Mexico: 14 Years of NAFTA and the Tortilla Crisis
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Mexico: 14 Years of NAFTA and the Tortilla Crisis
Via NY Transfer News Collective * All the News that Doesn't Fit
[A comprehensive, highly detailed report on NAFTA's effect over the
past 14 years on Mexican agriculture and food. See original for all
graphics referenced. This month, NAFTA becomes 100% effective. The
crisis will likely become even worse, given the biofuel craze. -NYTr]
CIP Americas Policy Program - Jan 10, 2008
http://americas.irc-online.org/am/4879
Fourteen Years of NAFTA and the Tortilla Crisis
by Ana de Ita
English Translation by Annette Ramos and Maria Roof
In January 2008, agricultural trade between Mexico, the United States,
and Canada will become completely free, with the end of the
implementation period of the North American Free Trade Agreement
(NAFTA). All U.S. and most Canadian products1 will be able to enter
Mexico without any duties. The same will occur with Mexico's exports to
the other two countries. NAFTA's agricultural agreement (Chapter VII)
promotes the total liberalization of agriculture and forestry in the
region. NAFTA commitments related to agriculture between Mexico and the
United States are the most radical of any trade agreement, since they
include the liberalization of all agricultural and agrifood trade over
a maximum period of 14 years. NAFTA is the first treaty to treat two
developed countries and an underdeveloped one as equals. But compared
to U.S. and Canadian agricultural sectors, Mexico's presents huge
asymmetries in terms of economics, technology, production factors, and
agricultural policies and supports.
Even before signing NAFTA, 75% of Mexico's agricultural exports went to
the United States and 69% of its imports came from the United States.2
Because of the much smaller size of the Mexican economy, the U.S.
market is much more important to Mexico than vice-versa: Mexico
provided only 12% of total agricultural imports going into the United
States and bought just 7% of U.S. exports. Mexico is also more heavily
dependent on Canada than vice-versa: Canada's agricultural exports to
Mexico amount to 28% of its total agricultural exports, whereas
Mexico's exports to Canada are 8% of Canada's imports.
NAFTA negotiations took place without taking into consideration the
views of Mexico's civil society. The inclusion of the agricultural and
forestry sectors was one of the most controversial topics, due to
profound asymmetries between Mexican agriculture and that of the United
States and Canada. In 1989, Mexico began an agricultural modernization
process via "kicks and blows from the market." The objectives that
drove agricultural policy were the opening of trade, withdrawal of the
State from the majority of its economic activities, reduction in
subsidies, and the privatization or elimination of most state-run
enterprises. All the neoliberal reforms undertaken meshed with NAFTA,
which in 1994 became "the lock that secures the door and blocks the
reversal of the reforms."3 It is practically impossible to separate the
effects of the reforms from those of NAFTA. The United States promoted
NAFTA as a security measure in its relations with Mexico and Canada, in
order to reinforce economic stability in both countries and to
guarantee the permanence of policy and trade reforms achieved since the
mid-1980s.4 According to the U.S. Department of Agriculture, one of the
main benefits of the treaty was to prevent Mexico from feeling tempted
to turn to protectionist policies during the peso crisis of 1995.5
NAFTA guaranteed that the drastic structural reforms imposed on
agriculture would be maintained for 14 years and become
institutionalized agricultural policies, despite the devastating
effects on producers, especially rural farmers. Mexico is a historical
example of the effects of agricultural liberalization when it is
imposed "by hook or by crook" in an international agricultural market
organized around state protection and subsidies: prices are equalized,
despite differences in production costs, performances, or agricultural
subsidies, and deliver extraordinary profits for those who can produce
at the lowest cost.
Effects of NAFTA's Agricultural Agreement:
1994-2006 Foreign Trade and Economic Growth
Designers of neoliberal policies assume that an increase in
international trade produces greater economic development and that the
opening of trade creates profits for all actors in the areas in which
they have comparative advantage.6 Nevertheless, deep asymmetries
between agriculture in Mexico vis--vis the United States and Canada,
in general terms, means that the main productive sectors"basic grains,
oilseeds, forestry, and livestock (with the exception of poultry)"enjoy
no advantage over the competitors.
