For decades, the price of corn tortillas -- a staple for many families -- was subsidized by the Mexican government. The tortilla subsidy was eliminated in 1999, just as cheap, subsidized corn imported from the U.S. started to flood into Mexico, putting downward pressure on Mexican prices for the grain. Consumers continued to enjoy low prices for tortillas, but Mexican farmers struggled to compete.
That situation has changed dramatically over the last several months. According to an article by Marla Dickerson in the L.A. Times, prices for tortillas have risen by more than 60% in some parts of Mexico in recent weeks. Several factors appear to be responsible for the price rise -- including, allegedly, price gouging by the food giant GRUMA, which commands an estimated 70% share of the market for tortillas and cornmeal in Mexico. But rising demand for yellow corn from U.S. ethanol plants has also been blamed, even though a different (white) variety of corn is used for making tortillas. The following day, in another L.A. Times article, Dickerson reported that Mexican corn produces are rejoicing at the high prices they now receive for their product.
Geoffrey Styles, in his Energy Outlook blog, has written some sober reflections on the situation, which are worth reproducing here in their entirety:
The newly-elected center-right President of Mexico is facing a crisis over the price of corn. Tortillas are a staple of the Mexican diet, especially for the poor, and the price of corn tortillas in Mexico is soaring. Politicians blame speculators, but when you assess the factors driving the North American corn market in which such speculation is occurring, the largest seems to be the growing US demand for corn-based ethanol.
Several months ago I wrote a posting describing the growing food/fuel arbitrage being created by our increasing reliance on biofuels. I have to admit I was thinking mostly of the impact on US consumers, through increases in the cost of anything that had corn as an ingredient, whether in the form of animal feed or high-fructose corn syrup. When I considered the developing world, it was in terms of the opportunities the biofuel market might create. It didn't occur to me that Americans weren't the most vulnerable consumers in this equation.
While the corn varieties used for ethanol and tortillas are different--and becoming more different all the time, as biotech devises new corn varieties that are genetically optimized for ethanol production--they meet in the farmer's decision of which variety to plant: corn for people or corn for cars. The near-to-medium-term challenge for biofuels is not whether there's enough cropland for ethanol and biodiesel crops to replace all the oil we're importing, but the degree to which inflation in consumers' food budgets might offset the economic and geopolitical benefits of increased energy security. In the US, food accounts for about 10% of disposable income, down from 15% in the 1960s and 12% in the 1980s. That compares with about 3.5% of disposable income spent for gasoline, at the current price of $2.31/gallon. This 3:1 ratio favoring food is doubtless much higher in countries like Mexico.
In many respects, ethanol has constituted this country's primary alternative energy strategy for the last twenty-five years. It currently contributes roughly 3% to total gasoline volumes across the country. But while this has had a modest impact on energy prices, it is enough to drive up corn prices across an entire continent, and that effect is only getting started. Like all agricultural subsidies, the ethanol subsidy distorts markets at home and abroad, and that impact is now being felt disproportionately in poor communities. While that ethical dimension probably isn't sufficient to deter further expansion of ethanol, it ought to provide an extra incentive to accelerate the development of biofuels that can be produced from plants that don't compete for cropland, and from crop waste. In the meantime, we can add Mexican peasants to the list of those affected by our energy policies.
Meanwhile, according to the L.A. Times article:
Mexico is gearing up to supply its own ethanol industry. Lawmakers are contemplating legislation that would require the state-owned oil company Pemex to oxygenate its gasoline with corn-based ethanol. Two plants are already under construction in the rural state of Sinaloa ...
Comments
View as Flat
d41295 Posted 4:13 am
17 Jan 2007
free market
A free market is always better than a government subsidy. Always. Manipulation of the free market should be treated aggressively. But the market must still be as free as possible. Almost everything good in our lives has come via the free market. Everything.
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David Roberts Posted 4:15 am
17 Jan 2007
Oy
Almost everything good in our lives has come via the free market. Everything.
What about Tang?
www.grist.org
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JMG Posted 4:50 am
17 Jan 2007
Is that the post-colonial free market then?
That would be the post-colonial free market I expect, where the prior owners of all the resources where exterminated or ejected from the land and their resources by paid government agents intent on distorting the market for the benefit of the folks coming to settle the "new" land.
Or do you mean the free market that efficiently externalizes the destruction of the planet's thermoregulatory capability and the cost of ferrying and protecting the oil from the Middle East, shifting all these to taxpayers rather than oil users.
