• TABLE OF CONTENTS
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 Historic note
 Front Cover
 Title Page
 Introduction
 Analysis of costs of productio...
 Role of subsidy removal in...
 Impacts of fertilizer subsidy removal...
 Conclusion
 Bibliography














Group Title: International working paper series - University of Florida Food and Resource Economics Department ; IW92-20
Title: Competitiveness of Florida and Mexican farmers in the tomato trade
CITATION THUMBNAILS PAGE IMAGE ZOOMABLE
Full Citation
STANDARD VIEW MARC VIEW
Permanent Link: http://ufdc.ufl.edu/UF00081218/00001
 Material Information
Title: Competitiveness of Florida and Mexican farmers in the tomato trade how does subsidy removal affect it?
Series Title: International working paper series
Physical Description: 23 p. : ; 28 cm.
Language: English
Creator: Gupta, Nainish K
Gladwin, Christina H
University of Florida -- Food and Resource Economics Dept
Publisher: Food and Resource Economics Dept., Institute of Food and Agricultural Sciences, University of Florida
Place of Publication: Gainesville Fla
Publication Date: 1992
 Subjects
Subject: Tomato industry -- Florida   ( lcsh )
Tomato industry -- Mexico   ( lcsh )
Agricultural subsidies -- Florida   ( lcsh )
Genre: government publication (state, provincial, terriorial, dependent)   ( marcgt )
bibliography   ( marcgt )
non-fiction   ( marcgt )
 Notes
Bibliography: Includes bibliographical references (p. 22-23).
Statement of Responsibility: by Nainish K. Gupta and Christina H. Gladwin.
General Note: "July 1992."
 Record Information
Bibliographic ID: UF00081218
Volume ID: VID00001
Source Institution: University of Florida
Rights Management: All rights reserved by the source institution and holding location.
Resource Identifier: oclc - 27157306

Table of Contents
    Historic note
        Copyright
    Front Cover
        Front Cover
    Title Page
        Title Page
    Introduction
        Page 1
        Page 2
        Page 3
        Page 4
        Page 5
    Analysis of costs of production
        Page 6
        Page 7
        Page 8
        Page 9
        Page 10
        Page 11
    Role of subsidy removal in competitiveness
        Page 12
        Page 13
        Page 14
        Page 15
    Impacts of fertilizer subsidy removal on Mexico
        Page 16
        Page 17
        Page 18
        Page 19
        Page 20
    Conclusion
        Page 21
    Bibliography
        Page 22
        Page 23
Full Text





HISTORIC NOTE


The publications in this collection do
not reflect current scientific knowledge
or recommendations. These texts
represent the historic publishing
record of the Institute for Food and
Agricultural Sciences and should be
used only to trace the historic work of
the Institute and its staff. Current IFAS
research may be found on the
Electronic Data Information Source
(EDIS)

site maintained by the Florida
Cooperative Extension Service.






Copyright 2005, Board of Trustees, University
of Florida








IW92-20


COMPETITIVENESS OF FLORIDA AND MEXICAN
FARMERS IN THE TOMATO TRADE:
HOW DOES SUBSIDY REMOVAL AFFECT IT?


by

Nainish K. Gupta and Christina H. Gladwin

IW92-20 July 1992


INTERNATIONAL WORKING PAPER SERIES


FOOD AND RESOURCE ECONOMICS DEPARTMENT
Institute of Food and Agricultural Sciences
University of Florida
Gainesville, Florida 32611















COMPETITIVENESS OF FLORIDA AND MEXICAN FARMERS IN

THE TOMATO TRADE: HOW DOES SUBSIDY REMOVAL AFFECT IT?















Nainish K. Gupta and Christina H. Gladwin
Food and Resource Economics Department
University of Florida


July 14, 1992






Ui2E.SITY OF FLORIDA LIBRARIES







1. INTRODUCTION


The news of the proposed North American Free Trade

Agreement (NAFTA) has been received with mixed emotions.

