Voluntary Report - public distribution

**Date:** 1/25/2005

**GAIN Report Number:** MX5008

MX5000

**Mexico**

**Agricultural Situation**

**Weekly Highlights and Hot Bites, Issue \# 2**

**2005**

Approved by:

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

U.S. Embassy Mexico City

**Prepared by:**

Daniel Martinez, Dulce Flores, Benjamín Juárez, Salvador Trejo, Marissa
Chávez, and Gabriel Hernández

**Report Highlights:**

-   NEW LEGISLATION AIMS TO REACTIVATE MEXICAN COFFEE TRADE

-   REACTIONS TO THE REVOKING OF THE SUGARCANE DECREE

-   NAFTA INTENSIFIES MEXICO'S ECONOMIC PROBLEMS: NADBANK

-   STRONG DRY BEAN CROP IN 2004 DUE TO RAINFALL, NOT THE GOVERNMENT,
    ACCORDING TO PRODUCERS

-   70 PERCENT OF THE AGRICULTURAL PRODUCTS CONSUMED IN MEXICO ARE OF
    LOW QUALITY: CHAPINGO UNIVERSITY

-   MONEY SENT FROM U.S. BOOSTS HOME ECONOMY

-   MEXICAN BEEF PRODUCERS LOOKING TO STOP CANADIAN BEEF IMPORTS

-   WAL-MART RESULTS FOR LAST QUARTER 2004

-   WAL-MART SALES INCREASE IN DECEMBER

-   MEXICO'S NORTHERN STATES RISE IN ECONOMIC IMPORTANCE

-   SECRETARY OF AGRICULTURE FORESEES CHANGE IN MEXICAN AGRICULTURE

-   MEXICO'S CATTLEMEN MAY REQUEST THE STOPPAGE OF CANADIAN BEEF IMPORTS

-   THE LEGAL FRAMEWORK FOR THE SUGAR AGROINDUSTRY TO BE REWRITTEN

-   IN SEARCH OF A STRENGTHENED NAFTA

Includes PSD Changes: No

Includes Trade Matrix: No

Unscheduled Report

Mexico \[MX1\]

\[MX\]

###### NEW LEGISLATION AIMS TO BOLSTER MEXICAN COFFEE TRADE

The Special Commission on Coffee within the Lower House of the Mexican
Congress (Representatives) presented legislation on January 18 designed
to bolster Mexican coffee exports and set reference prices based upon
international prices, transportation costs and tariffs. The legislation
also seeks to boost the level of financing for technology transfer,
price stabilization and marketing assistance to domestic producers.
Information from the Secretary de Economy shows that Mexican coffee
exports have fallen 43 percent in the last ten years from US\$415
million in 1994 to US\$236 million in 2004. Jorge Utrilla, President of
the Special Commission on Coffee, revealed that the new legislation will
help expand exports and allow Mexican producers to penetrate new market
niches.

(Source: *Reforma*, 1/17/05)

###### REACTIONS TO THE REVOCATION OF THE SUGARCANE DECREE

Following the government's announcement revoking the Decree containing
the legal framework regulating trade relations between mill owners,
sugarcane producers and the system of payment for sugarcane -- among
other issues related to the sugar production agroindustry -- most local
newspapers carried articles in favor and against the decision. According
to some, the government's decision will be good news to consumers and
industries relying on sugar as a main commodity. Others argue that this
decision is a setback for political organizations that for years have
benefited from the special treatment given to sugar. Consumers have been
paying increasing prices for sugar and the chocolate and sweets
industries have had difficulty competing with their international
counterparts because domestic sugar has been high priced. The private
sugar industry believes that this measure will encourage the production
of higher quality sugar, encouraging producers to become more
competitive in preparation for the opening of the market in 2008. The
private industry is forecasting that sugar prices will decrease about 10
percent for the second semester of 2005. The social sector, however,
views this action as a way to benefit large sugar-reliant companies, as
opposed to the producers, by setting lower sugar prices. The leaders of
different farmer associations are calling for urgent meetings with
senators, legislators and governors to analyze the economic and social
costs of the canceling of the Decree. Some legislators from the social
sector have indicated they would promote a legal initiative that was
underway in the Lower Chamber to defend the interests of the sugarcane
growers. (Source: Financiero 01/17, 18/05, Reforma, 01/15,17,18/05 La
Jornada, 01/18/05)

# NAFTA INTENSIFIES MEXICO'S ECONOMIC PROBLEMS: NADBANK 

Raul Rodriguez Barocio, General Director of the North America
Development Bank (NADBANK), stated that 11 years after the North
American Free Trade Agreement came into effect, the economic inequality
continues between Mexico and its trade partners, Canada and United
States. In addition, he said the differences between the north and the
south of Mexico have deepened. In spite of that, the trilateral
agreement has been very successful due to the increased trade volume
among the three countries, even though the economic asymmetries among
them persist. (Source: El Financiero; 01/14/2005)