Before 2003 Mexico had special safeguards for the import of live hogs,
pork, hams, lard, bacon, fowl, chicken and turkey meat paste, eggs,
potato products, fresh apples, coffee extract, and orange juice. The
United States could apply special safeguards for horticultural products
during certain seasons. Safeguards could be triggered when imports
exceeded the defined quotas and authorized the application of the
tariff in use prior to NAFTA.7 Most agricultural products were
liberalized in 2003, but "sensitive" products, which for Mexico are
corn, beans, and non-fat dry milk, enjoyed "extraordinary" protection
until 2007. Yet Mexico's government decided to favor importers, and for
many years did not take advantage of the protection to which these
products were entitled. In January 2008 imports of sugar and high
fructose corn syrup are also to be freed: these products, along with
chicken legs and thighs, were the subject of a trade dispute at the WTO
and obtained special safeguards from 2003 to 2007. At the same time,
the United States is supposed to allow the import of broccoli,
cucumbers, asparagus, melons, watermelons, sugar, and orange juice,
which are still protected. Sugar was the subject of a final negotiation
through parallel agreements which eliminated the advantages for Mexican
exports to the United States. The end of the transition period means
the end of the period during which it will be possible to establish
bilateral safeguards that come into play when one party proves that
imports from another party cause damage to the national industry.8
Agricultural foreign trade has increased almost threefold since the
trade opening. Because Mexico had begun a unilateral process of opening
its agricultural sector from the mid-1980s,9 between 1993 and 2002
imports grew faster than exports (with an average annual growth rate of
7.3% compared with 4.4%), and it was only after 2003, at the end of the
10-year period of tariff reduction, that Mexican exports increased and
closed the gap. Since NAFTA, Mexico has become the third largest market
for U.S. agricultural products. The trade balance in agricultural and
food products has been negative for every year of NAFTA except 1995,
when agriculture gained a positive balance thanks to the devaluation of
the peso and the recession that functioned better than any tariff.
Imports dropped from US$3 billion in 1994 to US$2.5 billion in 1995.
The surplus lasted until inflation caught up with devaluation, and from
1996 the agricultural balance again became negative.
Figure 1: Agricultural Trade Exports
http://www.irc-online.org/images/irc/1009.gif
Between 2001 and 2004 the agricultural trade deficit averaged several
billion dollars a year. However, in 2005 there was a significant
reduction in the deficit (by US$385 million) and it dropped even
further in 2006. Mexico's deficit in food trade, which under NAFTA has
averaged around US$1.3 billion, rose in 2001 to over US$2 billion. In
2003 it reached US$2.7 billion. After 2004, at the end of the
transition period for most products, the deficit began to shrink as a
result of the opening of U.S. and Canadian markets to Mexican exports.
The value of exports rose 70%, while imports grew 42.5% between 2003
and 2006.
Figure 2: 1993-2006 Trade Balances
http://www.irc-online.org/images/irc/1010.gif
However, growth in agricultural foreign trade has not led to high
growth in the sector as a whole, as assumed by neoliberals. Indeed,
growth in the agricultural sector, which had averaged 2.5% between 1989
and 1993, fell to 1.9% under NAFTA. In both periods the agricultural
sector grew less than the economy at large (3.1% and 2%, respectively),
but the gap widened after 1995. The agricultural sector reduced its
participation in the overall Gross Domestic Product (GDP) from 5.8% in
1993 to 5% 13 years later.
Figure 3: Overall and Agricultural GDP
http://www.irc-online.org/images/irc/1011.gif
The population working in the primary sector (agriculture, livestock,
forestry, hunting, and fishing) fell drastically, from 8.2 million
people in 1991 to 6.1 million in 2006. This was intended by the authors
of neoliberal policies, who believed that national development depended
on a reduction in the size of the population working in the
agricultural and forestry sectors. Those working in the primary sector
represented 26.8% of the total working population in 1991 but only
14.6% in 2006.10 According to a study commissioned by the government,
the number of agricultural households diminished from 2.3 million in
1992 to 575,000 in 2002, and those with mixed incomes dropped from 1.5
million to 900,000 over the same period.11 Mexico's inability to
compete with the United States in the agrifood sector has spurred the
recurrent migration of farm workers and threatens to eliminate the
future generation of farmers.
Agricultural Trade Exchange and Food Sovereignty
NAFTA was established to give each of its parties an opportunity to
increase international trade in the agricultural products in which it
enjoyed "comparative advantages" and thus to reduce its trade deficit.
The United States and Canada are two of the largest and most efficient
exporters of grains in the world, while Mexico is a competitive
exporter of horticultural and fruit products. However, this does not
imply a complementary relationship between the sectors in the region.
For Mexico, the treaty negotiation meant a change in the pattern of its
crop selection.
Only 12.3% of Mexico's land is devoted to arable agriculture, while
about 54% is used in cattle ranching and another 26% in forestry. Of
the arable land, 71% is used in the cultivation of basic grains and
oilseeds. In general terms, Mexico has no comparative advantage over
the United States in cattle rearing, basic grains, oilseeds, or
forestry. Fruit, vegetables, and tropical produce such as pineapples,
sugar cane, and coffee are the only products in which Mexico might have
some advantage, but fruit accounts for only 6% of arable land, and
vegetables 3%.
