The government of Mexico is preparing to phase-out direct subsidies to farmers over the next ten years, according to an announcement made by the Ministry of Agriculture (SAGARPA).  SAGARPA will instead focus its resources on providing credit and financing to Mexican farmers to help them develop their businesses.

The transition from direct payments to credit and financing is aimed at helping farmers modernize in an agricultural market that has become increasingly liberalized in the wake of the North American Free Trade Agreement (NAFTA). It also represents the latest in a number of evolutions in Mexican farm policies, which so far have failed to reach Mexico’s poorest farmers.

Together with the introduction of NAFTA in 1994, Mexico established systems of direct income support for farmers, decoupled from production. These subsidy schemes replaced input subsidies (i.e., subsidies for fertilizer and seeds) and market price support, which mainly benefited large commercial farms.

Although the system of direct payments was designed to be more efficient and equitable, it remained a regressive mechanism for redistributing wealth, according to a recently published paper by John Scott, of the Mexican-based Centro de Investigación y Docencia Económicas.

“A large part of the rural population (at least the poorest 50%) is excluded from such programs simply because they are landless or have plots which are too small to be reached by programs … and in the upper half of the land distribution there are probably strong economies of scale in the capacity to attract agricultural support resources ...” writes Scott.

Currently 70% of SAGRAPA’s budget is spent on direct subsidies, which go to only 356,000 producers, or 9% of Mexico’s farmers while 95% of farmers lack access to credit. 

By shifting money away from direct payments, the Mexican government says it aims to provide 3.5 million out of the 4 million agricultural producers in the country with access to credit.