After the Mexican Revolution Mexico began an agrarian reform, based on the 27th article of the Mexican Constitution than included transfer of land and/or free land distribution to peasants and small farmers under the concept of the ejido. This program was further extended during President Cárdenas’ administration during the 1930s and continued into the 1960s at varying rates.
The cooperative agrarian reform, which guaranteed small farmers a means of subsistence livelihood, also caused land fragmentation and lack of capital investment, since commonly held land could not be used as collateral. In an effort to raise rural productivity and living standards, this constitutional article was amended in 1992 to allow for the transfer of property rights of the communal lands to farmers cultivating it.
With the ability to rent or sell it, a way was open for the creation of larger farms and the advantages of economies of scale. Large mechanized farms are now operating in some northwestern states (mainly in Sinaloa). However, privatization of ejidos continues to be very slow in the central and southern states where the great majority of peasants produce only for subsistence.
Up until the 1990s, the government encouraged the production of basic crops (mainly corn and beans) by maintaining support prices and controlling imports through the National Company for Popular Subsistence (CONASUPO). With trade liberalization, however, CONASUPO was to be gradually dismantled and two new mechanisms were implemented: Alianza and Procampo.
Alianza provides income payments and incentives for mechanization and advanced irrigation systems. Procampo is an income transfer subsidy to farmers. This support program provides 3.5 million farmers who produce basic commodities (mostly corn), and which represent 64% of all farmers, with a fixed income transfer payment per unit of area of cropland. This subsidy increased substantially during president Fox’s administration, mainly to white corn producers in order to reduce the amount of imports from the United States.
This program has been successful, and in 2004, roughly only 15% of corn imports are white corn — the one used for human consumption and the type that is mostly grown in Mexico — as opposed to 85% of yellow and crashed corn –the one use for feeding livestock, and which is barely produced in Mexico.
Importance of Agriculture to Mexico’s Economy
Agriculture, as a percentage of GDP, has been steadily declining, and now resembles that of developed nations, in that it plays a smaller role in the economy. In 2006, agriculture accounted for only 3.9% of GDP, down from 7% in 1980, and 25% in 1970. Nonetheless, given the historic structure of ejidos, it still employs a considerably high percentage of the work force: 18% in 2003, mostly of which grows basic crops for subsistence, compared to 2–5% in developed nations in which production is highly mechanized.
In spite of being a staple in the Mexican diet, Mexico’s comparative advantage in agriculture is not in corn, but in horticulture, tropical fruits, and vegetables. Negotiators of NAFTA expected that through liberalization and mechanization of agriculture two-thirds of Mexican corn producers would naturally shift from corn production to horticultural and other labor-intensive crops such as fruits, nuts, vegetables, coffee and sugar cane.
While horticultural trade has drastically increased due to NAFTA, it has not absorbed displaced workers from corn production (estimated at around 600,000). Moreover, corn production has remained stable (at 20 million metric tons), arguably, as a result of income support to farmers, or a reluctance to abandon a millenarian tradition in Mexico: not only have peasants grown corn for millennia, corn originated in Mexico. Even today, Mexico is still the fourth largest corn producer in the world.
The area dedicated to potatoes has changed little since 1980 and average yields have almost tripled since 1961. Production reached a record 1.7 million tonnes in 2003. Per capita consumption of potato in Mexico stands at 17 kg a year, very low compared to its maize intake of 400 kg.
On average, potato farms in Mexico are larger than those devoted to more basic food crops. Potato production in Mexico is mostly for commercial purposes; the production for household consumption is very small.
Approximately 160,000 small- and medium-sized farmers grow sugar cane in 15 Mexican states; currently there are 54 sugar mills around the country that produced 4.96 million tons of sugar in the 2009 crop, compared to 5.8 million tons in 2005.
Mexico’s sugar industry is characterized by high production costs and lack of investment. Mexico produces more sugar than it consumes. Sugar cane is grown on 700,000 farms in Mexico with a yield of 72 metric tons per farm.
The industrial sector as a whole has benefited from trade liberalization; in 2000 it accounted for almost 90% of all export earnings. Among the most important industrial manufacturers in Mexico is the automotive industry, whose standards of quality are internationally recognized.
The automobile sector in Mexico differs from that in other Latin American countries and developing nations in that it does not function as a mere assembly manufacturer. The industry produces technologically complex components and engages in some research and development activities, an example of that is the new Volkswagen Jetta model with up to 70% of parts designed in Mexico.
The “Big Three” (General Motors, Ford and Chrysler) have been operating in Mexico since the 1930s, while Volkswagen and Nissan built their plants in the 1960s. Later, Toyota, Honda, BMW, and Mercedes-Benz joined in. Given the high requirements of North American components in the industry, many European and Asian parts suppliers have also moved to Mexico: in Puebla alone, 70 industrial part-makers cluster around Volkswagen.
