Mexico

Today corn prices hit an all-time high of $7 a bushel. How does this affect Mexico, which gave the world its native maize after European contact? The answer is two-fold: 1) this represents a hardship for the majority of Mexicans while 2) higher prices present an opportunity for large agricultural exports.

As a staple crop for the vast majority of Mexicans, rising corn prices threaten minimal livelihoods. The 75% year-over-year increase in corn prices directly reduces purchasing power and also diverts higher percentages of incomes toward foodstuffs and away from other economic activities.

With Mexico as the world’s fourth-largest maize exporter, this should represent an opportunity for major agricultural exporters. The Mexican Agriculture Secretary, Alberto Cárdenas Jiménez, explained at the beginning of 2007 that agriculture and maize production were one of the greatest beneficiaries of government intervention. However, Professor Roberto Escalante at la Universidad Nacional Autónoma de México, la UNAM, explains the stratification of investment as favoring large producers, which are few in number compared to the bulk of Mexican farms that are under five hectares. In the aggregate, these large producers receive 75% of around $5 million in subsidies annually, whereas small producers receive 25% of this amount. The subsidies are directed to the most efficient farms in the states of Jalisco, Sinaloa, and Chihuahua. Few funds reach the poorest farmers Oaxaca and Chiapas, which struggle to compete without technical and credit assistance, land reform, etc.

Paradoxically, Mexico sends much of its more diverse white maize to higher-paying markets for export, whereas much of the uniform yellow corn is imported from the United States. Mexico producers approximately 20 million tons annually, a tenth of the quantity produced by the U.S. each year, according to the UN Food and Agricultural Organization.

Mexico is one of the largest exporters of corn. Nevertheless, it also imports almost half of what it consumes. In a world of skyrocketing food prices, this dependency is becoming a national security problem.

In order to reduce pressure over rising food prices, President Felipe Calderón has launched an initiative that promises to improve the situation of farmers and consumers. The initiative is composed of three elements. The first element will facilitate access to basic foods produced in the international markets. The second component attempts to enhance production and productivity in the agricultural sector. Finally, the initiative will try to protect the income of poor families against inflation. In May 26th the Mexican government cut food import tariffs. This measure will immediately reduce the costs of importing corn, wheat, and rice. Additionally, the government agreed to provide a monthly cash payment to some of its poorest citizens.

These measures will reduce some of the pressure over food prices in Mexico, but only temporarily. The program launched by the Presidency does not seem to address structural problems in the Mexican country side such as migration to urban areas—or to the US for that case. The structural problems are so severe that the Minister of Agriculture has stated that Mexico will not be able to produce enough basic foods for the country’s population. Thus the importance of reducing food import tariffs.

These problems fill the Mexican headlines almost 15 years after the North America Free Trade Agreement (NAFTA) entered into force. In the early 1990s, several groups and organizations warned that Mexico would not be able to compete with its partners and that agriculture would be the economic sector most affected by trade. It seems that the Mexican country side—and with it the Mexican population—has been not only affected by trade in North America, but also by the powerful trends of a global economy. Hopefully, Mexico will also learn how to benefit from it.