While economists, especially trade economists, have received

the news favorably, Florida farmers do not seem to be happy

with it. They apprehend that this agreement will affect them

adversely. Some even fear that Florida's fruit and vegetable

industry may be wiped out due to the differences in

agricultural policies which might give the Mexico farmers an

edge over their counterparts in Florida. Indeed, some of

these sentiments were recently echoed by Frank Bouis,

President of the Florida Fruit and Vegetable Association

(FFVA):

The future of fruit and vegetable agriculture looks
pretty dim....Introducing foreign competition without
incr asing demand will mean aoss of U.S. farms ....The
Unite States is losing the competitive race that
determines where its fruits and vegetables come
from....U.S. government policy is to encourage less
developed nations Mexico, the Caribbean, Andean
nations, and others to export fruits and vegetables to
the United States....The country is faced with a trade
negotiation with Mexico to be conducted by an
administration that just doesn't seem to appreciate the
problem of comparative competitiveness and how it is
affected by domestic policies....They [domestic policies]
impose economic burdens that inevitably result in higher
costs. And that means more imports and/or reduced
availability of fruits and vegetables because of the
market driven nature of the industry (Bouis, 1991).

The source of the Florida farmers' apprehension seems to

lie not in their inefficiency relative to Mexican farmers but

in the additional financial burdens resulting from policy

interventions such as: environmental regulations, wage rates,
i








costs of credit, and above all, governmental protection in the

form of tariffs and subsidies. In other words, Florida

farmers seem to believe that even though they are efficient

producers of tomatoes, they may not be able to compete with

Mexican tomato farmers because Mexican farmers are somewhat

protected by subsidies whereas US farmers are not. How

"competitive" would Mexican farmers be without subsidies, even

small ones? This paper attempts to answer that question.

The term "competitiveness" does not have a definition in

neoclassical economic theory; it is a political concept.

Economists' perception of competitiveness is that it is the

result of the combined effect of market (usually policy-

induced) distortions and comparative advantage. "Comparative

advantage" is an economic concept, concerned with trade and

optimal welfare in an undistorted world. Competitiveness, on

the other hand, relates to long-term survival (Thurow, 1992).

If a firm cannot survive by selling at the going price, it is

not regarded as competitive. If it is able to survive because

it is able to increase its market share at the going price, it

is regarded as being more competitive. And economic

competition between nations as well as firms is going to be

the name of the game in the 21st century (Thurow, 1992:22).

Japanese firms, according to Thurow (1992:125,149) are

competitive because they don't maximize profit but do maximize

long run survival subject to a profitability "greater than

zero" constraint. American firms lose market share to them







because they are too constrained by the short-term goal of

maximizing profits; in the case of the consumer electronics

industry, for example, they left the market after being

consistently undercut by the low-priced and low-profit

Japanese.

An increase in competitiveness of a firm, however, does

not necessarily imply an increase in national welfare in the

short run. This is so because a firm may be inefficient in

terms of use of inputs, but may be rendered competitive

through government support (including subsidies). Conversely,

a firm may be efficient in terms of use of inputs, but may be

rendered uncompetitive because of costs resulting from

government intervention. In international trade, it is the

economic cost of production plus the additional economic costs

to get the commodity to the foreign buyer that determines

competitiveness. Hence, in order to properly assess

competitiveness, one needs to take into account policy

interventions (e.g., taxes, subsidies) that influence the

factor prices faced by producers (Sharples, 1990).

Proper assessment of competitiveness becomes especially

important in the context of international trade in

agricultural products. Available evidence suggests that many

countries pursue a host of agricultural and trade policies

which distort the working of the free market and which very

often alter the nature of trade. While such policies are

generally aimed at protecting their producers from the world








market, they are also instituted to enhance competitiveness in

the world market. Indeed, public policy-induced distortions

can and do impact competitive performance to such an extent

that actual trade patterns significantly diverge from what

they would have been on the basis of comparative advantage

alone (Menzie and Prentice, 1987).

Having said all this, we now return to the issue of

competitiveness of Florida and Mexico farmers in tomato trade.

To begin with, we provide a brief overview of the fresh winter

vegetable industry in Florida and Mexico in the hope that this

will serve as a useful backdrop for the discussion of

competitiveness in the context of NAFTA.

The fresh winter vegetable industry consists of six

vegetables, namely tomatoes, bell peppers, squash, cucumbers,

eggplant and green beans. While tomatoes are but one of the

many vegetables produced in Florida, they are by far the most

economically important and have been at the center of debate

over the impacts of NAFTA. During the 1990/91 season, fresh

tomatoes produced in Florida under the Federal Marketing Order

966 amounted to over 1.38 billion pounds with an FOB value of

over $515.7 million. On average, tomatoes annually account

for more than one third of the total value of all vegetables

produced in Florida. Competition is also the greatest in the

case of tomatoes (Taylor, 1992).