STRONG DRY BEAN CROP IN 2004 DUE TO RAINFALL, NOT THE GOVERNMENT,
ACCORDING TO PRODUCERS

Abraham Montes, the leader of the National Dry Bean Growers Union,
attributed the successful production by 570,000 dry bean producer
families -- enough to meet domestic consumption of 1.1 million metric
tons - to the rainfall experienced in 2004 rather than assistance from
the Mexican Government. Montes also said dry bean growers have been
adversely affected not only by the North American Free Trade Agreement,
which established an import tariff rate quota that has been growing each
year (and will expire in 2008 when the import duty will be zero), but
also by the smuggling of 200,000 metric tons of beans into Mexico.
Montes added that the authorities of Agriculture, Treasury and Economy
established that the smuggled beans are coming from the United States
and Canada. (Source: La Jornada; 01/15/2005)

70 PERCENT OF THE AGRICULTURAL PRODUCTS CONSUMED IN MEXICO ARE OF LOW
QUALITY: CHAPINGO UNIVERSITY

According to Sergio Barrales-Dominguez, Dean of the Chapingo Autonomous
University, at least 70 percent of the agricultural products that Mexico
consumes are imported and of low quality, especially corn, dry beans,
wheat, soybeans and meat. Regarding the dry bean consumption, he
indicated that Mexico is self-sufficient in the production of this food.
Barrales-Dominguez added that \"those who control the domestic market
authorize the importation of dry beans, which in most cases come from
the United States... where the dry beans that are marketed are not from
the current annual crop but from storage, despite the fact that research
has shown that the protein in dry beans decreases by one third after the
second year of storage." (Source: La Jornada; 01/14/2005)

###### MONEY SENT FROM U.S. BOOSTS HOME ECONOMY 

The Governor of the Bank of Mexico, Guillermo Ortiz, noted that the
income being sent home to Mexico from abroad has been increasing, though
some of the increase may be due to better accounting of transactions and
more formal routes of sending or wiring money. Consumers and investors
will drive the economy this year, though a global slowdown will probably
keep the country from achieving last year\'s growth rate, stated Ortiz
on January 13, 2005. While the nation\'s exports are expected to decline
due to falling oil prices, private consumption and investment should
pick up much of the slack. Consumers have also received a big boost from
money sent home from abroad, especially the United States. Ortiz
estimated that such flows into Mexico reached U.S. \$17 billion in 2004,
up from U.S. \$13.3 billion the previous year. Remittances have
overtaken tourism as the second largest source of income for the
country, behind crude oil exports. Meanwhile, growth in private
investment is poised to increase from an estimated 7 or 8 percent in
2004 to 10 percent this year. The nation\'s economy likely grew about
4.1 percent in 2004, said Ortiz, citing the Central Bank\'s December
survey of private economists. The economy is expected to expand between
3.5 and 4 percent this year. (Source: El Universal; 01/14/2005)

###### MEXICAN BEEF PRODUCERS LOOKING TO STOP CANADIAN BEEF IMPORTS

According to a local newspaper, the Mexican Association of Feedlots
(AMEG), if necessary, will meet with officials from the Secretariat of
Agriculture (SAGARPA) to request the stoppage of beef imports from
Canada due to the finding of a third case of BSE. AMEG is requesting the
GOM to avoid, at all costs, exposing the national herd to the risk of
BSE contamination. AMEG is concerned that trade with Canada is still a
risk because it may affect Mexico's beef exports to Japan since Mexico
is the only NAFTA country currently exporting to the Asian country.
(Source: Reforma, 01/13/05)

###### WAL-MART RESULTS FOR LAST QUARTER 2004

Wal-Mart of México saw a 15.9 percent sales increase for the last
quarter of 2004 over the same period in 2003. However, sales in December
2004 were only 7.8 percent higher than December of the previous year.
Wal-Mart currently operates 694 commercial enterprises in Mexico of
which 284 are restaurants, 162 are Bodegas Aurrerá and 89 are Wal-Mart
Supercenters. Overall sales space increased 11 percent in 2004, with
restaurant seats increasing 6 percent. In February, Mr. Solórzano
Morales will take the position of executive president and general
director for Wal-Mart de Mexico, replacing Eduardo Castro Wright who
will be the new vice president and director general of operations for
Wal-Mart in the United States. *(El Financiero*, 1/11/05)

**WAL-MART SALES INCREASE IN DECEMBER**

Wal-Mart sales for December totaled US \$1.6 billion, allowing the
company to recapture market growth after a 0.6 percent decrease in
November. The 2.4 percent increase in store sales reported by Wal-Mart
of Mexico (Walmex) in December of 2004 was slightly over the 1.8 percent
that was forecast by analysts. Joaquin Ley, analyst of Santander,
attributes the increase in sales to pricing themes and better execution.
Walmex is a chain of Wal-Mart Inc. International Operations, with 694
business units, of which 360 are self-service stores, 50 department
stores, and 284 restaurants, employing over 100 thousand persons. Their
businesses include Wal-Mart Supercenter, Sam's Club, Suburbia, Vips,
Italian restaurants, Ragazzi, and others. (Source: *Reforma*, 1/7/05)

