# **Empirical features for Mexico**

In the study of Mexico a regional agricultural production model and a macroeconomic (CGE) model were developed.<sup>4</sup> Both models focus on the Río Bravo Basin, but the CGE model also incorporates additional regions and sectors, comprising the entire Mexican economy. The detailed and technical description can be found in Dinar and Asad (2006), Yunez-Naude and Rojas Castro (2008), and Howitt and Medellin-Azuara (2008).

# <u>The Regional Farm production model</u>

The regional production model is linked to a hydrological model<sup>5</sup> of the Río Bravo Basin <u>(http://www.crwr.utexas.edu/riogrande.shtml). The regional agricultural model is based on</u> production models of representative farm types. The production models were calibrated to small (area<10ha), medium (10> area <50ha and large farms (area >50ha), based on the farm sample that was used by FAO. Then, using CONAGUA statistics on farm distribution in the study area, the farm models were extrapolated to construct the regional model that represents the agricultural sector in the 4 Rio Bravo Riparian states Chihuahua, Coahila, Nuevo Leon, and Tampaulipas. Several sets of policy interventions were simulated. The production model, a partial equilibrium framework, distinguishes between farm types and is used to assess the impact of the following policy issues:

1. Reduced water availability

2. Increased water cost 3. Smaller elasticity of crop supply (to reflect ―water secured‖ crops with lower sensitivity to changes in crop prices) + change in water availability 4. Smaller elasticity of grain crop supply + increased water cost 5. Reduced labor availability 6. Increased labor cost 7. Changes in crop price support programs While specific policy intervention results are discussed in Dinar and Asad (2006), and to a greater detail in Howitt and Medellin-Azuara (2008 Tables 1-17) for the farm level model, and in Yunez-Naude and Rojas Castro (2008 Tables 1-25) for the macro model, several general observations are presented here. The policy simulations suggest that the farming sector is more responsive to policy interventions that affect level of the resource that is available to the farmers rather than to policies that affect the cost to the farmers of using that resource. In other words, using economic terminology, farmers in the Rio Bravo Basin are quantity rather than price rationed. Both the reasons for that and the general policy implications will be discussed later.

Another general observation is that the various farm types respond differently to the policy interventions. It should be emphasized again that the differences among farm types are the result not only of size, but also of technology, access to credit, markets, and knowhow—all of which affect the crop mix and productivity levels. While this is an obvious observation that may not be ground breaking, the ability to quantify the impacts and to

> 4 See “Regional and Macroeconomic Analysis of Policy Interventions in the Water and other Related Sectors in Mexico” authored by a team from Colegio de México (COLMEX) and led by Antonio YunezNaude, as part of Dinar and Asad (2006).

> 5 The study team collaborates with the bilateral Mexico-USA project that has been initiated between the University of Austin Texas and several research institutes in Mexico, including IMTA.

29