For the past decade the agriculture sector has grown marginally, as the rest of the economy continues to industrialise. The slow pace of expansion has been due to a number of structural inefficiencies which limit productivity growth, in particular the prevalence of small-scale farmers, limited financing options and widespread rural poverty. In the past three years adverse climatic conditions have also affected the sector. The entry into effect of the North American Free Trade Agreement (NAFTA) in 1994 contributed significantly to the integration of the US, Mexican and Canadian markets. Some segments of the Mexican sector, such as fruits and vegetables, have benefitted from integration and market access, while others, namely grains, have not due to increased competition with highly subsidised and efficient US producers. Despite a record number of FTAs, Mexico remains highly dependent on the US market for its agricultural exports. Diversification of export markets has been limited, though recent years have seen efforts to penetrate Asian markets. With very slow growth for the past decade, new policies and an agrarian reform to be announced in 2014 could bring some much-needed dynamism to the sector.

SECTOR PERFORMANCE: The sector has grown at an annual average rate of 0.9% for the past decade. Its contribution to national GDP was estimated at 3% in 2013, down from 3.4% the previous year. Agriculture and livestock grew by 0.6% and 0.8%, respectively, while forestry and fisheries fell by 1.0% and 5.7%. Despite its declining contribution to overall GDP, the sector employs a disproportionate percentage of the population, last reported by the National Institute of Statistics and Geography (Instituto Nacional de Estadística y Geográfía, INEGI) at 14.2% in November 2013.

The sector’s main activities are the production of sugar, grains, fruits and vegetables, and livestock. While grain is still the primary crop for Mexican farmers, in 2009 the value of vegetables and fruit production surpassed that of grains for the first time, accounting for some 42% of the sector’s production against 40% for grains.

Slow growth in the past three years has been due mainly to adverse climatic conditions – a combination of frost and drought caused a decline in production levels. 2011 and 2012 were particularly difficult years for the sector. Production of maize, the main crop by area under cultivation, decreased, leading Mexico to drop three places from being the fourth-largest maize producer in the world in 2012 to seventh in 2013. Three consecutive years of drought also affected the livestock segment. Herd populations declined and the price of calves rose by approximately 80%.

The year 2013 was one of recovery for the sector as higher levels of precipitation increased water reserves for agriculture, though access to water remains a major challenge for the industry. Agriculture and livestock exports reached a value of $11.33bn in 2013, up 4% year-on-year (y-o-y). The fruits and vegetables segment is the most dynamic part of the sector, registering growth in production as well as exports.

MAIZE & SUGARCANE: Annual production of maize has been relatively stagnant for the past 13 years, averaging 20m tonnes from a cultivated area of 7.2m ha. National demand for grains surpasses 30m tonnes per year, forcing Mexico to import more than 10m tonnes annually, mostly maize, making it the second-biggest importer of maize in the world. In 2011 a significant decline in maize production was registered – to 17.6m tonnes – following a drought which affected thousands of hectares under cultivation in Mexico and the US and raised prices by 37% between December 2010 and March 2011. Prices peaked in January 2012, reaching $5120 per tonne. Production recovered slightly in 2012 to 22.07m tonnes, but fell again in 2013 to 21.36m tonnes. Between January 2012 and October 2013 the price of maize dropped 28.26% to $3673 per tonne.

