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Cablegate: Calderon Announces Increased Farm Assistance To

VZCZCXRO3107
PP RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHME #1258/01 0712221
ZNR UUUUU ZZH
P 122221Z MAR 07
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC PRIORITY 5779
INFO RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RUEHRC/DEPT OF AGRICULTURE WASHDC PRIORITY
RHEHNSC/NSC WASHDC PRIORITY

UNCLAS SECTION 01 OF 03 MEXICO 001258

SIPDIS

SENSITIVE
SIPDIS

DEPARTMENT FOR WHA/MEX
DEPARTMENT PASS USTR FOR MELLE/VETTER
USDA FOR FAS/ONA

E.O. 12958: N/A
TAGS: EAGR ECON SENV MX
SUBJECT: CALDERON ANNOUNCES INCREASED FARM ASSISTANCE TO
SMOOTH NAFTA TRANSITION


1. (U) This message is based on Global Agriculture
Information Network Report Number MX7016 from Embassy Mexico
City's Foreign Agricultural Service Section.

Summary
-------

2. (U) Last week the Calderon administration rolled out a
number of agricultural/rural development initiatives in a
five-day media blitz dubbed "Countryside Week." Calderon
announced the continuation of several existing agricultural
programs, including PROCAMPO (which channels direct payments
to producers), as well as the creation of new ones, including
an initiative to re-vitalize Mexico's forestry sector. These
activities are all captured under the umbrella of the
Concurrent Special Program (PEC), and Calderon's proposed
spending levels would make the 2007 PEC the largest
allocation of federal funds for rural development in the
history of Mexico. In addition to the PEC programs, Calderon
also announced an unfunded initiative aimed at boosting
competitiveness in the four sectors (corn, dry beans, sugar
cane, and milk) scheduled to be opened in January 2008, when
Mexico implements its final NAFTA obligations.

Funded Programs
---------------

3. (U) The PEC is an umbrella funding mechanism for all GOM
activities aimed at increasing agricultural production,
stimulating rural economies, and improving rural livelihoods.
Annual PEC funding levels are renegotiated and voted upon
annually by Mexico's Congress -- this year it will receive
USD 16.3 billion, 15 percent higher than 2006 and the largest
allocation of federal funds for rural development in the
history of the Republic. PEC funds are administered by the
Intersecretarial Commission for Sustainable Development and
are distributed among a diverse set of programs run by
different GOM Secretariats (equivalent to USG Departments).
According to the GOM, PEC programs reach 90 percent of
Mexico's municipalities and directly benefit one out of every
four Mexicans. The major programs highlighted during
Calderon's "Countryside Week" include:

-- PROCAMPO: This is a system of direct payments to producers
based on historic levels of area planted. The program is
primarily focused on growers of basic grains and oilseeds.
PROCAMPO was initiated in 1994 and was to have expired in
2008. However, the Calderon administration decided to renew
the program through 2012, a great relief to the 2.8 million
farmers who are registered under the program. The GOM
announced PROCAMPO funding levels of USD 1.5 billion in 2007,
a seven percent increase over 2006. Furthermore, the
administration also pledged to allocate USD 4.6 billion to
PROCAMPO over the next two and a half years.

-- Emergency Plan: The Emergency Plan offers financial
support, through a number of mechanisms, for producers of
corn, beans, sugar cane, milk, and other sensitive
agricultural items. This plan was designed in direct
response to the impending opening of North American markets
for these products under the NAFTA, and will receive USD 1.1
billion in funding in 2007.

-- Highway Infrastructure: PEC funds will be allocated for
the enlargement and improvement of roads and highways to
facilitate the transport of agricultural products and reduce
operational costs. PEC funds will also allow for the
implementation of the "Rural Roads" program, which is
designed to assist farmers access both urban markets and
international ports.

-- Agricultural and Livestock Census: The GOM has proposed
roughly USD 148 million for a comprehensive census of labor
and production capacity in the Mexican countryside for use in
the further elaboration of farm policy.

