Avila, Roberto Aceves

English

Research Papers in Economics

Panel  Discussion
SECRETARIAT  OF AGRICULTURE,  LIVESTOCK AND
RURAL DEVELOPMENT,  MEXICO
Roberto Aceves Avila
I would like to begin by adding to what was said about the meaning of "com-
petitiveness".  It may not be possible  to answer that question right now. We are cer-
tainly more aware of the subtle interrelationships  between  our three  economies and
how our competitiveness  might be affected by the new interrelationships  among the
three  agricultural  sectors.  Through  the  papers  and  related  discussion,  we  have
learned,  not only of the changes  in  policy, but also about the increasing  role of inte-
gration for producers and the concept of "harmonization".
In  fact,  harmonization  was  approached  in  a  very  practical  way  yesterday.
Comments  were made  as to what effect the  North American  Free Trade Agreement
(NAFTA)  and  other  policy  harmonization  measures  have  had  on  marketing  and
infrastructure.  If you define  clear long-term rules for participants, the private sector
and  private organizations  will search  for  the best  business  opportunities  available.
They will always try to find a way to do business no matter how critical or unharmo-
nized  things  look.  In  Mexico,  by  linking  the  price  of  most  grains  to  international
market references,  companies like Cargill, Prudential and Merrill-Lynch are trying to
correct the marketing  problems in order to do business. For example,  Prudential and
Merrill-Lynch  are operating commodity-backed  operations in sugar and grains. They
know that there are serious deficiencies  in Mexican warehouses.  They know that the
Mexican  market  generally lacks trust  in warehouse  certificates.  Still, they are  doing
business with these instruments. How are they doing this?
They  are  pinpointing  specific  projects  and  creating  their  own  supervising
units for their own programs. They are certificating their own warehouses.  They are
selecting very specific  clients. They are not waiting for the government to reform the
whole system.  Continental,  Dreyfus and Cargill are beginning to build  silos and  are
planning new business strategies for grain consumers in specific regional markets.
Even  producers  and  the government  are having  to design  new  strategies to
survive  and  make  use  of  the  new  instruments  that  harmonization  provides.  For
example,  linking domestic  prices to international references  gives Mexico the oppor-
tunity to  use the  Chicago  Board  of Trade  and  the  Kansas  City  Board  of Trade  as
instruments for managing risk for producers and for the government.  Mexico has the
Risk  Management for  Producers program  which  subsidizes  the  cost  of  options  for
producers.312  Grain  Livestock Harmonization
The  government  also  used  these  instruments  to  back  its  own  loan support
program.  This was the case in  1992 when Mexico  had to give subsidies  to the wheat
industry. The industry had to buy wheat from Mexican producers at a specific target
price. The government refunded the difference  between the target price and the inter-
national market price. The Mexican  government used the Chicago  Board of Trade to
hedge the whole Mexican wheat crop. At one time, although nobody wants to believe
this, Mexico controlled about 20 percent of the total positions on the futures market in
Chicago. The Commodity Futures Trading Corporation had to call us and ask,  "Okay,
we think you are nice guys, but why are you doing this?"  We told them we were just
hedging our budget risks using  market instruments.
In order to protect the budgetary allocations  for the merchandising subsidy to
the wheat milling industry,  the federal government sold Chicago wheat futures con-
tracts  in different delivery  months. All contracts were sold at prices that equaled or
surpassed  the  futures  price  level  used  to  allocate  the  initial  budget  subsidy  pay-
ments.  At the  start  of  the  harvest,  Mexican  wheat  sales  were  made  into the  local
market and part of the hedge  was canceled.  Later, when the wheat subsidy program
was  changed,  the  balance  of the  hedge  was lifted,  with all positions  benefitting the
federal government  in its budgetary position.
Firms  and the governments of the  three countries  are changing how business
is  done  in  Mexico.  I  believe that  producers  and  the  private  sector  will always  be
ahead of governments and  policy reform. Even  though our policies  are designed to
have  official  trade dispute settlement  mechanisms,  we are seeing  a rising trend for
private trade dispute settlement mechanisms.  The private sector is finding more effi-
cient ways to solve those problems. They are not waiting for the government to har-
monize or reform laws.
For example,  there is the specific  case of tomatoes. You remember the tomato
controversy with  U.S. producers-the  anti-dumping  case  that ended  in an adminis-
tered price agreement.  We can also cite beef and livestock anti-dumping cases Mexico
has with U.S. producers.  They were satisfactorily  solved by private trade dispute set-
tlement.  Also,  we have  a dumping  case with wheat  involving the Canadian  Wheat
Board and the Export Enhancement Program of the United States.
I believe  that the  practical ways  of approaching  harmonization  or searching
for  new solutions  should  be stressed  at future  conferences.  I would  like to  congra-
tulate the organizers  for the excellent job they did. I also want to congratulate the par-
ticipants for the high-quality work which has been done to help us learn more about
the new business environment for our economies.
Grain-Livestock  Harmonization 312

PANEL DISCUSSION: SECRETARIAT OF AGRICULTURE, LIVESTOCK AND RURAL DEVELOPMENT, MEXICO

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