Figure 4: Cultivation Patterns by Hectares
http://www.irc-online.org/images/irc/1012.gif
Mexico has 3.1 million producers, of whom 85% are farmers with plots
smaller than five hectares [12.4 acres], and whose main crops are
grains and oilseeds.12 Only about 500,000 producers cultivate
vegetables and fruit. Most of these are medium or large holders,
because the heavy investment required puts this activity beyond the
reach of smallholders. Mexico's food trade with the United States is
based on the import of basic foodstuffs"corn, soya, rice, wheat, milk,
oils and fats, beef, pork, and chicken meat"and the export of tomato,
pepper, fruit and vegetables, cattle feed, shrimps, and, above all,
beer and tequila. In 2006 four products accounted for 73% of Mexico's
agricultural exports: tomato, vegetables, fresh fruit, and live beef
cattle. And in the same year another four products made up more than
half of Mexico's exports of foodstuffs: beer, tequila, shrimps, and
canned fruit and vegetables. Beer and tequila accounted for 26% and
10%, respectively.
Figures 5-6 Agricultural Exports & Imports
http://www.irc-online.org/images/irc/1013.gif
http://www.irc-online.org/images/irc/1014.gif
By 2006 exports of beer, a relatively new product, had risen to
US$1.138 billion, while sugar and orange juice, considered winners in
the NAFTA negotiation, had lost importance, with their share of exports
dropping from 11.7% and 5.3%, respectively, to only 2% and 1%. Corn,
soya and oilseeds, sorghum, wheat, rice, and cotton accounted for 60%
of the country's agricultural imports.
Figures 7-8 Food Imports & Exports
http://www.irc-online.org/images/irc/1015.gif
http://www.irc-online.org/images/irc/1016.gif
Corn imports rose exponentially under NAFTA. The most imported
foodstuffs were: beef, pork, poultry meat, dried milk, oils and fats,
cereals, malt, and malt extract. Under NAFTA, U.S. pork producers
increased their share of the Mexican market by 130%, and Mexico's
imports of beef and veal quintupled. So while agricultural and food
exports from Mexico are concentrated in a small number of lavish
products for the U.S. elites, Mexico has lost its ability to feed its
population and has increased its dependency on the import of basic
goods.
Integration of Markets: Concentration and Displacements
NAFTA has led to concentration and regional integration. In Mexico,
with no state regulations or state protection, many small farming units
have gone under, unable to compete with the imports that flooded the
domestic market. Larger producers, better off in terms of land,
irrigation, resources, and credit, have taken advantage of the opening
to modernize and absorb a larger proportion of internal markets.
The Mexican government eliminated state regulatory agencies in the
agricultural sector. The vacuum left by the state was filled by TNCs,
subsidiaries of U.S. corporations, many of which created links by
mergers or stock acquisitions in the strongest Mexican companies. The
integration within the U.S. market through the TNCs has occurred on an
unprecedented scale. It was carried out in different ways, according to
the type of production, but in all cases it involved state mediation of
a transfer of income from the farming to the business sector. Producers
of tomatoes for export in Sinaloa, one of the few successful sectors
under NAFTA, established formal relationships with producers in
Florida, collaborating closely with them, but they also displaced small
family producers from Mexico's central states, who formerly supplied
the internal market, now controlled by the Sinaloans.
Markets for basic grains such as corn, wheat, rice, and soya are
controlled by a very few transnational enterprises, subsidiaries of
U.S. companies, that work on both sides of the border. Besides
influencing prices for producers and participating in imports, they can
act as monopolies, as they did during the 2007 tortilla crisis. After
the 1995 economic crisis, which bankrupted most small cattle and
poultry farmers, domestic production of beef cattle, pork, and poultry
was modernized and concentrated in a handful of large companies, many
of them U.S.-based TNCs. The Mexican government decided to support them
by dismantling the protection previously given to the producers of
basic grains, which is one of the main inputs of the livestock
producers. This accelerated the integration of the livestock producers
within the integration of the North American regional market.
Foreign Direct Investment
One of the main commitments in NAFTA was "national treatment" for
foreign investors (Chapter XI), which forced Mexico to change its
legislation on investment. NAFTA strengthened the rights of foreign
investors to retain profits from their initial investments. Neoliberal
policymakers made foreign direct investment (FDI) the engine of
economic development, but, despite the reforms, little additional
foreign investment was made in farming. According to official data, FDI
in the agricultural sector totaled US$10.8 million in 1994, while by
2004 it had reached only US$16.3 million.13 At the beginning of NAFTA
the sector was absorbing only 0.1% of total investment and, by 2004,
even less, 0.09%.
