?
El Salv
Boundary representation is
not necessarily authoritative.
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712597 (1300395) 3-88
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Mexico: The Impact of Slower
Agricultural Growth
Introduction
Mexico's agricultural sector has long been relegated
to a low place on government officials' list of national
priorities. From the 1960s until the early 1980s,
Mexico City centered its development strategy on
promoting the growth of import-competing industries,
even though this policy proved damaging to the farm
sector. As Mexico's push to industrialize created a
larger urban work force, government officials also
attached more importance to assuring urban consum-
ers an adequate supply of cheap food than to provid-
ing farmers with sufficient profits to stimulate pro-
duction. The limited resources made available to
farmers were concentrated on large, affluent land-
owners in the north in order to increase export
revenues, ignoring the peasant farmers who produce
the bulk of Mexico's basic foods. These policies have,
over time, impaired Mexico's ability to feed itself,
held back rural incomes, and contributed to rural-to-
urban migration and to illegal immigration to the
United States.
Once a mainstay of Mexico's economy, the agricultur-
al sector now plays a much smaller part. Currently, it
accounts for about 10 percent of export revenues and
gross domestic product (GDP)?down from 50 percent
of exports and 16 percent of the GDP in the 1960s.
Moreover, although Mexican agriculture provides
jobs for about one-fourth of the labor force, many are
underemployed and must supplement their income
with jobs off the farm.
This paper examines the causes of Mexico's lackluster
agricultural performance, the de la Madrid govern-
ment's efforts to improve the situation and its likely
future actions, and the social and economic fallout of
such policies. It also addresses the trade implications
for the United States and the impact on cross-border
illegal immigration.
1
Dimensions of the Problem
Although agricultural output in Mexico has increased
during the last several decades, the production of
some basic commodities is no longer keeping pace
with demand. Real agricultural production expanded
by an average 6 percent each year during the 1940s
and 1950s, but then declined to 4 percent in the 1960s
and 3 percent during the period 1970-86, according to
Mexican statistics. More significant, since 1970 the
rate of growth in the production of staple grains and
oilseeds?which represent approximately two-thirds
of total crop production?has fallen short of the
growth in demand. For example, production of corn
grew at an average annual rate of 2 percent from
1970 to 1985?compared with 4 percent during the
1960s?at a time when corn consumption was ex-
panding by more than 3 percent annually. Like other
staple foods, domestic production of corn was greater
than domestic demand in the 1960s, but by 1985, it
met only about 80 percent of needs, according to the
World Bank (see figure 2).
As a result, Mexico has gone from being a net
exporter of agricultural goods to a food importer, and
it has run an agricultural trade deficit for five of the
last eight years. Deficits were avoided in 1982, 1986,
and 1987 only because domestic recessions held down
import demand and freed up exports (see figure 3).
Agricultural imports have risen steadily as a share of
total imports?from an average of 4 percent during
the 1960s to 11 percent in the 1980s?according to
the Bank of Mexico. Imports of oilseeds and grains?
particularly soybeans, sorghum, and corn?have
soared, accounting for more than two-thirds of total
food imports in 1985 (see figure 4).
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Figure 2
Mexico: Degree of Self-Sufficiency,
Selected Products a
Percent
140
60
40
20
Self-
sufficiency
Wheat
Corn
Beans
rI 1111111
0
1966 67 69 71 73 75 77 79 81 83 85
a The degree of self-sufficiency is defined as the ratio of
production to consumption. A country is completely self-sufficient
if production is equal to 100 percent of consumption. When
production exceeded consumption, Mexico had a surplus of
food to export. When production was less than consumption,
Mexico had to import food.
316217 3-88
Meanwhile, agricultural exports fell sharply from
1979 to 1985, reflecting smaller sales of such major
commodities as cotton and coffee (see table). Agricul-
tural exports had already begun to fall as a percent-
age of total exports, dropping from an average of
nearly 50 percent in the 1960s to 25 percent in 1979
as Mexico became more industrialized and began to
export growing quantities of petroleum. From 1980 to
1984, agricultural sales plummeted to a mere 6
percent. The sharp rebound in agricultural exports in
1986 was an anomaly, in our view, because coffee and
tomato prices doubled that year, but sank back in
1987. Indeed, preliminary figures for 1987 suggest
that food exports probably made up no more than 8
percent of total exports.