Florida and West Mexico supply about two-thirds of all

the fresh tomatoes consumed in the United States from October








to July. California, Texas, South Carolina, and several minor

supply areas producing late in the fall and again in the

spring supply the remaining one-third. The main competition,

however, is between Florida and the State of Sinaloa in

Mexico. Although Florida primarily serves the eastern U.S.

and Mexico the western U.S., the two compete in the midwestern

U.S., with the final outcome in terms of market share

depending on their relative competitiveness. Florida has

higher market share from October to December and May to July,

while Mexico has higher market share from January to April.

As Florida periodically suffers from freeze spells during

January-April, per unit production costs rise, as a result of

which Florida's market share suffers a decline.

Mexico has shipped fresh tomatoes to the United States

for many years. Starting with 100 million pounds in 1957/58,

Mexican tomato exports to the United States increased sharply

to over 800 million pounds in 1978/79, with a consequent

decline in Florida's market share. This sustained expansion

of Mexican tomato exports and the consequent loss of Florida's

share in the U.S. market induced Florida's tomato producers to

resort to legal means (the market order regulation of January

1969) and political pressure (the dumping charge of October

1978) to seek protection against the Mexican producers.

Fresh fruits and vegetables imported into the U.S. have

been subject to a tariff since 1930. The tariff on fresh

tomatoes imported from Mexico has remained unchanged since








1951, when the rate was set at 1.5 cents/pound for tomatoes

imported between November 15 and the last day of the following

February, and 2.1 cents/pound for those imported during the

remaining periods. The duty had the effect of raising the

cost of supplying tomatoes to markets in the United States,

but this effect has gradually disappeared over time: the duty

added 23 per cent to the costs of supplying tomatoes in

1951/52, 20 per cent in 1967/68, 12 per cent in 1973/74, 10

per cent in 1978/79 (Zepp, 1981) and a mere 6 per cent in

1990/91.

The duty enabled the Florida tomato farmers to be

competitive in selling mature green tomatoes until 1972/73.

But as regards the vine ripe tomatoes, Mexican farmers held a

cost advantage over Florida farmers even with the imposition

of the duty. In other words, since 1973/74 Mexican producers

have held a total cost advantage over their Florida

counterparts in both vine ripe and mature green tomatoes even

with the imposition of the import duty. Implementation of the

proposed free trade agreement between Mexico and the United

States will result in a removal of the tariff currently in

place on Mexican tomato imports and thereby make Florida

farmers, in their eyes, less competitive still.



2. ANALYSIS OF COSTS OF PRODUCTION



What do the cost of production data say about this issue?







Several studies analyzing the costs of production and

competitiveness between Florida and Mexico have been done for

the fresh winter vegetable industry. The first study was done

by Fliginger et.al. in 1969. They found that the total cost

of producing vine-ripe tomatoes in Mexico was about two-fifths

that of Florida, with the ratio being more or less for

individual production inputs. Marketing costs for tomatoes

from the farm in Mexico to shipping points on the U.S. side of

the border were higher than from the farm in Florida to

shipping points in Florida, but the total cost involved in

deliveries to Chicago was about even for both areas. Mexico

thus had a slight cost advantage in delivering to markets in

the western portion of the U.S., and Florida had a slight

advantage in delivering to markets east of Chicago. The study

also found that given its advantage in cost of production and

climate for winter production, Mexico would probably continue

to increase its exports of vine-ripe tomatoes to the U.S. and

Florida production of vine-ripe tomatoes during the winter

season probably would continue to decline. Florida, however,

could continue to dominate and retain a stronger competitive

position for mature-green tomatoes.

Zepp and Simmons conducted another study into the issue

of competitiveness in 1979. They found that Florida appeared

to have a net competitive advantage (total of the cost

advantage plus the FOB price advantage) in tomato production

and that the greatest comparative advantage occurred in the









spring. Future competition between Florida and Mexico would

be most intense during the midwinter (December through April)

when the southern areas of Mexico were in full production. A

continuation of the higher rate of input price inflation in

Mexico than in the U.S. would enhance Florida's cost

competitive advantage in tomatoes during these months, and

would probably permit Florida growers to enlarge their share

of the midwinter market. They also found that as Mexico's

rural wage advantage diminished, Mexican producers may try to

hold down labor costs by adopting new practices such as

harvesting more tomatoes as mature greens or using plastic

mulch. Year-to-year variation in market shares would still

occur as unusually good or bad weather conditions in one area

or the other affected that area's production.

