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Int Environ Agreements (2007) 7:137­169 DOI 10.1007/s10784-007-9042-6 ORIGINAL PAPER

Scale, technique and composition effects in the Mexican agricultural sector: the influence of NAFTA and the institutional environment

Silvina J. Vilas-Ghiso Æ Diana M. Liverman

Received: 14 April 2006 / Accepted: 21 January 2007 / Published online: 16 March 2007 Ó Springer Science+Business Media B.V. 2007

Abstract More than a decade after NAFTA (North American Free Trade Agreement) entered into force, the environmental effects of agricultural trade liberalization in Mexico are still controversial, emerging, and not fully understood. This paper contributes to the literature that aims to explore trends in input use in the agricultural sector in Mexico during the post-NAFTA period among both commercial/industrial and traditional/rainfed farmers, and examines the influence of the national and multilateral institutional framework on these outcomes. We decompose the post-NAFTA agricultural production data into scale, technique and composition effects to estimate the impact that trade liberalization has had on the use of fertilizer and land use, two key agricultural inputs for which reliable aggregate data is available. We conclude that among commercial farmers patterns of crop type specialization and significant technological improvements have led to some declines in fertilizer use but they have been offset by growth in fertilizer use associated with growing agricultural output. Among traditional farmers increased output and specialization in land-intensive grain crops are contributing to an increase in land under cultivation and technological improvements show the potential, but not yet not the strength, to counteract these effects. We analyse the environmental institutional framework and rural development plans, observing that institutional weaknesses have, in several instances, reduced the environmental benefit of technique and composition effects. We conclude with recommendations about how the Mexican agricultural sector might reap the environmental benefits of international agricultural trade. Keywords Mexico Æ NAFTA Æ Agriculture Æ Environment Æ Scale, technique and composition effects

S. J. Vilas-Ghiso Æ D. M. Liverman (&) Environmental Change Institute, Oxford University Centre for the Environment, South Parks Road, Oxford OX1 3QY, UK e-mail: [email protected]

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Abbreviations NAFTA NAAEC BECA CEC CSPS TWG SMOC STC FDI GATT SAGARPA CICOPLAFEST OECD MRL

North American Free Trade Agreement North American Agreement on Environmental Cooperation US-Mexico Border Environment Cooperation Agreement NAFTA Commission for Environmental Cooperation NAFTA Committee on Sanitary and Phytosanitary Standards NAFTA Technical Working Group on Pesticides North American Working Group on the Sound Management of Chemicals Scale, Technique and Composition Foreign Direct Investment General Agreement of Trade and Tariffs Ministry of Agriculture in Mexico Inter-Sectoral Commission for the Control and Use of Pesticides, Fertilizers and Toxic Substances in Mexico Organization for Economic Cooperation and Development Maximum Residue Limits

1 Introduction The North American Free Trade Agreement (NAFTA) between Mexico, Canada and the USA came into force in January 1994. More than a decade later, the environmental effects of trade liberalization in Mexico are still controversial, emerging and not fully understood. Free trade advocates assert that NAFTA has brought environmental improvements through promoting the efficient allocation of natural resources based on comparative advantage, while also promoting increased yields through technological improvements. It is also argued that higher incomes brought about by increased trade and the influence of the international markets have resulted in greater investment in environmental standards and regulation, particularly for the use of key inputs such as water, land and agrochemicals (OECD 1998; Zahniser and Link 2002). Opposed to this view is that of many environmentalists who argue that increased scale and intensity of production has promoted the overuse of water, agrochemicals and machinery, as well as the use of monocultures and improved seeds. They claim that the wealth created by trade has not necessarily resulted in environmental improvements, as weak institutional frameworks and the unequal accumulation of wealth have not promoted the reinvestment in more sustainable methods of production or improved regulation and enforcement. There is also the perception that liberalized trade has promoted the adoption of lower environmental standards and that environmentally damaging production processes--such as those relying on heavy use of agrochemicals--have relocated to the least developed trade partner (Kahn and Yoshino 2004; Nadal and Wise 2004; Watkins and Fowler 2002). Others suggest that traditional agriculture is in many ways more sustainable than high input industrial agriculture--using less intensive and polluting techniques--and that NAFTA has increased the overall environmental impact of agriculture through a globalization of market failure as US high intensity

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corn production has expanded through exports to Mexico and threatens the genetic diversity of corn in Mexico (Nadal and Wise 2004). These opposing views on the environmental effects of the agreement have been exacerbated by the lack of environmental indicators, the delayed onset of impacts, and by limited quantitative research on the specific links between trade and environmental impacts within the agricultural sector at the national level. A general picture of NAFTA's environmental impacts in the Mexican countryside--understood as the combined effect of the Treaty's rules and regulations, accompanying environmental accords, institutions and transition plans--is still needed. This paper contributes to the literature that aims to explore the environmental impacts in the agricultural sector in Mexico during the post-NAFTA period--both among commercial (or industrialized) and traditional (often ejido) farmers--as well as the influence of the national and multilateral institutional framework on these outcomes. It is one of the first studies to provide a quantitative analysis of environmentally significant changes in the agricultural sector, paralleling a benchmark recent study on manufacturing (Gallagher 2004) and building on sectoral agricultural studies such as those of Nadal and De Janvry (De Janvry et al. 1995; Nadal and Wise 2004). In particular our paper builds on work by Vaughan (2003, 2004) which examines the environmental impacts of agricultural trade liberalization through an analysis of national level data on agricultural trade and production of grains and horticultural crops in relation to agrochemicals, irrigation and deforestation. The paper has two main parts. The first uses empirical data analysis and case studies to understand how the NAFTA may have altered agricultural impacts of the environment. We use scale, technique and composition effects to examine pre-and post-NAFTA use of fertilizer and land, two key agricultural inputs for which reliable aggregate data is available. The analysis for each input is conducted at a national and state level, and for the two key sectors of commercial and traditional farmers. The numerical analysis is complemented with more qualitative data obtained from published case studies that illustrate how agricultural input use trends may be affecting environmental quality in the countryside. Limited data points mean that the results of the analysis should be assessed as more exploratory than conclusive. The second part of the paper is an institutional analysis that seeks to further our understanding of how the multilateral and national institutional framework has influenced STC effects, particularly technique and composition. In particular, we study the institutional determinants of agrochemical use among commercial farmers and of land use among traditional producers. Our conclusions highlight key interventions which might improve the environmental sustainability of agricultural production and trade in the Mexican countryside.

2 Background The signing of NAFTA accelerated the reduction in trade barriers that began a decade earlier when Mexico joined the General Agreement of Trade and Tariffs (GATT). In the case of the agricultural sector, it established a 10- to 15-year transition period for agriculture centred on a tariff-rate quota-based import system. However, following Mexico's 1995 economic crisis, the government has continuously

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increased the quota for imports established for most of the agricultural commodities under NAFTA, effectively reducing the agreed transition period to less than three years (Nadal 2000). As in most economic sectors, the implementation of NAFTA was accompanied by a whole set of neoliberal policies pursued by the Mexican government during the 1980s and 1990s intended to increase the country's international competitiveness, including privatization, decentralization, deregulation and tighter fiscal policies (Liverman and Vilas 2006). In the agricultural sector, most controversial were the Article 27 constitutional amendments in 1992, which restructured land tenure regulations, allowing for private ownership of the collectively held agricultural lands, known as ejidos. This change has allowed the sale and rental of collective lands and prompted the re-concentration of land into large, privately owned farms, particularly in the northern states of the country (Cornelius and Myhre 1998). Mexico's agricultural producers can roughly be divided into two groups with contrasting economic and social realities, which also affect their environmental footprint. Although this division is an oversimplification of reality--as there is a range of producers falling in between these categories--the twofold division is commonly used in both policy analysis and popular discourse. The first group can be characterized as the commercial producers, using industrial or input intensive techniques including irrigation, fertilizer, pesticides, tractors and improved seeds. Many occupy irrigated lands and better soils and own larger than average plots. As a result their yields are often higher. Their production is oriented to domestic markets and increasingly to exports shifting between basic grains, horticulture, and nontraditional exports. Although they are present throughout Mexico, they are mostly concentrated in the northwestern states--Baja California Norte, Baja California Sur, Sonora, and Sinaloa--and the northern state of Coahuila. The web site at http://www.atlasdemexico.gob.mx shows state names and exact location of irrigation districts, and INEGI (2006b) shows total area irrigated in 1991 in hectares. The second group are the more traditional farmers, especially those in the ejido and communal land tenure sector also called the `social' sector. More than half of Mexico's cropland was granted to ejido communities following the Mexican Revolution to be managed in common by groups of ejidatarios or by indigenous communities who are then allocated individual parcels for crop production. Recent estimates suggest that 53% of land is in 30,000 ejidos including more than 4 million people with individual parcels. Much of the land redistributed to the sector had inferior soil, steep slopes and was rainfed and the individual parcels were small at less than 5 ha. Typically the ejidos were seen as producing for their own consumption with about half selling grains to the domestic market and very little involvement in exports or use of intensive agricultural inputs. Until 1992 ejido land could not be sold, rented or used as collateral but following the Article 27 reforms many ejidatarios have been granted title to their land. However many retain membership of the ejidos and have not sold their land. The states with the largest number of ejido communities are mostly concentrated in the southern, central and highland parts of the country especially in Chiapas, Michoacan, Oaxaca, and Veracruz (INEGI 2001). Even prior to NAFTA, the debt crisis, financial restructuring and neoliberal ideas resulted in cutbacks in the role of government regulation and financial support in attempts to cut expenditure and controls on the private sector. By the mid-1990s, the

