Agricultural practices in Mexico range from traditional techniques, such as cultivation of indigenous plants for family subsistence, to the use of advanced technology and marketing expertise in large-scale, capital-intensive export agriculture. Government extension programs in recent years have fostered the wider use of machinery, fertilizers and soil conservation techniques.

Although nearly half of Mexico's total land area is officially classified as agricultural, only 12% of the total area is cultivated. In the early 1990s, 80% of cultivated land required regular irrigation, but because of high costs, the government has emphasized expanding production on existing farmland rather than expanding the area under irrigation.

Maize is the traditional Mexican crop, and it is grown on almost half of Mexico's cropland. But production incentives have been reduced in the last few years in favor of alternative crops, and growers are moving to higher value crops, such as fruits and vegetables, and to cotton and sorghum.

Grains have been one of the more traditionally restricted sectors of the Mexican economy, but reforms, including infrastructure privatization and market liberalization, have been under way for nearly a decade. From a market standpoint, the reforms culminated in the 1999 dissolution of CONASUPO, the government agency that traditionally bought grain imports, distributed stocks internally and regulated market prices through production and consumer subsidies.

In order to fill the market-price information void created by CONASUPO's demise, the agriculture secretariat promoted the opening of Mexico's first-ever cash grain market, "Bolsa de Granos," which held its first maize auction in February 1999. The "Bolsa" was designed to encourage farmers to develop marketing skills and diminish price speculation.

A second attempt to promote a cash grain market, "Bolsa Fisica de Granos," was announced in Guadalajara a year later. The new "Bolsa" — known as Menagro — was established with the participation of 80 members, including maize producers, consumers, financial agents and service suppliers. But according to industry sources, activity in these markets to date has been limited because of grain producers' lack of knowledge about cash grain marketing.

The government continues to maintain some influence over supplies through domestic support programs and trade regulations. For instance, through PROCAMPO, the government administers per-hectare support payments to crop producers, payments that for 2000-01 will increase by 16% from the previous season.

The agriculture secretariat also recently announced a maize support program for producers in a number of states. The support, called "Marketing Support Program through Development of Regional Markets," includes an unspecified payment per tonne of maize marketed, as well as supports for sorghum, rice, wheat, soybeans, sunflowers and cotton. The program is to be managed by ASERCA, the agency providing commercial advice and support to farmers.

Mexico's growth in income and population are increasing internal demand for grains and poultry and, to a lesser extent, hog, beef and dairy products. At the same time, unpredictable weather and scarce water supplies are expected to leave Mexico dependent on imports into the foreseeable future.

WHEAT AND FLOUR MILLING. Mexico's wheat milling sector consists of about 150 milling companies. Some 40 or so of these are very small local operations, with the remainder making up the majority of milling capacity. Driven by competition from imported wheat and flour products, many wheat millers have improved their technology in recent years.

The milling industry has been consolidating in recent years. Some 105 mills are listed in the 2001 edition of Sosland Publishing Co.'s Grain & Milling Annual, compared with 130 just five years previously in the 1996 edition.

Of the 105 mills listed in the current directory, 100 of those specify daily milling capacity, and their total is 21,861 tonnes, wheat equivalent, which equates to roughly 6.7 million tonnes annually. With domestic wheat for food use estimated at about 5.2 million to 5.3 million tonnes in recent years, capacity utilization would be about 77% to 79%.

Nine mills have a daily capacity of 500 tonnes or more, with Harinas San Luis S.A. de C.V., San Luis Potosi, the largest reported mill with a daily capacity of 1,100 tonnes. Of the remainder, 16 report capacity of 300 to 499 tonnes, 22 report 200 to 299, and 30 report 100 to 199. The remaining 23 mills have fewer than 100 tonnes of daily capacity.

Fourteen mills are located in Distrito Federal, the capital area of Mexico City. These mills account for 4,651 tonnes, or about 21%, of the country's capacity.

The adjacent state of Estado de Mexico is home to 10 mills with a total of 2,130 tonnes of daily capacity, while the nearby state of Puebla accounts for eight mills grinding 2,645 tonnes.

