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RR RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHME #1839/01 0971541
ZNR UUUUU ZZH
R 071541Z APR 06
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC 0110
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHRC/DEPT OF AGRICULTURE WASHDC
RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE

UNCLAS SECTION 01 OF 05 MEXICO 001839 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR WHA/MEX, WHA/EPSC 
STATE PASS USAID FOR LAC:MARK CARRATO 
TREASURY FOR IA MEXICO DESK: JASPER HOEK 
COMMERCE FOR ITA/MAC/NAFTA: ANDREW RUDMAN 
USDA FOR ITP: GRONENFELDER 
 
E.O. 12958: N/A 
TAGS: ECON EAGR PGOV MX
SUBJECT:  MEXICAN AGRICULTURAL PRODUCERS REALISTIC, SOMETIMES 
PESSIMISTIC, ABOUT LIBERALIZATION 
 
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SUMMARY 
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¶1. Representatives from various Mexican agricultural 
organizations gave us their views on U.S.-Mexican agricultural 
cooperation and trade.  The groups held varying views on 
NAFTA's current impact on their producers and the potential 
impact of further liberalization, particularly of corn and 
beans in 2008.  Despite calls by some politicians to 
renegotiate NAFTA, none of the groups we spoke with mentioned 
this as a possible solution.  The groups did criticize many 
facets of Mexican and U.S. agricultural policies, however, and 
made suggestions as to how they could be improved to facilitate 
the transition to deeper liberalization of the sector.  The GOM 
was cited as lacking adequate funding for its programs; the 
U.S. was criticized for high subsidies to farmers and accused 
of dumping and exporting crops to Mexico which do not meet 
health standards.  The groups urged more transfer of technology 
and pushed for more discussion between affected parties.  End 
summary. 
 
--------------------------------------------- ------ 
AGRICULTURAL ORGANIZATIONS AND THEIR POLITICAL ROLE 
--------------------------------------------- ------ 
 
¶2. Under the Sustainable Rural Development Law passed in 
December 2001, the Fox administration organized the National 
Product System (Sistema Producto Nacional) for all agricultural 
goods.  It established a producer organizatoin ("sistema") for 
each agricultural product in Mexico on the national level, with 
the option of establishing regional organization at the state 
level.  The National Product System was designed to bring all 
producers, agro-businesses, merchants, and their organizations 
into the decision making process. 
 
¶3. Representatives from six of these organizations gave us 
their opinions, observations, and suggestions on U.S.-Mexico 
agricultural cooperation and trade in the sector.  The 
representatives of the organizations interviewed included: Saul 
Landeros Cardona, president of Guava Product System; Benjamin 
Valenzuela Segura, president of the National Bean Product 
System; Santiago Mendoza Perez, President and official 
spokesperson of the Chiapas Regional Bean Product System; 
Carlos Salazar, General Secretary of the Corn Product System; 
Jesus Alejandro Alvarez del Toro, President of the Avocado 
Product System, and Dr. Martha Xochtil Flores Estrada, 
president of the Michoacan Produce Foundation. 
 
¶4. Many interest groups representing agriculture tend to form 
and/or strengthen their ranks during an election year.  Those 
we spoke with identified two main types of organizations 
representing the agricultural sector: those genuinely 
interested in supporting producers and their interests; and 
those whose sole purpose is to push particular candidates into 
office.  The organizations we spoke with placed themselves in 
the former category. 
 
¶5. Some of the organizations, such as the Corn Product System 
and Bean Product System, had existed under different names 
before a more democratic tradition took hold in Mexico.  Now 
they are incorporated in the Product System schema that was 
inaugurated with the Law of Sustainable Rural Development. 
Several important figures in these older groups have remained 
prominent during the transition to the Product System.  Other 
groups, like the Regional Bean Product System of Chiapas say 
that they are relatively young organizations, just beginning to 
organize with government encouragement.  However, they stressed 
that their commitment to rural development and support of 
producers is long-term. 
 
¶6. Most of the organizations insisted that they do not and 
would not support any political party.  They explained that 
their link to the government consists of receiving funds 
through the GOM's Alliance With You (Alianza Contigo) program. 
Their main objective is to support producers and they remarked 
that the political divides between the states are too great to 
favor a particular party, since all of the organizations 
(except for the Michoacan Produce Foundation) have members from 
various regions across the nation. 
 
------------------------------------- 
IMPACT OF NAFTA ON THEIR CONSTITUENTS 
 
MEXICO 00001839  002 OF 005 
 
 
------------------------------------- 
 
¶7. Many of the groups were not yet totally affected by NAFTA 
and had only observed what had happened to other producers. 
The Secretary General of the Corn Product System, Carlos 
Salazar, cited the year 2003, when according to him 30 percent 
of all agricultural producers were affected by deeper 
liberalization in the sector.  He pointed out that the National 
Accord for the Countryside was a by-product of agrarian 
uprisings.  Due to the increasingly difficult social conditions 
for producers, he heavily criticized the way in which the 
transition had been handled. 
 
