United States

Department

of Agriculture

www.ers.usda.gov

Electronic Outlook Report from the Economic Research Service

WRS-05-03

April 2005

Recent Agricultural

Policy Reforms in North

America

Steven Zahniser, Ed Young, and 

John Wainio

Abstract

The United States, Mexico, and Canada have each made significant changes to

their agricultural policies over the past several years. In the area of income

supports, each country has instituted a countercyclical program that provides

additional assistance to producers during downturns in commodity prices, and

each continues to decouple key support programs from production decisions.

In other areas, the reforms of the three countries have different points of

emphasis. The United States has expanded spending on conservation activities,

especially on lands in production; it has made important changes to peanut and

tobacco programs; and it has implemented a new program that assists

producers who are adversely affected by competition with imports. Mexico’s

new efforts to strengthen the competitiveness of its agricultural sector include

energy discounts for producers, and a revamped approach to agricultural

finance. And Canada’s comprehensive evaluation of its farm programs is

leading to new efforts concerning the environment, food safety and food

quality, science, and the renewal of the agricultural sector.

Keywords: Canada, Mexico, agricultural policy, 2002 Farm Act, Agricultural Policy Framework, Agri-food Armor, National Agreement for the

Countryside.

Acknowledgments

The authors thank Praveen Dixit and Joy Harwood of USDA’s Economic

Research Service; Brenda Freeman, Suzanne Heinen, Hugh Maginnis, and

Christina Patterson of USDA’s Foreign Agricultural Service; Carol Goodloe

and David Stallings of USDA’s Office of the Chief Economist; Dan Colacicco,

Steven Neff, and Gene Rosera of USDA’s Farm Service Agency; Rene Ochoa

(Texas A&M University); Adriana Rodríguez Romero (Secretaría de Agricultura, Ganadería, Desarrollo Rural, Pesca, y Alimentación, Apoyos y Servicios a

la Comercialización Agropecuaria-SAGARPA/ASERCA); and an anonymous

reviewer for their helpful comments. The authors are also indebted to Robert

Dismukes and Tom Capehart (also USDA, ERS) for information on the U.S.

crop insurance and tobacco programs, respectively.
Over the past several years, the three largest agricultural producers of the

northern half of the Western Hemisphere—the United States, Mexico, and

Canada—have revised their agricultural policies (table 1). In the United

States, the Farm Security and Rural Investment Act of 2002 (2002 Farm

Act) was signed into law, providing the legal framework for U.S. farm

programs through 2007 crops. In Mexico, the government responded to

heightened concerns about the 2002 Farm Act, the North American Free

Trade Agreement (NAFTA), and the general state of Mexican agriculture by

issuing two outlines of intended policy actions, one in 2002 and another in

2003. And in Canada, the government is engaged in a comprehensive effort

to reshape its agricultural policy within the context of the Agricultural

Policy Framework (APF).

Mexico’s agricultural policy changes reflect a continuing effort to implement agricultural supports similar to those found in the developed

economies, while still addressing the needs and wants of smaller producers

who are less commercially oriented. Meanwhile, Canada’s new income

stabilization and disaster protection program for producers—the Canadian

Agricultural Income Stabilization (CAIS) program—has emerged as the

centerpiece of that country’s agricultural reform efforts, with complementary initiatives being planned for the environment, science and innovation,

food safety and quality, and the renewal of the agricultural sector.

During the 3 years immediately prior to these reforms (1999-2001), the

United States, Mexico, and Canada provided different levels of government

support to their agricultural producers (fig. 1). When such support is measured by the Producer Support Estimate (PSE), as calculated by the Organisation for Economic Co-operation and Development (OECD), the United

States is estimated to have given the highest level of support (23 percent of

the value of national agricultural production), followed by Mexico (21

percent) and then Canada (18 percent).1

The United States and Canada provide a much larger portion of their agricultural support in the form of budgetary payments to producers than does

Mexico. During 1999-2001, such payments accounted for 64 percent of the

U.S. PSE and 54 percent of the Canadian PSE, compared with just 34

percent for Mexico. Relative to the value of national agricultural production,

budgetary expenditures on farm payments during 1999-2001 equaled 15

percent in the United States, 10 percent in Canada, and 7 percent in Mexico.

With the implementation of new agricultural policies in the three countries,

the relative difference between Mexico’s budgetary payments and those of

Canada and the United States may narrow over the next several years. So

far, Mexico’s new agricultural policies have been accompanied by a modest

real increase in spending, while actual U.S. outlays associated with the 2002

Farm Act during its first 2 years of operation (fiscal years 2002-03) were

well below some projections made prior to the legislation’s enactment. The

U.S. development is linked to smaller-than-expected expenditures on certain

price-sensitive commodity programs, due to relatively favorable prices for

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Introduction

1

PSE data generally pertain to marketing years, so aggregate measures may

encompass a variety of marketing

years that do not precisely match.
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Table 1—The North American countries have made substantial changes to their agricultural policies

United States Mexico Canada

Key initiative(s) 2002 Farm Act Agri-food Armor and National Agricultural Policy

Agreement for the Countryside Framework (APF)

Description Legal framework for U.S. Separate but overlapping Comprehensive effort to

farm programs through 2007 outlines of intended reshape Canada's

crops. agricultural policies. agricultural policies.

Status Signed into law, May 2002. Many elements were All Provinces have signed on

previously planned; others are for the APF to take effect,

being implemented in a but some elements are still

piecemeal fashion. being planned.

Income support Triad of programs—direct PROCAMPO continues to The new Canadian

payments, countercyclical provide direct payments on a Agricultural Income

payments, and marketing simple per hectare basis, while Stabilization (CAIS)

loans—provides income the Subprogram of Direct program integrates income

support for wheat, feed Supports to Target Income stabilization and disaster

grains, upland cotton, rice, provides countercyclical protection. It replaces an

peanuts, and oilseeds. New assistance to grain and oilseed earlier subsidized savings

countercyclical program producers. Marketing supports program for producers, as

replaces ad hoc emergency geared for commercial well as a previous ad hoc

assistance. Marketing loans producers continue under the program of emergency

extended to certain pulses, guise of the Program of Direct assistance.

mohair, wool, and honey. Supports to the Producer

Extensive planting flexibility through Marketable Surpluses.

is maintained.

Conservation Almost all programs are Support program for cattle APF intends to finance

expanded; greater emphasis producers (PROGAN) aims to voluntary farm

placed on land in production. improve quality of pasture environmental plans.

Conservation Security lands. Secretariat of the

Program is created. Land Environment and Natural

retirement through the Resources (SEMARNAT),

Conservation Reserve which is separate from the

Program remains the primary agricultural secretariat, operates

conservation program. other conservation programs.

Rural development Funding provided for Emergency spending and credit APF plans to offer producers

planning and coordination allocations bolster ongoing a broad range of services

between rural areas and efforts to reduce rural poverty. (training, consulting,

officials, addressing backlog Alianza Contigo continues marketing information, and

of applications for water and efforts to boost agricultural networking). Science and

wastewater programs, and productivity. Opportunities innovation efforts require

several new programs. Program (separate from the further planning.

agricultural secretariat)

combats poverty through

supports for health, education,

nutrition, and income.

Agricultural credit Rules of Farm Service FIRA implements new services No programs noted, beyond

Agency are relaxed to and financial strategies. those in CAIS.

expand eligibility and Financiera Rural replaces

streamline program delivery. BANRURAL.

Nutrition Food Stamp and commodity Rural development efforts Nutrition falls within the

distribution programs are include nutritional initiatives; jurisdiction of Health

reauthorized. Food stamp strong focus on the less Canada, a cabinet ministry

eligibility reinstated for fortunate and marginalized separate from Agriculture

certain legal immigrants. communities. and Agri-Food Canada.

International trade All trade programs Policies promise more vigorous Key element of Canada's 

reauthorized. New programs enforcement of trade-remedy agricultural strategy is

concern international food laws and request consultation improving market access,

aid for education, trade regarding NAFTA's provisions even though trade is not

barriers, and online help. for corn and beans. explicitly one of the APF's

Separate from the 2002 Farm pillars. Importance of

Act, the Trade Adjustment exports motivates emphasis

Assistance Program for on food safety and quality.

Farmers was created.
some crops. For 2003, budgetary expenditures on farm payments in Canada

and the United States equaled 11 percent of the value of production,

compared with 8 percent in Mexico.

The three countries also differ in the administration of budgetary payments

to producers. In 2003, Mexico based 77 percent of its payments on either

input use or a long-term entitlement, while Canada and the United States

distributed farm payments across a wider array of program formats (fig. 2).

These patterns are likely to persist over the next several years, as the three

countries have left the previous formats of their agricultural programs

mostly intact. For instance, Canada is expected to continue devoting a much

larger proportion of its farm payments to programs based on overall farm

income than Mexico and the United States, since the CAIS program

replaces an earlier subsidized savings plan for producers.

In the case of Mexico, the different orientation of its agricultural programs

reflects the profound structural differences that distinguish its agricultural

sector from that of Canada and the United States. About 20 percent of

Mexico’s economically active population (EAP) is engaged in agriculture,

compared with just 2 percent in both Canada and the United States (table 2).

But the ratio of agricultural gross domestic product to agricultural EAP is

roughly $3,000 per person in Mexico, compared with $49,000 in Canada

and $40,000 in the United States. Although Mexico's GDP figures may

understate the size of the Mexican agricultural sector due to subsistence

production and informal activities that are not tallied in official statistics, the

productivity gap is nonetheless real, and Mexico's farm programs include

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Source: OECD, 2004.

Canada, Mexico, and the United States gave their agricultural producers

different levels of support in recent years

Figure 1

Percent of value of national agricultural production 

plus budgetary payments to producers

Note: The Producer Support Estimate (PSE) indicates the value of the gross transfers to 

agricultural producers from government policies. The PSE comprises support from consumers

and taxpayers in the form of market price support and budgetary payments to producers. The

percentages in this table are based on the average level of support during 1999-2001 and the 

level of support in 2003. 

