Identifier
Created
Classification
Origin
06MEXICO1839
2006-04-07 15:41:00
UNCLASSIFIED
Embassy Mexico
Cable title:  

MEXICAN AGRICULTURAL PRODUCERS REALISTIC, SOMETIMES

Tags:  ECON EAGR PGOV MX 
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DE RUEHME #1839/01 0971541
ZNR UUUUU ZZH
R 071541Z APR 06
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC 0110
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHRC/DEPT OF AGRICULTURE WASHDC
RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE
UNCLAS SECTION 01 OF 05 MEXICO 001839 

SIPDIS

SIPDIS

STATE FOR WHA/MEX, WHA/EPSC
STATE PASS USAID FOR LAC:MARK CARRATO
TREASURY FOR IA MEXICO DESK: JASPER HOEK
COMMERCE FOR ITA/MAC/NAFTA: ANDREW RUDMAN
USDA FOR ITP: GRONENFELDER

E.O. 12958: N/A
TAGS: ECON EAGR PGOV MX
SUBJECT: MEXICAN AGRICULTURAL PRODUCERS REALISTIC, SOMETIMES
PESSIMISTIC, ABOUT LIBERALIZATION

-------
SUMMARY
-------

UNCLAS SECTION 01 OF 05 MEXICO 001839

SIPDIS

SIPDIS

STATE FOR WHA/MEX, WHA/EPSC
STATE PASS USAID FOR LAC:MARK CARRATO
TREASURY FOR IA MEXICO DESK: JASPER HOEK
COMMERCE FOR ITA/MAC/NAFTA: ANDREW RUDMAN
USDA FOR ITP: GRONENFELDER

E.O. 12958: N/A
TAGS: ECON EAGR PGOV MX
SUBJECT: MEXICAN AGRICULTURAL PRODUCERS REALISTIC, SOMETIMES
PESSIMISTIC, ABOUT LIBERALIZATION

--------------
SUMMARY
--------------


1. Representatives from various Mexican agricultural
organizations gave us their views on U.S.-Mexican agricultural
cooperation and trade. The groups held varying views on
NAFTA's current impact on their producers and the potential
impact of further liberalization, particularly of corn and
beans in 2008. Despite calls by some politicians to
renegotiate NAFTA, none of the groups we spoke with mentioned
this as a possible solution. The groups did criticize many
facets of Mexican and U.S. agricultural policies, however, and
made suggestions as to how they could be improved to facilitate
the transition to deeper liberalization of the sector. The GOM
was cited as lacking adequate funding for its programs; the
U.S. was criticized for high subsidies to farmers and accused
of dumping and exporting crops to Mexico which do not meet
health standards. The groups urged more transfer of technology
and pushed for more discussion between affected parties. End
summary.

-------------- --------------
AGRICULTURAL ORGANIZATIONS AND THEIR POLITICAL ROLE
-------------- --------------


2. Under the Sustainable Rural Development Law passed in
December 2001, the Fox administration organized the National
Product System (Sistema Producto Nacional) for all agricultural
goods. It established a producer organizatoin ("sistema") for
each agricultural product in Mexico on the national level, with
the option of establishing regional organization at the state
level. The National Product System was designed to bring all
producers, agro-businesses, merchants, and their organizations
into the decision making process.


3. Representatives from six of these organizations gave us
their opinions, observations, and suggestions on U.S.-Mexico
agricultural cooperation and trade in the sector. The
representatives of the organizations interviewed included: Saul
Landeros Cardona, president of Guava Product System; Benjamin
Valenzuela Segura, president of the National Bean Product

System; Santiago Mendoza Perez, President and official
spokesperson of the Chiapas Regional Bean Product System;
Carlos Salazar, General Secretary of the Corn Product System;
Jesus Alejandro Alvarez del Toro, President of the Avocado
Product System, and Dr. Martha Xochtil Flores Estrada,
president of the Michoacan Produce Foundation.


4. Many interest groups representing agriculture tend to form
and/or strengthen their ranks during an election year. Those
we spoke with identified two main types of organizations
representing the agricultural sector: those genuinely
interested in supporting producers and their interests; and
those whose sole purpose is to push particular candidates into
office. The organizations we spoke with placed themselves in
the former category.


5. Some of the organizations, such as the Corn Product System
and Bean Product System, had existed under different names
before a more democratic tradition took hold in Mexico. Now
they are incorporated in the Product System schema that was
inaugurated with the Law of Sustainable Rural Development.
Several important figures in these older groups have remained
prominent during the transition to the Product System. Other
groups, like the Regional Bean Product System of Chiapas say
that they are relatively young organizations, just beginning to
organize with government encouragement. However, they stressed
that their commitment to rural development and support of
producers is long-term.


