Introduction

The United Nations Conference for Trade and Development ^{(UNCTAD) 2013} indicated that one of the main problems for small and medium producers was access to financial services. In 2008, 52% of the municipalities lacked access to financial institutions. It also found that only 25% of adults had access to financial services. It addition to this, mentioned that Mexico obtained a rate 75% in financial exclusion which is very high by international standards, as in other countries of the Organization for Economic Co-operation and Development (OECD), for example, average rate of financial exclusion is only 8%.

^{Steffen and Echánove (2003)} refer to most small producers of corn, wheat, sorghum, beans and barley have not been incorporated into the work culture of new technologies that allow them to match their yields to those obtained by US and Canadian producers, our trading partners in NAFTA, nor have managed to convert to other crops in which the country has comparative advantages, such as tropical fruits and some vegetables, by the lack of capital for it and by limited export markets. On the other hand, the reality facing cycle after cycle small grain farmers is characterized by the increasing devaluation of their products and by the enormous difficulties they face in marketing.

^{Guadalupe (2013)} indicated that against the small number of financial intermediaries regulated by the National Banking and Securities Commission or so-called "formal" Financial Intermediaries, Financiera Rural (FIRA) and private banks have chosen to operate using private companies, agribusinesses or producer organizations that become disperser credit organizations (ODC), inexperienced in financial matters, so in some cases use their position to place their products and even return to practices of granting credit in kind.

According to FAO data, in 2013, world production of barley (145.6 million tons) is concentrated in nine countries (62.5%), participation rates were: Russia 10.5%, Germany 7.1%, France 7% Canada 7%, Spain 6.9%, Turkey, Ukraine and Australia 5% each, UK 4.8% and Argentina3.23%. Mexico production represented 0.41% of the world total during that year. During 2013, the highest yield in barley production recorded it Spain with 8.29 t ha^-1, followed by Germany and Argentina with 7.4 t ha^-1, France 6.9 t ha^-1, Ukraine 5.61 t ha^-1 and Russia 2.1 t ha^-1; Mexico reached 2.2 t ha^-1 (FAO, 2013). As for wheat production in the world China is the largest producer with 18%, followed by India with 13%, Russia 8% and US 8%. Production in Mexico represented 0.004% (^{GCMA, 2014}).

In Mexico, during the period 2007 - 2012 the state of Guanajuato, on average, was the biggest barley producer nationally with 40%; however, throughout this period the state that grew the most according to the average annual growth rate (TMCA) was Tlaxcala with 12.21%, unlike 11.92% for Guanajuato, both above the national TMCA (7.92%). As for production value, the percentages had similar behavior, Tlaxcala 25.6% followed by Guanajuato with 22.82%. According to the average wheat production in Mexico, during the same period, Guanajuato was the third best producer of this crop, contributing with 14.5% of national production; however, during this period had a decrease in production according to TMCA (-7.38%) as for the national TMCA (-0.52%), the state that stands out is Sinaloa with an average annual growth of 23.23%. As for the production value the percentages are similar: Guanajuato contributed on average 14% below Sonora with 49%; according to data from the National Institute of Statistics and Geography (^{INEGI, 2012}).

In the state of Guanajuato, municipalities that produce 53% of barley are: Valle de Santiago (22%), Salamanca (21%) and Irapuato (10%). As for wheat production, 54% from production that the state has was divided into the following municipalities: Penjamo 20%, Abasolo 12%, Irapuato 12% and Valle de Santiago 10% (^{SAGARPA, 2007}). First level organizations are divided into: ejidos, communities, rural production companies, cooperative societies, Society anonym of capital variable, civil partnership, civil society, credit union and trust (^{SAGARPA, 2009}).

Because there is a lack of knowledge on how production and marketing are financed in first level organizations, this study aimed to analyze the financial mechanisms used in these types of producer organizations in the value chain of barley and wheat in Valle de Santiago, Guanajuato, Mexico during the production cycle autumn-winter 2013- 2014. In addition, the hypothesis was that rural financial policy in Mexico does not cover all rural producers; however it is considered that these producer organizations have found in input distributors support to finance their production units.

