 AGRICULTURE: WAKING UP WITH A HANGOVER |
In 1997, the recently privatized Mexican sugar industry issued dumping complaints against U.S. producers of high fructose corn syrup (HFCS), citing damage to sugar producers because U.S. companies were compelling soft drink bottlers and food-processing companies to switch from sugar to HFCS. Mexico established steep countervailing duties, as well as quotas to U.S. HFCS producers, including AE Staley, Archer Daniels, and Cargill, among others. As a response, the U.S. formally requested the World Trade Organization (WTO) to intervene, with the WTO deciding that HFCS is not, in fact, entering Mexico at dumping prices.
While according to the WTO Mexico has no reason to impose countervailing duties on HFCS, the Commerce Secretariat has not changed its position. Mexico did not appeal the WTO's decision within the required 60-day period, citing the need to evaluate the damage done by HFCS imports to the sugar industry. Although the United States has recently relaxed its stance somewhat to allow Mexican sugar into the market, the quantity hasn't been enough to appease the main Mexican players, which include Grupo Escorpion, Beta San Miguel, Zucarmex, and GAM (in order of decreasing market share). Meanwhile, the conflict continues.
The sugar dispute between the United States and Mexico is rather symbolic of the sector as a whole, which has struggled to adapt to a market recently opened to global competition. Of all the sectors in the Mexican economy, agriculture is perhaps the most problematic. While total exports have increased significantly, agriculture exports have not faired as well, growing by only 8 percent. As federal subsidies begin to diminish, many critics of the Zedillo administration complain that the sector has been opened to competition too quickly. Indeed, since the Salinas years, the industry has been steadily weaned from government support in order to distance it from the earlier goal of self-sufficiency.
"More than realistic or unrealistic, to think about self-sufficiency is wrong," says former Agriculture Secretary Romarico Arroyo. "The word self-sufficiency no longer exists in an economically globalizing world."
Fox's advisors have announced that his administration will have no interest in making the agriculture industry self-sufficient either, and will most likely increase produce imports from the United States.
Sugar woes are not the only headache for the agriculture sector. A shortage of agave, the main ingredient for making tequila, may cause a severe crisis in the production of Mexico's national drink, and a bit of a hangover for the overall sector as well. The over-exploitation of agave-combined with the rise of dangerous bacteria that is attacking young plants-is causing the current shortage. Agave production has dropped 33.8 percent from its 1997 levels, and prices may increase 10 to 17 percent in the near future. Smaller companies that took advantage of the tequila boom a few years ago, but cannot compete with the large agave reserves of companies like Jose Cuervo and Sauza, may be forced out of the business altogether. Smaller brands that specialize in pure tequila, such as the companies Don Julio and Cazadores, have been hit exceptionally hard by the shortage. Indeed, the Tequila Regulatory Council reported that already 30 percent of the smaller tequila brands have been put out of business.
Notwithstanding the beleaguered sugar and agave markets, the agriculture sector, like most others in Mexico, is ripe for investment.
"Between 1994 and 1999, the agro-industrial sector received 19 percent of foreign investment, (yet) it represents less than that percentage of the economy," says former Agriculture Secretary Arroyo. "That is to say, it is seen as a sector of opportunity."
The free-trade agreement with the European Union should give agricultural exports a boost and help to grow an increasingly attractive sector that boasts high sanitation standards, advanced technological equipment, and modern farming methods. Despite a number of rifts in negotiation-namely Europe's fear of cheap Mexican exports and Mexico's fear of competition-the agreement was finalized.
"When the (EU) agreement just started, we decided
to make business in Europe as fast as we could,"
says Enrique
Hernandez-Pons Torres, president of Grupo
Herdez, which currently provides more than 500
food products. "We are looking forward to make
two-way deals and joint ventures." |
Grupo Herdez-which posted an impressive 115 percent increase in operating profit 1999's second quarter-is not only a good example of the agriculture sector's orientation toward Europe, but also of growing ties with Asia as well. Many of Grupo Herdez's more exotic products do particularly well in Asia. Cactus products, for example, are all the rage in Japan.
"We have been focusing on the United States," says Hernandez-Pons Torres. "(But now) we are going to Europe, Central and South America, and Asia. Asia is an interesting market."
Without a doubt, the most vital free-trade agreement for the growth of the sector has been and will continue to be the NAFTA. To say the least, NAFTA has created a very positive environment for Mexican agriculture producers. Mexico enjoys a comparative advantage in the production of fruits and vegetables, and NAFTA has facilitated access for these products into U.S. and Canadian markets. At the same time, better access to agro-industrial machinery and equipment have enabled Mexico's industry to increase its competitiveness and productivity.
Along with Mexico's higher agricultural productivity levels resulting from structural reforms in the 1990s, market access provided by NAFTA has helped to boost Mexican agricultural exports to the North American region. More than 80 percent of all of Mexico's produce goes to the United States and Canada. U.S. total trade of agricultural products with Mexico has increased from US$6.3 billion in 1993 to US$10.5 billion last year.
In terms of export growth between 1993 and 1999, Mexican agricultural exports to the United States increased 79 percent, while U.S. exports to Mexico expanded more than 56 percent. During this period, Mexican agricultural exports to Canada grew more than 100 percent.
In addition to the U.S. and Canadian markets, companies within the agricultural sector are also looking to expand into Asia. Grupo Modelo, a Mexican beer company that sells its products in more than 150 countries and is currently the eighth-largest beer producer in the world, has been bullish on the Asian market for quite some time.
"Asia is a place of a lot of opportunities," says Carlos Fernandez Gonzalez, vice chairman and CEO of Grupo Modelo, world-recognized for their beer Corona. "You have big markets with a lot of opportunity, as well as smaller ones. It has everything."
Juan Gorgallo Costa, general manager of Grupo Minsa, one of the main players in the Mexican, Latin American, and U.S. food markets, couldn't agree more: "We expect the whole Pacific Rim to be a free-trade zone, and we'll certainly support that. I think that Asian markets will eventually develop a taste for corn-based products." |