Another study was done by Buckley et. al. in 1986 to

assess the cost and price advantages of producing the six

winter fresh vegetables in Florida and the West Mexico state

of Sinaloa. They found that Sinaloan growers could produce

winter fresh tomatoes more cheaply than Florida growers. But

import and export fees at the U.S. border increased total

costs for Sinaloan producers beyond total Florida costs. Any

major reduction in border fees on vegetables could shift the

cost competitive advantage for all vegetables to the Sinaloan

growers. They also found that Sinaloan producers would ship

vegetables to the United States as long as prices remained

high enough to cover duties and transportation costs in








addition to production costs. Labor was the highest of the

input costs which had been generally increasing since 1978 in

both countries, but Mexican wage rates in 1983 were 11 percent

of those paid in Florida. Fertilizer and imported chemicals,

cartons, and seeds were expensive for Sinaloan producers while

land rent was a significant cost for Florida's producers, due

mainly to urbanization and economic pressure to divert land to

higher paying uses.

The latest study has been done by Taylor in 1992. He

finds that as the current tariffs on fresh tomatoes have not

represented a significant trade barrier for some time, the

removal of tariffs is not likely to significantly alter the

forces that have driven competition in the industry.

According to him, the reason for the increase in the Florida

tomato industry's shipments to the U.S. domestic winter market

rests in the industry's impressive ability to improve

productivity and not in the existence of tariffs or other

forms of protection.

It is quite apparent from the above review of literature

that all comparisons for assessing competitiveness have been

done ignoring subsidies, even though it is common knowledge

that government policies can and do affect competitiveness by

altering (decreasing or increasing) costs of production for

domestic producers via subsidies and/or taxes in input and

output prices that might change the true picture of

competitiveness. To properly assess competitiveness, an








effort must be made to look at what costs would be, given

subsidy removal, such that both sides have an equal playing

field!

Where might subsidies enter into costs of production?

Table 1 gives the data on financial costs of various inputs

and their respective weight in the total preharvest cost of

producing one carton of tomatoes in Florida and Mexico for

1990/91 (the latest year for which data are available).

Adjustments have been made to account for the substantial

yield differences between the two countries in order to make

the data comparable. As can be seen from the table, the

biggest contributor to the cost of production- for both

countries is the item called "Miscellaneous and Overheads".

This item, accounting for nearly 25% of the costs in both the

countries, includes things such as paint, plastic mulch,

plastic string, replacement stakes, and scouting.

Labor is the second largest cost category, accounting for

approximately 18% of the total costs of production. It is

interesting to note that even though wage rates in Mexico are

substantially lower than those in Florida, the total wage bill

in terms of its weight is higher in Mexico. One explanation

that could be offered for this is that Mexican tomato

production is extremely labor intensive while it is

capital intensive in Florida. This explanation is further

substantiated by the fact that machinery accounts for 17.25%

of the costs in Florida, whereas it accounts for only 6.5%








in Mexico. On the other hand, interest contributes 15% to

Mexican production costs while it contributes only 3.5% to

Florida costs. The third major cost of production thus

differs in the two countries.

Chemicals, consisting of bactericide, fumigant,

fungicide, herbicide, insecticide and surfactant, are the

fourth largest group contributing to costs of production,

accounting for 16.5% in Florida and 10.9% in Mexico. This is

not surprising, but the fact that Florida costs are greater

than Mexico's costs is surprising given Mexico's reported

disregard for United States Environmental Protection Agency

(US EPA) standards.


Table 1. Comparative Costs of Production for Tomatoes in
Sinaloa and Florida, 1990/91.


Production Costs per Sinaloa Florida
Carton (25 lbs.) (average)
: $ % ,$ %
Seeds 0.20 7.27 0.21 6.16
Fertilizer 0.24 8.73 0.22 6.45
Chemicals 0.30 10.9 0.56 16.43
Labor 0.51 18.55 0.60 17.60
Machinery 0.18 6.55 0.59 17.30
Interest 0.41 14.91 0. 12 3.52
Miscellaneous & Overheads 0.67 24.36 0.89 26.09
Land Rent 0.24 8.73 0.22 6.45

Total Cost/Unit 22.75 100.00 3.41 100.00
Source: Taylor (1992).








