【Country report】Mexico Agriculture: Thrive on the Shift from Efficiency to Resiliency / Serie #4

This article will be available in 7 parts. Here is the 4th part. Read the other parts here.

Victor Rios Figueroa

Associated Director of Rios Ag Consulting 

What is the market value of the Mexican agrochemical market in 2021? Please share figures of the whole market, as well as the sales data by category.

According to our data, the Mexican Agrochemical Market was valued at $1,627 million dollars in 2021 and segmented by type: Insecticides (37%), Herbicides (32%), Fungicides (23%) and Others (8%). This value includes all the national and international companies that currently operate in Mexico. 

The Mexican market is showing a higher growth rate compared to the global agrochemical market. What do you think is the main reason for this?

The Mexican market growth is a result of a multifactorial phenomenon. For us, Rios Ag Consulting, COVID– 19 played an important role in the growth of the Crop Markets and as a result the Agrochemical Market grew. Here are great examples of what happened due to COVID:

Panic Buying: The growth of the market in comparison to past years was seen in the increase of inventories in the distribution network as a result of the temporary closing of factories in China and India. Also the new regulations that prohibited certain active ingredients by the Mexican government, saturated the distribution channels due to the lack of production or import of various products to Mexico.

Trade efficiency: After the quarantine happened, the operational costs for national and multinational companies decreased considerably due to the low costs of transportation, activity reduction, fairs and marketing events and a considerable decrease in the fixed costs which allowed companies to obtain better operating margins and higher benefits. The marketing tools used during the pandemic, like social media, helped the companies to promote their products in a very efficient and cheap way, and even after the pandemic, the companies decided to keep using them to avoid higher costs. 

Increment in the food demand: The production of food in Mexico, especially horticultural crops, happens all year long due to good weather conditions. As a result, Mexico is a great ally for Canada and the United States. During the pandemic, the export of these crops to the US and Canada not only continued but grew considerably and is still growing during 2022. An increment of 3.1% in comparison to last year has been reported by the INEGI.  

The global agri-input market has been experiencing escalating and cross-cutting challenges: such as global pandemic, rising prices of agri-inputs in the past year, and turbulence in global supply chains caused by the Russia-Ukraine conflict this year. What are the specific effects of these factors on the Mexican agrochemical market? 

The most immediate and critical effect for our country has been the Russia-Ukraine conflict this year which has caused a substantial increase in the price of fertilizers and fuels, which have caused an impact on the costs of production in the agro-production worldwide. Even though the increment in the supply chain has happened, the production costs in Mexico are still low due to the cheap labor force, which makes Mexican production very competitive for the international markets. 

The international difficulties in logistics cause a negative impact in the trade of products. In general terms, the supply - demand planning is complex and relies on many factors. As a result, the companies have high inventories and a high distribution network which has affected the sales in 2022.

The subsistence agriculture is probably the most affected one by the increment in the prices of fertilizers. It is important to mention that Mexico imports ¾ parts of all used fertilizers, being nitrogenous fertilizers the ones we depend on more. For those who live from crop production (with yields lower than 0.9 tons/Ha), the increase in the price and shortage has affected the crop producers with little returns. The Mexican government has taken actions such as providing subsidies in fertilizers and the activation of production plants that were consider useless in the past. The farmers are using ancestral practices for composted fertilization and production; they´re even using nutrition supplements as an alternative. 

How does USMCA (or T-MEC) affect agricultural trade and agrochemical industry in Mexico?

Up to this day there hasn´t been any considerable negative impacts in the agrochemical industry in Mexico but I´d like to mention two concerns that are restlessness in the industry:

The imposition of quotes established on imports for certain crops such as Berries, Tomatoes, Peppers and other Horticultural Crops. 

The requirement to improve the labor conditions in the Mexican agricultural industry such as salaries, social guarantees and fringe benefits which are very poor in comparison to the American Agricultural Industry. Due to the low costs in labor, Mexico has been able to export different products to the United States and Canada. On the other hand, it is estimated that the sectors that will benefit the most will be the export of Beer, Tequila, Mezcal, Tomato, Avocado, Berries and Peppers.

What are the major challenges facing the agrochemical industry in Mexico right now? What do you think will be the positive trends for the industry?

A major challenge the agrochemical industry in Mexico will face in the long term is the climate change and the water shortage for crop production. According to the last report from the IPCC (Intergovernmental Panel on Climate Change), which considers Mexico a semi-desertic country, has concluded that the scarcity in water and droughts will affect the country in the short and medium terms.

The challenges that Monterrey, N.L. city has confronted pertain to scarcity of surface water resources, poor water quality, political cycles and water disputes between urban and agricultural usage.

