The Report Company: Regarding agro exports, despite the drought and other climate problems faced by the agricultural sector, how have you managed to keep high levels of growth?

Ernesto Fernandez Arias: The role of this under-secretariat is structured in three axis, aimed to coordinate all the activities of the Secretariat and its decentralised organisms, as well as to evaluate and supervise the agreements and projects being implemented by different states.

We are also in charge of the financing of the agricultural sector. We are experiencing problems with land tenure. It is very difficult for a financier to buy land, and if the producer cannot pay the debt and defaults, the bank repossesses the land.

In these cases we have created a system of liquid guarantees that allow commercial and development banks access to liquidity, a reserve we have created as part of public policy. This scheme, although risky, has allow us to create projects, and invest nearly 70 billion pesos in credits, where we have substitute a natural warranty with guarantee funds of 5 billion pesos.

Together with the financial sector, we are also working in insurance to cover the losses the producers are suffering due to drought and climate change. We created a layer of insurance that we subsidise, covering credit and rural development in case of natural disasters. We also provide coverage to producers to protect against the risks generated by the volatility of prices in the agricultural sector.

TRC: Could you explain the proposal to create a derivatives exchange for Mexico’s most important products?

EFA: Mexico needs to take part in the futures and derivatives markets that would allow us to administer risks. Previously, Mexico did not allow financial investors to sell shares to third parties and go out to international markets. But in December of last year, a circular was issued to allow selling options. So now we have a network of banking and non-banking intermediaries offering this type of coverage, together with credit. The primary strategy is to establish the coverage mechanisms, after which the domestic prices will begin to adjust themselves.

TRC: What products are going to be included in this project? To what extent is it going to affect the levels of investment in these key products?

EFA: Some of the products to be included are corn, soy, beans, wheat, beef, and derivatives like milk, sugar, and oils. We are starting with these primary products since they are already in the international exchanges, and there are mechanisms to transfer the risk outside Mexico. This type of compensation should allow us to have liquidity in the international markets, without taking internal risks. The 16 products that we are placing into the financial system will increase the size of our market. At the end, the risk will be transferred to a premium that will be paid by the consumer, who has a greater demand for the product.

TRC: What are your expectations for exports in the next months and years? What are going to be the most important leading products and markets?

EFA: Mexico has a lot of potential in vegetables. Besides, nowadays the producers with good standards and practices give added value to their products. There are buyers that demand fresh products with a specific length and diameter, and that is how we have to deliver it. For example we have invested more than 4 billion pesos in the production of tomatoes, in which we are showing a lot of capacity and competitiveness. I believe our tomatoes are still going to be consumed at high rates. Although we do not expect demand to grow, and it will not be our star product, there will always be a demand for our tomatoes.

Avocados have become one of our most in-demand products, but we cannot find more land to cultivate to increase our production. Our green products are very competitive. Since we do not have frosts, we do not experience many losses. Mexico will always have a good position in this market since demand will keep increasing. We also have an important pickle production, and China is opening its markets to our meat products, especially pork. Our most significant products are those which have high growth rates.

TRC: How important are schemes such as “Calidad Suprema” in increasing the level of exports?

EFA: Mexico Supreme Quality is a product certification issued by SAGARPA, but our policies go beyond that. We are in the process of regulating the quality of our products, and enforcing the obligation to inform about their quality. If the Mexico Supreme Quality certification is issued by international EMA-regulated laboratories, it will gain in strength within the country.

Quality, traceability and safety are the factors which give Mexican products access to international markets. Greater regulation has been implemented to make these factors part of the foundation for the country’s development. Mexico has a variety of climates, which is why we have such huge potential in the fruit and vegetable sectors, but we will have to adapt our policies towards businesses.

TRC: How are the free trade agreements (FTAs) driving the exports of these products?

EFA: First and foremost, it is essential to follow international health protocols and analyse the risks maps of these exports. SAGARPA has strategic seasons to work towards protocols development, where there is the potential for greater demand, and companies might be companies interested in exporting. It is in those areas where we channel our efforts. For example, the Mexican norm in terms of the amount of alcohol contained in a drink cannot be applied in China. So we have to reduce the amount of alcohol in the tequila we export to China. Our industry has to adapt to the Chinese market if we want to do business there.

The Secretariat is allocating budget to commercial efforts, participating in international fairs and business meetings in coordination with ProMexico and NAFINSA. We are promoting exports and participating in these events with other institutions, some of which are attended by our agricultural attaches in Mexican embassies abroad.

TRC: What incentives does the under-secretariat give to promote the domestic production of these products?

EFA: This administration is based on financing. For now we offer these liquid guarantees at all stages during times of risk, and provide insurance coverage for grain production.

This provides support to build storage infrastructures, which allow for the consolidation of supply and demand. It is not the same to have all the producers selling their product at the same time, than only having a percentage of them selling their products at once. This is how they are better able to leverage when negotiating the prices.

We are also focusing on the post-production of primary food products derived from fish, agriculture, and livestock. We are consolidating storage centres that are giving us excellent results with our exports. In these storage centres we can control quality, product safety and stability, and work in self-regulating schemes that could end up becoming contractual conditions.

TRC: Mexico has been exporting coffee for a long time, of which the international price can be very volatile. How do you see the potential of Mexico´s coffee sector, and what strategies do you have to increase its competitiveness?

EFA: The coffee sector has experienced significant growth, and that is where we are placing our bets. We are big coffee producers, but our problem is land fragmentation. We have been working, together with the coffee industry, on different, genetically modified varieties that are proving to be smaller, more resistant, and need less water.

We have two important projects. The first is in organic coffee, of which Mexico is the main producer, with the varieties improved through traditional methods, applying highly productive packages. Our intention is to open new markets with the advantages that we offer; good price and productivity. Much of the indigenous population is working in the coffee sector, which is why we want to consolidate and promote this product.

TRC: Considering all the topics treated in this interview, how do you see the possibility of exporting these products to Great Britain, and what possibilities do British investors have to forge alliances in Mexico?

EFA: The British market is very attractive. We have competitive prices and can fly our produce fresh. We are analysing the possibilities, since today the ones exporting Mexican products are brokers from the Unites States. We need to create the infrastructure necessary to ship the products that are already being consumed in the United Kingdom directly from here. It is also important that British consumers are ready to pay the added cost of organic products. We are currently exporting organic honey to Germany, Britain and to the pharmaceutical sector.

In the fishing sector, aquaculture requires bigger investments to be able to compete internationally. Our mariculture is very well developed to offer British consumers the kind of size and taste that they are used to.

There is also a lot of potential in the forest plantations of the humid tropics, where we export cocoa, rubber, and vanilla. These are long term plantations where the farmers are not taking risks into account, but where there is support.

There is also the added value of our tomatoes, of which we have many consumers in the United Kingdom today. From Britain they could distribute our products to Russia and the Middle East. There are many good markets that we have not been focusing on. We have the advantage that our products are not seasonal, and you can get them fresh all year long.