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Figure 3
Mexico: Agricultural Trade Balance
Billion US $
2.5
2.0
1.5
1.0
.5
0
1960 62 64 66 68 70 72 74 76 78 80 82 84 86
Agricultural
exports
Agricultural
imports
316218 3-88
In the meantime, slow agricultural growth has limited
employment opportunities in agriculture while the
number of people needing land or farming jobs has
ballooned. Job creation in the agricultural sector has
been weaker than in other sectors, lagging far behind
the growth of the labor force (see figure 5). From 1971
to 1986, the Bank of Mexico's data indicate farm
employment grew at a scant 1-percent average annual
rate, compared with 3.5 percent for the rest of the
economy. At the same time, the number of people
needing jobs in the agricultural sector was growing by
more than 3 percent annually, according to Mexican
data.
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Figure 4
Mexico: Major Agricultural Exports
and Imports, 1985
Percent
Exports
Other
10.1
Tobacco
2.0
CottonCoffee
6.4 34.9
Fresh fruit
8.9
Cattle
11.1
Vegetables Tomatoes
11.5 15.1
Wheat
2.0
Beans
3.5
Cattle
7.9
Oilseeds
13.1
Other
Imports
Soybeans
17.0
15.8
Sorghum
16.3
Figure 5
Employment Growth Versus Labor
Force Growth
Employment Growth
Index: 1970=100
250
100
50
0
1970 72 74 76 78 80 82 84 86
Social
services
Construction
Manufacturing
Agriculture
Total Labor Force Growth
Index: 1970=100
250
200
100
316219 3-88 50
The farm sector's sluggish pace of job creation?
along with low farm incomes?has played a key role
in prompting millions of people to migrate to urban
centers or to seek illegal jobs in the United States.
The 1980 Mexican census indicates most of the
migrants streaming into urban areas in Mexico have
3
!MIMI
0
1970 72 74 76 78 80 82 84 86
Total labor
force
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?
Mexico: Agricultural Trade a
Million US $
1970
1979
1980
1981
1982
1983
1984
1985
1986
Agricultural exports
623
2,304
1,546
1,481
1,233
1,249
1,461
1,409
2,098
Of which:
Coffee
74
564
415
334
345
386
424
492
825
Cotton
82
344
321
309
184
116
208
90
74
Tomatoes
35
207
185
250
154
112
221
214
408
Other fresh vegetables
12
101
172
198
178
150
179
162
198
Fresh fruit
44
89
83
82
71
45
87
126
110
Agricultural imports
148
898
2,012
2,421
1,100
1,701
1,880
1,607
938
Of which:
Sorghum
2
155
308
'432
195
434
383
264
78
Corn
56
100
589
453
38
834
375
255
166
Soybeans
11
154
132
355
156
218
403
275
167
Oilseeds
3
47
126
189
218
139
240
213
147
Wheat
0
188
163
214
87
60
41
32
20
Beans
2
4
241
337
98
1
34
56
83
Agricultural trade balance
475
1,406
?466
?940
133
?452
?419
?198
1,160
Sources: Bank of Mexico and the United Nations
come from regions such as Michoacan, Oaxac'a, Zaca-
tecas, San Luis Potosi, and Puebla, all of which have a
high proportion of agricultural workers (see figure 1).
On average, almost half the labor force in these states
are farm workers, compared with one-fourth for the
country as a whole. According to the US Embassy,
farm workers still constitute more than half the illegal
Mexican emigrants to the United States, although a
larger number of more skilled and urban workers have
been arriving in recent years.
Underlying Factors
The reasons for Mexico's declining agricultural per-
formance are complex. In our view, the most critical
have been government policies designed to keep con-
sumer food prices low, which have hurt profitability in
agriculture, particularly in the production of basic
food crops. We judge that inefficient land use and
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uneconomical plots also are important factors. Struc-
tural problems, weak commodity prices for exported
crops, and fluctuations in weather have also come into
play.
Inappropriate Government Pricing Policies
Government policies that have favored the consumer
rather than the producer have been a major reason for
the poor state of Mexican agriculture, in our judg-
ment. To accomplish its primary goal of guaranteeing
consumers a supply of basic foods at low cost, since
the 1960s, Mexico City has established sale prices for
a number of commodities?most notably grains?
below the prevailing price on the international market
according to the World Bank.' At the same time,
' During the period 1979-82, Mexican sales prices temporarily rose
above international levels because of the Lopez Portillo administra-
tion's lavish spending on farm support.