0

5

10

15

20

25

Market price support

Budgetary payments to producers

 Canada, Canada, U.S., U.S., Mexico, Mexico, 

 1999-2001 2003 1999-2001 2003 1999-2001 2003

10

8

11

10

8

15

11

7 14

7

11

8
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Source: OECD, 2004.

The administration of farm payments differs greatly across North

America

Figure 2

Data are for 2003.

Percent of total budgetary payments to producers

Canada Mexico U.S.

0

20

40

60

80

100

Miscellaneous payments

Payments based on overall farming income

Payments based on input constraints

Payments based on input use

Payments based on historical entitlement

Payments based on area planted/animal numbers

Payments based on output

Table 2—Mexican agriculture employs a larger share of the economically active population but generates

less income per worker, compared with Canada and the United States1

Item Unit of measure Canada Mexico U.S.

Total population Millions2 31.5 103.5 294.0

Economically active population (EAP) in agriculture Millions2 0.4 8.5 2.8

Total EAP Millions2 17.0 43.1 150.0

Agricultural EAP (share of total) Percent 2.1 19.7 1.9

Agricultural gross domestic product (GDP) U.S. dollars (billions) 17.6 22.8 113.9

Total GDP U.S. dollars (billions) 812.2 622.9 11,004.0

Agricultural output (share of total) Percent 2.2 3.7 1.0

Ratio of agricultural GDP to agricultural EAP U.S. dollars per person 48,557 2,692 39,993

1All statistics are for 2003. 2Estimated.

For the GDP data, agriculture is broadly defined to include agriculture, forestry, fishing, and hunting.

Canadian GDP data are converted first from 1997 to 2003 prices and then to U.S. dollars.

Mexican GDP data are converted to U.S. dollars on a quarterly basis.

Sources: Food and Agriculture Organization of the United Nations (population); U.S. Department

of Commerce, Bureau of Economic Analysis (U.S. GDP); Instituto Nacional de Estadística, Geografía,

e Informática (Mexican GDP); Statistics Canada, August 2004 (price indexes) and September 2004

(Canadian GDP); and USDA/ERS (exchange rates).
initiatives oriented toward rural development and the amelioration of rural

poverty.

Despite these many differences, the agricultural reforms of all three countries share one striking similarity. Each country has created a countercyclical

program that provides additional assistance to producers during a downturn

in commodity prices. The United States has institutionalized the emergency

assistance given to producers in the late 1990s and early 2000s, Canada has

done the same by incorporating disaster assistance within the CAIS, and

Mexico has formulated the Subprogram of Direct Supports to Target

Income, which resembles the U.S. marketing loan program.

These modifications continue a trend in which the three countries implement some income supports that are similar in their broadest features. In the

mid-1990s, the three countries moved “toward policies that provide farmers

with lower levels of support while simultaneously “decoupling” this support

from production decisions” (Link and Zahniser, 1999: p. 18). The recent

reforms do not fully reverse the earlier ones, as key supports in each country

continue to be decoupled. Even with respect to the U.S. countercyclical

program, payments are tied to historical production, and payment levels

depend on commodity prices.

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The 2002 Farm Act is an exercise in both continuity and change in U.S.

farm policy. The Act, which was signed on May 13, 2002, extends many of

the market-oriented reforms of its predecessor, the Federal Agriculture

Improvement and Reform Act of 1996 (1996 Farm Act). Like the 1996

Farm Act, the 2002 Farm Act contains many supports that are designed not

to distort international trade, and it retains the extensive planting flexibility

that the 1996 Farm Act offered U.S. farmers. At the same time, the 2002

Farm Act introduced countercyclical payments to provide a farm income

safety net.

The U.S. Government also operates farm programs whose legislative authorization is separate from the 2002 Farm Act. Foremost among these is the

subsidization of crop insurance, most recently extended by the Agricultural

and Risk Protection Act of 2000. These subsidies, as implemented by

USDA’s Risk Management Agency (RMA), reduce the costs to farmers of

crop yield and crop revenue insurance and thus encourage insurance participation (USDA/RMA, 2003). For the 2003 crop year, the net indemnities

associated with the crop insurance program, which are calculated as the sum

of indemnities and premium subsidies less total premiums, totaled about

$1.9 billion, as of October 4, 2004 (USDA/RMA, 2004). Another farm

program with separate authorization is the Trade Adjustment Assistance for

Farmers program, which is described later in this section.

Projected spending. The Commodity Credit Corporation (CCC) serves as

the funding conduit for most commodity programs, conservation programs,

and trade programs related to agriculture.3 Under the 2002 Farm Act, the

CCC is expected to have net outlays of about $104 billion during FYs 2002-

07. This number is the sum of actual net outlays during FYs 2002-04 and

projected net outlays for FYs 2005-07, according to the President’s Budget

for FY 2005 (fig. 3). In May 2002, the Congressional Budget Office (CBO)

projected that the CCC’s net outlays would have totaled about $122 billion

during FYs 2002-07, had the provisions of the 1996 Farm Act simply been

extended (Young, 2003). Care must be taken, however, in the comparison of

these projections. The projection of May 2002 was based on the assumption

of lower commodity prices (and thus higher net outlays). In addition, ad hoc

emergency assistance, including Market Loss Assistance payments, was not

included in the May 2002 projection, since such assistance was not part of

the 2002 Farm Act.

The 2002 Farm Act also covers a wide range of programs in the areas of

nutrition, rural development, research, forestry, and energy. Outlays in these

areas are projected to equal about $343 billion4 over FYs 2002-07,

compared with a baseline of $338 billion had the 1996 Farm Act been

extended. Nutrition programs, including food stamp assistance for lowincome Americans, account for a majority of this amount, with projected

outlays of $318 billion.

Under the 2002 Farm Act, spending on trade-distorting domestic support

programs, such as marketing loans, is expected to fall within the allowable

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4

This amount is based on the projection made by the CBO in May 2002

and does not reflect actual expenditures during FYs 2002-03.

2

Section authored by Ed Young. More

extensive information about U.S. agricultural programs is available in the

Farm and Commodity Policy Briefing

Room of the ERS website at

www.ers.usda.gov/briefing/farmpolicy

The U.S. Farm Security and Rural Investment

Act of 20022

3

The crop insurance and Trade

Adjustment Assistance for Farmers

programs are not funded through the

CCC.
levels established by the Uruguay Round Agreement on Agriculture of the

World Trade Organization (WTO). For the United States, the current ceiling

on this type of spending is $19.1 billion per year, as indicated by the aggregate measure of support.5 To ensure that this obligation is met, the 2002

Farm Act includes a “circuitbreaker” that requires the U.S. Secretary of

Agriculture, “to the maximum extent practicable, to adjust domestic

commodity program expenditures to avoid exceeding allowable” WTO

domestic support ceilings.

Commodity programs. The 2002 Farm Act provides income support for

wheat, feed grains, upland cotton, rice, peanuts, and oilseeds through three

programs: direct payments, countercyclical payments, and marketing loans.

The Act eliminates the peanut marketing quota system, which constrained

production for domestic edible consumption, so peanuts are now treated

similarly to other program crops. To the extent possible, the sugar program

will operate at no cost to the Federal Government. A new dairy countercyclical payment is also introduced. Support for tobacco is handled by separate legislation, with tobacco price support ending after the 2004 crop year

and a buyout of tobacco quota funded by assessments on domestic manufacturers of tobacco products and importers of foreign tobacco.

Direct payments. Direct payments to farmers under the 2002 Farm Act are

similar to the production flexibility contract (PFC) payments of the 1996 Farm

Act. However, the 2002 Act expands the commodity coverage to include

soybeans, other oilseeds, and peanuts. Payment rates are fixed for each crop

and based on historical acreage and yields (table 3). Although direct payment

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5

The aggregate measure of support

(AMS) indicates the monetary value of

the extent of government support to an

economic sector. The AMS, as defined

in the WTO's Uruguay Round

Agreement on Agriculture, includes

not only budgetary outlays but also

revenue transfers from consumers to

producers as a result of policies that

distort market prices.

1

The Commodity Credit Corporation is a federally owned and operated corporation within 

USDA. It was created to stabilize, support, and protect farm income and prices through loans, 

purchases, payments, and other operations. All money transactions for agricultural prices and

income support and related programs are handled through the CCC. 

f = forecast 

0

5

10

15

20

25

30

35

40

45

1980 83 86 89 92 95 98 2000 04 07f

 Actual outlays under 2002 Farm Act

Projected outlays, February 2005

 Actual outlays under past legislation

$ billion

Source: USDA, CCC Budget, February 2005. 

Fiscal year

Net outlays of the Commodity Credit Corporation, fiscal years

1980-2007

Figure 3

1

02
rates are higher than PFC payment rates for 2001 and 2002, they are lower

than the average PFC rates under the 1996 Act.

Countercyclical payments. The 2002 Farm Act creates a new program of

countercyclical payments (CCP) that provides benefits whenever the market

price of the covered commodity falls short of its effective target price (target

price minus direct payment rate) (table 3). The maximum CCP is the difference between the effective target price and the marketing loan rate.

Payments are limited to 85 percent of base acres for all covered crops and

are based on historical area and yields.

For example, in crop year 2005/06, the target price for corn is $2.63 per

bushel, the direct payment rate is $0.28 per bushel, and the marketing loan

rate is $1.95 per bushel (fig. 4). Should the season average price turn out to

be $2.20 per bushel (which would be above the loan rate), the CCP rate

would equal $0.15.

Should the season average price reach $2.35 or higher, the payment rate

would equal zero. The maximum CCP rate of $0.40 per bushel would be

attained if the market price equaled the loan rate of $1.95 or less. Since both

direct payments and CCPs are based on historical areas and yields,

producers receiving payments for corn could be producing another crop.

