Mexican Agriculture and the Financialization of the Agricultural Sector (Part II)

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Guest post by Gabriel Pons Cortés| Programme Policy Advisor-Oxfam Intermón in collaboration with El Barzón

Lack of market transparency and the oligopoly of the four large traders (ADM, Bunge, Cargill and Dryfus, known as ABCD) make it impossible to know the real level of speculation. For example, it is not possible to know if ABCD’s very important financial divisions restrict themselves to protecting their interests from price risks (one of the legitimate functions of financial markets in regards to agriculture) or if they are also speculating to take advantage of price volatility. The fact that they also offer financial services to third parties makes it even more difficult to distinguish this role, especially because these companies do not provide details about the benefits they obtain from different segments (Murphy et al, 2012).

Expectations of future food crises have had another additional effect: important capitalists have engaged in agricultural negotiation by investing in large and extremely mechanized farms; this increases the productivity gap between agribusiness and traditional agriculture, and the best lands are cornered for these farms. Land grabbing is one of the effects of the entrance of huge investors, which include sovereign funds from oil producing countries.

Is this the only problem we should be worried about?

Speculation has the ability to produce food crises by exacerbating price hikes, but currently we are in an era of tranquility for grain prices (see graph on the FAO price index, December 2014).Several years of good harvests and a diminishing effect of several factors that precipitated the crisis of 2011 are pushing prices down.

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This does not mean that we will not have recurring episodes of speculation: Mexico is at the mercy of the global market and clashes are unpredictable. It would be enough for several of the previously highlighted factors to repeat themselves for a crisis to reoccur.

Other long-term changes also merit our concern:

Concentration of power in commercialization in Mexico

We formerly saw that Mexico has a dual agricultural system. This means that there is a modern sector, which is capable of adapting to the demands of the predominant system in urban areas: huge supermarket chains, in terms of quality, volume and regularity. But this modern sector is in the hands of decisions made by a small group of companies that controls the sector:

  1. 60% of grain trade is in the hands of a small group of companies (MASECA, Cargill, ADM, MINSA…) ADM holds 33% of MASECA, which, in turn, controls 25% of the maize market. Only the high consumption of nixtamal (65%) makes the maize monopoly incomplete.
  2. Other companies like Bachoco, Tysson and Pilgrim’s Pride control other sectors like poultry farming.
  3. Smithfields controls 30% of the hog market. Between 1990 and 2008, pork meat exports from the United States to Mexico increased by 700% (IATP, 2010).

In contrast, the traditional sector is not a part of this commercialization system. Small scale producers in least favored areas are forced to practice subsistence farming. What does the government do to integrate them? Very little: subsidies are more aimed to companies that have to compete with North American agriculture and the government has given up on developing the smallest producers, to whom the government relegates the role of social assistance recipients. It is easy to see this by analyzing the destiny of subsidies.

Who receives subsidies?

Public spending on agriculture in Mexico is very regressive. In his report from his mission to Mexico, the United Nations Special Rapporteur on the Right to Food pointed out, “The impact of agricultural policies on producers and households is as regressive as that at the State and municipality level. In 2005, the poorest 10 per cent of  producers (in terms of land) received a tenth of a percentage point of Ingreso Objetivo, while the richest 10 per cent received 45 per cent of Procampo aid, 55 percent of Alianza PDR, 60 per cent of energy and hydrological subsidies and 80 per cent of Ingreso Objetivo transfers.”

By contrast, according to the same report, rural development programs (considered to be social spending, not agricultural spending) allocate 33% of their funding to 30% of the poorest families. This indicates that the government seeks for its agricultural spending to improve big company competitiveness (assuming that in the best of cases, this aid truly aims to further this objective and not to simply divide public monies among the wealthy) and renounces any further efforts to improve productivity of poor sectors, concluding that it would be impossible.

Not only do the wealthiest producers receive agricultural subsidies but multinationals, who exercise an oligopoly over the market, do as well. Large companies, like MASECA, Bachoco, Cargill or Bunge, have received hundreds of millions of pesos in subsidies to commercialize grains. Companies defend this practice saying that they only pass on higher prices in the government’s name, which would mean operating as a privatized CONASUPO (Fox and Haight, 2010, p.48).

Payments to transnational companies through subsidy programs in support of commercialization 2008

Company name Amount paid in subsidies in support of ASERCA commercialization, 2008 (in Mexican pesos)

Compañía Nacional Almacenadora SA de CV

$318,932,285.46

CARGILL de México SA de CV

$196,634,344.68

MINSA SA de CV

$163,031,660.49

BACHOCO SA de CV

$116,222,116.31

ADM México SA de CV

$16,977,991.90

Source: Fox and Haight 2010

Conclusion

Mexican agriculture is integrated to the global market and is particularly affected by the United States, which sets prices. If production in the United States is abundant and prices drop, this will affect Mexican producers. If production is scarce and prices increase, consumers will pay the difference.Market speculation can worsen the situation of food crises when they arise, but at times of low prices, like at present, their role is probably irrelevant.Mexico has a dual agriculture system in which large companies that produce grains are incapable of competing with North American agriculture and, thus, they are losing land and family agriculture is incapable of competing due to industrial agriculture’s ability to set prices.

This ability to set prices is worsened by the commercial oligopoly: few companies will corner the purchase and processing of the majority of grains. Small and mid-scale producers do not have negotiation power in the face of large companies and they must accept the prices or stay out of the system.

Faced with this situation, successive governments to date have opted to dedicate agricultural programs to the wealthiest—including subsidies for multinationals—and to dedicate social assistance to the poorest, rather than support for production. This is tacit recognition of the government’s resignation of the possibility for smallholders to achieve greater competitiveness.

For more information on Food Speculation please visit: here

Bibliography

  1. FAO (2013). Panorama de la Seguridad Alimentaria y Nutricional en México 2012.
  2. Fox, J. and Haight, Libby (Eds), (2010). Subsidios para la desigualdad: Las políticas públicas del maíz en México a partir del libre comercio. Woodrow Wilson Center for Scholars.
  3. IATP (2010). NAFTA: Fueling Market Concentration in Agriculture. Available at: http://www.iatp.org/files/451_2_107275.pdf
  4. Murphy, S., Burch, D., and Clapp, J. (2012). Cereal Secrets: The World’s Largest Grain Traders and Global Agriculture. (Oxfam)
  5. Puyana, Alicia (2012), “Mexican Agriculture and NAFTA: A 20-Year Balance Sheet,” Review of Agrarian Studies, vol. 2, no. 1. Available at: http://ras.org.in/mexican_agriculture_and_nafta
  6. Sweeney, S. et al, Mexican Maize Production: Evolving Organizational and Spatial Structures since 1980. Applied Geography.

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