1995 NAFTA and Mexico's Maize Producers
1995 NAFTA and Mexico's Maize Producers
1995 NAFTA and Mexico's Maize Producers
1349-1362, 1995
Elsevier Science Ltd
Pergamon
Printed in Great Britain
03os-750X/95 $9.50 + 0.00
Summary. - The fall in the producer price of maize that will accompany implementation of trade liber-
alization and NAFTA has led to dire predictions of falling incomes and labor displacement in Mexican
agriculture. We use a household survey of the ejido sector to show that a majority of maize producers are
in fact not producing for the market and will consequently not be directly affected as producers by a drop
in the price of maize, while a significant share will benefit as consumers. For the net sellers, we explore the
determinants of two solutions to a falling maize price: diversification toward high value crops and mod-
ernization of maize production. For both of these, results show the fundamental importance of recon-
structing supportive institutions for marketing, credit, and technical assistance in replacement of the
services formerly offered by government and subsequently discontinued under state contraction.
1. MEXICO’S MAIZE PRODUCTION DILEMMA using primitive technology, achieving very low yields,
and living in poverty. This is particularly the case for
Maize is a crop of extraordinary social importance households in the social sector.
in Mexico (Warman and Montafiez, 1982). The This sector was created by the land reform that fol-
expected impact of a sharp decline in the producer lowed the peasant-led revolution of 1910 and its legal
price of maize associated with trade liberalization and status was defined in Article 27 of the 1917 constitu-
implementation of the North American Free Trade tion. The land reform returned to peasant communi-
Agreement (NAFTA) has consequently been an issue ties, under the form of collective ownership, lands
of serious concern as this could lead to major social which had been appropriated by large haciendas. Land
dislocations in Mexico and to increased illegal immi- is used either individually in usufruct (now the over-
gration to the United States (Lustig, Bosworth, and whelming majority of cases) or collectively. By
Lawrence, 1992). In this paper, we use a survey of 1988, the social sector was composed of 28,056 ejidos
farm households in the social sector to give a quanti- and indigenous communities including 3.07 million
tative characterization of Mexican maize producers ejidatarios and comuneros, accounting for 70% of
and their relation to the market. We then explore the Mexican farmers and some 15 million family mem-
potential impact of a decline in the price of maize on bers.’ The 1981 agricultural census indicates that 52%
social sector maize producers and the determinants of of Mexico’s arable land and 50% of its irrigated area
success in following two escape routes to a falling are in the ejido sector. This sector is, however, mainly
maize price: diversification toward other crops and
modernization of maize production.
Some 50% of Mexico’s arable land is cultivated * We are grateful for research assistance to Kenneth Leonard
in maize: in 1992, there were 7.2 million ha in maize and Nigel Key and for suggestions to Samuel Lichtensztejn,
for a total arable land of 14.7 million ha. In 1991, there members of Mexico’s Secretariat of Agrarian Reform and
CEPAL research teams, Dave Runsten, and David Myhre.
were 2.4 million maize producers, representing 78%
We are also grateful for financial support to this project
of Mexican farmers and some 12.5 million family received from the Ford Foundation office in Mexico, the
members (SARH, 199 1). Of the 2.4 million producers, Ejido Reform Research Project of the Center for US-
2.2 million had less than 5 ha planted in maize and the Mexican Studies at the University of California at San
average maize area per producer was only 2.3 ha. Diego, and the Kellogg Foundation. Final revision accepted:
Indeed, most maize producers are very small farmers, March 23, 1995.
1349
1350 WORLD DEVELOPMENT
endowed with rainfed land, much of which is of very Pronasol (the National Solidarity Program) of all
poor quality, and the land is highly fragmented. Thus, households with bad debts under a credit program
only 16% of the ejido land is irrigated. Some 64% of where loans are made on the basis of social collateral;
the ejidatarios have farms of less than 5 ha which are elimination of CONASUPG’s monopoly over the
in general insufficient to maintain a family, implying marketing of basic foods except maize and beans, and
extensive participation by family members in the strict targeting of the remaining maize and milk
labor market and in seasonal migration. Only 9% have subsidies on the poor, although mainly urban; sharp
farms larger than 20 ha constituting a small sector of contraction of public budgets for agricultural research
commercial farms. Between these two groups, a criti- and extension services, with private delivery or the
cal sector of 37% farmers with an average farm size of charging of user fees expected to substitute for
6.6 ha constitutes a family farm sector with a destiny free public extension services; and gradual turnover
that is very much uncertain under the current reforms. of the management of irrigation districts to water
Even more than in Mexican agriculture overall, users’ associations with introduction of fees for
maize is of primordial importance in the social sector. water use.