NAFTA has encouraged greater FDI in the area of foods and beverages,
half of which comes from the United States. In 2005, direct U.S.
investment in Mexico's food processing industries reached US$2.9
billion, while Mexican investment in similar industries in the United
States was US$1 billion.14 Even more importantly, food sales in Mexico
associated with U.S. direct investment rose to US$6 billion in 2003,
more than the value of food exports from the United States to Mexico.15
The main U.S. food brands are sold in Mexico. In intermediate products
U.S. investment plays an important role in flour milling, grain
trading, and meat processing. A few of the larger Mexican food
companies have also strengthened their presence in the U.S. market,
such as Gruma in the corn flour and tortilla market. The main
U.S.-based TNCs have strengthened their presence in Mexican farming,
and their share of the internal market has grown as they have taken
over important portions of the markets in corn, soya, wheat, rice,
poultry meat, eggs, and pork. The world agricultural and food market is
highly concentrated, and processes of vertical and horizontal
integration have been of great importance since the 1980s.
Balance by Products: Basic Grains and Oilseeds
For Mexico NAFTA meant sacrificing national production of basic grains
in exchange for access to new markets for vegetables and tropical
fruit. Producers of basic grains and oilseeds have lost heavily from
NAFTA's agricultural chapter. Between 1991 and 2001, the number of
basic grain producers dropped by a million, from 4.1 to 3.1 million.16
At the same time there was a fall of 852,000 hectares [2.1 million
acres] in the amount of land devoted to these crops between 2000 and
2005.17
Mexico is a net importer of food. More than 80% of its arable and meat
imports are basic grains, oilseeds, and their derivatives. Imports have
constantly increased under NAFTA, more than doubling by 2006. Mexico
spends an average of US$4 billion annually on imports of basic grains
and oilseeds. Mexico is the main market for the export of cotton and
sorghum from the United States, the second market for corn, after
Japan, and the third market for wheat and soya. The opening of the
market meant additional competition on the domestic market, leading
prices to fall. Since the 1989 reforms, the domestic prices of grains
have dropped by 50%.
In NAFTA, the Mexican government agreed to liberalize its basic grains
and oilseeds market over a 10-year period, which ended in 2003. An
exception was made for corn and beans, which were allowed protection
until 2007. For rice, a tariff of only 10% was originally established,
to be phased out altogether by 2003. Before the opening, four out of
every 10 tons of rice produced in Mexico were exported, but by 2006
seven of every 10 tons of rice consumed were imported. Production
dropped by almost half, and most of the small producers went bankrupt,
as domestic prices fell by 55% between 1989 and 2006.
Figure 9: Rice CNA 1990-2006
http://www.irc-online.org/images/irc/1017.gif
Figure 10: Real Prices of Rice, 1989-2006
http://www.irc-online.org/images/irc/1018.gif
NAFTA negotiated the immediate liberalization of the seasonal tariff of
15% on sorghum, the main cattle feed. Sorghum production suffered a
drastic fall with the elimination of its protection, but after 1997 it
began to recover and reached pre-opening levels. The increase in
sorghum demand from cattle rearing has been covered by imports.
Currently, a third of national consumption comes from imports. As a
result, sorghum prices dropped by 57% between 1989 and 2005. By 2006,
they began to recover, pushed by the rise in international prices for
corn.
Figure 11: Sorghum CNA 1990-2006
http://www.irc-online.org/images/irc/1019.gif
Figure 12: Real Domestic Price of Sorghum
http://www.irc-online.org/images/irc/1020.gif
Wheat was the only product that performed competitively with U.S.
production. It enjoyed protection from imports due to a previous
permit, which was replaced at the beginning of NAFTA with a tiny tariff
of 15%, to be gradually reduced and eliminated by 2003. Wheat imports
went from absorbing 9% of national consumption before the 1989 opening
of trade to more than half in 2006. Wheat stopped generating income for
many producers, and production dropped by 27% as a result of the 48%
decline in wheat prices, pressured by imports.