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farmers have had to pay relatively high prices for
agricultural inputs, such as seeds, fertilizers, pesti-
cides, and machinery, leading them to complain that
the government had not set market prices high enough
to cover their costs. As the squeeze on the farmers'
profit margins worsened, many farmers shifted pro-
duction away from basic food crops. Some farmers
opted to grow alternative crops, such as alfalfa, which
offered higher profits. US Consular reporting indi-
cates that many subsistence farmers also turned
to narcotics cultivation to increase their income.'
To discourage farmers from selling essential food-
stuffs abroad?and thus creating shortages at home?
Mexico City also maintains export controls that pre-
vent producers from obtaining higher prices for their
crops and livestock outside Mexico. The quotas cover
essential products such as corn, sorghum, soybeans,
flour, and cattle.' They vary from year to year and
depend on Mexico City's estimate of domestic supply
and demand. For example, in 1988 Mexican officials
reduced the export quota for feeder cattle from 1.2
million head to 1 million because of an expected
increase in domestic meat demand. Discouraged by
the low returns for food crops covered by price and
export controls, many commercial farmers switched
from producing staple crops like corn to crops such as
fruits and vegetables that are relatively free of gov-
ernment price and export controls and offer a higher
profit margin.
2 According to Embassy reporting, farmers can earn three times as
much by growing narcotics as they can by growing basic food crops.
The government also limits the export of coffee, sugar, tobacco,
cotton, and tuna because of international quota agreements or
voluntary export restraints agreed to with the United States.
5
Emphasis on Heavy Industry
Mexico's policy of encouraging the growth of indus-
tries by protecting them with high tariffs, import
quotas, and licensing requirements has been another
major cause of declining agricultural performance.4
High tariffs on industrial products have contributed
to the increased cost of inputs in agriculture, thus
lowering farmers' profits. Tariffs on industrial prod-
ucts have generally risen during the 1970s, making
such agricultural inputs as farm machinery more
expensive. This in turn has contributed to a general
shift in investment and resources from agriculture to 25X1
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Favoring Large Producers
Another factor that has hurt Mexican agriculture has
been Mexico City's decision to shower resources on
large, private landholdings at the expense of smaller
peasant farms. This has helped to limit the production
of many basic food crops. From the 1960s until the
early 1980s, the government concentrated investments
and credits on irrigated land held by large private
landowners in the north in order to increase produc-
tion of wheat, cotton, and vegetables. Government
officials believed these investments would benefit
Mexico most in terms of increased foreign exchange
earnings.
At the same time, they ignored rain-fed peasant
farms, contributing to stagnant yields and rising
imports of corn and beans?foods comprising about
70 percent of peasants' diets. Agricultural advances
largely bypassed the peasant sector, with the result
that yields of beans and corn?nearly two-thirds of
which is grown on peasant-operated collective
farms?have hardly changed in over a decade (see
inset). Large landowners have mostly ignored produc-
tion of these staples because of disincentives stem-
ming from price and export controls. US agriculture
experts believe that rain-fed peasant farms could have
produced far more if the government had better
balanced investments and credits between private and
peasant farmers and provided more assistance to
peasants for improved seeds, fertilizer, and pesticides.
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Mexico put import substitution policies into effect in 1947. Trade
policies became increasingly restrictive in the 1960s and early
1970s.
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Mexico's Inefficient Ejidos
Mexico's system of collectivized farms?the ejidos?
are a major obstacle to expanding agricultural pro-
duction, according to the US Embassy. The ejidos
make up 55 percent of Mexico's arable land and
produce 60 percent of the country's basic foods?
mainly subsistence crops such as beans and corn.
Most of the ejidos are governed collectively, but are
comprised of small, uneconomical plots that are
farmed individually. According to UN estimates,
nearly three-quarters of the ejidos either do not
provide enough food for the tenants or generate a
substandard income that peasants must supplement
with off-farm jobs. The Embassy reports that the
majority of ejidos suffer more financial losses and
produce lower yields than private farms because of
their inefficient size; lack of irrigation, technology
and know-how; internal conflicts; and corruption.
