Mexico Policy

SAGARPA
Agricultural Finance
OECD Support Estimates

Mexico's agricultural programs reflect the heterogeneity of the country's agricultural sector. Producers range from large commercial operations to small, subsistence-oriented farms. Accordingly, some Mexican farm programs are geared more for advanced commercial operations, others are designed to advance less developed operations, and still others are available to virtually all producers. In many instances, Mexico's agricultural programs are designed to address perceived gaps and bottlenecks in the agricultural economy. This is particularly true in agricultural finance, where the participation of commercial banks is small compared with the United States.

SAGARPA

The Secretariat of Agriculture, Livestock, Rural Development, Fishing, and Food (SAGARPA-Secretaría de Agricultura, Ganadería, Desarrollo Rural, Pesca, y Alimentación) is Mexico's counterpart to USDA. Among SAGARPA's stated objectives are to implement a support policy that permits greater production, to make better use of the sector's comparative advantages, to integrate rural activities within the rest of the economy, and to foster collaboration between producers and governmental programs and projects. For 2011, SAGARPA has an authorized budget of 73.8 billion pesos, or about US$6.2 billion.

Roughly 80 percent of SAGARPA's budget is devoted to five programs or budget categories. 

SAGARPAbudget

The Program of Support for Agricultural Income accounts for about 24 percent of SAGARPA's budget for 2011. The program's largest and most important subprogram is the Program of Direct Support for the Countryside (PROCAMPO-Programa de Apoyos Directos para el Campo). Launched in 1994, PROCAMPO was originally designed to provide transitional assistance to Mexican producers during the implementation of the North American Free Trade Agreement (NAFTA) and to eliminate guaranteed prices for basic staples. Currently, any producer who cultivates a legal crop on eligible land or uses that land for livestock or forestry production or some ecological project can receive PROCAMPO payments, which are made on a per hectare basis. Eligible land is defined as having been cultivated with corn, sorghum, beans, wheat, barley, cotton, safflower, soybeans, or rice in any of the three agricultural cycles prior to August 1993. According to operational rules published April 23, 2010, the standard PROCAMPO payment rate is 963 pesos (about US$81) per hectare for both the fall-winter and spring-summer agricultural cycles. For the spring-summer agricultural cycle, however, rainfed producers with 5 hectares or less of eligible land receive a payment rate of 1,300 pesos (US$109). The maximum amount of support that an individual beneficiary can receive is 100,000 pesos (US$8,410) per agricultural cycle. About 80 percent of the Program of Support for Agricultural Income's 2011 budget is devoted to PROCAMPO.

The Program of Risk Prevention and Management encompasses a wide variety of support for the agricultural and fishing sectors. The program contains an important subprogram called Support to Target Income and Commercialization that provides countercyclical assistance in a fashion similar to the U.S. marketing loan program. The Target Income and Commercialization Subprogram guarantees participating producers of selected crops (see table) that their income from the market will not fall below a certain level. In recent years, commodity prices have been sufficiently high that target income payments have been made for only a few crops. Another subprogram, Direct Supports for Hedging Prices of Eligible Commodities, reduces the risk exposure of producers, marketers, and consumers to commodity price fluctuations through the use of options in future markets. The cost of these instruments is partially or totally borne by SAGARPA's Support and Services for Agricultural Commercialization (ASERCA). Other activities in the area of commercialization include support to ease the costs of storing and transporting crops, price insurance, and the provision of collateral. When all of these activities are taken into account, the program is responsible for about 23 percent of SAGARPA's 2011 budget, with about 62 percent of the program's budget allocated to the Target Income and Commercialization Subprogram.

The Program of Support for Investment in Equipment and Infrastructure accounts for about 20 percent of SAGARPA's 2011 budget. Formerly known as Alianza para el Campo (Alliance for the Countryside), the program encompasses a broad range of capacity-building and extension-like activities. Examples include:

• providing grants and technical assistance to producer groups and organizations for improvements to farm and ranch operations and cooperative ventures in production, storage, and marketing;
• supporting agricultural mechanization and technical improvements to irrigation;
• helping marginal producers to switch to more productive activities;
• financing research, development, and technology transfers to improve the supply chains of specific commodities; and
• promoting food safety and the achievement of sanitary and phytosanitary standards.

