Trade with Mexico

- Spring 1994 "Update" Newsletter Article -

Trade with Mexico
New report reveals Mexico's transportation deficiencies, but also strong growth in purchasing power
From CATI Publication #940401
Copyright © 1994. All rights reserved.

The recent signing of the North American Free Trade Agreement (NAFTA) provides a virtual fruit basket full of new trade opportunities for the California farm industry.

The potential for increased exports to Mexico is certainly there, note a pair of CSU, Fresno agricultural economics professors who have researched the potential of the Mexican market to absorb California and U.S. products.

"Industrialization has created a new group of skilled workers and management personnel" in Mexico during recent years, write professors Juan Batista and John Hagen in a report just published by the California Agricultural Technology Institute.

"Much of [Mexico’s] wealth, historically concentrated in a small segment of the population, has begun to be distributed to this new echelon of managers and technicians," greatly increasing their purchasing power, the report notes.

But before California commodity brokers envision too many grand inroads into the Mexican market, they should be careful to consider just that - the roads, and transportation systems for products imported into Mexico, the researchers caution. Moving farm products through Mexico and into the hands of Mexican consumers has traditionally been one of the weak links in trade between the two countries.

For example, it is estimated that 80 percent of all U.S. agricultural exports into Mexico are shipped by truck. However, since current Mexican law prohibits U.S.-owned trucks from traveling more than 20 miles into Mexico, trailer loads must be transferred onto Mexican trucks, usually at the border. "Few U.S. companies like this arrangement because it is difficult to find a return load," the authors state.

In addition, a general shortage of warehouse space in Mexico results in shippers there using U.S.-owned refrigerated trailers for cold storage. This is a practice that most U.S. trucking companies object to.

Further delays in transportation can arise because of road conditions. While Mexico maintains a high-quality system of toll roads, truckers often use slower, poorer non-toll roads to avoid paying the toll fees, the researchers report.

Yet in spite of the stated deficiencies of Mexico's transportation infrastructure, trade has increased, and in some commodities dramatically, during the last five years between the U.S. and Mexico.

Research into export records between the U.S. and Mexico indicate that the volume of apples exported from the U.S. to Mexico increased from nine million kilograms, valued at $4.7 million in 1989, to more than 74 million kilograms worth $34.5 million in 1992. For pears, the volume increased from 20 million kilograms, with a value of $8.9 million in 1989, to more than 33 million kilograms, valued at $15.7 million, in 1992.

This tremendous growth in U.S. exports is due in part to improvements in border-crossing facilities and protocol, especially at the city of Laredo, Texas, which has become one of the busiest ports of entry into Mexico, the authors noted.

While continued improvements in transportation and other systems will require time and money, it is virtually certain that these things will occur as Mexican importers and exporters begin to realize the value of more open trade policies with the U.S.

"New arrangements are unfolding between U.S. and Mexican partners. Joint ventures are going to enhance the infrastructure through additions of warehouse space, shared technologies, investments in facilities, expanded border capacities, improved seaports, and new regulations to govern the trade of agricultural products," Batista and Hagen conclude.

Their report, entitled "Mexico's Agricultural Trade Infrastructure for Apple and Pears," is based on research of trade statistics and a survey of brokers and shippers overseeing exports into Mexico. It is available from CATI at no charge. For information on acquiring a copy, please see the publications order form on Page 7.

For more information, the researchers may be contacted through CSU, Fresno's Department of Agricultural Economics at (559) 278-2949.

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