Despite government rhetoric, the ejidos have been less
favored by agricultural policies than privately owned
farms largely because private-sector farmers have
been important generators of food exports and foreign
exchange. Irrigation projects, agricultural credits,
crop incentives, and new technology have mostly
benefited the more affluent, private landowners. Al-
ready handicapped by their inability to mortgage
ejido plots, peasant farmers have frequently been
unable to obtain even government loans because
unirrigated land is considered a poor credit risk.
Despite being an economic drain, the ejidos play a
significant political role for the government by ap-
peasing peasants, one of the traditional pillars of
support for the ruling party. The ejidos?which sup-
port 3.5 million campesino families?allow the gov-
ernment to claim that it is fulfilling the revolution's
promise of providing farm plots for landless peasants.
According to the US Embassy, however, the number
of land grants made to collective farms under de la
Madrid's administration has slowed dramatically,
and the land has increasingly consisted of pastures
and woodland because there is no arable land left to
distribute?with the exception of land expropriated
from narcotics growers that is turned over to peasant
farmers.a In fact, both de la Madrid and the ruling
party's presidential candidate, Carlos Salinas, have
publicly stated that land redistribution is corning to
an end and that improving productivity of existing
ejidos must now become the number one agricultural
priority.
The ejido system also gives the government substan-
tial political leverage in rural areas. In addition to
having the power to extend or revoke land titles,
Mexico City decides how many farmers will live on
an ejido and who they will be, and controls access to
credit and inputs. According to Embassy reporting,
Mexico City traditionally has used the ejidos' depen-
dence on the government to co-opt and manipulate
campesino leaders in an effort to head off rural
unrest
a In 1987, Mexico City confiscated and redistributed 30,816
hectares from narcotics growers, according to the Embassy.
Past Mexican law designed to prevent large private
landholdings also has led to the underutilization of
arable land. For example, Mexican law stipulates that
ranches will be expropriated if ranchers grow crops or
if their property exceeds the area needed to raise 500
animals. This rule was intended to prevent land
ownership and income from becoming concentrated in
the hands of relatively few. According to World Bank
experts, however, these restrictions have left much
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arable land fallow and curtailed the growth of produc-
tion and employment because they do not permit large
enough land holdings or a more efficient system
combining livestock and crop production. Fears of
expropriation almost certainly increased after the
passage of several laws in the early 1970s and 1980s
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that allowed the government to seize land to develop
irrigation systems and to redistribute land in cattle
ranches suitable for farming to ejidos. In addition,
tens of thousands of unsettled land disputes have
heightened uncertainties, prompting land invasions
and delayed investment.
Policy Changes Under de la Madrid
When President de la Madrid came into office in
1982, his government took a number of steps to
correct mistakes made by earlier governments in an
effort to improve productivity, boost overall agricul-
tural output, reduce Mexico's dependence on import-
ed grains, and provide more rural jobs. These efforts
to ameliorate farming conditions have been hesitant,
however, and the results have been mixed, largely
because plummeting oil prices in 1986 squeezed gov-
ernment spending and because Mexico City still
assigns a high priority to assuring urban consumers an
adequate supply of cheap food. While farm employ-
ment picked up during the period 1983-86, real
agricultural output expanded on average by less than
2 percent, and the country faced agricultural trade
deficits in three out of the four years.
Reducing Disincentives to Production
In recent years, the Mexican Government has taken
some first steps in reforming domestic pricing poli-
cy?including the elimination of consumer price sub-
sidies for sorghum, eggs, milk, vegetable oil, beans,
rice, and flour, according to the US Embassy. Sharp
increases in food prices during 1985 and 1986 have so
far trimmed subsidies as a percent of GDP from 1
percent in 1983 to 0.2 percent in 1986. Such increases
also have decreased monetary transfers as a share of
GDP from the federal government to the state food
and distribution agency by 0.5 percentage point (see
inset). Additional price increases during 1987 further
reduced the food agency's dependence on government
transfers, according to the press. Nevertheless,
Mexico City continues to subsidize tortillas, and it
holds down prices for a wide range of other agricul-
tural goods by imposing price ceilings.