In 2013, producers in states such as Campeche, Chiapas and the Bajio region were affected by heavy rains, resulting in reduced yields. Production of maize is expected to decrease again in 2014 to around 21.07m tonnes, as prices remain low due to increased global production and stagnant demand. Additionally, Sinaloa, the main producer state, reduced its cultivated area from 450,000 ha to 330,000 ha for the autumn-winter harvest. Yields vary consistently across the country, with some states such as Sinaloa averaging 10 tonnes per ha, while yields in other southern states like Campeche are as low as 2.07 tonnes per ha. Around 90% of Mexican maize is white, which primarily goes toward manufacturing tortillas, with yellow feed corn comprising the rest. According to Juan González Nieves, director of Editorial Agro Síntesis, an agriculture publication, not aligning production with market needs has adversely affected the Mexican market. “Mexico produces more white maize than it needs, while the market asks for yellow corn. It imports around 9m tonnes from the US and overproduces around 8m tonnes of white maize, which cannot be sold, lowering prices,” González Nieves told OBG. Demand for white maize has remained stagnant, while that for yellow corn has fallen following a decline in the number of Mexican cattle since 2010. Further, the drop in international maize prices as a result of increased global production has negatively affected producers’ revenues, leading some in states such as Sinaloa and Tamaulipas to shift to crops with higher returns like white maize and sorghum. Moreover, Mexican buyers were reportedly importing cheaper maize instead of buying domestically produced cereal. To incentivise buyers to import maize only when national production does not meet demand, the authorities imposed taxes on maize and sorghum imports of 20% and 15%, respectively, in 2013, though these apply only to nations that do not have FTAs with Mexico.

In 2013, sugarcane production registered growth of 21.1% y-o-y, with 62.13m tonnes harvested.

WHEAT & SORGHUM: Production of wheat, the second most consumed grain domestically, has also declined in the past few years, although it recovered somewhat in 2013. According to figures from the Department of Agriculture, Livestock, Rural Development, Fisheries and Food (Secretaría de Agricultura, Ganadería, Desarrollo Rural, Pesca y Alimentación, SAGARPA), output increased by 8% from 3.12m tonnes in 2012 to 3.37m tonnes in 2013. Production is concentrated in the state of Sonora, which accounts for 38% of area under wheat cultivation and 50% of national production. In 2013 increased global production led to a 20% drop in prices. Sorghum production, for which Mexico ranks second in the world, has also been flat over the past few years, with the exception of 2010, when 6.94m tonnes were harvested. In 2011 production dropped to 6.42m tonnes, but increased in 2012 to 6.97m tonnes. In 2013, the harvested volume fell by 11.8% to 6.28m tonnes. While the decline in grain production, in particular of maize, was primarily due to adverse climatic conditions, other factors have played a part as well. Slow adoption of technology and improved seeds has limited productivity growth, for instance.

FRUITS & VEGETABLES: Fruits and vegetables account for largest share of agricultural exports and the highest export revenues. Mexico produces a large variety of fruits and vegetables, including avocados, tomatoes, strawberries, peppers and apples. Indeed, Mexico exported more than $24bn in food products in 2013. The vast majority of fruit and vegetable exports – roughly 90% – go to the US. According to SAGARPA, Mexico produces around 8.6m tonnes of vegetables annually. In 2013 exports of fruits and vegetables rose by 4% yo-y, reaching a value of $9.17bn, up from 2012’s $8.81bn.

The production of avocado increased 8.8%, reaching 1.47m tonnes, while exports grew 24.5% to a value of $1.2bn. The production of green alfalfa was up some 1.6% to 30.93m tonnes. Green chillies and tomatoes registered a drop in harvested volume of 7.9% and 11.5%, with 2.17m tonnes and 2.22m tonnes, respectively. Despite this drop, Mexico is the world’s largest exporter of fresh tomatoes and the crop accounts for 15% of agricultural exports, with export revenues increasing by 22.4% in 2012 and 10.6% in 2013, according to figures from INEGI. In 2013 tomato exports grew by 8.7%, reaching sales of $1.86bn. Exports of bell peppers were also up, increasing 12.3% to $876m.

Overall growth in fruits and vegetables is mainly attributed to the rapid expansion of protected agriculture throughout the country, which increased from an active 300 ha in 1997 to 15,000 ha in 2013. “What is produced in 7 ha in open fields can be substituted with 1 ha in a greenhouse. You have more control and greater productivity,” González Nieves told OBG. Protected agriculture has also given farmers in some states the ability to produce year round and take advantage of price fluctuations in the US market, enabling them to get higher prices for off-season products. Despite overall growth, in 2013 the industry was hit by adverse climatic conditions. In the north producers were affected by frost, which damaged over 2000 ha of tomatoes, pumpkins and watermelons among other crops, while farmers in the Guanajuato region saw torrential rains.