This sector produces 73% of national maize output. While the economic crisis that started in 1982 did
The 1990 SARH (Secretariat of Agriculture and Water not affect agriculture immediately as it did the rest of
Resources)-INEGI (National Institute for Statistics, the economy, there was a sharp downturn in agricul-
Geography, and Information) social sector survey tural growth after 1986 (see de Janvry et al., 1995).
which we use in this paper shows that, for the country The annual growth rate which had been 1.7% during
as a whole, 80% of the ejidatarios are maize producers 1982-85 (while the rest of the economy grew at
and that maize occupied 44% of their land (SARH- 0.2%), was negative 1.5% annually during 1985-90
CEPAL, 1992). On average, ejidatarios cultivate 4 ha (while the rest of the economy was growing at 1S%).
of maize where they obtain yields of 1 ton/ha under This stagnation of agriculture was the consequence of
rainfed conditions and 2.1 ton/ha under irrigation.2 a sharp decline in public investment in the sector (a
Implementation of Mexico’s trade liberalization 76% reduction during 1982-89), falling prices, and
program and of the NAFTA agreement would sharply rising costs associated with the removal of subsidies,
decrease the farm level price of maize which is cur- particularly to interest rates. The real price of maize
rently supported by government procurement through fell by 39% during 1987-90 (ERS, 1994). The pro-
CONASUPO (the National Basic Foods Company). ducer subsidy equivalent (PSE) had declined by 25%
In 1991, the nominal rate of protection was 77% and since 1987 and remained at $99/tori for white maize
the producer subsidy equivalent (PSE, measured in due to the high nominal protection coefficient. In spite
percent of the value of production) was 44% (SARH, of this, the production of maize bounced back in 1990,
1993)’ This amounted to a PSE of US$92 per ton for the year of the survey used in this paper. With price
white maize and US$71 for yellow maize, compared guarantees upheld only on maize and beans, maize at
to US$28 in the United States and US$21 in Canada. least offered income security to farmers, while prices
Consumer prices are, by contrast, held low and close of the major competing crops, wheat and sorghum,
to the border price. These food subsidies are, however, were declining proportionately. I990 was a good year,
mainly available to urban consumers through access with yields on rainfed land 16.4% above average for
to CONASUPO stores. Only a few farmers, located the previous five years and national maize production
close to such stores, are able to sell all their maize pro- 23.5% above this average (Salinas de Gortari, 1991).
duction at the high support price and subsequently buy With maize relatively attractive, in spite of an overall
their consumption needs at the low subsidized price. loss of profitability, production maintained the same
Most others buy on local markets at a price above the level in 199 1 and 1992.
producer price. The loss of profitability of maize had by 1990
NAFTA and trade liberalization are not the only already induced a series of adjustments among eji-
reforms which are affecting Mexican farmers. Starting datarios. Hewitt de Alcantara (1992) thus describes
in the late 198Os, Mexico initiated bold reforms on how many ejidatnrios had extensified their maize pro-
many different fronts that have direct implications for duction as credit availability reduced access to pur-
the social sector and maize producers. These reforms chased inputs and engaged in greater participation to
include gradual privatization of land in the social the labor market and seasonal migration. Appendini
sector as a consequence of repeal of Article 27 of the (1992) estimates that half of maize production origi-
constitution; restructuring and descaling of the state nated in rainfed peasant farms and that half of this pro-
apparatus including privatization of most parastatals duction was retained for home consumption.
in marketing, fertilizers, seeds, insurance, and the pro- Predictions of the impact on the Mexican farm pop-
vision of other inputs that were used to channel mas- ulation of a second maize shock, due to further price
sive subsidies to agriculture; extensive reorganization reductions associated with NAFTA. have in gcncral
of the financial sector with reprivatization of commer- been catastrophic, Calva ( I991 ) thus asserted that IS
cial banks, elimination of credit subsidies, and shift to million pcoplc will be displaced from agriculture as a
NAFTA AND MEXICO’S MAIZE PRODUCERS 1351
consequence of NAFTA and other policy changes. domestic consumption. This is to avoid considering as
Modeling approaches have also predicted large, if sellers those households who take advantage of the
smaller, displacements.4 Using computable general food subsidy system by selling their maize at the farm
equilibrium models, Levy and van Wijnbergen (1992) support price to buy their consumption needs at the
and Robinson et al. (1991) consistently predicted the subsidized consumer price. Others, pressed by cash
displacement of 700,000-800,000 workers from agri- requirements, sell some or all of the maize they pro-
culture as a consequence of a fall in the price of maize. duce to subsequently purchase maize out of labor earn-
With an economically active population (EAP) in ings. To screen out these households, we use data on
agriculture of 5.3 million according to the 1990 maize consumption derived from a consumption sur-
Population Census (which includes landless agricul- vey of six villages in the Solis Valley of the State of
tural workers), this would imply dislocation of some Mexico where maize cultivation is the principal occu-
15% of the EAP. pation of most household heads. In this study, average
As we will show in this paper, these figures are in consumption of children under the age of 20 is 200
our opinion vastly exaggerated. Overestimation of the kg/year and that of adults 274 kg/year (Rose, 1992).
labor displacement effect of NAFTA can in part be Using family size and composition, we predicted a
explained by the general unavailability of household- consumption level for each household and shifted to
level information characterizing the degree of partici- the nonseller category all seller households with pro-
pation of Mexican maize producers in the market. duction inferior to that threshold. This relocated 7.2%
This study remedies this gap by helping identify the of the seller households into the nonseller category in
extent of participation of ejidurario households as Michoacan, 14.8% in Sinaloa, and 5.5% in Veracruz.