Land rent, accounting for 6.45% in Florida and 8.73% in

Mexico, is the fifth largest category contributing to costs.

The Mexican co-operative land ownership system of elidios

substantially brings down land rents; whereas in Florida, the

land market is a free market and opportunity costs bid up land

rents. Hence it is surprising that land rents which are in

effect subsidized contribute to a larger extent in Mexico than

in Florida.

Fertilizer shares the fifth spot with land rent and

accounts for 8.73% of the total cost of production in Mexico

and 6.45% in Florida. This is puzzling, given the Mexican

agricultural policy to heavily subsidize fertilizers, whereas

no such subsidies are available to Florida farmers. The next

section addresses this puzzle, uses it to illustrate the

importance of including the value of subsidies in calculating

the cost of production, and focuses on the implications that

this important valuation has for drawing inferences about the

competitiveness between Mexico and Florida tomato farmers.


3. ROLE OF SUBSIDY REMOVAL IN COMPETITIVENESS


The Government of Mexico (GOM) views the fertilizer

industry as a strategic industry in the context of its overall

objective to make effective use of the nation's energy

resources and to achieve agricultural self-sufficiency. The

Mexican Fertilizer Company (FERTIMEX) is supervised by the








Ministry of Energy, Mines, and Parastatal Industries (SEMIP).

Prices of fertilizers are fixed by the Ministry of Finance

(SHCP) with the approval of the Economic Cabinet. As a

result, FERTIMEX operates more as a GOM department under SEMIP

rather than as a commercial enterprise. FERTIMEX is for all

practical purposes a monopoly, totally protected from market

forces. Potential competitors (importers and domestic

producers) have not shown interest in the fertilizer sector as

prices are set at heavily subsidized levels, far below import

parity.

Fertilizer prices paid by farmers in Mexico have been

falling steadily in real terms for many years, with the gap

between domestic price and import-parity price widening over

time. The price of fertilizer is set at the same level,

whether the farmer picks it up at the factory or has it

delivered to the railhead near its final destination. Given

such an incentive environment, virtually no fertilizer is sold

at the factory.

FERTIMEX's distribution objectives have been to deliver

fertilizer to farmers as close as possible to the farmgate.

Thus, FERTIMEX is obligated to deliver or ensure deliveries of

small shipments to 2,600 sales points, creating logistical

difficulties and raising transport costs due to excessive

reliance on land transportation, in particular on high cost

truck transport for 50% of all plant shipments. Hence in

1989, fertilizer distribution was managed by FERTIMEX at a








cost of about US $45 per ton, of which US $20 per ton related

to transport costs from plants or ports to warehouses.

The price for fertilizers paid by farmers or distributors

at the nearest railway station is unrelated to FERTIMEX's

production and distribution costs or to international prices.

Farmgate prices, substantially lower than the import-parity

prices, do not cover FERTIMEX's total costs and as a

consequence substantial budgetary transfers are made to cover

its losses. Total budgetary transfers to FERTIMEX amounted to

US $477 million (0.3% of GDP) in 1986. FERTIMEX also receives

substantial indirect subsidies from the Mexican Petroleum

Company (PEMEX) in the form of low ammonia prices. The GOM

budgetary transfers to FERTIMEX added up to an estimated US

$2.5 billion between 1986 and 1990.




Table 2. Prices of Selected Fertilizers Paid by Farmers in
Mexico and U.S. (in $ per Metric Ton).


Year Mexico U.S. Mexican price
as % of U.S.
price
1984 155.75 265 58.77
1985 125.90 247 50.97
1986 94.55 243 38.91
1987 96.20 277 34.73
1988 197.30 282 70

Source: FAO, Fertilizer Yearbook 1990.







Table 2 presents data on complex fertilizer (18-46-0)

prices paid by farmers in U.S. and Mexico for the period 1984-

88. (More recent data are not available.) The prices for

Mexico have been arrived at by converting the prices

designated in pesos into U.S. dollars, using the prevailing

exchange rates.

