SUPPORT PRICE POLICY VERSUS DIRECT PAYMENTS TO PRODUCERS: ANALISYS OF PRODUCERS’ WELFARE

Abstract

Until 1993 the Mexican government implemented a farm policy based on governmental intervention in the basic crops market through a support price program. In 1994 the PROCAMPO (Farm’s Support Program) was created with the objective of applying direct payments to producers’ income. In this study we analysed the economic effects of these two programs on the producers’ welfare by means of measuring and comparing the “producer surplus”, defined as the amount of money that producers earn over production costs under either economic policy. The analysis showed quantitative evidence that although the political economic change caused a reduction in the producer surplus due to the fall of cereal prices, the direct payments provided by PROCAMPO compensated that income loss. Considering a basket of basic crops which included corn, dry beans, wheat, rice and sorghum, and assuming that the producer surplus is a good measure of producer´ welfare, this study conclude that the producers’ welfare was not reduced during the period 1986-2004, because the direct payments provided by PROCAMPO over compensated by three times the income loss caused by the price reduction.