-- Strengthening of the Land Fund: The GOM will create a fund
for the enforcement of property rights, as well as investment
in the countryside. Funds for the acquisition of diesel fuel
are also included in this program.

-- Pro-Trees: Calderon also announced the creation of a new
PEC initiative to promote the transformation of the forestry

MEXICO 00001258 002 OF 003


sector. USD 556 million will be invested in reforesting
unproductive areas and developing aquifers. The program will
focus on conservation and restoration, planning and forest
organization, productivity, and infrastructure development.
Pro-Trees will be directed toward Mexico's poorest regions
and will partially support nearly 400,000 people.

-- Fisheries Development: Another announcement the President
made was to create a new fisheries program to arrest the
decline that industry has suffered over many years due in
part to lack of government support, inappropriate
regulations, and obsolete infrastructure. The GOM will
allocate, through the PEC, USD 120 million toward the
provision of banking and credit services, improving the
efficiency of the fisheries sector, promoting infrastructure
investment, and strengthening the enforcement of the
regulatory framework.

Plan to Increase Competitiveness for NAFTA Crops
--------------------------------------------- ---

4. (U) In addition to the PEC, the GOM also used the
"Countryside Week" to announce "Actions to Promote Corn, Dry
Beans, Sugar Cane, and Milk Competitiveness 2007-2012." This
is not a funded program. Rather, its activities are already
being implemented under an array of existing federal
initiatives, including PROCAMPO and other PEC-funded
programs. But the announcement did give the Calderon
administration a chance to articulate its goals for these
sensitive commodities (all of which will be finally and fully
liberalized to U.S. and Canadian imports at the start of 2008
pursuant to NAFTA's agricultural chapter) and draw attention
to the government support (approximately USD 1.7 billion)
already being directed to raising total production and
productivity levels for these commodities. In each case, the
Calderon administration highlighted how these ongoing
activities are helping to strengthen farmer organizations,
sustainably increase productivity, create safety nets for
producers, and expand access to credit. For corn, the GOM is
shooting to raise average yields from the current 2.8 tons
per hectare to 3.5-5.0 tons per hectare, and raise total
production from 21 million metric tons to 26-30 MMT. Some
progress is certainly attainable, but with average annual
corn consumption in Mexico already around 31 MMT, and given
Mexico's ethanol production ambitions and its growing
livestock and poultry industry, consumption is likely to grow
considerably. That means that, even in the unlikely event
that Mexico reaches the upper-range target of 30 MMT, it
would still be a net importer and thus somewhat vulnerable to
international prices. For dried beans, efforts aimed at
increased production could result in a significant surplus,
since consumption of dried beans continues to fall in Mexico.
Mexico is net importer of both sugar and milk. If the GOM
production targets for those two commodities were reached,
Mexico might become a net sugar exporter but would still be a
net importer of dairy products.

Comment
-------

5. (SBU) The "Countryside Week" announcements were all
somewhat vague, with funding levels for specific activities
under the various PEC programs still to be determined.
Furthermore, they included little focus on more systemic
problems like small plot sizes that hinder the application of
technology. The announcements have been met with mixed
initial reviews by the agricultural sector. Though many
producers were pleased that current support programs would
remain in place, a number of farmer groups expressed dismay
that the GOM had not consulted with the agricultural
community when formulating these policies. In addition, some
in Congress noted that the administration had increased
proposed expenditures over its own budget request. With many
of the details still not filled in, there will undoubtedly be
some bargaining among interested parties. Perhaps what is
more significant is that the GOM is focusing with renewed
vigor on the lagging competitiveness of much of Mexico's
agricultural sector. Whether or not the production goals are
reachable, Calderon is using both the bully pulpit of his
office and the federal purse to let Mexico's farmers know
that he cares about their anxieties and that his government
will intends to make extra efforts to dampen the transition
pains to free trade. Intent as he is on honoring Mexico's

MEXICO 00001258 003 OF 003


final NAFTA commitments without having to pay too great a
political price, this seems a prudent message to send.


Visit Mexico City's Classified Web Site at
http://www.state.sgov.gov/p/wha/mexicocity
GARZA

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