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government had virtually dismantled the operations of Banrural--the governmentowned rural development bank--and Conasupo--the price support agency in charge of setting guaranteed prices for most crops. Input subsidies on seeds, fertilizer, pesticides, machinery and diesel fuel were eliminated. Public investment in irrigation infrastructure, marketing, technical assistance and research and development was also slashed (Appendini 1998; David et al. 2000; De Janvry et al. 1995; Nadal 2000). As a substitute for the previous government support schemes, the Ministry of Agriculture (SAGARPA) established two basic policy instruments--Procampo and Alliance for the Countryside (Alianza para el Campo). These instruments aimed to assist producers--especially low income farmers--during the transition period to an open economy (Yunez-Naude 2002). However, inadequate funding--partially as a result of the 1995 economic crisis--and a bias towards allocating the funds to commercially viable farmers, have limited the impact of the rural development plans ´ during the transition period (Martinez 2003; Nadal 2000; Patel and Henriques 2003; SAGARPA 2001a). The complex interweaving of these policies make it impossible to disaggregate the socio-economic and environmental implications attached to each of them. However, it is also arguable that most of these policies were implemented in preparation for NAFTA and are thus considered in the context of this paper as the ``NAFTA package''. The combined pressures of globalization and liberalization, which effectively started when Mexico joined the GATT in 1986 and were intensified with the signature of NAFTA and its environmental side agreements, appear to have stimulated a restructuring of the Mexican environmental laws, regulations, standards and institutional infrastructure (OECD 2003; UNEP 2000). These included major regulatory reforms during the early 90s and the reorganization of Mexico's disparate environmental agencies into a single, cabinet-level Secretariat of the Environment and Natural Resources. Despite these positive steps, the national environmental institutional framework has been criticized for inadequate funding, few qualified human resources to carry out environmental management and implementation, and lack of political will (UNEP 2000). Particularly weaknesses have been highlighted in the integration of environmental concerns with sectoral decision making, specifically in economically depressed sectors such as agriculture (OECD 2003). At a multilateral level pressure from environmental and labour activists led NAFTA to include two environmental side agreements--the North American Agreement on Environmental Cooperation (NAAEC) and the US-Mexico Border Environment Cooperation Agreement (BECA). NAAEC addresses potential failures to enforce environmental laws and contains a dispute settlement process, while BECA aims to identify mechanisms for financing border environmental projects and clean-up. Three institutions were established to support national institutions in minimizing the negative environmental impacts of the treaty: The Commission for Environmental Cooperation (CEC), The Border Environmental Cooperation Commission and the North American Development Bank. In addition, three committees which do not necessarily have environmental aims but are relevant to agricultural issues were created under NAFTA's Free Trade Commission: the Committee on Sanitary and Phytosanitary Standards (CSPS), the Technical Working Group on Pesticides under the CSPS, and the Committee on Agricultural Trade (Kirton and Fernandez De Castro 1997).

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It has been argued that NAFTA's multilateral environmental institutions have increased cooperation between the three countries. They have contributed to opening communication channels and information sharing between countries, and have been successful in increasing intergovernmental coordination on the decision making process of environmental problems in the border region. However, their continuous under-funding and a lack of political support from the three national governments have curtailed their ability to more actively deal with many of the environmental stresses brought about by NAFTA (Liverman et al. 1999; McKinney ´ 2001; Mumme 1999; Sanchez 2002; Torres 1999). Furthermore, with some exceptions associated with the CEC, the active influence of these institutions on trade related environmental impacts in the agriculture sector have been limited.

3 Methodology 3.1 Scale, technique and composition Scale, technique and composition (STC) effect theory was originally developed to better understand how trade liberalization between developed and developing countries affected industrial air-pollution. Authors have applied this theory as a tool to disaggregate the air-pollution impacts of free-trade zones in Latin America, including those created as a result of NAFTA (Antweiler et al. 2001; Copeland and Taylor 1994; Grossman and Krueger 1991; Husted and Rodriguez-Oreggia 1996; Wheeler 2001). Other authors have used it to assess the effectiveness of regulation aimed at reducing industrial air pollution (Selden et al. 1999). Given the complexities of the trade and environment links, this framework is a useful tool to isolate the key influences that can have an effect on environmental quality, as well as in focusing the area of study. Due to limitations in the availability of data, most STC studies, including this paper, look at outcomes in terms of input use, rather than pollution levels. Gallagher (2004) undertakes STC analysis of the Mexican industrial sector and finds that scale effects associated with economic growth under NAFTA outweigh a modest improvement in environmental impact associated with the composition of industry to produce an increase in air pollution. He also finds the technique effect to be sector specific with industries such as cement and iron and steel using more efficient and environmentally benign technology than sectors such as chemicals and pulp and paper. The literature (Copeland and Taylor 1994, 2003; Grossman and Krueger 1991) suggests the following definitions which we then interpret for the agricultural case: Scale effect: Empirical evidence has long linked trade liberalization to economic and output growth, as it opens access to previously restricted markets, while encouraging foreign direct investment (FDI) in productive assets. Increased scale of production may place greater stress on the environment as, assuming constant composition and technique effects, more inputs and resources are required to satisfy the increased demand. Given this, the scale effect generally indicates an increase in environmental degradation. In the agricultural sector, this can be translated into, for example, environmental stresses related to increased use of inputs such as water and agrochemicals or the expansion of the agricultural frontier to marginal land. Composition effect: Trade liberalization may affect the composition of national output by encouraging some economic sectors and limiting others and hence altering

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the incidence, type and level of pollution (or environmental degradation) across regions and countries. Thus, the composition effect measures the change in environmental degradation due to changes in the range of goods produced, assuming constant scale and technique of production. Environmental effects can be positive or negative depending on the pattern of trade-induced specialization. In the case of agriculture, given that different crops require different levels and types of agricultural inputs, specializing in, for example, grains versus horticulture, will have in itself an effect on the use of environmental resources. Technique effect: Economic theory predicts that output growth promoted by trade liberalization increases incomes, and wealthier countries tend to be more willing and able to channel resources into environmental protection through the establishment of higher environmental standards and the investment on more sustainable technologies. The technique effect is determined by the combined influence of incomes and a producers' response to market and institutional incentives. The technique effect thus measures the change in aggregate pollution (or environmental degradation) arising from a switch to more environmentally sustainable production techniques, assuming constant scale and composition effects. In the case of agriculture, trade liberalization may affect the producers' choice of adopting extensive versus input-intensive agricultural methods, as well as the uptake of more sustainable agricultural technologies. In recent years, the Organization for Economic Cooperation and Development (OECD) has promoted the use of this methodology in other economic sectors, including agriculture (IISD 2005; OECD 1994, 2000). Despite this, and the fact that no other model currently exists to accurately assess the environmental impacts of agricultural trade (Carpentier 2001), few attempts have been undertaken to apply this framework in the agricultural sector of the Americas (Cooper et al. 2003). 3.2 The numerical analysis We start the analysis by determining three equations, each of which aims to isolate one of the STC effects. Each equation will be applied to the agricultural inputs where reliable consumption data is available (fertilizer and planted area), both for the pre- and post-NAFTA periods (1980­1993 and 1994­2003). All analyses will be conducted at a national level, and for commercial and traditional farming. In addition, aggregate and per-capita effects will be analysed. Although both are closely linked, the former results are of interest as environmental degradation is generally linked to the aggregate amount of inputs used whilst the latter helps isolate the influence of population growth on input use. The per capita analysis is particularly important as national population grew 16% during the NAFTA period. One-sided two-sample t-tests assuming unequal variances are conducted to assess significant changes on each of the STC effects for pre- and post-NAFTA. Because annual data is not available for the commercial and traditional farming sectors per se we use irrigated and rainfed sectors as proxies for commercial and traditional sectors. This can be done because there is a significant spatial and socioeconomic correlation between irrigated agriculture and farmers that are private sector, use agrochemicals, and produce for the commercial market. Rainfed lands are disproportionally farmed by traditional farmers in the ejido and communal sector, using few inputs, and with up to half their production for subsistence. Similarly southern states can be used as a proxy for the traditional sector and northern states for the commercial sector.