Additionally, the industry has faced another challenge – food safety regulations – after an outbreak of salmonella in the US and Canada in August 2012 was linked to contaminated mangoes imported from Sinaloa.

LIVESTOCK: According to Pablo Sherwell, analyst at Rabobank, a Dutch bank that has been operating for 20 years in Mexico, at the beginning of 2014 there were an estimated 17.3m head of cattle, down from 22m at the beginning of 2010. Exports of feeder cattle peaked at 1.44m head in 2011, when drought increased US demand for Mexican cattle and raised the price of calves by 80%. In 2012 exports decreased to 1.37m and again in 2013 to 610,477, as Mexico began to rebuild its cattle herd. According to the Mexican Association of Cattle Breeders, beef production grew from 1.5m tonnes in 2003 to 1.82m tonnes in 2012. A slight drop to 1.81m tonnes was registered in 2013. The increase in the price of beef, which has gone up by around 14%, has contributed to a decrease in per capita consumption, which, according to figures from Rabobank’s research and advisory division, is estimated to have dropped from 15.9 kg in 2012 to 15.3 kg in 2013. However, the beef industry has been spared by increasing exports, which grew by an estimated 10% in 2013.

According to Enrique López López, director-general of the Mexican Association of Cattle Breeders, the rise in the price of calves has boosted production costs by 40%, leading to the consolidation of the industry, which now has fewer but larger-scale operations such as Sukarne, a leading producer of animal protein.

The industry also enjoys a comparative advantage. Kenneth Shwedel, a partner at Ksadvise, an agribusiness consulting company, told OBG, “While the cost of feeding an animal can be higher in Mexico, we can produce a kilo of meat cheaper than competitors in the US. Value-added processed products, where the labour component is important, is an area where Mexico has an additional advantage. Mexico is able to produce and export meat maintaining both quality and food safety. This has allowed beef exports to show continued growth over the past decade,” he said.

PORK & POULTRY: Given the price increase in beef, pork and poultry are more attractive for the Mexican consumer. According to SAGARPA, pork production, which represents 20.1% of meat production, rose by 0.3% in 2012 to reach 1.24m tonnes with a value of MXN26bn ($2bn). In 2013 production is estimated to have increased slightly to 1.28m tonnes, and growth in 2014 is projected at around 3% as an additional 5600 productive units are set to boost the supply of pork products, according to the Confederation of Mexican Pork Producers. Per capita consumption has increased in the past few years and is now estimated at 16.5 kg, up from 14.2 kg in 2006. According to the National Service of Agrifood Health, Safety and Quality, exports of pork were up by 7.02% y-o-y in 2013.

With the opening of new export markets in Asia, pork exports are expected to continue growing, but these are limited to just 10 states that are federally certified to meet food and safety regulations, including Baja California, Chihuahua, Coahuila, Durango, Guanajuato, Jalisco, Puebla, Sinaloa, Sonora as well as Yucatán.

According to the National Union of Poultry Farmers (Union Nacional de Avicultores, UNA), in 2012 the production of chicken increased 1.8% y-o-y, surpassing 2.9m tonnes at a value of MXN69m ($5.4bn), but dropped 1.8% in 2013. Per capita consumption has risen consistently over the past decade. In 2013 consumption reached 24.8 kg per capita and is expected to increase to 25.1 kg in 2014. In 2012 the production of eggs contracted 6% y-o-y to 2.3m tonnes at a value of MXN44.2bn ($3.4bn), although it subsequently recovered by 5.7% in 2013, closing the year at 2.5m tonnes. Mexico has the highest consumption of eggs in the world with 21.9 kg per capita.

