Agribusiness and farmers in Mexico: the importance of contractual relations

by Flavia Echanove, Cristina Steffen

Introduction Recent changes in food consumption habits of people in developed countries have included a growing demand for a greater variety of value-added products, which, in turn, has given rise to greater sophistication in food processing and distribution systems (Perry and Banker 2000, 50). This has led to the expansion and strengthening of agroindustry, which increasingly controls the agricultural production process and plays a key role in restructuring agriculture in many countries (Echanove 2001a, 13). There are three principle mechanisms that agribusiness uses to secure supplies of agricultural raw materials: direct purchases on the open market, vertical integration, and a range of contractual relations. In the last category we find a variety of forms, including sharecropping, purchase-sale agreements and contract farming. The use of those procurement methods depends on several factors, including product type, seasonality, demand, the type of grower with whom firms establish relationships, experiences (positive or negative) that resulted from earlier relationships, and specific policies of the firms (Echanove 2001a, 15). Raynolds (1997) has pointed out that land tenure and the political conditions of the country, where such firms operate, also influence their decisions. Collins (1993, 54, 59-60) emphasizes that global standards of product quality and appearance have to be met by the agribusiness firms that produce for national and world markets. This affects the type of arrangement established between the firms and their labour force, as flexible, high-quality and compliant labour is required. The flexibility allows firms to regulate the labour supply in line with production cycles and to minimize labour costs by avoiding the payment of benefits such as health insurance and paid leave. The firms establish practices to protect themselves from politically organized labour thus ensuring their control over a stable workforce. The use of labour relations, as sharecropping or contract farming, has been shown to be an effective strategy to control the emergence of organized labour movements (Collins 1993, 60; cited in Wells 1984; Watts 1994). Contract farming is a form of 'vertical coordination' by agribusinesses as well as a sourcing mechanism that lies between spot market purchases and production at owned or rented land ('vertical integration') (CEPAL/GTZ/FAO 1998, 45). Based on Roy's definition of contract farming (1972, 3), we characterize this system as any oral or written agreement reached between direct producers and any one of a wide range of agents (wholesalers, processors, retailers, packers, producer organizations, public-sector enterprises, etc.), through which various aspects of the production and commercialization of agricultural products are regulated. Key and Runsten (1999, 383) have pointed out that these agents directly or indirectly control agricultural production processes and influence decisions taken by growers without having to obtain land. Watts (1994, 26-8) affirms that the control of the

production process distinguishes contract farming from both market and labour contracts, and Raynolds (2000, 441) emphasizes that the unique factor in contract farming is that it commits household land and labour resources to the production of commodities that are ultimately controlled by agribusiness firms. Although the degree and type of control over productive processes can vary, they still fall into the category of contract farming. In general, the most extreme cases of control are found in horticultural production for industrial processing, broilers and hog-raising, while cereal or grain production is considerably less subject to this kind of control. Despite the wide range of contracts between growers and agribusiness firms, Raynolds (2000, 442) sums up their common elements as follows: products are purchased prior to their production; the growers follow production practices that are established by the purchaser in exchange for a guaranteed market; the purchaser usually provide some technical inputs and services; and growers provide the necessary land and labour. Statistics are not available to enable a proper evaluation of contract farming in Mexico. However, we can affirm that tobacco, sugar cane, poultry and hogs are produced using contract farming methods, as well as processed fruit and vegetables for export (Echanove 2001a, 13). As in the rest of the world, the production of grains in Mexico has been penetrated rather less by contract farming processes, which are largely limited to seed production, barley, and some varieties of wheat. In most cases, purchase-sale agreements continue to predominate in grain production. For the purposes of this paper, we define purchase-sale contracts as agreements that stipulate the future destination of the product without implying any degree of control over the production processes by agribusinesses or other purchasing agents. This paper seeks to contribute to our knowledge about the relationships that are established between the parties to such contracts (agribusiness and farmers), and to our understanding of the implications or impacts of contract farming, and similar agreements, on direct producers. As contract farming represents an institution that links local and global processes, we will conduct a place-based analysis as used by authors such as Bebbington (2003) and Gwynne (1999 2000 2003). Bebbington emphasizes the need to relate existing local level processes with decisions taken at completely different levels and which largely define what will happen locally. For Gwynne, 'the different scales of geographical resolution goes from the global to the local, via national and regional scales' (1999, 211). These considerations are fundamental for the study of contract farming, as it represents labour relations that are of particular importance and effectiveness for the integration of producers into national and world markets and into agribusiness companies (Grossman 1998, 1). We selected the state of Guanajuato in central Mexico as a case study of contract farming, as it is the second largest vegetable producer in the country, as well as being important as a grain producer for both human and animal consumption. Between 1998 and 2001 in-depth interviews were carried out with 87 contracted producers and a wide range of representatives from the vegetable processing firms throughout the state, including general

