Since 2013 Mexico has achieved significant agricultural export growth, reversing a trade deficit in agricultural products that almost reached $5bn in 2012. According to the Ministry of Agriculture and Rural Development (Secretaría de Agricultura y Desarrollo Rural, SADER), the sector posted a net trade surplus of $5.8bn in 2018, up 10.8% from $5.3bn in 2017. This new chapter of export success has largely been driven by non-traditional, high-value products such as berries and avocados – the latter of which Mexico is the world’s largest producer – as well as the continued expansion of agro-industry in the central regions. Favourable exchange rates and weather conditions also played a crucial role in boosting production and export growth.
At the state level the governments of Sinaloa, Guanajuato, Baja California, Jalisco and Michoacán, among others, are continuing to work alongside federal government agencies, local universities and private sector firms to promote investment in new technology, production processes and products. President Andrés Manuel López Obrador, better known by his acronym AMLO, has pledged his support to help small producers of traditional crops and expand agricultural production in the country’s south-east states.
Although there is still progress to be made, sector stakeholders are optimistic that production will continue to expand in the years ahead. “The outlook for the sector is favourable, as exports have been very dynamic,” Marco Galindo, director of economic research at the National Agri-Business Council, told OBG.
Large & Small
The sector contains both export-focused agri-business farms and small, rain-fed farms in isolated rural areas. While large-scale growers have invested in new technologies to boost production and exports of vegetables, sugarcane, avocados, tomatoes and berries, the development of traditional small-scale grain farms has stagnated. Family-run farms in isolated areas have struggled to shift production to highvalue crops in order to access export markets, as the introduction of more advanced production practices has only had a limited effect on small-scale growers. “The main barrier to widespread growth in productivity is the slow uptake of technology in many parts of the south and south-east of Mexico,” Javier Valdés, CEO of agro-chemical firm Syngenta, told OBG. “Due to the large number of landowners and farmers, a comprehensive knowledge transfer strategy is necessary for growers to achieve their productivity goals,” he added.
While state governments and private firms continue their focus on exporting high-value, non-traditional crops, AMLO has taken steps to support small-scale farmers and boost agricultural output in isolated farming communities. Since he took office in 2018 the president has made efforts to reform existing agricultural subsidy programmes and create new forms of aid, such as direct cash support for low-income farmers. To this end, the 2019 budget allocated MXN6bn ($310.3m) for government-subsidised purchases of staple crops from small producers, as part of the new administration’s plans to lower reliance on imports and achieve self-sufficiency in food production. However, in February 2019 local media reported that the programme could cost as much as MXN14bn ($723.9m). Nevertheless, it is hoped that helping smaller farms adopt new technology and shift to higher-value products will accelerate the consolidation of a robust agricultural ecosystem.
Structure
Agricultural land accounts for only 11%, or 21.6m ha, of Mexico’s 196m ha of territory. The state with the largest amount of land under cultivation is Sinaloa, with 389,368 ha of farmland, followed by Veracruz (150,994 ha) and Chiapas (105,846 ha). The World Bank estimated that 13% of the population were employed by the agriculture sector in 2018, representing around 16.4m people out of the country’s 126.2m residents.
According to the 2017 National Agricultural Survey (Encuesta Nacional Agropecuaria, ENA), which was published in July 2018 by the National Institute of Statistics and Geography (Instituto Nacional de Estadística y Geografía, INEGI), 0.9% of Mexico’s agricultural workers were between the ages of 18 and 25, 22.6% were aged between 26 and 45, 37.8% were aged between 46 and 60 and the remaining 38.7% were over the age of 61. Therefore, middle-aged and elderly people are disproportionately represented in agricultural employment.
Grains & Rains
Although Mexico continues to import a large amount of grain from the US, Canada and Russia, with total maize imports expected to increase by 5% in 2019, grain production is one of the largest industries in the sector. According to figures from SADER’s Agri-Food and Fisheries Information Service (Servicio de Información Agroalimentaria y Pesquera, SIAP), total wheat harvested fell slightly, from 27.8m tonnes in 2017 to 27.2m tonnes in 2018. Wheat is, by a significant margin, Mexico’s largest segment in terms of revenue, which rose from MXN100.2bn ($5.2bn) to MXN104.9bn ($5.4bn) in the same period. Despite an increase in value, the segment’s growth is hindered by a number of factors. According to SADER, farms are limited by outdated machinery, a lack of availability of water and irrigation systems, and a continued reliance on rain-fed crops for around 80% of growers.