The poultry industry has been affected by the spread of influenza, which limited national supply and closed a number of export markets, leading to a 39.7% y-o-y contraction in exports in 2012. However, according to UNA, the industry is expected to grow 1.7% in 2014. Production of eggs is forecast to increase by 2% and chicken by 1.5%, nearing 3m tonnes. SAGARPA’s budget for 2014 includes MXN450m ($35m) to be allocated to areas such as livestock processing, slaughter, inspection, processing and packaging.

CHALLENGES: For years the sector has suffered from a number of structural inefficiencies. One of the most significant challenges limiting productivity growth is the prevalence of small farmers. In contrast to regional neighbours such as Brazil or Argentina, the majority of agricultural plots in Mexico, around 70%, are less than 5 ha in size. Commercial agriculture, characterised by large industrialised farms and strong private sector entrepreneurship, is concentrated in the northern states of Baja California, Sonora, Sinaloa, Chihuahua, Michoacán and Tamaulipas and some central regions, such as Jalisco, Veracruz and Guanajuato. This type of agriculture, which represents only around 10% of the overall sector, accounts for more than three-quarters of exports. The most successful operations often buy from small producers at competitive prices, process, add value, package and then sell their products.

The southern regions are generally characterised by small-scale agriculture, most of which is for subsistence. These are mainly poor regions where the introduction of technology has been particularly slow and, therefore, productivity is generally low. Only one in five farmers uses improved seeds and less than one-third of units use fertiliser based on a study of the ground. “Some studies show that in Mexico there is potential to increase grain production by 10m tonnes or more, but most producers use non-hybrid seeds, which lose yield potential as the years go by,” Marco Antonio Galindo Olguín, director of economic studies at the National Agriculture Council, told OBG.

There is resistance to change among small farmers because of the cost of buying improved seeds. Moreover, SAGARPA’s efforts to promote genetically modified seeds have met with fierce opposition from many segments of the population.

Due to the sector’s highly fragmented nature, organising farmers to obtain economies of scale has been tough. “Organisation has always been a problem in our country. But if we do not advance in this area, we will not be able to create economies of scale, buy components at more competitive prices, have more purchasing power, space out the harvests, adopt technology and have access to more resources. A sector reform would have to address land tenure, but it has always been a politically sensitive subject,” Galindo told OBG.

IRRIGATION: The general lack of water and irrigation infrastructure is another challenge. Around 60% of water reserves are in the southern regions, while the largest share of production is located in the north. Producers in the north have experienced three consecutive years of drought, while producers in the south are dealing with torrential rain. Some states, such as Sonora and Baja California, depend on pumped water for most of their irrigation. Irrigated surface area has remained virtually unchanged in the past 40 years. Only 26% of cultivated surface is irrigated, while 60% of production value is derived from it.

INTEGRATION: As a result of the integration of markets through NAFTA, changes in US agricultural policy have a direct impact on Mexican farmers, who compete freely with highly subsidised segments of the American sector, such as corn and wheat. The US is Mexico’s main export market and accounts for the vast majority of Mexico’s agricultural exports, making both markets particularly susceptible to supply and demand fluctuations. In January 2014, for example, the price of asparagus dropped dramatically as large volumes of the vegetable entered the US from Mexico, forcing Californian growers to plough their fields in an effort to delay the beginning of the season in their state.

US tomato growers have also accused Mexican producers of “dumping” tomatoes in the US market. The dispute, which had been ongoing since 1996, was finally settled in February 2013, with both parties raising the minimum price for tomatoes to $0.31 per pound from $0.22 per pound. For Mexico, the expansion of agricultural exports overall, and fruits and vegetables in particular, would necessarily entail a diversification of the nation’s export markets in order to avoid flooding the US market and causing prices to fall.

“The expansion of Mexican companies to new international markets is one of the biggest challenges and opportunities the sector faces,” Jesús Vizcarra Calderón, president of Sukarne, a multinational firm specialised in the production and marketing of animal protein products, told OBG. “Key factors, such as the support of the government and the recently approved energy reform, will stimulate productivity and competitiveness in the sector to allow it to compete more efficiently on the international market,” he said.

