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Government Support in Mexican Agriculture: The Agri-Food Productivity and Competitiveness Program

Feng Wu, Ariel Soto-Caro, and Zhengfei Guan

Introduction

Mexico is the largest source of agricultural imports to the United States. Imports from Mexico, especially fruit and vegetable imports, have seen rapid growth in recent years. Major commodities include tomatoes (Guan et al. 2018; Wu et al. 2018b; Li et al. 2021), peppers (Biswas et al. 2018), berries (Suh et al. 2017; Wu and Guan 2021), and cucumbers and squash. The value of fresh fruit and vegetables imported from Mexico to the United States reached $14 billion USD in 2020, more than double the value in 2010 and higher than the amount imported from the rest of the world combined (USDA-FAS 2021). Fruit and vegetable production, especially protected production such as production under greenhouse structures, requires large investment in technology. For producers in developing countries, capital usually is the major bottleneck that could limit the potential of their competitive advantages in labor. To help alleviate the capital constraint, the Mexican government has provided generous support over the years (Victoria et al. 2011; Wu et al. 2018a). Wu et al. (2018a) showed that the Mexican government has consistently promoted protected production through subsidies since 2001. This support has accelerated the development and rise of Mexico’s fruit and vegetable industry in the global market. For example, in 2018, Mexico had about 40,000 acres of fresh tomato production under protection structures, while Florida, the largest tomato producer in the United States and the major competitor of Mexican produce in the US market in general, had only 29,000 acres of fresh tomato production, almost all open-field (SIAP 2020; USDA-NASS 2020). Compared to open-field production, protected production has many advantages, including higher yield, better crop quality, extended production season, and improved market access. Mexican protected tomato yield is four times higher than Florida tomato yield. These advantages have contributed to a more competitive position of the Mexican fruit and vegetable industry in the market.

Mexico’s agricultural subsidy programs are administered by the Secretariat of Agriculture and Rural Development (SADER) under the “National Development Plan” to boost the productivity and competitiveness of the Mexican agri-food sector and mitigate uncertainties in agri-food activities. These programs provide subsidies to individual producers and companies to support economic activities (such as production, postharvest management, and marketing) in the agri-food supply chain (Wu et al. 2018a).

Under the 2013–2018 National Plan (SADER 2014; 2015; 2016; 2017; 2018), eleven federal programs were established to improve the productivity and competitiveness of Mexico’s agri-food sector:

  1. Marketing and Market Development Program
  2. Federal Agency Actions
  3. Agri-food Productivity and Competitiveness Program
  4. Agricultural Promotion Program
  5. Agri-food Safety and Health Program
  6. Comprehensive Rural Development Program
  7. Fishery and Aquaculture Productivity Promotion Program
  8. Support Fund of Productive Projects in Agricultural Areas
  9. Livestock Development Program
  10. Entrepreneurial Women Productivity Support Program
  11. Innovation, Research, Technological Development, and Education Program

As one of a series of analyses focusing on governmental support in Mexican agriculture, this publication aims to provide industry stakeholders and policymakers with an overview of the Agri-Food Productivity and Competitiveness Program (AFPCP). We will present the rules and subsidies of the subprograms with a focus on those relevant for fruit and vegetable commodities. A previous study (Wu et al. 2018a) focuses on the Agricultural Promotion Program, Mexico’s largest agricultural subsidy program.

Agri-Food Productivity and Competitiveness Program

The overall objective of the AFPCP is to boost productivity in the agri-food sector through investing in physical infrastructure, human capital, and technology to ensure food security. Mexico’s agricultural subsidy expenditure under the AFPCP in 2018 was 11.9 billion pesos (US$618 million), almost four times higher compared to 3.2 billion pesos (US$240 million) in 2014 (data incomplete). The average over 2014–2018 was 9.5 billion pesos (US$538 million) per year, and the total amount under this program over the period was 47 billion pesos (US$2.7 billion) based on data available (Table 1). The fruit and vegetable industry received 3.3 billion pesos (US$199 million) over the period from 2014 to 2018.

Table 1. Program subsidies for the fruit and vegetable industry, 2014–2018 (1,000 pesos).

 

2014

2015

2016

2017

2018

Total in 1000 Pesos

Total in 1000 USD

AFPCP

3,189,289

10,500,774

10,387,346

11,559,786

11,891,571

47,528,766

2,690,261

Fruit & Veg.