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3.2.1 Scale effect To obtain the scale effect, we determined how trade induced changes in aggregate production output affected input use. We define St to be the scale effect in year t and Io to be the yearly agricultural input consumption--fertilizer or land--during the base year (1980 for pre-NAFTA and 1994 for post-NAFTA). Yo reflects the aggregate agricultural output (in units of production) for the base year and Yt the aggregate agricultural output in year t. Allowing the aggregate agricultural output to change throughout time while holding input use intensity fixed gives us the scale effect. In other words, St is a measure of how much aggregate input use would have changed solely as a result of increases in agricultural output and assuming that the input-use intensity remained fixed at the 1980 and 1994 levels for pre-and post-NAFTA. St ¼ Io Yt À Io Yo

3.2.2 Composition effect To obtain the composition effect, we determined how trade induced changes in the ratio of grains to horticultural production (fruit and vegetables) affected input use. We define Ct to be the composition effect in year t. The composition effect is calculated by letting the relative share of production of the two main crop types (grains and horticulture) Yj/Y change whilst holding input intensities (Ij/Yj) fixed in each sector. This allows us to isolate the pure effect of the composition change. Ct ¼ X Ijo Yjo X Ijo Yjt Yt À Yt Yjo Yt Yjo Yo j j

By holding input use intensities at the base year levels, we are able to observe if changes in the relative production of grains as compared to horticulture have contributed to a reduction in aggregate input use (as different types of crops require different levels of input use). If the agricultural sector had experienced an homogenous growth in the production of grains and horticulture, Ct would equal zero. 3.2.3 Technique effect Our numerical analysis of the technique effect centres on understanding producer response to trade liberalization through the adoption of extensive and/or intensive agricultural techniques. We address the impact that the agreement has had on real incomes, and thus on the feasibility of investing in more efficient technologies, at a conceptual level later in the paper. To obtain the technique effect, we determine how trade induced changes in the amount of input use per unit of production--the intensity of use--have affected aggregate input use. We define Tt to be the technique effect in year t. To calculate changes in the intensity of input use per type of crop, we allow the aggregate input use intensity per sector (Ij/Yj) to change.

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Tt ¼

X Ijt

j

Yjt

Yjt À

X Ijo

j

Yjo

Yjt

Tt indicates whether changes in input use intensity may have counteracted increases in aggregate input use resulting from output growth and/or changes in composition of production. It also indicates the uptake of either intensive or expansive agricultural practices by commercial and traditional farmers. 3.3 Limitations of the analysis There are some limitations to this analysis which stem both from the conceptual nature of the framework and from limited data availability. Firstly, the agricultural data available (from the Mexican government's SIACON-database) only covers the period 1980­2003, thus there are only 23 annual data-points for the numerical analysis. Limited data-points mean that the results of the analysis should be seen as more exploratory than conclusive. Further, the use of national indicators to assess the aggregate impacts of trade means that more localized impacts, which may be more variable than the aggregate results, will not be evident. In addition, potential positive agricultural by-products, such as open space and scenic views, are currently not easily assessed within this framework, as they are abstract measures and difficult to quantify. The main limitation, however, is that the outcome of our STC model does not provide us with an indication of how much pollution levels in the agricultural sector have been affected during the post-NAFTA period, but of how trade incentives have affected agricultural input use. This stems from the lack of local and aggregate environmental indicators--such as land and water pollution due to fertilizer use, or deforestation due to agricultural expansion. This also represents a key difference in our application of the STC model from all other studies assessing industrial airpollution levels. In order to address this issue, we complement our numerical STC analysis with more qualitative data obtained from the literature on regional and crop-specific case studies, which will help to briefly illustrate how agricultural input use trends may be affecting the environmental quality of the Mexican countryside. Another difference from other STC studies, which may not be considered a limitation in itself, is that our numerical analyses are conducted using agricultural output and input in unit measures. In our STC analysis, agricultural output and inputs are measured in units--rather that in value--because the significant drop in agricultural commodity prices during the last decade means that a quantity measure gives a more accurate image of actual input and production trends. 3.4 The institutional analysis The second part of this paper examines how the multilateral and national institutional framework has influenced the resulting STC effects, particularly technique and composition. Theoretical works suggest that the strength of the technique effect depends on how quickly government policy is formed and adapted to new conditions (Copeland and Taylor 1994; Vaughn and Block 2002). We focus on two case studies. First, we analyse the potential influences that the institutional framework has had on the intensification of agrochemical use among commercial farmers during the post-NAFTA period. We analyse the institutions that

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we think may have had greater influence--the multilateral NAFTA Committee on Sanitary and Phytosanitary Standards, (especially through its Technical Working Group on Pesticides (at a multilateral level)), and the Mexican national Commission for the Control and Use of Pesticides, Fertilizers and Toxic Substances (CICOPLAFEST). Secondly we examine the influences that the institutional framework has had on the agricultural frontier expansion in the traditional farming sector. Given the limited involvement of environmental and multilateral institutions in this sector so far, we focus on understanding how the implementation of SAGARPA's rural development plans--in particular Procampo and Alianza (Alliance for the Countryside)--have influenced the technique and composition effects on traditional ejidos. The case studies are primarily based on the analysis of publicly available information, such as government reports, government or private sector websites, academic journals and other published literature.

4 Data and trends To conduct the STC analysis, we used: (a) historic agricultural production data on annual agricultural output, composition of production, agricultural yields and hectares of planted area--obtained from the Ministry of Agriculture (SIACON 2005); (b) yearly fertilizer consumption obtained from the FAO statistical database (FAO 2005). Unfortunately fertilizer consumption is only available at the national level. Fertilizer consumption for commercial and traditional farmers was estimated by calculating changes in both the expanse of land under cultivation and yield per hectare, to reflect changes in fertilizer consumption patterns among both type of producers. Fertilizer consumption by commercial producers was calculated using the following equation, where national fertilizer in year t (Ft) multiplied by the ratio of area of land under cultivation among commercial (a) and traditional (b) farmers in year t (Lat/Lbt) gives us an initial indication of how much of the incremental fertilizer use can be allocated to commercial or traditional farming. As changes in yield per hectare are also a strong indication of fertilizer use changes, we multiply the latter by the yield ratio among both types of producers in year t, where Y/L represents output per hectare of planted area and yo represents a constant yield/hectare level which farmers could achieve even without the use of fertilizers (set in this case at 80% of traditional output during the base year). 2 3 6 7 Lat 6 1 7 Fat ¼ Ft 6 7 5 Lbt 4Ybt= Àyo Lbt þ Lat=Lbt Yat= Àyo Lat 4.1 Agricultural trends In order to better understand the results obtained from the STC analysis, it is useful to have a clear picture of the agricultural trends observed through the analysis of raw data. Figure 1 shows graphs for all relevant agricultural trends discussed in the next section.

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4.1.1 Agricultural output growth--volume Agricultural production (in tons) increased 35% during the post-NAFTA period, equivalent to a yearly average growth of 3.5%. This compares to a 22% growth during the pre-NAFTA period, a yearly average growth of 1.6%. This growth was driven by both commercial farming (36%) and traditional farming (33%) output growth. Per capita output growth increases follow a similar trend, showing output growths of 17%, 15% and 27% for total national, commercial and traditional producers respectively. 4.1.2 Agricultural production value The total agricultural production value (APV--the monetary quantification of production volume, at the prices paid to the producers) dropped soon after NAFTA implementation--in association with a general economic crisis in 1995--and has not yet recovered. In the years since, agricultural value growth has been consistently below the national GDP for all sectors, below pre-NAFTA levels and below Mexico's population growth rate (INEGI 2006a). As we can observe, APV has dropped 13% during the post-NAFTA period, compared to only a 3% drop before NAFTA. This decrease in production value occurred despite the scale increases highlighted above and was evident in both commercialized and traditional sectors, with reductions of 20% and 4%. Moreover, total APV per hectare of planted area also dropped 14% at a national level. Although a decline in crop price consistent with international prices was expected from the outset of NAFTA, the decline was exacerbated by the Mexican government allowing imports of grains from the USA--particularly corn--consistently exceeding the fixed quotas established as part of the agreement (David et al. 2000; Nadal 2000; Patel and Henriques 2003). As a result, corn production value per unit of production decreased by 56% and 27% for the commercial and traditional farmers respectively (SIACON 2005) For traditional farmers decreased incomes have translated into increased poverty among the economically active rural population. Rural household poverty has increased from 57% in 1992 to 61% in 2000 ´ (Caceres 2002). It is important to note that the decline in agricultural production value is not necessarily driven by NAFTA per se, but by the inadequate implementation of its rules and regulations. We also note that although it seems that NAFTA has exacerbated poverty in the traditional sector, extreme poverty has been characteristic of the southern states for many decades. 4.1.3 International trade in agriculture Research by the World Bank (Lederman et al. 2003) suggests that Mexico's global exports--including all economic sectors--would have been about 25% lower without NAFTA, while FDI would have been 40% less. Aggregate exports of Mexican agricultural produce to the USA in terms of grains and horticulture increased 112% to US $4.10 billion during the post-NAFTA period. Increased export of fruits and vegetables has led to a doubling of trade to US $3.8 billion during the post-NAFTA period. This upward trend started well before NAFTA with agricultural exports growing by 107% during the period 1989­1993.