sellers in the maize market. Past studies have also paid We present in Table 1 the average characteristics of
insufficient attention to the possibility of using an the seller and nonseller households. The first observa-
array of policy instruments to help maize producers tion is that the percentage of maize-producing house-
either diversify into other crops benefited by trade lib- holds who do not sell maize is indeed very high: 5 1.5%
eralization or modernize their maize production and in Michoacan, 64.3% in Sinaloa, and 41.1% in
remain competitive. We pursue here identification of Veracruz. In a 1994 partial update of the 1990 survey,
these policy instruments to help devise interventions we observed that 47% of these nonseller households
complementary to trade liberalization that will help are buyers and 53% self-sufficient (Gordillo et al.,
ejido households adjust their production to the new 1994). In principle, nonseller households would not be
policy context. directly affected by a fall in the sale price of maize and
net buyers would benefit from a drop in the local price
of maize. There may be negative indirect effects on
2. PARTICIPATION OF EJIDO MAIZE their welfare if employment opportunities in the maize
PRODUCERS TO THE MARKET sector and rural wages fall (Levy and van Wijnbergen,
1992), but the net effect of NAFTA on employment,
We use for this study a survey of social sector between falling demand for labor by commercial
households conducted in 1990 by SARH and maize producers and employment creation in labor-
INEGI. This survey covered 35,000 ejidatarios and intensive fruits and vegetables and in nonfarm activi-
comuneros, located in Mexico’s 32 states and the ties that will benefit from NAFTA is largely unknown,
Federal District, who engaged directly in agricultural although expected to be small. It is likely, however,
production. We selected three states that capture some that there will be a lag between loss of jobs in agricul-
of the great diversity of Mexican agriculture: ture and expansion of production of labor intensive
Michoacan with 1,224 observations of maize-produc- fruits and vegetables for exports. In predictions of
ing households, Sinaloa with 291 observations, and labor displacement from Mexican agriculture by the
Veracruz with 1,453 observations. These states were existing models, employment creation in fruits and
not chosen for their preeminence in maize production, vegetables is secondary compared to direct loss of
but because they are typical of three of the most employment in maize production by subsistence farm-
important agroecological environments where maize ers. These models, however, fail to take into account
is represented: Michoacln is in a high plateau temper- the fact that there are significant market failures in
ate zone, Veracruz in a humid tropical zone, and maize and that consequently only about half of maize
Sinaloa in an arid zone. They also belong to three producers will be affected by a change in the sale price.
of Mexico’s five different geographical regions: As a result, their dire predictions of displacement of a
Michoacan in the Center, Veracruz in the Gulf, and majority of maize producers are vastly exaggerated. It
Sinaloa in the Pacific North. does not mean, however, that the welfare impact on net
To classify these households between nonsellers sellers will not be serious, and we will subsequently
and sellers of maize, we first reallocate from seller to explore adjustment opportunities available to them
nonseller a small number of households who sell and the role of policy in helping them seize these
maize even though their production is inferior to their opportunities.
1352 WORLD DEVELOPMENT
Household assets
Total land ha 6.2 7.8* 6.9 8.9* 8.4 12.4*
% irrigated % 10.8 18.6* 6.3 31.8* 1.0 0.8
Crop land equivalent hat 5.2 8.7* 4.3 16.4* 5.6 7.3%
Cattle No. 4.4 4.3 4.1 2.6 4.3 4.8
Truck ownership % 10.1 10.9 2.1 16.2* 3.5 8.9*
Tractor ownership % 10.0 20.4* 0.2 2.8 3.1 6.1*
Family size No. 6.4 5.3* 6.7 4.7* 6.1 5.7%
Production strategy
Area in corn rainfed ha 2.1 3.1* 2.3 3.1* 1.9 4.4*
Area in corn irrigated ha 0.2 1.2* 0.1 1.8* 0.0 0.0
Corn yield rainfed tiha 1.0 1.4* 0.6 0.9* 1.1 1.4*
Corn yield irrigated t/ha 1.2 2.0* 2.8 3.9 2.2 1.9
Income strategy
No. of adults working for wage No. 0.4 0.25* 0.8 0.56* 0.3 0.09
No. of adults migrating No. 0.1 0.05* 0.0 0.01 0.0 0.00
Social differentiation
Share of number of producers 51.5 48.5 64.3 35.7 41.1 58.9
Share of total land used 45.5 54.5 58.2 41.8 32.2 67.8
Share of total land equivalent 38.7 61.3 32.0 68.0 34.8 65.2
Share of irrigated corn area 41.9 58.1 56.6 43.4 23.1 76.9
Share of rainfed corn area 17.1 82.9 12.9 87.1 23.2 76.8
Share of total corn production 26.5 73.5 16.3 83.7 16.6 83.4
* Values for sellers and nonsellers are significantly different at 90% confidence level
f Land equivalent is measured in rainfedcom-producing land
Analyzing the differences in characteristics Sellers follow production strategies that are more
between sellers and nonsellers is revealing of the intensive in modem technology. They display a greater
determinants of successful commercial maize produc- incidence of use of chemical fertilizers and trucks. In
tion. Logically, as the data in Table 1 show, physical addition, they belong more frequently to marketing
asset endowments are fundamental differentiating fea- and other producers’ organizations. The fact that they
tures. Farm size is in the three states a major determi- achieve higher yields can be a consequence both of
nant of achieving seller status: in all cases, crop land
their more intensive production strategies or of their
measured in rainfed equivalent for maize production
location in better agroecological environments.