7
Scaling Down a Government Food Monopoly
The centerpiece of government efforts to cut back
subsidies on basic foods is the reform of the National
Company for Subsistence Products (CONASUPO),
the state food import, purchase, and distribution
agency. Until 1985, CONASUPO was the sole im-
porter and distributor of oilseeds, grains, and other
food products, selling food products to consumers for
less than the cost of importing them in order to keep
prices low. When grain and oilseed imports acceler-
ated in the 1970s, CONASUPO began to run up huge
debts and became one of the parastatals most heavily
dependent on government transfers, according to Em-
bassy reports. In an effort to reduce the company's
red ink, the de la Madrid administration began to ax
some consumer price subsidies and scale back market
intervention in 1985.
Mexico City has also implemented changes in its
trade policy to reduce its role as an importer without
relinquishing its control of food imports. At the same
time the de la Madrid administration began to phase
out subsidies in 1985, it began to allow the private
sector to import such staples as grains and oilseeds.
Since then, CONASUPO's share of food imports has
declined to about 40 percent. Although the govern-
ment is playing a smaller part as a buyer, it keeps a
tight rein on food imports to shield domestic farmers
from foreign competitors who offer better quality
produce. According to the US Embassy, for example,
although Mexico City has reduced the number of
agricultural products that require import permits, the
vast majority of agricultural goods still cannot be
imported without government authorization. The
Mexicans also forbid the import of over 300 other
food products. Because current GATT rules permit
import barriers on agricultural products, accession to
the GATT obliged Mexico only to justify trade
restrictions. This may change, however, if GATT
members agree to opening up agricultural trade at
the Uruguay Round.
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The administration also has begun to remedy the bias
toward industrial?as opposed to agricultural produc-
tion?by introducing trade reforms.' Import tariffs
have fallen to a maximum of 20 percent, compared
with 100 percent in 1985, according to Embassy
reports. The government also is in the process of
phasing out restrictions on manufactured imports.
Cutting back the level of protection given to industry
will improve the ratio of agricultural prices to the cost
of manufactured goods and agricultural inputs. It
should also help remove price distortions that dis-
criminate against agriculture.
Many of Mexico's major agricultural products, in-
cluding grains, livestock, and coffee, still remain
subject to export controls. According to the World
Bank, the government's desire to keep a lid on food
prices makes export restrictions essential. In addition,
Mexico's participation in international cartels, such as
the International Coffee Organization, has led to
continued limits on coffee, cotton, and tobacco, which
together brought in over 40 percent of Mexico's
agricultural export revenues in 1985.
Increasing Land Use
Mexico City began to channel a larger share of
budgeted technical assistance and financial aid to
rain-fed peasant agriculture in 1983 in an effort to
improve productivity.
the government is providing technical advice on ero-
sion and drainage control to peasant farmers, and it is
limiting subsidies for seeds and fertilizer to corn
producers who are dependent on rainfall and own less
than 20 hectares of land. We believe the overall
impact of government aid programs has been rather
modest. In fact, Mexican officials estimate that gov-
ernment financial aid is reaching only 20 percent of
the peasant farmers.
The de la Madrid administration has had mixed
success in clarifying land ownership and regularizing
government procedures on land disputes. On the
positive side, the Embassy reports that it initiated a
rural census to provide data for resolving conflicts
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about land titles. In addition, de la Madrid's moral
renovation campaign has led to the sacking of numer-
ous corrupt officials who used their positions for
acquiring land instead of clearing up land disputes.
On the other hand, the redtape needed to settle land
claims?some of which have been outstanding for
decades?is still complicated and lengthy. Budget
cuts that sharply pared down the staff at the Secretar-
iat of Agrarian Reform probably have led to further
administrative delays, according to Embassy report-
ing.
Prospects and Implications
In our judgment, budgetary austerity, high inflation,
disagreements within the government, structural limi-
tations, and political sensitivities make it highly un-
likely that the government will make significant head-
way in reforming the agricultural sector. As a result,
US forecasting firms calculate that agricultural
growth probably will average no better than 2 percent
each year through the mid-1990s. This sluggish rate
of growth implies widening gaps between food de-
mand and supply, growing unemployment, increased
migration from rural to urban centers, and more
uneven income distribution. Peasants almost certainly
will continue to be disgruntled over government farm
policies, although there is no sign yet that opposition
parties will be able to rally enough support to threaten
the ruling party's control of rural areas.