Figure 13: Wheat CNA 1989-2006
http://www.irc-online.org/images/irc/1021.gif
Figure 14: Real Domestic Prices of Wheat
http://www.irc-online.org/images/irc/1022.gif
Corn
The case of corn (maize) under NAFTA is paradigmatic, as it illustrates
the behavior of the government and TNCs that have benefited from
liberalization. Corn is the most important crop in Mexico in terms of
the volume of production, cultivated land, production value, and number
of producers. During NAFTA negotiations"based on the theory of
comparative advantage"corn was one of the main problems, because it
could not compete against U.S. and Canadian production. From the
viewpoint of the policymakers, the activity of 85% of the producers
with less than 5 hectares [12.4 acres] of farmland was not competitive;
4.7 million hectares [11.6 million acres] should be converted to other
crops, with a loss of 7.1 million tons of corn produced on that
acreage. Small-scale corn farming was supposed to disappear, although
it constituted half the national production, and half of it was marked
for local consumption.
Figure 15: Areas planted with corn and volume of production, 1989-2003
http://www.irc-online.org/images/irc/1023.gif
Reality turned out to be different from the theory. From 1989 other
grains (apart from corn) and oilseeds had suffered a process of opening
and deregulation. As a result, Mexican agriculture underwent a
phenomenon of "cornification" stimulated by the lack of protection for
other crops. Corn production between 1989 and 1993 rose by 65%, from 11
million to 18.1 million tons. The main increase occurred in irrigation
areas in states of the northwest, mainly Sinaloa, traditionally devoted
to commercial crops, mainly for export. The land devoted to corn in
non-irrigation areas remained relatively constant. Without the support
of civil society, the Mexican government agreed to the liberalization
of corn in NAFTA. According to the assumptions that underpinned NAFTA,
the trade opening would force farmers to switch to crops with greater
competitiveness on the international market. Under NAFTA, protection
for corn was negotiated through tariff-quotas and a long period"15
years, the longest permitted"was allowed for gradual adaptation. The 15
years, which end at the beginning of 2008, should have allowed
producers to adjust to an open economy.18 But corn production has not
fallen during this period; it has increased, and currently stands at
over 20 million tons. These indicators suggest that there were no other
production alternatives for the new generation of corn farmers in the
1990s.
Corn Imports Under NAFTA
Corn is the net loser in the NAFTA negotiations for agriculture. After
14 years in operation, the supposed extraordinary protection for corn
has been systematically eliminated since 1996 (with the exception of
1994 and 1997), due to a unilateral decision by the Mexican government.
For corn production, there has been no period of transition, because in
fact it has already been operating as an open market. Corn imports
systematically exceeded the negotiated quota, and the extra imports
were not charged the corresponding tariff. As a result, 3.2 million
producers, the majority of the small-scale producers in the country,
were denied the promised protection.
Figure 16: Imported Corn and NAFTA Quota
http://www.irc-online.org/images/irc/1024.gif
The increase in imports was not due to a lack of production or higher
domestic prices than international prices. For several years prices
paid for imported corn were higher than Mexican corn. The heart of the
matter can be found in the support programs for agricultural and
livestock exports that the U.S. government provided to its producers
through the Commodity Credit Corporation (CCC).19 Through this program
corn importers could obtain long-term soft loans. Importing grain
became a profitable financial operation.20
In just a year, between 1995 and 1996, corn consumption increased by
three million tons. Up to 1990 farmers could not feed corn to
livestock, as it was regarded as a staple food for the population, but
this ban was lifted in 1996, and the livestock sector became the main
destination for imported corn. Grain consumers21 gained political power
needed to influence agricultural and trade policy: they avoided paying
the tariffs permitted under NAFTA for corn imports above the quota. The
Mexican government effectively practiced dumping against its own
national corn producers by eliminating the tariffs designed to protect
their production. Small farmers were forced to bear a huge burden in
order to benefit importers, among them some of the world's largest TNCs.
In 1999 the Mexican government eliminated the state-owned enterprise
CONASUPO (National Company of Popular Subsistence), which had the
responsibility to regulate the basic grains market in support of
producers and consumers. Corn was the one product that after NAFTA was
still sold by CONASUPO. CONASUPO's closure left producers in the hands
of a very small number of large TNCs, the only buyers of their
harvests: Maseca, Minsa, Cargill, Arancia, and Archer Daniels Midland
(ADM). These companies are also the United States' main importers and
principal exporters; Cargill, ADM, and Zen Noh control 81% of corn
exports in the United States.22 In recent years they absorbed a good
portion of the subsidies that the Mexican government handed out for
marketing corn surpluses. The private corn market grew rapidly, as the
TNCs strengthened their integration, at the cost of producers. When
restrictions were eliminated, exports from the United States increased
dramatically. The majority of the exports are of yellow corn, used as
cattle feed. Exports of white corn for human consumption are not
significant and even went down after 2000. The broad access to U.S.
corn reduced domestic prices for corn by 59% between 1991 and 2006, to
allow for the expansion of the poultry and pork industries. The two
largest Mexican companies in the corn flour industry"Maseca and
Minsa"have positioned themselves in the domestic and foreign markets.
