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A computable general equilibrium analysis of Mexico's agricultural policy reforms

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  • Harris, Rebecca Lee
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    Abstract

    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.

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    Bibliographic Info

    Paper provided by International Food Policy Research Institute (IFPRI) in its series TMD discussion papers with number 65.

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    Date of creation: 2001
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    Handle: RePEc:fpr:tmddps:65

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    1. Santiago Levy & Sweder van Wijnbergen, 1992. "Mexican Agriculture in the Free Trade Agreement: Transition Problems in Economic Reform," OECD Development Centre Working Papers 63, OECD Publishing.
    2. Robinson, Sherman & Cattaneo, Andrea & El-Said, Moataz, 2000. "Updating and estimating a Social Accounting Matrix using cross entropy methods," TMD discussion papers 58, International Food Policy Research Institute (IFPRI).
    3. Mary E. Burfisher & Sherman Robinson & Karen Thierfelder, 2000. "North American Farm Programs and the WTO," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 82(3), pages 768-774.
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    Cited by:
    1. Henning Tarp Jensen & Sherman Robinson & Finn Tarp, 2004. "General Equilibrium Measures of Agricultural Policy Bias in Fifteen Developing Countries," Discussion Papers 04-25, University of Copenhagen. Department of Economics.
    2. Harris, Rebecca Lee & Robinson, Sherman, 2001. "Economy-wide effects of El NiƱo / Southern Oscillation (ENSO) in Mexico and the role of improved forecasting and technological change," TMD discussion papers 83, International Food Policy Research Institute (IFPRI).
    3. Thomas W. Hertel & Jeffrey J. Reimer, 2006. "Predicting the Poverty Impacts of Trade Reform," QA - Rivista dell'Associazione Rossi-Doria, Associazione Rossi Doria, issue 2, May.

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