Tortilla Wars — Cargill and the (not so free) market

15 April 2007

Until 1994 (NAFTA D-day), Consupra controlled corn prices. Though widely viewed as corrupt, it bought and stored white corn to dump on the market when consumer prices rose, and provided a base income for farmers. The farmers were happy, the consumers were happy. Cargill, and the other major agri-business mulitnationals were not happy. Under the new regime, Cargill is very happy indeed.

This article appeared only in Spanish in both IRC and Upsidedownworld. Luis Hernández Navarro is the opinion editor of Jornada, where parts of the original appeared.

The new tortilla war

Luis Hernández Navarro (4-April-2007)

Why has the price of tortillas gone up in Mexico? Three basic reasons: first, and most importantly, because of hording and speculation in white corn by agrobusiness monopolies; seconldy, because of the increase in the basic costs of fuel used in the production, transportation and processing of the gain – diesel, electricity and gasoline; third, the rising pricve of maize in the world market as a result of its use in ethanol production.

Mexico is the fourth largest corn producer in the world. Last hear, it harvested 22 million tons, mostly – although not exclusively – white conn. The volume is much lower than the United States: 280 million tons in 2005, though most is yellow corn. That county controls 70% of the world market.

One difference between the other major producers and Mexico, which is important in Latin America, is that Mexican corn is grown for human consumption. We are a culture born from corn.

The fall of Mexican corn

For decades Conasupo ( Compañía Nacional de Subsistencias Populares ) played a fundamental role in regulating the national market, stockpiling, importing and distributing grain. As a result of signing the North American Free Trade Agreement (NAFTA), the program was terminated.

Between 1994 and 1998, Conasupo was the seller of last resort. In 1998, Eresto Zedillo said that the major corporate sellers (Maseca, connected with ADM; MINSA, associated with Corn Products International, Arancia and Cargill, and merged with Continental) were in charge of the national market. The former state monopoly,which despite corruption functioned reasonably well, was transferred to private monopolies which had the objective of making rapid returns on their investments.

Dismantling Conasupo was an essential step in privatizing the corn and tortilla market. Other government measures were freeing the price of tortillas in 1999 and closing down Fidelist, a a subsidy program which provided food for 1.2 million families in poor urban areas. c

Another major change in production was to modify the form in which corn was processed. For many years, tortillas were made though a process of nixtamalization [mixing “cal” — limestone, which frees essential amino acids in the corn – in with the grain] which was an key process in milling producing tortillas. This started to change during Carlos Salinas de Gortari’s administration (1988-1994), when tortillas made with processed wheat flour were substituted for nixtamal.

Changing the method of production provoked a strong conflict between the economic actors involved, and was known as “the tortilla war.” Legal battles drastically reduced the importance of the mill and tortilleria owners. In 2003, 49% of tortillas were produced by the major industrial producer. Grupo Maseca had control of 70% of this market. An alliance of the major producers has, in the last five years, grown their market share significantly.

From a national to international price

Commercial producers in Mexico were simultaneously storing local grain and importing it. My controlling inventory, they could demand that prices be lowered or raised according to their needs. They acquired a substantial part of the spring and fall Sinaloa harvest (by far the most important in the Republic, accounting for almost 10 tons in the last spring and fall cycle) at a price of $350 pesos ($30 US Dollars) per ton per ton. They could already count on having nearly a million tons of corn, enough on hand to get into speculation, hold back supplies to articificially raise the prise. Those same ten tons from Sinaloa, sold for 3,500 pesos a ton (US$320) in Mexico City: 2,150 pesos (US$197) over what was paid.

True, the price of corn in the world market had risen in recent months, as a result of the use of corn for distillng ethanol But those increases had no relation to the price of corn in Mexico. On the Chicago Mercantile Exchange, bids reached almost US$ 144 a ton, but this is less than half the price corn was sold for in Mexcico City.

The costs of diesel, gasoline and electricity, the overhead costs for transport and processing, rose during the last months of the Vicente Fox administration. This affected the consumer price of tortillas, but overhead only accounts for 30% of the cost of production.

There was absolutely no justification for the jump in the price of tortillas. Neither rising energy costs, nor the jump in prices on the international market justified the consumer price. The central problem was speculation by the elevator owners.

Speculation is the favored market model of those that believe in fully bringing in the NAFTA regulations, dismantling the state development agencies and businesses though savage privatization. The result is a clearly inefficient market, for all intents and purposes, a speculative monopoly. Thanks to politicians like Luis Téllez y Santiago Levy, the Mexican government has cut off its hands when it comes to intervening to create order in the market.

Cargill can’t lose in México

When the price of tortillas goes sky-high, the multinational Carill wins. IF they import corn from the United States, they benefit. If, on the other hand, they export to other countries, they receive subsidies. When they seek approval for the use and explotation of grain terminals in ports, they maintain their profit margin.

Cargill, a 140 year old company, is the second largest privat ecompany in the world, and has 149,000 employees in 72 countries. Fortune magazine lists it as the 20^th most important company on the planet. It buys, processes and distributes grain and other agricultural products, describing itself in its literature as: “the flour in your bread, the wheat in your noodles, the salt in your la harina en su pan, el trigo en sus tallarines, la flavor in your food. We are the corn in your tortillas, the chocolate in your dessert, the additives in your gasoline. We are the oil in your salad dressing, and the meat, pork or chicken you have at dinner. We are the cotton in your clothes, the stuffing in your sofa and the fertilizer in your field.”

