Voluntary Report - public distribution

**Date:** 6/30/2006

**GAIN Report Number:** MX6049

MX6017

**Mexico**

**Agricultural Situation**

**Weekly Highlights and Hot Bites #25**

**2006**

**Approved by:**

![](media/image1.wmf)Suzanne Heinen

U.S. Embassy

**Prepared by:**

Dulce Flores, Benjamin Juarez, Gabriel Hernandez, Jeff Nawn, Luis Chavez
and Michael McAnulty

**Report Highlights:**

-   **SMALL BENEFIT WITH THE FREE TRADE AGREEMENTS**

-   **TABLE GRAPES TO BE EXPORTED TO CHINA AND JAPAN**

-   **MEXICO'S IMPLEMENTING REGULATIONS ON BIOTECH STILL PENDING**

-   **INCREASE IN CORN PRICE DUE TO ETHANOL FORESEEN**

-   **FOX PLEDGES PEACE DURING ELECTIONS**

-   **RENEGOTIATION OF NAFTA AGRICULTURE CHAPTER WOULD AFFECT GROWERS**

-   **CANDIDATES FOLLOW THE SAME ECONOMIC ROUTE**

-   **Renegotiating NAFTA Is Not Convenient: Secretary Of Economy**

-   **Sugar Imports Of Up To 200,000 MT Could Be Authorized**

-   **Sugar Import Quota Defined To Prevent Scarcity**

-   **Green Fuels, Sources of Energy**

-   Calderon & Madrazo Would Continue Current Agricultural Policy

Includes PSD Changes: No

Includes Trade Matrix: No

Unscheduled Report

Mexico \[MX1\]

\[MX\]

######### SMALL BENEFIT WITH THE FREE TRADE AGREEMENTS 

Mexico's free trade agreements with 42 countries have generated a trade
deficit of

\$6.0 billion according to Secretary of Economy data. Since 1994, Mexico
has initiated 12 agreements to exchange products free of duties with
Europe, Asia and America. The results are a surplus with the partners of
the North America Free Trade Agreement, but a deficit of \$11.0 billion
with the European Union. (Source: El Universal; 06/28/2006)

**TABLE GRAPES TO BE EXPORTED TO CHINA AND JAPAN**

During Secretary of Agriculture Francisco Mayorga's visit to table grape
producers in Sonora, the Director General of Agroindustrial Sonora,
Carlos Baranzini, emphasized the great efforts that table grape
producers have gone through to reach better competitiveness based on
improved sanitary and food safety conditions. Baranzini indicated that
table grape producers from Sonora are preparing themselves to make
inroads in the Chinese and Japanese market during the next harvest as
negotiations have advanced with phytosanitary authorities and buyers in
Asia. Table grape growers produced 500,000 boxes of table grapes,
raisins, and wine grapes during the 2006 cycle and about 80 percent of
them went to the U.S., England and other European markets. The balance
went to the domestic market. Grapes in Sonora are harvested on
approximately 700 hectares. (Source: Sagarpa Bulletin No. 168/06)

######### MEXICO'S IMPLEMENTING REGULATIONS ON BIOTECH STILL PENDING

Despite the fact that Mexico continues without any significant barriers
to biotech crops or foods derived from biotechnology, the implementing
regulations of the Biosafety bill still have to be published. Official
sources estimated that the regulations could be published in the next
few months. The main objective of the regulations is to supplement the
Biosafety bill in aspects such as the authorization permits for the
environmental release of genetically modified organisms (GMOs), which
impact field trials, pilot programs and commercial products; the rules
for the notifications of GMOs of confined use; and how the bio-safety
information will be disseminated publicly through the National System of
Biosafety. (Source: FAS/Mexico; 06/28/2006)

