Conversion from Staple to Cash Crop Production in Mexico After NAFTA: Effects of PROCAMPO and Credit Constraints

In this paper, we ask whether PROCAMPO helped Mexican agricultural producers benefit from NAFTA. Specifically, we explore the effect of these decoupled income payments (PROCAMPO) on producers’ ability to switch to cash crop production, and whether these payments help alleviate credit constraints for poorer producers. Given that WTO negotiations are currently stalled in part because of the trade concerns of developing nations, exploring the constraints that small producers face and whether decoupled subsidies can assist those producers in benefiting from new markets is important. Unlike previous studies, who concentrated on specific regions and ejidal lands, we use nationwide county-level data, which allows for us to see the regional distribution of change across Mexico. We use these data to estimate the change in staple crop production as a function of county-level characteristics. We find some evidence to support the hypothesis that an increase in PROCAMPO payments leads to a decrease in the area planted in staples. Second, the implementation of NAFTA is associated with greater cash crop production and we can see that the creation of new markets is, in general, leading to a reduction in land planted in staples. Third, we find that the effect of PROCAMPO is even larger for ejido producers, implying that their benefits are not constrained to larger producers. Last, we find evidence that areas closest to the United States border have seen a greater movement to cash crop production after NAFTA