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Table 3—Direct payment rates, target prices, and marketing assistance loan rates under 2002 Farm Act for

fiscal years 2004-07

Direct Target prices in Marketing

payment countercyclical Effective assistance

Commodity Unit rates program target price loan rates1

-----------------------------------Dollars---------------------------------------

Wheat Bushel 0.52 3.92 3.40 2.75

Corn Bushel 0.28 2.63 2.35 1.95

Grain sorghum Bushel 0.35 2.57 2.22 1.95

Barley Bushel 0.25 2.24 1.99 1.85

Oats Bushel 0.02 1.44 1.42 1.33

Upland cotton Pound 0.07 0.72 0.66 0.52

Rice Hundredweight 2.35 10.50 8.15 6.50

Soybeans Bushel 0.44 5.80 5.36 5.00

Other oilseeds2 Pound 0.01 0.10 0.09 0.09

Peanuts Ton 36.00 495.00 459.00 355.00

Graded wool Pound n.a. n.a. n.a. 1.00

Nongraded wool Pound n.a. n.a. n.a. 0.40

Mohair Pound n.a. n.a. n.a. 4.20

Honey Pound n.a. n.a. n.a. 0.60

Small chickpeas Hundredweight n.a. n.a. n.a. 7.43

Lentils Hundredweight n.a. n.a. n.a. 11.72

Dry peas Hundredweight n.a. n.a. n.a. 6.22

n.a. = not applicable.

1Nonrecourse loans are available for extra-long staple cotton, but the repayment rate is set

at the loan rate plus interest.

2Sunflower seed, canola, rapeseed, safflower, mustard seed, and flaxseed.

Source: USDA, Economic Research Service.
Marketing assistance loan program. The 2002 Farm Act continues the

commodity loan program with marketing loan provisions, while extending it

to several commodities that either had never been eligible under previous

farm legislation (small chickpeas, lentils, and dry peas) or had been eligible

for commodity loans without marketing loan provisions prior to the 1996

Farm Act (mohair, wool, and honey). Commodity loans, also known as

marketing assistance loans, allow producers of designated crops to receive a

loan from the government by pledging production as collateral. Loan rates

are commodity specific and measured per unit of production (table 3). After

harvest, a farmer may obtain a loan for all or part of the new commodity

production.

Farmers may settle commodity loans in one of three ways:

• Repay the loan at the loan rate plus interest costs (the CCC’s cost of borrowing from the U.S. Treasury plus 1 percentage point),

• Repay the loan at a lower loan repayment rate, if applicable, or

• Forfeit the crop pledged as loan collateral to the CCC at loan maturity.

When market prices are below the loan rate, farmers are allowed to repay

commodity loans at a loan repayment rate that is lower than the loan rate

(except for extra-long staple cotton). Alternatively, farmers can take loan

program benefits directly as loan deficiency payments (LDP). The LDP

option allows the producer to receive the benefits of the marketing loan

program without having to take out and subsequently repay a commodity

loan. The LDP rate is the amount by which the loan rate exceeds the loan

repayment rate and thus is equivalent to the marketing loan gain that could

alternatively be obtained for crops under loan.

Peanuts. The 2002 Farm Act substantially revamped the peanut program.

Under previous legislation, the peanut program was a two-tiered, price

support program based on marketing quotas and nonrecourse loans. Production for domestic edible consumption was constrained by an annually established marketing quota. The marketing of nonquota (additional) peanut

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Calculation of countercyclical payment (CCP) rate for corn example

$1.70

$1.90

$2.10

$2.30

$2.50

$2.70

Dollars per bushel

Target price = $2.63

 Less loan rate = $1.95

Maximum

countercyclical

payment = $0.40

 CCP = ETP - MP

Market price (MP)

 Less direct payment = $0.28

Effective target

price (ETP) = $2.35

Figure 4
production was permitted only for export or domestic crushing, and

nonquota production was eligible for a lower loan rate.

Under the 2002 Farm Act, the peanut marketing quota system is eliminated.

Peanuts are now treated similarly to other program crops, such as grains and

cotton, with direct payments and countercyclical payments. Producers with

a history of peanut production during 1998-2001 are eligible for these

programs. Also, a single marketing assistance loan program for all peanut

production replaces the two-tier price support program. Farmers no longer

have to own or rent peanut quota rights to produce for domestic edible

consumption. Owners of peanut quota under prior legislation will receive

compensation payments for the loss of quota asset value.

Sugar. The three main elements of U.S. sugar policy are the tariff-rate

quota (TRQ) system, the domestic marketing allotment program, and the

price support loan program. The 2002 Farm Act requires USDA, to the

maximum extent possible, to operate the sugar program at no cost to the

government. Thus, USDA controls domestic supply through the TRQ and

the domestic marketing allotment to avoid acquiring loan collateral under

the price support loan program. Unlike most commodity programs, sugar

loans are made to processors and not to producers. To qualify for loans,

sugarcane and sugar beet processors must agree to make a minimum

payment to producers.

The marketing allotment authority is suspended if USDA estimates that

sugar imports for domestic human consumption will exceed 1.532 million

short tons, raw value, and that the imports would lead to a reduction in the

overall allotment quantity. Allotment authority is suspended until USDA

restricts, eliminates, or reduces imports. The trigger import amount equals

the U.S. sugar minimum access commitment under the WTO, plus the

maximum annual duty-free access provided to Mexico in FYs 2001-07

under NAFTA.

Tobacco. Since 1938, U.S. tobacco production has been subject to

marketing quotas and price supports. At the end of the 2004 crop year, the

Fair and Equitable Tobacco Reform Act of 2004 ends the U.S. marketing

quota and price support program. Under the Act, producers are no longer

bound by restrictions on growing locations or the quantity grown, and they

will not receive price support for the tobacco they sell. Mandatory inspections of imported tobacco will cease, although inspections will continue for

some domestic types. As part of the quota buyout accompanying the termination of the tobacco programs, stocks of tobacco currently held by growerowned cooperatives will be sold in a manner that does not destabilize

tobacco markets.

Elimination of the tobacco programs will have significant effects on the

U.S. tobacco industry. Production will likely shift to areas where producers

can achieve more economically viable scales of operation. Leaf prices will

likely fall, as production costs decline due to the elimination of costs associated with acquiring quota. Production is expected to increase as U.S. leaf

becomes more competitive in the domestic and world markets.

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Conservation programs. The 2002 Farm Act continues efforts to retire

environmentally sensitive land, while placing greater emphasis on the

conservation of land in production and environmentally friendly practices on

livestock operations. Total conservation spending is projected to be higher

under the 2002 Farm Act than under previous legislation, with expansion of

the Conservation Reserve Program (CRP), the establishment of the Conservation Security Program (CSP), and expansion of the Environmental Quality

Incentives Program (EQIP).

Under the CRP, which is continued by the 2002 legislation, farmland

owners submit bids to retire highly erodible and other environmentally

sensitive cropland from production for 10-15 years. Farmers receive a costshare payment to establish a permanent cover crop, as well as annual rental

payments for retiring land and maintaining specified conservation practices.

The 2002 Farm Act increases the maximum CRP area to 39.2 million acres,

up from 36.4 million under the 1996 Act.

The CSP in the 2002 Farm Act focuses on land-based practices but specifically excludes livestock waste-handling facilities. Under the CSP, producers

develop and submit conservation plans to USDA that include practices that

fall within one of three tiers or levels of participation. Higher tiers offer

larger payments but require greater conservation measures.

The 2002 Farm Act also expands EQIP, which provides technical assistance,

cost sharing, and incentive payments to assist livestock and crop producers

with conservation and environmental improvements on working lands. Cost

sharing (up to 75 percent) or incentive payments can be provided for a wide

range of practices, including nutrient management, livestock waste handling,

conservation tillage, terraces, and filter strips.

Trade Adjustment Assistance for Farmers. Separate from the 2002 Farm

Act, the United States has implemented a new program to assist producers

of raw commodities who have been adversely affected by competition from

imports. Authorized by the Trade Act of 2002, the Trade Adjustment Assistance for Farmers program provides technical assistance and cash benefits

up to $10,000 per year to eligible farmers, ranchers, fish farmers, and fishermen. To become eligible, a group of producers must submit a petition to

USDA’s Foreign Agricultural Service (FAS), and producer prices during the

most recent marketing year must be demonstrated to have been not more

than 80 percent of the national average price during the previous 5

marketing years. In addition, FAS must certify that increased imports of like

or competitive products “contributed importantly” to the decline in prices.

Under an approved petition, each individual applicant must meet other eligibility requirements. An applicant’s net income for the crop year must be less

than his or her net income for a prior comparison year. Additionally, applicants must receive technical training from USDA’s Cooperative State

Research, Education, and Extension Service (CSREES) within a specified

period, they must document production and net income, and they must meet

adjusted gross income requirements. Program outlays in FY 2004 reached

about $13 million, out of the appropriated limit of $90 million, mostly due

to applicants not meeting the net income requirement.

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The passage of the 2002 Farm Act and the approaching end of NAFTA’s 9-

year transition to tariff elimination for most aspects of U.S.-Mexico agricultural trade helped to fuel intense public discourse in 2002 and early 2003

about Mexico’s policies for agriculture and rural development. In response,

the Mexican Government issued two major documents about the future

direction of these policies in a span of just 6 months.

In November 2002, the government unveiled a long-awaited package of

agricultural programs and policies, formally entitled “Actions of Agri-food

and Fishing Policy for the Strengthening of the Sector.” Commonly referred

to as Agri-food Armor (Blindaje Agroalimentario), this package was a

combination of new programs and administrative actions, proposals for new

laws and regulations, and modifications or extensions of existing programs.