Obstacles To Improving Agriculture's Performance
We believe any efforts to make significant hikes in
real support prices or input subsidies for farmers in
the near term are likely to run afoul of budgetary
constraints and already high inflation. Even during
the days of lavish farm spending under Lopez Portillo,
real support prices still were well below levels present
in the 1960s. Although US Consulates report frequent
peasant farmer protests over their inability to cover
their costs with low government price supports?
particularly for corn and sorghum, which are mostly
sold through the state food system?we believe
Mexico City will remain reluctant to implement
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additional measures that could fuel inflation and
intensify urban workers' dissatisfaction prior to the
presidential election next July.
Likewise, the government will find it difficult to take
additional steps to liberalize agricultural imports.
According to Embassy reporting, Mexican officials
say they will release only a few more products from
import licensing requirements. Since last year, plant-
ing seeds have been the only additional agricultural
roducts affected
According to the US Embassy, Mexico City plans to
hold back on further steps, waiting to see if any
agreement on liberalizing agricultural trade surfaces
from the latest round of GATT talks.
Over the medium to long term, we believe there are
even greater obstacles to increasing agricultural
growth, even if Mexico complements trade liberaliza-
tion measures with more appropriate farm policies.
World Bank experts believe that Mexico is near the
limit of possible irrigated, arable land and that new
irrigation projects can bring only small increments in
production. According to the US Embassy, commer-
cial grain production in privately owned irrigated
fields already is highly efficient and depends on new
hybrid seeds, making significant increases in private-
sector output unlikely. In addition to these structural
limitations, it appears that the government has decid-
ed that land ownership laws and ejidos are too
politically sensitive to be overhauled.
In view of Mexico's rapid population growth and lack
of land, we believe that peasant land invasions and the
fragmentation of already uneconomical plots will
continue. These problems are likely to be worse in the
south, in our judgment, where peasants make up a
comparatively high percentage of the population and
unsettled land disputes have long caused rural vio-
lence. For example, in Chiapas?the site of 400 land
invasions and 7,000 disputes over plots since 1980-
9
Mexican academics say that a 3.6-percent annual rate
of population growth during the last two decades
reduced the average plot size from 16 hectares in
1950 to 4 hectares in 1985.
Outlook
Rising Imports. Despite the efforts of the de la
Madrid administration, Mexico probably will remain
dependent on imports to meet a growing portion of its
food needs for the foreseeable future. The US Embas-
sy indicates that infrastructural problems probably
will retard the growth of the meat and dairy sectors,
leaving the country reliant on imports to fill a widen-
ing gap between production and consumption. In
addition, demand for feedgrains and oilseeds is highly
sensitive to changes in income and almost certainly
will increase once Mexico emerges from another
recession this year. Price and export controls on the
major grains, however, suggest that production of
these crops will fall short of Mexico's needs and push
imports back up from unusually low levels in 1986.
According to Mexican agricultural experts, grain
imports will more than double to 15 million metric
tons in six years unless the government takes signifi-
cant new steps. Higher agricultural imports are not
likely to have a major financial impact, however,
because they account for a relatively small share of
total imports.
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Socioeconomic Impact. We believe that sluggish rates
of agricultural output and shortages of arable land are
likely to create more job pressures during the next
decade than in the past because the industrial and 25X1
services sectors are not likely to grow fast enough to
absorb all the workers looking for nonfarm jobs. A
slow rate of agricultural expansion, together with
demographic trends and a lack of land, almost cer-
tainly will create a growing pool of surplus farm labor
seeking unskilled jobs in industry and services.6 The
nonfarm sector, however, probably will grow by only 3
percent?less than half the 7-percent rate during the
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boom years in the sixties and seventies. As a result, we
expect rural underemployment as well as open unem-
ployment?which currently stands at 21 percent?to
edge up.
Bleak rural job opportunities and low farm incomes
almost certainly will prompt thousands of farm-
workers to migrate to urban centers during the com-
ing decade. Government efforts so far to promote the
development of rain-fed agriculture appear too limit-
ed to stem the tide of rural migrants. Although food
processing plants are growing in number, they employ
only 3 percent of the total labor force and clearly
cannot absorb many landless peasants or small farm-
ers. The magnitude of rural to urban migration
almost certainly will severely strain Mexico's ability
to provide housing, electricity, potable water, sewage
disposal, and roads. For example, according to US
Consulate reporting, an estimated 40,000 peasants
move to Guadalajara?Mexico's second-largest city?
each year in search of a better standard of living. We
calculate that this rate of influx by itself would cause
Guadalajara's population to double in 40 years. City
officials say that the extension of services cannot keep
pace with the growth of squatter settlements and
estimate that 200,000 people already lack even mini-
mum services.
