Subsidies for Maize in Mexico: the Contract Farming Program

Abstract

For more than one decade, the Mexican government implemented two subsidy programs (contract farming and price hedging) to protect grain farmers and firms from the risks related to international price fluctuations. In this article, we analyze the characteristics and limitations of these two programs as well as its effects on maize producers and feed firms in the state of Puebla, Mexico. Among our findings is the fact that while these programs offer important advantages to the participants, the buyer-seller contracts are often breach as a result of climatic disasters, differences in relative prices (international vs. open market) and changes in international exchange rates. The studied programs are regressive and subsidies are concentrated geographically. We reflect on the need to reorient the government support to the agricultural sector in Mexico.