STRUCTURAL

CHANGE AS A

SOURCE OF TRADE

DISPUTES UNDER

NAFTAANDRES ROSENZWEIG PICHARDO

GENERAL DIRECTOR OF AGRICULTURAL STUDIES

MINISTRY OF AGRICULTURE, LIVESTOCK, RURAL DEVELOPMENT,

FISHERIES AND AGRI-FOOD

Tucson, Arizona

February, 2001

SECTOR WITH SUBSTANTIALLY GREATER EXPOSURE TO THE INTERNATIONAL MARKET DUE TRADE LIBERALIZATION

IMPORTS/PRODUCTION RATIO

1/. Million dollars.

Source: CEA and SAGARPA with Secretary of Economics data.

IMPORTS 1994 IMPORTS 1999Imports/Production

1994 (%)Imports/Production

1999 (%)PRODUCT

Value 1/ Value 1/ Value 1/ Value 1/

Maize 369.5 600.2 10.4 21.7

Wheat 189.3 336.8 25.2 77.7

Sorghum 394.8 426.9 88.5 69.7

Barley 6.7 39 10.9 54.6

Rice 104.1 122.3 136.7 168.4

Bovine meat 337.0 595.2 10.2 19.4

Swine meat 107.2 131.8 6.2 7.3

Poultry meat 89.4 82.6 4.5 3.8

Import penetration has increased in all these products, with the exception of surghum and poultry, due to:

Higher growth of human consumption than production.

Higher demand of processing industries.

MEXICAN AGRICULTURAL EXPORTS FIGURES

AGRIFOOD EXPORTS/TOTAL EXPORTS RATIO, MEXICO – WORLDMillion dollars

Concept 1994 1995 1996 1997 1998 1999ARG

99/94

Total exports of Mexico 60,817.2 79,540.6 96,003.7 110,236.8 117,459.6 136,391.1 17.53

Agri – food exports Mexico - World 4,031.7 5,786.2 5,724.7 6,337.5 6,746.0 6,985.9 11.62

Agri – food exports / Total Exports of Mexico (%)

6.6 7.3 6.0 5.7 5.7 5.1 (5.03)

The share of agri-food exports to total exports has been diminishing, even though agri-food exports have increased at an ARG of 11.6 per cent.

Data shows no trade diversion on the side of exports due to NAFTA. Trade remains concentrated with NAFTA Partners.

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

(Million

dollars

)

1994 1995 1996 1997 1998 1999 (Years)

PERFORMANCE OF MEXICAN AGRIFOOD EXPORTS WITH NAFTA AND REST OF THE WORLD

Rest of the World Mexico - NAFTA

ARG10.9%

ARG15.8%

Source: SAGARPA and Secretary of Economics.

MEXICAN AGRICULTURAL IMPORTS FIGURES

Food imports vs total exports measures vulnerability according to FAO. This index is decreasing for Mexico, due to the performance of the economy as a whole.

Data shows trade diversion on the import side due to the NAFTA.

AGRIFOOD IMPORTS/TOTAL EXPORTS RATIO, MEXICO – WORLDMillion dollars

Concept 1994 1995 1996 1997 1998 1999ARG

99/94

Total exports of Mexico 60,817.2 79,540.6 96,003.7 110,236.8 117,459.6 136,391.1 17.53

Agri – food imports Mexico - World 7,343.2 5,252.9 7,678.3 8,610.1 8,546.7 6,985.9 11.62

Agri - food imports / Total Exports of Mexico (%) 12.1 6.6 8.0 6.9 7.3 6.3 (12.2)

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

(Million

dollars

)

1994 1995 1996 1997 1998 1999 (Years)

PERFORMANCE OF MEXICAN AGRIFOOD IMPORTS WITH NAFTA AND REST OF THE WORLD

Rest of the World Mexico-NAFTA

ARG4.4%

ARG(2.2%)

Source: SAGARPA and Secretary of Economics.

MEXICAN AGRICULTURAL AND AGRI-FOOD TRADE BALANCES

AGRICULTURAL TRADE BALANCE / AGRICULTURAL GDP RATIOMillion dollars

Concept 1994 1995 1996 1997 1998 1999

Agricultural Trade Balance Mexico - World

(1,332.3) 1,176.6 (1,433.0) (730.7) (1,134.4) (977.6)

Agricultural GDP 22,216.4 14,348.3 18,393.4 20,109.5 20,080.2 20,488.5

Agricultural Balance / Agricultural GDP (%)

(6.0) 8.2 (7.8) (3.6) (5.6) (4.8)

Source: SAGARPA with Secretary of Economics data.

AGRICULTURAL TRADE BALANCE / AGRI-FOOD GDP RATIOMillion dollars

Concept 1994 1995 1996 1997 1998 1999

Agri-food Trade Balance Mexico - World

(3,311.5) 533.3 (1,953.6) (1,311.6) (1,864.0) (1,560.9)

Agri-food GDP 41,968.1 28,546.4 35,023.5 39,168.4 39,785.8 43,845.6

Agri-food Balance / Agri-food GDP (%)

(7.9) 1.9 (5.6) (3.3) (4.7) (3.6)

Source: SAGARPA with Secretary of Economics data.