In 2001, 189 companies imported 6.1 million tons of corn, a record
amount.23 The livestock sector absorbed 47.1% of this, of which
companies that produce balanced feed for cattle absorbed the highest
percentage, while fatteners acquired only 4%. The starch sector
absorbed 31.2% of imports, and within that Arancia-Corn Products
International led the pack as a corn importer. The flour sector
acquired 11% of imports and of these Maseca got the largest portion.
Diconsa, all that was left of CONASUPO, absorbed 3.7% of imports
instead of fulfilling its social function of supporting direct
purchases from national producers. Starting in 2003, owing to the
pressure of farm organizations in the "Countryside can't take it any
more" movement and public opinion, Diconsa stopped importing corn and
bought only from national producers, once it was proved that the
company had played a role in the genetic contamination of native corn.24
Figure 17: Real Corn Prices
http://www.irc-online.org/images/irc/1025.gif
Half of the imports in 2001 were bought by nine large Mexican or U.S.
companies: Arancia-Corn Products International, Minsa, Maseca, Archer
Daniels Midland ( ADM ), Diconsa, Cargill, Bachoco, Pilgrims Pride, and
Purina. Several of these are linked to each other through associations
or co-investments in a process of concentration and constant
integration. Primary distribution and processing of grains are the
links of the world food supply chain that are most concentrated.25
Three of the leading world cartels operating in the commercialization
sector of basic grains operate in Mexico: Cargill-Continental; ADM
- -Maseca, and Minsa-Arancia-Corn Products International. Diconsa
imported usually through ADM.
The Neoliberal Tortilla Crisis
At the beginning of 2007, there was a sharp increase (of between 42%
and 67%) in the price of tortillas, which rose from six pesos to at
least 8.5 pesos. This wreaked havoc on the purchasing power of wages.
The tortilla crisis is an instance of the failure of neoliberal
agricultural and food policies, championed by successive governments
during the past 25 years. When dealing with corn in the
import-substitution model, the state had promoted an agricultural
policy that was geared to food self-sufficiency. To that end it had
built a system of buying from farmers, and of storing, processing,
marketing, and distributing basic commodities. The CONASUPO system"an
institution dating back to the presidency of L!zaro C!rdenas
(1936-1941), created to prevent monopoly control and speculation around
basic commodities"was initially the only, and then later the main,
importer and exporter of basic commodities, in a closed economic
system, where agriculture was protected by the requirement for prior
authorization for imports. It also had the role of managing a regulated
reserve guaranteeing the supply of basic commodities for about three
months. CONASUPO functioned as the main supplier to the mills and to
the manufacturers of nixtamalized (pre-cooked) grain for making
tortillas. The scheme allowed for price controls on tortillas, an
important function in a country with very low wages. In this system
producers were guaranteed a price for their products and consumers a
maximum purchase price, and both prices were supported with subsidies.
But the neoliberal policies that NAFTA institutionalizes modified the
state's core regulatory functions and eliminated the institutions that
made regulation possible, starting from the premise that the market
regulates itself. As part of NAFTA negotiations, before the treaty was
launched, guaranteed prices were eliminated and CONASUPO was
liquidated. Also in 1999 poor consumers received a severe blow because
tortilla subsidies given to 1.2 million families were eliminated. The
shortage of corn during the first months of 2007 was the product of
three factors: (1) speculation by the large monopolies that dominate
Mexico's corn and tortilla markets; (2) NAFTA commitments to open up
the agricultural and livestock sectors totally to imports from the
United States as of Jan. 1, 2008, which in 2007 have resulted in
increased dependence on U.S. food imports; and (3) increase in corn
prices in the international market due to the increased demand for corn
to produce ethanol, which in an open economy greatly affects the
domestic market.
