MexECON Blog

Overview of Mexico's Agriculture Industry in 2012

Contrary to popular perception, Mexico's economy is based primarily on domestic services and export manufacturing.  In 2012, for example, services accounted for 59.5% of the country's gross domestic product (GDP).  The industrial sector produced 36.4% of GDP, with manufacturing alone accounting for 18.3% (the rest of industrial output consisted of mining, construction, and utilities).  In contrast, agriculture contributed just 4.1% of GDP (see Table 1).

Nevertheless, agriculture is an important part of the Mexican economy, in large part because it employs an out-sized share of the workforce.  Subsistence farming and domestically-oriented agriculture support many of Mexico's legions of under-skilled citizens.  The export-oriented portion of Mexican agriculture is highly competitive, so it also helps raise wages and living standards.  In addition, export agriculture helps cement ties with the United States, which is the main destination for Mexico's farm, ranch, and fishery exports.

Special - 130724 Agriculture Overview Table 1

What Does Mexico Produce?

Mexico's large landmass is marked by a wide variety of geological features and climates.  It encompasses a vast array of geographical sub-regions, soil types, climates, and microclimates, ranging from high, arid pasturelands in the north to temperate, well-watered farmlands with rich soil in the mid-section of the country and hot, humid, tropical zones in the south.  These varied features allow Mexico to produce a mindboggling variety of agricultural products.  In fact, data from Mexico's ministry of agriculture (the Secretaría de Agricultura, Ganadería, Desarrollo Rural, Pesca y Alimentación, or SAGARPA) shows that the country produces more than 350 distinct varieties of farm products each year.

The wide range of Mexico's agriculture industry is on full display in Table 2, which shows the country's top 25 farm products in 2012.  The products are ranked by value of production, with the original figures in pesos converted to U.S. dollars at the average 2012 exchange rate of $0.0760 (13.15 pesos per dollar).  Key points in the data include:

 Corn and Other Grains.  By far, the most important farm product that Mexico produces is corn.  With a value of $6.7 billion in 2012, the crop consists primarily of white corn destined for human consumption at home in Mexico.  This type of corn serves as the key ingredient for Mexico's staple tortillas, and it is a favored crop for many subsistence farmers and small landholders, who produce it in volume throughout the country.  Mexico also produces yellow corn, which is used mostly for animal feed, but that crop is much less important than in the United States.  The value of Mexican corn used for animal feed was just $539.9 million in 2012, making it the 13th most important farm product.  Mexico's large sorghum crop is also used primarily for human consumption.  Sorghum grown for food had a value of $1.8 billion in 2012, making it Mexico's third most important farm product, while sorghum grown for animal feed had a value of just $216.6 million, ranking it 29th.    Similarly, wheat grown for food was Mexico's 10th most important crop in 2012, with a value of $898.4 million, while wheat used for animal feed ranked 101st with a value of $11.2 million.

• Sugarcane.  Mexico's second-most important farm product is sugarcane, with a crop value of $2.6 billion in 2012.  Mexican sugarcane is grown primarily on the hot, humid coastal plains of the Gulf of Mexico and the Pacific Ocean, with some production in higher-altitude river valleys in central Mexico.  More than one-third of the crop comes from the eastern coastal state of Veracruz.  Because of Mexico's restrictive land-tenure system, production is highly fragmented among some 150,000 farms.  The average size of a Mexican sugarcane farm is just 4.5 hectares (about 10.8 acres), and about half the farms are 2.0 hectares (4.8 acres) or less.  That hinders efficiency and economies of scale, but because the industry employs a large share of Mexico's workforce and is highly unionized, it is politically important.

• Tree Fruits.  In recent years, Mexico's avocado crop has grown rapidly, in large part because of increased demand from the United States, the gradual elimination of trade barriers under the North American Free Trade Agreement (NAFTA), and the end of U.S. sanitary bans after Mexican growers implemented aggressive pest control programs.  Avocados have become the country's fourth-most important crop, with a value of $1.3 billion in 2012.  The vast majority of Mexican avocados come from the southwestern state of Michoacán, where approximately 11.5% of all land is under avocado orchards.  Nationwide, Mexico has about 17,500 avocado farms, with an average size of 8.6 hectares (20.7 acres).  Another important fruit crop is oranges, which rank 15th in value at $458.1 million.  Most of Mexico's oranges are produced along the Gulf of Mexico in the states of Veracruz and Tamaulipas.  Mexico also produces significant amounts of plantains and lemons/limes, mostly in the southern states of Oaxaca and Guerrero, with some production in Michoacán.

 Vegetables.  Mexico produces many kinds of fresh vegetables.  The most important is beans, which ranked 7th in production value during 2012 with a value of more than $1.0 billion.  Beans are another key staple in the Mexican diet, and most of the crop is used for domestic consumption.  Only about 3.9% of it is exported.  In contrast, Mexico's other vegetable products are largely destined for export to the United States and Canada.  Shipments are concentrated in the winter season, when supplies north of the border are limited and prices are high.  Mexico's top export vegetable in 2012 was bell peppers, with a value of $1.0 billion.  Similarly, Mexican tomatoes had a value of about $1.0 billion, while strawberries were valued at approximately $329.7 million and onions were valued at $320.8 million.  Mexico's main vegetable growing areas include the southwest states of Sinaloa and Michoacán, the northern state of Chihuahua, and the western state of Baja California.