The release of Agri-food Armor, however, did not satisfy all participants in

the agricultural policy debate, so the Mexican Government took the unusual

step of inviting producer groups and other rural organizations to participate

in a formal dialogue on this subject. Following nearly 4 months of public

hearings and negotiations, the government and many of the participating

organizations signed the National Agreement for the Countryside for the

Development of Rural Society and Sovereignty and Food Security (Acuerdo

Nacional para el Campo por el Desarrollo de la Sociedad Rural y la Soberanía y Seguridad Alimentaria) in April 2003.7

While this 282-point document reiterated many aspects of Agri-food Armor,

it also contained important new elements, including a plan to allocate more

than 18.8 billion pesos (U.S. $1.7 billion) in government funds to a variety

of emergency activities (table 4).8 Most of these resources were directed to

development lending and not farm supports. Indeed, only 105 of the

National Agreement’s 244 substantive points pertain to Mexico’s agricultural ministry, the Secretariat of Agriculture, Livestock, Rural Development,

Fishing, and Food (SAGARPA—Secretaría de Agricultura, Ganadería,

Desarrollo Rural, Pesca, y Alimentación) (SAGARPA and Cámara de

Diputados, Comisión Especial para el Campo, 2004).

Neither Agri-food Armor nor the National Agreement established a

completely new agricultural policy for Mexico, although both documents

have served to accentuate and adjust the evolving course of this policy.

While the National Agreement has the force of a political agreement

between Mexico’s federal government and certain representatives of civil

society, Agri-food Armor tends to be viewed as a policy framework that was

not formally implemented. Nevertheless, elements of both documents can be

found in Mexico’s current agricultural policy.

Law of Sustainable Rural Development. Legal authorization for the

Mexican Government’s activities in agriculture and rural development stems in

large part from the Law of Sustainable Rural Development, which took effect

in December 2001. Among other things, this law empowered a commission

involving all the cabinet secretaries responsible for rural development to craft

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6

Section authored by Steven Zahniser.

7

Some people use the words "National

Agreement on Agriculture" to refer to

the Acuerdo Nacional para el Campo.

See, for instance, the initial report of

USDA/FAS on the agreement

(Anderson et al., 2003).

8

Since the emergency activities were

unveiled in 2003, the average

exchange rate for that year (10.847

pesos per U.S. dollar) is used to calculate their approximate U.S. value.

Budget figures for 2004 are converted

using the average exchange rate for

2004 (11.300 pesos per U.S. dollar).

Mexico’s Agri-food Armor and the National

Agreement for the Countryside6
a coordinated plan for their activities during the remainder of the current

presidential administration. The outcome of this exercise was the Special

Concurrent Program for Sustainable Rural Development for 2002-06

(PEC—Programa Especial Concurrente), which incorporates almost all of

SAGARPA’s major programs. For 2004, the Mexican Congress allocated a

budget of 120.4 billion pesos (U.S. $10.7 billion) to the PEC. This amount

is roughly equivalent to 15 percent of Mexico’s agricultural gross domestic

product (both crops and livestock). SAGARPA’s budget for 2004 was 42.4

billion pesos (U.S. $3.8 billion).

Within this framework, SAGARPA has exhibited great continuity with

respect to its three core programs: a program of broadly available direct

supports called the Program of Direct Supports for the Countryside

(PROCAMPO—Programa de Apoyos Directos para el Campo); a set of

marketing supports geared primarily for commercially oriented producers;

and a cluster of activities devoted to the technological advancement of

production agriculture, operated under the banner of the Alliance with You

(Alianza Contigo). All three programs have roots that predate the current

administration, and both Agri-food Armor and the National Agreement are

consistent with their continuation. As a result, SAGARPA’s modified budget

for 2004 was not all that different from its 2003 budget (both original and

modified) in terms of composition and nominal spending levels (table 5).

Income support. The Mexican Government provides income support to its

agricultural producers through two main programs: PROCAMPO and the

Program of Direct Supports to the Producer through Marketable Surpluses

for Productive Reconversion, Integration of Agri-food Chains, and Attention

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Table 4—Most of the National Agreement's emergency package was directed to development lending

2003 allocation

Item Amount Approximate U.S. value

Pesos (billions) U.S. dollars (millions)

Reassigned resources 2.80 258

Program of Direct Support for the Countryside (PROCAMPO) 0.65 60

Support of the Elderly 0.50 46

Health services 0.40 37

Rural conciliation 0.30 28

National Fund to Support Social Enterprises (FONAES) 0.30 28

Rural housing 0.26 24

Temporary Employment Program (operated by SAGARPA) 0.15 14

Support of Commercial Organization 0.14 13

Women's Program in the Agricultural Sector (PROMUSAG) 0.10 9

Cost reductions 5.02 463

Debt reduction and forgiveness 3.00 277

Diesel fuel sold at "stimulus" prices 1.40 129

Tax changes 0.50 46

Debits to the Federal Commission of Electricity (CFE) 0.12 11

Additional credits and guarantees to development banks 11.00 1,014

Total 18.82 1,735

Exchange rate = 10.847 pesos per U.S. dollar (annual average for 2003).

Sources: SAGARPA (April 2003) and USDA/ERS (2005).
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Table 5—The 2004 budget for Mexico's agricultural secretariat was broadly similar to the 2003 budget

2003 (original) 2003 (modified) 2004 (modified)

Approximate Share Approximate Share Approximate Share

Item Amount U.S. value of total Amount U.S. value of total Amount U.S. value of total

Pesos U.S. dollars Pesos U.S. dollars Pesos U.S. dollars

(billions) (billions) Percent (billions) (billions) Percent (billions) (billions) Percent

Total 41.783 3.852 100 40.294 3.715 100 42.354 3.748 100

Program of Direct Supports for the Countryside (PROCAMPO) 14.191 1.308 34 13.111 1.209 33 13.015 1.152 31

Marketing Supports/Direct Payments to the Producer 6.406 0.591 15 5.920 0.546 15 5.079 0.449 12

through Marketable Surpluses

Alliance with You (Alianza Contigo) 6.250 0.576 15 6.555 0.604 16 7.496 0.663 18Program to Stimulate Livestock Productivity (PROGAN) 1.500 0.138 4 1.000 0.092 2 1.425 0.126 3

Other programs 9.130 0.842 22 7.939 0.732 20 11.171 0.989 26

Operating funds of secretariat 4.306 0.397 10 5.768 0.532 14 4.169 0.369 10Exchange rate = 10.847 pesos per U.S. dollar for 2003; 11.300 pesos per U.S. dollar for 2004.

Sources: SAGARPA, Oficialia Mayor, Direccíon General de Eficiencia Financiera y Rendicíonde Cuentas, Presupuesto 2003 and Presupuesto 2004; and USDA/ERS (2005).
to Critical Factors. Both Agri-food Armor and the National Agreement

contemplated significant modifications to these supports, some of which are

reflected in the current format of these programs. Despite these changes,

Mexico is continuing to provide a mix of broadly available and targeted

income supports, which has been its general approach over the past decade.

PROCAMPO is Mexico’s largest farm program, accounting for nearly onethird of SAGARPA’s 2004 budget. Initiated in 1994, PROCAMPO was originally conceived as a 15-year program that would provide transitional

income support to Mexican agriculture as it underwent structural changes in

response to market conditions and the phasing-out of trade barriers under

NAFTA. Payments are made on a per hectare basis to any producer who

cultivates a licit crop on eligible land or utilizes that land for livestock or

forestry production or some ecological project. Eligible land is defined as

having been cultivated with corn, sorghum, beans, wheat, barley, cotton,

safflower, soybeans, or rice in any of the three agricultural cycles (fallwinter or spring-summer) prior to August 1993. For spring-summer 2004,

payment rates equaled 1,120 pesos (U.S. $99) per hectare for producers

with less than 5 hectares and 935 pesos (U.S. $83) per hectare for all others;

for fall-winter 2004-05, the payment rate is 935 pesos per hectare for all

producers (SAGARPA, 2004).

With the approaching end of PROCAMPO’s designated lifespan, Mexican

policymakers will need to decide whether to continue this program. Agrifood Armor had envisioned a major change to PROCAMPO in which

program beneficiaries, organized on a regional basis, would be allowed to

select between the existing format and a new program in which the level of

support would ultimately depend on the region’s average yield. However,

this new program, slated to begin in 2004, has not been implemented to

date. But the Mexican Government has instituted new rules that allow for

the inclusion on an alternate roster (PROCAMPO Alterno) of lands that

were mistakenly excluded from PROCAMPO. The National Agreement’s

emergency spending proposal contained 650 million pesos (U.S. $60

million) for this purpose.

The Program of Direct Supports to the Producer through Marketable

Surpluses contains an important new subprogram called the Subprogram of

Direct Supports to Target Income (Target Income Subprogram) that is

arguably the most important of Mexico’s new agricultural programs. For a

period of 5 years, the Mexican Government intends to guarantee a target

income (ingreso objectivo), expressed per ton, for producers of certain

grains and oilseeds. So far, the government has defined target incomes for

ten crops (table 6), and additional commodities may be included in the

future. SAGARPA’s modified budget for 2004 contained about 2.3 billion

pesos (U.S. $204 million) for the subprogram, or roughly 5 percent of the

secretariat’s total budget.

Since the Target Income Subprogram has been in operation for more than a

year, the target incomes should be clearly known by most commercially

oriented grain and oilseed producers, well in advance of their future planting

decisions. The amount of complementary income support is based on the

estimated difference between the target income and the prevailing market

price at harvest time, and support levels are announced around harvest time.

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One interesting feature of the subprogram is that its intended beneficiaries

do not include all Mexican producers of the ten eligible crops. Instead, the

subprogram targets farmers with a marketable surplus, along with those

producers who face marketing problems. This focus tends to exclude the

country’s subsistence farmers, who account for perhaps three-fourths of all

Mexican producers.9 Moreover, the level of complementary income support

varies by State, in order to account for regional differences in transaction

costs and market prices. Initially, the government did not specify support

levels for every State for each eligible crop, but the program is becoming

more comprehensive with time.

Payments under the Target Income Subprogram are based on the actual

amount of output that is produced and marketed, rather than some historical

level of production. In this respect, the subprogram is akin to the U.S.

marketing loan program. In its announcements of the complementary

income supports, the Mexican Government carefully estimates the

maximum volume of output that is to be covered. This action appears to

acknowledge the possibility that funding may not be available to cover all

eligible output. Despite this uncertainty, market-oriented producers are

likely to perceive, in advance of planting, that the Target Income Subprogram raises the expected income of grain and oilseed production and to

respond accordingly by attempting to increase output.