FINANCING: For the past decade, a lack of financing has been another significant challenge. In the second quarter of 2004, a combination of a large number of non-performing loans and a withdrawal of government support in line with NAFTA policies led to the near drying up of lending from development banks. Since then, credit has been recovering slowly, although it has yet to return to pre-2004 levels.

Financing from development banks for agricultural activities, including fisheries and forestry, declined from 3% of their total portfolio in 2003 to 0.03% in 2011. In the same period, commercial banks’ share fell from 2.2% to 1.5%. Commercial bank lending registered an increase in 2012, with the value of credit reaching MXN120bn ($9.3bn), though this is estimated to have dropped by 30% in 2013. Only around 1.5% of financing in the Mexican economy goes to the agricultural sector. Agricultural financing is mostly provided by Financiera Rural and through the Trust Funds for Rural Development (Fideicomisos Instituidos con la Agricultura, FIRA), which rediscount commercial bank agricultural lending. Together the two agricultural investment trusts are responsible for 78% of sector financing.

Financiera Rural, created in 2003 to improve access to credit in rural areas, disperses much of its funding through financial intermediaries, non-bank institutions such as credit unions, and other microfinance rural entities, though it also provides direct credit through programmes such as Proagro Productivo. As of March 2014 its portfolio totalled MXN25.3bn ($1.9bn).

FIRA, a subsidiary of the central bank, provides funding for around 60% of commercial banks’ credit portfolios for the sector. In 2012, FIRA’s credit portfolio grew 17% y-o-y, reaching MXN118bn ($9.2bn). High interest rates and loan conditions have generally made it difficult for farmers to access credit from lending institutions, which have tended to primarily focus on large-scale producers or producer groups. “Sometimes even large producers have better access to credit from commercial banks, which offer more competitive rates than development banks,” Galindo told OBG. The high level of informality in the sector makes access to credit even more difficult, though this could be improving. “The informal labour force has plagued agriculture growth, but the trend is changing as farmers are now realising that if they remain informal, without issuing some sort of financial statement, they cannot receive financial support from banks or the government,” Jesús Esteban Macías, director of Sofagro, an agribusiness lender, told OBG. In rural areas, small farmers tend to borrow money from informal lenders, often times at higher rates and with shorter terms. “FIRA, Financiera Rural and BancoMex have started supporting agrifood producers in a more meaningful way, though this still has not happened as quickly as we hoped for. Where there has been little progress and where financing needs to improve significantly is in primary products. It needs to accelerate to give producers the opportunity to access technological packages to increase their productivity” Juan Carlos Anaya Castellanos, the director-general of Agricultural Markets Consulting Group, a consultancy specialised in agriculture, told OBG.

High default rates and relatively small loans sizes led to a reduction in private banks’ loan portfolios for the sector in 2013, a trend expected to continue in 2014. By contrast, lending from development banks could begin to rise in the coming years as a result of increased portfolios and the financial reform, which is expected to make banks less risk-adverse. Overall, creditors have not capitalised on the demand for financial services in the agriculture sector. “The potential for growth in this area is very high. Only about 20% of agricultural production in Mexico is financed compared to more than 70% in the US,” Galindo told OBG.

BUDGET: Showing the current administration’s commitment to the revitalisation of the sector, the budget for SAGARPA for 2014 totalled MXN82.90bn ($6.44bn), the fourth-largest allocation after the Ministries of Education, Health, and Communications and Transport. Agriculture, livestock and fisheries were allocated MXN69.8bn ($5.4bn), or 84.3% of the total, while the remaining funds were distributed between education and development programmes (MXN5.64bn, $438.23m, 6.8%) and operating expenses (MXN7.39bn, $574.20m, 8.9%). The largest share of the allocation, MXN20.6bn ($1.6bn), went to the Agriculture Stimulation Programme, with MXN13.56bn ($1.05bn) of this going to the Proagro Productivo scheme.