Figure 18: Corn CNA
http://www.irc-online.org/images/irc/1026.gif
The price rises were not due to a lack of national production, since in
2006, 21.9 million tons were produced, a record output. At the same
time record volumes of corn were imported"7.3 million tons of yellow
corn and 254,000 tons of white corn. If imports of broken corn are
included, the total reaches 10.3 million tons. Bizarrely, in a year of
crisis allegedly due to a decrease in the corn supply, corn stocks
reached their highest volumes ever. Agribusinesses hoarded the 2006 and
early 2007 harvest, claiming that there was a shortage of the grain at
a time of rising international prices and low inventories, and they
pushed up prices through speculation. These businesses made
extraordinary profits because they bought corn at 1,450 pesos from the
autumn-winter 2005-2006 harvest, which starts in April for producers in
Sinaloa and Tamaulipas, and at 1,760 pesos from the producers of the
2006 spring-summer cycle, which starts in September, but at the end of
December they were selling it at between 3,000 and 3,500 pesos, which
naturally made the price of tortillas shoot up. They did not even have
to pay the financial costs, nor those related to storage, since the
subsidy programs for trade in surplus,26 operated by the Ministry of
Agriculture, are aimed almost exclusively at major firms such as
Cargill, Maseca, Minsa, and Arancia, and gives them subsidies for
guaranteed purchase, storage, handling, freight, shipping, and export.
Peasant organizations protested at the way businesses used these
programs to "dry out" the market artificially, reporting that Cargill
bought and stored 600,000 tons of corn in Sinaloa.27
The Ministries of the Economy and of Agriculture and ASERCA (Support
and Services for Agribusiness) provided subsidy so that 1.5 million
tons of corn from the autumn-winter harvest in Sinaloa could either be
exported to the United States, Central, and South America, or be used
as livestock feed by large companies such as Bachoco in Sonora. All
this caused an artificial shortage of white corn for human consumption.
In the United States, as the result of an increase in demand for yellow
corn for ethanol production, the area devoted to cultivating white corn
was reduced, and TNCs based in Mexico took advantage of the situation
to export white corn to its plants in the United States and South
America. According to official statistics, only 174,413 tons of corn
were exported in 2006,28 which leaves unanswered the question of where
large volumes of corn ended up.
Figure 19: Corn Prices, 2006-2007
http://www.irc-online.org/images/irc/1027.gif
During the 2006-2007 autumn-winter cycle, Cargill did not turn to
Sinaloa to buy corn as it normally does, which suggests that they might
already have had inventories of corn in their possession. The price of
corn on the world market rose as a result of the increased demand for
it in the production of ethanol, but this increase was not related to
the price at which it was sold in Mexico.
The tortilla crisis led to a larger share of the market going to the
two major cornflour producing companies, Maseca and Minsa. In Mexico
tortillas are produced by two different methods. The traditional
nixtamalization process makes up half of the market (51%), and is
performed by about 3,000 small mills (many of them are currently
Cargill customers). The remaining 49% of the tortillas are made with
cornmeal. The cornmeal industry is highly concentrated in Mexico"only
four companies dominate the market. The Grupo Industrial Maseca is the
main one, with a 73% market share, and Minsa, Agroinsa, and Harimasa
account for the rest. Corn tortillas are mainly distributed in the
large self-service stores like Wal-Mart. The tortilla crisis will
expand the market share for cornmeal tortillas, because large companies
and retail chains can reduce their profit margins and sell tortillas at
a price 30% lower than the maximum price established jointly by the
government and industry. Livestock producers who use corn as feed and
who have benefited these past 14 years from the removal of protections
to farmers, intend to raise the prices of meat, milk, eggs, and
chicken, all of which are staple foods, because of the rising cost of
corn.
During this last year of NAFTA's transition period, TNCs that control
the basic commodities market are showcasing their monopolistic
capacities and acting against producer and consumer interests. The
tortilla crisis shows that one of the NAFTA's basic assumptions"that it
benefits consumers, even if it sacrifices farmers"is a macabre fallacy.
End Notes
1. NAFTA is composed of three treaties between: (1) the United
States and Canada, (2) Mexico and the United States, and (3) Canada and
Mexico. Canada excluded from its treaties dairy, poultry, and egg
products, for which it retains a supply management system.
2. Kenneth Shwedel, "El TLC y el cambio estructural" [FTA and
Structural Change], in: Alejandro Encinas, Juan de la Fuente and
Horacio Mackinlay, coords., La disputa por los mercados, TLC y el
sector agropecuario (Mexico: Editorial Diana, 1992).
3. Luis Hern!ndez, "TLC, Corte de caja" [FTA: Stop and Assess],
Cuadernos del Ceccam, no. 7 (Mexico, 1996).
4. Terry Crawford and John Link, coords., NAFTA International
Agriculture and Trade (Washington, DC: ERS, USDA, September 1997), p. 8.
5. Crawford and Link, p. 7.
6. Alejandro Daz Bautista, "El TLCAN y el crecimiento econmico de
la frontera norte de M(c)xico" [NAFTA and the Economic Growth of the
Northern Border of Mexico], Revista Comercio Exterior, Vol. 53, No. 12
(Mexico, December 2003), p. 1090.
