Tortilla Price Stabilization Pact

The Tortilla Price Stabilization Pact was an agreement between the Mexican Federal Government, headed by President Felipe Calderón, and several tortilla producing companies in Mexico to limit the volatility of price in tortillas in early 2007.[1][2]

Background

The production of maize in US was subsidised, so US sold these maize to Mexico and stabilized the price of maize. Although the maize price in US was stabilized, but the production of maize in Mexico was killed. Later, US farmers use maize to produce biofuel, cause a rapid rising of price of maize.

The international price of corn (maize) had been rising dramatically throughout 2006, leading to the inflation of tortilla prices in the first month of Calderón's term.[3][4] Because tortillas are the main food product consumed by Mexico's poorest people,[5] national concern over the rising prices immediately generated political pressures for Calderón's administration.

The Pact

President Calderón opted for using price ceilings for tortillas that protect local producers of corn.[6] This price control came in the form of a "Tortilla Price Stabilization Pact" between the government and many of the main tortilla producing companies, including Grupo Maseca and Bimbo, to put a price ceiling at MXN 8.50 per kilogram of tortilla. The idea of the agreement is that having these producers ceiling their prices would incentive the market to lower the prices nationally.

Criticism

The Pact has been heavily criticized by both the right and the left. Critics argue that the Pact was both non-binding and a de facto acceptance of a 30% increase in the price of that product (from MXN 5.95 to 8.50 per kilogram).[7][8][9] Many tortillerías ignored the agreement, leading to price increases in well in excess of the 8.50 pesos.[10] Government opposition see this as an indication of the failure to protect the economy of poor consumers. In response to this, PROFECO, the government consumer protection agency, has also threatened with jail those tortilla producers who charge "excessive" prices.

However, some major supermarkets such as Soriana, or Comercial Mexicana sell their tortillas at a lower price than the one in the agreement, and even 14% lower than the original price, reaching even MXN 5.10 per kilogram.[11] That is interpreted by liberals as evidence that price controls, and the Tortilla Price Stabilization Pact, were unnecessary and potentially harmful for the market.[12]

Results

Three months after the pact was signed, the Secretariat of Economy has informed that the price of tortillas was reduced in most of the country's 53 largest cities. However, in 27 cities and 15 states the price is above the agreed 8.50 pesos. In fact, in Tijuana, Morelia, San Luis Potosí, Ciudad Victoria, and Nuevo Laredo the price of tortillas has risen, despite the fact that the average price of maize has dropped from MXN 3,500 to 2,500 per ton. However, the Director of the Maize Industry Council has defended the pact by minimizing the price increments in those cities, claiming that the pact was only intended for the Valley of Mexico, and not the whole country.[13]

Guillermo Ortiz Martínez, governor of the Bank of Mexico, labeled the agreement "a success" for consumers, and urged for it to continue as means to combat rising inflation.[14]

References

1. El Presidente Calderón en la Firma del Acuerdo para Estabilizar el Precio de la Tortilla Press Release from the Office of the President of Mexico
2. Convoca Ortiz a mantener acuerdo para estabilizar tortilla Archived 2007-10-04 at the Wayback Machine by La Jornada
3. Banxico, más optimista; espera baja en inflación by El Universal
4. México aumenta la importación de maíz by El Universal
5. La tortilla: golpea a los pobres en México La Prensa San Diego, February 2, 2007
6. Calderon signs accord to contain tortilla prices "The accord limits tortilla prices to 8.50 pesos ($0.78) per kilogram and threatens prison sentences of up to 10 years for companies found hoarding corn."
7. Impugnan diputados política económica y social de Calderón
8. El Porvenir | Local | Protesta ONG por alzas Archived 2016-03-03 at the Wayback Machine
9. Reprueba Martí Batres ''incremento disfrazado'' al precio de la tortilla - La Jornada
10. mercados,finanzas,economia,fondos y cotizaciones - Invertia Archived 2007-10-15 at the Wayback Machine
11. PROFECO, "Quien es quien en los precios / Tortilla" Soriana 5.10 (pesos per kilogram of Tortilla), Comercial Mexicana 5.80 (pesos per kilogram of tortilla), Chedraui 5.90 (pesos per kilogram of tortilla).
12. Liberal Editorialists in Grupo Reforma, including "Visión Económica / El arranque de Calderón", by Salvador Kalifa ("Algunos justifican estas acciones como una manera de aumentar el capital político del nuevo gobierno, que era sumamente bajo al inicio del mismo. Eso es posible, pero no deja de ser una mala señal respecto al rumbo correcto de la política económica."), "Luego viriguamos", by Sergio Sarmiento ("La forma en que ha operado la autoridad en este caso, sin embargo, no sólo es contraria a la ley sino, en términos prácticos, contraproducente, ya que lo que está logrando es reducir la oferta y, por ende, aumentar la presión al alza del precio del maíz y de la tortilla."), and "Energía o Tortillas" by Albert Hibert ("Si se decide que uno de los usos prioritarios de la producción de maíz sea para tortillas para que se mantenga su precio bajo, se estará castigando a los productores de maíz, entre los cuales se encuentran agricultores muy pobres, y lo único que se provocaría sería la aparición de un mercado negro y de todas maneras estaríamos sin tortillas.")
13. Falla pacto tortillero by El Norte
14. Mexico central bank urges renewal of tortilla pact, on Yahoo! News