STRATEGIES: The sector’s development plan for 2013-18 aims to increase productivity and make the sector more competitive. One aspect of the plan is the adoption of a new organisational model for SAGARPA, which entails the reorganisation of programmes and the streamlining of operations to make them more efficient, flexible, transparent and innovative. To increase small farmers’ productivity, the plan prioritises access to credit to small producers with viable projects. Financiera Rural is expected to develop new lending instruments for sector activities, expand its portfolio, increase payment terms, and lower interest rates and requirements. One of the most significant changes in this area has been the restructuring of Procampo, now known as Proagro Productivo, a financial assistance programme which disperses funds directly to farmers. The goal of the restructured programme is to incentivise farmers to purchase hybrid seeds, fertiliser and machinery in order to help boost productivity.

The relationship between the International Maize and Wheat Improvement Centre (Centro Internacional de Mejoramiento de Maiz y Trigo, CIMMYT) and SAGARPA is also being reinforced through MasAgro, a programme aimed at increasing the productivity of small farmers via research and development and the adoption of technology. The programme has been developing and distributing hybrid and other low-cost seeds to help small producers plant a larger variety of maize better suited to their land. To address the general lack of irrigation infrastructure, the 2014 budget allocates a total of MXN2.03bn ($157.73m) to incorporate 50,000 ha of irrigation, improve an additional 850,000 ha and construct or improve around 5000 wells. Also part of the plan is an effort to promote domestic production of strategic components, such as fertilisers and hybrid seeds. According to figures from SAGARPA, 81.7% of the fertiliser used in Mexico is imported.

“The agro-chemicals business in Mexico is worth around $900m-950m. Recently, the sector has suffered from the settlement of Chinese and Indian companies. The Federal Commission for Protection Against Health Risks is responsible for the registration of products from these groups, but it only sets global quality standards, which do not act as an entry barrier,” José Escalante de La Hidalga, the CEO of Velsimex, a phytosanitary company, told OBG. Since 2007, domestic production of fertilisers has increased, mainly due to the rise in the output of phosphate, 1.2m tonnes of which is being produced annually. SAGARPA is promoting projects in this area, which exploits Mexico’s competitive advantage in the production of natural gas.

BETTER FOCUS: To better align production with market needs, the government is also implementing new initiatives, one of which is establishing agricultural contracts. While these have been in use in Mexico for many years, the current administration has placed a renewed focus on these types of contracts, in particular for the production of grains. According to SAGARPA, which is administering contracts through its commercialisation and development arm, the Agency for Marketing Services and Development of Agricultural Markets ( Agencia de Servicios a la Comercializacion y Desarrollo de Mercados Agropecuarios, ASERCA), for the autumn-winter 2013/14 harvest, sorghum contracts reached 1.95m tonnes from Tamaulipas and Sinaloa, while wheat contracts reached 1.18m tonnes from Sonora, Chihuahua and Jalisco. Given the volatility in grain prices recently, producers have responded positively to this initiative, as it helps to guarantee a degree of price stability.

Another integration mechanism being promoted is clusters, agribusiness schemes which organise players at the different stages along the productive chain, facilitating processes such as the purchase of components, production, storage, packaging, processing, marketing and distribution. By helping to create economies of scale, clusters can provide important advantages to producers, who, acting as one entity, can purchase components at lower prices and benefit from improved access to credit, infrastructure, technology, machinery and transport. Also in the same vein is the Product Systems initiative, a scheme which groups different players along the value chain in the production of certain commodities to improve selection and packaging processes and incentivise value-added practices.

AGROPARKS: At the regional level, integration is being promoted through the establishment of agroparks. While this is not a new concept in Mexico, it is the first time that it has been an integral part of the sector’s development plan. In October 2013 SAGARPA announced plans for the establishment of a national agropark network. Sixteen new agroparks were announced for the states of Baja California, Sinaloa, Jalisco, Coahuila, Mexico State and Guanajuato. The plan also includes the completion of ongoing agroparks in Aguascalientes, Chiapas, Nayarit, Sinaloa and Veracruz and the consolidation of existing ones in Querétaro, Nuevo León and Aguascalientes.