Material and method

It was considered as target population producer organizations of first level which during the production cycle autumn-winter 2013- 2014 devoted to the production of barley and wheat in Valle de Santiago, Guanajuato. It is noteworthy that these organizations sow these crops only in the autumn-winter cycle. ACERCA staff was interviewed to identify major collecting companies of these grains who made contract farming during the production cycle autumn-winter 2013- 2014 in this municipalities, which were: Graneros Cedillo SA de CV, Agroservicios el Jarron Azul, S.P.R. de R.L. and Servicios Agricolas Modulo IV Distrito de Riego 011. These companies provide financing and marketing services to grain producers and farmers' organizations. A total population of 20 organizations was obtained, however failed to conduct the census, since in the region insecurity is high, so only interviewed 4 organizations for each collecting company having a total of 12 organizations that collaborated with research.

Subsequently, the national survey of competitiveness, financing sources and use of financial services from companies (ENAFIN) developed by the National Banking and Securities Commission (CNBV) and the representation in Mexico of the Inter-American Development Bank (IDB) were applied. The same assumptions were considered in this survey: non-financial companies with more than five employees and located in towns with at least 50 000 inhabitants. The questions in the survey were adapted for application to the representatives of the first level organizations devoted to production of barley and wheat. It should be noted that such surveys have not been conducted directly to grain producer organizations and only have the comparison with the results from ENAFIN survey which are conducted nationwide.

Results and discussion

Of all first level organizations analyzed (12), 100% planted barley and wheat sowed in the autumn-winter cycle (OI) and during the spring-summer cycle (PV) planted corn and sorghum. All organizations stated that the amount of planted acreage varies according to the arrangement of water availability from dams in the region; on average it was observed an average per hectare of 6 t ha^-1 in barley and wheat. ^{Steffen and Echánove (2003)} mention that below that yield the producer cannot expect profits, also mentioned that all malting barley is grown under contract farming with Impulsora Agricola, S.A. de C.V., as it is a company that is part of a brewers consortium and is in charge of supply of the raw material used. 100% of the organizations interviewed sold their barley to the company Impulsora Agricola, S.A. de C.V. and in the case of wheat the sale was made with local organizations of larger size that collected it and resold to agribusiness (Graneros Cedillo, S.A. de C.V., Agroservicios Jarron Azul, S.P.R. de R.L. and Servicios Agricolas Modulo IV Distrito de Riego 011).

It is noteworthy that these collector organizations use the infrastructure they have to perform and offer the service of contract farming which is requested before ASERCA but conditions producer organizations to buy other inputs such as seed, fertilizers and agrochemicals to have access. This mechanism was beneficial for large grain collectors, as they sold all inputs to the farmer and also marketed their grain. Espinoza (2014) mentions that for the credit to be effective lenders and intermediaries in the agricultural sector should be avoided besides encouraging innovation in the sector through credit and that it is related to environmental, human, social and economic conditions of the region.

According to interviews performed to first class organizations employed on average 4.1 temporary and 4.6 permanent staff during the activity from fall-winter cycle. Are organizations that are in operations, on average, for 14 years, 61% had complete or incomplete primary education, 29% had high school or equivalent and 10% had college; 100% had as associative figure the rural production society (SPR), the variant with the other was the regime of limited or unlimited liability. 67% of the organizations were considered a family organization and the remaining 37% was considered as an organization composed of individual farmers, which banded together to negotiate better prices when buying production inputs or for agricultural credits. According to ^{ENAFIN (2013)} survey each of 10 companies 6 are family businesses, 8 have as owner a man and 9 are registered before IRS.

In all of the organizations interviewed the director was man but women within the organization as part of society were found. On the other hand, it was noted that no organization had external participation; i.e. where another company or economic group own more than 50% of the business. On average 67% had two establishments and the remaining 33%, only had a place where they received members of the organization. All organizations exhibited a high degree of formality, since 100% was registered before the Secretariat of Finance and Public Credit (SHCP) and also all mentioned to be updated in their tax returns. Significantly, that all of them hire the services of a certified public accountant for tax returns. Only 50% of issued receipts and 50% issued invoices and receipts, note that by the new tax provisions organizations that only issued receipts from 2014 had to issue invoices.

