Mexico - Strategic information system for Mexico's rural sector : a proposal

Document of The World Bank Report No. 19167-ME MEXICO STRATEGIC INFORMATION SYSTEM FOR MEXICO'S RURAL SECTOR A PROPOSAL June 30, 1999 Environmentally and Socially Sustainable Development Sector Management Unit Mexico Country Management Unit Latin America and the Caribbean Region  CURRENCY EQUIVALENTS Currency Unit = Mexican New Peso $1.0 = N$8.4 FISCAL YEAR January 1 to December 31 WEIGHTS MEASURES Metric System MAIN ABBREVIATIONS AND ACRONYMS ASERCA Support and Services to Agricultural Marketing (Apoyos y Servicios a la Comercializacion Agropecuaria) CEA Center of Agricultural Statistics (Centro de Estatistica Agropecuaria) CONASUPO National Comission for Popular Subsistence (Comisi6n Nacional de Subsistencia Populares) GATT General Agreements on Trade and Tariffs GEA Grupo de Economistas y Asociados INEGI National Institute of Statistics, Geography and Computer Science (Instituto Nacional de Estadistica, Geographia y Informatica) NAFTA North American Free Trade Agreement PROCAMPO Direct Income Support Program for Producers RAN National Agrarian Registry (Registro Agrario Nacional) SAGAR Ministry of Agriculture, Livestock and Rural Development (Secretaria de Agricultura, Ganaderia y Desarrollo Rural -formerly SARH) SEMARNAP Ministry of Environment, Natural Resources and Fisheries (Secretaria de Medio Ambiente, Recursos Naturales y Pesca) SHCP Ministry of Finance and Public Credit (Secretaria de Hacienda y Credito Publico) SIS Strategic Information System SRA Ministry of Agrarian Reform (Secretaria de Reforma Agraria) Regional Vice President Shahid Javed Burki Country Director Olivier Lafourcade Sector Director John Redwood. Acting Sector Leader Adolfo Brizzi This report was prepared by Louise Cord (PRMVP) and Alberto Valdes (RDV) based upon information collected by the Group de Economistas y Asociados. Research assistance was provided by Guilherme Soria Bastos Filho (consultant) and production assistance was provided by Cindy Alexis (PRMVP) and Patricia Eyenga (LCSES).  Preface 1. A key component to designing Government policy is better economic intelligence on the rural economy. Ten years ago, government policy was the guiding force in Mexican agriculture. Today. private agents are making production and marketing decisions, much more independently of government, guided by domestic and international market signals and relative farm and non-farm incentives. To track and analyze trends in the rural sector, Government needs a more extensive economic intelligence system with socio- economic and technical indicators to monitor growth, productivity and welfare trends in the rural sector. In particular, better economic intelligence would help Government to: * strengthen monitoring and evaluation of the major changes in the agricultural and rural economy; * anticipate future developments in the sector; * assess the impact of government programs; and * promote a greater understanding of the sector's heterogeneity. 2. This report designs and illustrates a strategic information system (SIS) for Mexico's rural sector and consists of the following elements: * A short proposal for a SIS in Mexico, which presents the criteria for an effective SIS; the structure of an SIS, as well as some institutional and data requirements for a successful system in Mexico (main report); * An illustration of the kind of analysis that could be prepared from the SIS. This note is based on available data collected by Grupo de Economistas y Asociados (GEA) (1998) as well as other sources, and does not present the level of disaggregation and the timeliness that would be desirable. 3. Two sets of working papers are also provided. The first includes the "Proceedings of a Workshop on International Experience with Strategic Information Systems for the Agriculture and Rural Sectors,"" Sponsored by the Ministry of Agriculture, Livestock and Rural Development and the World Bank, Januarv, 1998. The second set of working papers includes GEA's SIS manual (Vol. I), and data annexes (Vol. II). iii   STRATEGIC INFORMATION SYSTEM FOR MEXICO'S RURAL SECTOR - A PROPOSAL Table of Contents WHY A STRATEGIC INFORMATION SYSTEM (SIS) ............................................ I TEN CRITERIA FOR AN EFFECTIVE SIS ............................................2 WHAT TO MONITOR? ...............................................................................................5 INSTITUTIONAL FRAMEWORK .8 DATA REQUIREMENTS AND THE SIS .9 List of Working Papers: 1. Mexico: Strategic Information Systems for the Agriculture and Rural Sectors. A workshop on International Experience: Proceedings. Cuernavaca, Mexico. January 22. 1998. Sponsored by the Ministry of Agriculture, Livestock and Rural Development and the World Bank. 2. GEA's Sistema de Informaci6n Estrategica de los Sectores Agropecuario y Rural: Vol. 1: Guia General Vol. 2: Anexo de Datos iv   STRATEGIC INFORMATION SYSTEM FOR MEXICO'S RURAL SECTOR: A Proposal Why a Strategic Information System (SIS) 1. During the past decade, Mexico has initiated a profound structural transformation of the agriculture sector within the framework of a broad economy wide program of reform. Unilateral trade liberalization followed by membership in GATT and NAFTA has led Mexico away from farm commodity support through price and trade protection towards direct transfers to farmers. In 1992, the Government modified the Constitution to provide ejidatarios with land rights and to lift restrictions against land rentals and sales. These changes have led to a redefinition and expansion of the role of the private sector within the overall economy, increased linkages between rural households and the non-farm sector, and the greater integration of the agricultural sector in the world economy. 