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Agricultural Production Trends Commercial Traditional

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Agricultural Value Trends Commercial Traditional

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5 4 3 2 1 0 1980 1983 1986 1989 1992 1995

6 5.8 5.6 5.4 5.2 5 4.8 4.6 4.4 4.2 4 1980

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Fig. 1 Trends in agricultural data for Mexico. Source: SIACON (2005)

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Aggregate imports of agricultural produce from the USA to Mexico grew 83% to US $3.54 billion during the post-NAFTA period, up from only 12% growth during the five-year period before NAFTA. In the case of imports, growth was driven by an increased influx of grains into the Mexican market, as evidenced by a 90% increase in cereal and feed imports of US $2.74 billion during the post-NAFTA period. As before, the rapid increase in grain imports was not necessarily due to the NAFTA agreement itself, but because import quotas established for most of the agricultural commodities to protect Mexican farmers--specially corn--were exceeded. 4.1.4 Composition of production Mexican national grain production has increased by 40% during the post-NAFTA period, and horticultural production has increased 32%. This has been driven by commercial producers increasing grain output by 8% during the post-NAFTA period, and increasing production of fruits and vegetables by 48%. This shows a shift in production to more profitable, non-grain crops, and reflects a 57% increase in horticultural exports after NAFTA implementation (Patel and Henriques 2003). In the traditional sector output of grains increased 77% post-NAFTA while other crops increased only 12%. 4.1.5 Agricultural yields Commercial producers have gone through a dramatic increase in yields of more than 50%-- from 12.1 to 18.7 tons/ha. Indeed, their total production increased 36% despite a 12% decline in total planted area during the post-NAFTA period. Commercial yield growth during the pre-NAFTA period was 17%. This coincides with the trend in other OECD countries--such as Canada and the US--to decrease agricultural land use while increasing their reliance on input intensive production methods (Mayrand et al. 2003). In traditional sectors, however, the average yield in 2003 was only 4.7 tons/ha--a quarter of the average yield for commercialized producers--and reflected an improvement of 25% over 1994 and a 27% growth during pre-NAFTA period. 4.1.6 Land use At a national level, agricultural land use appears to remain almost constant, increasing only 1% in 2003 compared to 1994. However, the land use patterns among commercial and traditional farmers reveal two evident and distinct trends. For commercial producers, the increase in yields contributes proportionally more to production and has translated into a 12% decline in total planted area compared to pre-NAFTA years (659,530 ha). The opposite trend has been observed among traditional farmers. Limited improvements in yields in traditional areas has meant that agricultural output growth has come mainly from a 6% increase in the area under cultivation (865,550 ha). Commercial producers are mostly located in the northern drier areas of the country, whilst traditional farmers are mostly located in the tropical south, in or near increasingly fragmented forest land, where increasing the land under cultivation may lead to deforestation.

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4.1.7 Fertilizer consumption The post-NAFTA period shows a significant slowing of aggregate fertilizer consumption among both types of producers when compared to the pre-NAFTA period. A relatively steep increase of 29% in tons of fertilizer used at a national level during the pre-NAFTA period was followed by only 3.9% increase during the post-NAFTA period. The post-NAFTA trend was driven by an increase in the total amount of fertilizer use by commercial producers (our estimate is 8%) and a decline in the total amount of fertilizer use by traditional farmers (our estimate is 9%). If this holds true, the average fertilizer use intensity (kg/ha) during the post-NAFTA period grew 24%, whilst declining 14% to 24 tons/ha among traditional farmers. The total national intensity increase was 19%, comparing to pre-NAFTA fertilizer intensity growth of 11% for commercial and 116% for traditional farmers. The growth in fertilizer use among commercial farmers may be traced back to the pressure to compete in the input-intensive international market. The apparent drop in fertilizer use at the traditional level might be, among other things, the result of the elimination by the federal government of agricultural input subsidies which were prevalent during the preNAFTA period, as well as the dismantling of government-owned FERTIMEX, the parastatal institution in charge of producing and distribution fertilizers throughout the country.

5 Scale, technique and composition results To provide a context to the following results, it is useful to translate the NAFTA agricultural objectives into the scale, composition and technique effect framework. It appears that NAFTA negotiators assumed that the negative environmental impacts of increased agricultural production (scale effect) were to be offset by improved environmental legislation--specially in terms of agrochemical and water use--and increased investment in more efficient technology (technique effect) (Nadal 2000; Sarmiento 2003). Furthermore, it was expected that Mexico would increase the production and exports of non-traditional crops that were considered to enjoy significant comparative advantages in terms of climate and availability of cheaper labour such as vegetables, nuts, coffee and tropical fruits. It was considered desirable for Mexican producers to move from corn and grain production to cultivation of other crops. This would bring economic benefits to Mexican farmers who would switch to more profitable crops. It would also, in theory, bring environmental benefits as farmers would produce more efficiently and thereby reduce pressure on environmental resources (composition effect) (De Janvry et al. 1997; Nadal 2000). In the following paragraphs we will review in detail the result of our STC analysis for each of these effects and will assess how the results compare to NAFTA expectations. Table 1 presents the aggregate and per capita results of our decomposition analysis for the pre-NAFTA (1980­1993) and post-NAFTA (1994­2003) periods for both land and fertilizer use. The numbers presented in the table represent changes in input use during the pre- and post-NAFTA periods. We indicate whether the mean yearly changes observed during the post-NAFTA period are significant when compared to the mean changes during the pre-NAFTA period.

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Int Environ Agreements (2007) 7:137­169 Table 1 Scale, composition and technique effects Total 1980­1993 Cropland--Aggregate `000 ha Actual change 47.39 Scale 3865.33 Composition 830.1 Technique ­4648.04 Cropland--Per Capita Ha per capita Actual change ­60.63 Scale ­17.23 Composition 9.44 Technique ­52.84 Fertilizer--Aggregate `000 tons Actual change 353.99 Scale 268.5 Composition 30.48 Technique 55.01 Fertilizer--Per Capita Tons per capita Actual change ­0.22 Scale ­1.2 Composition 0.35 Technique 0.63 1994­2003 Commercial 1980­1993 1994­2003 Traditional 1980­1993

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1994­2003

206.01* 6799.20 689.95* ­7283.10

4.41 868.99 631.16 ­1495.74

­659.53* 1972.25* ­848.41* ­1783.33

42.98 3551.32 ­930.63 ­2577.71

865.55 4663.71 4471.95* ­8270.12*

­27.49 36.24* 6.67 ­70.4

­34.61 ­21.35 9.68 ­22.94

­21.11 12.32* ­10.78* ­22.65

­24.51 121.46 ­38.72 ­107.25

6.12 154.92 175.20* ­324.00*

64.00* 650.85* ­117.89* ­468.95*

117.95 176.7 92.97 ­151.71

99.26* 702.78* ­264.61* ­338.91*

236.03 56.57 ­12.36 191.83

­35.26* 74.12 65.16* ­174.54*

­1.61* 4.14* ­1.16* ­4.60*

­5.24 ­4.34 1.43 ­2.33

­1.35 6.44* ­3.42* ­4.38*

9.4 1.93 ­0.51 7.98

­2.12* 2.18 2.56* ­6.86*

*Indicates that change is significant at the 5% level

5.1 Land use--STC results and analysis 5.1.1 Scale effect The scale analysis shows that at an aggregate level, national agricultural land use would have risen by 6.8 million ha (34%) had it grown in proportion to output growth between 1994 and 2003. Per capita land use would have increased by 36 ha per capita (17%), the difference being a 16% increase in the country's population. This is driven by a statistically significant scale effect among commercial farmers of 36% aggregate (1,972 ha) and 15% per capita (12 ha/capita). Pressures to increase land use are a reflection of increasing production to supply the international demand for Mexican agricultural products, as well as the US $3.8 billion in FDI that has been invested in the Mexican agricultural sector since NAFTA as a means to strengthen the country's international competitiveness and export capacity (Nadal and Wise 2004). Although this investment might represent only 0.3% of the total FDI that the country received in the last decade, the geographical and crop focus has made a significant impact on agricultural production because 80% of agricultural FDI has been concentrated in the states of Sonora and Sinaloa, with 95% of it going to hog farming, horticulture and flower cultivation (Nadal and Wise 2004). In the traditional sector a steep increase in the scale effect of land use (33% aggregate; 27% per capita) during the post-NAFTA period appears not to be

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statistically significant as it is preceded by a similarly steep scale increase during the pre-NAFTA period (28% aggregate, 23% per capita). This may suggest that pressures to increase agricultural land under cultivation at the traditional level--trade related or not--have been exacerbated rather than created during the post-NAFTA period. For traditional farmers, agricultural production growth cannot be explained by increased market access, as they do not usually participate in the international market. May and Bonilla (1997) explain that increased production of traditional crops in poverty stricken regions is a common response to free trade adjustment pressures, as poor farmers need to counteract rising poverty and lower commodity prices through increased volume of production. The scale effect not only shows the pressures to increase land use stemming from steep increases in agricultural output but also highlights that the most useful point to start understanding the composition and technique changes is not the actual 2004 input use levels but the one that would have prevailed had land use per unit of output remained constant during the post-NAFTA period. 5.1.2 Composition effect The composition effect at the national level, both aggregate and per capita, appears to be small and not statistically significant when compared to the pre-NAFTA period. Interestingly, however, the composition results for commercial and traditional producers--both aggregate and per capita--show significant changes in land use stemming from their different patterns of crop type specialization. For the commercial sector, the composition effect tended to significantly decrease land use. By increasing their relative production of fruits and vegetables--which are less land intensive than grains--we observe a significant trend to reduce land under cultivation as evidenced by an aggregate composition decline of 15% (0.8 million ha) during the post-NAFTA period. Composition changes driven by increased international demand for Mexican horticultural produce seem to have partially counteracted the scale pressure to increase land use contributing to a more efficient use of this resource. It is important to keep in mind that commercial farmers are, for the most part, located in the arid northern areas where deforestation due to agricultural land expansion is not a major environmental issue. The scarcest resource in this area is water, and though little data is available on environmental impacts of water overuse and pollution due to agricultural activities, the crop specialization pattern among commercial farmers has reportedly intensified water scarcity problems in the region, as the production of fruits and vegetables is more water-intensive than that of grains (Liverman 1999; Wilder and Romero-Lankao 2006). This is particularly serious given that commercial producers are disproportionately located in arid areas were water is seven times more scarce than in the southern tropical regions (Vaughn and Block 2002). Among traditional farmers, the composition effect shows a tendency to significantly increase land use (by 31% or 4.5 million ha) reflecting the higher relative importance of land-extensive grain production in the traditional sector. This is a particularly interesting result, as it shows that among traditional farmers, both scale and composition of production are contributing almost equally to land use increases. The combination of scale and the pattern of crop specialization among traditional farmers, which are for the most part located near tropical forested areas, seems to have exacerbated problems of deforestation, soil erosion and land degradation in the

