Regularities of the cyclical fluctuations of agricultural production in Mexico

Abstract

Agricultural production is inherently variable and subject to the erratic forces of nature and the market. This variance is a source of risk that producers and agricultural policy managers must take into account when making decisions. However, in the Mexican case this variance and the risk associated with it have not been researched, despite their economic importance. Only the drought of 2011 represented losses estimated at MX $15 000 million. The aim of this research was to analyze statistically the cyclical fluctuations of agricultural production in Mexico and to discover its empirical regularities. The cyclical and growth components of the Agricultural Gross Domestic Product (AGDP) were obtained with the Hodrick-Prescott filter; the cyclical component was compared with that of Mexico's GDP. It was found that the cyclical fluctuations of agricultural production are not regular or symmetric. The evidence also indicates, contrary to expectations, that the cyclical component of agriculture: a) is almost three times as volatile as the cyclical component of GDP, which implies that the fluctuations of agricultural production are an important source of variation for Mexico's economic cycles and b) is contemporary and procyclical with respect to the GDP cycle, which means that, despite the volatility of natural factors, the regularities of production in the agricultural sector are determined more by the economic process than by the variations of environmental conditions.