Inadequate Institutions and Inefficient Outcomes in Mexico's Sugar Industry
Scaife, Katherine M.
- Submitted in partial fulfillment of the degree of Master of Arts in Law and Diplomacy at the Fletcher School of Law and Diplomacy. Abstract: Institutions can encourage market development and economic growth by creating incentives for individuals to invest in productivity. When institutions fail to create incentives, or create incentives for individuals to make poor production decisions, developmen... read moret objectives may suffer as a result. In this thesis, I argue that dysfunctional formal and informal institutions weaken the incentives to invest in sugarcane for Mexican farmers and sugar mill owners; furthermore, that these institutional weaknesses, and not trade liberalization, cause low-quality sugarcane and inefficient sugar production. Land tenure institutions create incentives for farmers to continue producing on small plots of land while sugarcane farmer associations fail to coordinate farmers' investment and cultivation decisions. Industry pricing regulations weaken farmers' incentives to improve their sugarcane stock. A history of government expropriation of sugar mills unexpectedly creates incentives for owners to invest more in mills than in increasing field productivity. Increasing migration from sugarcane-producing regions and land consolidation efforts by Mexican sugar mills suggest that current inefficient production standards may soon change. Institutional reforms would speed up this process while also seeking to improve farmer welfare during the transition.read less