######### INCREASE IN CORN PRICE DUE TO ETHANOL FORESEEN 

In one year the international ethanol price has tripled. Therefore,
market grains analysts estimate that corn prices (of which the ethanol
is extracted) would continue to rise. Last Tuesday, June 20,
international ethanol prices reached U.S. \$4.23 per gallon, the highest
level since the Chicago Board of Trade began tracking this price in
March of 2005. On the same date last year, the ethanol price was U.S.
\$1.23 per gallon. Caridad Garcia-Manns, president of the Traders Group
Inc., a financial company specialized in basic grains, said that the
expectation of high oil prices has provoked the increase in ethanol
prices. According to Garcia-Manns, the demand of livestock producers for
corn, joined with the demand from companies producing ethanol, leads to
the expectation of rising yellow corn prices. \"Ethanol is following the
price of gasoline and as it increased so did ethanol. We are seeing a
ceiling of U.S. \$82 per barrel for oil and if it ascends to that level,
ethanol will also continue ascending. I do not believe that ethanol
price increases will impact the sugar cane price because there is not a
lot of competition. But corn prices should rise because pork, cattle and
poultry producers also demand this grain." As a result of the
expectation of high yellow corn prices and the NAFTA opening in 2008 for
this grain, Mexico corn growers are shifting their parcels of white corn
for yellow corn. Tamaulipas is an example of such a shift according to
Carlos Salazar-Arriaga, general secretary of Mexico's National
Confederation of Agricultural Producers of Corn. The Mexican farmers, he
said, are getting ready in the eventuality that United States reduces
its corn exports to Mexico due to the strong domestic demand to produce
ethanol and for animal feed. \"In Tamaulipas, 80 percent of the land
that we had for white corn, approximately 70,000 hectares, is already
being shifted to produce yellow corn\", he indicated. (Source: El Norte;
06/23/2006)

######### FOX PLEDGES PEACE DURING ELECTIONS 

President Vicente Fox on Monday June 26, 2006 promised that the election
for his successor on July 2 will not be disturbed by any civil unrest.
After Fox met with his team of security advisers, the President's office
released a statement saying, \"peace during the election is
guaranteed.\" In the run up to the presidential ballot, which is the
first since Mexico ended 71 years of one party rule in 2000, the nation
has been shaken by an increase in drug-related violence and a wave of
strikes by disgruntled miners and teachers. However, Monday's, statement
said that the security advisers told the president \"none of these
conflicts will directly affect the elections.\" Felipe Calderon, from
Fox's conservative National Action Party (PAN), is fighting a tight race
against leftist Andres Manuel Lopez Obrador of the Democratic Revolution
Party (PRD). (Source: El Universal; 06/27/2006)

######### RENEGOTIATION OF NAFTA AGRICULTURE CHAPTER WOULD AFFECT GROWERS

Although it is \"possible\" to renegotiate the agricultural chapter of
the NAFTA \"it is not wise to do it\", because it would be \"very
dangerous\" for diverse products and regions of Mexico that have
reported favorable sales toward United States like they are the cases of
sugar, vegetables, fruits and meat, according to the secretary of
Economy, Sergio Garcia de Alba. (Source: La Jornada; 06/25/2006)

######### CANDIDATES FOLLOW THE SAME ECONOMIC ROUTE 

Far from the political-ideological differences, surveys of the three top
presidential candidates platforms find similarities in strategy and
economic goals. The impulse for private investment and the recovery of
country's competitiveness would be the main motors of the growth. With
shades on how to do it, the economic team coordinators, Eduardo Sojo for
Felipe Caldron; Rogelio Ramirez de la O for Andres Manuel Lopez-Obrador,
and Jorge Chavez Presa for Roberto Madrazo, all recognized the necessity
of changes in the government\'s structure, the government's
participation in economic activity, and in the handling of public
finances. (Source: El Financiero; 06/26/2006)

Renegotiating NAFTA Is Not Convenient: Secretary Of Economy

According to Sergio Garcia de Alba, Mexico's Secretary of Economy,
renegotiation of the agricultural chapters of NAFTA is not advisable.
Secretary Garcia de Alba spoke at the Third International Forum on
Social Economy, where he declared that "the moment Mexico requests that
provisions in the agreement for sensitive products such as corn, sugar
and beans be revised, our trading partners will also request the
revision of their affected commodities, like fruits, vegetables and
meat". He further commented that the grower associations' arguments
against NAFTA are not solid, and regretted that trade liberalization
scenarios have been seriously "politicized" due to the upcoming
elections. Regarding white corn, he stated that U.S. production
represents no threat to the Mexican growers and imports are required to
satisfy domestic demand. "Domestic production is strong and keeps
growing, even with tariff elimination". With respect to dry beans he
explained that production has not been affected by trade liberalization,
but rather by the serious droughts affecting states that clearly do not
have efficient production practices. Secretary Garcia added that the GOM
and the state governments are working on crop conversion and
infrastructure improvement. He believes however, that Mexico will
succeed by identifying the agricultural commodities that represent
opportunities and, "in a global, world neighborhood", complement its
food stock with imported products. (Source: La Jornada; 06/22/2006)