managers, agronomists, field supervisors and marketing managers. The same process was followed for most of the contracting companies for grain production. Several middlemen and government officials located throughout the state of Guanajuato were interviewed, along with representatives from the organizations that promote the interests of the growers. The research process also benefited from the opportunities that arose from participant observation. The information and analysis presented is directly based on the results of the interviews and other fieldwork in Guanajuato, unless stated otherwise. Contract farming: expansion and debate Contract farming has been defined as a constellation of institutional and productive relationships and is one of the main strategies for the industrialization and restructuring of agriculture. Although this labour relation is by no means a new phenomenon, several authors have emphasized its expansion throughout the world during the last two decades (CEPAL 1995; Collins 1993; Dolan 2001; Glover and Kusterer 1990; Grossman 1998; Gwynne 1999 2000; Lawrence 1999; Little and Dolan 2000; Little and Watts 1994; McKenna et al. 1999; Morvaridi 1995; Raynolds 1994 1997 2000 2002; Ruben et al. 2001; Singh 2000; Teubal 1995; Vellema 1999; White 1997; Winson 1990). By the end of the twentieth century, contract farming had become an integral part of the food and fibre producing industries in Western Europe, North America and Japan (where 25% of the total rice crop was produced through contracts) (Watts 1994, 27, 73). In 1998, one-third of the total value of farm-produced commodities in the United States was obtained through contractual arrangements, with livestock production leading the way in terms of our definition of contract farming. In the same year, 95% of the total value of broilers, 43% of hogs, and 55% of all dairy products were obtained through contracts (Perry and Banker 2000, 52). The expansion of these agreements has been striking in the case of the hog industry: in 1980 they represented just 2% of the total value of production, but this had risen to 59% by the year 2000 (Wolf et al. 2001, 360). The use of contract farming is also relevant in the case of fruit, vegetable and cotton production in the USA. In 1998 the production volume harvested through such agreements was 57% of the total value of the fruit crop, 45% of the vegetable crop and 51% of the cotton crop. In contrast, contract farming is much less common in the case of grain production, as data for the same year show that only 13% of corn and 12% of soybeans were produced under contract farming agreements (Perry and Banker 2000, 52). Grain crops produced under contract are mainly destined for feeding livestock, for example highoil corn, high-oleic sunflower, and value-added soybeans. Identity preservation is one of the main factors that encourages contract production for these grains, as they are related to organically grown or genetically altered products. In these cases, production contracts normally involve seed developers (DuPont, Cargill) and growers (Dimitri and Jaenicke 1999, 23). However, authors such as Wolf et al. (2001, 360) and Heffernan (1999, 12) point out the possibility that contract farming will expand into the production of grains for human consumption in the future. Greider (2001, 6-7) foresees such an expansion as a possible

result of the collapse of grain prices, a reality that is forcing more and more US farmers to accept these sorts of agreements. In Third World countries, contract farming has spread rapidly since the 1980s, especially in relation to products that are considered 'non-traditional' and where production has risen as a result of agricultural diversification into high-value, labour-intensive commodities. Many of these are horticultural products that have to meet quality standards, including texture, fragrance, colour, weight, and shape. The productive process is difficult to mechanize and has specific technical and economic characteristics which must be satisfied--for example, the products may be highly perishable or have high per volume value--which generate high levels of risk for producers (Dolan 2001, 44-5). Raynolds (2000, 442) points out that much of the debate on contract farming revolves around the implications of this agreement for relations of production. For processing firms, control over the production process allows them to determine the quality and timing of supplies. It also allows the firms to improve their response to market changes and to achieve greater expansion and diversification of their operations (USDA 1996, 4). It also provides companies with greater geographical mobility (Raynolds 1997) and, as White (1997, 104) has said, it frees them from the expense of administering and supervising workers, as well as the problems of dealing with potential labour disputes. The reduction of these transaction costs is an incentive for firms to enter into contract farming agreements (Brannstrom 2000, 329, 337). Contractors do not have to invest in land and are able to transfer production risks and costs to the farmers. These include the risk of climatic change and pests, and overheads where land and labour are particularly important (Dolan 2001, 44; Cook 1994, 234). Despite the fact that individual producers or producer organizations are the signatories to the contracts, the family or household is the production unit engaged in the case of small and medium sized farms. Peasant households may produce more cheaply than enterprises that hire labour because of their existing land holdings, their ability to subsidize production through household food provisioning, and their exploitation of flexible, dedicated, and typically unpaid family labour (Raynolds 2000, 443). Contract farming enables producers to achieve greater production efficiency, income stability, market security and access to capital (credit) and technological advances. Growers also benefit from the firms' technical assistance, greater experience in administrative matters and better knowledge of markets (USDA 1996). However, the producers do not always enjoy these advantages, as several studies have shown. When market conditions are unfavourable for agribusiness firms, they may alter their relations with producers by imposing higher quality standards and enforcing tougher contracts. This was seen at the end of the 1980s in the case of small-scale fruit production in Chile, for example. The tough conditions written into some of the contract clauses forced some producers to sell their land to the fruit-exporting firms because of high levels of indebtedness (Gwynne 1999, 219-20; Murray 1997).