Some other states like Sinaloa and Sonora have their storage water reserves in a critical level today (less than 20% water level) both are key states in the production of crops for the Mexican Agro-Industry. 

Now, 70% of the water in Mexico is used for agricultural purpose. According to the (IPCC) report, the loss of crop areas and production could be affected before 2030, being Corn the one with the biggest negative impact. 

The prohibitions of active ingredients: In 2020 the Mexican government decreed a ban of Glyphosate beginning January 2024. In current Mexican agriculture there are no safer chemical and/or other weed management technologies that allow for the economical substitution of Glyphosate for weed control. This decree could have more negative economic and social consequences as well as environmental and human health risks than benefits which could compromise the country´s food and public security. 

Rios Ag Consulting, estimates a loss of nearly $850 million dollars at the first distribution level considering the whole agrochemicals restricted.

Fortunately, a group of companies that are part of the agrochemical industry in Mexico (PROCCYT & UMFFAAC), have been doing a great job trying to find solutions for the farmers and the industry. 

Crime rate: Recently the country has seen criminal attempts to extort the state´s agricultural industries. A great example is the lime and avocado farmers in Mexico who have become the latest victims of extortion, causing widespread crop disruption and skyrocketing prices.

Finally, and with caution of being doing an oversimplification for this interviews purpose, the looming threat of a world economic recession that has had an impact during 2022. With increasing inflation and the depreciation of USD, a world economic recession would stand as a major challenge for Mexican agrochemical industry if there was to be a devaluation of the Mexican peso. In average, the credit terms to the first distribution level given by companies overall are between 90 – 120 days, some companies might even reach 180 - 210 days. So, first loss if devaluation occurs, would be in accounts receivable since purchases by companies are done in USD and sold in Mexican pesos which rarely gets adjusted, although in this case might be needed. In second place, loss would be seen when companies restock their inventory and try to sell the same volumes than before, capital investment will be needed in this case. And finally, the end user would have to spend more due to price increases and most probably, reduce the crop surface for the next season (depending of the timing of course) to counteract the sudden price rises.

Now let’s talk about the positive trends in the agrochemical industry in Mexico. 

The market for biological and nutritional products has had a significant boom in the last 8 years. It is extremely difficult to determine how this market has grown or at what rate, since it is not properly dimensioned, and the figures and percentages vary depending on who is asked.

However, there is a consensus that the trend of this industry is growing. Now, with the prices of fertilization and in the shadow of a possible agrochemicals ban, farmers are looking at other horizons and alternatives, which have further accelerated the growth of this market.

On the other hand, biologicals and nutrition are a young market with products registering at an increasing high rate. For the farmer, there is still a lot of misinformation and lack of regulation in the market. However, there are numerous well-established and serious companies that are the Benchmark of operation in this market creating a solid and trustworthy base for the industry and end users.

As of 2019, it was more common to see strategic unions of companies that operate in different markets. For example, seed companies with irrigation systems, agrochemical companies with international marketers, agrochemical companies with agricultural financing companies and precision agriculture techniques. These types of alliances have a large place in the Mexican market because the farmer still has various needs that international companies can satisfy. Above all, in the field of logistics, marketing and optimization of resources in the production chain.

Finally, if the pandemic showed anything to the Mexican agricultural sector, it is the need for technology to be able to provide service to its distributors and end customers. Likewise, more and more distributors and farmers are beginning to integrate state-of-the-art technology into their crops and organizations. In our opinion, there is an extremely interesting opportunity in the sale of software aimed at the agricultural industry, from systems to products that allow planting planning and optimization of resources such as water, fertilizer and agrochemicals such as precision agriculture. 

Another area is logistics and demand planning systems, as they are now more important than ever and as far as this sector is concerned, compared to others such as the automotive sector, at least in Mexico, we are still far from having a similar infrastructure.

What new services can Rios Ag Consulting provide to the industry?

We have different online services available from now on and in the future.

Mainframe –  It is an Interactive System specifically designed for the Marketing and Sales areas of competing companies which allows its users to know the value of the market by crop, sector and state. It also allows them to make calculations of "product on ground" among other capabilities. Soon we will be including a section that will allow users to carry out historical analyzes of planting area, precipitation and water availability, among other variables.

Online training –  We have created an online workshop, only available in Spanish for the time being. The workshop is specifically designed for the agricultural sector. Using videos, presentations and evaluations to train sales forces with specific examples of the agricultural markets for the sale of agrochemicals, biologicals, machinery, irrigation systems and seeds.

Blackbox –  A digital initiative that seeks to size the agrochemical and biological market as it develops. The service is only for those companies that are active in Mexico and allows them to measure and compare the sectors and market share in a historical way.

This article was initially published in AgroPages' '2022 Latin America Focus' magazine.