6. Most of the organizations insisted that they do not and
would not support any political party. They explained that
their link to the government consists of receiving funds
through the GOM's Alliance With You (Alianza Contigo) program.
Their main objective is to support producers and they remarked
that the political divides between the states are too great to
favor a particular party, since all of the organizations
(except for the Michoacan Produce Foundation) have members from
various regions across the nation.

--------------
IMPACT OF NAFTA ON THEIR CONSTITUENTS

MEXICO 00001839 002 OF 005


--------------


7. Many of the groups were not yet totally affected by NAFTA
and had only observed what had happened to other producers.
The Secretary General of the Corn Product System, Carlos
Salazar, cited the year 2003, when according to him 30 percent
of all agricultural producers were affected by deeper
liberalization in the sector. He pointed out that the National
Accord for the Countryside was a by-product of agrarian
uprisings. Due to the increasingly difficult social conditions
for producers, he heavily criticized the way in which the
transition had been handled.

--------------
EXPECTED IMPACT OF NAFTA IN THE YEAR 2008
--------------


8. The reactions from these organizations depended primarily on
what products they represented. In general, producers of
fruits and vegetables, especially tropical products, seemed
optimistic about their possibilities to expand into the U.S.
and Canadian markets. On the other hand, producers of "basic
products," as listed by the Michoacan Produce Foundation, could
be negatively affected. These products include, but are not
limited, to: cereals, beans, corn, milk products, citrus
products, and cane sugar.


9. Most organizations appeared realistic and have begun taking
steps to deal with the transition, outlining plans to become
more competitive by 2008. Benjamin Valenzuela, President of
the National Bean Product System, demonstrated such pragmatism:
"If we [the producers] don't manage to strengthen the
organization; storing, industrializing, and commercializing
beans, well, it will affect us. If we manage [to achieve the
above], we could offer competitive prices." Most importantly,
many organizations expressed resolve in overcoming the
challenges, with Valenzuela commenting that "We are not afraid
of the competition."


10. Many organizations were quick to point out their advantages
over American producers. The Avocado Product System felt
confident based on its low cost of production due to cheaper
labor costs and a better climate for which it does not have to
compensate. The National Bean Product System detailed plans
they have already completed to cut out intermediaries in their
industry in order to reduce costs. Furthermore, they stressed
that in 2008, a focus on quality and product differentiation
will be a key component of success. The Guava and Avocado
Product Systems emphasized this, explaining that their fruits
are different in taste and variety than those produced in the
U.S. They believe that the growing Mexican population in the
U.S. will prefer Mexican fruits over those grown in American
greenhouses, providing them a niche in the U.S. market. The
guava producers said they regard their product as different
from other guavas, consider their production techniques to be
well developed, and aim to be at the same level as U.S.
producers before the year 2008, according to Saul Landeros,
President of the Guava Product System. The Mexican avocado
industry has been particularly successful due to the resolution
of disputes concerning the fruit. The U.S. has gradually
opened most states to Mexican avocado imports over the past
several years. As of right now, Mexico may export avocados to
47 states, excluding Hawaii, Florida, and California, markets
which will be opened in 2007.


11. Several organizations expressed doubts. Santiago Mendoza,
President of the Chiapas Regional Bean Product System said "the
effects will be rather threatening." He explained that it has
been difficult for his producers to cover their production
costs. He pointed to higher levels of government support in
the U.S., saying that this allows American producers to sell at
a lower price. (Comment: For the most part, the provisions of
the U.S. Farm Bill do not apply to dry beans.)


12. Carlos Salazar, Secretary General of the Corn Product
System, is extremely worried - bordering on hysterical - about
the 2008 opening. He estimates that another 55 percent of all
Mexican corn producers will be negatively affected by NAFTA in
the year 2008. He predicts that social uprising throughout the
countryside will result if nothing is done to counteract the
effects, and small farmers will go out of business, becoming
further impoverished. Salazar further complained that U.S.
imports would "invade and destroy" the Mexican market and then

MEXICO 00001839 003 OF 005


drive up prices after Mexican production vanished. He
explained that subsistence farmers are forced to buy from the
market after exhausting their own crops and so would be hurt by
this practice.