is larger among seller farms. Sellers have a larger
share of land under irrigation, except in Veracruz, a Regarding household labor strategies, sellers are
tropical state where irrigation is not important. Sellers more dedicated to farming as the number of adults in
also own more capital goods such as tractors and the household working for a wage is smaller. Finally,
trucks, They have smaller families and thus lower they are located in regions with greater opportunities
needs to retain maize for home consumption. for lowering transactions costs in accessing markets:
NAFTA AND MEXICO’S MAIZE PRODUCERS 1353
in these areas, there are more opportunities for sale to 3. DECISION MAKING REGARDING
local merchants and more opportunities for sale under MARKET PARTICIPATION
forward contracts.
These data reveal a sharp degree of social differen- A household’s decision to participate or not to the
tiation between sellers and nonsellers. Sellers control market for maize depends on the position of that
a high share of irrigated land in Michoac&n and household’s supply and demand for maize relative to
Sinaloa. When measured in land equivalent, sellers the price band created by the gap between sale and
have in all three states nearly twice as much land as purchase prices (de Janvry and Sadoulet, 1994). This
nonsellers. They plant in maize nearly four times as price band originates in a set of transactions costs,
much rainfed land. Their shares of total maize pro- some of which are specific to the region and others to
duction are 74% in Michoacti, 84% in Sinaloa, and the household itself. This is illustrated in Figure 1.
83% in Veracruz. For a net seller, the decision price for both produc-
tion and consumption choices is the effective sale
From a policy standpoint, it is important to deter-
price p. For this household:
mine more rigorously what makes an ejiduturio be a
Supply of maize 4 = q(p,z?
seller or not. For this purpose, we turn to a probit
Demand for maize c = c(p2)
analysis of the profitability of being a seller as
Idiosyncratic price transmission p‘ = p”(zP)
opposed to a nonseller. To do this rigorously, we need
Transactions costs TC = TC(z'),
a theory to separate exogenous from endogenous vari-
where Zs, zd, zp and I’are exogenous shifters of supply,
ables. We do this by developing a model of household
demand, sale price, and transactions costs, respec-
behavior that explains the decisions to sell, buy, or be
tively. Hence, for net sellers, the household-level
self-sufficient in terms of household-specific charac- effective sale price is:
teristics and market failures.
p = p”(zP)-TC(z’).
Supply shifters Demand shifters Price transmission shifters Transaction costs shifters
‘5 $ zp 2’
Organizational assets:
Access to crecht this year
Access to credit last five years
Access to technical assistance
Access to msurance
Member credit organization
Member marketing organization
Number of organizations to
which member
Local conditions:
Average yield irrigated
Average yield rainfed
Availability of tractors
1354 WORLD DEVELOPMENT
Net buyer
P
Demand Supply curve
Self-sufficient
ec
Figure 1. Transactions costs and market participation.
The condition to be a net seller is thus: ture) and family size both have significant negative
impacts on the probability of being a seller. This is
q[p”@)-Tc(z’),2+c[p’(z~)-Tc(z’),611 > 0 because they are demand shifters (9) that increase the
or I(Zq,zd,zr,z9> 0. retention of maize for home use. Family size thus
plays a more important role in determining the proba-
To classify households as sellers or nonsellers, we bility of being a seller by increasing the home con-
do a probit analysis of this function: sumption of maize than by providing access to cheap
labor that could be used to increase maize production.
Prob(netseller) = Prob[@,zd,zr,zl) > 01. Organizational assets are also important shifters of
supply: they include membership to a credit organiza-
Candidate z-variables are given in Table 2.5 tion and access to technical assistance and to insur-
Local conditions are defined by the average condi- ance which are in restricted supply. In Sinaloa, those
tion in the corresponding Regional Development who are net sellers also live in regions which are bet-
Districts (DDR), which are administrative units that ter endowed ecologically. This is reflected by the pos-
were designed for the purpose of achieving some itive effect of higher average yields of rainfed maize
homogeneity of agroecological conditions. Hence, on selling. Higher yields of irrigated maize have a
regional conditions of sale are measured by the pro- negative effect in Michoacan and Sinaloa, suggesting
portion of sellers in the region who sell to a local that better agroecological conditions on irrigated
buyer, or with a forward contract. Regional avail- lands are used to diversify away from maize into
ability of tractors is measured by the proportion of higher value crops, an issue that we will explore later.