Sugar Imports Of Up To 200,000 MT Could Be Authorized

Enrique Michel, president of the Mexican Council for International Trade
(COMCE), stated that the Ministry of Economy could authorize an
emergency import of up to 200,000 MT of sugar to eliminate supply
problems faced by candy and soft drink companies. Imports could be
authorized two months from now, after the domestic production period is
over. Candy and chocolate companies that are facing serious supply
problems that would be alleviated by this action and more than 300 jobs
threatened by this situation would be saved. (Source: Diario Monitor;
06/22/2006)

Sugar Import Quota Defined To Prevent Scarcity

Sergio Garcia de Alba, Mexico's Secretary of Economy (SE), announced
today that an unilateral import quota of sugar will be authorized. The
quota was set to 90,000 MT. The idea is to satisfy sugar demand in the
domestic market and prevent price fluctuations. The product will have a
tariff of US \$36.00 per MT and is expected to be published in Mexico's
Diario Oficial (Federal Register) by mid-July, the additional quota
certificates will be valid until December 31, 2006. SE announced they
will keep monitoring the sugar market and additional quotas could be
granted. According to the National Chamber of the Alcohol & Sugar
Industries, there is a sugar deficit of nearly 600,000 MT, while sugar
prices have risen 30% in the last months. This has had a negative impact
on industries that use sugar as raw material or ingredient, like the
soft-drink industry, that consumes around 2 million MT of sugar yearly.
(Source: El Economista & Cronica; 06/27/2006)

Green Fuels, Sources of Energy

Elevated prices of fossil fuels have generated an unprecedented interest
in bio-fuels by the futures' market. Many studies conclude that US
\$45.00 per barrel of oil sets the limit over which it is more
convenient to shift to the so-called "green fuels". Since current oil
prices are well over that limit, it is foreseeable that a structural
change in crop destination is currently under way. First, already proven
ethanol sources like corn, sugar, sorghum and animal fats are being
diverted from food production to fuel generations. Second, alternative
sources are sought in non-traditional energy crops, like coffee and
avocados. Brazil is currently leading the way in diversifying energy
generation. Futures' market teaches important lessons. This time, they
are telling us to shift Mexican corn from tortillas to ethanol. (Source:
El Economista; 06/ 27/2006)

Calderon & Madrazo Would Continue Current Agricultural Policy

Agricultural proposals by presidential candidates Felipe Calderon (PAN)
and Roberto Madrazo (PRI), clearly coincide and show that if one of them
should win the election, public policy related to agriculture will
concentrate on enhancing competitiveness, strengthening agricultural
exports, offering legal certainty regarding land ownership and, most
important, promoting rural financing. On the contrary, Andres Lopez
(PRD) is concentrating his agricultural proposals to assist small-scale
growers, close Mexico's borders to corn and beans and go back to
"guaranteed prices" schemes for grains and oilseeds. These remarks are
part of a thorough study carried out by the Inter-American Institute of
Agricultural Cooperation (IICA) in order to analyze and compare
proposals of the three main presidential candidates. (Source: El
Financiero; 06/27/2006)

**REPORTS RECENTLY SUBMITTED BY FAS/MEXICO CITY**

+----------+-----------------------------------------------+----------+
| # NUMBER | # TITLE                                       | # DATE   |
+----------+-----------------------------------------------+----------+
| MX6048   | Weekly Highlights and Hot Bites #24           | 6/23/06  |
+----------+-----------------------------------------------+----------+
| MX6047   | Weekly Highlights and Hot Bites #23           | 6/16/06  |
+----------+-----------------------------------------------+----------+
| MX6046   | Asparagus Annual                              | 6/14/06  |
+----------+-----------------------------------------------+----------+
| MX6045   | Weekly Highlights and Hot Bites #22           | 6/12/06  |
+----------+-----------------------------------------------+----------+
| MX6044   | Weekly Highlights and Hot Bites #21           | 6/2/06   |
+----------+-----------------------------------------------+----------+
| MX6043   | Tomato Annual                                 | 5/30/06  |
+----------+-----------------------------------------------+----------+
| MX6042   | Weekly Highlights and Hot Bites #20           | 5/30/06  |
+----------+-----------------------------------------------+----------+
| MX6041   | Weekly Highlights and Hot Bites #19           | 5/19/06  |
+----------+-----------------------------------------------+----------+