According to Ricardo Aguilar Castillo, the sub-secretary of SAGARPA’s food and competitiveness department, during the post-harvest process as much as 35% of production can be lost. By concentrating production, value-added processing, logistics and technology transfer via knowledge centres in one area, agroparks can be an important means of realising productivity and efficiency gains, while also ensuring quality standards and the commercialisation of goods. A national network of agroparks could spur dynamism in different segments and expand Mexico’s export potential.

Of the few established agroparks, one example is that of Querétaro, which began operating in 2009. With an initial investment of MXN75m ($5.8m), the Querétaro agropark stretches over 805 ha and includes a technology transfer and training centre, a quality certification centre, commercialisation services as well as an administrative unit. Producing under a system of protected agriculture with advanced technology, this agropark has reached yields of 600 tonnes per ha in tomatoes, whereas greenhouses with low technology average around 120 tonnes per ha. When it reaches full capacity, it will involve total investment of MXN4. 5bn6bn ($349m-462m) and generate some 3000 jobs.

The Capitalisation and Investment Fund for the Rural Sector (Fondo de Capitalización e Inversión del Sector Rural, FOCIR), a government institution created to promote investment in the rural and agribusiness sector, has been instrumental in the development of agroparks by complementing investment from the private sector with federal resources of up to 35%. According to its website, the programme has invested a total of MXN900m ($70m) to date.

According to González Nieves, besides facilitating access to credit, the creation of agroparks could also improve the dynamics between the different players in the production chain. “By integrating the different players along the value chain, agroparks are eliminating the intermediary between the grower and the one who commercialises the product, who does not run any risks and gets the highest margin,” González Nieves told OBG. “Given the higher volumes, you can negotiate better prices and you can better align production with market needs.”

DIVERSIFICATION: Despite Mexico’s record number of FTAs, the diversification of export markets for agricultural products has been relatively limited. The US is still Mexico’s largest export market, absorbing the vast majority of agricultural food exports, in particular produce. Recent diversification efforts have been directed towards Asia, where Mexico has attempted to gain market share for meats, fruits and vegetables. According to SAGARPA, in 2013 exports of agrifoods to Japan increased by 27% y-o-y. Exports consist mostly of tequila, pork, beer, avocado, flour, chocolate, coffee and pepper. Exports to Japan, Mexico’s key partner in the region, have increased consistently since 2006, when the trade agreement between the two countries came into effect. In 2013 exports topped $1bn.

China has also expressed interest in an economic partnership deal with Mexico. So far Mexico has secured a deal for the export of 100% pure agave tequila, while the Chinese authorities have already approved the certification of meat plants as well as berries produced in Mexico. For its part, South Korea has authorised the exports of Persian lime, and negotiations are ongoing on protocols that will allow grape exports.

The Trans-Pacific Partnership, which would unite 12 countries – Australia, Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore, the US, Japan and Vietnam – could also be a boon to exports, as it could potentially open new export markets with which Mexico has no trade agreement (see analysis). At present, only four countries are officially members of the grouping, while the others are in negotiations to join.

OUTLOOK: With more production-oriented policies and an agrarian reform expected to be announced in 2014, the agricultural sector may be set to enter a new period of dynamism. As the new policy moves take effect, a period of adjustment followed by slow growth in the next three to four years should be expected. With an increased budget and more water reserves, the sector should begin to recover in 2014.

The fruits and vegetables segment is expected to grow as the expansion of protected agriculture continues and the demand for fresh produce remains high in nearby developed markets. The livestock segment should also expand as SAGARPA funds are used to bulk up the cattle population. The production of beef is expected to grow to provide for the expansion into new export markets in Asia, while pork and chicken have gained market share domestically. In grains, however, the prospects are not as positive. The production of maize is forecast to decrease again in 2014, as prices remain low due to high global production and stagnant demand. In the long term, productivity growth will depend on how successful current initiatives are at reducing fragmentation and integrating small farmers in the south.