ejidutarios in the region who use a tractor. Regional characteristics also affect transactions costs
The results are presented in Table 3. In these equa- and hence the likelihood of being a seller. This shows
tions, irrigated and rainfed land, as well as price, were through the role of greater opportunities to sell maize
included even when not significant. All other variables locally as well as greater opportunities to sell through
from the above list of z-candidates were retained only forward contracts. Finally, the price received does not
if significantly different from zero in the probit equa- affect significantly the decision to be a seller. This
tion. The goodness-of-fit is reasonably good, with price is defined as the observed sale price for those
between 65 and 83.5% probability of predicting cor- who sell maize and the average murticipio sale price
rectly appurtenance to the corresponding group. for those who are self-sufficient. This is expected
The areas in rainfed land (Michoacan and Vera- because this price only affects demand, as it is expost
cruz) and irrigated land (Michoacin, Sinaloa, and relative to production decisions, while the guarantee
Veracruz) are significant determinants of being a price used for production decisions differs from the
seller, with, as expected, the role of rainfed land of sale price and is constant for all producers. This is the
decreasing importance from Veracruz to Michoacan reason why we cannot estimate an elasticity of supply
and to Sinaloa. Ownership of animals (and land in pas- response from the available data. On the demand side,
Table 3. Profit unulysis ofcorn producers by stute: sel1er.s versu.~ nonseller.~
(endogenous vmiuble: probubiliry ofbeing u net seller ofcnrn ver.sw u nonseller)
Price (I .COO pesos) (z?) Pkg .Ol I.4 -.2 -.Ol -_ 3 .6 .OS .7 .3
*Computed as: parameter’ difference in average value of the variable for predicted sellers and nonsellers. in percentage of total.
t “Observed” numbers correspond to weighted counts, and hence are different from the number of actual observations given in Table I.
1356 WORLD DEVELOPMENT
the price elasticity of maize is expectedly low, and Category 1: Traditional nonsellers: maize produc-
price is consequently not a significant determinant of tion is less than 1.25 times their predicted house-
marketed surplus. hold human consumption requirements.
The relative importance of each variable in explain- Category 2: Traditional nonsellers with live-
ing the probability of being a seller of maize is mea- stock: maize production is greater than 1.25 times
sured by the percentage contribution of the variable to their human consumption requirements, and yet
the total explanatory power of all variables together do not sell.
(Table 3). It is defined as: Caregoly 3: Nonsellers with diversified crops: more
than 25% of their land is in nontraditional crops.
Sellers of maize similarly include both traditional
maize producers and households that have diversi-
where & are the estimated parameters and Zk is the fied cropping patterns. We thus distinguish two
average value of variable Z~ It measures how much groups among sellers:
difference in the potential participation to the market Caregor), 4: Traditional sellers of maize.
as a net seller - the I indicator defined above - is due Caregory 5: Sellers with diversified cropping
to a specific factor, computed for the average pre- patterns.
dicted seller and nonseller. The results in Table 3
show that productive assets all together contribute to
This typology, reported in Table 4, isolates a large
40-50% of this difference. Differentiation in local
group of smallholders whose agricultural activity is
conditions of sale is important in Veracruz, where the
concentrated in traditional crops but who do not sell
difference in availability of local purchase points con- maize (Category 1). They represent 20.8% of all
tributes 5 1.4% of the difference between the average households in MichoacBn, 25.4% in Sinaloa, and
seller and nonseller and in Michoacan where it con- 14.7% in Veracruz, on lO-20% of the land.6 For these
tributes 35%. Differentials in productive assets and households, crop production is minimal and only used
local market conditions are thus the main determi- for home consumption; nonagricultural activities
nants of participation to the market as a net seller. generate an important complementary cash income.
Another group of similar size (Category 2) is made up
of ejidatarios who produce mainly traditional crops,
4. DETERMINANTS OF DIVERSIFICATION but are also vested in livestock production. This leaves
about 60% of the households in Michoacan and
If the price of maize is expected to fall, one of the Sinaloa and 74% in Veracruz vested in crop produc-
strategies available to sellers of maize is to diversify tion with an orientation to the market. This includes
away from maize production. To explore this possi- producers confined to traditional crops and selling
bility, we construct an indicator of diversification maize (Category 4), and producers who have been
away from traditional field crops. Traditional field able to diversify their production for sale on the mar-
crops include maize, beans, barley, oats, chickpeas, ket (Categories 3 and 5), whether sellers of maize or
and cacti. Diversified crops include nontraditional not. The households that will be most vulnerable to
field crops (sesame, alfalfa, rice, sugar, safflower, lima harm from NAFTA are those belonging to the group
of traditional producers oriented to the market
beans, kenaf, lentils, linseed, potatoes, sorghum, and
(Category 4). They represent 27.8% of all producers
wheat) and a long list of fruits and vegetables. We
in Sinaloa, 39.8% in MichoacBn, and 42.9% in
define diversified households are those planting more
Veracruz. They occupy 44-56% of the crop land (in
than 25% of their land in these crops. equivalent rainfed) and produce 60-77% of maize
We first construct a new typology of households production in the three states. This group needs the
that distinguishes five categories allowing us to isolate most attention and support to help it react to the
diversified households among both nonsellers and declining profitability of maize. We will explore two
sellers of maize. Nonsellers of maize include three escape routes for them, diversification toward other
categories of households: traditional producers who crops and modernization in maize production.