684,289

814,645

600,315

546,976

678,058

3,324,283

199,329

Citrus

83,017

42,083

159,551

42,380

109,794

436,825

25,394

Tomato

107,255

94,856

35,884

95,211

1,720

334,926

21,112

Source: SADER (2014; 2015; 2016; 2017; 2018).

There have been changes in the structure and composition of the AFPCP since 2014. Specifically, the subprograms that provided support to Mexico’s fruit and vegetable industry are: 1) Access to Financing; 2) Agri-Food Certification and Standardization; 3) Agri-Food Productivity; 4) National System of Agroparks; 5) Strengthening the Production Chain; and 6) South-Southeast Productive Development.

Access to Financing

Access to financing is the largest subprogram and contained five components in 2014: 1) guarantee service; 2) reduction of financing costs; 3) insurance premium subsidies; 4) subsidies to establish risk capital; and 5) other schemes. Table 2 lists the support rules of these five components. During 2015–2018, only two components, guarantee service and reduction of financing costs, were in this subprogram.

Table 2. Support rules of the Access to Financing Subprogram, 2014.

Components

 

Maximum Support Amount (pesos)

Guarantee service

 

Up to 100% of the unpaid credit balance

Reduction of financing costs

 

Up to four percentage points in the reduction of the interest rate authorized in the credit contract

 

Up to 50% of the cost of the premium of the guarantee service

Insurance premium subsidies

 

Up to 60% of the insurance premium charged to producers 

Subsidies to establish risk capital

 

Up to 35% of the investment value

Other schemes

 

Benefit to producers through schemes related to financing and risk management

Source: SADER (2014).

The subsidies in the guarantee service component aim to expand timely access to competitive financing for producers in the agri-food sector through a guaranteed service that fulfills a loan. The Mexican government subsidizes up to 100% of the outstanding balance on the loan. The reduction of financing costs component is granted to reduce the interest rate of loans, with a maximum reduction of rate up to 4 percentage points (Table 2).

Table 3 reports total subsidies relevant to fruit and vegetables. Supports for the fruit and vegetable industry under this subprogram were 391 million pesos (US$25 million) in 2015, 77 million pesos (US$4 million) in 2016, and 219 million pesos (US$12 million) in 2017 (Table 3). Data for this subprogram are unavailable for 2014 and 2018.

Table 3. Support by Subprograms for the Fruit and Vegetable Industry, 2014–2018 (1,000 pesos).

 

2014

2015

2016

2017

2018

Access to Financing

N/A

391,190

77,493

219,396

N/A

Agri-Food Certification and Standardization

N/A

N/A

17,508

3,992

N/A

Agri-Food Productivity

574,922

346,525

134,123

110,700

N/A

National System of Agroparks

N/A

N/A

40,000

30,000

N/A

Strengthening the Production Chain

N/A

N/A

34,595

15,276

N/A

South-Southeast Productive Development

109,367

76,929

296,595

167,611

678,058

Source: SADER (2014; 2015; 2016; 2017; 2018). N/A denotes data “not available.”

Agri-Food Certification and Standardization

This subprogram promotes the certification, accreditation, verification, and/or testing of organic products, as well as the labeling and use of the National Distinction of Organic Products to boost their competitiveness in the national and international markets. The productivity and profitability of the organic production system in Mexico was consolidated under this subprogram. Table 4 presents the support rules. Table 3 shows that 18 million pesos (US$1 million) and 4 million pesos (US$0.2 million) were given to fruit and vegetable crops in 2016 and 2017, respectively.

Table 4. Support Rules of the Certification and Agri-Food Standardization Subprogram, 2014.

Components

 

Maximum Support Amounts (pesos)

Organic conversion training and implementation

 

50% of the total cost of the training or up to $240,000 pesos per request. 

For areas of high and very high marginalization, 75% or up to $300,000 pesos of the total cost of the application.

Creation of the organic production plan

 

50% of the total cost of technical assistance or up to $ 80,000 pesos per request. 

For areas of high and very high marginalization, 75% or up to $100,000 pesos of the total cost of the application.

Organic inputs

 

50% of the total cost of supplies or up to $200,000 pesos per request.

Organic certification

 

50% of the total cost of the certification or up to $80,000 pesos per application. 

For areas of high and very high marginalization, 75% or up to $100,000 pesos of the total cost of the application.

Verification

 

50% of the total cost of the accreditation or up to $ 250,000 pesos for Conformity Assessment Agents.

