The roles of agriculture Mexico’s Country Case Study

The roles of agriculture

Mexico’s Country Case Study

Team

This synthesis report is accompanied by seven papers covering the modules of the case study:

Module 1, Recent Agricultural Policy Developments, by Isidro Soloaga

Module 2, Environment, by María Eugenia Ibarrarán, Enrique Guillomen and José Iván Rodríguez

 Module 3,Agricultural Growth and Poverty Reduction, by Isidro Soloaga and Mario Torres Falcón.

…team

Module 4, Assessing the Vulnerability of Agricultural Households to Macroeconomic Shocks: Evidence from Mexico, by Gloria Rubio Soto and Isidro Soloaga

Module 5, The Rural Sector and Informal Safety Nets: Evidence from Mexico, by Luis Felipe López Calva and Rosángela Bando

Module 6, Rural viability.A migration analysis at the community level, 1990-2000, by Isidro Soloaga and Gabriel Lara.

Module 7, Culture and agriculture in Mexico, by Gustavo Barrientos and Robert Shadow.

Background

Mexico is highly urbanized but the socio-economic development of the approximately 25 percent of its 100 million inhabitants who remain in rural areas is of critical importance for socially and environmentally sustainable economic development.

The share of Agriculture on GDP has been dropping year after year

18.2 17.4

15.0

12.610.7

9.48.2 8.4

5.9 5.6 5.1

-5

0

5

10

15

20

50-54 55-59 60-64 65-69 70-74 75-79 80-84 85-89 90-94 95-99 2000

avg period change

a declining share agr. in gdp

Chart 2: Poverty in Mexico: extreme (food) poverty lines

21.318.4 16.8

11.0

18.2 16.3

8.4 7.5

48.6

41.844.7

49.8

60.557.1

46.1

35.2331.3

27.424.4

21.5

29.727.3

18.014.4

0

10

20

30

40

50

60

70

84 89 92 94 96 98 2000 2002Source: Own, based on INEGI and World Bank

Urban

Rural

National

…with high levels of poverty

… and high levels of differentiation

type % of farmers % of total agr. land

sources of income

large commercial farmers

10% to 15% about 65% agriculture 60%+

intermediate 45% about 20% agriculture <50%

subsistence farmers

40% about 15% agriculture 50%

…with sharp regional differences

Irrigated crops provide more than 50% of national value of output, most of it coming from the North.

• The center grows much of the rain-fed maize, beans and barley. Also, irrigated crops (sorghum, maize, vegetables) are found in the high valley known as El Bajio

• Rain-fed maize, perennial crops (sugarcane, coffee, cocoa, banana, and others) and livestock dominate in the South.

Mexico implemented sweeping economic reforms since late 80’s

The opening up of the economy (unilaterally and under NAFTA)

Changes in domestic policies• I) ejido reform (reform of Constitutional Art. 27)• ii) +/- prices and subsidies incentives• iii) creation of large programs to assist during the

transition

With this background, the Mexico CCS found that agriculture:

Has Higher impact on poverty reductionActs as a buffer in time of (macro) crisis Induces the creation of informal safety

netsRetains people in rural areasBut… it puts high pressure on

environment

Positive Role: Impact on Poverty in Mexico

Rural areas account for:– 25% of total Mexican population– 20% of total Mexican consumption– 54% of total headcount poverty– 60% of total poverty gap– 66% of squared poverty gap

There are huge regional differences (Sur, Golfo and Centro Norte with higher poverty levels)

Approach to assess the poverty impact (Ravallion and Datt, 1996)

uupsirural

uriurban

uuiurban PopshiftCCP lnlnlnln ,,,

riirpsirural

rriurban

ruirural PopshiftCCP lnlnlnln ,,,

Results

Urban and rural growth decreased total food poverty levels

No intersectoral growth linkages were found:– Urban growth impacted on urban food poverty– Rural growth impacted on rural food poverty

Rural to urban migration reduces rural poverty

Agricultural growth impacted on the poorest families

Elasticity of poverty to urban growth:– 0.9 for headcount– 1.0 for poverty gap– 1.0 for squared poverty gap