do not sell because they have an important effective It is notable that many traditional maize producers
demand for maize as a feed for animal production; who do not sell maize use modem purchased inputs,
those who do not sell but have diversified cropping if generally with a lower frequency than sellers. In
patterns, suggesting that maize production is for them Michoacin, a particularly high percentage of produc-
a marginal activity but that they may be heavily vested ers of all categories (between 87.7 and 94.9%) use
in other crops; and those traditional producers who are chemical fertilizers. This is the case in spite of the fact
nonsellers and have neither important animal activi- that very few producers have access to credit, particu-
ties nor diversified cropping patterns. The three cate- larly among nonsellers. In Sinaloa and Veracruz, non-
gories of nonsellers of maize are defined as follows: sellers use fertilizers less frequently than the other
NAFIA AND MEXICO’S MAIZE PRODUCERS 1357
Non-sellers Sellers
Traditional Traditional Diversified Traditional Diversified
Units w/livestock
Household assets
Total land ha 3.6 8.1* 7.6* 7.8 7.9
% irrigated % 4.7 3.5 24.5: 13.9 38.Y
Crop land equivalent ha: 3.2 5.6* 7.8* 8.5 9.9
Cattle No. 2.2 7.0* 4.8* 4.3 3.9
Truck ownership % 16.4 3.8* 8.1* 8.5 20.7*
Tractor ownership % 7.3 4.8 19.5* 19.5 23.9
Family size No. 7.5 4.7* 6.8 5.2 5.4
Production strategy
Area in corn rainfed ha 1.6 3.2* 1.9 3.5 2.0*
Area in corn irrigated ha 0.1 0.3* 0.3s I.3 1.6
Corn yield rainfed t/ha 0.8 1.1* 1.1; 1.3 1.6*
Corn yield irrigated t/ha 1.0 1.2 1.2 2.0 2.0
Animal corn consumption ton 0.1 1.3: 0.5* 0.7 0.5
Social differentiation
Share of number of producers 20.8 18.5 12.2 39.8 8.7
Share of total land used 10.7 21.6 13.3 44.5 9.9
Share of total land equivalent 9.5 15.0 13.9 49.0 12.6
Sham of irrigated corn area 12.4 21.9 8.3 so.9 6.5
Share of rainfed corn area 3.4 6.7 5.2 66.5 18.1
Share of total corn production 5.3 15.9 5.7 60.2 12.9
* Values are significantly different at 90% confidence level for traditional with livestock versus traditional nonsellers; diver-
sified nonsellers versus traditional nonsellers; and diversified versus traditional sellers.
+ Crop land equivalent is measured in minfed corn-producing land.
categories, reaching 16.8 and 24.8%. This stresses the capital assets, but also use more credit and belong to
fact that modemtechnology is important for tradi- more producers’ organizations. An important question
tional nonsellers as well as for sellers, and that these is to find what are the critical determinants which have
nonsellers incur expenses to acquire these inputs allowed them to diversify, in contrast with those who
through earnings derived from participation in the have remained dedicated almost exclusively to tradi-
labor market and through remittances. tional production for the market. This is what we do in
The fact that some of those who are diversified have the next probit analysis, where we contrast the diver-
remained involved in maize production for home con- sified producers (seller and nonseller of maize) to the
sumption (12.2% of maize producers in Michoacart) traditional net sellers of maize.
or for sales (8.7% of producers) reflects the relatively The results are reported in Table 5. Area in irrigated
high attractiveness of maize under the regime of price land has a positive impact on diversification in
support. Yet, they already use more than 26% of their Michoacarr and secondarily in Veracruz, while rainfed
land equivalent for diversified production, suggesting land is important for diversification in Sinaloa. As we
that they have access to the technology, information, have defined it, diversification embraces two rela-
institutional support, and marketing channels that are tively different types of activities, production of non-
necessary to switch away from maize. Indeed, in terms traditional field crops and fruits and vegetables. Fruits
of average characteristics, diversified nonsellers of and vegetables are themselves quite diversified,
maize differ significantly from traditional nonsellers including perennial tree crops as well as seasonal veg-
in many attributes. They have not only more land and etables. This explains why rainfed land is important in
Table 5. Pmfit unulysis of cornproducersby stute: diversi#ed versus truditiotud
(endogenous vuriuble: probubility r,fbeingdiversified (either seller or nonselkr of corn) versus tmdithul corn seller)
Productive nssets
Irrigated land ha .I3 6.4 39.8 -.02 -.3 I.6 .I5 I.9 4.0
Rainfed land ha -.OO -.2 11:;5 .08 2.7 9.2 .OO .I .O
Equipment ownership 0.1 .76 3.0
Truck ownership 0, I .84 I .8 1.2
* Computed as: parameter’ diffcrcnce in average value of the variable for predicted sellers and nonsellers, in percentage of toad.
.; “Ohservcd” numbers correspond to weighted counts, and hence are different from the number of actual observations given in Table 4.
NAnA AND MEXICO’S MAIZE PRODUCERS 1359
Number of producers (7c) 27.0 49.9 9.3 86.2 10.0 3.8 13.7 2.4 million
Area (7c) 21.1 48.8 17.2 87.1 7.0 5.9 12.9 6.2 million ha
Production ((rc) 9.5 40.9 26.5 76.9 9.0 14.0 23.0 11.2 million ton
Average yield (ton/ha) 0.8 1.5 2.8 1.6 2.3 4.3 3.2 1.8 toniha
Sinaloa, where diversification is in nontraditional field There is also, however, an enormous heterogeneity in
crops, while irrigated land has been increasingly yields under similar conditions, suggesting large tech-
turned into maize as a consequence of the price guar- nological gaps among producers.Estimations of yield
antee program. A striking common factor in all three equations are reported in Table 7. These equations are
states is the critical role of marketing conditions. not specified as production functions where output per
Conditions of sale characterized by the availability of hectare is a function of inputs and technology because
local purchase points and contract sales explain 16% the latter are endogenous variables. They are reduced
of the differentiation between diversified and tradi- form equations in a household-decision model, where
tional farmers in Veracruz, 40% in Michoacfin, and the explanatory variables of yield are exogenous vari-
69% in Sinaloa. The other important determinants of ables. The potential determinants of yield explored
diversification are access lo credit (in Veracruz), are, consequently, the household’s productive, human
membership in organizations (in Sinaloa and capital, and organizational assets. We also allow for a
Veracruz), and ownership or regional availability of
different yield for producers that are actively invested
trucks, mechanical equipment, and tractors (in
in a different production strategy (in livestock pro-
Michoacan and Veracruz).