13. Current data and conditions do not support these arguments.
According to SAGARPA's 2003 data, 85% of the over two million
corn producers farm less than five hectares, and 56% of all
corn growers cultivated even less than two hectares. Small
subsistence farmers which fall into the subsistence category do
not commercialize their products and are already living in
extreme poverty, with or without NAFTA. It is doubtful that
they will be further impacted in 2008. Furthermore, he
complained that U.S. imports would "invade and destroy" the
Mexican market and then drive up prices after Mexican
production vanished. He explained that subsistence farmers are
forced to buy from the market after exhausting their own crops
and so would be hurt by this practice. In addition, if U.S.
imports are cheaper they would, in fact, benefit the poorest
members of society by providing them with cheaper goods and
increasing their purchasing power. Finally, if U.S. corn
exports tried to corner the market and then drive up prices
Mexico could always import corn at lower prices from other
countries. This competition would conspire to keep corn prices
in Mexico at world levels.


14. As of right now, the corn import quota agreed upon during
the phasing out term has been exceeded five times since 1994
due to a shortage of yellow corn in the Mexican market.
Salazar complains that the U.S. should allow Mexican producers
the chance to meet this demand before exporting corn to Mexico,
but since most of Mexican corn production is concentrated in
white corn and has shown little signs of switching to yellow,
this seems unrealistic. The Mexican corn industry needs
competition to force Mexican production to restructure itself.
Salazar's solution is that the market should restructure itself
to utilize more white corn, but this is also misleading as many
uses of white and yellow corn are not interchangeable.

-------------- --
FACILITATING THE TRANSITION ON THE MEXICAN SIDE
-------------- --


15. Valenzuela of the National Bean Product System told us that
"NAFTA has been successful in general. However, the Mexican
government has to accept that it poorly negotiated [the
agricultural sector]." Salazar of the Corn Product System
specifically faulted the negotiations for neglecting to protect
strategic crops necessary for achieving self-sufficiency in
food products. Valenzuela commented that now, "...the solution
is more on the Mexican side than the American side." On one
hand, some organizations want to move towards their own
independent plans and away from full dependence on the
government. However, some organizations, especially the Corn
Product System, expressed disappointment with the government
and want increased support to facilitate the transition to a
liberalized sector, if not halt it completely. (Comment: The
Corn Product System neglected to mention that Mexican corn
producers already receive USD 90 per hectare under the PROCAMPO
program and are eligible for additional subsidies under the
Objective Income Program which attempts to guarantee a target
price of 1650 pesos per metric ton.)


16. The agricultural groups criticized government programs for
the lack of preparation for the transition to a liberalized
agricultural sector. They complained that the Mexican
government has not done enough over the past 15 years in the
areas of technology, know-how, and infrastructure, always
responding that sufficient resources are not available. Many
groups remarked that the government's policy is insufficient,
limited in its coverage, and erratic in its application.
Salazar of the corn group added that he served on a committee
for rural development after the National Accord for the
Countryside came into effect, but that he quit in frustration
because it did not achieve its goals. He expressed
disaffection with the current system, adding that, "it is not
true that the hand of the market [alone] has solved our social
problems." Other organizations, such as the Michoacan Produce
Foundation, expressed disappointment with the lack of economic
objectives included in the current programs, which they find
uncoordinated and without direction.


17. Many organizations voiced recommendations for improving the

MEXICO 00001839 004 OF 005


situation. Dr. Flores, President of the Michoacan Produce
Foundation, insisted that no one should "make false promises."
She wants the government to be realistic in the information it
provides to producers, allowing them to make appropriate
decisions concerning their position in the market. Salazar
wants coverage through government programs to be available to
all producers. He added that aid needs to arrive on time
instead of three to six months behind schedule, complicating
the finance of harvest cycles. Such delays in the delivery of
subsidies and program benefits have been an ongoing problem at
SAGARPA. Valenzuela suggested making more loans available
instead of handouts, emphasizing the need to foster responsible
financial habits in the sector. Overall, the groups we
interviewed felt that the ineffectiveness of the government's
policy could be improved by reducing bureaucracy.


18. In light of the vast array of problem areas in the
government's agricultural policy, most groups mentioned the
efforts they have been making independently to confront sector
challenges. Valenzuela spoke of what he considers a cultural
tendency to expect government handouts to solve problems, and
he discussed his efforts to combat this attitude. Landeros
expressed resignation with waiting for government aid: "We will
not change our plans every time there is a change of
government," he said. "We have a plan for the medium and long
terms. We do not want paternalism; we want to increase our
productivity." He added that switching to a businesslike
approach has proven difficult, but has also been necessary for
the survival of his producers.


19. Among the independent initiatives has been the
consolidation of production chains to cut out intermediaries,
which has been a key strategy allowing producers to reduce
costs and become more competitive. The Bean Product System has
initiated a program involving cooperation with Idaho bean
growers to test improved beans for use in Mexico. Other
organizations have expressed an interest in following suit.
The Chiapas Regional Bean Product System intends to do more
research to take advantage of new technologies because, "[our
producers] continue to use traditional systems, and they are
not applying what was discovered in the Green Revolution."