Elasticity of poverty to rural growth:– 1.3 for headcount– 1.7 for poverty gap– 2.1 for squared poverty gap

Exploring the channels: growth and inequality

Positive elasticity of gini to urban growth

Negative elasticity of gini to rural growth

Exploring the channels: labor demand

Unskilled wages

Skilled wages

Price of capital

Agricul-tural output

Non-agricultural output

Lu -1.3*** 0.3*** 1.1*** 0.2* 0.6***

Ls 0.4*** -0.6*** 0.3** 0.6 ns 0.9***

..roles…

Has Higher impact on poverty reductionActs as a buffer in time of (macro) crisis Induces the creation of informal safety netsRetains people in rural areas… but It puts high pressure on the

environment

The peso crisis of 1995

Chart 3: Real GDP 1990-2000(millions of 1993 pesos)

1,000,000

1,100,000

1,200,000

1,300,000

1,400,000

1,500,000

1,600,000

1,700,000

Agricultural households suffered less from the crisis than households not related to agriculture (food expenditures: -9% versus -21%).

Those houses with a more diversified economic activities fared better than non-agricultural households or households more specialized in agriculture.

Those houses with a higher proportion of corn and bean production for self-consumption fared better than households with a stronger market participation.

…caveat: being a farmer could be a disadvantage for other types of crisis (e.g., current floods in several parts of the country).

…POSITIVE: buffer in times of (macro) crisis

…roles…

Has Higher impact on poverty reductionActs as a buffer in time of (macro) crisis Induces the creation of informal safety

netsRetains people in rural areasBut… it puts high pressure on

environment

…POSITIVE: induces informal safety nets

Robust evidence of consumption smoothing, especially food consumption. Adverse idiosyncratic shocks result in transfers to the household.

The more agriculture-dependent the family is, the more likely it will participate in an informal network. Also, being more agriculture-dependent increases transfers.

…roles…

Has Higher impact on poverty reductionActs as a buffer in time of (macro) crisis Induces the creation of informal safety

netsRetains people in rural areasBut… it puts high pressure on the

environment

…POSITIVE(?): reduces migration

Out-migration is affected by: agricultural growth (elasticity: –1.3), by the share of women in the labor

force(-) by the average level of education in the

municipality (-)Main cities and border states (-) and not by Unemployment levels

…roles…

Has Higher impact on poverty reductionActs as a buffer in time of (macro) crisis Induces the creation of informal safety

netsRetains people in rural areasBut… it puts high pressure on the

environment

NEGATIVE: too much pressure on the environment

One of Mexico’s most pressing environmental problems is the expansion of degraded land in the last decades. The largest category by far is that of land that suffers water erosion, which affects 37% of total land.

Underground water pollution and excessive water extraction of aquifers represents a problem in almost every state in Mexico.

As of now, agriculture is mining the natural resource base. Agricultural practices have to be improved to protect the environment and to reduce their impacts on soil and water. An efficient manage of natural resources shall be implemented in order to preserve the quality and quantity of water, soil, biodiversity and air

Culture

“Many urban Mexicans share with international development experts the view that village horticulture with its traditional ancient technology ...is an obstacle to general economic development”.

Despite Mexico’s deep agrarian roots, Mesoamerican agriculture and its peasant and Indian practitioners have been viewed with disdain by national elites for most of the country’s history.

This assessment, however, must be tempered by the realization that in recent decades a resurgence of Indian ethnicity, campesino militancy, and the agro-ecology movement have fostered a revalorization of the countryside.

Summary. Agriculture

Has higher impact on poverty reductionActs as a buffer in time of (macro) crisis Induces the creation of informal safety netsRetains people in rural areasBut… it puts high pressure on the

environmentHas not served as a source of national pride

or identity (Mesoamerican)

Policy matrix

Policy Poverty Envrmt Sfty Net

Buffer Culture

New macro envrmt

+ - + - 0?

Soc.Policy:PROGESA

+ 0 0 - 0?

Art.27 + + - +/- 0?Sect.policies  + +/-  - +/-  0? Law ecolog. 0 + 0 0 +?