Mexico: Guarantee Prices for Basic Foodstuffs

The World Trade Organization (WTO) described the system of Guaranteed Prices for Basic Food Commodities operating in Mexico as follows

In 2019, Seguridad Alimentaria Mexicana (SEGALMAX), an agency of SADER, began implementing the Basic Food Commodity Guarantee Price Program (PGPAB).

The budget allocated to this Program for 2019 was 6,000 million pesos, for 2020 10,000 million and for 2021 10,961 million.

One of the main objectives of the PGPAB is to increase the income of small farmers and reduce dependence on imports of basic grains and milk, thus promoting food self-sufficiency.

In particular, the corn (small producers) and beans purchased by SEGALMEX at guaranteed prices are destined primarily for the supply network of DICONSA, a state-owned company of social interest.

SEGALMEX sells the remainder to other institutional programs or on the open market at the price it defines.

The state-owned company LICONSA is responsible for the collection and supply of milk at preferential prices.

DICONSA, together with SEGALMEX and LICONSA, contribute to food security through the sale of basic food basket products. DICONSA, through the Rural Supply Program, purchases and collects basic food basket products, including milk processed by LICONSA and other basic necessities and hygiene products, and sells them through its network of community stores at below-market prices to the poor and marginalized population.

Guarantee prices

The PGPAB offers guarantee prices for rice, beans, milk, corn, and wheat, as well as incentives to purchase the Risk Management Instrument (IAR), a hedge required by SEGALMEX for corn and wheat.

The guarantee prices vary depending on the type of product and the size of the cultivated area, and are given for a maximum volume per producer and per agricultural cycle.

In addition, for some types of wheat, the incentive is granted only if the crop is used by the domestic milling industry.

In 2022, in addition to the guarantee price, support is granted to corn producers for moving the grain from the production unit to the collection center, amounting to 160 pesos per ton, not to exceed the cost of moving 20 tons per agricultural cycle; such support is granted when the payment for the grain is made to the producer.

Productivity support is also granted to large rice and wheat producers for a specific volume.

SEGALMEX may purchase the product at a price different from the guarantee price in emergency cases, when the bean harvest is affected by meteorological phenomena and the crop is unfit for human consumption, but still has commercial value.

In appropriate cases, SEGALMEX lends grain for planting to corn and bean producers, which must be returned.

According to the PGPAB Agreement, in the case of corn and beans, the guarantee prices respond to a market failure, due to the short harvest period and the fact that there are few buyers, which tend to fix the price.

Corn and beans

SEGALMEX acts as a market regulator, by remedying the market failure by guaranteeing a fixed price for the corn and beans it buys from small producers.

On the other hand, SEGALMEX negotiates prices and sales conditions for small corn or bean producers to other institutions and/or individuals, depending on the prevailing market circumstances.

As for bread wheat and rice, the guarantee prices seek to stimulate an increase in domestic production by offering an attractive price to producers, thus reducing dependence on imports.

On the other hand, the incentive granted to medium-sized corn producers is intended to support them in the face of competition from imported corn and to promote the use of IARs.