Other negative effects of contract farming are found in the increased social differentiation between producers (Gwynne 1999, 221, 223; Collins 1993, 77; Watts 1994, 69; Storey and Murray 2001); increased concentration of land ownership (Kay 1997; Gwynne 2003); loss of independence for the growers (Collins 1993, 65; Gwynne 1999, 223; Murray 1999, 26; Clapp 1994; Rickson and Burch 1996, 192-3; Watts 1994, 64); and increased gender inequities (Dolan 2001; Bee 2000; Watts 1994, 69). Lawrence (Raynolds 2002; 1999, 187) points to the modification of class relations among agents who intervene at different points in the commodity chain, where contract farming has resulted in new forms of control over agricultural production by food processing companies, banks and supermarkets. For Teubal (1995, 131), the loss of autonomy by the growers is one of the main features of the agrarian problem in the era of globalizing capitalism. Despite the disadvantages of contract farming for growers that are outlined above, some researchers nonetheless report rising incomes (Collins 1993, 77; Brannstrom 2000, 337). Key and Runsten (1999) show that contract farming can have important multiplier effects on employment, infrastructure and the development of local markets in Latin America. However, these authors emphasize that the impact of such labour arrangements on rural development depends mainly on the type of grower that is involved. The results of case studies are particularly relevant in this context, as they give a clearer picture of the implications of contract farming for different groups. Quoting Singh, 'there is so much diversity in the type of firms, farmers, contracts, crops, and the socioeconomic environment that is better to focus on a specific situation than the generic institution of contract farming' (2000, 1622). The frozen vegetable agroindustry in Mexico: geographical space and procurement methods In Mexico there are 18 vegetable freezing firms and 10 of them are located in the state of Guanajuato. These firms together supply three-quarters of the total national production of frozen vegetables, the vast majority of which is exported to the USA. They are located in an industrial corridor, together with most of the state's other industries, close to the toll highway that leads to Mexico's northern border (Figure 1). This location gives the agribusiness firms a geographical advantage in supplying products to states in the eastern USA, in comparison to the state of California, which is the largest frozen vegetable processing zone in the USA (Table 1). Another factor that helps to explain the location of these agribusiness firms is their proximity to vegetable supplies or production areas, which become crucial in the case of rapidly perishable products. In addition, the proximity of processing firms to growing areas allows them to reduce transportation costs between the fields and the processing companies. Other important factors that led these firms to establish their operations in the Bajio area of Guanajuato include the availability of cheap labour and secure supplies of water (Echanove 2001b, 45).

In 1967, BirdsEye, a US transnational company, installed a plant in the state of Guanajuato and thus became the first firm to freeze vegetables in Mexico. Nine years later, a second company was established, while the other industries currently operating in the state have been set up since the early 1980s. Among them we find the Green Giant company (also a transnational firm, owned by Continental Grain) and the Marbran-Simplot company, a partnership of an important Mexican businessman with the global consortium JR Simplot, a leader in the food-processing business in the USA, devoted to the processing, packing and marketing of a variety of food products (especially fresh and processed potatoes). In addition to numerous firms in the USA, Simplot has a modern potato-processing plant in China that supplies McDonald's restaurants and other clients in East Asia. Its strategies for product sourcing operate on a global scale and it is present in many regions of the world, including Australia, where it contracts with farmers that grow potatoes (Rickson and Burch 1996, 182; Lawrence 1999, 188). [FIGURE 1 OMITTED] The companies in this study mostly process broccoli and cauliflower through pre-cooking and freezing operations. The vegetables are exported mainly in bulk to buyers at US supermarket chains, restaurants and agribusinesses. Mexican broccoli exports to the USA, for example, represent 80% of the country's external purchases (USDA 2003). Neither BirdsEye nor Green Giant have purchased or leased land to produce the vegetables they require, as they prefer to operate exclusively on the basis of contract farming. All of the other firms, in contrast, use combinations of contract farming and production on their own fields, although the relative weight of the two methods of supply varies. Regardless of the precise combination used by these firms, the total surface area controlled by all of them is 31 060 ha, 59% of which is cultivated using contract farming through agreements with 584 producers. The remaining percentage represents land where the firms cultivate produce directly. The two transnational companies mentioned above are 'vertically coordinated' firms that control vegetable production on 8000 ha of land, cultivated by contract farmers (Table 2). The practice of contract farming in Guanajuato, however, has historical antecedents that date back to the arrival of two other US transnational companies: Campbell's in 1960 and Del Monte two years later. The aim of these two firms was to supply canned products to the national market, and they were the first companies to involve numerous producers from various regions of the state in vegetable cultivation. Indeed, many of the growers (or their fathers) who participated in this study began working under contract to one of these two companies. By 1977, Del Monte controlled a total of 3036 ha through 150 contracts, and the characteristics of the contract farming operations they established (see Flynn and Burbach 1978; Rama and Vigorito 1979) are markedly similar to those practiced today by contemporary agribusiness. In reality, therefore, we are not dealing with new phenomena in this region or in Mexico itself, but rather with an important process of expansion of a wellestablished labour regime. Contract farming as a mechanism of subordination