As can be seen from the table, fertilizer prices paid by

Mexico farmers were as much as 30 per cent lower than those

paid by Florida farmers in 1988. Despite this, fertilizer

costs per carton of tomatoes (25 lbs.) amounted to US $0.24 in

Mexico (see Table 1) against US $0.22 in Florida. This means

that Mexican farmers use 2.68 lbs. of fertilizers per carton

of tomatoes against only 1.72 lbs. by Florida farmers. In

other words, Mexican farmers use substantially (56 percent)

more fertilizer per carton of tomatoes than Florida farmers.

However, since Mexican farmers' purchases of fertilizer are

heavily subsidized, their costs of fertilizer are only 9 per

cent higher than that of Florida farmers. Had Mexican farmers

paid the same prices as Florida farmers, their fertilizer bill

per carton of tomatoes would have been US $0.34, not US $0.24.

In that case, the difference in per unit cost of production

between Florida and Mexico would decline from the present

level of US $0.66 to US $0.56, as shown in table 3, thereby

enabling Florida tomato farmers to expand their market beyond

Chicago.








Table 3. Revised Comparative Costs of Production for
Tomatoes in Sinaloa and Florida, 1990/91.


Production Costs per Sinaloa Florida
Carton (25 Ibs.) _(average)
_$ % $ %
Seeds 0.20 7.27 0.21 6.16
Fertilizer 0.24 8.73 0.22 6.45
Chemicals 0.30 10.9 0.56 16.43
Labor 0.51 18.55 0.60 17.60
Machinery 0.18 6.55 0.59 17.30
Interest 0.41 14.91 0.12 3.52
Miscellaneous & Overheads 0.67 24.36 0.89 26.09
Land Rent 0.24 8.73 0.22 6.45
Total Cost/Unit 2.75 100.00 3.41 100.00
Fertilizer Subsidy Removal 0.10 3.64 0.00 0.00
Revised Total Cost/Unit 2.85 100.00 3.41 100.00


In sum, one needs to ascertain the value

received by domestic producers in a country.


on the subsidy

If one ignores


government subsidies, inferences about competitiveness are

likely to be distorted.



4. IMPACTS OF FERTILIZER SUBSIDY REMOVAL ON MEXICO


All subsidies, large and small, are against the spirit of

a free trade agreement. Given the importance to Florida of

its fresh winter vegetable industry, there is no doubt that

Florida tomato producers will be arguing for an end to Mexican

protection and the removal of all subsidies, so that there

16







really 1is. a "level playing field" between Mexican and

Floridian competitors in the tomato trade. Where would a

removal of fertilizer subsidies leave Mexican producers?

Clearly, it would cost Mexican tomato producers $0.10 per

carton in the United States--and possibly a substantial part

of market share in the Midwest United States.

Is this why the Mexican government would resist

fertilizer subsidy removal? In our opinion, no. Viewed from

the perspective of the Mexican policy maker, the important

issue here is: what would fertilizer subsidy removal cost

subsistence maize producers who comprise the majority of

campesinos in Mexico? And the answer is: much more, maybe the

difference between life and death for peasants who have

traditionally produced maize and beans (la milpa) on small

rainfed plots in Southern Mexico. Mexican campesinos have

already been hard hit by the inflation and rise in consumer

prices of the 1980s which decreased their real wages by 40

percent. Cheap fertilizer has in the past supported "cheap

food, cheap labor" policies which have kept malnutrition down

and guaranteed physical survival for part-time subsistence

farmers in rural areas of Southern Mexico; but at the same

time these policies have also kept urban and rural wages down

(deJanvry 1981). Clearly, it is time for Mexico to break this

vicious circle and "get prices right" (Timmer, Falcon, and

Pearson 1984), in part by allowing food prices, fertilizer

prices,, and wages to rise.








Yet how to diminish the suffering of the poor, who tend

to be consumers of basic grains for at least part of the year,

in the process of structural adjustment? Mexican peasants

have already been through the "lost decade" of the 1980s.

Mexico's debt moratorium issued in the decade in 1982; its

debt-restructuring agreement of 1989, which reduced Mexico's

debts of $107 billion by about $15 billion, saw the decade end

(Economist, Oct. 12, 1991: 30). Financial stress, the debt

crisis, and "structural adjustments" were the buzzwords of the

decade which symbolized a decrease in the standard of living

for the average Mexican citizen, whose purchasing power was

cut in half (Vickers 1991:86).