Printing and labeling of the National Emblem for Organic Products

 

50% of the total cost of printing and/or labeling or up to $100,000 pesos of the total cost of the application for the National Distinction of Organic Products.

Source: SADER (2014).

Agri-Food Productivity

This subprogram provides subsidies to expand and modernize the capacity for processing and handling agricultural and fishery products. It encourages the increase in the scale of production to improve postharvest management with subsidized infrastructure and equipment. The support rules are presented in Table 5. For example, the Mexican government subsidized 50% of the investment value, up to 10 million pesos (US$0.8 million) per project for postharvest infrastructure and equipment. The total investment amounts of the projects relevant to fruit and vegetables under this subprogram were 575 million pesos (US$43 million) in 2014, 347 million pesos (US$22 million) in 2015, 134 million pesos (US$7 million) in 2016, and 111 million pesos (US$6 million) in 2017 (Table 2).

Table 5. Support Rules of the Agri-Food Productivity Subprogram, 2014.

Components

Maximum Support Amounts (pesos)

Infrastructure and equipment in postharvest

Up to 50% of total investment, not exceeding $10,000,000 per project

Infrastructure and equipment in postharvest of new association schemes, in municipalities included in the National System for the Crusade against Hunger, in priority areas of the South-Southeast area or in municipalities with high and very high rates of poverty throughout the country

Up to 70% of total investment, not exceeding $5,000,000 per project

Infrastructure and equipment for local governmental santitary inspections

Up to 50% of total investment, not exceeding $20,000,000 per project

Infrastructure and equipment for High Impact Comprehensive Projects 

Up to 50% of total investment, not exceeding $30,000,000 per project

Laboratory equipment for health, safety, and quality

Up to 50% of total investment, not exceeding $2,000,000 of the project

Infrastructure and equipment for food collection

Up to 50% of investment per food bank, without exceeding $12,000,000 per project

Technical assistance and/or business support

Up to 5% of total incentive, not exceeding $300,000 per project

Source: SADER (2014).

National System of Agroparks

Incentives under this program are allocated to develop and promote a National System of Agroparks. An agropark is a high-tech greenhouse cluster that provides space for companies to grow specialized products for export using state-of-the-art technology. Table 6 lists the rules that need to be followed to receive the subsidy. For example, for equipment installed in the agroparks, the government provided incentives up to 50% of the total investment, capping total support at 100 million pesos (US$7.5 million) per agropark. Support for the fruit and vegetable industry under this subprogram was 40 million pesos (US$2.1 million) in 2016 and 30 million pesos (US$1.6 million) in 2017.

Table 6. Support Rules of the National System of Agroparks Subprogram, 2014.

Components

Maximum Support Amounts (pesos)

Evaluate and/or implement projects

Up to 70% of cost, not exceeding $5,000,000 per evaluation and/or project per agropark

Comprehensive development of agroparks

Up to 50% of total investment by agropark, not exceeding $250,000,000

Equipment of agribusinesses installed in agroparks

Up to 50% of total investment, not exceeding $100,000,000 by agropark

Up to $10,000,000 per agribusiness installed within agropark

Business support

Up to 5% of total incentive, not exceeding $2,000,000

Source: SADER (2014).

Strengthening the Production Chain

This subprogram aims to integrate economic agents (producers and buyers) of the rural sector into the production chain through promoting the use of market risk management instruments to increase their income stability. Market risk management instruments include forward contracts and derivative financial products (e.g., futures and options). The former is commonly used in the fruit and vegetable industry. The support amounts and rules are presented in Tables 3 and 7, respectively. For producers who sign the purchase and sale agreement, the government will subsidize up to 100% of the option premium for producers and up to 50% for buyers. The majority of the subsidies in this subprogram went to the livestock and grain industries for the 2014–2018 period. Support for the fruit and vegetable industry is available only for the years 2016 and 2017. Subsidies were provided to the citrus industry both years, totaling 35 million pesos (US$1.9 million) and 15 million pesos (US$0.8 million) in 2016 and 2017, respectively.

Table 7. Support Rules of the Strengthening the Productive Chain Subprogram, 2014.

Components

Maximum Support Amount (pesos)

With a Purchase-Sale Agreement

1. Incentive for producer:

a. Cost of coverage

b. Commission for service of purchase and administration coverage

 

1.a. Up to 100% of coverage cost

1.b. Up to the equivalent of US$8 of commission

2. Incentive for buyer

a. Cost of coverage purchased by buyer

b. Cost of coverage purchased by producer if buyer does not purchase coverage

 

2.a. Up to 50% of coverage cost

2.b. Up to 50% of coverage cost purchased by producer

3. Incentive for producer or buyer for basis compensation

If the difference between the final basis and the initial basis is positive, the incentive will be delivered to the producer, and if it is negative, to the buyer.