In order to assure supplies and to control the quality of the products they receive, firms draw up legal contracts that are signed by their representatives and individual producers. Most companies provide their contracted producers with financing, although some do work with 'non-financed' growers. Regardless, the contract specifies the amount of land that the producer will devote to vegetable production for the company, the quality requirements to be met and the price to be paid. Growers must follow the technical instructions they receive from the firm's authorized personnel and must sell to the company the entire harvest from the fields specified in the contract. The firm, meanwhile, is legally bound to provide technical assistance to the grower, and to purchase all the produce as long as it meets the quality standards stipulated in the contract. 'Financed' growers, the majority, receive seedlings (or seeds) and chemical inputs (pesticides, fertilizers, etc.), while those 'nonfinanced' obtain only the seedlings (or seeds) and must shoulder the costs of all other necessary inputs (Echanove 2001a, 16). The price paid to growers who receive financing is, of course, lower than that paid to non-financed growers. The firms adduce that this is to ensure that both kinds of producers receive the same earnings, although growers see the differential as the companies' way of charging interest on the financing they provide. Growers contribute with land, water, electricity, labour, fuel and machinery, in addition to paying for equipment maintenance (pumps, tractors) and transport. The technical assistance offered by the firms is a mechanism designed to assure a certain product quality, and is provided by a team of agricultural technicians that visit the fields practically on a daily basis to give instructions on operations related to crop management (planting and harvest time, application of chemical products, irrigation etc.). Producers receive weekly payments according to the amount and quality of the product they deliver, although the firm withholds a certain amount to recover the 'advance' payments it made in the form of seedlings, chemicals, technical assistance, etc., to ensure that no debt remains at the end of the contract. When the product arrives at the processing plant, it is evaluated to determine its quality characteristics and whether there is any evidence of pests. This is one of the most conflict-ridden stages of the process. In summary, although in legal terms the land belongs to the growers, as Rama and Vigorito pointed out in the context of the Del Monte company's contract farming practices in the 1960s:
on contracted fields, the industrial firm determines the productive processes, the types of varieties to be planted, the selection of seeds, the use of certain fertilizers or pesticides and the use of mechanization or intensive labor, so legal control is replaced, totally and efficiently, by economic control. Rama and Vigorito 1979, 195

Contract farming as seen by producers and agribusiness

Most growers who sign contracts with firms are 'large-scale' or 'medium-scale' farmers, with farms of 100-200 ha. Very few small-scale producers operate under such contracts, although they constitute the vast majority of private property owners. The firms prefer to deal with large producers in order to keep their transaction costs down. For example, the cost of transporting technical advisers is less if the company deals with just a few producers on nearby fields, than if they have to attend numerous small growers with fields dispersed over extensive geographical areas. Other reasons cited by the firms and their agricultural managers include the fact that ejidatarios (1) face a series of bureaucratic obstacles that impede rapid decision-making which is often needed in vegetable cultivation, as well as the restrictions they face in terms of access to irrigation water for their crops. The vegetable crops raised in Guanajuato are irrigated with water from deep wells that, in the case of ejidatarios, cannot legally be exploited on an individual basis but only by groups or 'societies' of producers made up of eight to twelve individuals. In general, it is difficult for these growers to agree on when to irrigate, and this represents a serious limitation for horticultural crops that require water at the right time and place. Another limiting factor affecting small growers is the high cost of vegetable crops because, even though the firms provide seedlings, chemicals and technical assistance, producers must meet all other costs, including a substantial outlay to pay workers' wages for labourintensive activities such as transplanting and harvesting. Broccoli, for example, requires between 80 and 100 working days per hectare in each three-month growing cycle, compared with just 15 for corn. Producers must also have access to machinery, equipment and transportation in order to pick up the seedlings and fertilizers from the firms, as well as deliver the harvested product. The companies take great care in selecting growers. Their contracts stipulate that farmers must have certain kinds of infrastructure, as well as a deep knowledge of the crop they are to cultivate. It is also for these reasons that firms prefer growers with a certain level of economic solvency and access to irrigation water. Producers, on the other hand, regardless of their scale of operations, also try to minimize their risks, for example, by planting vegetables for two different companies and, on occasion, cultivating produce for the national fresh market (Echanove 2001a, 17). The growers we interviewed said that from their point of view, the main advantages of working under contract include having a relatively secure market for their products and receiving technical assistance and financing for the production process. However, firms recognize no legal obligation whatsoever to share with growers the risks associated with inclement weather or pest infestations. Hence, the growers alone must pay the cost of crop insurance. When serious crop losses occur due to these factors, growers may actually end up owing the firm for the inputs and technical assistance previously received, and thus find themselves in a debtor relationship with the company that obliges them to pay off such debts with any product obtained in the following productive cycle. Aside from assuming the risk of bad weather, producers also confront problems concerning product price and quality. During our fieldwork we discovered that, although contractual