The relatively small domestic car industry still is represented by DINA Camiones S.A. de C.V., that has built buses and trucks for almost half a century; Vehizero that builds hybrid trucks and the new car companies Mastretta design that builds the Mastretta MXT sports car and Autobuses King that plans to build 10000 microbuses by 2015, nevertheless new car companies are emerging among them CIMEX that has developed a sport utility truck, the Conin, and it is to be released in September 2010 in Mexico’s national auto show, And the new electric car maker Grupo Electrico Motorizado.
Some large industries of Mexico include Cemex, the third largest cement conglomerate in the world; the alcohol beverage industries, including world-renowned players like Grupo Modelo; conglomerates like FEMSA, which apart from owning breweries and the OXXO convenience store chain, is also the second-largest Coca-Cola bottler in the world; Gruma, the largest producer of corn flour and tortillas in the world; and Grupo Bimbo, Telmex, Televisa, among many others. In 2005, according to the World Bank, high-tech industrial production represented 19.6% of total exports.
Maquiladoras (Mexican factories which take in imported raw materials and produce goods for export) have become the landmark of trade in Mexico. This sector has benefited from NAFTA, in that real income in the maquiladora sector has increased 15.5% since 1994, though from the non-maquiladora sector has grown much faster. Contrary to popular belief, this should be no surprise since maquiladora’s products could enter the US duty free since the 1960s industry agreement. Other sectors now benefit from the free trade agreement, and the share of exports from non-border states has increased in the last 5 years while the share of exports from maquiladora-border states has decreased.
Currently Mexico is focusing in developing an aerospace industry and the assembly of helicopter and regional jet aircraft fuselages is taking place. Foreign firms such as MD Helicopters, Bell, Cessna and Bombardier build helicopter, aircraft and regional jets fuselages in Mexico. Although the Mexican aircraft industry is mostly foreign, as is its car industry, Mexican firms have been founded such as Aeromarmi, which builds light propeller airplanes; and Hydra Technologies, which builds Unmanned Aerial Vehicles such as the S4 Ehécatl. Other important companies are Frisa Aerospace that manufactures jet engine parts for the new Mitsubishi Regional jet and Kuo Aerospace that builds parts for aircraft landing gear.
As compared with the United States or countries in Western Europe a larger sector of Mexico’s industrial economy is food manufacturing which includes several world class companies but the regional industry is undeveloped. There are national brands that have become international and local Mom and Pop producers but little manufacturing in between.
The electronics industry of Mexico has grown enormously within the last decade. In 2007 Mexico surpassed South Korea and China as the largest manufacturer of televisions, and in 2008 Mexico surpassed China, South Korea and Taiwan to become the largest producer of smartphones in the world.
There are almost half a million (451,000) students enrolled in electronics engineering programs with an additional 90,000 students graduating from electronics engineering and technical programs each year and Mexico had over half a million (580,000) certified IT professionals employed in 2007.
Other consumer electronics companies such as Mabe have been functioning since the nineteen fifties and have expanded out of Latin America into markets around the world such as Asia and Europe and even into the United States where a large percentage of American branded appliances are actually of Mexican design and origin but sold under local brand names. In fact as of 2008 one out of every four consumer appliances sold in the United States was of Mexican origin.
According to the World Bank, production of high-technology good represented 22% of Mexico’s GDP in 2000 with the high tech sector growing by roughly 63% yearly. In 2009 Mexico’s fastest growing corporation which grew by more than 1000% from $1.42 billion to $10.97 billion was LANIX, a manufacturer and designer of computers, servers and other electronics and has seven manufacturing plants in Mexico and Chile
During the 2011 Consumer Electronics Show (CES) in Las Vegas Meebox Inc, a Guadalajara based company just founded in 2010 presented Slate, a potential competitor for the iPad; Space IT also presented in April 2011 its slate LivePad 7. Another area being currently developed in Mexico is Robotics, Mexico’s new Mexone robot has been designed with the idea that in future years develop a commercial application for such advanced robots.
Energy and Mineral Resources
Mineral resources are the “nation’s property” (i.e. public property) by constitution. As such, the energy sector is administered by the government with varying degrees of private investment. Mexico is the sixth-largest oil producer in the world, with 3,700,000 barrels per day (588,000 m3/d).
Pemex, the public company in charge of administering research, exploration and sales of oil, is the largest company (oil or otherwise) in Mexico, and the second largest in Latin America after Brazil’s Petrobras. Nonetheless, the company is heavily taxed, a significant source of revenue for the government, of almost 62 per cent of the company’s sales. Without enough money to continue investing in finding new sources or upgrading infrastructure, and being protected constitutionally from private and foreign investment, some have predicted the company may face institutional collapse.
While the oil industry is still relevant for the government’s budget, its importance in GDP and exports has steadily fallen since the 1980s. In 1980 oil exports accounted for 61.6% of total exports; by 2000 it was only 7.3%