The Mexican bakery industry is mostly artisan, although several major industrial bakeries provide notable exceptions. Small, one-family operations represent about 80% to 90% of the companies, but less than 40% of the total production value. Mexican bakery producers have made large investments in equipment and production but, in general, still have room for modernizing their operations, according to observers.

Some of the principal brands/companies producing bakery products include Grupo Industrial Bimbo (white bread, pastries), Pasteleria Francesa (pastries), Grupo Mac' ma (cookies), Tia Rosa (pastries), Continental De Alimentos (white bread), Productos Marinela (pastries), Suandy (cakes, cookies), Lily Ann (cakes, pies) and Daly & Bagel (bagels).

News about the development of the first genetically modified variety of wheat for sale to farmers is causing controversy in Mexico, as it is around the globe, even though GM wheat is thought to be two to four years away from entering the market. Mexico so far has expressed reluctance to accept GM wheat because of concerns over potential harm to the environment and human health.

In general, Mexico's food-processing sector is one of the country's principal industrial activities, and the food-processing sector has the strongest presence in the list of top 500 companies with 93 companies registered.

MAIZE AND PROCESSING. Maize in Mexico historically has been almost exclusively a food grain. Tortillas continue to be a staple in the Mexican diet, with per capita consumption of 126 kilograms per year. Food consumption is expected to increase with population and income growth. Tortilla makers also foresee that consumption will increase as traditional manufacturing processes give way to the use maize flour.

Despite the importance of maize as a food grain, domestic maize consumption has increased as a result of greater demand by the animal feed and starch industries, especially since the implementation of the North American Free Trade Agreement in 1994. The livestock sector, mainly poultry and hog producers, consumes maize primarily in the form of mixtures and feed concentrates.

The Mexican Feed Millers Association expects that feed consumption will increase approximately 4% in the 2000-01 season based on strong demand from the livestock industry. The poultry and hog sectors are expected to grow 5% and 3.5%, respectively, in 2001-02. Recent lower maize prices compared with alternative feed stuffs is expected to encourage more maize use in feed rations.

INFRASTRUCTURE AND TRADE. Mexico is a key part of the trade triangle that forms the North American Free Trade Agreement. The 1994 implementation of NAFTA, which continues to open Canadian, U.S. and Mexican borders to increasingly freer trade, has encouraged a big expansion in infrastructure investments in Mexico, including grain storage and handling facilities at port and interior locations.

NAFTA also has done much to spur grain trade among the countries. As part of its NAFTA membership, Mexico replaced its system of import licenses with tariff rate quotas, which gradually are being phased down.

Since NAFTA was implemented, the over-quota tariff on maize has been reduced to 127.1% from 206.4%. Traditionally, Mexico has waived enforcement of the over-quota tariff for maize because local production has been insufficient to meet demand.

Meanwhile, Mexico's maize TRQ has increased to 3.074 million tonnes for 2001 from 2.5 million in 1994. The TRQ will be phased out by 2008 through a 3% annual increase in quantity. Over the first six years of the agreement, an aggregate 24% of the tariff was eliminated.

But even with the NAFTA relationship, not all disputes have ended. In December 2000, Mexican officials initiated an anti-dumping case against imports of long grain white rice from the U.S.

And because of the importance of maize to Mexico's economy and culture, trade in that grain has been particularly sensitive. The advent of genetically modified U.S. maize varieties has intensified the situation.

In an attempt to halt the alleged misuse of NAFTA corn tariff rate quotas and preempt controversy about GM maize, the Mexican government reportedly will propose a ban on the use of yellow maize for the production of tortillas. While most of the maize used in Mexico for tortillas is white, sources indicate some yellow maize imported for animal feed and industrial uses is being diverted into tortilla manufacturing.

Mexico imports approximately 5 million tonnes of U.S. maize a year, of which approximately 1.2 million is used for tortillas and maize flour.

Mexico also is pursuing trade agreements with South America and has signed a free trade deal with the E.U. to lessen its NAFTA dependence.