Special - 130724 Agriculture Overview Table 2

Overall, Mexico's farm sector has grown at a good pace in recent years.  Between 2002 and 2012, the total area planted was essentially unchanged, but average yields rose at a compound annual growth rate of 4.6%, and the total value of production rose at an average rate of 9.2%.  Some products had even stronger growth.  Among the top 25 products, for example, blackberry acreage rose at a rate of 26.2% per year, while yields rose at a rate of about 1.4% and prices rose 7.2% per year.  As a result, the total value of blackberry production rose at a rate of 38.1%.  For cotton, it was a similar story, with acreage rising rapidly, yields growing modestly, and prices increasing at a healthy case.  The total value of cotton production therefore rose at a rate of 29.9%.  Among the very largest of Mexico's crops, avocados were the standout performer.  The number of acres planted in avocados rose only 4.5% per year, and yields were virtually stagnant.  However, prices rose at a rate of 10.9% per year, and the value of avocado production increased at a rate of 15.2% (see Figure 1).

                                                         Figure 1.

Special - 130724 Agriculture Overview Figure 1

What Does Mexico Export?

As suggested above, some of Mexico's agricultural production is geared toward export.  Fortunately, the data on Mexican agriculture exports is more accessible, so the analysis below encompasses not only farm products but also ranching and aquaculture exports.  The analysis shows that even though Mexican agriculture production is quite diverse, its exports are currently very focused on fresh fruits and vegetables (see Figure 2).  Mexican fruit and vegetable exports totaled some $7.5 billion in 2012, representing 68.8% of all Mexican agriculture products sold abroad in that year.  (Because of differing data sources, note that the value figures for exports may not be directly comparable with the production values given above.)

                                                           Figure 2.

Special - 130724 Agriculture Overview Figure 2

Mexico's fruit and vegetable exports are concentrated between October and May, which suggests Mexican producers are exploiting their climactic and geographic advantages to sell into Canada and the United States during the winter season.  However, Mexico also has other competitive advantages when it comes to agricultural production.  For example, farm workers are relatively more numerous and cheaper in Mexico.  In key agricultural areas, such as Sinaloa, water is also more available than it is in many U.S. growing regions, while regulation is often less burdensome.

One way to gauge the international competitiveness of an industry is to compare its share of the global industry's total world exports against the home country's share of total world exports.  According to the United Nations International Trade Center, for example, Mexican exports of all types accounted for 1.8% of total world exports in 2009 (latest available information).  Mexican exports of fresh vegetables, however, accounted for fully 7.6% of the world's fresh vegetable exports.  Within this category, the U.N. data show Mexico's tomato exports made up 17.2% of world tomato exports in 2009, while the country's cucumber exports made up 14.6% of world cucumber exports (see Table 3).  Similarly, Mexican exports of fresh fruits, nuts, and melons accounted for 3.3% of the whole world's exports of those items in 2009, with Mexico's melon exports making up 18.1% of world melon exports and its exports of avocados, mangoes, and like fruits making up 16.8% of that category's world exports.

Special - 130724 Agriculture Overview Table 3

A Question of Balance

In conclusion, the data clearly show that Mexico has the ability to produce a very wide range of agricultural products.  The country's large size and varied climates and geographical features allow it to produce literally hundreds of different kinds of farm, ranch, and fishery products.  Currently, however, Mexico's agricultural exports are concentrated in fresh fruits and vegetables, which are mostly sent to the United States and Canada during the North American winter season.  The flip side of this trade is that Mexico also imports large amounts of agricultural products.  In fact, the country typically imports more agricultural goods than it exports, resulting in an agricultural trade deficit (see Table 4).  The main reason for this deficit is Mexico's heavy reliance on imported corn, and, to a lesser extent, its reliance on imported wheat.  Mexico's corn imports consist mostly of yellow corn for animal feed, but because the value of these imports is much higher than the value of Mexico's cattle exports, it would not be accurate to say that the corn is simply an input for the production of cattle for export.  In other words, much of that corn is imported to fatten animals destined to be consumed by the Mexicans themselves.

Special - 130724 Agriculture Overview Table 4

Just as it makes sense for Mexico's fruit and vegetable producers to export to the rest of North America during the winter months, it makes sense for U.S. grain farmers to export enormous quantities of grain for animal feed, not only to Mexico but to countries around the world.  In that sense, Mexico's agricultural trade deficit merely reflects the relative competitive advantages of the Mexican and U.S. agriculture industries.  Nevertheless, the Mexican agricultural deficit does carry some negative implications.  At a very basic level, the deficit suggests that the country cannot quite feed itself.  The deficit is also one reason why Mexico typically runs a deficit in overall trade.  Mexico's trade deficits are usually very modest, and have been easily covered by investment capital flowing into the country.  Still, if Mexico can leverage its advantages and boost its agricultural exports even further, it could have a number of benefits for the country, including increased employment opportunities in rural areas, increased incomes, and reduced reliance on foreign capital to cover the overall trade deficit.

Patrick Fearon, CFA
Vice President, Fund Management

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