The Program of Direct Supports to the Producer through Marketable

Surpluses also incorporates supports for price insurance, provision of collateral, and other items that were formerly operated under the Marketing

Support and Regional Market Development Program. To some extent, the

Target Income Subprogram appears to replace a major subprogram of direct

payments within the previous program. Together, these activities make the

Program of Direct Supports to the Producer through Marketable Surpluses

as a whole SAGARPA’s third largest program.

SAGARPA also operates a smaller support program for cattle producers,

one that was mentioned by Agri-food Armor and implemented in 2003. The

Program to Stimulate for Livestock Productivity (PROGAN) provides cattle

producers with direct payments on a per animal basis, which vary by type of

animal, as well as technical evaluations of their operations and additional

supports to foster livestock identification. PROGAN also emphasizes

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9

This estimate is based on the proportion

of producers with less than 5 hectares of

land. SAGARPA's ASERCA indicates

that such operations accounted for 77 percent of the producers enrolled in PROCAMPO for 2002.

Table 6—Mexico has established its own countercyclical program

Crop Target income, per metric ton Crop Target income, per metric ton

Pesos U.S. dollars Pesos U.S. dollars

Corn 1,650 146 Cotton * *

Wheat 1,800 159 Rice 2,100 186

Sorghum 1,270 112 Soybeans 3,000 265

Safflower 3,300 292 Triticale 1,800 159

Canola 3,500 310 Feed wheat 1,525 135

* 64 U.S. cents per pound (U.S. $1,411 per metric ton) of cotton lint.

Exchange rate = 11.300 pesos per U.S. dollar (June 30, 2004).

Sources: SAGARPA (program information) and USDA/ERS (2005).
conservation. One of its stated objectives is to improve the quality of vegetation coverage in pasture lands, thereby reducing soil erosion. So far, about

164,000 production units have participated in PROGAN, which is slated to

run from 2003 to 2006 (SAGARPA and Cámara de Diputados, 2004).

SAGARPA’s 2004 budget designated about 1.4 billion pesos (U.S. $126

million) for PROGAN, or about 3 percent of the secretariat’s total budget.

Energy discounts. Both Agri-food Armor and the National Agreement

included measures designed to facilitate the purchase of energy inputs.

Under the Energy for the Countryside Program, the electrical rate for irrigation has been set at 0.32 pesos (2.8 U.S. cents) per kilowatt, benefiting

nearly 75,000 agricultural operations as of August 2004. In addition, the

government is working to provide about 7,000 producers with a preferential

nocturnal rate (midnight to 8:00 a.m.) of 0.16 pesos (1.4 U.S. cents) per

kilowatt (SAGARPA and Cámara de Diputados, 2004). These rate changes

provide participating producers with a significant cost savings. The preferential rate for irrigation alone has saved producers about 600 million pesos

(U.S. $53 million) so far in electricity costs.

Also as part of the Energy for the Countryside Program, the government’s

petroleum monopoly, Petróleos Mexicanos (PEMEX), is providing a price

discount of about 30 percent for diesel fuel used for agricultural purposes.

PEMEX is administering this discount through the provision of smart cards

to agricultural producers. So far, over 430,000 such cards have been distributed (SAGARPA and Cámara de Diputados, 2004). The Mexican Government is spending about 1.09 billion pesos on this program.

Rural development. As was mentioned above, the PEC coordinates the

activities of the Mexican Government in the area of rural development.

While SAGARPA accounted for about one-third of the PEC’s budget for

2004, the remainder is devoted to other cabinet ministries, such as the

Secretariat of Social Development (SEDESOL) and the Secretariat of Public

Education (SEP). The PEC incorporates a wide array of programs that

address different aspects of rural poverty, including community development, agricultural education, capacity building, migrant workers, food, rural

housing, rural women, education, and health. Roughly half of the resources

devoted to rural poverty are designated to support proposals from priority

groups (women, indigenous people, children, and the elderly) and persons in

marginalized areas.

One of SAGARPA’s major activities directly addresses the level of technological development in production agriculture. The Alianza Contigo is a

cluster of programs that were formerly operated under the name Alianza

para el Campo (Alliance for the Countryside). Over the last several years,

the Mexican Government has simplified Alianza’s administrative requirements and consolidated its activities into a smaller number of program areas

(table 7). The largest program area is Support to Investment and Capitalization, accounting for 27 percent of Alianza’s total budget for 2004. Specific

examples of such support include public cost-sharing of agricultural mechanization and technical improvements to irrigation, as well as government

payments to help marginal producers switch to more productive activities

(Tabasco Secretaría de Desarrollo Agropecuario, Forestal, y Pesca, 2004).

Support to Rural Investment Projects is the second largest program area, with

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19 percent of Alianza’s 2004 budget. This program area also provides costsharing to producer groups and organizations, primarily for the purchase of

capital goods.

The total cost of Alianza Contigo—about U.S. $1.3 billion in 2004—is

shared roughly equally by Mexico’s Federal and State Governments,

although the shares of each vary considerably by program area (table 7). In

2004, SAGARPA’s contribution to Alianza Contigo accounted for 18 percent

of the secretariat’s budget (see table 5).

Agricultural finance. The National Agreement for the Countryside

committed Mexico’s Federal Government to undertake a support program

for producers with bad debts to the country’s agricultural development bank

and to promote the reentry of these persons into the development banking

system. To achieve these objectives, the National Agreement’s emergency

spending proposal allocated 11 billion pesos (U.S. $1 billion) for additional

loan credits and guarantees and another 3 billion pesos (U.S. $277 million)

for the forgiveness of certain debts.

This infusion of resources takes place at a time when the Mexican Government is reworking its approach to agricultural finance. On June 30, 2003,

the government dissolved its troubled agricultural development bank, Banco

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Table 7—In 2004, Alianza Contigo devoted about U.S. $1.3 billion to the development of production 

agriculture in Mexico

Share of Federal

Item Total budget total budget Federal contribution share

U.S. U.S.

Pesos dollars Pesos dollars

(millions) (millions) Percent (millions) (millions) Percent

Total 14,562 1,289 100.0 7,735 685 53

Agriculture 5,110 452 35.1 1,965 174 38

Support to Investment and Capitalization 3,936 348 27.0 1,420 126 36

Strengthening of Product Systems 959 85 6.6 413 37 43

Research and Technology Transfer 215 19 1.5 132 12 61

Livestock 2,097 186 14.4 700 62 33

Livestock Development 1,987 176 13.6 644 57 32

Development of Integral Livestock Projects 110 10 0.8 55 5 51

Rural Development 5,471 484 37.6 3,855 341 70

Fund to Restructure and Stabilize the Coffee Sector 900 80 6.2 900 80 100

Support to Rural Investment Projects 2,754 244 18.9 1,744 154 63

Rural Capacity Building 1,049 93 7.2 695 61 66

Strengthening of Companies and Organization 768 68 5.3 516 46 67

Sanitation and Agri-Food Safety 883 78 6.1 250 22 28

Aquaculture and Fishing 940 83 6.5 940 83 100

Other programs 60 5 0.4 25 2 42

Exchange rate = 11.300 pesos per U.S. dollar for 2004.

Total Federal contribution does not precisely match figure in table 5 since the budget figures are from two different points in time.

Sources: SAGARPA, as cited by Statistical Annex to Cuarto Informe del Gobierno (Fox, 2004, p. 398); and USDA/ERS (2005).
Nacional de Crédito Rural (BANRURAL), and replaced it the next day with

a new governmental institution, Financiera Rural. The primary mission of

Financiera Rural is to make loans to agricultural producers and rural financial intermediaries, to facilitate capacity building among producers, and to

foster the development of rural financial intermediaries.

Unlike BANRURAL, Financiera Rural is not a bank and does not offer

savings accounts. Rather than disperse funds through its own network of

offices, Financiera Rural does so through the branches of several affiliated

banks, and it also operates programs to distribute credit through other entities and to facilitate contract agriculture. During its first 6 months of operations (July to December 2003), Financiera Rural lent 4,124 million pesos

(U.S. $380 million) to some 23,000 customers. The assets of Financiera

Rural totaled 18,346 million pesos (U.S. $1.6 billion) at the close of 2003.10

Simultaneous to these reforms, the Bank of Mexico’s Funds Instituted in

Relation with Agriculture (Fideicomisos Instituidos en Relación con la Agricultura—FIRA) is continuing its activities in agricultural finance. FIRA was

created by the Mexican Government about 50 years ago in order to offer

credits and guarantees to the agricultural, forestry, fisheries, and rural

sectors. This second-tier, government-owned fund is managed by the Banco

de México, Mexico’s central bank.

Since 1999, FIRA has pursued a new business model that considers the

financial needs of the entire food system, including some nonagricultural

activities in rural areas. To accomplish this task, FIRA is developing new

products, such as structured financial instruments and inventory financing,

and it is fostering a wider distribution network for its funds that includes

nonbank lending institutions called Limited-Purpose Financial Societies

(SOFOLES—Sociedades Financieras de Objeto Limitado), financial leasing

companies, and warehouse companies. FIRA also provides agribusiness

consulting and sector-specialized information and analysis.

In 2003, FIRA lent 36,321 million pesos (U.S. $3.3 billion) for agricultural

financing, benefiting nearly 771,000 producers. About 95 percent of these

credits were channeled through commercial banks. That same year, FIRA

also guaranteed nearly 15,559 million pesos (U.S. $1.4 billion) in credits,

supporting the efforts of over half a million borrowers. At the close of 2003,

the assets of FIRA’s four constituent funds totaled about 109,305 million

pesos (U.S. $9.7 billion) (FIRA, 2004).