Although many farms, particularly in the south of the country, are rain-fed, some growers have partnered with local government agencies to develop comprehensive irrigation infrastructure. According to the ENA survey in 2017, 21% of Mexico’s agricultural land – or around 6.8m ha – was irrigated, while the remaining 79% – about 25.6m ha – was rain-fed.
Top Crops
Mexico is a leading global supplier of organic coffee, sugarcane, cacao, tomatoes, fruits and berries. Agricultural production has expanded significantly in the past two decades. According to the Agricultural Markets Consulting Group, between 1994 and 2019 production volumes rose by 32% and production value increased by 44.7%, while the total area harvested grew by 8.3%. Although results were mixed for the 2018 harvest, production remained generally stable.
One of the most lucrative segments, generating revenue of about MXN31.2bn ($1.6bn) in 2018, tomato production has continued to rise steadily in recent years. According to SIAP, production grew from 3.5m tonnes in 2017 to 3.8m tonnes in 2018. Chillies also remain an important crop for Mexico. Over the same period the production of green chillies grew from 3.3m tonnes to 3.4m tonnes, generating MXN30bn ($1.6bn) in 2018.
Avocados are also in high demand from both the domestic and international market, particularly the US. Despite continued uncertainty over Mexico’s trading relationship with the US, avocado production rose from 2m tonnes in 2017 to 2.2m tonnes in 2018.
In addition, coffee production has started to rebound after years of blight due to coffee rust disease. Recent investment in the improvement of seeds and the development of disease-resilient plants has enabled production to rise from 835,380 tonnes in 2017 to 859,992 tonnes in 2018. An estimated 35% of Mexico’s coffee output are high-quality varieties grown at high altitude.
The 2018 harvest was promising for cacao production, which increased from 27,287 tonnes to 28,399 tonnes. According to local media in August 2019, SADER predicted that national production of cacao will have increased by approximately 19.5% by 2030.
However, some crops saw a decline in output in 2018; for example, sugarcane production fell slightly, from 57m tonnes in 2017 to 56.4m tonnes in 2018. The amount of harvested land also decreased slightly from 772,000 ha to 771,109 ha, according to SIAP. Mango production also declined by 4.6% from 1.96m tonnes to 1.87m tonnes in the same period.
Berry Good
Mexico has seen significant growth in the production of berries in recent years. According to industry media in March 2019, berries are the country’s fourth-most-exported agricultural product, generating $2.1bn in 2018. The states of Baja California, Guanajuato and Jalisco have been particularly active in this segment, with the former receiving major international investment to meet rising demand. In January 2019 US firm Berry People announced the expansion of its organic strawberry programme in Baja California to ensure a year-round supply while US production is limited in the winter months. Meanwhile, Mexican berry producers are looking to expand into new markets, particularly in Europe and Asia.
Exports
Although agro-industry exports are not as important as manufacturing and automotive exports, it is Mexico’s third-biggest source of income. According to the OECD in 2019, Mexico is the third-largest agricultural exporter in Latin America. In 2019 Mexico also became a top-10 global agri-food exporter for the first time, with the World Trade Organisation ranking it 10th.
Total exports – including crops and agro-industrial goods – rose by 5.8% in 2018 from $32.4bn to $34.3bn, according to the country’s central bank, Banco de Mé xico (Banxico). In 2019 Banxico estimated that agricultural exports will generate $35.9bn annually. North America remains the most important export market; in 2018 Mexico was the largest supplier of agricultural imports to the US, exporting $26bn worth of produce, including $11.7bn worth of fresh fruits and vegetables. Since 2017 Mexico has worked to expand its exports beyond the US, increasing sales of agricultural products to the EU, the Middle East and China, among others.