Organizations surveyed employed two to three people in the administrative area (family), which have empirically developed skills to make recommendations to farmers (partners) in the application of pesticides, fertilizer amounts or type of seed to use. This practice was common in all organizations, despite the courses promoted by the various business houses of inputs. The staff of the organization (100%) reported not having enough education to adopt and recommend new products or new agricultural practices. This proved a problem for the development of the organizations analyzed, since farmers conditions improve very slowly because do not have qualified staff in the administration who can guide partners in the adoption of new business practices such as the use of contract farming or hiring agricultural insurance.

In order of importance it was found that the problems faced by organizations were: low price per tonne of barley and wheat, rising prices of production inputs (fertilizer, seed, chemicals and transport) and delinquencies its partners, besides this, another problem that was stated was to have little infrastructure and the establishment of the special tax on production and services (IEPS) caused them an increase in production costs at the expense of profitability. ^{De Ita (2000)} mentions that farmers in Mexico have two major difficulties: the low prices they receive, which are fixed in the international market and insecurity of having a to place their product.

Rural production societies (SPR's) interviewed mentioned that the main challenges facing to establish the organization were: set up and establish the administration of the organization. This was only expressed by organizations made up of producers (37%), as they had to reach a consensus for the development and growth of the organization, concluding in hiring administrative staff under the supervision of the organization committee (president, secretary and treasurer). This council is composed by the members of the organization which changes after a certain time at a meeting and not like this the staff employed in the administration. In the case of organizations composed of relatives did not indicate having this problem because they choose whoever has the highest level of studies to lead the organization and the other members support in administrative activities such as managing the record of partners; the registration of the purchase and sale of inputs of the organization; and of each partner, planning purchases of inputs.

The second challenge that they faced was to legally establish the organization and obtain working capital, thus the establishment of the accounting and tax system. Furthermore, access to financing (accoutrement and credit) since it did not count with a credit history. Unlike this, the ^{ENAFIN (2013)} survey mentioned that two of every 10 companies believe that the main obstacle to starting a business was to legally establish the company.

Most recognized support programs from first level organizations were provided by the following institutions: SAGARPA, FIRA, and National Support Funds for Companies in Solidarity (FONAES), FINRURAL and Support and Services for Agricultural Marketing (ASERCA). 100% mentioned that some time received support (subsidies) from SAGARPA mainly in the purchase of agricultural implements. 83% achieved financing through FINRURAL, 67% received support from FIRA through technical assistance (grant holders FIRA), 50% had access to contract farming through ASERCA and 33% received funding through FONAES. Most said not knowing the programs offered by the following institutions: Ministry of Economy (SE), Ministry of Agrarian, Land and Urban Development (SEDATU), National Financing (NAFIN) and the Ministry of Social Development (SEDESOL).

On average SPR's used 85% of its installed capacity; this is explained because in recent agricultural cycles partners decided to plant a smaller area either because the expectation of barley or wheat price was down or by the increase in cost of production inputs. In addition, lower surfaces were planted by low water availability in the reservoirs to complete irrigation needed for barley and wheat. In general, the organizations analyzed in each agricultural cycle seeded a greater quantity of barley (70%) compared to wheat, this because the company Impulsora Agricola, S.V. de C.V. guaranteed the purchase of grain. 30% of wheat field were left for sale among collectors in the region (Graneros Cedillo, Agroservicios Jarron Azul, S.P.R. de R.L. and Servicios Agricolas Modulo IV Distrito de Riego 011) which collected wheat and resold to agribusiness such as Grupo La Moderna, Gamesa and Cargill. ^{Steffen and Echánove (2005)} indicate that the replacement of wheat for barley in Guanajuato is, among other things, because the crop has lower production costs and because before planting producers sign a contract with Impulsora Agricola, S.A. de C.V. in which stipulates the price that will be paid and market is assured.

Of all sales made during the autumn-winter cycle 2013- 2014; 67% of the organizations surveyed had higher gross income to 4 million pesos and 33% greater than 2 and less than or equal to 2.5 million pesos. Total sales were composed by the total number of tonnes that all partners sold of barley and wheat. On average organizations had 233 hectares of which obtained an average yield of 6 t ha^-1 of barley and wheat, so on average sold 1 400 tonnes. If during the autumn-winter 2013- 2014 cycle the price per tonne of barley was set at $ 3,200 pesos this meant that on average organizations surveyed registered sales for 4.4 million pesos. 83% of the SPR's reported profits up to 5% and 17% stated that there was no loss, no gain.