arrangements reduce the risk of price fluctuations for producers, they also mean that growers have no say in the sale price. As White (1997, 105) has indicated, prices are not only related to added value and the relationship between supply and demand, but also to the socio-political power of the parties involved. For example, the quality norms demanded by the firms tend to become stricter when their parent companies encounter problems in sales and marketing, which are themselves reflected in full warehouses. Vegetables that are rejected by the company due to problems of quality represent losses for growers, as it is extremely difficult for them to find a market quickly for their perishable produce. Despite the advantages of contract farming for the firms, our study came across many complaints about growers who use inputs for other crops, sell the produce cultivated under contract to other agents, or sell directly in the market when prices are more attractive. Such product and input diversions are common practices among contract growers in several countries around the world and are considered by Clapp (1994, 91) as the growers' 'resistance mechanisms' towards their contractors. They are also among the reasons for many firms attempting to establish links of confidence, patronage and reciprocity with producers. The case of grains: contractual arrangements between agribusiness and growers The Mexican government began to promote contract farming between agribusiness and grain growers in Guanajuato in 1998. As part of this programme, grain-buying firms informed the official body ASERCA (Apoyos y Servicios a la Comercializacion Agropecuaria, 'Support and Services for Agricultural Commercialization') of the per-tonne price they were willing to pay for the corn and wheat they required. This price was based on the international market price plus the costs involved in importing grain into the country. The government, however, offered an extra price for their grain to those producers who agreed to work under contract with agribusinesses. This extra amount was given to the companies, however, and was not necessarily passed on in its totality to the producers, as firms would cite quality deficiencies in the products they received to justify 'discounts'. Another mechanism implemented by the government to promote the use of contracts consisted of authorizing loans to grain-buying companies at interest rates below those charged by commercial banks. Cargill S.A. de C.V. began operations in northern Mexico in the 1920s, initially in the field of forest exploitation. In 1972, it established the firm Cargill de Mexico in order to enter the business of marketing agricultural products. Since the mid 1990s, it has concentrated on commercializing, importing and exporting grains (Cargill de Mexico SA de CV 2001). In recent years, this firm has developed an important position in the wheat market in Mexico. In fact, in the case of Guanajuato, it is the second largest buyer of this cereal (ASERCA 2000). In 1998, Cargill began to implement a programme of contract farming in order to produce a variety of wheat (Eneida F94) that previously had to be imported by mills from the USA and Canada. The firm offered farmers inputs at low cost, technical assistance, payment 48 h

after delivery and financial support to cover freight costs. The contract stipulated partial financing for the production process by Cargill with funds it obtained from Fideicomisos Instituidos en Relacion con la Agricultura (Fund Established in Relation to Agriculture, or FIRA), a government body. Cargill provides its contract growers with loans for inputs (seed, fertilizer, etc.) equivalent to around 70% of the total cost of production. The remaining 30% is supplied by the grower. The purchase price is not established beforehand, although the firm makes a verbal promise to pay an 'extra price' ('bonus') in exchange for quality. The requirements that growers must satisfy to work with Cargill are broader than those of other firms and include insuring the crop, signing a contract that includes one or more 'IOUs', and providing collateral or guarantees for the loans. The Cargill case shows how this production arrangement may allow companies to earn extra profits. In effect, the production of the F94 variety of wheat in Mexico means higher profits compared with importing it due to two mechanisms. Firstly, the capital that FIRA provides for its operations is amortized at an interest rate lower than that Cargill charges the producers they have under contract. Secondly, even with the 'bonus', the price paid to growers for this variety of wheat is lower than the international market price, although the company uses the latter figure when it sells the product to the mills. Another important wheat buyer in Guanajuato is Opisec, an affiliate of Tablex S.A. de C.V. (ASERCA 2000). In 1995, Opisec began a programme it called 'contract farming' in order to assure supplies of wheat for its mill. This firm signs contracts with individual producers and producer associations, to whom they sell seed at a price slightly above market level, although they offer financing that allows producers to pay for the seed only after the crop is delivered. In this case, buying crop insurance and paying for technical assistance are optional. Growers are responsible for all other production costs and are obliged to deliver the entire crop to Opisec. The firm is obliged to receive the harvest and pay for it at the place and time stipulated in the contract. When contracts are signed with ejidatarios, it is generally through the ejido organization itself, which is then responsible for controlling production and arranging payments for individual growers. This arrangement favours the firm by reducing its transaction costs. Created in 1949, Maseca is currently the largest cornflour and tortilla (2) producer in Mexico and the world. In the late 1990s, the transnational company Archer-DanielsMidland (ADM) acquired 22% of Maseca's stock (De Ita 2000, 146), an acquisition that the latter company considers 'strategic', because it can now import grain directly, without having to depend on other firms. Moreover, ADM's experience in processing and marketing wheat flour allowed Maseca to enter this market, while Maseca opened up the Mexican market to ADM's products. Maseca's plant in Guanajuato consumes around 200 000 tonnes of corn per year, onequarter of which comes from the state itself. In the mid 1990s, it began to promote contractual relations through a program it called The Corn Club (El Club del Maiz). These 'clubs' are actually a kind of alliance among producers, banks, input suppliers, technicians, agricultural research centres and Maseca, in which the firm plays the role of 'coordinator'

