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Over the past several years, the three largest agricultural producers of the northern half of the Western Hemisphere—the United States, Mexico, and Canada—have revised their agricultural policies (table 1). In the United States, the Farm Security and Rural Investment Act of 2002 (2002 Farm Act) was signed into law, providing the legal framework for U.S. farm programs through 2007 crops. In Mexico, the government responded to heightened concerns about the 2002 Farm Act, the North American Free Trade Agreement (NAFTA), and the general state of Mexican agriculture by issuing two outlines of intended policy actions, one in 2002 and another in 2003. And in Canada, the government is engaged in a comprehensive effort to reshape its agricultural policy within the context of the Agricultural Policy Framework (APF).
Mexico’s agricultural policy changes reflect a continuing effort to implement agricultural supports similar to those found in the developed economies, while still addressing the needs and wants of smaller producers who are less commercially oriented. Meanwhile, Canada’s new income stabilization and disaster protection program for producers—the Canadian Agricultural Income Stabilization (CAIS) program—has emerged as the centerpiece of that country’s agricultural reform efforts, with complementary initiatives being planned for the environment, science and innovation, food safety and quality, and the renewal of the agricultural sector.
During the 3 years immediately prior to these reforms (1999-2001), the United States, Mexico, and Canada provided different levels of government support to their agricultural producers. When such support is measured by the Producer Support Estimate (PSE), as calculated by the Organisation for Economic Co-operation and Development (OECD), the United States is estimated to have given the highest level of support (23 percent of the value of national agricultural production), followed by Mexico (21 percent) and then Canada (18 percent). The United States and Canada provide a much larger portion of their agricultural support in the form of budgetary payments to producers than does
Mexico. During 1999-2001, such payments accounted for 64 percent of the U.S. PSE and 54 percent of the Canadian PSE, compared with just 34 percent for Mexico. Relative to the value of national agricultural production, budgetary expenditures on farm payments during 1999-2001 equaled 15 percent in the United States, 10 percent in Canada, and 7 percent in Mexico.
With the implementation of new agricultural policies in the three countries, the relative difference between Mexico’s budgetary payments and those of Canada and the United States may narrow over the next several years. So far, Mexico’s new agricultural policies have been accompanied by a modest real increase in spending, while actual U.S. outlays associated with the 2002 Farm Act during its first 2 years of operation (fiscal years 2002-03) were well below some projections made prior to the legislation’s enactment. The U.S. development is linked to smaller-than-expected expenditures on certain price-sensitive commodity programs, due to relatively favorable prices for some crops. For 2003, budgetary expenditures on farm payments in Canada and the United States equaled 11 percent of the value of production, compared with 8 percent in Mexico.
The three countries also differ in the administration of budgetary payments to producers. In 2003, Mexico based 77 percent of its payments on either input use or a long-term entitlement, while Canada and the United States distributed farm payments across a wider array of program formats. These patterns are likely to persist over the next several years, as the three countries have left the previous formats of their agricultural programs mostly intact. For instance, Canada is expected to continue devoting a much larger proportion of its farm payments to programs based on overall farm
income than Mexico and the United States, since the CAIS program replaces an earlier subsidized savings plan for producers.
In the case of Mexico, the different orientation of its agricultural programs reflects the profound structural differences that distinguish its agricultural sector from that of Canada and the United States. About 20 percent of Mexico’s economically active population (EAP) is engaged in agriculture, compared with just 2 percent in both Canada and the United States (table 2). But the ratio of agricultural gross domestic product to agricultural EAP is roughly $3,000 per person in Mexico, compared with $49,000 in Canada and $40,000 in the United States. Although Mexico's GDP figures may understate the size of the Mexican agricultural sector due to subsistence production and informal activities that are not tallied in official statistics, the productivity gap is nonetheless real, and Mexico's farm programs include initiatives oriented toward rural development and the amelioration of rural poverty.
Despite these many differences, the agricultural reforms of all three countries share one striking similarity. Each country has created a countercyclical program that provides additional assistance to producers during a downturn in commodity prices. The United States has institutionalized the emergency assistance given to producers in the late 1990s and early 2000s, Canada has done the same by incorporating disaster assistance within the CAIS, and Mexico has formulated the Subprogram of Direct Supports to Target Income, which resembles the U.S. marketing loan program. These modifications continue a trend in which the three countries implement some income supports that are similar in their broadest features. In the mid-1990s, the three countries moved “toward policies that provide farmers with lower levels of support while simultaneously “decoupling” this support from production decisions” (Link and Zahniser, 1999: p. 18). The recent reforms do not fully reverse the earlier ones, as key supports in each country continue to be decoupled. Even with respect to the U.S. countercyclical program, payments are tied to historical production, and payment levels depend on commodity prices.