Fertilisers
Although some producers are finding success embracing niche markets for organic produce, most commercial farming operations still rely heavily on pesticides and fertilisers. The most important nutrient in commercial fertilisers is nitrogen, which depends on the availability of natural gas. Given that natural gas levels in Mexico are low and in decline, most of the country’s fertilisers are imported. While local fertiliser production rose by 3.8% between 2008 and 2018, Mexico depends on imports to meet demand for more than two-thirds of its total fertiliser usage. In 2018, 30.7% of the fertiliser market share was held by local producers, with the remainder supplied by importers. The largest import sources that year were Russia (30.9%), the US (14.3%), Norway (12.1%) and China (11.1%). In 2018 fertiliser imports rose by 12.6% to 5.1m tonnes.
Although organic fertiliser is growing in popularity, such products have faced difficulties expanding in Mexico as they are starting at an undeveloped level. “Although organic products are growing at around 18% per year, while agro-chemicals are expanding at 3% annually, farmers in Mexico are reluctant to use organic products due to the short-term cost, as well as for cultural reasons,” Carlos Álvarez Romero, CEO of biotechnology firm Liventia, told OBG.
The sector relies heavily on herbicides and insecticides, with around 66.9% of farms using the former and 54.8% using the latter. Around 77% of farms use heirloom seeds (open-pollinated seeds that pass on the characteristics of previous generations), 25.7% use improved seeds and 0.4% use genetically modified seeds. However, there are some regional differences in the uptake of improved seeds, which are used on 68.4% of Mexico’s cultivated land. “Improved seeds are often seen in the north, north-east and Bajío region of the country,” Antonio Pompa Rangel, vice-director of economic research at Trust Funds for Rural Development (Fideicomisos Instituidos en Relación con la Agricultura, FIRA), a federal government agency, told OBG. “In the south and south-east the adoption of improved seeds has not been as strong as in other states.”
Machinery
Compared to other countries, Mexico is still underdeveloped in terms of agricultural mechanisation. The ENA found that 14.3% of the country’s farms used harvesting machinery, while 22.6% used machinery to plant crops. The UN Food and Agriculture Organisation estimated that in 2015 there were around 228,000 tractors in use in Mexico. However, a large amount of equipment is out of date; according to INEGI, in 2017, 36.6% of tractors were under 10 years old, 12.1% were between 10 and 15 years old, 44.3% were over 15 years old and the remaining 7.1% were unspecified.
Agro-Industry
Mexico is continuing to expand as an agro-industrial producer. Some of the most successful segments include the production of tequila and mezcal, and beer. “Beer, tequila and mezcal stand out as the most important agro-industries,” Rangel told OBG. “They are the most dynamic. In 2018 exports of beer grew by 19%, while tequila and mezcal exports increased by 18%.” Agave, which is used to produce tequila and mezcal, is one of Mexico’s key crops. The country harvested around 1.7m tonnes of the plant in 2018, which generated MXN23.6bn ($1.2bn) in revenue, a significant increase on MXN15bn ($775.6m) in 2017. In recent years tequila producers have successfully managed to transform agave growing from a relatively low-value segment into a high-value, export-oriented industry. According to the Tequila Regulatory Council, production of 100% agave tequila rose by 72% between 2013 and 2018, from 99m litres per year to 170.1m litres. The majority of tequila is destined for the export market, particularly the US – which imported 105m litres in 2018. The production of tequila rose by 12.8% in 2018 and the segment appears poised to continue its growth, particularly as international demand remains high. “Agro-industry is undoubtedly a burgeoning sector in Mexico, largely because of the country’s productive capacity,” Martin Toscano, CEO of Evonik, a German specialty chemicals company, told OBG.
Outlook
In the years ahead Mexico’s government will continue to support existing agricultural activity while also looking for new ways to address inequality between large-scale mechanised farms and small-scale family-run growers, as well as regional differences in agricultural growth. “In the north of the country we see products that are integrated into modern supply chains,” Alberto Cuéllar, director of economic studies at SADER, told OBG. “However, there is still a lot of poverty in the south.” Agri-business firms in the north have demonstrated their ability to tap into export markets over the past decade, but many companies still require support in the form of irrigation infrastructure, technical assistance and trade agreements.
Although President López Obrador will have the opportunity to implement these policies before his term in office ends in 2024, federal and state government agencies, alongside private firms, will need to consolidate and boost Mexico’s existing export sectors and help producers attract more international buyers.
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