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tropical southern region. Although there is no data available to correlate land use trends with deforestation, a study conducted by UNEP (2000) in Mesoamerica considered the expansion of agricultural frontier as one of the main causes of deforestation in the region. Furthermore, using data from the Food and Agriculture Organization of the United Nations, Barbier estimated that between 1970 and 1990 agricultural frontier expansion in Latin America accounted for 48% of additional crop production throughout the region contributing to the high deforestation rates of tropical forests (Barbier 2004; Barbier and Burgess 1996). It is predicted that between 1990 and 2010 29% of the total crop production increase in the region will be derived from expansion of cultivated land. The continuing focus on grain production by traditional farmers can be traced partly to rural tradition and security of food supply but is also deeply rooted in economic constraints. The production cost of horticultural crops is 5­7 times those of maize, as they require more intensive use of inputs, mainly water and agrochemicals (Nadal 2000). Increased costs coupled with lower incomes and restricted access to credit, as well as under-funded rural development plans, have severely impaired traditional farmer's capacity to convert from grain production to other more profitable and climatically suitable crops. The composition results signal not only the influence of crop specialization patterns on the environmentally efficient use of land, but also the different environmental impacts in different geographical regions and conditions. As we will argue in the conclusion, this has widespread agricultural policy implications and highlights the important role of agricultural institutions and rural development plans, as well as of the environmental institutional framework, in aiding farmers in the uptake of crops that are more appropriate for their particular geographical conditions. 5.1.3 Technique effect The technique effect tends to decrease agricultural land area across all types of producers, both aggregate and per capita. Among commercial farmers, overall land area declines driven by the technique effect are large at 32% (a reduction in 1.7 million ha) and drop 27% (22.6 ha) per capita. This is key in counteracting the scale effect. Technique changes among commercial producers are also evident via the dramatic increase in yields of 54%, from 12.1 to 18.7 tons/ha. Indeed, total production increased 36% despite a 12% decline in total planted area during the post-NAFTA period. Although the average increase in yield might be partially explained by a shift from grain to horticultural production--fruits and vegetables tend to deliver higher yields per hectare--it is also a signal of intensification of production, increased specialization of local agriculture towards export production and the creation of relatively large-scale modernized farms. Despite these improvements as well the increased investment (FDI), the technique effect is not significant when compared to the pre-NAFTA period--when land in agricultural use decreased 29% overall and 20% per capita. This suggests that the effect of technological improvements which may relate to the more efficient use of land--such as modern irrigation systems, agrochemicals and machinery--have been present before NAFTA, probably originating in the Green Revolution of the 1960s (Liverman 1990). Possible factors influencing this outcome include the consistently low agricultural production values which may have reduced the financial flexibility of the commercial agricultural sector to invest in significantly more efficient methods of production as

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well as weakness in both the environmental and rural institutional frameworks. Regarding the latter, theory suggests that the strength of the technique effect depends on how quickly government policy is formed and adapted to new conditions (Copeland and Taylor 2003; Vaughn and Block 2002). These results suggest that policy, and perhaps more so, institutional effectiveness, might have an important role to play in terms of further increasing land-use efficiency. Perhaps more interestingly is that the technique effect in the traditional sector shows a significant tendency to reduce land area, though not enough to counteract land increases due to scale and composition effects. The aggregate technique effect shows a decrease in land use of 59% (8.3 million ha) during the post-NAFTA period. These are surprising results, especially given the relatively small improvements in yields/hectare in the traditional sector during the post-NAFTA period, as well as the fact that these farmers do not participate in the international market (and thus any trade related effects are indirect). The average yield for traditional farmers in 2003 was 4.7 tons/ha--a quarter of the average yield for commercialized producers--and reflected an improvement of 25% over 1994 (a 27% growth during preNAFTA period). The observed technique effect suggests that given the large area of land used by these farmers even the smallest improvement in production techniques may positively impact aggregate land use efficiency. There is a clear opportunity to further improve techniques of production in traditional farming, as according to case studies, low yields are a reflection of lack of modern technology (Wilder 2002), the loss of skilled agricultural workforce to urban migration and other off-farm activities, as well as the use of degraded land (Nadal 2000; Patel and Henriques 2003). As we will argue later, stronger and more adequate rural development plans and institutions could play a major role in improving the financial and social conditions of traditional farmers, as well as in maximizing the uptake of technological improvements that could lead to greater land use efficiency. 5.2 Fertilizer use--STC results and analysis As with the land use analysis, the decomposition assists us in identifying the influences on fertilizer use patterns and to identify areas of opportunity to further promote its efficiency, particularly among commercial farmers. Though data for pesticide use is not available, given the common practice of using agrochemicals alongside each other, it is fair to assume that trends in pesticide use might show similar patterns. 5.2.1 Scale effect The scale effect shows that at an aggregate level, national fertilizer use would have risen by 650,850 tons (39%) had it grown in proportion to output growth between 1994 and 2003. Per capita fertilizer use would have increased 4.14 tons/capita (23%). This trend has been driven by commercial fertilizer use showing a significant scale increase of 56% overall and 38% per capita. The fertilizer use among traditional farmers links to a more limited and not statistically significant scale effect, with increases of 18% overall and 13% per capita. Interestingly, scale effects tend to increase the use of fertilizer, especially during the post-NAFTA period, but are also evident before NAFTA, indicating that pressures were exacerbated--rather than created--during the period after the treaty was signed.

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5.2.2 Composition effect The composition effect at the national level, both aggregate and per capita, appears to be statistically significant and has driven fertilizer use down when compared to the pre-NAFTA period. This trend is dominated by commercial farmers, where the aggregate composition effect significantly decreases fertilizer use by over 20% over the 1994 base year by 264,610 tons, partially counteracting the scale effect. This result may seem counterintuitive at first sight, as fruits and vegetables require, on average, more fertilizer per hectare than grains. However, it probably reflects the fact that horticultural crops also tend to use less land, and more importantly, have higher yields per hectare, thus requiring less fertilizer per ton produced. Despite the positive environmental effects of a composition effect that brings down aggregate fertilizer usage down among commercial farmers, it is important to keep in mind case studies that point out that the successful expansion of horticultural production in the northern arid region has exacerbated localized environmental problems related to water scarcity, and has increased water pollution due to highly concentrated ´ agrochemical use (Kelly 2002; Martinez 2003). An opposite composition effect is evident but smaller among traditional farmers where increased production of grains is associated with significantly more fertilizer use. Given that grains tend to require relatively more fertilizer per ton produced, the dramatic increase in grain production, as well as its higher ratio of total output, seem to be driving traditional fertilizer use upwards. This is supported by the composition effect among traditional farmers increasing fertilizer use by 17% at the aggregate level. These results are interesting as they suggest that whilst in the aggregate national data and in the commercial sector the composition effect has tended to reduce fertilizer use, in the traditional level it has tended to increase fertilizer use. As with the use of land, there is an area of opportunity for rural development plans to influence the production of a more sustainable mix of crops, or to find alternative ways to increase soil fertility, particularly among traditional farmers. 5.2.3 Technique effect The technique effect is driving fertilizer use significantly down during the postNAFTA period among both types of producers, at both the aggregate and per capita levels. The technique effect among commercial producers shows a continuing downward trend which started during the pre-NAFTA period and significantly intensified during post-NAFTA, with an aggregate decrease in fertilizer use of 27% (338,910 tons) and per capita decline of 23% (4.38 tons per capita). A more efficient use of fertilizer in the commercial sector seems to reflect a combination of technological and agricultural process changes, including the use of more advanced and imported agrochemicals, the use of improved and higher yielding crop varieties, and more modern machinery and irrigation systems. Despite these changes, the combined composition and technique effects have not been large enough to offset the increased use of fertilizer driven by the scale effect. In fact, despite national fertilizer use increasing at a significantly lower rate than both population (14%) and exports (73%), fertilizer use in 2002 is 4% higher than in 1994 and 38% higher than in 1980. Furthermore, its use has been concentrated in less hectares of land--particularly among commercial farmers--reportedly contributing to the increased environmental

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stress in agricultural land as well as to the pollution of nearby water sources. As we will see in the later discussion, there is an area of opportunity to further promote technological improvements and the uptake of more sustainable patterns of fertilizer use among commercial farmers but in the context of strengthening the environmental institutions overseeing the import and use of agrochemicals. Among traditional farmers, a technique effect driving aggregate fertilizer use upward during the pre-NAFTA period was just about offset by a negative technique effect (a decline of 174,540 tons) during post-NAFTA period. This negative technique effect--coupled with an increase in hectares of land under cultivation--reflects an increasing lack of access of traditional farmers to economically accessible agricultural input packages and financial support. Rural development plans may thus play an important role in ensuring that traditional farmers have access to the financial support and training required to invest in more efficient technologies and to achieve a more balanced use of fertilizer and land resources.