In one month organizations manifested that on average had the following expenses: 52% earmark for the payment of inputs such as: fertilizer, seed, fuel, rental of machinery and agrochemicals; 27% they earmarked for the payment of wages to people involved in the production process, 8% for operating expenses; 7% for transport and transfer of supplies; and 6% for payment of electricity, water, telephone and internet.

On average machinery and equipment from organizations had 5.3 years old. 83% considered that the organization does not have the machinery and equipment needed; the remaining 17% considered having the necessary equipment according to production needs that handles. On average considered that machinery and equipment needed at an estimated cost of one million pesos. 83% did not buy machinery or equipment for the organization during 2014, 17% purchased machinery and equipment with a value less than or equal to one million pesos. 70% of these purchases were acquired through financing. 83% said there were no plans to buy machinery or equipment over the next two years, because they could not afford a loan and 17% felt that could buy only equipment as parts or equipment replacement. As for internal funding, 50% was financed by reinvesting between 51 and 75% of profits and the remaining 50% reinvested between 76 and 100% of its profits. In addition, 100% said that total funding of the organization came from sales revenue of the production of barley and wheat.

33% of organizations reported having received loans or contributions from friends or relatives living in the country and the remaining 67% did not receive them. Loans or contributions ranging from 10 to 120 thousand pesos giving one to three months to repay the money without charging interest rate. These contributions or loans are used entirely for the purchase of production inputs. Regarding external financing, the practice of borrowing from family is reduced because most of these are in the region and dedicate to plant wheat or barley and are under the same conditions of resource scarcity. Who mentioned that have received support (not called credit) are family members who are in other states doing a different activity and that have monetary resources to provide them only for a period of time (a month) while the organization obtains liquidity. These supports are to fund payments to workers, grain transportation or to purchase inputs (seed, fertilizer and agrochemicals) at the chance to get a good discount for cash payment.

Only 17% received money from relatives or friends who are in the US and the remaining 83% said not receiving this type of support. 100% of the remittances were made through bank financial intermediaries and allocated to the purchase of inputs or debts payment with financial institutions. Unlike loans or contributions from family or friends residing in the country, remittances are gifts that give to family from the members.

Mostly these kinds of loans or supports were made by the sons that are abroad (US) and granted as aid to the activity carried out by parents. Similarly were allocated for payments that arise during the production cycle (purchase of inputs or operating expenses). ^{UNCTAD (2013}) mentions that, rural population, which is made by households with different degrees of access to non-agricultural occupations, are struggling to diversify its sources of income and manage risks (financial and climate) and uncertainty. A different set of demands for financial services arise from those homes. These farmers usually small are often caught in a vicious circle of the formation of rural capital. These producers demand a variety of relatively simple services, such as insurance and savings-deposit facilities, cheap mechanisms for the transfer of funds and progressive access to loans with improved terms and conditions. In Mexico there are several banking systems that seek to meet the demands of rural, agriculture and livestock credit. 100% of the organizations mentioned that their suppliers gave then the credit service in merchandise or cash. They decide, according to the behavior of the production cycle and the type of credit requested. Only 83% received credits in merchandise and 17% received both credits in cash and merchandise.

Of all purchases made in the production of barley and wheat during cycles autumn-winter 2013- 2014 on average 70% was made with credit from suppliers. 91.6% of purchases that organizations do to providers are paid long after the goods are delivered. 100% said that the supplier gives extra discounts for prompt payment or, where appropriate, charges more for paying late. The provider gives 30 days on average to consider a timely payment. For merchandise that is paid late, the provider increases 1% each month to the price of input. As for loans in cash, 17% of this organization that requested this financing, the provider overcharged them an average interest rate of 3 to 5% monthly. Only 33% of organizations said that once were denied credit (in merchandise), because the provider considered that owed too much or the loan was very large. The ^{ENAFIN (2013)} survey said that 55 of every 100 companies the credit with suppliers is the most used.

Marketing characteristics with suppliers was as follows:

In the case of fertilizers, producer organizations estimated the volume to be used among farmers, then went to the dealer and negotiated the best price according to the required amount, since making this practice will give a better price per ton.