International trade policy. Both Agri-food Armor and the National Agreement called for the vigorous use of trade remedies such as antidumping and

countervailing duties to protect Mexican agriculture from prácticas

desleales, a term meaning “illegal” or “disloyal” practices. As part of Agrifood Armor, the Executive Branch proposed a legal reform to expedite the

government’s response to unfair trading practices and announced its intension to strengthen interagency coordination in this area. In the National

Agreement, the government promised to create an office of commercial

investigations with the participation of campesino and producer organizations in order to monitor agricultural imports for instances of dumping, and

it seemed to indicate that it would consider a dumping investigation with

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10For the close of 2003, an exchange

rate of 11.236 pesos per U.S. dollar

(December 2003) is used.
respect to imports of dried beans. So far, the Mexican Government has not

initiated an antidumping investigation regarding this product.

Perhaps the National Agreement’s most controversial element was its call

for the Mexican Government to begin immediate consultations with Canada

and the United States about the establishment of “a permanent mechanism

to administer the importation of white corn and beans.” NAFTA’s current

provisions for corn and beans allow for tariff- and quota-free access for U.S.

and Canadian product beginning on January 1, 2008. The Canadian and

U.S. Governments have clearly indicated their unwillingness to reopen the

NAFTA negotiations.

The National Agreement also contained several statements regarding cupos

de importación, or import permits. In general, the government committed

itself not to issue cupos beyond the quantities required by Mexico’s international trade agreements, except in cases where there is an actual deficit

between domestic supply and demand. For U.S. exports to Mexico, this

would apply to corn, beans, and nonfat dry milk, the three products that are

still subject (until 2008) to tariff-rate quotas under NAFTA.

In support of this commitment, the Mexican Congress required that white

corn imported from the United States during 2004 be subject to the full

over-quota tariff allowed by NAFTA, 72.4 percent (Anderson and Juarez,

2004). While this is a departure from Mexico’s tendency over the past

decade to apply a minor, over-quota tariff to white corn from the United

States, the actual importance of this policy change may be negligible. U.S.

white corn exports to Mexico have declined in recent years, due in part to

marketing supports provided by the Mexican Government to domestic white

corn producers in certain regions (Zahniser and Coyle, 2004).

The National Agreement also revealed Mexican interest in something akin

to a common agricultural policy for North America. Specifically, the

Mexican Government agreed to promote the formation of an Agreement of

Cooperation in the Area of Rural Development with Canada and the United

States, with the intention of reducing asymmetries among the three countries. Suggested elements included an investment fund for disadvantaged

regions; the establishment of an equitable policy of prices, supports, and

subsidies; and a trinational commission in the area of measurement, standards, and phytosanitary criteria. Although a formal agreement of this type

has not been signed, the governments of Canada, Mexico, and the United

States are engaged in numerous cooperative activities related to agriculture.

In the area of food safety and quality, Agri-food Armor emphasized several

ongoing governmental activities that directly relate to international trade.

For example, it noted the establishment of a quality certification program

for agri-food products (Inspección de Calidad Agropecuaria). This voluntary

program, which relies on inspectors trained and approved by SAGARPA’s

National Service of Agri-food Health, Safety, and Quality (SENASICA), is

intended to minimize disputes among buyers and sellers and to ensure that

the sales price reflects the quality of the product. The government is also

engaged in other important initiatives related to trade, food safety, and

quality that were not explicitly mentioned by Agri-food Armor. For instance,

the government has established the quality certificate “México Calidad

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Suprema” (Supreme Quality) to distinguish Mexican agricultural and food

products of exceptional quality, and it is working with the Mexican private

sector to promote fresh fruit and vegetable exports under the banner

“MexBest.”11 These programs strengthen Mexico’s already successful

efforts to increase fruit and vegetable exports to the United States.

Through Agri-food Armor, the Mexican Government also reiterated its

commitment to securing recognition from other countries of its disease-free

zones and sanitary programs, with the goal of taking full advantage of

Mexico’s various trade agreements. With respect to the U.S. market, Mexico

has made several inroads in this area over the past several years. In 2003,

USDA’s Animal and Plant Health Inspection Service (APHIS) added the

Mexican States of Baja California, Baja California Sur, Chihuahua, and

Sinaloa to its list of regions considered to be free of Classical Swine Fever,

and in 2004, APHIS added the States of Campeche, Quintana Roo, and

Yucatán to the list of regions considered to be free of Exotic Newcastle

Disease. These recognitions could ultimately lead to more substantial pork

and poultry exports from Mexico to the United States (USDA/APHIS, 2003;

USDA/APHIS, January 2004). In 2005, APHIS implemented a rule that

allows avocados from approved orchards and municipalities in the State of

Michoacán to enter all 50 U.S. States except California, Florida, and Hawaii

on a year-round basis. Starting in 2007, the rule will apply to all 50 States

(USDA/APHIS, November 2004).

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11For details, see MexBest's websites

at www.infoaserca.gob.mx/mexbest

and www.mexbest.com.mx
In late 2003, Canada’s Federal and Provincial governments began implementing a new structure for their country’s agricultural policy, called the

Agricultural Policy Framework (APF). The underlying principle of the APF,

portions of which are still evolving, is to provide a much broader and more

integrated, long-term approach to agricultural policy, one that focuses on the

sector’s ability to increase its profitability. Unlike Mexico’s recent policy

innovations, the APF is not explicitly cast as a reaction to U.S. agricultural

policy or competition from U.S. producers. Instead, it represents an effort to

position Canada’s agricultural and agri-food sectors ahead of the global

competition, wherever it exists, and to brand Canada as a world leader in

food safety, innovation, and environmental protection. The keystone of the

APF is a new income stabilization and disaster assistance program.

The APF’s beginnings lie in the June 2001 annual meeting of Canada’s

Federal, Provincial, and Territorial agricultural ministers, held in Whitehorse, Yukon Territory. At this meeting, the ministers agreed in principle on

an action plan with five elements: safety nets, food safety, science and innovation, the environment, and renewal. A year later, the ministers formalized

the plan by signing the Agricultural Policy Framework Agreement. The APF

contains the same five elements identified in Whitehorse, with slight

changes in wording:

(1) Business risk management,

(2) Food safety and food quality,

(3) Science and innovation,

(4) Environment, and

(5) Renewal.

By the end of 2003, all of Canada’s Provinces had signed agreements with

their Federal Government to implement the APF. The implementation agreements govern the delivery of new programming under the APF’s five

elements, including the nature of each program, delivery mechanisms, and

which level of government will administer them. In addition, the agreements

list program costs and formalize such things as the management structures

needed to oversee particular programs. A broad description of the five APF

programs follows, along with a description of Canada’s previous farm safety

net.

Previous safety net. In late 1994, Canada’s Federal and Provincial agricultural ministers implemented a new generation of farm safety net programs

consisting of three components: (1) crop insurance; (2) a subsidized savings

program for producers, called the Net Income Stabilization Account

(NISA); and (3) various companion programs at the Provincial level. In the

late 1990s, Canada added a fourth component to its safety net—emergency

income supports—in order to offset a steep drop in commodity prices.

These four components were in place at the time of the Whitehorse meeting

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12 Canada’s Agricultural Policy Framework Section authored by John Wainio. 12
in 2001 and generally formed the departure point for the APF’s proposals in

business risk management.

Crop insurance was the oldest part of Canada’s farm safety net, with roots

dating back to 1939. It offered protection against various production risks,

including drought, flood, hail, frost, excessive moisture, and insects.

Payments were triggered when a producer’s yield fell a certain percentage

below that farm’s average historical yield due to any of the risks covered.

Premiums were charged so that the program would be actuarially sound.

Producers paid for 40 percent of the premium, while the two levels of

government contributed a total of 60 percent. However, the distribution of

the 60 percent between the Federal and Provincial governments varied

considerably across Canada.

NISA—a national, voluntary, whole-farm program that was initiated in

1991—gave qualifying producers the opportunity to deposit up to 3 percent

of their eligible net sales (ENS) annually into subsidized savings accounts.

Participating producers received matching contributions from the Federal

and Provincial governments, as well as a 3-percent interest bonus over and

above the regular interest rates offered by their financial institutions. ENS

were calculated by taking the gross sales of qualifying commodities minus

the purchase of like commodities (for example, net sales of crops minus the

cost of seed, or net sales of feeder cattle minus the cost of purchased

calves). Generally, all primary agricultural products qualified for NISA,

except those covered by supply management (dairy, poultry, and eggs).

The companion safety net programs operated by the Provincial governments

were intended to complement crop insurance and NISA by addressing more

local and regional concerns. Industry development funds and NISA

enhancements are two examples of these programs. For instance, Alberta

operated a Provincial crop insurance program with a revenue-insurance

component that included a floor price to protect farmers from low market

prices.

Like the United States, Canada provided emergency supports to producers

in response to a sharp drop in commodity prices in the late 1990s. The Agriculture Income Disaster Assistance (AIDA) program was available in 1998

and 1999 and then replaced by the Canadian Farm Income Program (CFIP),

which was funded through March 2003. Both programs covered all

commodities, with payments based on a producer’s gross margin—farm

revenues minus operating expenses. Payments were made when the gross

margin fell below 70 percent of the base level, but were limited to restoring

income only to the 70-percent level.13

Several programs outside the safety net also helped Canadian producers to

manage risks. Two separate cash advance programs (spring and fall)

addressed annual cash flow challenges that were not specifically covered by

crop insurance or NISA. The Federal Government guaranteed the repayment

of cash advances that producer organizations made to their members. In the

spring, producers who participated in crop insurance were eligible for up to

C$50,000 (about U.S. $43,000) to finance their operating costs during

planting, with the Federal Government paying the interest on the entire

advance.14 In the fall, producers were provided up to C$250,000 (U.S.

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13In 1998, the base gross margin was

equal to the average of the previous 3

years. Subsequently, it was changed to

equal the 5-year Olympic average. In

an Olympic average, the highest and

lowest values are dropped prior to the

calculation of the average.

14The average exchange rate for

December 2004, C$1.157 per U.S.

dollar, is used throughout this section.
$216,000) until storable crops could be marketed, with the first C$50,000

being interest-free.

