U.S. Biofuels eating into Mexican Tortillas?

The problems that ensue from the expansion of our corporate-dominated food systems usually show up first among the poor—at home and abroad. The U.S. media has finally begun reporting on the explosion of tortilla prices in Mexico (“Nothing Flat about Tortilla Prices, San Francisco Chronicle, 1/13/07). Not only is this a serious political problem for the Mexican government, whose citizens eat an average of 10 tortillas a day, the United States is implicated. How? Let’s step back a moment.

In the 1980s Mexico was still self sufficient in corn, its major staple. In the early 1990s Mexican president Salinas de Gortari decided to cozy up to the U.S. by implementing the North American Free Trade Agreement (NAFTA) ahead of schedule. He relaxed controls on corn imports from the United States. Imports immediately jumped from 396,000 to 4,854,000 metric tons, flooding the Mexican market with taxpayer-subsidized, U.S. corn. Mexican farmers—whose government agricultural support services had dried up thanks to World Bank/IMF structural adjustment policies in 1982—were unable to compete with cheap corn that was sold at prices under its actual cost of production. U.S. corn quickly replaced Mexican corn for the tortilla market. The tortilla market itself consolidated under GRUMA, a Mexican transnational corn processing giant.

In the first year of NAFTA, over 700,000 Mexicans crossed the border into the United States looking for work—many of them farmers or their able bodied-children. From 1994-2004, 1.3 million smallholders went bankrupt. After 13 years of NAFTA, a million immigrants from Mexico and Central America still come to the U.S. each year.

Now that Mexico’s self sufficiency in corn has been all but destroyed, and now that most of its rural workforce is in the U.S. working in slaughterhouses, migrant farm labor and low-end service industry jobs, the price of corn has gone up. Why? Because Archer Daniels Midlands, Cargill and Monsanto are busy expanding into the biofuels market for corn-based ethanol, sending corn prices skyrocketing. Some rural advocates see this as a positive development. It is welcomed by some corn farmers in the Midwest. Won’t Mexican farmers be able to start growing corn again, thus bringing food security back to Mexico? The answer is unequivocal: That depends…

It depends on how effective agribusiness is at draining the windfall profits from U.S. farmers. The big three (ADM-Cargill-Monsanto) are already forging a custom, genetic-processing-transport alliance that will sew up ethanol production, processing, and sale. (ADM is already gobbling up farmer-owned biofuels coops.) None of these companies are famous for sharing the farm dollar with farmers. On the contrary, Monsanto is suing U.S. farmers for over $15 million for saving its seed. All three have been implicated or heavily fined for anti-trust and other illegal activities. It is hard to imagine farmers benefiting when the powerful triad controls the genetically-modified seeds, the custom processing technology, and the transport for corn and biofuels.

It depends on whether Mexico follows the present Latin American trend in which agribusiness is rapidly substituting biofuel crops for food crops, further displacing smallholders and driving up the prices of land and food. It depends on whether the monopolies in the Mexican corn meal industry are decentralized. It depends on whether or not farmers are supported in returning to the countryside and provided with the credit, agricultural assistance, and market security to start producing corn again.

Worldwatch’s Lester Brown recent warned that biofuels would make world food prices too expensive for the world’s poor, leading to widespread hunger (“Ethanol could leave the world hungry,” Fortune, 8/21/06). The tortilla price explosion could be the first indication of this dark forecast.

Yes, the increase in corn prices could help revitalize both U.S. and Mexican rural communities, but unless structural changes are implemented to ensure that the burgeoning biofuels industrialists do not displace farmers or food crops, it may well exacerbate hunger instead.

To reply to this blog send your e-mail to eholtgim at foodfirst.org

COMMENTS:

Richard,

You are absolutely right about yellow corn displacing white corn, thus contributing to the shortage. You are also right about the need for smallholders to take advantage ofthe rise in prices for white corn... However, this will not happen through the "magic of the marketplace" because smallholder production systems have been systematically destroyed and much of smallholder labor is in the U.S. working. Getting all of the production factors lined up on the ejido and small farms again will take government support and political will as well as individual/family effort. No small undertaking, particularly given that both the agricultural crisis and now the boom in corn has served to consolidate power in the hands of large, industrial growers corn growers and GUMA/Maseca, the corn flour supplier (that substitutes local, peasant-based "masa nixtamal"). I'm all for rebuilding smallholder agriculture and eating local tortillas again!

Eric

...Since NAFTA there has been a boom in ethanol but the use of corn for ethanol does not really directly compete with the use of corn for tortillas. Ethanol is made with yellow corn not white corn as are tortillas. However raise the price of yellow corn and part of fields used to raise white corn will be switched from white to yellow. If you reduce the supply of white corn then of course the price will go up.

Part of the problem is that the Mexican urban population and now also a lot of the Mexican rural population which consume corn as tortillas and the stock farmers are dependent on decisions by a small number of industrial scale corn farmers. The way to break out of this is not by regulating these larger corn farms. Instead it is to start educating rural families who have discretionary income not to continue assuming it is disposable.

The highest price paid for food is at retail away from centers where it is processed. Replacing purchased manufactured food is the best way to start rebuilding rural economies. Infrastructure put in place at this stage can then be used to produce surplus which can be sold outside of the household or comunity.

If the rural families do not want to see the management of their ejidos turn the fallow fields over to corporations they need to focus on growing rather than buying food. Right now the price that they would get for surplus white corn can help fund downstream activities which will keep their farms viable when the price of corn goes back down.

Richard Bond

The unintended consequences of US trade/agricultural policy never cease to amaze me. As you noted, the implementation of NAFTA destroyed Mexican corn production and then, when demand for ethanol raised the price of US corn, left a large fraction of Mexico’s poor hungry. Before this, our protection of domestic sugar production raised the domestic price of sugar. This supported a few large Florida cane growers making it profitable to damage the Everglades with runoff. Meanwhile the high domestic price of sugar contributed to the substitution of high fructose corn sweetener for sugar in food products. Recent research seems to identify this sweetener as more dangerous to human health than sucrose. Of course to go back to foreign cane sugar at this point would, because of competition with sugar production for biofuels, cause further damage by increasing destruction of tropical forests. The only possible bright point in this is that ending the embargo against Cuban sugar might cause additional cane production at relatively low ecological cost.

Roger Even Bove, Ph.D.

Associate Professor of Economics

Dept. of Economics & Finance

West Chester University

West Chester PA 19383-2220

Here come biofuels – touted by many as the savior of the small farmer. In some situations, this may be the case. An effectively bottomless new demand for a good which is in limited supply is bound to cause the price of that good to rise. We have begun to see this of late, as demand for biofuel has boosted prices of agricultural commodities on exchanges from Chicago to Hong Kong.
The irony is almost too much. In the past century of agricultural development, increased input costs and economies of scale, along with decreased profit margins have caused farming in many places to become the exclusive province of large-scale agribusinesses. Small farmers, meanwhile, have been fleeing into the cities where they struggle to support themselves in a cash economy. This means that commodity price increases, which would once have put needed money in the pockets of those former farmers, are now threatening their food security by making staple foodstuffs prohibitively expensive. How can a small farmer benefit from the hunger of our SUVs if he sold his farm a decade ago to pay off his debts?

Kevin Fingerman
UNiversity of California, Berkeley