Corn Tied to Civil Unrest in Mexico

http://blogs.mysanantonio.com/weblogs/mexico/

Sean Mattson: Corn controversy continues with first raid on alleged speculators

Mexico's staple, corn, has roughly doubled in price over the last year, leading to an outcry over increased tortilla prices and other food products.

The causes are multiple but the trigger was the doubling of yellow corn prices in the United States to meet domestic demand for ethanol.

This induced Mexican farmers to start buying nationally produced white corn, which was mainly used for human consumption, to feed livestock. They typically use yellow corn for feed, most of which is imported from the United States.

But the tortilla crisis has become the perfect excuse for authorities and consumers to make noise about two longstanding problems with Mexico's corn market: speculating middlemen and market dominance by a handful of companies, which stifles competition and helps keep prices high.

So far, authorities have attacked the middlemen. Yesterday in western Jalisco state, the federal A.G.'s office shut down an intermediary and seized almost 119 metric tons of corn. The seizures occurred because the owners of the corn could not prove that they had buyers, according to reports.

Jalisco is one of Mexico's leading corn producers and there are reportedly another half-million tons of corn there that is suspected of being kept off the market for speculative purposes, which is illegal in Mexico.

For many, the villain in the crisis has been Grupo Maseca, or Gruma, which is said to account for about 70 percent of domestic corn purchases, though the company says it only sells flour for about 30 percent of the tortillas produced in Mexico. (Many tortillas are produced directly from corn, an age-old process called nixtamal.)

But this analysis argues that Gruma's alleged profits from speculating aren't reflected in its share prices, and argues that any sane company wouldn't gouge its customers: All this would lead to is decreased consumption meaning that the company would end up selling less in volume.

Increasing competition won't be easy, no matter what investigations into alleged monopolistic practices by Mexico's Federal Competition Commission, or CFC, determines. The CFC is relatively toothless, if well intentioned. It recently ruled against Gruma when it wanted to take over a smaller company, but Gruma went ahead and took the company over anyway. (The CFC took the takeover to court and a final resolution is still pending.)

Better regulation of the intermediary process and greater aperture to white corn imports (which would drive Mexican corn prices down) would also help avoid further crises, but it remains to be seen what concrete measures will be taken in this regard.

Thanks to mysa.com