Business risk management. Following the signing of the APF, a team of

Federal and Provincial officials conducted a comprehensive review of

Canada’s farm safety net programs. They discovered that while many

elements worked well and were popular with producers, there were gaps in

coverage, questions about the equity and fairness of the programs in

different parts of the country, and instances in which programs seemed to

work against each other. They concluded that a comprehensive safety net

policy was a key component to managing business risk and building a

stronger, more profitable agriculture sector.

To address these concerns, the APF contains a whole-farm income stabilization and disaster protection program, the Canadian Agricultural Income

Stabilization (CAIS) program. The CAIS is designed to replace both the

NISA and the CFIP and contains the requirement that producers withdraw

all funds and close their NISAs by March 31, 2009. In addition, the business

risk management element contains a production insurance program that

covers more commodities and offers more types of policies than the former

crop insurance program.

With a total Federal budget of C$5.5 billion over 5 years, the CAIS represents the longest and most flexible financial commitment ever made to agriculture in Canada. Under the traditional government cost-sharing

arrangement of 60 percent by the Federal Government and 40 percent by the

Provinces, the total CAIS funding would be over $1.8 billion per year. The

yearly average, however, is not fixed; rather, the CAIS is subject to a

“rolling budget,” as unused funds can roll over from year to year and money

can be borrowed in one year from future year’s budgets.

To participate in the CAIS program, producers select a level of protection

for their operation and then secure this protection by making a refundable

deposit into a CAIS account held at a participating financial institution. The

minimum deposit is set at 14 percent of the farm’s reference margin, a level

that ensures that at least 70 percent of the producer’s margin is covered in

the event of a catastrophic loss (the producer margin in a given year dropping to zero).15 The reference margin is based on a 5-year Olympic moving

average of the difference between farm revenue and farm expenses. 

A payment is triggered when the production margin (revenues minus

expenses) in a given year falls below the reference margin.16 In the event of

a margin decline, the farmer would make a withdrawal from his or her CAIS

account, triggering a government payment. In the absence of a margin

decline, the account could be rolled over for coverage the following year or

adjusted if the farmer wanted a different level of coverage.

The size of the government payment to an individual producer is based on

the balance in the account and the size of the loss. In this way, the cost of

providing a safety net under a producer’s income is shared among the

Federal and Provincial governments and the producer, with the government

contribution increasing with the margin decline. Under the APF, the core

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15Shortly after the CAIS came into

operation, a revision was made for the

2003 and 2004 program years allowing producers to deposit only one-third

of the total amount required to secure

their desired protection level. Another

revision makes government funds

available for margin declines that fall

below zero. In this event, the producer

will receive C$0.60 in government

contributions for each C$1 of the

decline below zero, without the need

for a matching contribution from producers.

16The calculation of the production

margin in the CAIS differs from the

methodology used to calculate the

gross margin under NISA. Because

fewer expenses are deducted in the

CAIS production margin calculation,

the producer is now ensured a higher

margin and, as a result, will be provided with more protection when income

drops.
funding formula is 60 percent by the Federal Government and 40 percent by

the Provincial governments.

The CAIS program consists of two components: a stabilization feature to

protect producers from small declines in their production margin (less than

30 percent) and a disaster assistance component to cover large declines

(over 30 percent). When the production margin declines by more than 30

percent, the government provides C$4 in disaster assistance for each C$1

withdrawn from the account, until the production margin reaches 70 percent

of its reference level. Payments are always made from the “bottom up”

rather than from the “top down,” thus ensuring the producer receives the

greatest possible government benefit. If the decline in the production margin

is greater than 15 percent but less than 30 percent, the producer will receive

C$2.33 from the government for each C$1 withdrawn, until the combined

amount of withdrawals and government payments restores the production

margin to 85 percent of its reference level. For relatively small declines,

(less than 15 percent), the producer will receive C$1 from the government

for each C$1 withdrawn from the CAIS account, until the combined amount

of withdrawals and government payments restores the production margin to

its reference level.

As an example, consider a producer with a reference margin of C$100,000

who has selected the minimum amount of coverage, which requires a

deposit of C$14,000 (14 percent of C$100,000) (table 8). Imagine that the

producer experiences a margin drop of C$50,000, or 50 percent of the reference margin. Under the disaster assistance component, the producer can

restore the production margin to 70 percent of its reference level by withdrawing C$4,000 from the CAIS account, with the government contributing

the additional C$16,000 in disaster assistance. This latter amount is based

on a ratio of 4 to 1.

Under the income assistance component, the producer will be able to restore

the production margin to 85 percent of the reference level by withdrawing

C$4,500 from the account, as the government will contribute an additional

C$10,500, based on a ratio of 2.33 to 1. Finally, by withdrawing the

remaining C$5,500 in the account, the producer will receive a matching

C$5,500 contribution (at a 1-to-1 ratio) from the government. In total, the

producer will receive C$32,000 from the government. This amount plus the

C$14,000 withdrawn from the CAIS account equals C$46,000, bringing the

production margin to 96 percent of its reference level.

Had the producer deposited another C$2,000 into the account, bringing the

initial balance to C$16,000, 100 percent of the reference margin would have

been covered, since the government would have provided another C$2,000

at the 1-to-1 contribution level. Based on the CAIS formula for government

payments, the minimum deposit of 14 percent would fully cover income

drops of up to 40 percent of the reference margin, while returning 70

percent of the reference margin if the margin fell to zero (expenses were

greater than or equal to revenue) in the claim year.

For the Provincial companion programs, it was proposed that the Provinces

be allowed to continue offering them if they wish, with Federal funding for

these programs gradually shifted to the CAIS over the next 3 years. There

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Table 8—The CAIS program is prepared to augment the withdrawals of its depositors should they experience a "rainy day"Scenario Producer with a reference margin of C$100,000 has deposited C$14,000 into the CAIS account.

Producer then falls short of the reference margin by 50 percent (C$50,000).

Withdrawal Balance in 

Producer's Target level for this Amount needed Government from CAIS CAIS

objective producer Ratio contribution account account

Disaster Restore production margin to 70 70,000 = 70 percent 20,000 = 70,000 - 4:1 16,000 4,000 10,000assistance percent of reference level, subject to x 100,000 50,000

availability of funds in CAIS account

Income Restore production margin to 85 85,000 = 85 percent 15,000 = 85,000 - 2.33:1 10,500 4,500 5,500assistance percent of reference level, subject to x 100,000 70,000

availability of funds in CAIS accountRestore production margin to 100 100,000 = 100 percent 15,000 = 100,000 - 1:1 5,500 5,500 0percent of reference level, subject to x 100,000 85,000availability of funds in CAIS account

Outcome Producer withdraws the entire C$14,000 from his or her CAIS account and receives an additional C$32,000 from the government. Had the producer

deposited C$2,000 more into the account, he or she would have been able to cover the entire decline (C$50,000) in his or her production margin.

Source: Prepared by USDA’s Economic Research Service using Canadian description of program.
was no language, however, precluding the Provinces from implementing

their own income support programs after the 3-year period, even though

questions have been raised about the equity and fairness of support across

the country. The spring credit advance program was extended in 2003 for an

additional 5 years, with the maximum advance remaining at C$50,000. It

was also proposed that the fall cash advance programs be extended for 5

years and then integrated within the new business risk management

approach. Regarding supply management, which according to the APF

constitutes a risk management tool, the supply managed commodities will

be covered under the disaster assistance component of the CAIS, but they

will not be eligible for government funds under the income stabilization

component.

Food safety and food quality. In the area of food safety and food quality,

the APF aims to implement product tracing throughout the “agri-food

continuum” (i.e., from farms through the processing and distribution sectors

to the wholesale, retail, and food service sectors) and to adopt Hazard

Analysis and Critical Control Point (HACCP) practices.17 Under the Canadian Food Safety and Quality Program (CFSQP), the Federal Government

will invest C$80 million (U.S. $69 million) over 4 years to educate

producers about onfarm food safety systems and to help them implement

these systems. The onfarm food safety systems were the product of the

CFSQP’s first component, which provided C$62 million (U.S. $54 million)

to industry groups to develop systems specific to their commodities.

Science and innovation. Perhaps the most ambitious part of the APF is the

development of science and innovation programs to increase the potential

for growth and profitability in Canada’s agriculture and agri-food sectors.

The APF explicitly identifies science and innovation as the key to the

industry’s future, and the long-term success of the APF is tied to the government’s ability to foster a supportive climate in Canada for scientific investment, technology transfer, and the commercialization of new products.

Programs in this area are still very much in the planning stage, with studies,

consultations, summits, and pilot projects yet to be carried out before an

action plan is developed and put into place. For their part, some producer

groups say that the government is diverting attention from the short-term

problems that currently afflict the sector by promoting science and innovation as a “cure all.”

Environment. The APF places a strong emphasis on minimizing the risks to

farm income arising from potential environmental liabilities and lost

markets due to consumer concerns.The goals of the environmental element

center on increasing the use of beneficial fertilizer, chemical, land, and

water management practices. Expected benefits include improvements in

soil fertility and erosion, water health and conservation, cleaner air, and

biodiversity protection. 

One element of this program is Greencover Canada, a 5-year, C$110-million

(U.S. $95 million) initiative to help producers improve grassland management, protect water quality, reduce greenhouse-gas emissions, and enhance

biodiversity and wildlife habitat. The program also contains a land conversion component to pay producers to establish and maintain perennial

cover—primarily long-lived species, such as forage, shrubs, and trees—on

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17HACCP is a science-based, preventative approach to food safety that is

recognized worldwide. It addresses

hazards by anticipating and preventing

them at different points along the processing and marketing chain, rather

than by inspecting the final product.
environmentally sensitive land. Perennial short-term rotational crops, such

as alfalfa, are not eligible.

Renewal. The renewal program recognizes that agriculture is knowledgeintensive and is intended to help farmers deal with the changing nature of

agriculture. The Canadian Farm Business Advisory Services (CFBAS) is the

cornerstone of the renewal program. Through the CFBAS, eligible

producers—those with at least C$10,000 (U.S. $9,000) in annual gross farm

sales and beginning producers—will have access to a range of services,

including a free farm business assessment. This assessment will include

consulting services to help producers develop a detailed business plan for

the future.