The Program of Sustainability of Natural Resources accounts for about 11 percent of SAGARPA's 2011 budget. This program encourages producers to utilize sustainable practices that minimize or reverse environmental damage caused by the agricultural, livestock, and fishing sectors. Examples of practices fostered by the program include sustainable use of land and water, conservation of native plant genetic resources, promotion of biodiversity, efficient and productive use of natural resources, sustainable use of fishing and aquacultural resources, encouragement of alternative energy sources, and management of environmental disruptions. An important component of this program is the Program of Sustainable Livestock Production, Cattle Regulation, and Apiculture (PROGAN-Programa de Producción Pecuaria Sustentable y Ordenamiento Ganadero y Apícola). PROGAN seeks to enhance productivity and technological adoption among livestock and apicultural producers to help reduce their environmental impact. It provides direct payments, which vary based on scale of production, on a per-head basis for eligible livestock production practices (see table). Other PROGAN benefits include: producer insurance against exotic disease, increased mortality levels, attacks by predators, loss of hives, and damage to infrastructure and equipment; technical assistance and capacity building; direct support for animal identification tags and hive plaques; and Brucellosis vaccines for female livestock offspring. About 55 percent of the Program of Sustainability of Natural Resource's 2011 budget is devoted to PROGAN.

The Program of Capacity Building, Techological Innovation, and Rural Extension accounts for about 7 percent of SAGARPA's 2011 budget. This program encompasses a variety of activities in the area of capacity building and technical assistance, including an extensive effort to provide improved seed and fertilizer, technical advice, and other support to the nation's corn and dry bean growers.

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Agricultural Finance

In the area of agricultural finance, Mexico counts upon several government financial institutions to augment the activities of the commercial banking sector. FIRA (Funds Instituted in Relation with Agriculture-Fideicomisos Instituidos en Relación con la Agricultura) was created in 1954 by the Mexican government to offer credits, guarantees, training, technical assistance, and support of technology transfer to Mexico's agricultural, forestry, fishery, and rural sectors. This second-tier, government-owned fund is managed by Banco de México, Mexico's central bank.

Since 1999, FIRA has pursued a new business model that considers the financial needs of the entire food system, including some non-agricultural activities in rural areas. To accomplish this task, FIRA has developed new products, such as structured financial instruments and inventory financing. It has also fostered a wider distribution network for its funds that includes various non-bank lending institutions, including Limited-Purpose Financial Societies (SOFOLES-Sociedades Financieras de Objeto Limitado), Multi-Purpose Financial Societies (SOFOMES-Sociedades Financieras de Objeto Múltiple), financial leasing companies, warehouse companies, and credit unions. Additionally, FIRA provides agribusiness consulting and sector-specialized information and analysis.

For 2007-12, FIRA has developed a strategic plan whose main objective is to assist in building and sustaining a globally competitive agricultural sector. One focal point of the plan is small producers, who account for 95 percent of all producers in Mexico. By enhancing their access to credit and providing training and technical assistance, the plan seeks to integrate small producers into value chains.

In 2010, FIRA lent 102.9 billion pesos (US$8.0 billion) for agricultural and rural financing. Of this amount, 88.6 billion pesos (US$6.9 billion) was devoted to discounts, benefiting about 1.7 million producers, while 14.3 billion pesos (US$1.1 billion) corresponded to guarantees without discounts.About 79 percent of these funds were channeled through commercial banks. That same year, FIRA also guaranteed about 59.4 billion pesos (US$4.6 billion) in credits, supporting the efforts of over 1 million borrowers.

Another important government institution in agricultural finance is Financiera Rural. This entity replaced Banco Nacional de Crédito Rural (BANRURAL), which was dissolved in 2003. Financiera Rural's primary mission is to make loans to agricultural producers and rural financial intermediaries, to facilitate capacity building among producers, and to foster the development of rural financial intermediaries, especially those without access to other sources of financing.

Unlike BANRURAL, Financiera Rural is not a bank and does not offer savings accounts. Rather than disperse funds through its own network of offices, Financiera Rural does so through branches of affiliated banks. It also operates programs to distribute credit through other entities and to facilitate contract agriculture.