Or do you mean the free market that allows a tiny handful of oligopolists to capture the airwaves for nothing and then, for all intents and purposes, print money, while removing the public benefit requirements.
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Ron Steenblik Posted 4:58 am
17 Jan 2007
Um, ...
... I have a feeling we've gotten off topic (a bit).
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d41295 Posted 6:21 am
17 Jan 2007
Re: Oy
>> Almost everything good in our
>> lives has come via the free market.
>> Everything.
> What about Tang?
If you think Tang is a good thing, then your life is far more deficient than I can fix.
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d41295 Posted 6:30 am
17 Jan 2007
Re: Is that the post-colonial free market then?
JMG wrote:
>> Is that the post-colonial free market then?
> That would be the post-colonial free market I
> expect, where the prior owners of all the
> resources where exterminated or ejected from the > land and their resources by paid government
> agents intent on distorting the market for the
> benefit of the folks coming to settle the "new" > land.
Yes, that free market, exactly. You can become part of it and struggle for success within in, or you can stay back and whine and complain and be run over by more successful men who are reaching for the stars. I think we know which group you are a part of.
> Or do you mean the free market that
> efficiently externalizes the destruction
> of the planet's thermoregulatory
> capability and the cost of ferrying
> and protecting the oil from the Middle East,
> shifting all these to taxpayers rather than oil > users.
Precisely--the free market which you voluntarily participate in and which you ignore the external costs of when they are in your interest. Are you voluntarily paying $5/gal for gasoline, or voluntarily paying an extra $5K/yr in taxes to account for your share of the external costs? If not, they you are just as much of a fucking hypocrite as the next person, and in what absolutely pure way to you make a living, anyway?
> Or do you mean the free market that allows a
> tiny handful of oligopolists to capture the
> airwaves for nothing and then, for all intents
> and purposes, print money, while removing the
> public benefit requirements.
You are a weak citizen indeed, because it is your elected representatives who have paved the way for these abuses to occur. Why haven't you run for the legislature and fought like a real man? Prefer to be a whining malcontent who can criticize but never construct? I thought so.
Real men become part of these oligarchys, and learn to benefit from the way the world works, instead of whining about them in the comment sections of little-read blogs.
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wackatalpidae Posted 6:37 am
17 Jan 2007
you folks MIGHT have a problem to solve
Do you want higher incomes for farmers or cheaper food for consumers?
I applaud the increasing demand for corn for ethanol. Why? The bulk of the cost of food is added on AFTER the farmers sell their corn. So what if processors have to add an extra 5 cents to the price of a bottle of corn oil?
This will help American famers, north AND south! The issue of paying for food is not a producer problem. Government should FOCUS on creating good jobs for people so they can buy food, NOT run farmers out of business!!!!
Yes there is corn in EVERYTHING. Soda, frying oil, junk food, industrial beef, industrial corn, obese people. I applaud high corn prices. It will solve a multitude of problems......... raise the prices of corn syrup, raise the price of junk food, raise the price of industrial agriculture, REDUCE health problems world wide, SAVE rural economies. Corn is too cheap.
You folks are happy to see gasoline double or triple in price without concern for working stiff. What's the worry over corn?
Bring it on! Let's finally pay what it REALLY costs to grow food. It might motivated us all to lose a little weight by working in our own gardens.
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d41295 Posted 6:40 am
17 Jan 2007
Re: Is that the post-colonial free market then?
JMG, you just don't get it. Men -- real men, men of destiny -- don't sit around and whine about how unfair the free market is. They find a way to make it work to their advantage. It is Darwinian to an extent -- just as life is. Yes, the free market is not fair. Life is not fair. Real men don't whine about it, they deal with it. The alternative to the free market has never produced anything of value, ever. Name just one thing -- I dare you.
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wackatalpidae Posted 6:56 am
17 Jan 2007
uh......
the initial infrastructure for the internet?
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dlunn Posted 7:31 am
17 Jan 2007
Dare I name one?
Things of value that "the alternative to the free market" has produced... WTF do you mean by alternative? Oh well, let me take a stab at this:
First category -- things that are government subsidized:
Roads, gasoline, heating oil, electricity, crops, airports, airlines, nearly every drug you have ever taken, lumber, cotton, and just about the whole infrastructure of the USA owes its existence to government subsidy.
Second category -- clean water, clean air, and the whole natural world.
Look, go and read Adam Smith and you will see that free markets never drew a live breath, governments immediately interceded and so your idealized "free markets" are socialized markets, artificial, manipulated and bastardized. Get over it.