The deficit in agri – food productos is equal to 3.6 per cent of agri – food GDP.

Agricultural exports have gained importance in agricultural GDP:

21.1 per cent of agricultural GDP is generated by exports.

15.9 per cent of agri – food GDP is generated by exports.

AGRICULTURAL EXPORTS / AGRICULTURAL GDP RATIO

AGRICULTURAL EXPORTS/AGRICULTURAL GDP RATIO

21.1%21.1%20.6%20.6%20.4%20.4%

29.4%29.4%

13.0%13.0%

20.3%20.3%

0

5,000

10,000

15,000

20,000

25,000

1994 1995 1996 1997 1998 1999

Mil

lion

doll

ars

0

5

10

15

20

25

30

35

(%)

Agricultural Exports México-World

Agricultural GDP Agricultural Exports / Agricultural GDP (%)

Country or Region

Population (millions)

PIB per cápita(dollars)

North America CanadaUnited StatesMexico

Central America GuatemalaHondurasEl SalvadorCosta RicaNicaragua

South AmericaColombiaVenezuelaChileBolivia

European Union

Israel

3027097

116645

4123158

368

6

19,35430,4834,099

1,722895

1,9782,620

401

2,5104,1315,2491,073

22,191

16,754

TOTAL 902

EFTA 12 32,921

POTENTIAL MARKET FOR MEXICAN AGRICULTURAL AND AGRIFOOD SECTOR, 1998

A potential market of 902 million of consumers is open or will be for Mexican products. NAFTA and the European Union remain the major market for increasing agricultural and agri – food exports.

POTENTIAL MARKET FOR MEXICAN AGRICULTURAL AND AGRIFOOD SECTOR, 1998

Agricultural Policies for the period 2001 – 2006 will be established in the next “Agricultural and Rural Development Plan”. Elaboration is under process. Some general highlights are:

Greater emphasis in rural development policies (health care, education, living conditions in the country side, among others).

Strong commitment to alleviate rural poverty.

Greater role of state governments in public expenditure decisions. Enhancement of the federalization process.

Further liberalization of agricultural markets. Redefinition of the “agricultural marketing support program”.

More emphasis in better marketing practices vis a vis raising the level of production.

Strong commitment with free trade.

Strengthening of rural financial markets. Adjustment and changes in those institutions that provide financing to the countryside. Redefinition of the role of the government in both credit and risk management programs.

Adjustments to main existing Programas “PROCAMPO an the Alianza para el Campo”, in order to improve equity and efficiency.

MACROECONOMIC SCENARIO 2000-2001

2000 e/

7.1

5,496.811.0

8.9

9.5

15.2

6.8

18,958.5

3.3

0.93

2001

4.5

6,133.16.8

6.5

10.1

12.4

6.2

22,848.0

3.8

0.5

Gross Domestic Product

Real Growth %

Nominal (thousand million pesos)GDP deflactor

Inflation rate

Dic. / Dic.

Nominal exchange rate 1/

Average

Interest rates (Cetes 28 days)

Nominal Average %

Real %

Current Account

Million dollars

% of GDP

Public Balance

% of GDP

Support Variables:

e/ Estimated data.

1/ Because the exchange rate regime is of free float ng, this numbers are neither goals nor predictions of the exchange rate; this data was used as reference for budget purposes.

SOURCE: General Criteria of Economic Policy for 2001, SHCP.

Mexico’s and the U.S. economies will slow down in year 2001. Differentials in inflation and interest rates have been diminishing but remain relatively high.

-9.0

-6.0

-3.0

0.0

3.0

6.0

9.0

1994 1995 1996 1997 1998 1999

Real A

nn

ual %

Ch

an

ge

National GDP Agricultural GDP

NATIONAL AND AGRICULTURAL GDP

Agricultural GDP shows a more stable pattern than national GDP.

Average rate of growth of agricultural GDP during the period 1990 – 1998 was 1.7 percent, 1.3 percentage points lower than national GDP.

GDP for the food and beverages industry grew at an average rate of 3.4 percent over the period 1990 – 1998.

STRENGTH OF REST OF THE ECONOMY

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 p/

MAIN AGRICULTURAL PRODUCTION BY GROUP OF PRODUCTS1990-1999

(Thousand Tons.)

Grains and oilseeds Fruits Vegetables

Grain & Oilseeds ARG 0.8%

Fruits ARG 2.6%

Vegetables ARG 4.7%

0.0

500.0

1,000.0

1,500.0

2,000.0

2,500.0

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 p/

MAIN LIVESTOCK PRODUCTION BY GROUP OF PRODUCTS(Thousand Tons.)

