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January 2021, Volume 27, Number 1

Canada, Mexico

Canada. The US brought the first case under the United States-Mexico-Canada Agreement in December 2020, accusing Canada of preventing imports of dairy products. Canada uses production quotas and high levies to protect its dairy farms from lower cost imports.

Canada’s federal and provincial government deficits are expected to top $300 billion or almost 20 percent of the country’s $1.5 trillion GDP in 2020 due to spending to cushion the effects of the pandemic. The US, by comparison, had a federal deficit of $3 trillion in FY20 or 16 percent of the US $19.2 trillion GDP. Two-thirds of the 38 million Canadians live in Ontario and Quebec, the provinces with 80 percent of Canada’s Covid cases.

The Seasonal Agricultural Worker Program brings 50,000 guest workers a year from the Caribbean and Mexico to Canada for up to eight months a year to fill farm jobs. The Canadian government opened otherwise closed borders to SAWP workers in 2020, and many farm employers kept their guest workers on the farm in 2020 to minimize the chances that workers could contract or spread Covid. Some of the guest workers complained that they were treated as children because they were confined to the farm that employed them.

Most SAWP workers are in Ontario, where the minimum wage was C$14,25 in 2020 and farm workers are not entitled to overtime pay.

Mexico. President Andrés Manuel López Obrador marked the second anniversary of his presidency in December 2020 by asserting that the pandemic was the worst crisis facing Mexico. Despite Mexico’s GDP dropping by nine percent in 2020, AMLO resisted calls to spend government money to help employers to retain workers. Mexico’s government debt topped 55 percent of GDP in 2020.

AMLO calls his presidency Mexico’s fourth revolution or 4T, after independence from Spain, the 19th century liberal reforms, and the Mexican revolution of 1910-17.

Mexico’s minimum wage will increase by 15 percent to 142 pesos or $7.15 a day January 1, 2021, up from 123 pesos in 2020. Formal sector employment fell by a million between March and July 2020, but rose by 407,000 between August and October 2020 to 16 million. Most of Mexico’s 51 million employed workers are in informal jobs.

Mexico’s social development agency Coneval reported that the share of the working-age population whose monthly income is below the minimum needed to buy a canasta básica, a basic selection of foodstuffs including beans, rice, eggs, sugar and canned tuna, rose from 36 to 44 percent between the first and third quarters of 2020, giving Mexico its highest poverty rate since 2005. The cost of a canasta básica is 1,700 pesos (US $84) a month in urban areas and 1,200 pesos in rural areas.

Poverty rates were lowest near the US border, under 30 percent in Baja California, Chihuhua, and Nuevo Leon, and over 60 percent in Chiapas, Guerrero, and Oaxaca. In municipalities with mostly non-indigenous residents, incomes averaged 4,253 pesos (US $211) a month, more than twice the 1,999 pesos (US $99) in mostly indigenous municipalities.

There have been many analyses of why Mexico has been unable to achieve higher economic growth despite NAFTA. Christensen argues that one of three kinds of innovation is the key to prosperity. Sustaining innovations increase profits by extending a product line, such as adding more flavors of soft drink to encourage current and new customers to drink more. Efficiency innovations reduce costs and increase profits from current products.

Market-creating innovations are the key to prosperity, since they create new markets, expertise, and jobs. Many market-creating innovations are launched in developing countries, such as Celtel in Africa, a mobile phone system based on selling calling time in small increments that led to mobile banking, insurance, and other services. Christensen argues that the key innovation is to overcome non-consumption, which means providing a good or service where none existed before. Celtel allowed Africans to contact each other by phone more frequently than travelling a week or more to meet in person.

One of Mexico’s market-creating innovators is Grupo Bimbo, the world’s largest baker. Bimbo began to sell fresh bread in clear plastic wrap in 1945 in Mexico City so that consumers could see the bread was not moldy. Bimbo extended backwards and forwards, encouraging farmers to grow wheat and developing mills to make flour and investing in distribution to ensure that fresh bread reached stores quickly.

Christensen argues that Mexico is overly reliant on efficiency innovations that reduce producer costs, as with maquiladoras that hire Mexican workers to assemble products that are often exported. The value-added in Mexico is mostly low Mexican wages. If the Mexican government tries to push up wages too fast, footloose investors may move factory jobs to lower-wage countries.

Mexico’s per capita GDP was twice South Korea’s in 1960, but today Korea’s per capita GDP is four times that of Mexico. Christensen attributes Korea’s success to moving up the value chain from manufacturing low-cost products to developing innovative high-tech products that satisfy consumer needs.

Mexico and the US share the water from the Colorado and Rio Grande rivers. Most of the runoff is stored behind dams in Chihuahua, where farmers during the summer and fall of 2020 took over the Boquilla Dam on the Conchos River to prevent Mexico from delivering the water it owed to Texas.

The Mexican defense minister between 2012 and 2018, ex-General Salvador Cienfuegos Zepeda, was arrested in the US in October 2020 on drug and money-laundering charges. Beginning in 2006, the Mexican military has been used to fight drug-trafficking, and current President AMLO has entrusted the military to build a new $3.2 billion airport. Mexico has never had a civilian defense secretary, allowing the military to police itself.

After Mexican protests, the US charges against ex- Cienfuegos were dismissed in November 2020, allowing him to return to Mexico, where most observers believe he will be exonerated. Nonetheless, the Mexican Congress approved a law in December 2020 to require federal, state or local officials to report conversations with “foreign agents” to the federal government, which US officials said would limit cooperation because of fears that any information shared could be transmitted to criminal gangs. The US has about 50 DEA agents in Mexico.

Central America. Hurricanes Eta and Iota devastated parts of Guatemala and Honduras in November 2020, prompting calls for aid to prevent more out-migration. Guatemalan President Alejandro Giammattei warned: “If we don’t want to see hordes of Central Americans looking to go to countries with a better quality of life, we have to create walls of prosperity in Central America.”

Caravans of migrants from Guatemala, Honduras, and El Salvador have been moving north since 2014. In 2018-19, Mexico made it harder for Central Americans to cross Mexico and reach the Mexico-US border and the US made it harder for foreigners to apply for asylum, requiring many to wait in Mexico for hearings before an immigration judge.

There may be a new rush for the border if the Biden administration relaxes some Trump-era rules. One proposed change would have the USCIS asylum officers who make credible fear determinations also make decisions on asylum applications to speed up the process, which would reduce the backlog of cases before DOJ immigration judges.

There are also pleas to provide more opportunities for Central Americans to work in the US. About 260,000 Mexicans a year participate in the H-2A and -2B prog
H-2B programs, compared to less than 10,000 Central Americans.

Latin America has eight percent of the world’s population but accounted for a third of the deaths from Covid-19 in 2020. As Covid cases surged in December 2020, leaders ordered non-essential businesses to close and urged people to stay home for the Christmas holidays.

Christensen, Clayton, Efosa Ojomo, and Karen Dillon. 2019. The Prosperity Paradox: How Innovation Can Lift Nations Out of Poverty. Harper.

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