6 The influence of the institutional framework The neoliberal ideas that guided economic and trade liberalization policies during the 1980s and 1990s reduced the role of government at national and multilateral scales. They argued that market forces helped by the ``invisible hand'' would guide the restructuring of previously inefficient governmental organizations into private enterprises, and would ensure the most efficient use of resources (Liverman and Vilas 2006). Following a couple of decades of economic--and to some extent environmental--crises in most developing countries it was recognized that to reduce the negative economic, social and environmental effects of liberalization, institutions and policies must be robust, especially during transitional periods in which liberalization spurs changes in the extent of economic activity between sectors and countries (Rodrik 2001). As noted earlier, theory suggests that the strength of the technique effect depends on how quickly government policy is formed and adapted to new conditions. Given this, we now turn to an assessment of the role of institutional frameworks, environmental regulations and rural development plans in NAFTA's environmental effects. There is limited research into the effectiveness of national and multilateral institutions created through the NAFTA negotiations and implementation process ´ (McKinney 2001; Sanchez 2002). We contribute to the literature by analysing how selected environmental and rural development institutions have influenced the technique and composition. We will give a brief overview of the multilateral and national institutional development process, and highlight their general performance. We focus on two case studies, one analysing the institutional context for agrochemical use among commercial farmers, and the other focusing on the institutional influences on land use among traditional farmers. 6.1 Institutional determinants of agrochemical use among commercial farmers The STC analysis showed that during the post-NAFTA period, there has been a trend to further increase fertilizer use among commercial farmers. Though this trend appears to be significantly weaker than during the pre-NAFTA period, it does suggest that NAFTA and its related institutional reforms have fallen short of

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promoting a more efficient and sustainable agrochemical use among commercial producers. In particular, there are missed opportunities to reap the potential environmental benefits of NAFTA by achieving a better balance between facilitating and improving accessibility to regulated international agrochemical markets and limiting the environmental impacts of agrochemical use. Efforts to better regulate the quantity, frequency and way in which pesticides and fertilizers are being utilized by commercial farmers are inadequate. In the context of NAFTA, there have been two institutions dealing with the regulation of chemicals in the agricultural sector in Mexico--the NAFTA Technical Working Group on Pesticides at a multilateral level and the Inter-Sectoral Commission for the Control and Use of Pesticides, Fertilizers and Toxic Substances (CICOPLAFEST) at the Mexican national level. Their influence has been mixed. In general terms, the institutional objective was to promote more sustainable agricultural practices through the restructuring and strengthening of environmental regulations and standards and to strengthen institutions through increased communication and interaction among national, multilateral and international environmental institutions and conventions. However, the institutional framework has been weak in promoting a more sustainable agricultural industry and in some cases has contributed to the increased reliance and overuse of agrochemicals. Cooperative US/Canada bilateral efforts on the harmonization of pesticide regulations were expanded to Mexico in 1996 through the NAFTA Technical Working Group (TWG) on Pesticides (NAFTA Technical Working Group on Pesticides 2003). The TWG was created under the supervision of the NAFTA Committee on Sanitary and Phytosanitary Standards, under the umbrella of the NAFTA Free Trade Commission rather than under the treaty's environmental agreements. The TWG has been seen as one of the most active multilateral institutions created by NAFTA (NAFTA Technical Working Group on Pesticides 2001). Its main roles have been to promote work sharing among the three governments and facilitate physical and financial accessibility to regulated agrochemicals across NAFTA partners through the development of a ``North American Market'' for pesticides and fertilizers. In theory, this objective should be linked with the broader environmental and sustainable development goals of NAFTA by facilitating access to a wider range of safe and effective pest management tools. The TWG has been the main forum for the reduction of trade barriers to pesticides through harmonization of both agrochemical regulation and Maximum Residue Limits (MRL) (NAFTA Technical Working Group on Pesticides 2001). Increased trade in agrochemicals between the US and Mexico stemming from these policies can be clearly seen in fertilizer and pesticide imports into Mexico (Fig. 2). In contrast to other NAFTA institutions, the TWG includes broad representation from industry and non-governmental organizations. It also works in close contact with the Pesticide Forum of the OECD and the Codex Alimentarius Commission, as well as with NAFTA's Commission for Environmental Cooperation through the North American Working Group on the Sound Management of Chemicals (SMOC) (Kirton and de Castro 1997). Despite a lack of human and monetary resources, as well as government support, the TWG has achieved significant progress in harmonizing pesticide regulation and residue limits. Specifically, the TWG has worked closely with SMOC and CICOPLAFEST to reduce the use of persistent organic pollutants in Mexico which can be harmful for human health, such as DDT and Chlordane (Vaughn and Block 2002). In these cases regulatory progress has been achieved because agrochemical

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Fertilizer imports - exports 1600 1400 1200 1000 800 600 400 200 0 1980 1983

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Pesticide imports - exports Imports - Qty Exports - Qty

Thousand Tonnes

Thousand Tonnes

1992 1995 1998 2001

Imports - Qty Exports - Qty

300 250 200 150 100 50 0

1986

1989

1986

1989

1995

1998

1983

Fig. 2 Mexican imports and exports of agricultural inputs. Source: FAO (2005)

regulation in Mexico has been tightened to meet more rigorous food health standards of the US and Canada (NAFTA Technical Working Group on Pesticides 2001). In terms of implementation, the objective of reducing the trade and use of these chemicals has been mixed. DDT use was eliminated in Mexico by 2000, well ahead of a goal of 80% reduction by 2002. But for chlordane, despite successful trinational cooperation, there are continuing concerns about the illicit imports and use of this chemical due to lack of regulatory enforcement, especially in Mexico (Vaughn and Block 2002). Undoubtedly, the TWG activities have the potential to contribute to a positive technique effect as they promote the better safeguarding of consumers health through the use of less persistent pesticides, the harmonization of MRL and the strengthening of regulatory processes (NAFTA Technical Working Group on Pesticides 1997). This ´ seems to have been a valuable first step to address what Wright (1990) and Rodriguez (2003) highlight as the main agro-environmental concerns in the region: the run-off and water pollution derived from continued and excessive use of pesticides and fertilizers, as well as farm workers unprotected exposure to agrochemicals. However, the TWG focus on reducing tariff and non-tariff barriers to agrochemical trade and harmonizing pesticide regulation has resulted in increased accessibility to products that were previously not accessible to Mexican farmers (May and Bonilla 1997). The increased supply of cheaper chemicals has been accompanied by little or no efforts to reduce reliance on pesticide and fertilizer use in any of the three NAFTA countries. Little effort has been made to limit the quantity of chemicals used per hectare, to reduce reliance in monocultures or to encourage alternative pest management systems (NAFTA Technical Working Group on Pesticides 2001). Moreover, environmental issues such as runoff or soil degradation are not even mentioned on the TWG five-year plan (NAFTA Technical Working Group on Pesticides 2003). As we will see in our analysis of the Mexican national efforts under CICOPLAFEST, this increased availability has also been accompanied with weak enforcement and control in Mexico. In terms of farm workers health, the TWG has funded some capacity building projects in Mexico to reduce workers exposure to harmful agrochemicals (NAFTA Technical Working Group on Pesticides 2001). The US and Mexico established a national train-the-trainer network for pesticide safety educators, establishing a pilot program in 2002 (NAFTA Technical Working Group on Pesticides 2003). But 10 years after NAFTA implementation this project is still in its pilot phase. The drive to reduce residue levels of persistent pesticides in exported food has resulted in the overuse of acute pesticides that have low-residual risks but that are more harmful to the health of unprotected farm workers because of their short term effects (Thrupp 1995; Wright 1986).

