Mexico restructuring cash grain markets, plans futures markets

by Teresa Acklin
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Spurred by the North American Free Trade Agreement, Mexico is restructuring its internal grain marketing system. The Apoyos a Servicios a la Comercializacion Agropecuaria de SARH (ASERCA) is the government agency responsible for the restructuring.

   Claudia Fernandez Gonzalez, general director of technical services for ASERCA, discussed the problems and solutions involved in this effort at the joint meeting of the U.S. National Grain Trade Council/Terminal Elevator Grain Merchants Association in Scottsdale, Arizona, U.S. This article is based on her presentation.

   A consolidated cash grain market involving the private sector and a grain futures exchange are the key components of Mexico's on-going program to restructure its grain marketing system.

   The restructuring is changing a marketing system that had been in place since the early 1940s. Under the old system, the Mexican government agency known as CONASUPO controlled all marketing—buying from producers and selling to consumers.

   This system created a series of problems that persists up to this day. The most significant problem was high government costs, and another stemmed from a lack of producer incentives.

   With CONASUPO buying production to guarantee incomes, producers had no reason to improve efficiency, to learn marketing skills or to respond to changes in supply and demand. The old system also eliminated private traders and risk takers, key links in the marketing chain between producers and consumers.

   With the restructuring, CONASUPO ended its activities in most markets except maize and dry beans, and a marketing vacuum resulted. Producers did not understand the market, private agents and risk-taking intermediaries did not exist, and the marketing chain disintegrated.

   The solution was a two-phased program to foster development of a private cash market and to implement a futures market. The first phase began in 1991 and incorporated subsidies for wheat nationwide and for sorghum and soybeans in certain regions.

   Under the program, ASERCA provides “target prices,” or direct subsidies, for producers and consumers. Both subsidies include basis adjustments calculated from the world price.

   The program enables the use of forward contracts in the private sector and has been successful in reactivating cash markets for the affected crops. Consequently, the program will be implemented in 1993 for all crops, and by 1994, CONASUPO will no longer be involved in marketing maize and dry beans.

   The objectives in opening the planned Mexican Board of Trade are to develop a price discovery mechanism and an accessible risk-transfer system for Mexican producers and commercial interests. The planned futures contracts will be fixed-quantity, peso-denominated instruments with delivery points located within the continental Mexican Republic. The contracts will be compatible with those on other exchanges to enhance liquidity through arbitrage.

   No timetable has been established for opening the exchange, as further evolution of the fledgling cash markets must occur before trading can begin. Changes in the law also must be made.

   Specifically, modifications in warehousing, credit and financial laws will be required. Mexico also will need to develop an information system to disseminate prices internationally.

   Further, market participants must be educated in the use of futures, and the exchange must be promoted to draw interest. ASERCA is working with U.S. futures exchanges and brokerages to assist in this effort.