Without a Forward Purchase-Sale Agreement

Incentive for producer/buyer for cost of coverage

Up to 50% of coverage cost

Source: SADER (2014).

South-Southeast Productive Development

This subprogram promotes agriculture, fishing, and aquaculture in the South-Southeast area of Mexico. In 2014, this area included the states of Campeche, Chiapas, Guerrero, Morelos, Oaxaca, Puebla, Quintana Roo, Tabasco, Veracruz, and Yucatán. Michoacan was added in the coverage of this subprogram in 2016. This subprogram contains two components—finance incentives and strengthening productivity. The component of finance incentives seeks to provide incentives for agricultural production with credit granted through development banks. Eligible projects may be financed by national or foreign financial institutions, public and private funding agencies, and other financial entities. The support amount varies across applicants with different monthly income levels, whereby individuals with lower monthly income levels can receive more support. The component of strengthening productivity intends to encourage technology development, training, and product certification. The support rules are shown in Table 8.

Because South-Southeast Mexico was an underdeveloped area, the Mexican government set up this program specifically for this area and provided large amounts of support. For example, the average support under this subprogram during 2016–2018 was about 1.9 billion pesos (US$107 million), accounting for 16% of the total program (AFPCP) expenditure. The total subsidy amount allocated to the fruit and vegetable industry over 2014–2018 was 1.3 billion pesos (US$73 million), or an average of 266 million (US$15 million) pesos per year.

Table 8. Support Rules of the South-Southeast Productive Development Subprogram, 2014.

Components

Maximum Support Amounts (pesos)

Finance Incentives

Financing (Applicants A)

Up to 30% of total project cost, not exceeding $8,000,000

Financing (Applicants A & B)

Up to 50% of total project cost, not exceeding $15,000,000

Financing (Applicants B)

Up to 50% of total project cost, not exceeding $15,000,000

 

Up to 70% of total project cost, not exceeding $15,000,000, when project is located in areas of high and very high marginalization

Strengthening Productivity

Technological development

For A: 30–50% of total project cost

For B: p to 90% of total project cost

Technical assistance and specialized training

Up to 100% of total project cost in the first year, reducing up to 30% in the third year

Direct incentives, without financing, for reactivation of production, including infrastructure and equipment

For A: Up to 30% of total project cost, not exceeding $8,000,000

For A&B: Up to 50% of total project cost, not exceeding $15,000,000

For B: Up to 50% of total project cost, not exceeding $15,000,000 

 

Up to 70% of total project cost, not exceeding $15,000,000, when project is located in areas with high and very high marginalization

Certification in good production practices for conventional honey and organic honey

$2,000 per apiary

Applicants A are individuals with a monthly income level above the decile of IX, as defined by INEGI (National Institution of Statistics of Mexico), while Applicants B are individuals with a monthly income level within deciles of I to IX.

Source: SADER (2014).

Summary

The Mexican government has a comprehensive agricultural support program. This article focused on the Agri-Food Productivity and Competitiveness Program, one of the largest programs that provide support to the fruit and vegetable industry. This program aims to: 1) improve producers’ access to financing, 2) increase productivity and expand the economies of scale through investing in equipment and infrastructure, 3) generate greater added value with the certification and standardization process, and 4) reduce the risk in agri-food activities by promoting the use of risk management tools.

The total amount of subsidies to the fruit and vegetable industry under this program over 2014–2018 was 3.3 billion pesos (US$199 million) based on publicly available data (2014 data incomplete) (Table 1). The two largest crops, citrus and tomatoes, received a total amount of 772 million pesos (US$47 million) over the period, accounting for 23% of the subsidies to the fruit and vegetable industry under this program. These subsidies, along with those from other programs under the National Development Plan (Wu et al. 2018a), have cultivated, advanced, and accelerated the development of a competitive supply chain in the fruit and vegetable industry in Mexico. Rapidly growing fruit and vegetable production in Mexico has increased competition in the US produce market, including tomatoes (Guan et al. 2018; Wu et al. 2018b; Li et al. 2021), berries (Suh et al. 2017; Wu and Guan 2021), and peppers (Biswas et al. 2018).

References

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