and serves as guarantor for growers by depositing 5% of the amount of their loan applications in the bank. Contracts do not stipulate the price to be paid to the producer and, although Maseca requests that growers plant the type of corn it wants, it provides neither the seed nor the technological 'package' required. Rather, it assures that commercial seedhouses deliver the required seed before growers receive their bank loans. As producers bring in the harvest, Maseca pays the bank, leaving producers with whatever is left over at the end of the harvest, thus liquidating its debts entirely. In contrast to these cases, Impulsora Agricola, founded in 1958, has always secured supplies of barley through contract farming. This company was set up on the initiative of large beer-brewing companies that no longer wanted to compete among themselves for supplies of this raw material. As Impulsora obtains 25% of its requirements for barley in Guanajuato, it has established contracts with producer organizations in order to assure a certain level of product quality. In Guanajuato, between 30 000 and 40 000 ha are cultivated with barley, most of which is earmarked for the brewing industry to produce beer for export, given that Mexico is the largest beer-exporting nation in the world. Impulsora's contract with producer organizations stipulates the volumes of seed and chemical inputs that the firm will sell to the growers. The price of these goods is lower if payment is made in cash and higher when the goods are obtained through loans. In the second case, producer organizations serve as guarantors for individual growers, although the latter must sign an 'IOU' in the company's name. Other items specified in the contracts include the area to be planted, the irrigation method, planting density and the estimated production. The firm promises to purchase only the specified volume, using funds provided by the breweries. The per-tonne price to be paid is also specified, although the company withholds the cost of transportation between the fields and the malt-producing company. Finally, contracts specify that each load of barley will be paid within a maximum of 8 days from date of delivery, and that all debts that growers have with the firm will be subtracted from the first payments (Impulsora Agricola 2000; Agrobajio 1999). Those farmers who are members of organizations tend to be large or medium-sized farmers who plant more than 30 ha of barley. Smaller growers (less than 30 ha) sell their crops to middlemen who then sign contracts with Impulsora. Although contract farming benefits the members of organizations, it also tends to transform such organizations into intermediaries who make it easier and more economical for the company to operate. The company delivers the seed to the organization, which is responsible for distributing it to the growers. In addition, it provides technical assistance and controls the entire productive process, although it receives no economic compensation for doing so. Once the harvest is in, the producer takes it to a warehouse designated by Impulsora. There the producer receives an 'order for payment' made out in the name of the organization, which is responsible for processing all payments. The impact of contractual relations on grain producers

The main reason, often the only one, that encourages growers to enter into contracts is their urgent need for a secure market for their crops, although barley producers point out additional motives, such as knowing ahead of time the price they will receive for their produce. However, the marketing process is by no means problem free. Although a clause in the contract specifies that payment will be made no more than 8 days after delivery, Impulsora often falls far behind on payments, as occurred in the 1999/2000 season, when a whole month after delivering their barley, 3500 producers still had not received their payments. As a result, many were unable to pay off their bank loans on time and were obliged to pay penalty interest. In mid 2001, producers interested in signing contracts with Cargill for wheat cultivation were penalized when the company delivered the seed through credits that were to be paid off at harvest time, without, however, specifying that this operation implied an additional financial cost that the producers would have to pay. Conclusions On examining the evidence from the case studies presented in this paper and the definition adopted with regard to the different contractual relations that exist, we found contract farming in the following areas: horticultural production for the frozen vegetable industry, wheat for Cargill, and barley for Impulsora. Opisec and Maseca (in wheat and corn, respectively) establish distinct types of contractual arrangements with their growers. There are some similarities and differences that emerge from the analysis of the variety of contractual relations in grain and vegetable production. The frozen vegetable industry resorts to contract farming mainly in order to assure continuous supplies of products that meet certain quality standards, as does Impulsora in the case of barley and Cargill in the case of wheat. For other grain-buying companies, the main incentive is to obtain government-sponsored subsidies, either at the production stage or in the process of marketing. The Mexican government promotes what it calls agricultura por contrato ('contract farming') as an instrument that resolves, though perhaps only partially, the problems in grain marketing that have plagued the nation since these products were made subject to free trade. Here, large agribusinesses that purchase products receive government subsidies that entice them to participate in this production mode. Contract farming is significantly more important in the case of vegetable products than in grains, in part due to the dependence of vegetable-processing companies on production in Mexico, whilst grain purchasers can obtain supplies through imports from different areas of the world. The perishable nature of vegetables is another factor that promotes this difference. In the case of vegetables, contracts are exclusively individual, whilst grain production firms look to establish relationships with producer organizations, especially when the individual growers are small scale. With the exception of barley, which has been produced through contracts since Impulsora began the practice in 1958, the expansion of contract farming in grains emerged in the mid 1990s, thanks mainly to government policies. This contrasts with

the case of vegetable production, where the regime has expanded solely due to the initiative of private companies. Under the various agreements, vegetable and barley growers transfer the risk of annual price fluctuations to the contracting company, which, in turn, transfers the risks inherent in agricultural production to the growers and, on many occasions, the risks of the market. This was seen in the case of horticultural companies, particularly when the market for frozen foods becomes saturated. In these circumstances, the processing companies tighten quality standards and in many cases this leads to increased indebtedness by the growers to them. The producers are helpless against indebtedness as they generally lack organization and they do not have government support. Murray (1997, 53) argues that the following government policy measures are required if the unequal power relations between firms and farmers are to be reduced: a monitoring system for contracts and wider aspects of firm behaviour; technological assistance and credits for the small producer sector; better information and improvements to its distribution among growers; training opportunities; and incentives for growers' organizations. Although the distribution of profits and risks weight against the producers, they enter into contract farming agreements because they lack alternatives for financing, technical assistance and access to markets. The experience of contract farming in several Third World countries shows that its growth is related to the implementation of neo-liberal policies that are accompanied by the withdrawal of State support and reduced regulation of agricultural production (Dolan 2001; Raynolds 2000). Our study shows that Mexico is no exception.
Table 1 Sourcing vegetables to the east of USA. The geographical advantage of Guanajuato vs. California

Cities

Distance (km)

