CAB - Mexico's Distribution Infrastructure for Fresh Deciduous Fruits: Mexico As a Partner with the U.S. in the Trade of Fresh Fruits

Research Publications

Mexico's Distribution Infrastructure for Fresh Deciduous Fruits After the North American Free Trade Agreement
by
Dr. Juan C. Batista, Lic. Jose Armando Martinez
and Antonio Soto
Mexico As a Partner with the U.S. in the Trade of Fresh Fruits

CATI Publication #960301
© Copyright February 1996, all rights reserved

The United States' Southern Neighbor

      Since 1986 when Mexico joined the General Agreement on Tariffs and Trade (GATT), trade between Mexico and the U.S. has increased steadily. The North American Free Trade Agreement (NAFTA) also appeared to perpetuate this trend between trading neighbors. According to Foreign Trade magazine (1995), "...despite all the turmoil that Mexico saw in 1994...Mexican trade - both imports and exports - soared 20 percent due to NAFTA." The devaluation of the Mexican peso against the U.S. dollar stopped the trend and it should reduce the net trade flows between the two countries when the numbers are published at the end of 1995. However, there is evidence to suggest trade between the two countries will thrive again as the two economies adjust to the devaluation of the peso (The Packer, 1995).
      For the simple reason that a country's volume of trade is tied to its economy and, in turn, the volume of trade directly impacts a country's trade infrastructure, it is important to understand Mexico as a country and an economy. The refore, this section provides a general overview of Mexico in order to place the study in perspective.

Geography and Topography:
      Mexico spans an area of 764,000 square miles and comprises 31 states and the Federal District of Mexico City (see Figure 1). Mexico borders the U.S. to the north and the border spans 2000 miles along the American states of Texas, New Mexico, Arizona and California.

fig1

      Transporting products by ground across Mexico efficiently is dictated in large part by the nation's topography. U.S.-Mexican trade, particularly ground transportation, moves along four well-defined corridors primarily because of the location of rugged mountains. Along the western side of the mainland of Mexico is a range of tall mountains that runs north-south called the Sierra Madre Occidental. In addition, there is a central plateau in Mexico, which contains the nation's capital, Mexico City, that sits at an altitude of approximately 7,000 feet above sea level.

Population Characteristics:
      Population estimates for Mexico vary according to sources. The estimates range between 92 to 95 million persons living in Mexico currently. On average, the population has grown from two to three percent annually.
      The population in Mexico is relatively young, but maturing (see Table 1). For example, 40 percent of Mexicans were 14 years old or younger in 1985. By the year 2000, however, the United Nations estimates that only 33 percent of the population will be 14 and under (Batista and Hagen 1994).

fig2

      Mexico has become an increasingly urbanized society in recent history. It is estimated that somewhere between 70 and 73 percent of the citizens reside in an urban setting; compare this to the United States at approximately 78 percent. The U.S. Embassy in Mexico City, in the early 1990s, reported a breakdown of the Mexican population by area (see Table 2). From a distribution point of view, it is interesting to note that about one in three Mexicans lives in Mexico City, Monterey, Guadalajara, or the major border cities.

fig3

      Approximately 30 million people participate in Mexico's labor force. Since a high percentage of the population falls between the ages of 16 and 30, it is projected an additional 12 million workers will enter the work force over the next decade.
      Mexican wages are low relative to U.S. wages (see Table 3). The official minimum wage in Mexico in 1993 was $4.30 per day (American Trucking Association 1995). However, as shown in Table 3, the average wage for Mexican workers in manufacturing was $2.65. Average work weeks are also different in Mexico than in the U.S. Mexicans work an average of 44.5 hours per week, while the average work week for Americans is 34.5 hours per week.

fig4

The Economy:
      Mexico ranks 15th in the world in terms of economies. Mexico's gross national product (GNP) in 1993 was $356 billion, which is roughly one-twentieth that of the U.S. GNP at $6.2 trillion in 1993. Based on the most recent statistics, Mexico is the United States' third largest trading partner behind Canada and Japan.
      Mexico has made significant progress toward restructuring her economy over the last several years. The majority of the reforms were based on privatization, deregulation, fiscal responsibility, and opening the Mexican economy to world trade. After successive years of impressive annual increases in gross domestic product (GDP), Mexico ended 1993 in recession due in part to stagnant domestic demands, declining industrial output, and a slow growth in the international economy. This trend was worsened by strict monetary and fiscal policy, which kept interest rates high. Due to these factors, growth in GDP in 1993 was only 0.04 percent (CIA 1994). Per capita income for 1993 was $4,000 compared to per capita income in the U.S. of over $23,000.

U.S.-Mexico Trade:
      The long-term prospects for trade between the U.S. and Mexico are bright, despite the short-term uncertainties. Albeit the Mexican economy has suffered some setbacks in recent times, it is a widely held belief her economy will recover and is set for further growth (see USDA 1995 and Maguire 1995 for examples). This sentiment is grounded in many factors, but the three major ones are 1) The Mexican economy's restructuring has put into place sound fundamentals for future economic growth; 2) The negotiations toward the NAFTA and the agreement itself have opened the Mexican economy to healthy world competition and thus will continue to encourage Mexico's participation in global trade; and 3) Trade between Mexico and the U.S. has improved steadily since at least 1986 when Mexico joined the GATT (see Figure 2).

fig5

      The economic crisis at the end of 1994 in Mexico was caused by a growing current account deficit that eroded investors' confidence in the Mexican government's ability to maintain the value of the peso under the pegged-exchange-rate system. The devaluation and subsequent floating of the peso, combined with the new Mexican austerity program, should lower Mexican imports and boost exports. In calendar year 1995, for instance, U.S. exports to its NAFTA partners are expected to fall nine percent to $9.1 billion due to the decreased demand from Mexico (USDA 1995). U.S. imports are expected to increase, on the other hand, by seven percent to $8.7 billion in 1995, as the weaker peso makes imported products relatively less expensive for U.S. consumers (USDA 1995) and as U.S. firms migrate down to Mexico to take advantage of the relatively lower cost of productions (Maguire 1995).
      All in all, trade and therefore the use of Mexico's infrastructure should continue at a healthy pace. The following tables illustrate historical trade flows of selected fresh fruits between Mexico and the U.S. Table 4 has in it the values of U.S. imports from Mexico between 1985 and 1994, while Table 5 contains the values of U.S. exports for the same period of time. A few of the numbers within the two tables are noteworthy of comparison. Of the six fresh fruits shown, the U.S. imports of grapes were the largest, followed by peaches from Mexico. Apricots and plums were and are not exported from Mexico to the U.S.

fig6

fig7

      Generally speaking, U.S. exports of the selected fruits outnumber the U.S. imports of the same fruits. The exports of fresh deciduous fruits from the U.S. were lead by apples, with pears and grapes holding the second and third place spots, respectively. Two interesting points regarding these two latter fruits are the exports of grapes, which jumped substantially between 1993 and 1994 - almost threefold, and the exports of pears, which have increased ever since 1988.
      The trends and patterns identified with Tables 4 and 5 using the value of trade in fruits are mirrored in the volume figures. Tables 6 and 7 contain volumes of imports from and exports to Mexico, respectively. These trade patterns have implications for Mexico's trade infrastructure and the movement of fruits between two countries.

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