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NGO demands on both sides of the border mostly focus on reducing the health risks for farm workers, increasing access to information on agrochemical risks and lobbying to control the environmental impacts of excessive pesticide and fertilizer runoff in watersheds (Encuentro Fronterizo 1998). In the mid-1990s NGOs lobbied against the decentralization and deregulation of agrochemicals in Mexico, cautioning that state and municipal governments were ill-prepared to regulate and control pesticide use (Borderlines 1995). In Mexico until the mid-1980s, the national pesticide, fertilizer and toxic substances regulatory framework was dispersed and fell under the umbrella of four different governmental organizations--Ministry of Agriculture (SAGARPA), Ministry of Health, Ministry of Commerce and Industry, and the National Institute of Ecology. This translated into a regulatory framework that was often overlapping and contradictory. Control of agrochemicals and enforcement of regulation was centralized in the federal government (Borderlines 1995), and limited resources were assigned to the implementation of the different laws and regulations. Following the neoliberal retrenchment of the early 1990s, Fertimex, the government monopoly in charge of the production and distribution of fertilizers was privatized in 1991 (Smith 1992). This was followed by changes to the 1988 General Law of Ecological Balance and Environmental Protection, which decentralized and deregulated the control of ``low risk'' materials--including commonly used agrochemicals (Borderlines 1995, 1996). A few years earlier, the first wave of GATT induced liberalization brought with it the creation of CICOPLAFEST at the national level in Mexico in 1987. It coordinates the actions of the four national institutions that have competence in agrochemical regulation and enforcement in Mexico. More recently, the Ministry of Labour and Ministry of Transport have also joined CICOPLAFEST. The Commission's main aim is to register and regulate chemicals for agricultural use, under the premise that complying with international requirements will facilitate the trading of Mexican agricultural produce with commercial partners. Similar to the TWG, the institutions main activities have focused on the harmonization of agrochemical registration, establishment of Maximum Residual Levels (MRL) and the sustained exchange of information at a national and international level to protect health and the environment (SAGARPA 2005b). It has also contributed to the reduction, and in many cases the elimination, of import tariffs on pesticides and fertilizers. CICOPLAFEST has proven useful in coordinating Mexico's position at international forums, enabling the signing of international treaties and protocols related to pesticides, fertilizers and toxic substances. These include the Montreal Protocol, Basel Convention and La Paz Agreement (CICOPLAFEST 2001) as well as the Stockholm Convention on Persistent Organic Pollutants, where Mexico has committed to phase out 12 substances that threaten human health and the environment (CEC 2002). The Commission has also worked closely with TWG on efforts to reduce the trade and use of persistent chemicals such as DDT and Chlordane as well as on the harmonization of pesticides registers and MRL at the multilateral level (CICOPLAFEST 2001). In this sense, increased market openness and the signing of NAFTA have positively impacted the creation and strengthening of the national institutions for controlling chemical use in Mexico, and have improved participation in international forums. In Mexico, CICOPLAFEST has been instrumental in the creation of an extensive normative framework regulating chemical use in the agricultural sector. However,

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this framework reflects the multi-institutional and dispersed nature of the commission by embracing 6 different laws, 4 regulations and 9 norms. Although it is clear that the over use of pesticides does not stem from lack of environmental legislation, lack of integration throughout the regulatory framework generates overlapping regulations or legal loopholes. In fact, CICOPLAFEST itself attributes its main institutional weaknesses to a deficient institutional design, which leads to a lack of clarity regarding roles among the many institutions taking part in the commission as well as creating inefficient decision making processes (CICOPLAFEST 2001). For example, lack of coordination has prevented the commission from creating its own internal operation manual, so the roles and responsibilities among the different ministries remain unclear. This was particularly evident during the period from 1994 to 2000, when the liberalization of the agricultural sector should have demanded stronger control of agrochemical use. Rather than addressing this need, CICOPLAFEST was fighting to improve its institutional efficiency by becoming a self-governing organization--independent from the four ministries that originally comprised the commission. But lack of political will and coordination has not allowed CICOPLAFEST to become an independent agency so it could better coordinate and enforce the dispersed pesticide, fertilizer and toxic substances regulatory framework and more effectively link to the institutional framework of the US and Canada, each of which has only one institution in charge of regulating agrochemicals (Kirton and Fernandez De Castro 1997). It means that the commission still suffers from under funding, as it receives limited support from the member institutions, while its commission status does not allow it to become self-financing. This means that CICOPLAFEST lacks staff with only 20 technicians nationwide (SAGARPA 2005a) and this contributes to institutional weaknesses and an inability to comply with its mandate, properly develop and enforce regulation and positively contribute to a sustainable use of agro-chemicals among commercial farmers. For example, although CICOPLAFEST is responsible for the regulation and control of the exploitation, fabrication, packaging, manipulation, transportation, storage, and final disposal of toxic substances, the bulk of its activities at a national level after NAFTA have been limited to registration and issue of import permits for pesticides, fertilizers and toxic substances (INE 2000). These institutional problems mean that the goals of broadening the Commission's scope to include the evaluation of impacts of different pesticide policies on health and the environment have failed (Kirton and Fernandez De Castro 1997). CICOPLAFEST has tried to promote the creation of state committees to improve enforcement of regulations and local awareness but lack of resources has undermined these efforts with only 12 state committees created, of which only 7 are actively operating (INE 2000). This is one reason why the Commission has failed to create a national inventory of pesticide production and use, a key step in understanding and managing problems of agrochemical overuse. CICOPLAFEST has collaborated with TWG in pilot projects to reduce workers exposure to harmful chemicals but these efforts have been very limited and some estimate that more than 90% of farmers in Mexico still apply pesticides of high toxicity without the necessary equipment for personal protection (Castro Soto 2001). TWG and CICOPLAFEST have independently worked with the pesticide industry, dominated by multinational corporations, to promote the development and use of lower residual pesticides that comply with the harmonized legislation

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(NAFTA Technical Working Group on Pesticides 1997). They have, in theory, also worked with the industry to diversify pest control tools, and thus minimize pest resistance to a narrow group of pesticides. However, studies conducted by Rodriguez (2003) near Hermosillo show that 78% of the pesticide market is dominated by only 11 multinationals, and that only three pesticide products dominate the bulk of sales. This may explain the growing resistance of some pests to chemicals and thus the need to further intensify their use. The lack of progress can be attributed to institutional weaknesses as well as the significant involvement and influence of the pesticide industry in the development and implementation of agrochemical policy (Thompson 2001). The net technique effect of both CICOPLAFEST and TWG is probably positive in terms of strengthening regulation through harmonization of standards and establishment of MRLs. However, there are also indications that the effect is weakened because of poor regulation of agrochemical input use among commercial producers. This has resulted from a focus on facilitating and improving accessibility to agrochemical markets, contrasted with limited efforts to internalize the environmental impacts of pesticide and fertilizer use, and to control the quantity, frequency and way in which pesticides are being utilized. Similar institutional problems have been identified with irrigation reform. It has been suggested that, given the limited role and reduced budget of the National Water Commission, and the reliance of national water legislation on a decentralized management structure, it is unlikely that substantial efficiency increases will be experienced in the near future. Furthermore, the inability of the National Water Commission and municipal level governments to adequately charge for water used for irrigation has increased overexploitation (Kelly 2001; Wilder and RomeroLankao 2006). 6.2 Institutional influences on land use among traditional farmers The STC analysis showed that during the post-NAFTA period, traditional farmers have extensified their use of land. Though this trend appears not to be significant when compared to the pre-NAFTA period, it does suggest that NAFTA and its related reforms and transition plans have fallen short in promoting more sustainable and less land extensive agricultural practices among impoverished farmers. In particular, we observe that there have been missed opportunities to reap the potential environmental benefits of NAFTA in two areas: (a) the promotion of traditional farmers transition to higher premium, higher yield horticultural crops, and (b) the adoption of cheap, more efficient, higher yield technologies that could reduce traditional farmers reliance on extensive agricultural methods. To date, environmental institutions have had less effect in the traditional sector than general rural development programmes and the sector reflects many of the general socioeconomic problems of traditional farmers in Mexico. Thus we focus on the environmental impact of rural development rather than environmental programmes through technique and composition effects in this section. Scholars have written extensively on the socio-economic impacts of neoliberal policies including trade liberalization on traditional farmers in Mexico, as well as on the positive and negative influences of rural development programmes (De Janvry et al.1995; Patel and Henriques 2003; Sarmiento 2003; Yunez-Naude 2002). Some

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have even included the environmental impacts in the analysis (Eakin 2005; Klepeis and Vance 2003; Nadal 2000). After the neoliberal reforms to the agricultural sector in the early 1990s the Ministry of Agriculture (SAGARPA) established two basic policy instruments to substitute for the previous government support schemes. Both Procampo and the Alliance for the Countryside were aimed to assist producers, especially low income farmers, during the transition period to an open economy (Nadal 2003; YunezNaude and Paredes 2003). Procampo was established in 1994 as an income support mechanism--decoupled from production--to compensate for loss of income expected as a result of lower corn prices after trade liberalization (PROCAMPO 2005). The Alliance for the Countryside (Alianza para el Campo) was conceived in 1995 and is intended to promote farming productivity and crop substitution for greater Mexican agricultural competitiveness (SAGARPA 2001b; Yunez-Naude and Paredes 2003). In order to better help farmers adapt to trade liberalization during the transition period, the program payments were to remain constant for the first 10 years of NAFTA and would then be phased out over the following 5 years (De Janvry and Sadoulet 2001) However, several studies indicate that inadequate funding and implementation of both programmes have failed to provide the required support needed by traditional producers during the transition period (Eakin 2005; Nadal 2000; Patel and Henriques 2003; SAGARPA 2001b). In terms of funding, the combined budgets of the two programs dropped nearly 50% after the 1995 crisis and recovered to only about 70% by 2002 (Nadal and Wise 2004). Lack of adequate funding has limited the coverage of both programs, with Procampo covering 60% of the target producers, while Alliance covers only 18% (Nadal 2000; SAGARPA 2001b). Rather than helping less well off producers both programmes have tended to promote modern export-oriented production and small-scale corn producers have experienced dramatic declines in government support (De Janvry and Sadoulet 2001; Nadal and Wise 2004). This is supported by an evaluation by FAO and SAGARPA of the Alliance for the Countryside program (SAGARPA 2001b), which shows that support has been concentrated in the hands of fewer, larger, private producers. Given that most of Alliance's technical and equipment support schemes require farmers to commit to paying a significant proportion of the investment costs in advance, the beneficiaries from this programme are mostly private farmers with the resources to invest (Mexico SHCP 1995). The SAGARPA study shows that the distribution of resources has been unequal, with poor and very poor farmers receiving only 5% of the total budget, while accounting for 19% of the total population (SAGARPA 2001b). In the case of Procampo, given that payments are proportional to the area planted, the 45% of impoverished traditional producers with areas smaller than 5 ha receive only 10% of Procampo transfers (De Janvry and Sadoulet 2001). For impoverished traditional farmers that do receive the support, Procampo's direct cash transfer represents an increase of 8.7% over 1994 income (De Janvry and Sadoulet 2001). Although this means that households were made better off than without the transfer, it is not enough to counteract the drop in income from reduced corn prices, and, as seen through the STC analysis, has not been sufficient to induce changes in cropping patterns. It is fair to say that the rural development plans are not directly to blame for the impoverishment of many traditional producers but significant under funding