As for the purchase of wheat seed the leading company in the area (NU3, S.A. de C.V.) through its subsidiary "La Fuerte" concentrated about 60% of seed distribution in the bajio and controlled this market through its authorized distributors. The only way to gain access to better prices was making cash payments or buying large volumes with such distributors. The credit practice was left to the distributor who established financing conditions, single farmer had not much room for negotiation unless, as mentioned, to join with more farmers and buy a larger volume of seed and thus improve their trading conditions.

For barley 100% of the seed was provided by the company Impulsora Agricola, S. A. de C.V. (IASA) at a set price which varied if paid in cash or paid time later.

For the purchase of agrochemicals, there was a wide variety of commercial houses. There are companies that develop their own active ingredients and local agrochemical companies that produce pesticides called "similar" and sold at a lower price. The marketing mechanism is similar to what is done with the other inputs (seeds and fertilizers) except that, in this case, every business house has more technicians promoting their products which provide technical advice to authorized distributors and customers of these in order to ensure the consumption of their products. Historically producer organizations could not negotiate directly with these trading houses, everything was made through dealers, however in 2014 and because this is an area of intense competition among the various agrochemical companies, new forms of bringing pesticides to farmers were developed, that is, cooperation agreements were signed with producer organizations and at the end of the production cycle the volume consumed was quantified and, on this basis, they were granted a bonus.

Agrochemical companies sold their products in three different ways and only to authorized distributors. The first practice was to perform the purchase in cash, in this form the biggest discounts were granted, i.e. a retail price was established and on this price discounts were made from 25 to 30%. The second practice (which is used as little as possible) is to leave goods on consignment, this is to leave a certain amount of pesticides in the distributor's warehouse and after one or two months the agrochemical company will make an inventory and only charged the product sold and the remaining picks it up; third practice and most common is credit sale where commercial house gives to authorized distributor a price to the public, it makes a direct discount (on public price) from 15% to 20% and based on the time of payment grants extra discounts, that is, if it is paid in one month is granted an extra discount of 2% if paid in two months the discount decreases to 1%, if the payment period is three months (maximum average period given) the discount is about 0.5%. Unfortunately these discounts to farmers are not transferred in the same proportion.

During 2014, commercial houses of agrochemicals developed a model of credit which is paid at the end of the production cycle (harvest), its basic characteristics were: the purchase of complete technological packages, which were accompanied by an agricultural insurance which was paid by the company of agrochemicals. The procedure was: farmers signed a contract of sale with the grain receiver (collector) and a transfer of rights of their harvest and the collector Graneros Cedillo, S.A. de C. V.; Agroservicios Jarron Azul, S. P. R. de R. L. and Servicios Agricolas Modulo IV Distrito de Riego 011) served as a retainer and source of payment to cover the loan transaction to the agrochemical company.

It is noteworthy that a prerequisite for signing the contracts was that the farmer will do contract farming before ASERCA through the grain collector company. The intention of this model was to cover the lack of liquidity that farmer has at the beginning and during the production cycle because agrochemicals are given according to application needs. In addition, producer organizations or large producers of wheat and barley benefited from the payment of agrochemicals until the production cycle was completed.

Producer organizations are another source of funding in this model because the production-marketing cycle goes from 7 to 8 months; however, agrochemical companies try to secure the credit through the use of contract farming and this is where cannot be use small collector (first level organizations) as they do not perform contract farming before ASERCA by not having the necessary infrastructure and must rely on large collectors that meet the requirements of this entity. 100% of the SPR's analyzed mentioned that according to credit conditions established by big distributors-collectors in the area opted for partial funding during the production cycle accepting the financial cost.

As for wheat marketing, 100% of the organizations made them until the grain was harvested (did not make contract farming); however, this practice was not the best, since at the time where all producers harvested wheat, the price per ton of wheat were lower than those established under the contract farming scheme. This is one reason why farmers decide to plant barley, because they know from the beginning of the production cycle the price they will per ton by the company Impulsora Agrícola, S.A. de C.V.