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wackatalpidae Posted 7:40 am
17 Jan 2007
dlunn, you forgot the rail system
If the Feds had not invested in the rail system and gave away public land, the robber barons would have been stopped dead in their tracks. The whole settling of the West would have been a different story. No way to exploit natural resources like coal, timber, market hunting. No way to export "problems" from the East coast by shipping excess labor west. No breadbasket to feed America and the world. No flourishing of capitalism in America.
The freemarketeers are happy to risk someone elses skin or paycheck.... never their own!
Make the oil companies pay for their own security in the Middle East. Unleash the FREE MARKET. We'll see just how much you enjoy it d41295.
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willa Posted 7:44 am
17 Jan 2007
Real men...
...don't assume that "people" = men, d4.
If we leave it up to y'all y-chromosome-afflicted chest-thumpers, we'll just keep on down the road we're on; we've had millenia of patriarchy, and yet, strangely, we're not living in a utopia of "real men" yet.
Here's my prediction, d4: You're a real man of destiny, where "destiny" includes being the recipient of a Darwin Award.
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David Roberts Posted 8:46 am
17 Jan 2007
Wow
Men -- real men, men of destiny ...
Wow! That's awesome. You don't see that kind of pure, uncut, tumescent adoration of Ayn Rand in the wild much outside of libertarian blog circles. Kind of bracing.
www.grist.org
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jjwfmme Posted 12:57 pm
17 Jan 2007
How it works:
Ayn Rand + Netvocates = Steady stream of beer money for the recent college graduate!
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ballardchris Posted 6:27 pm
17 Jan 2007
hey D4
D4, do you post on any other sites? do you have an email?
i like your posts, agree with them completely. I'd like to see some of your other opinions.
my email is ballardchris@hotmail.com
only the strong survive...
I do not choose to be what I am. It is my karma.
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bookerly Posted 8:26 pm
17 Jan 2007
If you hate government subsidies
Get off the internet!!! Without the money the government spends (or the interference in industries such as communications), you would still be using pigeons.
It always amazes me that people who hate the government spend so much time using something that would not have existed without the government putting lots of money and effort into it. In fact, the US government still spends money on it each year, hundreds of millions of dollars (last I looked).
Real men listen to real women.
Real men start revolutions and end oligarchies.
Real men think the idea of "real men" is a bit silly.
patrick
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Tom Philpott Posted 10:43 pm
17 Jan 2007
Hate to interupt ...
.. all the off-topic blather and troll/counter-troll nonsense with a comment about corn, Mexico, subsidies, and ethanol, but I'd like to throw out there that the way-above-mentioned company Gruma. which dominates Mexico's corn market, is partially owned by US ethanol king Archer Daniels Midland. Check it out.
Something else to debate: Gruma gained its near monopoly power with a big boost from Mexico's famed "pro-market reformers," so beloved of the IMF, etc.
Here's an aphorism for the day: the only thing more tedious than a well-fed troll is a thread dominated by same.
Victual Reality
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LegumeSam Posted 11:35 pm
17 Jan 2007
"Just name one thing"
The Internet, a product of DARPA, a project of the US DOD... please get OFF, since according to you the Internet has no value...http://ecosocialism.blogspot.com/
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wackatalpidae Posted 11:36 pm
17 Jan 2007
Seriously Folks
I'll set aside my spanking new troll personality... for a moment.
Mr. Philpott.
How are we going to resolve the conflicting goals... (1) increasing farmer wages and saving the rural economy while (2) ensuring food prices do not skyrocket?
It seems food is priced artificially low. Famers receive very little from the original product. Increasing demand will be good for farmers, who can then afford to buy food and other necessities.
Corn is largely used to support unhealthy habits (junk food, industrial meat). As far as the third world is concerned, it is not even nutritionally balanced. It is not a crop civilization should rely on for food. And we should stop encouraging its use around the globe. Promote locally appropriate agriculture. Yes, it is locally appropriate in Mexico, but only as long as other crops are grown as well. Reliance on corn brought down several civilizations in Central America.
Perhaps if farmers receive a higher price for their corn, they can support their families on less land and afford to grow better sources of nutrition. Furthermore, a higher price for any agricultural product will take pressure off urban areas, especially in the third world, as people can return to the land.
I realize that it is difficult to separate effects on wealthy and poverty-sticken populations, but the net result of a higher price for corn appears positive.