Guanajuato-Dallas, Texas Los Angeles, California-Dallas, Texas Guanajuato-Washington DC

1524 2324 3498 4318

Los Angeles, California-Washington DC Guanajuato-New York Los Angeles, California-New York 3867

4535

Source: New century world atlas (2000)

Table 2 Frozen vegetable agroindustries in Guanajuato: supply mechanisms

Owned and Controlled rented land Contracted No. contract Company area (ha) (ha) land (ha) growers

MarBran/Simplot Expor San Antonio Gigante Verde BirdsEye Covemex

10 200 7500 4800 3000 2500 --

4590 4500 --

5610 3000 4800 3000 200 1260 480 13 NA 85 70 4

300 70

2300 420

Congelados Don Jose Fresport 780

1680 300 600

30

Frugo, La Esperanza, La Hacienda Total 31 060

NA

12

18 350

584

Source: Fieldwork, Guanajuato, Mexico 1998-2001

Acknowledgements Funding for this research was provided by CONACYT (Consejo Nacional de Ciencia y Technologia), project 34333-S. We would like to thank all the contract growers and industry personnel for sharing their time and knowledge with us, Laura Luna who drew the map, and two anonymous referees for helpful and constructive comments. This paper was accepted for publication in July 2004 Notes 1 The term ejidatarios refers to the members of an ejido, a land tenure system that grants usufruct rights to agrarian reform communities and includes both individual and commonly held lands. 2 The tortilla, made from white corn, is the staple food of the Mexican population. References Agrobajio 1999 Reporte del ciclo otono-invierno Secretaria de Desarrollo Rural, Mexico 18-21 ASERCA (Apoyos y Servicios a la Comercializacion) 2000 Relacion de posturas presentadas para participar en la subasta del apoyo a la comercializacion de trigo panificable y cristalino de la cosecha del ciclo 1999/2000 Mexico

Bebbington A 2003 Global networks and local developments: agendas for development geography Tijdschrift Economische en Sociale Geografie 94 297-309 Bee A 2000 Globalization, grapes and gender: women's work in traditional and agro-export production in northern Chile The Geographical Journal 166 255-65 Brannstrom C 2000 Cofee labour regimes and deforestation on a Brazilian frontier, 19151965 Economic Geography 76 326-46 Cargill de Mexico SA de CV 2001 Para ganar en todos los terrenos solo con Cargill Brochure, Mexico CEPAL (Economic Commission for Latin America and the Caribbean) 1995 Las Relaciones Agroindustriales y la Transformacion de la Agricultura Naciones Unidas, Santiago de Chile CEPAL/GTZ/FAO (Economic Commission for Latin America and the Caribbean/German Society for Technological Cooperation/Food and Agriculture Organization) 1998 Agroindustria y pequena agricultura: vinculos, potencialidades y oportunidades comerciales Naciones Unidas, Santiago de Chile Clapp R 1994 The moral economy of the contract in Little P and Watts M eds Living under contract. Contract farming and agrarian transformation in sub-Saharan African The University of Wisconsin Press, Madison 78-94 Collins J 1993 Gender, contracts and wage work: agricultural restructuring in Brazil's Sao Francisco Valley Development and Change 24 53-82 Cook I 1994 New fruits and vanity: symbolic production in the global food economy in Bonanno A, Busch L, Friedland W, Gouveia L and Mingione E eds From Columbus to Conagra: the globalization of agriculture and food The University Press of Kansas, Lawrence 232-48 De Ita A 2000 Evaluacion de los efectos del TLCAN en la produccion y comercio del maiz in Camara de Diputados Cuanta Liberalizacion Aguanta la Agricultura? Mexico 141-56 Dimitri C and Jaenicke E 1999 Contracting in Tobacco? Tobbaco Situation and Outlook Report TBS-245 ERS-USDA 21-7 Dolan C 2001 The 'good wife': struggles over resources in the Kenyan horticultural sector The Journal of Development Studies 37 39-70 Echanove F 2001a Working under contract for the vegetable industry in Mexico: a means of survival Culture and Agriculture 23 13-23 Echanove F 2001b Integration and restructuring of the food industry: the case of frozen vegetables in Mexico Nordic Journal of Latin American and Caribbean Studies XXXI 3753