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and bias towards supporting the better-off producers has meant that they have not adequately supported traditional producers in their struggle with the liberalized market. If the programmes had been better targeted, the composition and technique effect on environment may have been more positive. In terms of the influence of Procampo and Alliance on the adoption of new productive techniques among those farmers that do receive the support, empirical research shows that this has been limited, and in some cases negative. Alliance for the Countryside has failed to provide access for traditional farmers to the institutional infrastructure for modern production techniques such as credit, marketing channels and technical assistance (SAGARPA 2001b). De Janvry and Sadoulet (2001) highlight the need for rural development interventions that enhance access to technical assistance, lower the need to participate in the agricultural labour market and thus help retain more skilled labour on the farm to contribute to the process of modernizing production processes and moving to more sustainable agricultural practices. Procampo and Alliance should have increased the flexibility and adaptability of smallholders while facilitating their engagement with alternative productive strategies appropriate to their capacities and the biophysical constraints of smallholder production (Eakin 2003, 2005). It has also been argued that the funds from both Procampo and Alliance have been limited to providing predetermined inputs ``or technological packages''--consisting of improved seeds and agrochemicals--instead of providing the technical assistance and guidance required to develop the countryside in a sustainable way (Castro Soto 2001). In the case of Procampo, qualification certificates for the programme can be used as collateral against which to borrow from input retailers (De Janvry and Sadoulet 2001). It is estimated that 70% of households use Procampo money to purchase agrochemical inputs with 44% increasing the amount of inputs purchased, and 17% claiming that they use it to start using purchased inputs. Farmers participation in Procampo's input purchasing programme is voluntary, but is encouraged as a means to influence farmers' technology choices and improve rates of chemical and fertilizer adoption (Nadal 1999). Despite the fact that Procampo has been broadly used as an ``input subsidy'', the technique effect among traditional producers suggests that these efforts have not been enough to maintain a level of agrochemical use that can significantly improve yields and thus counterbalance the pressure to further increase land under cultivation. The programme objectives of the Alliance for the Countryside include support for irrigation improvements, pasture establishment, phytosanitary education, mechanization, and funds for small-scale rural development projects (Mexico SHCP 1995). However, a significant proportion of the Alliance budget has gone to the `Kilo for Kilo' programme, which is intended to facilitate the adoption of hybrid maize, sorghum, barley or oats by heavily subsidizing the cost of the improved seeds (Dyer´ Leal and Yunez-Naude 2003). De Janvry and colleagues argue that this technological modernization has degraded traditional (and sustainable) peasant production practices based on native seeds, biological control, organic fertilizers, animal traction and intercropping (De Janvry et al. 1997). In terms of the composition effect, Alliance for the Countryside has not been capable of achieving its objective to provide traditional farmers with the support to afford the higher capital investment required by non-traditional crops, as well as the necessary training to successfully switch to new products (SAGARPA

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2001b). Even among the groups that received Alliance's support, only 1/3 of the producers saw an improvement in production, productivity or quality with benefits to less than 10% of the poorer producers (SAGARPA 2001b). The institutional, financial, and implementation weaknesses of the programme have contributed to the inability of producers to diversify to more efficient and premium priced crops, and achieve the expected composition effect. The combined effect of trade liberalization, reduction of public subsidies, the decentralization of governance, the elimination of governmental services to agriculture, and the under funding of rural development plans have put an unbearable pressure on social institutions in the traditional sector (De Janvry and Sadoulet 2001; Nadal 2000). The declining incomes caused by all these factors are setting damaging patterns that weaken social institutions. The need to compensate for low incomes through non-farm activities and migration results in deterioration of rural social institutions that play a key role in resource management. This results in less qualified labour working the fields and involved in the planning, distribution and commercialization of crop production and reduces the communities' ability to benefit from technical support (De Janvry et al. 1995). For example, Nadal (2000) explains how migration negatively affects the ability of communities to take important collective action that is frequently required at times of planting or harvesting and how this often translates into adverse environmental impacts, including deforestation, soil erosion and lower capacity to manage genetic resources. In summary, the institutional analysis of influences on agricultural land use in traditional areas indicate that the rural development programmes have missed opportunities to encourage more positive technique and composition effects, and have failed to compensate for declining producer incomes, contribute to their investment in more sustainable technologies, and counteract the pressure to increase land under cultivation through support for higher yielding technologies or switching to more efficient and valuable crops.

7 Conclusions and recommendations This paper explored trends in land and fertilizer use in the agricultural sector in Mexico during the post-NAFTA period among both commercial and traditional farmers, and examined the influence of the national and multilateral institutional framework on these outcomes. The decomposition of post-NAFTA agricultural data into scale, technique and composition effects has proven useful in understanding land and fertilizer use patterns and in indicating the source and direction of environmental impacts in the agricultural sector. Our analysis also offers insights into the areas of opportunity that need to be addressed if the Mexican agricultural sector is to reap the environmental benefits of international agricultural trade. It should be kept in mind that limited data points mean that the results of the analysis are more exploratory than conclusive. Furthermore, the use of national indicators to assess aggregate impacts during the post-NAFTA period means that more localized impacts, which may be more variable than the aggregate results, are overlooked. The principal contribution of this paper is to show that technique and composition effects have not been large enough to counteract overall scale increases, and to show

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how institutional frameworks have contributed to the weakness of the composition and technique effects. Among commercial farmers, although both composition and technique effects tend to drive fertilizer use down they have not been large enough to offset the scale effect. Two interesting conclusions stem from these results: (a) it seems that commercial farmers increased reliance on horticultural production to supply the export market is tending to decrease, rather than increase, fertilizer use; and (b) contrary to predictions, and despite increased foreign investment and significant yield-increasing technological improvements, the technique effect among commercial producers is far from able to counteract fertilizer increases due to agricultural production growth. There is a clear area of opportunity to further promote technological improvements and the uptake of more sustainable patterns of fertilizer use among commercial farmers through the strengthening of the environmental institutions overseeing the import and use of agrochemicals. Specifically, our institutional analysis shows that the multilateral and Mexican national environmental institutional framework has missed opportunities to reap the potential environmental benefits of NAFTA by being too focused on facilitating and improving producer's accessibility to the international agrochemical markets, whilst having limited capacity to regulate and oversee the quantity, frequency and way in which pesticides and fertilizers are used. In general terms, the areas of opportunity for these institutions are not in improving their mandates and objectives, but in developing the coordination capacity and ability to better integrate and enforce the current disorganized pesticide, fertilizer and toxic substances regulatory framework. More adequate funding would also provide needed human and monetary resources for implementation and monitoring. In terms of land use among traditional farmers, it is interesting to see how both scale and composition of production are contributing almost equally to land extensification, thus exacerbating current problems of deforestation, soil erosion and land degradation, especially in the tropical south of Mexico. It is also interesting that the technique effect in the traditional sector shows a significant tendency to reduce agricultural land area, though not enough to counteract land expansion due to scale and composition effects. These are surprising results, especially given the relatively small improvements in yields per hectare in the traditional sector during the postNAFTA period, and the fact that these farmers do not participate in the international market. Through our institutional analysis, we have observed that rural development plans created to aid farmers in the transition to an open economy have not successfully supported traditional farmers in the transition to higher premium, higher yielding horticultural crops or the adoption of more efficient, higher yielding technologies that could reduce traditional farmers reliance on extensive agricultural methods. Adequate funding of rural development plans and allocation of funds to aid impoverished farmers in need of technical assistance could contribute to strengthening the positive composition and technique land use effects among traditional farmers.

Acknowledgements This paper has benefited from careful and thoughtful comments on earlier drafts by Zhong Xiang Zhang, an anonymous referee and the advisory group of the Third North American Symposium on Assessing the Environmental Effects of Trade, Montreal, 30 November--1 December 2005. We would also like to thank Cameron Hepburn and Richard Pearson for their input into early stages of this project and the financial support of the CEC for some of the analysis. That

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said, the views expressed here are those of the authors. The authors bear sole responsibility for any errors and omissions that may remain.

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