In 2009, Financiera Rural provided 25.04 billion pesos (US$1.9 billion) in financing to Mexico's agricultural, livestock, and rural sectors, benefiting over 121,000 producers and entrepreneurs. Over 50 percent was funded through direct credits. The rest was channeled indirectly through second-tier rural financial intermediaries (29 percent) and various indirect credit programs (19 percent). In line with Financiera Rural's focus on producers with very limited access to financial capital, 47 percent of the total amount financed was provided to low-income producers. At the close of 2010, Financiera Rural's assets equaled about 25.4 billion pesos (US$2.1 billion).

OECD Support Estimates

Agricultural support estimates calculated by the Organization of Economic Cooperation and Development (OECD) provide a common framework for evaluating the size of government support to agriculture by the OECD countries. The total support estimate (TSE) measures "the annual monetary value of all gross transfers from taxpayers and consumers arising from policy measures that support agriculture, net of the associated budgetary receipts, regardless of their objectives and impacts on farm production and income, or consumption of farm products." In 2009, Mexico's TSE equaled nearly 94 billion pesos (US$7.2 billion). This estimate includes some agriculture-related activities that take place outside of SAGARPA, and it does not cover some activities of SAGARPA that the OECD does not count as government support to agriculture.

The TSE has three components: (1) the producer support estimate (PSE), (2) the general services support estimate (GSSE), and (3) transfers to consumers from taxpayers (TCT). The PSE indicates "the annual monetary value of gross transfers from consumers and taxpayers to support agricultural producers, measured at farm gate level," while the GSSE indicates "the annual monetary value of gross transfers to general services provided to agricultural producers collectively (such as research, development, training, inspection, marketing and promotion)." Of Mexico's TSE in 2009, the PSE accounted for 84 percent, the GSSE accounted for 11 percent, and TCT accounted for 5 percent.

MexicosTotalSupportEstimate2011

The leading forms of producer support in Mexico are: (1) payments based on input use (43 percent in 2009) and (2) market price support (MPS, 34 percent in 2009). Among payments based on input use, those payments based on non-constrained input use or involving fixed capital formation (reductions in on-farm investment costs of buildings and equipment usually only accessible to large producers) are considered by the OECD to be market distorting. In Mexico, payments of these types have increased significantly over the last decade. Although the OECD has not yet published its TSE numbers for 2011, many activities corresponding with the category of payments based on input use are likely to correspond with SAGARPA's Program of Support for Investment in Equipment and Infrastructure.

MPS is calculated "by adding together the price transfers to producers from consumers and taxpayers, minus the contribution that producers make to these transfers." For an individual commodity, these price transfers are estimated by multiplying the market price differential (MPD) by the quantity of domestic supply, where the MPD is the difference between the domestic market price and the border price of the commodity, measured at the farm gate level. In 2009, milk accounted for 31 percent of Mexico's MPS, followed by poultry meat (27 percent) and raw sugar (5 percent). Tariffs on imports from various non-NAFTA countries are the main policy that corresponds to Mexico's MPS.

In contrast to payments based on commodity output and non-constrained input use, payments based on non-current area or animal numbers are not considered to be market distorting. In Mexico, such payments are provided mainly through PROCAMPO and PROGAN. Payments based on non-current area or animal numbers accounted for 22 percent of Mexico's PSE in 2009.

When compared with the value of agricultural production, Mexico's level of producer support has held fairly steady at relatively low levels, at about half of the OECD country average for 2006-08. The percentage PSE, which equals the amount of producer support divided by the sum of transfers from taxpayers to producers plus the value of agricultural production, illustrates this point. During 2007-09, Mexico's PSE was in the range of 12-13 percent, about 4 percentage points above that of the United States.

TCT, the third component of the TSE, indicates the "annual monetary value of gross transfers to consumers of agricultural commodities, measured at the farm gate level, arising from policy measures that support agriculture, regardless of their nature, objectives or impacts on consumption of farm products." Measuring TCT as a percentage of TSE, Mexico's levels of 4, 7, and 8 percent for the years 2006, 2007, and 2008 respectively are comparable to the OECD averages of 8 during each of those years.

Last updated: Tuesday, November 27, 2012

For more information contact: Steven Zahniser