Maize and the Free Trade Agreement Between Mexico and the United States.’’ The World Bank Economic Review 6

Setting the price of maize in rural Mexico above the world price is inefficient and likely to have negative distributional effects because many subsistence producers, and all landless workers, are net buyers; in fact it screens out the relatively poor rather than the relatively rich. The policy objective, therefore, should be to move toward free trade. This would yield large gains in efficiency. The Free Trade Agreement provides an ideal opportunity to pursue this objective. It will provide freer entrance into the United States for other agricultural products as well as a broad range of manufactured products. Insuring secure and sustained access for labor-intensive agricultural and manufactured products can help ease the impact on the labor market of a transition away from subsistence maize cultivation. Maize is perhaps the single most imponant commodity in Mexico. In rural areas it is the main food consumed by farmers; in urban areas it is the main input into tortillas, a key component of urban workers * diets. Maize cultivation occupies between one-third and one-half of the country's arable land and employs one out of three rural workers. It is grown by a large number of small-scale producers on rain-fed land and by relatively fewer large-scale farmers on irrigated land. But because many small-scale producers, or subsistence farmers, have plots of very poor quality, maize is directly associated with rural poverty. In addition poverty in Mexico is to a large extent a rural phenomenon (Levy 1991). Governments in Mexico have announced maize self-sufficiency as a national goal. Governments also have expressed their commitment to poor maize pro-ducers by subsidizing production. The process of land reform in Mexico gave farmers some land, but, as the extensive margin was exhausted, the quality of the land distributed diminished. Of the 43 million hectares distributed between 1958 and 1976, 91 percent were hillside, mountainous terrains; 8.4 percent were rain-fed land; and only 0.4 percent were irrigated land (Salinas 1990). Raising the producer price of maize was one way to increase the value of th