Mexico City's unwillingness to release some staple
goods from rigid government controls, limitations on
its ability to pay higher support prices to farmers, and
uneconomical peasant plots suggest that Mexico's
income distribution is likely to become more uneven.
The government's desire to sell essential foods like
tortillas at low prices, and probable constraints on its
ability to jack up guaranteed prices paid to producers,
probably will continue to tip the economic balance in
favor of urban consumers and against peasants.
Econometric simulations by academics indicate that
present levels of government input subsidies to peas-
ant farmers are far too small to keep the income gap
between owners of small, unirrigated plots and large
commercial farmers from widening.
Political Implications
Peasant dissatisfaction with the ruling party's farm
policies is on the rise. According to Embassy report-
ing, many campesinos are turning away from the
Secret
PRI-affiliated National Confederation of Campesinos
because they believe the Confederation's slavish sup-
port for the ruling party will not bring the changes
they want in farm policies. A variety of leftwing
parties probably will continue to draw peasants who
are unhappy with the inequitable distribution of re-
sources, inadequate prices, and agrarian reform.
We believe, however, that the campesinos will contin-
ue to lack the clout to gain major concessions. The
Embassy indicates that there is no sign yet that
opposition parties can stage a significant challenge to
the Confederation's dominance of the countryside.
Since 12,000 campesinos turned out for a joint protest
by four opposition parties in 1985, there have been no
additional major rallies even though peasants are still
being hurt by government farm policies. As Mexico
becomes more urban and industrialized, peasants
stand an even smaller chance of influencing policy-
makers because agriculture's share of GDP and of the
labor force will keep diminishing. Consequently, the
ruling party probably will continue to give greater
weight to satisfying demands from urban workers and
the middle class than from peasants as it continues to
evolve away from its peasant roots and develop a
larger base of blue-collar and middle-class workers.
Implications for the United States
Mexico's dependence on imported grains, oilseeds,
meat, and dairy products will provide growing export
opportunities for US farmers. The United States
already is the source of about 90 percent of Mexico's
food import needs and Mexican officials have indicat-
ed to the Embassy that credits from the US Commod-
ity Credit Corporation offer a strong incentive to
continue buying the bulk of their food imports from
the United States. Mexico's likely emergence from a
recession later this year probably will allow US food
exports to pick up from depressed 1986 levels, when
they totaled approximately $900 million. The fastest
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growing markets are likely to be soybeans and corn,
which currently account for 40 percent of US food
sales to Mexico.
At the same time, the reluctance of Mexican officials
to remove import licensing requirements may hurt US
producers. Several times last year the Mexicans is-
sued import licenses for oilseeds but prevented the
products from entering Mexico when their delivery
coincided with Mexican harvests. The US Embassy
indicates that the government probably will take
further steps occasionally to safeguard domestic pro-
ducers and maintain domestic prices.
Mexico City probably will push hard to increase fruit,
vegetable, and meat exports to the United States to
help offset rising imports. We believe some minor
trade frictions are likely to result from these efforts.
Embassy reports suggest the Mexicans are likely to
press for US revocation of bans on their meat exports
and restrictions on sizes of fruits shipped to the
United States. The government also would like to
have a certified pest-free export zone for fruits and
vegetables to ease shipment to the United States. In
addition, we believe the Mexicans will try to step up
production of vegetables grown mainly for the US
market, such as tomatoes, summer squash, and cu-
cumbers. With a more competitive exchange rate and
deep cuts in real wages during the last five years,
Reverse Blank
11
Mexican farmers will be in a good position to increase
their market share. These moves have the most
potential for conflict with California, Florida, and
Texas producers.
Most important, the poor outlook for peasant farming
suggests that illegal immigration will continue to rise.
Mexico's likely inability to create sufficient jobs for
growing numbers of peasant workers, dramatically
higher wages in the United States, and growing US
demand for cheap farm labor probably will tempt
more Mexican farmworkers to risk crossing the bor-
der illegally.
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