Beef Pork meat

Beef ARG 2.6%

Pork Meat ARG 3.0%

Poultry Meat ARG 9.5%

Poultry meat

THE ROLE OF GOVERNMENT

SUPPORT PRODUCER EQUIVALENT(percent)

CROP

Maize Wheat Rice

Other grains

1997

30 15 3 21

Mexico

1998

31 30 6 23

1999p/

3936 20 32

1997

1425 10 23

USA

1998

27 39 15 40

1999p/

30 46 26 40

Source: Agricultural Policies in OECD Countries. Monitoring and Evaluation. 2000 p/ preliminary

PSE´s figures of OECD for maize are higher in Mexico than in the US. Nevertheless, in 1998 total transfers as a percentage of agricultural GDP were on average 55.6 percent in OECD countries and 25.8 percent in Mexico.

To some extent, Mexico has gradually phased out tariffs and phased in direct payments. As the phase out of tariffs in the context of NAFTA keeps on track, one might anticipate further pressures on the budget to compensate producers.

THE CURRENT POLICY MIX

Distribution of Fiscal Transfers to the Agricultural Sector

Production

enhancement

42.8

Direct income

support

37.1%

Others

6.7% Infrastructure

13.5%

Source: Public Account 1990-1997; for 1998, SHCP estimated data.

On average for the 1997-98 period, support oriented to foster production was 42.8 per cent, direct income support 37.1 per cent, and development of

infrastructure 13.5 per cent.

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

Real M

illion

s p

esos 1

994

Dic. 1995 Dic. 1996 Dic. 1997 Dic. 1998 Dic. 1999 Sep. 2000

TOTAL CREDITS BY COMMERCIAL AND DEVELOPMENTS BANKS TO THE AGRICULTURAL SECTOR

December 1995 - September 2000

Source: Economic Indicators, Banxico.

ARGDec 1995-1999

(14.4%)

The credit to agriculture has decreased steadily.

RURAL POPULATION STRUCTURE BY REGION

7.4 %7.4 %

12.3 % 12.3 %

2.8 %2.8 %

17.0 %17.0 %

21.5 %21.5 %21.3 %21.3 %

15.1 %15.1 %

2.6 %2.6 %

43.9 percent of rural population lives in communities of less than 500 inhabitants, and 68.6% in communities of less than 1,000

inhabitants.

AGRICULTURAL LABOR FORCE

AGRICULTURAL LABOR FORCE(number of persons)

AGRICULTURAL LABOR FORCE

PRODUCERS

WORKERS

1991

9,845,020

4,318,053

5,526,967

1993

10,469,013

4,750,568

5,718,445

1995

9,717,247

4,074,350

5,642,897

1996

9,160,828

3,734,966

5,425,862

1997

10,427,954

4,002,194

6,425,760

1998

9,838,318

3,879,013

5,959,305

Source: National Emplo yment Survey, Ministry of Employment and Social Security (STPS).

The agricultural labor force amounts to 9.8 millions, of which 3.8 millions are producers and 5.9 millions are workers. 60 percent of all workers do not receive payments (mostly family work).

INCOME SOURCES OF THE RURAL SECTOR

The greater the farm size, the farm income is greater.

In farms smaller than 5 hectares, farm income accounts for 34.8 – 50 percent of total.

Almost 70 percent of all farms have less than five hectares.

MAIN INCOME SOURCES FOR RURAL COMMUNITIES WITH LESS THAN 2,500 INHABITANTS, 1999

Other incomes19%

Self-consumption5%

Payments in kind2%

Business income24%

Work remunerations36%

Transfers12%

Other current income

1% Property income

1%

Monetary Income

Non Monetary IncomeSource: INEGI.

22.222.2

57.857.8

20.020.0

34.734.7

49.649.6

15.715.7

47.347.3

35.835.8

16.916.9

55.355.3

28.528.5

16.216.2

72.372.3

24.324.3

0%10%20%

30%40%

50%60%

70%80%90%

100%

Incom

e S

ou

rces

0-2 2-5 5-10 10-18 >18

Land size (ha)

3.43.4

Farm income Non farm income Mexico - US migration

INCOME SOURCES OF RURAL FAMILIES BY LAND SIZE (%)

The greater the farm size, the farm income is greater.

In farms smaller than 5 hectares, farm income accounts for 34.8 – 50 percent of total.

Almost 70 percent of all farms have less than five hectares.

INCOME SOURCES OF THE RURAL SECTOR

WORKING AGRICULTURAL POPULATION BY INCOME LEVEL , 1998

41.7%

29.2%

17.8%

4.0%2.6%

1.0% 0.4%3.3%

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

Without income< 1 MW 1 - 2MW 2 - 3MW 3 - 5MW 5 - 10MW > 10 MWNot specified0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

Source: National Employment Survey, 1998, STPS.

NW= Minimum Wage.

Nu

mb

er

of

pers

on

s

Of total working agricultural population, 41% gets no income, and 88 percent gets two minimum wages or less. A minimum wage

amounts around 3 USD per day.