2. A key component to designing the Government's response to the new framework is expanded economic intelligence on the rural economy. Ten years ago, government policy was the guiding force in Mexican agriculture. Government parastatals sold and purchased most inputs and outputs, government credit policy was a key determinant of cropping decisions and restrictions on the ejido sector constrained the movement of land and labor resources. Today, private agents are making production and marketing decisions, much more independently of government, guided by domestic and international market signals and relative farm and non-farm incentives. 3. To track and analyze trends in the rural sector, Government needs a better economic intelligence system with socio-economic and technical indicators to monitor growth, productivity and welfare trends in the rural sector. In particular, better economic intelligence would help Government to: * strengthen monitoring and evaluation of the major changes in the agricultural and rural economy; * anticipate future developments in the sector; * assess the impact of government programs; and * promote a greater understanding of the sector's heterogeneity. 4. As a concept. a strategic information system (SIS) that provides a regular update of the status and prospects of the agricultural and rural sectors is not a new idea Most governments, including Mexico's, through time have developed economic intelligence units to monitor agriculture. A few have extended their system to the rural sector. As a rule, developed countries have more sophisticated systems than developing countries. Inadequate data and budgets of course explains part of this contrast. But we assert in this note that middle income countries, including Mexico, seriously under-invest in information systems. The expected rate of return from increased investments in economic  intelligence would be high in Mexico. where the Government spends more than 3 billion per year on agriculture. Often, the inadequacy of the data to build a better system reflects a lack of clarity on the usefulness of such a system and which information is most critical to include. 5. This note presents a proposal for a strategic information system (SIS) for Mexico's rural sector. The SIS outlined below provides SAGAR with a management and analysis tool. While the SIS would draw heavily on the data collection and analysis carried out by the Centro de Estatistica Agropecuaria (CEA) under the Ministry of Agriculture (SAGAR), and summarized in the bi-monthly Analisis Conyunctural. it would not be the composite of all government agricultural and rural development indicators. Rather it would be comprised of key indicators formned from this database as well as information collected from the private sector. 6. After a brief review of the criteria for a successful SIS, based on the discussions at a joint World Bank-SAGAR workshop on the SIS in January 1998, the following sections review the structure of and institutional framework for the SIS (working paper 2). The last section presents some concerns about the data requirements for an effective Mexican SIS. 7. The SIS would publish regular reports (monthly, quarterly, and annually) and would also be available on line, where the information would be updated regularly and could include direct links to some of the source web sites (e.g., for price data which changes daily). The monthly report could be a short bulletin covering key indicators, while the quarterly report could focus on specific themes (rural finance, investment behavior, impact of Asian crisis, etc.). 8. The priority client of the SIS is the Government, but the output of the SIS could also become available, on a regular basis, to the private farm sector, policy analysts outside the government, agribusiness circles, and other potential non-governmental users. The accompanying bulletin is illustrative of the kind of analysis that can be pulled from the indicators and also highlights some of the data problems that must be confronted in the Mexican context. In addition, there is a manual prepared by the Grupo Economistas Assesores (GEA) that provides a detailed description of each indicator proposed for Mexico's SIS and the source of data (working paper 1) Ten Criteria for an Effective SIS' * Selectivitv. The SIS should not represent the entire agriculture and rural information system for a country - rather it must be selective in the indicators it includes. A critical challenge is how to keep the SIS system focused on key indicators so as to avoid overloading it with so many indicators and issues, which could make the SIS unmanageable. One would want to assess the added- value of information in order to select the most critical information needed. Conceptually, 'Based on the "Proceedings from the Mexico Strategic Information System for the Agriculture and Rural Sectors: A Workshop on Intemational Experience." Organized by SAGAR and the World Bank. Morelos, January, 1998 (see working paper 1). 