# MEXICO'S NORTHERN STATES RISE IN ECONOMIC IMPORTANCE

Statistics reveal a northward migration of Mexico's GDP, reflecting
changes to the economy of Northern Mexico. Nuevo Leon, which is now the
second most economically powerful region, reflects this northward shift.
According to data from Mexico's National Institute for Statistics,
Geography, and Computer Science (INEGI), Nuevo Leon's economy was the
only one of the top three State economies to increase its share of
national GDP between 1993-2002, the others being Mexico City and
Jalisco. All six border-states increased their share of national GDP,
with the top three growth states being Coahuila (a 17.2 percent
increase), Baja California (a 14.3% increase), and Chihuahua (a 12.8
percent increase). Two parallel trends contributed to the northward
migration of GDP: the above average annual GDP growth rate for the six
border states and the increase in the manufacturing sector's prominence
within these states, offering many new economic opportunities. (Source:
UNCLAS Monterrey 00038, 1/13/05)

**SECRETARY OF AGRICULTURE FORESEES CHANGE IN MEXICAN AGRICULTURE**

The Secretary of Agriculture, Javier Usabiaga, considers it necessary to
group together producers and create economically viable production units
in order to decrease the number of people engaged in this primary
activity within ten years. "Of the 6 million productive units that there
are in the field, only 3 percent contribute 80 percent of the internal
agricultural production. Seventy percent of the revenues from the rural
areas are not generated by agricultural activities," he said. In
contrast, "In the U.S., 8.75 percent provide 75 percent of the value of
production in this sector." Usabiaga also rejected talk of any revisions
to the corn and bean sections of the agricultural chapter of NAFTA,
calling it a fallacy. (Source: *Reforma*, 1/11/05)

# MEXICO'S CATTLEMEN MAY REQUEST THE STOPPAGE OF CANADIAN BEEF IMPORTS

According to a local newspaper, Mexico's cattlemen could request the
total closure of Mexico's borders to beef meat from Canada, unless the
Canadian health authorities guarantee the wholesomeness of their
shipments.

The president of the Mexican Association of Livestock Feedlots (AMEG),
Juan Barrio, indicated that the outbreak of three cases of BSE in Canada
since 2003, places Mexico in a situation of alert, due to the risks of
having this disease invade Mexico and contaminate the national herd.

AMEG is requesting meetings with the Canadian health authorities to
receive assurances that their so-called zoning control offers sufficient
guarantees and that it is efficient enough to impede the exportation of
risk materials due to BSE. (Source: El Financiero, 01/20/05)

# THE LEGAL FRAMEWORK FOR THE SUGAR AGROINDUSTRY TO BE REWRITTEN

On January 14, 2005, the Secretariat of Agriculture (SAGARPA) announced
in the *Diario Oficial* (Federal Register) the revocation, by President
Fox, of the decree defining the legal framework that regulates, among
other things, relations between sugar mill owners and sugarcane
producers and the system of payment for sugarcane. This decree has been
in force since May 31, 1991, and was modified on July 27, 1993. The
announcement calls for SAGARPA to convene all the pertinent parties of
the sugar agroindustry in order to establish a National Sugarcane
Committee, as mandated by the Law of Rural Sustainable Development. The
newly formed national committee will have to propose a new decree by
September 30, 2005. In the interim, the rules and regulations under the
1991 decree will still apply. Moreover, SAGARPA has 60 days to issue an
agreement establishing a permanent dispute resolution board for issues
arising in the sugar agroindustry. In the interim, rules and regulations
from the 1991 decree and the 1993 modification will be applied as
needed. (Source: Diario Oficial, 01/14/2005)

# IN SEARCH OF A STRENGTHENED NAFTA 

Secretary of State-Designate Condoleezza Rice declared that the joint
collaboration with Mexico and Canada to strengthen the NAFTA agreement
and increase its competitive ability against other commercial blocks,
like the European Union, is a sensitive issue for her country. It is
expected that Mexican President Vicente Fox and Canadian Prime Minister
Paul Martin would meet President Bush in the short term to discuss "the
appropriate way to re-launch the agreement". (Source: La Jornada;
01/20/2005)

REPORTS RECENTLY SUBMITTED BY FAS/MEXICO CITY

+----------+------------------------------------------------+----------+
| # NUMBER | # TITLE                                        | # DATE   |
+----------+------------------------------------------------+----------+
| MX5003   | Weekly Highlights and Hot Bites, Issue #1      | 01/13/05 |
+----------+------------------------------------------------+----------+
| MX5004   | Continuance of Compensatory Duties on Beef     | 01/18/05 |
|          | Imports to be Determined                       |          |
+----------+------------------------------------------------+----------+
| MX5005   | Legal Framework for Sugar Agroindustry to be   | 1/21/05  |
|          | Rewritten                                      |          |
+----------+------------------------------------------------+----------+
| MX5006   | Ciudad Reynosa Reopens As A Border Crossing    | 1/21/05  |
|          | For Apples                                     |          |
+----------+------------------------------------------------+----------+