duction or in diversified crops, as these categories
While diversification into high value crops that will
were defined above) in contrast to traditional produc-
be favored by NAflA opens an option to some pro-
ers. Finally, we explore whether some determinants of
ducers, maize will likely remain an important crop in
Mexico, but only where yields are sufficiently high. yield differ between sellers and nonseIIers of maize.
We consequently explore, in what follows, the deter- Since the characteristic of being a seller or not is obvi-
minants of higher levels of yields in maize production. ously endogenous and jointly determined with yield,
correction for potential selectivity bias is done when-
ever a variable differentiates sellers and nonsellers.
5. MODERNIZATION OF MAIZE PRODUCTION We do this by first estimating a probit on the proba-
bility of being a seller versus nonseller, and using the
There appears to be a large productivity gap in predicted Mills ratio as a regressor in the yield equa-
maize production. Yields are very low, even under tion to correct for selectivity bias (see Maddala, 1983,
irrigation. Average yields in 1991 were 1.6 tons/ha pp. 120-121). This ratio is significant in the yield
under rainfed and 3.2 tons/ha under irrigation (Table equations for MichoacBn.
6). Comparison of yields under different technologies These estimations reveal an interesting pattern in
in rainfed areas show that producers who use fertilizer the relationship between area and yield. There is a
get double the yields, from 0.8 tons/ha to 1.5 tons/ha, clear inverse relationship between cropped area and
and that those who use improved seeds obtain an addi- yield for nonsellers, even controlling for differential
tional 85% yield increase. An issue of concern is that quality between irrigated and non-irrigated land at the
27% of all producers have, and 21% of the maize area farm level as well as between regions through the
is still cultivated with, traditional technology and very average yield on rainfed and irrigated land in the cor-
low yields. Fertilizer is used in almost all production responding DDR.’ This relationship is, however,
under irrigation, but improved seeds are planted on strongly tempered for the sellers, remaining negative
less than half of the land. Obviously, these technical in Veracruz but becoming null or positive in
choices and yields are not independent of land quality, MichoacBn. A possible hypothesis for this U-shaped
and the highest yields obtained in rainfed areas must curve is that it is due to differential transactions costs
correspond to well-endowed agroecological regions. associated with participation in the product market.
1360 WORLDDEVELOPMENT
Productive assets
Crop land equivalent
- nonseller ha* .020 3.6
- seller ha* -.003 -. I
Truck ownership 0,l .I4 2.0
Tractor ownership 0.1 .2l 3.4 .60 4.0 .2l 2.6
Goodness of tit
Adjusted R2 .30 .24 .23 .27
Number of observations 947 222 250 1345
Understanding the underlying cause of this curve needs to be recruited and supervised. Interestingly,
would require a detailed study of the inputs used and migration abroad has a positive impact on yield. The
the transactions costs incurred in their acquisition. debate on the role of migration on agricultural pro-
Both productive assets (crop land; truck and tractor ductivity has emphasized two potential contradictory
ownership) and human capital assets (family size and effects: a negative effect from the absence of the most
years of study) have positive influences on yield. The active workers in the household, and a positive effect
number of adults working for a wage is an endogenous from the availability of cash remittances, which could
variable which we instrumentalized with the house- be used for investing in agriculture or for purchasing
hold assets. The predicted value of this variable has a inputs, providing a source of liquidity which is par-
negative effect on yield. This reflects the loss of fam- ticularly important in the current context of sharp
ily workers and higher labor costs as substitute labor constraints on access to credit. The limited evidence
NAFTA AND MEXICO’S MAIZE PRODUCERS 1361
presented here seems to indicate a dominance of the of family labor is seen not only directly, but also
positive effect of migration on land productivity. through falling yields with area planted in maize that
Access to marketing organizations, technical assis- reflects rising labor costs with increasing reliance on
tance, and credit for the sellers all foster yield. Access hired labor. In all cases, ownership and/or regional
to credit has a negative impact on rainfed yields of access to machinery is important. Higher yields are
nonsellers in Michoacan. A logical interpretation is increased by human capital and by the liquidity effect
that nonsellers need reimburse credit with the sale of of adult migration.
