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, , 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

a declining share agr. in gdp

…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%+ intermediate45%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 reduction Acts as a buffer in time of (macro) crisis Induces the creation of informal safety nets Retains people in rural areas But… 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)

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*** Ls0.4***-0.6***0.3**0.6 ns0.9***

..roles… Has Higher impact on poverty reduction Acts as a buffer in time of (macro) crisis Induces the creation of informal safety nets Retains people in rural areas … but It puts high pressure on the environment

The peso crisis of 1995

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 reduction Acts as a buffer in time of (macro) crisis Induces the creation of informal safety nets Retains people in rural areas But… 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 reduction Acts as a buffer in time of (macro) crisis Induces the creation of informal safety nets Retains people in rural areas But… 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 reduction Acts as a buffer in time of (macro) crisis Induces the creation of informal safety nets Retains people in rural areas But… 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 reduction Acts as a buffer in time of (macro) crisis Induces the creation of informal safety nets Retains people in rural areas But… it puts high pressure on the environment Has not served as a source of national pride or identity (Mesoamerican)

Policy matrix PolicyPovertyEnvrmtSfty Net BufferCulture New macro envrmt +-+-0? Soc.Policy: PROGESA +00-0? Art /-0? Sect.policies ++/- - 0? Law ecolog ?