--------------
FACILITATING THE TRANSITION ON THE U.S. SIDE
--------------


20. Complaints about U.S. policy generally included
dissatisfaction with high subsidies and complicated health and
quality standards. There was also one allegation of dumping
and an allegation (from the corn group) of low-quality goods
being exported to Mexico. Suggestions included enhancing the
complementary facets of agricultural trade between the two
countries and harmonizing aid to the agricultural sector.


21. Salazar complained that Mexican authorities have allowed
U.S. products that are below Mexican standards to enter Mexico.
He cited a recent case that took place in Texas where products
containing a fungus known as aflotoxin were permitted to enter
Mexico. He also referred to a case recently brought forth by
Canada that accused the U.S. of dumping corn in the Canadian
market, which he feels is proof that the U.S. could be doing
the same in Mexico. He has not yet studied the subject in
detail, but plans to do so. He defined dumping as a sale price
by which producer rents amount to less than ten percent of
their production costs.


22. We heard some suggestions concerning the problems caused by
subsidies, high standards, and the asymmetries of the Mexican
and U.S. markets. Many organizations suggested holding more
talks between government agencies and producers in order to
address these issues. Salazar would like to see a common fund
for all three NAFTA members from which to draw subsidies, in
order to harmonize benefits. Other organizations remarked that
the subsidies should be simply reduced and Dr. Flores of the
Michoacan Produce Foundation added that the U.S. should avoid
concentrating such benefits in the hands of big agribusinesses,
a practice which can create monopolies. The Guava Product
System perceives the demanding health standards, particularly
those concerning a fruit fly found in Mexico, as possibly
politically motivated and would like to review such standards
together.


23. In order to overcome inconsistencies in the U.S. and

MEXICO 00001839 005 OF 005


Mexican markets, all of the organizations encouraged
technological exchange between the U.S. and Mexico, which they
point out could also lead to benefits for U.S. businesses.
Furthermore, the issue of harmonizing seed prices and interest
rates for financing crops was addressed. Pointing to the
migration problems between the U.S. and Mexico, Valenzuela of
the Bean Product System suggested that keeping jobs in the
Mexican countryside could reduce the influx of rural migrants
to the U.S. He recommended studying the possible impact of a
policy that would encourage Mexican agricultural production as
part of the solution. He cited that many of his producers from
Zacatecas and Guanajuato are migrating to the U.S. in search of
work, causing low or non-existent population growth in these
areas.

--------------
COMMENT
--------------


24. Time is not on the Mexicans' side since a year and a half
is likely insufficient to install the technological upgrade
programs required to allow producers to compete in a truly
liberalized market. While conditions in rural areas have
improved marginally since the onset of NAFTA, Mexico continues
to face many of the same structural problems that have affected
farms and residents of rural areas for decades. Mexico's new
administration, like the previous one, will face the challenge
of shedding old ideas and providing economic opportunities that
enable the small producers to diversify their income and
possibly seek future employment in other sectors. Mexico needs
to move its large rural population into more profitable sectors
to modernize its economy.


25. Most organizations seem to realistically understand their
situation, be it a profitable one as in the case of fruits, or
a difficult one as in the case of corn and beans. However,
some of their proposals are vague and not well thought-out,
while others, such as the Guava and Avocado Product Systems,
are well on their way to reaping the benefits of trade. They
all suggested holding talks, but did not know what specific
points they would like to see on the agenda or who (producers
or government) should organize such talks.


26. Corn was a particularly problematic product. Although he
briefly mentioned alternative uses of corn, Salazar did not go
into detail concerning any forward-looking policies. Denying
the reality of global trade and its impact on an open economy,
especially one as open as Mexico, his policies proved
antiquated, relying on the government to solve the industry's
problems. Propaganda and nationalism drove calls to protect
the industry in the name of subsistence farmers, while the real
beneficiaries are the inefficient commercial corn producers
seeking to protect their personal interests. The tendency of
the corn producers' organization is to react instead of
proactively planning - and cite NAFTA as a scapegoat.
Considering corn import quotas have already been exceeded,
dropping the trade restrictions on corn will only further
highlight the inefficiencies of Mexican corn production and
require Mexican producers to strive to compete. U.S. corn
exports to Mexico are expected to increase in 2008 due to the
fact that more yellow corn will be available at a better price,
but this has already been happening slowly over the past
decade.
GARZA