For Mexico as for other countries all over the world that

"adjusted" in the 1980s, structural adjustment programs (SAPs)

meant a switching of resources from the production of

nontradable, subsistence goods to tradables or exports,

continual devaluation of an overvalued currency, privatization

of parastatals (government-owned industries), slashing of

tariffs and import licences, and a whole new emphasis on free

markets. The increased emphasis on the production of exports

was made necessary by the debt crisis which hit Mexico along

with other middle income developing countries in Latin

America, e.g., Brazil and Argentina, as a result of both the

oil price hikes of 1973 and 1979 and the interest on two-

thirds of the debt being calculated at "floating" interest

rates which soared in the early 1980s. Mexico's case was only








unique because its government officials were the first to

declare that debt-servicing was an obstacle to growth, and

resolving the debt problem had to involve debt reduction

(Economist, Oct. 12, 1991: 17).

Yet internal as well as external factors were

contributors to the debt crisis, and these required internal

changes. Brazilian economist Bacha (1988) claims that, in

contrast to other middle income developing countries of

Southeast Asia and southern Europe, Latin American countries

have had a relatively closed economy as measured by a small

proportion of manufactured exports, in spite of a history of

successful import substitution policies, and thus greater debt

to export ratios. Because they relied on exports of primary

products, which suffered a decline in their terms of trade

during the 1980s, and because they were relatively closed to

trade, Latin American countries had greater vulnerability to

the oil price shocks of the 1970s than did other middle income

developing countries.

The current economic program of President Carlos Salinas

de Gortari has gone far in making these necessary internal

changes and "opening up" the Mexican economy to trade and

foreign investment; some claim it amounts to a revolution in

Mexico's economy (Conger 1990). For the agricultural sector

and desperately poor campesinos, structural adjustment in the

1980s has meant an end to SAM (Sistema Alimentario Mexicano)

which promised food self-sufficiency and decent peasant








incomes for rural Mexicans in 1980-81 (Luiselli 1989), cuts in

rural credit by more than half, and an overall decrease in

public investment in agriculture by four-fifths (Economist,

March 2, 1991: 44). Gone are requirements that 51 percent of

Mexican businesses be owned by Mexicans; even ejido land,

which since the Revolution cannot be sold but must be kept in

the family as individual parcels or owned collectively, can

now be sold.

Now in the 1990s, can Mexican subsistence producers

survive another jolt in the form of removal of fertilizer

subsidies and an increase in fertilizer costs? This is

doubtful, given that maize production twenty years ago--in

1973-74--was very fertilizer-intensive, with farmers in Puebla

applying an average of 800 kilos per hectare (Gladwin 1976).

One way out of this dilemma is for Mexico to target fertilizer

subsidies at small-scale food producers on rainfed farms in

Southern Mexico through rural development programs already in

place, e.g., the Plan Puebla (Gladwin 1976). This solution

has been recommended for African governments faced with the

burgeoning costs of fertilizer subsidies and structural

adjustment conditions mandated by the IMF and World Bank

(Gladwin 1991, 1992). A targeted fertilizer subsidy would not

only serve to keep fertilizer affordable to those food

producers least able to pay for it, but also it would

eliminate the "uneven playing field" seen as unacceptable by

Florida tomato farmers who are not only competitors of Mexican







farmers but also future partners in the new free trade

agreement.



5. CONCLUSIONS



Inferences about competitiveness between Mexican and

Floridian tomato producers are distorted by government

subsidies given to one side only. All subsidies, large and

small, are against the spirit of a free trade agreement.

Given the importance to Florida of its fresh winter vegetable

industry, there is no doubt that Florida tomato producers will

be arguing for an end to Mexican protection and the removal of

all subsidies, so that there really is a "level playing field"

between Mexican and Floridian competitors in the tomato trade.

Given the expected negative impacts on Mexican peasants of a

complete removal of Mexico's fertilizer subsidies, however, we

recommend a targeted fertilizer subsidy which would be

targeted at food (maize) producers on rainfed plots in

Southern Mexico. Such a targeted subsidy could reach

campesinos through rural development programs like the Plan

Puebla in the South. It would not reach Mexican tomato

producers in Northern states, and so would ensure that an

level playing field existed between Mexican and Floridian

producers in the tomato trade.








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