Flynn P and Burbach R 1978 Imperialismo en Almibar: La Compania Del Monte en Mexico Cuadernos Agrarios 6 Mexico 87-94 Glover D and Kusterer K 1990 Small farmers, big business. Contract farming and rural development St Martin's Press, New York Greider W 2001 La rebelion de los granjeros. Resistencia contra las grandes corporaciones La Jornada January 14 6-7 Grossman L 1998 The political ecology of bananas. Contract farming, peasants, and agrarian change in the eastern Caribbean University of North Carolina Press, Chapel Hill Gwynne R 1999 Globalisation, commodity chains and fruit exporting regions in Chile Tijdschrift en Economische en Sociale Geografie 90 211-25 Gwynne R 2000 'Contract farming and land markets in Chile' Paper presented at the XXI International Congress of the Latin American Studies Association 16-18 March, Miami Gwynne R 2003 Transnational capitalism and local transformation in Chile Tijdschrift en Economische en Sociale Geografie 94 310-21 Heffernan W 1999 Consolidation in the food and agriculture system (http://www.competitivemarkets.com/library/academic_reports/1999/consolidation.htm) Impulsora Agricola 2000 Contrato de compra-venta de semilla y fungicida, y de grano comercial de cebada maltera del ciclo otono-invierno Mexico Kay C 1997 Globalisation, peasant agriculture and reconversion Bulletin of Latin American Research 16 11-24 Key N and Runsten D 1999 Contract farming, smallholders and rural development in Latin America: the organization of agro-processing firms and the scale of outgrower production World Development 27 381-401 Lawrence G 1999 Agri-food restructuring: a synthesis of recent Australian research Rural Sociology 64 186-202 Little P and Dolan C 2000 What it means to be restructured: nontraditional commodities and structural adjustment in sub-Saharan Africa in Haugerud A, Stone M and Little P eds Commodities and globalization. Anthropological perspectives Rowman & Littlefield Publishers, Boston, MA 59-78 Little P and Watts M eds 1994 Living under contract. Contract farming and agrarian transformation in sub-Saharan African The University of Wisconsin Press, Madison McKenna M, Roche M and Le Heron R 1999 H.J. Heinz and global gardens: creating quality, leveraging localities International Journal of Sociology of Agriculture and Food 8 35-51 Morvaridi B 1995 Contract farming and environmental risk: the case of Cyprus Journal of Peasant Studies 23 30-45

Murray W 1997 Competitive global fruit export markets: marketing intermediaries and impacts on small-scale growers in Chile Bulletin of Latin American Research 16 43-56 Murray W 1999 Local responses to global restructuring in the Chilean fruit complex European Review of Latin American and Caribbean Studies 66 19-38 Murray W 2001 Dilemmas of development in Oceania: the political economy of the Tongan agro-export sector The Geographical Journal 167 291-304 Perry J and Banker D 2000 Contracting changes how farm do business Rural Conditions and Trends 10 50-6 Rama R and Vigorito R 1979 Transnacionales en Amercia Latina. El Complejo de Frutas y Legumbres en Mexico ILET-Nueva Imagen, Mexico Raynolds L 1994 The restructuring of Third World agro-exports: changing production relations in the Dominican Republic in McMichael P ed The global restructuring of agrofood systems Cornell University Press, Ithaca 143-61 Raynolds L 1997 Restructuring national agriculture, agro-food trade and agrarian livelihoods in the Caribbean in Goodman D and Watts M eds Globalising food. Agrarian questions and global restructuring Routledge, London 119-32 Raynolds L 2000 Negotiating contract farming in the Dominican Republic Human Organization 59 441-51 Raynolds L 2002 Wages for wives: renegotiating gender and production relations in contract farming in the Dominican Republic World Development 30 783-98 Rickson R and Burch D 1996 Contract farming in organizational agriculture: the effects upon farmers and the environment in Burch D, Rickson R and Lawrence G eds Globalization and agri-food restructuring. Perspectives from the Australasia region Avebury, UK 173-202 Roy P 1972 Contract farming and economic integration Interestate Press, Danville, IL Ruben R, Wesselink M and Saenz F 2001 'Contract farming and sustainable land use: the case of small scale pepper farmers in Northern Costa Rica' Paper presented at the 78th EAAE Seminar: Economics of Contracts in Agriculture and the Food Supply Chain 15-16 June, Copenhagen Singh S 2000 Contracting out solutions: political economy of contract farming in the Indian Punjab World Development 30 1621-38 Storey D and Murray W 2001 Dilemnas of development in Oceania: the political economy of the Tongan agro-export sector The Geographical Journal 167 291-304 Teubal M 1995 Globalizacion y Expansion Agroindustrial Ediciones Corregidor, Argentina

USDA (United States Department of Agriculture) 1996 Farmer's use of marketing and production contracts (AER-747), Washington DC USDA 2003 Agricultural import data (http://www.fas.usda.gov/ustrade/USTImFAS.asp) Vellema S 1999 Agribusiness control in Philippine contract farming: from formality to intervention International Journal of Sociology of Agriculture and Food 8 95-110 Watts M 1994 Life under contract: contract farming, agrarian restructuring and flexible accumulation in Little P and Watts M eds Living under contract. Contract farming and agrarian transformation in sub-Saharan Africa The University of Wisconsin Press, Madison 21-77 Wells M 1984 The resurgence of sharecropping: historical anomaly or political strategy American Journal of Sociology 90 1-29 White B 1997 Agroindustry and contract farmers in upland West Java The Journal of Peasant Studies 24 100-36 Winson A 1990 Capitalist coordination of agriculture: food processing firms and farming in central Canada Rural Sociology 55 376-94 Wolf S, Hueth B and Ligon E 2001 Policing mechanisms in agricultural contracts Rural Sociology 66 359-81 FLAVIA ECHANOVE* AND CRISTINA STEFFEN[dagger] *Institute of Geography, Universidad Nacional Autonoma de Mexico, Mexico, DF E-mail: echanovef@yahoo.com [dagger]Sociology Department, Universidad Autonoma Metropolitana, Unidad Iztapalapa, Mexico, DF COPYRIGHT 2005 Royal Geographical Society COPYRIGHT 2008 Gale, Cengage Learning