----------------------------------------- 
EXPECTED IMPACT OF NAFTA IN THE YEAR 2008 
----------------------------------------- 
 
¶8. The reactions from these organizations depended primarily on 
what products they represented.  In general, producers of 
fruits and vegetables, especially tropical products, seemed 
optimistic about their possibilities to expand into the U.S. 
and Canadian markets.  On the other hand, producers of "basic 
products," as listed by the Michoacan Produce Foundation, could 
be negatively affected.  These products include, but are not 
limited, to: cereals, beans, corn, milk products, citrus 
products, and cane sugar. 
 
¶9. Most organizations appeared realistic and have begun taking 
steps to deal with the transition, outlining plans to become 
more competitive by 2008.  Benjamin Valenzuela, President of 
the National Bean Product System, demonstrated such pragmatism: 
"If we [the producers] don't manage to strengthen the 
organization; storing, industrializing, and commercializing 
beans, well, it will affect us.  If we manage [to achieve the 
above], we could offer competitive prices."  Most importantly, 
many organizations expressed resolve in overcoming the 
challenges, with Valenzuela commenting that "We are not afraid 
of the competition." 
 
¶10. Many organizations were quick to point out their advantages 
over American producers.  The Avocado Product System felt 
confident based on its low cost of production due to cheaper 
labor costs and a better climate for which it does not have to 
compensate.  The National Bean Product System detailed plans 
they have already completed to cut out intermediaries in their 
industry in order to reduce costs.  Furthermore, they stressed 
that in 2008, a focus on quality and product differentiation 
will be a key component of success.  The Guava and Avocado 
Product Systems emphasized this, explaining that their fruits 
are different in taste and variety than those produced in the 
U.S.  They believe that the growing Mexican population in the 
U.S. will prefer Mexican fruits over those grown in American 
greenhouses, providing them a niche in the U.S. market.  The 
guava producers said they regard their product as different 
from other guavas, consider their production techniques to be 
well developed, and aim to be at the same level as U.S. 
producers before the year 2008, according to Saul Landeros, 
President of the Guava Product System.  The Mexican avocado 
industry has been particularly successful due to the resolution 
of disputes concerning the fruit.  The U.S. has gradually 
opened most states to Mexican avocado imports over the past 
several years.  As of right now, Mexico may export avocados to 
47 states, excluding Hawaii, Florida, and California, markets 
which will be opened in 2007. 
 
¶11. Several organizations expressed doubts.  Santiago Mendoza, 
President of the Chiapas Regional Bean Product System said "the 
effects will be rather threatening."  He explained that it has 
been difficult for his producers to cover their production 
costs.  He pointed to higher levels of government support in 
the U.S., saying that this allows American producers to sell at 
a lower price.  (Comment: For the most part, the provisions of 
the U.S. Farm Bill do not apply to dry beans.) 
 
¶12. Carlos Salazar, Secretary General of the Corn Product 
System, is extremely worried - bordering on hysterical - about 
the 2008 opening.  He estimates that another 55 percent of all 
Mexican corn producers will be negatively affected by NAFTA in 
the year 2008.  He predicts that social uprising throughout the 
countryside will result if nothing is done to counteract the 
effects, and small farmers will go out of business, becoming 
further impoverished.  Salazar further complained that U.S. 
imports would "invade and destroy" the Mexican market and then 
 
MEXICO 00001839  003 OF 005 
 
 
drive up prices after Mexican production vanished.  He 
explained that subsistence farmers are forced to buy from the 
market after exhausting their own crops and so would be hurt by 
this practice. 
 
¶13. Current data and conditions do not support these arguments. 
According to SAGARPA's 2003 data, 85% of the over two million 
corn producers farm less than five hectares, and 56% of all 
corn growers cultivated even less than two hectares.  Small 
subsistence farmers which fall into the subsistence category do 
not commercialize their products and are already living in 
extreme poverty, with or without NAFTA.  It is doubtful that 
they will be further impacted in 2008.  Furthermore, he 
complained that U.S. imports would "invade and destroy" the 
Mexican market and then drive up prices after Mexican 
production vanished.  He explained that subsistence farmers are 
forced to buy from the market after exhausting their own crops 
and so would be hurt by this practice.  In addition, if U.S. 
imports are cheaper they would, in fact, benefit the poorest 
members of society by providing them with cheaper goods and 
increasing their purchasing power.  Finally, if U.S. corn 
exports tried to corner the market and then drive up prices 
Mexico could always import corn at lower prices from other 
countries.  This competition would conspire to keep corn prices 
in Mexico at world levels. 
 