50% of the organizations surveyed used personal credit cards to cover the debts with suppliers, the other 50% had no need to resort to the use of these cards. Of organizations that used personal credit cards 67% used between 61 and 70% of the total credit line, the remaining 33% only used between 41 and 50% of their available credit. The same 67% said that could not pay the full balance of their debt in order to avoid interest and the remaining 33% was able to cover it. 67% of producer organizations who used credit cards, the bank charged them between 31 and 50% annual interest rate. On the other hand, the remaining 33% will be charged an annual interest rate of 11-30%.

83% of organizations reported having a single line of revolving credit (as an organization) and 17% did not use these credit lines because they were rejected the application (commercial bank). The use of this credit was to purchase production inputs. 60% of organizations that had this type of credit was from 120 to 240000 pesos and the remaining 40% had a credit line from 241 thousand to 500 thousand pesos. 40% of these organizations obtained their credit line in 2008, 20% in 2005, the other 20% in 2006 and remaining 20% in 2013. 60% of organizations mentioned that the credit line was for a lesser amount than the requested, while 40% were given what they asked. Also, 100% of the organizations who opened an account of this type were charged a fee for opening of 0 and 5%.

The earmark of this credit (100%) was to purchase supplies and equipment needed for the production cycle of wheat and barley. The source of this financing for 60% of the organizations was granted by development banks and for 40% commercial banks. Among the main reasons why the organization chose the financial institution are: offered fixed interest rates, the institution already offered additional services, requested fewer requirements than other institutions and because the commissions were low compared to other financial institutions. 80% of organizations had 3 years old with the financial institution that gave them funding and the remaining 20% had only one year.

100% provided a guarantee and the same percentage used the assets of the organization to obtain financing. This warranty accounted for 100% of organizations between 41 and 50% of the total amount authorized for the credit line and charged them from 1 to 5% monthly interest rate. 80% mentioned that sometime fell behind in paying its debt and 20% covered the debt in order to avoid financial costs to the organization.

83% of the organizations interviewed mentioned that they had no long-term loans at that time, as financial institutions demanded guarantees that they did not had, also because the partners did not have a credit history. 17% that obtained a loan of this type used it for the acquisition of machinery and was granted by development banks, as it offered the lowest interest rates, a fixed monthly payment and the requirements were lower than in other financial institutions. In this case, warranties used were assets belonging to members of the organization and represented 50 to 60% of the authorized amount of long-term credit. Unlike this, the ^{ENAFIN (2013)} survey mentioned that of the companies that obtained a line of credit in the period 2005- 2009, only 2 out of 10 companies requested a simple long-term credit and only one obtained the resources. Companies that did not obtained, stated as main reason of rejection, the absence of sufficient guarantees. 66% of the organizations surveyed bought production inputs with cash (50%), checks (15%), credit cards (15%) and bank transfers (20%).

Conclusions

The total of first level organizations during the autumn-winter cycle 20013- 2014 marketed barley and wheat with major collector companies in the area and these, in turn, sold the grain to agribusiness. This is because organizations do not have access to long-term financing by lack of guarantees (83%) resulting in not having enough resources to invest in the necessary infrastructure to market directly to agribusiness. It should be reformulated the policies of development banks to grant preferential discounts to long-term loans.

It is necessary a policy where contract farming is promoted, so agribusiness can provide financing to producer leaving as guarantee farmers grain. ASERCA plays an important role in this process for the adoption of these mechanisms and therefore should improve and facilitate procedures so that these are not an obstacle in the implementation of this tool. It also must involve large transnational corporations of inputs such as fertilizer and seed for generating new forms to finance farmers using contract farming and where the company pays agricultural insurance for the value of their input as they made it with agrochemical providers in the region.

Most producer organizations were financed by suppliers (70%); it should be noted, that are the same companies with which made grain marketing. This, because the only guarantee required was the signing of a promissory note and a contract in which they agreed to sell grain; however, these companies took advantage of this situation conditioning the credit, because just for buying the grain were forced to buy the rest of inputs at higher prices. Current policies on patterns of operation in rural financing will not be possible to reverse this situation, it is necessary to promote the creation of financial intermediaries, since financial bid would increase and coupled with this, operate at lower operating costs than commercial banking and development banks, it can provide cheaper loans to farmers. In addition, credit should be encouraged with agricultural insurance through joint projects between financial intermediaries and self-insurance funds.