NAFTA, Canada, and Mexico: Mexico Policy

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SAGARPA
Agricultural Finance

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. For 2004, SAGARPA has a budget of nearly 42.1 billion pesos, or about US$3.7 billion.

Almost two-thirds of SAGARPA's budget is devoted to three programs.

• The Program of Direct Support for the Countryside (PROCAMPO—Programa de Apoyos Directos para el Campo) accounts for about 35 percent of SAGARPA's budget for 2004. This program, launched in 1994, was originally designed to provide transitional assistance to Mexican producers during the implementation of the North American Free Trade Agreement (NAFTA) and the elimination of 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 agricultural cycles from fall-winter 1990-91 to spring-summer 1993. For spring-summer 2004, PROCAMPO payment rates equaled 1,120 pesos (about US$102) per hectare for producers with less than 5 hectares and 935 pesos (about US$85) per hectare for all others; for fall-winter 2004-05, the payment rate is 935 pesos per hectare for all producers.

• The Program of Direct Supports to the Producer through Marketable Surpluses for Productive Reconversion, Integration of Agrifood Chains, and Attention to Critical Factors (Direct Supports to the Producer through Marketable Surpluses) is a new program created by the Mexican government in 2003. This program contains an important new subprogram called the Subprogram of Direct Supports to Target Income (Target Income Subprogram) that provides countercyclical assistance in a fashion similar to the U.S. marketing loan program. The Target Income Subprogram guarantees participating producers of selected crops that their income from the market will not fall below a certain level. So far, the Mexican government has defined target incomes for 10 crops (see table). Other activities within Direct Supports to the Producer through Marketable Surpluses include supports for price insurance and the provision of collateral. When all of these activities are taken into account, the program is responsible for about 12 percent of SAGARPA's 2004 expenditures, with roughly half of the program's budget being devoted to the Target Income Subprogram.

Crops Supported By Mexico's Target Income Subprogram

• The Alianza Contigo (Alliance with You) accounts for almost a fifth (18 percent) of SAGARPA's 2004 budget. Formerly known as the Alianza para el Campo (Alliance for the Countryside), Alianza Contigo encompasses a broad range of 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.

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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 by the Mexican government about 50 years ago to offer credits and guarantees to the agricultural, forestry, fisheries, and rural sectors. This second-tier, government-owned fund is managed by the 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 nonagricultural activities in rural areas. To accomplish this task, FIRA is developing new products, such as structured financial instruments and inventory financing. It also is fostering a wider distribution network for its funds that includes nonbank lending institutions called Limited-Purpose Financial Societies (SOFOLES—Sociedades Financieras de Objeto Limitado), financial leasing companies, and warehouse companies. FIRA also provides agribusiness consulting and sector-specialized information and analysis.

In 2003, FIRA lent 36,231 million pesos (US$3.2 billion) for agricultural financing, benefiting nearly 771,000 producers. About 95 percent of these credits were channeled through commercial banks. That same year, FIRA also guaranteed nearly 15,559 million pesos (US$1.4 billion) in credits, supporting the efforts of over half a million borrowers. At the close of 2003, the assets of FIRA's four constituent funds totaled about 109,305 million pesos (US$9.7 billion).

Another important government institution in agricultural finance is Financiera Rural. This new entity replaces the Banco Nacional de Crédito Rural (BANRURAL), which was dissolved on June 30, 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.

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 the branches of affiliated banks. It also operates programs to distribute credit through other entities and to facilitate contract agriculture. During its first 6 months of operation (July-December 2003), Financiera Rural lent 4,124 million pesos (US$367 million) to some 23,000 customers. Financiera Rural's assets totaled 18,346 million pesos (US$1.6 billion) at the close of 2003.