In the Mexico Agribusiness Report for Q4 2009, we introduce the new Cocoa Outlook. As in many countries in Latin America, cocoa production in Mexico has declined over the past couple of decades.

Average yields have fallen owing to a lack of investment in production. The area harvested has also fallen as farmers have switched to other crops. Mexico's ageing stock of cocoa trees is vulnerable to harsh weather and disease outbreaks, particularly frosty pod. Poor infrastructure and knowledge of proper handling of the crop negatively impacts on the quality of Mexican cocoa. The sector has also suffered from tight control under the Unión Nacional de Productores de Cacao which was the sole buyer of Mexican cocoa until 1989.

Despite this somewhat sorry picture, there is still hope for the cocoa sector. As a vital source of employment in some of the country's poorest regions, cocoa production benefits from the strong support of both the federal and the state government of Tabasco where three quarters of Mexican cocoa is grown.

In 2005, the crop made up 20% of the state's agricultural GDP. In the middle of this decade the Tobasco and federal governments launched a US$6mn programme to improve efficiency in the sector by providing training to farmers and investing in production infrastructure such as mechanical driers.

Another promising avenue for cocoa production is organic and environmentally friendly certified production. Mexican coffee growers, particularly in Chiapas State where a quarter of the country's cocoa is grown, have keenly taken up certification schemes and Mexico is now the world's largest producer of certified organic coffee. Demand for organic and ethical products from the rich world has increased rapidly in recent years. Small-scale cocoa farmers could see the value of their production increase significantly once their crop is certified. The prevalence of shade production where cocoa is grown under forest cover makes it a good proposition for environmentally friendly certification as this method of production retains a large proportion of the area's biodiversity when compared to plantation-style monoculture.

With investment in training farmers to achieve certification and to improve the quality of their product, Mexico's cocoa production could see similar success to that achieved in coffee production.

Mexico is currently in the middle of its driest summer in more than half a century. The government has been forced to step in with support to farmers facing ruin from the drought. The dry weather has delayed planting and will likely see grain production in 2010 fall significantly unless rains pick up in the coming months. Reservoirs in much of the north of the country are running dangerously low and water supplies for irrigation are non-existent in some areas. The brewing El Niño-Southern Oscillation is thought to be contributing to the drought. While extreme weather conditions can't be helped, the effects of the drought are being exacerbated by poor irrigation infrastructure and production techniques. Investment in water storage and irrigation infrastructure is necessary to help protect agriculture against future droughts.