Agricultural and trade policy reform in Mexico: PROCAMPO, NAFTA, and pre-GATT

Abstract

<p>Changes in Mexico's domestic agricultural policy (PROCAMPO) and continued liberalization of trade through GATT and NAFTA have had strong effects on Mexico's agricultural production, consumption, and trade with the United States. The main objective of this study is to analyze these effects in Mexico's grain and livestock sectors. Policies within the NAFTA and GATT international trade agreements may overlap to some degree, and Mexico's domestic agricultural liberalization program (PROCAMPO) may include policies that overlap those in one or both of the international trade agreements. This study analyzes the effects of PROCAMPO, NAFTA, and pre-GATT policies compared to a baseline of current policy for 1994 through 2000 and forecast to 2005;To achieve this objective, the study analyzes the crop and livestock sectors within Mexico's economy and develops a domestic econometric supply and demand system based on economic theory. International agricultural trade is analyzed by deriving import demand and export supply relationships from the agricultural supply and demand model. Policy instruments for agricultural and trade liberalization are incorporated into the economic sectors developed in the model. Finally, changes in Mexico's production, consumption, and net trade patterns with the United States for grain crops and livestock are analyzed;The following procedures are employed in this research. An econometric model is developed for Mexico's livestock and crop sectors that includes supply and demand systems. An argument for determining the appropriate type of model is presented. The model represents economic behavior and policies as closely as possible, given such constraints as data availability and reliability. Mexico's import demand and export supply are derived from the supply and demand system. Policy instruments are incorporated into the model for PROCAMPO, GATT, pre-GATT, and NAFTA economic policies. Current trade and domestic policy as implemented by the government of Mexico are incorporated into the model's baseline scenario. The impacts of PROCAMPO, pre-GATT, and NAFTA policies on changes in production, consumption, and trade in Mexico's grain and livestock sectors are analyzed. An alternative scenario that depicts changes in Mexico's exchange rate is analyzed.</p>