Just my opinion. Feel free to educate me. I promise I will not repeat any of the above remarks unless doing so will contribute to an ongoing and productive conversation.
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Julia Olmstead Posted 3:46 am
18 Jan 2007
Por que corn?
I think it's interesting to ask the question "why corn ethanol?"
And also, "why corn syrup?"
And maybe, "why corn plastics?"
Because corn ethanol really address our energy needs?
Because we need an alternative to sugar?
Because, um, I have no idea...
We're creating these products because we produce way too much corn. Why? Because corn is subsidized -- farmers are paid to grow it.
Why do we subsidize it? Because there is huge money for agribusiness in selling all the inputs to corn production (chemicals, seed, etc.), and they are a really powerful lobby.
In Mexico, where farmers do not get subsidies for corn production (right, Ron?), the effect of this has been to push most of them out of business.
And now, yes, farmers are getting record prices for corn due to ethanol demand. In the very short term, that's good for farmers. But in the longer term, it's only going to do farmers more harm. Here in Iowa, farmers are starting to plant corn year after year. Without even bringing up the environmental impact of this practice (well okay, if you're interested), the corn crop this year is going to be huuuuge. And even bigger in 2008. And very quickly, the bubble will pop and prices will drop. Will farmers be any better off? Probably not. Will they have used that extra income to diversify their crops? Why would they, when corn prices are so high? They'll go back to corn and soy (our other subsidized favorite here in the midwest). And the cycle continues...
I'm not against paying farmers fair prices for what they produce (even if that means our food prices increase), and I'm not against government payments to support farmers. But those payments should be to help farmers diversify, something that would not only help the environment, but make farming a more secure business, here and outside the U.S., too. I certainly am against encouraging excessive corn production so that agribusiness giants like ADM and Cargill can profit.
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Tom Philpott Posted 3:56 am
18 Jan 2007
Right on, Julia
I do think that corn is subsidized in Mexico, but the payments are tiny compared to the US.
And i think you're right: there's already loads of government incentives to plant corn, and the next farm bill will no doubt offer more, under the absurd guise of "energy security." As i wrote in the biofuels series, the USDA is already openly talking about pulling environmentally sensitive land out of the Conservation Reserve Program and planting it with ... corn. And ass you wrote, farmers are abandoning corn-soy rotations and planting straight ... corn.
And when these huge harvests pile up, the slightest sign that demand is slipping will likely cause prices to plunge, leading to a windfall for big corn buyers and sending farmers scrambling back to the government to make up the difference.
None of it makes a corn kernel's worth of sense.
Victual Reality
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Ron Steenblik Posted 8:40 am
18 Jan 2007
A few responses
I'm glad the discussion got back on track. I was reminded for awhile there of Spam Imperial Tortilla Sandwiches.
In answer to Julia (and confirming what Tom said), Mexico does provide some subsidies to its corn farmers. According to OECD data, Mexico provided MXN 10.85 billion (US$ 960 million) in support of 22.4 million metric tonnes (i.e., almost US$ 43/tonne) of corn production, whereas the United States provided US$ 8.3 billion dollars in support of 300 million metric tonnes, or US$ 27.70/tonne, in 2004. (The OECD stopped estimating support on a commodity basis after that year.) Direct subsidies for corn (i.e., not counting the billions in subsidies to ethanol) provided by the U.S. government are expected to be considerably less than that in 2006, mainly because a large part of them are tied to price, and prices (as we all know), rose this past year.
Thanks, Tom, for the link to your eye-opening blog on Gruma. As for your point about corn prices plunging again in the not-too-distant future, the ethanol producers are counting on it. To quote a Reuters story from yesterday, aptly titled "High corn prices to help ethanol plants":
Wakatalpidae, billions of dollars in subsidies to corn in the past didn't "solve" the problem of low prices for corn growers, especially small family growers. My point was that while the billions of dollars in subsidies to ethanol may appear to have "solved" that problem (at least in the short term) they are having numerous repercussions, and not just in the USA.
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electrici Posted 6:49 am
19 Jan 2007
US ethanol king Archer Daniels Midland
hey, tom
did you see the piece on barack obama inc in november harper's magazine? seems obama is a big ethanol advocate. guess what company dominates the illinois economy and coincidentlly (???) tops the list of contributors to obama's senate bid?
as for what i plan on doing about all this, i'll be planting some extra acres of corn this year, while hoping that it doesn't rain as much this spring as it did last year. (here in the northeast, anyways)
peace
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