Since the late 1980s, Mexico has liberalized its agricultural sector, moving from a system of price supports, producer subsidies and consumer subsidies to a less distorting scheme in which market forces play a greater role. Coinciding with these agrarian and food policy reforms, the government has implemented the PROCAMPO system of direct payments to farmers. There is a general consensus that a direct payment program has the potential to be more efficient than a system of subsidies and supports. At the same time, there is widespread agreement that other policies need to be put in place to assure protection of the economically vulnerable segments of the population. Within this context, this paper uses a computable general equilibrium (CGE) model to analyze the regional, household and economy-wide effects of switching from the old system of price supports and subsidies to the new system of PROCAMPO payments. A CGE model of Mexico is constructed with four rural regions and one urban region and a high disaggregation of the agricultural and food sectors. It also includes 15 households, defined according to region and income level to permit a rich analysis of distribution effects. The initial experiment consists of removing the PROCAMPO payments from the base year (1996) and adding back the subsidy and support scheme as it existed in 1993, the year before PROCAMPO began. Then two policies are tested under an exchange rate depreciation to see how each policy regime reacts to adverse shocks. The simulations demonstrate that in a static situation, lump sum payments are preferred to the system of subsidies and price supports. In the event of a negative external shock, the simulations suggest that the old system performs better in terms of output and rural incomes. However, urban households are worse off, and their size in total population may make this an unattractive policy.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Publisher Info
Paper provided by International Food Policy Research Institute (IFPRI) in its series TMD discussion papers with number
65.
For technical questions regarding this item, or to correct its listing, contact: ().
Related research
Keywords:
Other versions of this item:
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)