MEXICO’S FINANCIAL CRISIS : For U.S. Farmer, Peso Joins Litany of Woes

After three tough years, Larry Cox was just getting adjusted to farming green onions, cauliflower and melons here in the lush Mexicali Valley about an hour’s drive south of the border.

Cox came looking for lower costs and reduced government red tape. He says he also found corrupt officials, fickle soil and uncertain water supplies. Still, after losing huge sums, Cox was finally expecting a profit this year on the 500-acre spread he has leased since 1991.

“We thought we were running out of mistakes to make,” he said.

Then in December, the peso collapsed. Like many other U.S. business people in Mexico, Cox has been trying to figure out the consequences ever since. The peso’s devaluation has left him feeling out of control, doubting the wisdom of his move here and wondering how long he’ll stay.

His peso-based labor and land costs are down but the reductions are relatively small, probably short-lived and outweighed by employee unhappiness over reduced spending power, Cox said. More worrisome is the uncertainty that the currency crisis has created. He’s afraid that, if Mexico’s political situation deteriorates, U.S. businesses could become scapegoats, even be shown the door.

Cox’s story is an agricultural version of the pitfalls of investing in Mexico, despite its powerful allure. And it illustrates the chilling effect of the peso’s deterioration on the kind of tangible foreign commitments that Mexico’s economy sorely needs.

Just as the financial turmoil has caused some foreign-based retailers and manufacturers to put Mexican expansion plans on hold, farmer Cox has canceled plans to plant asparagus, a high-cost crop that takes a minimum of four years to profitably cultivate. Also on hold is an expensive $150,000 tile drainage system he was going to install to improve crop yield.

Cox says he has no immediate plans to leave. But he feels it would be unwise to make the big-bucks, long-term investments at his Mexico farm that are key to “doing a first-class job.”

“The hardest thing is not knowing where the peso will stabilize at,” Cox said as he walked down perfectly symmetrical rows laced with knee-high emerald green onions. “People like certainty, a little consistency.”

Cox was part of a migration of U.S. farmers to Mexico occurring over the past two decades. With Mexican labor and water costing about half of what they do on the U.S. side of the border, Mexico has been an irresistible attraction for U.S. producers of thirsty crops that require time-consuming hand sorting, bunching and cutting, said Imperial County Farm Adviser Refugio (Cuco) Gonzalez.

Cox and others are also fleeing the ravages of the whitefly, a pest that continues to devastate Imperial Valley growers and has yet to penetrate to Baja California. Urbanization is another reason: Many San Diego County farmers who once farmed tomato and strawberry crops have sold their farmland to developers. They also complain of being “strangled” by regulations on fertilizer and pesticide use in California.

More than 500 California farmers now operate in Mexico, either solo like Cox or in partnership with Mexicans. They have helped introduce modern farming technology and practices to Mexico. Partly as a result, more than half of all winter tomatoes and strawberries and 85% of winter green onions sold in U.S. supermarkets now come from Mexico.

Cox set up his farm in Ejido Toluca, a fertile stretch on the Colorado River’s alluvial plain bordered by the spectacular Sierra de Juarez mountains to the west and the Gulf of California to the south. He now employs 180 on the farm about 30 miles southeast of Mexicali.

His grand plan was to complement his U.S. operation, a 3,000-acre family spread he still runs near Brawley. Moving to Mexico would allow him to lengthen the growing season of his highly profitable green onion crop, which he sells in the United States and Japan, and concentrate on heavily mechanized crops, such as cotton, in California.

But the last three years in Mexico have brought him headaches. Cox says his Mexican farm workers are half as productive. He complains of incessant hassles with Mexican customs when Cox brings in U.S. supplies such as shipping boxes and fertilizer. His Mexican water supply is monopolized and undependable. A former landlord tried to seize his crop. In his first two years, he lost $160,000.

Cox worries that he has spread himself too thin, dividing time between his Mexicali farm and the spread in Brawley, two hours away by auto.

Many U.S. farmers have had rough times in Mexico, said Roberta Cook, an agricultural market economist at UC Davis. It’s the inevitable result of being at a disadvantage in a foreign legal, business and political environment, she said.

“Growers thought they would find a panacea on the Mexican side and they were disappointed,” Cook said. Many U.S. farmers have lost vehicles and other equipment in disputes with Mexican partners. “Many have pulled out and many of them came back without a tractor or something else they might have brought down.”

For that matter, Cox said, Mexican farmers also are routinely taken advantage of by U.S. partners on this side of the border. “It cuts both ways,” he said. “The stories of U.S.-Mexican joint farming ventures are full of distrust and malfeasance on both sides.”

Cox says he has prepared himself mentally for the worst possible scenarios, for the day when he and other American farmers will no longer be welcome. For him, revolution or mass expulsions are not out of the question.

Those fears are not as outlandish as they seem, said Cook of UC Davis. In past economic crises, the Mexican government has expelled foreign farmers, most recently in the 1930s. In the 1970s, the Mexican government confiscated huge amounts of farmland from Mexican owners in Sonora state, Cook said.

Said Cox, “If there’s a problem, Mexicans tend to blame the government first and the gringos second. I’ve made it so that I can make a run for the border with a minimum of loss, if the worst happens.

“The consultants I use all say this isn’t anything out of the ordinary, that Mexico has gone through revolutions. I do buy that. It’s just a question of whether you survive it, whether the huge investment we have here might not be better spent elsewhere.”