With the final phasing out of tariffs and quotas on agricultural trade between Mexico and the US in January 2008, the Mexican agriculture industry will be open to competition from her giant northern neighbour. In the new Mexico Agribusiness Report for Q1 2009, we examine how prepared the country is to deal with this challenge.

Restrictions on trade first started to be lifted back in 1994 and since then food imports have soared.

However, the increased imports have not necessarily come at the expense of Mexican domestic production, which has also seen strong growth across a number of sectors. The real driver of the rise in imports has been the growth in Mexican demand for food products as per capita incomes have risen over the last decade or more.

Despite this, within a month of the final quotas being lifted on January 1 2008, farmers took to the streets of Mexico City, burning a tractor and corralling dairy cows outside the stock exchange to show their displeasure at the North American Free Trade Agreement (NAFTA). Many Mexican farmers are worried that they will be unable to compete with US goods as farms north of the border tend to be far more efficient and so can produce more cheaply. Since its inception, NAFTA has been an easy scapegoat for many of the failings in Mexican agriculture.

Despite lobbying on both sides of the border, most noticeably from US sugar producers, it does not look like the agreement is going to go away. This will mean that Mexican farmers will have to work to improve efficiency if they are to remain afloat, especially if domestic demand growth, which so far has driven increases in both imports and domestic production, were to falter. The rise of corn imports, which now amount to around 10mn tonnes a year, has been a particularly emotive issue, in spite of domestic corn production having also risen by a third over the last decade.

Much of this rise in corn imports come in the form of US yellow corn used for animal feed in Mexico's growing livestock industry. The rise of meat and livestock imports has also come under criticism from many in Mexico. Despite Mexican poultry production growing by two thirds since 1998, and pork and beef production expanding by 24% and 11%, respectively, domestic production has again failed to keep pace with demand growth causing imports to rise.

Though the removal of protection from US imports may well be painful for many small-scale Mexican farmers, if it spurs consolidation and investment in improving efficiency it could well bring long-term gain to Mexican agriculture and allow the country to move back in the direction of self-sufficiency with some products. The burden of improving agricultural efficiency should not fall on farmers alone, however. The government will also have a role to play in reducing factors that lead to Mexican products being more expensive than their US counterparts, such as the often shoddy state of infrastructure in the country.