Income Levels and the Crop Protection Market in Mexico

SAGARPA, is the official government unit responsible for generating the annual agricultural production data for Mexico, recording: the total crop production area, crop production volume and crop production value. This information makes it possible to obtain the average price per ton and, therefore, an estimated income for each crop. The income level, in turn, provides an indication of the investment that farmers may make in the inputs required for agricultural production, including crop protection products. This information, in combination with AMIS data has been used for an analysis of crop production in Mexico.

In the following data table it can be seen that there is an inverse relationship between the area of crop production and the income per hectare, those crops with smallest area in production providing the greatest value of income per ha. The exception to this rule being the Perennial/Fruit crop category.

Table 1: Crop groups in Mexico with calculated income per hectare and percentage of cultivated area that each represents.

The perennial crops, including fruit, have an income that could be classified as a medium level but they represent a significant proportion of the total crop area. However within this group there are big differences between the specific crops. Coffee has one of the lowest average incomes per hectare, whilst Berries; Raspberries, Strawberries, Blackberries and Blueberries, have average income levels that are among the highest. Coffee, has a very low investment in Crop Protection Products (CPP), in many cases nothing at all, and, in contrast to this, Berries; have a high investment in CPP. The market for Crop Protection Products for Coffee is well established, having a low market value and, consequently is of limited interest in terms of CPP. Berries represent either a new market with good business potential or a developing market, the evolution of which will be closely followed.

It is clear that the investment in CPP is directly related to the income level in net terms, but, what happens if the market is expressed in terms of the expenditure on CPP as a proportion of crop income?

The graph below shows that the percentage value of investment with respect to the harvest income does not change by the same magnitude as the net values.

Graphic 1: Percentage of area per crop with respect to total cultivated area in Mexico and percentage of CPP investment with respect to the harvest income.

Maize and Tomato: Two crops with very different characteristics but important opportunities in the CPP market.

If we compare, for instance, a Maize producer with a Tomato producer, the net  income per hectare  the Tomato crop makes to the producer is 36 times higher than the income per hectare of Maize to the producer. A significant  difference. If  the net value of CPP investment made by a Tomato producer is compared to that made by a Maize producer it can be  observed that the investment of the Tomato producer is 20 times higher than that made by the Maize producer. Amis analysis shows that the percentage that such investment in CPP represents in terms of the income from harvest has an average value of 4.9% for Tomato production and 8.7% for Maize, almost double in Maize than in Tomato production. Therefore, in percentage terms, the Maize producer is investing more in crop protection products than the Tomato producer.

A characteristic of production in Mexico is the difference between regions and farm size, but looking at the market overall, this analysis and other data from AMIS studies, indicates the opportunity for marketing strategies based on income per hectare. This analysis indicates the opportunity to promote to the Tomato grower the potential return on investment in premium products, providing performance benefits. On the other hand, in Maize, marketing strategies need to consider the maximization of the investment that farmers are already making in crop protection products. Essentially the two markets represent two of the basic concepts of marketing: the  market for CPP in Maize  requires a strategy based on Cost, while the market for CPP in Tomato production requires a strategy of based on Value.  The latter more contemporary than the former but both within  the same concept; the evolution of Price within the 4 Ps of marketing, Product, Place, Price and Promotion.

Sorghum: A Special Case.

A number of years ago, the average investment in CPP in Sorghum was low, but the appearance of Melanaphis sacchari (Yellow Sugar Cane Aphid) forced farmers into using premium products and this in turn resulted in an increase in the CPP investment, by up to 127% between 2013 to 2015. After suffering this problem many farmers stopped growing Sorghum because of the high investment compared with the low income they received thus the  area in cultivation dropped by  12% in the same period. The preliminary data of SAGARPA for 2016 indicate that the  area grown continues to decline by up to 1.5 million hectares (25% less compared with the area in 2013). However, the price per ton  enjoyed an increase and this may encourage farmers to continue the use of premium products and it could even motivate some farmers, who had left the market, to return and grow Sorghum  again. In addition  the government has been promoting a phytosanitary campaign  involving the use of Chrysoperla carnea as a biological control. The impact of this type of control and the effect on the use of CPP will be measured in the next AMIS report from Kleffmann Group Survey data.

Income level and relationship with the CPP Market

It must not be forgotten that the area of crop grown plays an important role in reference to the total value of the CPP market; if one crop involves a high expenditure on CPP but is relatively small in terms of area, hectares, then the value of the CPP market in that crop will never compare to the value of a crop with a large area grown with a low cost of CPP. Going  back to the comparison of Maize and Tomato production, n Maize the average cost of CPP, according to AMIS data, is close to MXN 1,000 per hectare, this cost is applied to at least 7 million hectares, and thus we obtain 7,000 million pesos as the total CPP market value in Maize. On the other hand, in Tomatoes the average cost of CPP investment is MXN 20,000 per hectare, this cost is applied to around 50,000 hectares, and so we have a market value of 1,000 million pesos, a significant value but small in comparison to the value of the Maize CPP market.

Turning to the relationship between income level for crop production in Mexico and the area of crops grown, and  the consequent value of CPP market. The graph below illustrates clearly t the structure of the industry, with 77% of the area of crop production falling into the lowest income per hectare level, less than  MXN 15,000 per hectare.

Graphic 2: Representability of income

If we assign a typical percentage of CPP expenditure to each investment[S1] level, it is possible to estimate a total market value, which indicates that the market is concentrated in the lowest and highest income levels.The difference between these is that[S2] the share of the total CPP market in the  low income farms  (mostly the range from 8,000 to 15,000 pesos per hectare) is concentrated in a small number of crops (mainly Maize and Sorghum).  Conversely the share of the CPP market in the high income level (more than 50,000 pesos per hectare) is spread across several crops; and particularly Vegetables and  Fruits such as Avocado and Banana. This characteristic of the total market is relevant because companies offering products for crops with a high income level should consider strategies that may be adapted to the needs of farms with multiple crop production. Whilst for CPP usage among the low income level farms, strategies should be based on increasing share within a limited spectrum of crops.

In conclusion, producers of crops with high income per hectare tend to invest more in crop protection products in terms of net value, but less in percentage terms than producers of crops with low income. If the objective of the CPP Company is to venture into niche markets with good business opportunities, then a focus on crops with a high income level should be considered employing strategies aiming to provide the fulfillment of need (avoid low profile incentives such as hats, pencils, etcetera, as producers of the high income crops are not  influenced by that kind of offer). However, if the objective of the CPP Company is to increase their share in the total market, then it should focus on those crops with a low income level but large area developing strategies with a mass appeal promoting the cost-benefit ratio.

Use of the market data in AMIS can help to fine-tune market planning and guide the decision making process, such as selecting the target group (regions, farmer size, etc.) or determining the approach of the communication (topics, type of communications, media, etc.).


Omar Olmos

Regional Manager - Kleffmann North LATAM