The multinational has had a presence in Mexico for more than 80 years, beginning with forestry operations in the Northeast. In 1972 it opened it’s first office in the country with six employees. When NAFTA came in and after Conasupo ceased operations, there was a huge gap in the Mexican market, which the international giant was poised to fill. It’s presence in Mexican agriculture is overwhelming.

Under NAFTA, corn imports from the United States were subject to yearly caps, with imports over the yearly amount subject to tariffs. However, the Mexican government unilaterally eliminated this protection, permitting any amount of grain to come in without penalties. Between 1994 and 2001, the import quota rose to nearly 13 million tons. The two major agricultural corporations, Cargill and ADM sold most of the U.S. corn sold in Mexico, and benefited enormously from the end of tariffs. In addition, they also benefited from the indirect subsidy they received from Washington in the form of export credits.

Recources under the export credit program were for shareholder costs, storage, handling, transport and cabotage * for transporting Sinaloa grain, as permitted under the regulations of the time, were generous to Cargill. When, as it happened in 2006, the multinational exported hundreds of thousands of tons of grain to other countries, it received export subsidies from the government.

Commercial white corn producers in this country receive what is called an “objective price”. For most of the internatinonal market, the “indifferent price” is used, calculated on the international market by reference to the costs of storage and transport from grain elevators in New Orleans to the ultimate Mexican consumer. The difference between the “objective” and “indifferent” p[rice can fluctuate between 450 and 500 pesos (US$ 40-45) per ton, which is paid by the government, and not by the commercial enterprise, which only receives the “indifferent” price. Cargill, as one of the most important grain elevator operators, receives an important indirect subsidy this way.

En 2002 the Comisión Federal de Competencia [Mexican equivalent of the Federal Trade Commission] authorized Cargill to develop, use and exploit a private port in Guaymas, Sonora, together with Grupo Contri, whose main activity is buying, storing and selling other grains – mostly wheat, corn and sorghum. The giant company also controls the principal grain port in Veracruz.

Cargill was little known of in Mexico until in 2001 Congress approved a special tax on the production and importation of fructose, a corn-based sweetener. The multinational imports around 385,000 tons annually. The affair was a disaster in international commercial courts. Mexico lost their case for the tax.

Cargill is considered responsible for the rise in tortilla prices, having bought and stored 600,000 tones of Sinoloa corn for 650 pesos a ton (US$60) which it turned around months later at 3,500 pesos per ton (US$320). The response was to lift import caps on cereal grains, which is supposed to lower prices and bring benefits. Lorenzo Mejía, president of the Unión Nacional de Industriales de Molinos y Tortillerías (Milling and Tortilla Industrial Union) says, “the millers cannot import grain and use Cargill’s services:

The company has rejected the indignant wave of accusations it has faced. It denies being “the corn in your tortillas” – as it says in its consumer brochures – and, in a press release, claimed, like consumers, masa-produers and tortilla vendors, to be worried by the high price of corn. Cargill blames the price rise on the free market and tells the Mexican public that the rise is due to purchasing by pork producers.

La quiebra de un modelo

The rise in the price of tortillas has demonstrated the weakness of the Mexican state against the monopolies. They control the marketing and production of corn, and can set off a round of inflation without impunity. The Executive has no arms to fight this war.

The federal government’s response to the rise has been pathetic. It closed a few tortillerías, and made a media show of the offensive against abuse and blamed the vendors. It announced no measures to control the price of production, or to alter the basic rules. While the producers approve of the government’s response, claiming they are not responsible for the price jump.

The President has announced that it will allow white corn to be imported without tariffs. But those acquiring the cereal are the same ones responsible for the price increases, and who already control the inventory. And these imports are a blow to Mexican farmers, worried about the country being flooded with bad quality grain, likely to contaminate their seed with transgenetic varieties or seed infected with aflatoxina.

Of course, the Calderón administration has buried the information on the speculators. ASERCA ¹has a detailed report detailed. The present system, in which the federal government subsidizes commercial storage and sale of corn, requires accurate reporting and the ability to control reserves. In spite of this, we only hear of the governments inability to inject itself into the market. The President is not interested in the crisis, except that it gives his government a opening to project legitimacy to the poor. Or, to appear decisive if he steps in to control inflation.

Since the start of NAFTA in January 1994, tortilla prices have risen by 738%. The result has been less consumption, of worse quality.

Mexican food supply now depends much more on the United States. Native seeds have been infected with imported transgenetic varieties. Rural migration has left many rural communites deserted except for the old, woman and children. A substantial part of the cereal production region is at risk, or could be turned to other crops. These other crops will also face a price drop as corn fields are converted to more profitable harvests.

Today we are living through a new tortilla war, different than that in the 90s when different businesses faced off. Now, it is the big argo-businesses against the poor. In this war, the government of Felipe Calderón has clearly sided with the monopolies who helped him gain the Presidency.

Translators’ Note: Cabotage

Cabotage is the same word in English and Spanish, but is a rare word. It is a term from admiralty law, meaning that a foreign carrier can enter a country’s ports, but that goods are transferred to domestic carriers. If Mexican trucks enter the United States, they will not be allowed to drive to your local WalMart, but only to a shipping terminal, where U.S. trucks will carry the goods to WalMart’s warehouses, for example.

Notes

En www.infoascerca.gob.mx, por SAGARPA (Secretaria de Agricultura, Ganaderia, Desarrollo Rural, Pesca y Alimentación).

Luis Hernández Navarro es Coordinador de Opinión en el periódico La Jornada de México, donde partes del presente texto fueron publicados. Es colaborador con el IRC Programa de las Américas, www.ircamericas.org.