7. SECOFI, TLCAN, Texto oficial, Artculo 703 [NAFTA, Official
Version, Article 703].
8. SECOFI, TLCAN, Texto oficial, Captulo VIII [NAFTA, Official
Version, Chapter VIII].
9. Mexico entered the GATT in 1986, after which it drastically
revised its policy of protection for national productive sectors.
10. INEGI, Anuario Estadstico de los Estados Unidos Mexicanos
[Statistical Yearbook of the United States of Mexico] (2006). To 2004,
the data referred to the population older than 12 years of age, but for
2005, to those older than 14, which makes it difficult to compare
recent years.
11. Jos(c) Romero and Alicia Puyana, Diez aos con el TLCAN, las
experiencias del sector agropecuario mexicano [Ten Years of NAFTA:
Experiences of the Agricultural Sector in Mexico] (Mexico : El Colegio
de M(c)xico), p. 227.
12. ASERCA, the number of producers according to the Procampo
[subsidy program], 2001.
13. Methods for reporting foreign direct investment in Mexico have
varied, making comparison of different years difficult; however, and
despite substantial variation in the period 1994-2004, foreign direct
investment was never greater than US$93 million, according to the
Economic Secretariat's National Register of Foreign Investment
(Secretara de Economa, Registro Nacional de Inversin Extranjera).
14. Steven Zahniser, NAFTA at 13: Implementation Nears Completion
(Washington, D.C.: ERS, USDA, March 2007), p. 9.
15. Zahniser, p. 10.
16. INEGI, Censo Agrcola y Ganadero [Agricultural and Animal Stock
Census], 1991, and ASERCA, Procampo, 2001.
17. Sagarpa. Land sown in basic grains and oilseeds dropped from 14.2
million ha [34.3 million acres] in 2000 to 13.3 million ha [32.9
million acres] in 2005.
18. Protection through tariff-quotas consists of determining an
import quota that can enter the country free of tariffs, but any amount
above the quota is subject to stiff tariffs. For corn, the initial
quota stipulated for the United States was 2.5 million tons and for
Canada 50,000 tons. These quantities would increase by 3% each year.
The initial tariff was 215% and would gradually be reduced to zero by
2008.
19. CCC Export Credit Guarantee Program (GSM-102) and CCC
Intermediate Export Credit Guarantee Program (GSM-103).
20. See Ana de Ita, Schwentesiuss Ruta, "?Cu!nta liberalizacin
aguanta la agricultura? Impacto del tlcan en el sector
agroalimentario," presentation to Chamber of Deputies, LXII
Legislature, Comisin de Agricultura, Mexico, 2000.
21. Of the total of corn imports in 1996, 46% went to the cattle
sector, 20% to CONASUPO, 16% to the cornmeal industry, 11% to the
starch industry, and 7% to wholesalers. CONASUPO imported 1,270,000
tons during the year.
22. See Ana de Ita, "El control transnacional del mercado de maz en
M(c)xico y su responsabilidad en la contaminacin transg(c)nica del maz
nativo" [Transnacional control of the corn market in Mexico and its
responsibility for the transgenic contamination of native corn], in
RAPAL, UACH, Memoria del Foro, Mexico, August 2002.
23. According to information from the Comit(c) de Cupos de Importacin
de Maz, Aserca, Sagarpa.
24. See Ana de Ita, "Maz transg(c)nico en M(c)xico: apagar el fuego con
gasolina" [Transgenic corn in Mexico: putting out fire with petrol] in
Julio Muoz, Alimentos transg(c)nicos, Mexico, Siglo XXI, 2003.
25. See Ana de Ita, "El control transnacional del mercado de maz en
M(c)xico y su responsabilidad en la contaminacin transg(c)nica del maz
nativo" [Transnacional control of the corn market in Mexico and its
responsibility for the transgenic contamination of native corn], in
RAPAL, UACH, Memoria del Foro, Mexico, August 2002.
26. Program for Direct Subsidies to Producers for Trade Surpluses for
Productive Reconversion, Integration of Agrofood Chains and Attention
to Critical Factors, which include among their means of support
subsidies for: access to forage grains, shipping, guaranteed purchase,
export, and land freight.
27. Luis Hern!ndez, "Cargill 'El maz de sus tortillas'," La Jornada,
30 January 2007.
28. Data from Sagarpa.
[Ana de Ita is a researcher at the Centro de Estudios para el Cambio en
el Campo Mexicano (Ceccam) and Americas Policy Program analyst at
www.americaspolicy.org. This article was originally published by GRAIN
with the support from the Evangelischer Entwicklungsdienst (EED).]
*
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