2  the criterion for the value of information would reflect the expected return from decisions made after receiving information minus expected return from decisions that would have been made without the information (Proceedings, Gardner, 1998). * Timeliness. While the frequency of collection of the different indicators will vary (e.g., monthly, quarterly, annually. etc.), the information presented in the system must be up to date - otherwise the value of its expected return is lowered. This lesson may represent a strong challenge for Mexico where it may be difficult to obtain certain information in a timely manner. * Forward Looking Indicators. Forward-looking and preliminary indicators in the SIS are critical to permit policy makers and markets adjust to emerging situations and gage the impact of their policies and other exogenous forces on the sector. Indicators that reveal future investment and production/price trends were mentioned as being useful in Canada (such as preliminary production levels (planting estimates), futures prices and inventory levels) (Proceedings, Huff, 1998). Indicators on investments in machinery and livestock as well as land values and interest rates also capture projections on the expected performance of the rural sector. Disaggregated Indicators by Region and Category of Producer. To the extent possible, the SIS should present information desegregated by region and category of producer. This level of desegregation is important if the system is to guide public and private sector investments and if it is to facilitate targeting efforts on the part of government (Proceedings, Crowder, Valdes, Drabenstott, 1998). This lesson is particularly relevant to Mexico where there is so much diversity by region and by type of producer. * Farm and Non-Farm Indicators. A SIS should include indicators from both the farm and non-farm sectors, as increasingly rural households in most OECD economies are relying upon income from both sectors. This is also the case in Mexico where 40% of household income in rural areas is from non-agricultural wage and self employment activities (1992). Monitoring constraints of the farm and non-farm sectors would also assist in the design of comprehensive rural development strategies and reveal successful strategies to emerge from rural poverty. * Role of Public and Private Sectors. The roles of the private sector -- as a provider of information and as a user of the information -- are critical, especially since the private sector is now the dominant player in agriculture. *: First, governments should focus on collecting information that is of high value, costly and difficult for small private sector agents to collect credibly (e.g., production levels, household income, fundamental research) * (Motes). Government should also collect information that it needs for policy purposes that is unlikely to be collected by the private sector, such as information on small producers. In contrast, the private sector should  focus on information relevant to a particular firm or commercial subsector and on information that is easily accessible at a relatively low cost (e.g., wholesale and retail price information). * Second, information needs to flow from the private sector to the SIS and from the SIS to the private sector. The latter is unlikely to be willing to share information in a sustained manner unless it sees some concrete benefit (i.e., access to the SIS information). It is also important to have the private sector as users of the information, as it serves as a reality check on the relevance and quality of the system. * Qualit. While clearly an obvious point, it is essential that the indicators be of high quality and be based on sound raw data. If that is not the case, the overall return on the use of the information will drop dramatically. The quality of the raw data used to construct the indicators should be closely examined and if it is not acceptable, the indicator should not be included - at least in the short run. A benefit of the system is that it will pinpoint the type of priority data needed and the quality which needs to be improved. * Flexible Structure and Continuity. As the agricultural sectors evolve and new policy issues emerge - the content of the SIS will need to change with new variables added and others dropped. In Mexico, as elsewhere, information priorities change as economic and policy conditions change; thus the need for periodic reevaluation of priorities and indicators. Several new areas that will require monitoring in the future are: the extent and nature of vertical integration of production and processing decisions (e.g., contracting), environmental issues, food quality. Continuitv in the key indicators and the individuals involved in the implementation of the system is critical to allow the svstem track changes over time and for the high learning curve implicit in data collection and analysis work for such a complex sector. * Adjustment in the Rural Sector. A critical objective of an SIS is to monitor adjustment and identify the key bottlenecks to change. To do this the system must provide information on key indicators in a consistent and sustainable manner. In addition, information on changes in farm and household income as well as in the structure of the farm sector provide critical information on welfare levels and the overall level of adjustment in the rural sector. * Keep it Simple. The SIS should be kept simple and should be implemented in stages. The system should start out with a few indicators built around basic data that is easily available and should be complemented with a high analytical ability on the part of the implementing team to ensure that the inforrmation presented is revealing and useful. Over time more complex indicators and more sophisticated themes could be incorporated once the institutional structure and financing arrangements are fully in place. 4  What to Monitor? 9. The information provided by the SIS should reflect the long-term policy priorities of the government. At the risk of being too general, we would submit that rural development policy is built around the themes of growth, productivity and household welfare, which are the central themes of the SIS described below. In addition. the SIS could cover government expenditures and policies, which influence both agricultural perfornance and household welfare. 