¶14. As of right now, the corn import quota agreed upon during 
the phasing out term has been exceeded five times since 1994 
due to a shortage of yellow corn in the Mexican market. 
Salazar complains that the U.S. should allow Mexican producers 
the chance to meet this demand before exporting corn to Mexico, 
but since most of Mexican corn production is concentrated in 
white corn and has shown little signs of switching to yellow, 
this seems unrealistic.  The Mexican corn industry needs 
competition to force Mexican production to restructure itself. 
Salazar's solution is that the market should restructure itself 
to utilize more white corn, but this is also misleading as many 
uses of white and yellow corn are not interchangeable. 
 
--------------------------------------------- -- 
FACILITATING THE TRANSITION ON THE MEXICAN SIDE 
--------------------------------------------- -- 
 
¶15. Valenzuela of the National Bean Product System told us that 
"NAFTA has been successful in general.  However, the Mexican 
government has to accept that it poorly negotiated [the 
agricultural sector]."  Salazar of the Corn Product System 
specifically faulted the negotiations for neglecting to protect 
strategic crops necessary for achieving self-sufficiency in 
food products.  Valenzuela commented that now, "...the solution 
is more on the Mexican side than the American side."  On one 
hand, some organizations want to move towards their own 
independent plans and away from full dependence on the 
government.  However, some organizations, especially the Corn 
Product System, expressed disappointment with the government 
and want increased support to facilitate the transition to a 
liberalized sector, if not halt it completely.  (Comment: The 
Corn Product System neglected to mention that Mexican corn 
producers already receive USD 90 per hectare under the PROCAMPO 
program and are eligible for additional subsidies under the 
Objective Income Program which attempts to guarantee a target 
price of 1650 pesos per metric ton.) 
 
¶16. The agricultural groups criticized government programs for 
the lack of preparation for the transition to a liberalized 
agricultural sector.  They complained that the Mexican 
government has not done enough over the past 15 years in the 
areas of technology, know-how, and infrastructure, always 
responding that sufficient resources are not available.  Many 
groups remarked that the government's policy is insufficient, 
limited in its coverage, and erratic in its application. 
Salazar of the corn group added that he served on a committee 
for rural development after the National Accord for the 
Countryside came into effect, but that he quit in frustration 
because it did not achieve its goals.  He expressed 
disaffection with the current system, adding that, "it is not 
true that the hand of the market [alone] has solved our social 
problems."  Other organizations, such as the Michoacan Produce 
Foundation, expressed disappointment with the lack of economic 
objectives included in the current programs, which they find 
uncoordinated and without direction. 
 
¶17. Many organizations voiced recommendations for improving the 
 
MEXICO 00001839  004 OF 005 
 
 
situation.  Dr. Flores, President of the Michoacan Produce 
Foundation, insisted that no one should "make false promises." 
She wants the government to be realistic in the information it 
provides to producers, allowing them to make appropriate 
decisions concerning their position in the market.  Salazar 
wants coverage through government programs to be available to 
all producers.  He added that aid needs to arrive on time 
instead of three to six months behind schedule, complicating 
the finance of harvest cycles.  Such delays in the delivery of 
subsidies and program benefits have been an ongoing problem at 
SAGARPA.  Valenzuela suggested making more loans available 
instead of handouts, emphasizing the need to foster responsible 
financial habits in the sector.  Overall, the groups we 
interviewed felt that the ineffectiveness of the government's 
policy could be improved by reducing bureaucracy. 
 
¶18. In light of the vast array of problem areas in the 
government's agricultural policy, most groups mentioned the 
efforts they have been making independently to confront sector 
challenges.  Valenzuela spoke of what he considers a cultural 
tendency to expect government handouts to solve problems, and 
he discussed his efforts to combat this attitude.  Landeros 
expressed resignation with waiting for government aid: "We will 
not change our plans every time there is a change of 
government," he said.  "We have a plan for the medium and long 
terms.  We do not want paternalism; we want to increase our 
productivity."  He added that switching to a businesslike 
approach has proven difficult, but has also been necessary for 
the survival of his producers. 
 
¶19. Among the independent initiatives has been the 
consolidation of production chains to cut out intermediaries, 
which has been a key strategy allowing producers to reduce 
costs and become more competitive.  The Bean Product System has 
initiated a program involving cooperation with Idaho bean 
growers to test improved beans for use in Mexico.  Other 
organizations have expressed an interest in following suit. 
The Chiapas Regional Bean Product System intends to do more 
research to take advantage of new technologies because, "[our 
producers] continue to use traditional systems, and they are 
not applying what was discovered in the Green Revolution." 
 