family labor or with other incomes, which reduce the For both diversification and modernization of maize
availability of family labor and other productive production, the availability of supporting institutions is
resources for maize. Finally, as can be seen from the critical. This is seen by the role of access to credit and
producer categories in Table 7, producers who are par- of membership in producers’ organizations, particu-
ticipating in the maize market as net sellers have larly for credit and marketing. For diversification,
yields which are 0.30 to 0.44 ton/ha higher than tradi- availability of local buyers and contract sales are
tional nonsellers. Those who are actively engaged in important. For modernization, access to technical
agricultural production, be it in livestock or in diver- assistance is important. These are institutional factors
sified crops, also have yields which are higher by 0.25 that help relax constraints on access to factors of pro-
to 0.53 ton/ha. duction, reduce transactions costs in trading on mar-
kets, and create productivity gains. Access of current
traditional maize sellers to these services is thus fun-
6. CONCLUSION damental to their economic survival as farm producers.
The profound macroeconomic and agricultural
Analysis of the relationship of ejido maize produc- reforms pursued by the Mexican government during
ers to the market shows a great degree of structural the last eight years have deeply redefined the relation-
heterogeneity among these households. The expected ship between state and peasants. Economic liberaliza-
decline in the price of maize associated with trade lib- tion and removal of direct controls over the ejido
eralization and NAFTA will consequently be felt sector have substantially broadened the range of ini-
highly differentially across household types. Taking tiatives which these households can pursue. In par-
into account this structural heterogeneity is thus fun- ticular, they have gained greater freedom in deciding
damental to predict the expected impact of the policy on resource allocation, on choice of technology and
reforms, identify the groups of households that will crops, on local management of water, on accessing
need targeted assistance, and design solutions that cor- individually the product and factor markets and
respond to their needs and possibilities. sources of credit, and on contracting with merchants
The households most at risk are the nondiversified and agroindustry. At the same time, redefinition of the
maize sellers who depend heavily on the price of maize role of the state has implied reduced access to a
for their welfare. These households represent 39.8% of number of essential services for the ejido sector such
the maize producers in Michoacan, 27.8% in Sinaloa, as credit, technical assistance, insurance, marketing,
and 42.9% in Veracruz. They control 49%, 56.4%, and delivery of inputs, and extension services that were
43.9% of the total land equivalent in these three states, formerly delivered by the state. The result is creation
respectively. This group constitutes a minority among of an institutional vacuum which is only partially
maize producers, but is of critical importance for both being filled by (a) the private sector, but this mainly
the efficiency of Mexican agriculture (due to the for access by the larger commercial farms and (b) by
importance of the land which it controls) and for the targeted welfare interventions of the state (Pronasol
welfare of the rural population (due to the significant program), but this mainly for the most marginal rural
share of the farm population which it represents). households. Much of the ejidutario households falls
Designing mechanisms for these households to adjust between these two extremes. They are thus left largely
to the NAFTA environment is thus critical, destitute of institutional support, precisely at a time
We analyzed two adjustment paths which these when they need full access to these services to mod-
households could pursue. One is diversification away ernize maize production and diversify cropping pat-
from maize production toward nontraditional field terns toward higher value crops. Our results show that
crops and fruits and vegetables; the other is modem- modernization and diversification indeed crucially
ization of maize production to reach higher yields and, depend on access to these institutional services.
it is hoped, achieve competitiveness under the new Promotion of producers’ organizations for the self-
price conditions. delivery of these services and to lower transactions
We found that success in achieving both crop diver- costs in accessing markets and public services is a fun-
sification and higher maize yields is enhanced by farm damental element of a solution. More generally, selec-
size and by the availability of family labor which is tive reconstruction of the institutional services
increased by family size and reduced by the number of formerly delivered by the state to ejidararios should
adults working for a wage. For maize yields, the role be a priority item for organized producers, non-
1362 WORLD DEVELOPMENT
governmental organizations, the private sector, and, in ment if the economic viability of this important sector
a supportive and regulatory role, the Mexican govem- of family farms is to be preserved.
NOTES
1. The ejidos and indigenous communities are agricultural nominal exchange rate in the former and at the equilibrium
communities with a number of families (so-called ejidatar- exchange rate in the latter. The peso was overvalued in 199I.
ios in the first and communeros in the second) ranging from For calculations of PSEs, see also ERS (1994).
dozens to thousands. These communities are the owners of
the land rather than individual members. The main difference 4. For a survey of labor market issues related to NAFTA,
between ejidos and indigenous communities is that the latter see Hinojosa and Robinson (1992).
were allowed to divide the land among descendants of the
original members while, in the ejido, only one son was in 5. Data on prices received by sellers are not sufficiently
principle allowed to inherit the usufruct right to the alloted variable to estimate a marketed surplus response function,
land plot. For the purpose of this paper, no distinction is which would be done using a Tobit. We consequently only
made between ejido and indigenous community. The two analyze the dichotomous choice of selling or not selling,
are usually referred to as ejidos and their members as which is appropriately done with a probit.
ejidatarios.
6. For simplicity, Table 4 only reports data for Michoacan.
2. This compares to a US national average yield of 6.12 Selected information on the other states is reported in
ton/ha in 1990-91. Mexico’s national average yield that the text.
same year was 1.97 ton/ha (USDA, 1993).
7. Which, however, may leave uncontrolled other differ-
3. The NRP is higher than the PSE in spite of extensive ences in land quality that are associated with farm size, for
input subsidies because the border price is measured at the instance if corn plots are larger in more marginal areas.
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