The Mexican External Debt and Its Effects on U.S.—Mexico Agricultural Trade: Discussion

Abstract

present a picture of a sector-Mexican agriculture-buffeted for many decades by forces internal and external to the Mexican economy. For a number of years prior to the debt crisis, Mexico's macroeconomic and industrial import substitution policies produced a bias against agricultural performance. An overvalued exchange rate discouraged agricultural exports and encouraged cheap food imports. High relative rates of protection for the nonagricultural sector encouraged resources to leave agriculture and discouraged private sector investment in agriculture. At the same time, agricultural policies, although favorable to some producers of some crops (particularly during the brief years of the Sistema Alimentario Mexicano), did little to address fundamental equity problems in the sector or to raise productivity in the rainfed, small-farm regions. Agricultural policies also promoted the growth of a hugely expensive state-owned company called CONASUPO that set support prices and had a grip on grain importing, wholesale distribution, and even retail channels. The gap between the prices paid to farmers by CONASUPO and the prices at which they sold to millers, as well as the administrative expenses, created a large fiscal burden that would be increasingly difficult to bear during the debt crisis. The Mexican debt crisis has brought external pressure for policy changes that appear to be a mixed blessing for Mexican agriculture. Structural adjustment has brought exchange rate corrections, as well as reduced protection and subsidization that had favored industry over agriculture and the urban over the rural sector. GATT accession terms are opening the economy to competition but are more liberal for agriculture than for manufacturing, leaving many agricultural products still subject to import licensing requirements. Nonetheless, private sector involvement in importing agricultural goods is increasing and we can expect that even agriculture will be increasingly open to the international economy. At the same time, fiscal austerity has led to agriculturespecific subsidies, such as those for credit, fuel, and electricity, being reduced. Agricultural price stability, provided by a price support system operating for many years in a low inflation environment, is also reduced. The authors do not indicate (and maybe it is still too soon to see) the net effect of these many changes on Mexican agricultural performance and, consequently, on the future of U.S.Mexican agricultural trade. Mexican agriculture and U.S.-Mexican agricultural trade are also shaped by other external forces, including U.S. agricultural policy and, now, the GATT negotiations. The authors note the interdependence between the U.S. and Mexican agricultural sectors and the fact that, although many problems require joint solutions, there is little or no policy coordination. They note, accurately, that both Mexican and U.S. agricultural policies have traditionally been made on the basis of domestic goals, relegating the bilateral relationship to secondary status. They speak little, though, of what and how U.S. agricultural policies affect Mexico, so I will devote the rest of my comments to this topic and to a brief discussion of how these policies might have changed since the inception of Mexico's debt crisis. A wide range of U.S. agricultural policies affects Mexican agriculture. Most commonly cited are border policies regulating the influx of Mexican horticultural products and immigration policies affecting labor flows. But a host of other policies have less direct effects, including U.S. price and income support poliNicole S. Ballenger is an agricultural economist, Economic Research Service, U.S. Department of Agriculture, and a visiting fellow at the National Center for Food and Agricultural Policy, Resources for the Future.