-------------------------------------------- 
FACILITATING THE TRANSITION ON THE U.S. SIDE 
-------------------------------------------- 
 
¶20. Complaints about U.S. policy generally included 
dissatisfaction with high subsidies and complicated health and 
quality standards.  There was also one allegation of dumping 
and an allegation (from the corn group) of low-quality goods 
being exported to Mexico.  Suggestions included enhancing the 
complementary facets of agricultural trade between the two 
countries and harmonizing aid to the agricultural sector. 
 
¶21. Salazar complained that Mexican authorities have allowed 
U.S. products that are below Mexican standards to enter Mexico. 
He cited a recent case that took place in Texas where products 
containing a fungus known as aflotoxin were permitted to enter 
Mexico.  He also referred to a case recently brought forth by 
Canada that accused the U.S. of dumping corn in the Canadian 
market, which he feels is proof that the U.S. could be doing 
the same in Mexico.  He has not yet studied the subject in 
detail, but plans to do so.  He defined dumping as a sale price 
by which producer rents amount to less than ten percent of 
their production costs. 
 
¶22. We heard some suggestions concerning the problems caused by 
subsidies, high standards, and the asymmetries of the Mexican 
and U.S. markets.  Many organizations suggested holding more 
talks between government agencies and producers in order to 
address these issues.  Salazar would like to see a common fund 
for all three NAFTA members from which to draw subsidies, in 
order to harmonize benefits.  Other organizations remarked that 
the subsidies should be simply reduced and Dr. Flores of the 
Michoacan Produce Foundation added that the U.S. should avoid 
concentrating such benefits in the hands of big agribusinesses, 
a practice which can create monopolies.  The Guava Product 
System perceives the demanding health standards, particularly 
those concerning a fruit fly found in Mexico, as possibly 
politically motivated and would like to review such standards 
together. 
 
¶23. In order to overcome inconsistencies in the U.S. and 
 
MEXICO 00001839  005 OF 005 
 
 
Mexican markets, all of the organizations encouraged 
technological exchange between the U.S. and Mexico, which they 
point out could also lead to benefits for U.S. businesses. 
Furthermore, the issue of harmonizing seed prices and interest 
rates for financing crops was addressed.  Pointing to the 
migration problems between the U.S. and Mexico, Valenzuela of 
the Bean Product System suggested that keeping jobs in the 
Mexican countryside could reduce the influx of rural migrants 
to the U.S.  He recommended studying the possible impact of a 
policy that would encourage Mexican agricultural production as 
part of the solution.  He cited that many of his producers from 
Zacatecas and Guanajuato are migrating to the U.S. in search of 
work, causing low or non-existent population growth in these 
areas. 
 
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COMMENT 
------- 
 
¶24. Time is not on the Mexicans' side since a year and a half 
is likely insufficient to install the technological upgrade 
programs required to allow producers to compete in a truly 
liberalized market.  While conditions in rural areas have 
improved marginally since the onset of NAFTA, Mexico continues 
to face many of the same structural problems that have affected 
farms and residents of rural areas for decades.  Mexico's new 
administration, like the previous one, will face the challenge 
of shedding old ideas and providing economic opportunities that 
enable the small producers to diversify their income and 
possibly seek future employment in other sectors.  Mexico needs 
to move its large rural population into more profitable sectors 
to modernize its economy. 
 
¶25. Most organizations seem to realistically understand their 
situation, be it a profitable one as in the case of fruits, or 
a difficult one as in the case of corn and beans.  However, 
some of their proposals are vague and not well thought-out, 
while others, such as the Guava and Avocado Product Systems, 
are well on their way to reaping the benefits of trade.  They 
all suggested holding talks, but did not know what specific 
points they would like to see on the agenda or who (producers 
or government) should organize such talks. 
 
¶26.  Corn was a particularly problematic product.  Although he 
briefly mentioned alternative uses of corn, Salazar did not go 
into detail concerning any forward-looking policies.  Denying 
the reality of global trade and its impact on an open economy, 
especially one as open as Mexico, his policies proved 
antiquated, relying on the government to solve the industry's 
problems.  Propaganda and nationalism drove calls to protect 
the industry in the name of subsistence farmers, while the real 
beneficiaries are the inefficient commercial corn producers 
seeking to protect their personal interests.  The tendency of 
the corn producers' organization is to react instead of 
proactively planning - and cite NAFTA as a scapegoat. 
Considering corn import quotas have already been exceeded, 
dropping the trade restrictions on corn will only further 
highlight the inefficiencies of Mexican corn production and 
require Mexican producers to strive to compete.  U.S. corn 
exports to Mexico are expected to increase in 2008 due to the 
fact that more yellow corn will be available at a better price, 
but this has already been happening slowly over the past 
decade. 
GARZA