10. Reflecting this framework, the SIS is organized into outcomes and determinants. Indicators on the performance of the agricultural sector and household welfare are monitored on the outcome side, while indicators on private sector behavior, the incentive framework, and government expenditure are considered to be the critical determinants for these outputs. * Key Outcomes: * Agricultural performance . Household welfare and income (farm/non-farm) * Selected Determinants: *. Private sector investment . Incentive framework - market signals +. Public expenditures +. Water availability 11. The indicators should be disaggregated by region, subsector and product, focussing on those products with strong policy implications. The proposed system described by GEA covers 5 regions and 30 products in total, of which 12 are considered to be priority products (GEA, working paper 2). Ideally, the SIS would also cover the non-farm sector, food processing indicators as well as environmental conditions. However, these sectors have been excluded, due to lack of data and the fact that in the first phase the system should focus on priority areas for SAGAR. The system focuses indicators that present a medium and long-run vision of the evolution of the rural sector. Issues that are best monitored by the private sector are not included in the SIS. An example of this could be daily information on international commodity and agricultural price trends. An overview of each category is provided below. 12. Key Outcomes: Agricultural Performance. How is the sector performing? Which subsectors and products are the source of growth or deceleration? Is the sector adjusting as expected? Have the reforms led to a more efficient sector? To answer these questions, the SIS would monitor: * output levels for the 30 products by region; + trade patterns (imports and exports -- quantity and value) for key traded products; 5  * factor productivity indicators by region (yields, value added per laborer, evolution of agricultural wages, and agricultural wages relative to wages in industry and services); and * agricultural valued added disaggregated by region (including the ratio between valued added and agricultural output). 13. Household Income and Welfare. What is happening to rural poverty? How is the ejido sector evolving and adjusting to the reforms? What are the key sources of income for rural households? What is happening to farn size? What is the availability of basic infrastructure in rural areas (sewage, electricity, drainage)? These are important questions to monitor the impact of the economic and institutional reforms on the welfare of the rural sector. The specific variables suggested for the SIS are: * Incidence of rural poverty by region; * Sources of income (wages/self-employment, farm/non-farm) by region, income level and land tenure category; i Access to basic services (drainage, sewage and electricity) by region and income levels; * Share of farms by size category disaggregated by region, land tenure category, and level of income; and + Total number of rural farm units per farm size category, disaggregated region and land tenure category (private, ejido, mixed). 14. Selected Determinants: Private sector behavior and investment. This category captures the expectations of private agents and reflects the net results of policies as well as developments in factor markets and the incentive framework. As such, it offers very high returns and meets the criteria of using forward looking indicators. 15. Questions to be answered by these indicators are: what are the key supply constraints affecting agricultural growth? Is the private sector optimistic about economic and social returns to agriculture and is it willing to make long-term investments in the sector? Are private sector markets responding to the gaps left by privatization and able to supply needed inputs and capital goods? What is borrowing capacity of the major subsectors of the rural sector? 16. More specifically, this section tracks private sector investment behavior as well as trends in rural financial markets, as the latter are a driving force behind private sector behavior. The suggested variables to monitor include: 6  * gross fixed capital formation in agriculture, as well as disaggregated indicators on long-term investment behavior, including machinery and livestock purchases as well as orchard and tree plantings; * purchases of agro-chemicals; + indicators on land markets to track distribution of land, impact of recent legal reforms on land tenure, borrowing capacity, sector competitiveness (easy entry and exit from farming), the overall health of the rural sector, and the use of land markets as a channel of adjustment: * land values and sales by region, tenure category and quality index; * share of farms engaging in land rentals by type of land, tenure category and region; * Rural financial indicators provide guidance on the investment capability of the sector to adjust to changes and adapt to crises and provide forward looking indicators on the overall investment trends in and profitability of the rural sector. This information has important policy implications (debt rescheduling/write-offs, subsidized interest rates, regulatory issues, etc.). The indicators monitored should not be limited to the agriculture sector and could include: - delinquent farm loans by region; ' farm debt to asset ratios; 4 short and long-term formal and informal interest rates for commercial banks, non-bank institutions and informal providers (both nominal and effective rates); * suppliers credit; * concentration of farm debt; and * trends in participation in rural financial markets by region and land tenure category (size and social/private sector). 