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February 06, 2007
Farm Week: Ethanol not to blame
A reader of this blog submits the following recent article from "Farm Week," which addresses the issue of rising tortilla costs in Mexico. The links are my doing and not in any way an endorsement of anything by Farm Week.
FarmWeek
Page 12
Monday, February 5, 2007Ethanol not to blame
Mexico dealing with spike in tortilla pricesBY DANIEL GRANT
FarmWeekThose who will travel to Mexico Feb. 12-20 as part of an Illinois Farm Bureau Market Study Tour will discuss a variety of agricultural and trade issues with their neighbors south of the border.
One issue that likely will corne up is the rising cost of corn flour and its effect on the price of tortillas - a staple of the Mexican diet.
While estimates of the price increase have varied, Mike Doherty, IFB senior economist and policy analyst, said Mexicans probably are paying close to 30 to 40 percent more this year for tortillas.
"There has been some concern about high corn prices and increases in corn flour prices and their relationship to the overall Mexican tortilla price," said one industry analyst who works with U.S. companies that produce tortillas.
Doherty agreed higher corn prices are at the root of the spike in tortilla prices. But he said it's a "stretch" to lay the blame on the U.S. ethanol industry.
The hike is due in large part to a shortfall of white corn used for tortilla production Doherty said. U. S. ethanol is produced from yellow corn, so the two industries don't directly compete.
"Last year (Mexico) had a deficit of 6.8 million metric tons (about 267 million bushels) of all corn, so you've got to import (to make up for) that," Doherty said.
"Then, when (the Mexicans) place a high tariff on white corn, they're setting themselves up that if they have a shortfall of crop, they're going to see some pretty dramatic price increases."
Mexico, which currently has a 54 percent tariff on white corn imported from the U.S., slashed its imports in recent years. Meanwhile, Doherty believes Mexican farmers may have shifted acres from white corn to yellow corn to feed a livestock industry that is "growing rapidly."
Pork production in Mexico increased a reported 23 percent from 1995 to 2005.
Meanwhile, labor and processing costs for tortilla production also have increased in both Mexico and the U.s., according to both analysts.
"It's likely that half the cost of tortillas is not even the cost of white corn," Doherty added.
Therefore, until Mexico increases its white corn production and/ or removes or lowers tariffs to reduce the cost of imported white corn, tortilla prices in that country likely will remain high.
[NAFTA Notes: While this article mentions high Mexican tariffs on white corn, (1) yellow and white corn are treated as the same commodity, and (2) that although NAFTA provided for a 15-year phase-out of Mexican tariffs on imported corn, the Mexican government removed nearly all tariffs on corn imports within three years of the ratification of the treaty. http://www.tradeobservatory.org/headlines.cfm?refID=19304]
Posted by crispy at February 6, 2007 09:17 AM
Comments
"Illinois Farm Bureau Market Study"
Let's go to North America's heartland ... MEXICO!
Posted by: Jon at February 7, 2007 06:52 PM