This paper explores the impacts of agricultural policy reforms on a Mexican village economy, using a village computable general equilibrium (CGE) model. In 1994, the Mexican government replaced staple price supports with direct income transfers to producers. Two scenarios are considered in this paper. The first is the case in which the elimination of price supports is transmitted directly to the village. The second is the case in which, due to high transactions costs in staple markets, the village is entirely insulated from the price change. In this case, the policy change consists only of an income transfer to crop producers. The more the reduction in controlled prices results in a decrease in local consumption prices, the more progressive the effect of the policy change is for household-farm incomes. The greater the transmission of the government price change to local producer prices, the greater the impact on local production activities and the greater the potential efficiency gain.