Another aspect of the renewal component is the Specialized Business Planning Services, which will help fund producers wanting to explore options in

other farm business areas, including diversification, marketing, human

resources, expansion, risk management, and succession. To assist the development of these plans, producers will work with a consultant with expertise

in a specific area. The renewal program also will include training for

producers wanting to upgrade their skills and adopt innovative technologies.

The original Whitehorse framework suggested that the renewal program

would provide exit funds for producers wanting to leave agriculture, but it

does not appear that this aspect of the framework will be implemented.

Epilogue. Originally devised in June 2001, the APF underwent an arduous

development process before it finally became operational in late 2003. In

the 3 years leading up to the Whitehorse meeting, the agricultural policy

debate in Canada centered on emergency income support, prompting decisionmakers to conclude that Canadian policy had to move beyond crisis

management. Their solution was a comprehensive approach to risk management that encourages farmers to improve the viability of their operations

through change and innovation while promoting food safety and environmentally responsible farming.

During the 2 years following the Whitehorse meeting, many of the initial

concepts associated with the APF were either modified or replaced. Initial

indications were that the government would pursue a “carrot-and-stick”

approach, with producers having to adopt both environmental and food

safety programs in order to have access to government assistance. Such an

approach is not part of the current APF, which instead relies on voluntary

implementation.

Without a doubt, the business risk management program underwent the

most adjustment. The initial proposal was to expand NISA to include a

disaster coverage component and to broaden crop insurance. In the end,

NISA was scrapped and the CAIS was developed. As recently as June 2004,

amendments were being made to the CAIS to include coverage of negative

margins, to increase the payment cap for individual farms from C$975,000

(U.S. $843,000) to C$3 million (U.S. $2.6 million), and to simplify deposit

requirements for producers. With a 1-year review of the program scheduled

to be completed soon, additional adjustments may be made in the near

future.

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Initial questions about whether the annual funding under the APF would be

able to meet the future needs of the agricultural sector were answered in

March 2005 when the Canadian Government announced an additional C$1

billion in immediate Federal assistance for cash-strapped Canadian farmers

facing record-low farm incomes. At the same time, the Minister of Agriculture called on the Provinces to match the Federal money according to the

traditional 60/40 shared Federal/Provincial basis. The C$1 billion of Federal

monies will be delivered under yet a new ad hoc program, the Farm Income

Payment Program, a need for which the CAIS was meant to eliminate. It is

meant to supplement current Federal and Provincial agriculture programs

that last year paid out a record C$4.9 billion to farmers. The program will

provide assistance to all sectors but will be of greatest benefit to two of the

most affected, cattle and other ruminants and grains and oilseeds. It follows

on a series of program initiatives and investments in the agricultural sector

since 2003 to producers hurt by drought, the impact of bovine spongiform

encephalopathy (BSE), the Avian flu epidemic, and the decline in many

commodity prices.

Although international trade is not one of the APF’s five main elements, the

framework does contain a strong international emphasis, along with government funding for trade promotion. With the export market taking about half

of Canadian agricultural production, the enhancement of Canada’s ability to

compete internationally is seen as one of the main goals of the APF. The

strategy is to make the “Canada Brand” known throughout the world in

terms of quality, safety, and environmentally responsible practices. In addition to gaining recognition for Canadian products, the APF international

component stresses improving market access, overcoming foreign technical

barriers, and enhancing international development.

With its numerous goals and comprehensive approach, the APF represents a

significant reorientation of Canadian agricultural policy. Only time will tell

whether it enables Canadian producers to strengthen their businesses,

increase prosperity, and meet the demands of consumers at home and

abroad.

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The United States, Mexico, and Canada have made important changes to

their agricultural policies over the past several years. Heeding the experience of the late 1990s and early 2000s, when commodity prices sank to

unusually low levels, all three countries have institutionalized income

supports that provide additional assistance to producers when commodity

prices (or net farm revenues, in the case of Canada) decline. The United

States has introduced a program of countercyclical payments, similar to

those in effect from 1974 to 1995; Mexico is providing countercyclical

assistance through its Target Income Subprogram; and Canada has formulated a new subsidized savings plan that provides a safety net for the

incomes of participating producers.

Each country also has made noteworthy reforms in other areas of agricultural policy. Canada has crafted new approaches to food safety and food

quality, the environment, the role of science in agriculture, and the overall

reinvigoration of the agricultural sector. Mexico has created a new program

of energy discounts for its agricultural producers and is revamping its activities in agricultural finance. And the United States is proceeding with a

comprehensive buy-out of tobacco quotas while expanding its efforts in

conservation, placing greater emphasis on land continuing to be used for

production rather than land retirement.

Despite these numerous changes, there is much continuity in each country’s

farm programs. Canada’s main agricultural reform has been to replace one

subsidized savings plan for producers with another, and the longstanding

crop insurance program is likely to be revamped in the near future. Similarly, many of the U.S. commodity and conservation activities authorized by

the 2002 Farm Act continue the reforms of the 1996 Farm Act, but the 2002

legislation also introduces a new countercyclical payment program. The new

U.S. legislation retains the extensive planting flexibility that the previous

legislation offered farmers, and key income supports are again designed to

have a limited impact on production and trade. And in Mexico, the size and

composition of SAGARPA’s activities is similar to what prevailed prior to

Agri-food Armor and the National Agreement for the Countryside.

In all three countries, fiscal resources have been sufficient in recent years to

allow agricultural policy to proceed in a direction that is not altogether

different from its previous course. This may not necessarily be the case in

the future, as fiscal constraints could conceivably affect the size and content

of agricultural policies in each country.

According to some congressional analysts, future U.S. spending on agricultural programs is already being evaluated within the context of competing

priorities, such as permanent tax cuts and increased spending on national

defense (Conley, 2004). The appropriations committees continue to legislate

reductions in spending on 2002 Farm Act programs under their jurisdiction.

These cuts—largely for conservation, research, and rural development

programs—totaled $1.4 billion for FY 2005 and $650 million for FY 2004

(Jagger, 2005). Moreover, the Conservation Security Program, originally

designed under the 2002 Farm Act to be available to all producers willing to

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Conclusion
undertake conserving practices on working land, has been implemented so

far only as a limited watershed program (Mercier, 2004), and its multiyear

funding has been capped at $6 billion in FYs 2005-14.

As part of its effort to reign in aggregate government spending, Canada’s

Federal Government has committed itself to keep its expenditures on the

APF beneath a total of $C5.5 billion (U.S. $4.8 billion) during 2004-08.

Within this 5-year limit, the annual amount spent on the APF is allowed to

vary from one year to the next. The sum of C$5.5 billion does not include

the contributions of the Provincial governments under the 60-40 costsharing formula. One Provincial government—Saskatchewan—already has

expressed doubts about whether it will be able to make its full contribution

to the APF.

In Mexico, the government’s traditionally tight fiscal situation is complicated by the annual nature of the budgetary process for agricultural

spending. Unlike Canada and the United States, spending authority for most

Mexican agricultural programs is granted on a year-to-year basis. Thus,

SAGARPA must ensure that its total expenditures for a given year do not

exceed its annual budgetary allocation. As was suggested in the discussion

of the Target Income Subprogram, this feature of the Mexican budgetary

process complicates efforts to implement multiyear, comprehensive farm

programs whose rules and regulations are spelled out well in advance of any

planting decisions.

While spending authority for Mexico’s main income support program—

PROCAMPO—is granted on an annual basis, the program's operational

authority extends for 15 years (1994-2008). This means that SAGARPA

faces the annual challenge of assuring that its expenditures on programs

other than PROCAMPO do not exceed the difference between the secretariat’s total budget allocation and its spending on PROCAMPO. As

PROCAMPO approaches the end of its original lifespan in 2008, policymakers will need to decide whether to continue the program or to use its

budgetary allocation for other purposes. Ultimately, this decision is likely to

have a strong impact on the size and content of Mexico’s agricultural

programs.

A new multilateral agricultural agreement at the WTO could also affect the

size and content of farm programs in North America. In August 2004, the

General Council of the WTO adopted a framework for negotiating the rules

covering the use of domestic and export support for agricultural production

and the negotiation of commitments for improving market access for agricultural exports. The negotiating framework for domestic support features

product-specific spending caps and endorses the concept in which countries

with the highest levels of support make larger reductions in their programs.

Until the WTO members actually agree upon a new agreement governing

domestic support, however, we will not know the extent to which any new

spending limits will accommodate the programs described in this report.

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Anderson, Lisa. Mexico’s Agricultural Armor Package. U.S. Department of

Agriculture, Foreign Agricultural Service, Global Agricultural

Information Network Report No. MX2173, December 9, 2002. Available

at: www.fas.usda.gov/gainfiles/200301/145785027.pdf

Anderson, Lisa, and Benjamin Juarez. Mexico Establishes 2004 Tariffs on

Out-of-Quota Corn, Beans, and Dry Milk. U.S. Department of

Agriculture, Foreign Agricultural Service, Global Agricultural

Information Network Report No. MX4003, January 12, 2004. Available

at: www.fas.usda.gov/gainfiles/200401/146095157.pdf

Anderson, Lisa, Salvador Trejo, Benjamin Juarez, Dulce Flores, Jorge

Sanchez, and Gabriel Hernandez. Government Signs National Agreement

on Agriculture. U.S. Department of Agriculture, Foreign Agricultural

Service, Global Agricultural Information Network Report No. 3067, May

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Conley, Chip. Presentation at the 2004 Meeting of the American

Agricultural Economic Association, Denver, Colorado, August 2004.

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Fox Quesada, Vicente. Cuarto Informe de Gobierno de C. Presidente

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Jagger, Craig. Personal communications, January 31, 2005.

Juarez, Benjamin. Mexico: Agricultural Situation: Rules of the Target

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Agriculture, Foreign Agricultural Service, Global Agricultural

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