17. Incentive Framework. The analysis of the incentive framework provides the "why" behind private sector investment trends and highlights critical constraints for private agents. Monitoring the incentive framework offers as high.returns, as the indicators allow governments to monitor the impact of their price, trade and expenditure policies on sectoral profitability and assess the overall competitiveness of the domestic economy vis a vis the international economy. For the key crops and for each of the major regions, key indicators are: 7  * trends in domestic competitiveness: relative producer and input prices (relative to consumer price index, as well as relative to services and manufacturing price indices); * trends in international competitiveness: nominal and effectiveness protection rates to compare value added at domestic prices to value added at international prices; and * producer subsidy equivalents to assess the impact of government expenditures on the incentive framework for particular crops (they are particularly relevant when government expenditures can be linked to specific crops). 18. Government expenditures and investment. Where is the government spending its money? What share goes to investment? recurrent costs? transfers? What program is the money being used for? How do these expenditures affect the incentive system? What is happening to rural development expenditures by ministry and level of government? Key indicators to answer these questions are: * Expenditures by category (recurrent. investment, transfers) per Ministry in the sector (SAGAR, SEMARNAP, SRA); * Expenditures by key prograrn in SAGAR's budget: ASERCA, PROCAMPO, Alianza; and * Rural development expenditures by State (Alianza plus other expenditures). 19. Water Availability. Climatic factors are important to monitor by region as such indicators help form production estimates and guide, when necessary, the geographic placement of emergency programs as well as water management. Key indicators to include here are: rainfall, darn levels, irrigation water use, etc.2 Institutional Framework 20. GEA's report (1998) presents a detailed analysis of criteria and options for the setup of SIS. The report identifies two type of activities: * Substantive tasks which involve perfecting the indicators in the system (either identifying new ones or redesigning existing indicators); preparation of the regular reports; coordination with the different public and private sector providers of information (private sector suppliers, INEGI, SAGAR, SRA, Banco de Mexico, SHCP, etc.); and * Data entry and statistical work to update the indicators. 2The GEA Manual does not include indicators on water availability. 8  21. GEA estimates that approximately 4-6 professional staff are necessary to maintain the SIS (assuming that an outside firm is contracted to prepare the software and web site for the system). 22. Important for the effective implementation of the SIS is an institutional framework that is conducive to: * attracting and retaining high level staff, considering that there is much "learning by doing" and thus continuity of the staff is essential; * accessing information sources both in the public and private sectors; + guaranteeing financial support for several years until the system can 'prove' its value; and * hiring and firing personnel and to contracting out (outsourcing) specific topics. Data Requirements and the SIS 23. A SIS is as good as the raw data it is based on. As discussed above, the higher the quality of the data, the more timely it is collected and the greater the level of disaggregation, the more useful is the system. In the case of Mexico, access to quality data in some areas will be a key constraint to an effective SIS. The issues raised below are illustrative of some of the key concerns that the Government will need to address to move forward with an SIS for the rural sector. A full analysis of data needs is included in GEA (working paper 2), however, some of the priority issues and recommendations are summarized below: + There is no regular source of data disaggregated byproduct and region on farm production costs, input coefjicients and marketing costs and channels: *: Initiate annual or bi-annual survey of farm production and marketing costs by region and major products, which could also collect information household debt and asset levels; * Wholesale. producer and input prices for key products are not collected on a regular basis by region. *: Obtain information on producer, wholesale and input prices (could be purchased from private sources); * Data on land values and sales, although collected by the state public registries and the Agrarian Registries (RAN) are not easily accessible at the national level. *: Assess availability of land price and sale data from RAN and public registries and if necessary implement regular survey of land prices; 9  * The last agricultural census was in 1991 and information on farm structure and assets is outdated. * Carry out an agricultural census every five years (as currently planted) to obtain information on farm structure that could be updated with the more regular surveys on production and marketing costs mentioned above; * The quality ofproduction, acreage and yield data is not reliable, undermining the ability of the government to analyze performance and adjustment trends. * Improve the quality of acreage and production, by strengthening the methodology used by the field offices to collect and store the information as well as the verification systems to complement and check the field estimates. * Monitoring private sector behavior and investment is a challenge. Information on investments and agrochemical use could be collected directly from private sector providers, who may be hesitant to share business secrets with the government, although customs and tax receipts may be of some help. *. Explore ways to obtain information from the private sector on investment levels (e.g., machinery purchases, tree and orchard plantings, etc.). 10