Scale, technique and composition effects in the Mexican agricultural sector: the influence of NAFTA and the institutional environment

Abstract

More than a decade after NAFTA (North American Free Trade Agreement) entered into force, the environmental effects of agricultural trade liberalization in Mexico are still controversial, emerging, and not fully understood. This paper contributes to the literature that aims to explore trends in input use in the agricultural sector in Mexico during the post-NAFTA period among both commercial/industrial and traditional/rainfed farmers, and examines the influence of the national and multilateral institutional framework on these outcomes. We decompose the post-NAFTA agricultural production data into scale, technique and composition effects to estimate the impact that trade liberalization has had on the use of fertilizer and land use, two key agricultural inputs for which reliable aggregate data is available. We conclude that among commercial farmers patterns of crop type specialization and significant technological improvements have led to some declines in fertilizer use but they have been offset by growth in fertilizer use associated with growing agricultural output. Among traditional farmers increased output and specialization in land-intensive grain crops are contributing to an increase in land under cultivation and technological improvements show the potential, but not yet not the strength, to counteract these effects. We analyse the environmental institutional framework and rural development plans, observing that institutional weaknesses have, in several instances, reduced the environmental benefit of technique and composition effects. We conclude with recommendations about how the Mexican agricultural sector might reap the environmental benefits of international agricultural trade.