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Corn Again (or, the devil is in the details)

22 February 2007

It’s not news that agribusiness is good for everyone except the farmer.  I saw that Nestlé announced a 21% profit this year, with most growth coming from coffee and sugar sales.  Chairman Peter Brabeck was quoted by the BBC as saying he expected good sales again next year, because “The prices from raw materials coming in 2006 will be much less than those coming in 2005,” Mr Brabeck said.

I lived in the State of Morelos, where the fallout from low commodies prices for sugar led to a collapse of state owned refineries, privatization and re-sale to the state (and lots of angry farmers in the streets of Cuernavaca).  I was not in Xalapa or Cordoba, Veracruz when coffee prices dropped.  I was able to buy coffee by the kilo on the street in Mexico City for about 40 pesos a kilo… the surviving farmers were just selling it themselves and still turning a slight profit by breaking their contracts with the sellers. 

As Maja Wallengren reported for the Dow Jones Newswire on May 29, 2001 –

MEXICO CITY –Serving as grim proof of the severity of the social crisis in Mexico caused by low international coffee prices, most of the immigrants found dead in the Arizona desert last week came from coffee-producing areas.

Fleeing the crisis in Mexico’s second largest producing state of Veracruz, six of the 14 dead were identified as small coffee farmers, some of the thousands who have been heading to the U.S. to try their luck as illegal immigrants.With coffee prices at around 60 cents a pound not covering the cost of production, farmers are abandoning their farms or selling them to raise the money to pay smugglers to take them into the U.S.

For the farmers who stick it out, the mass exodus leaves them without labor to harvest their beans.“It’s an indication of the level of desperation in the coffee areas, which is triggering a massive migration from all areas, and the cost of this social crisis is enormous,” an exporter in the Veracruz coffee town of Xalapa told Dow Jones Newswires by telephone from the Gulf Coast state.

Veracruz state produced about 1.56 million 60-kilogram bags of coffee in the 1999/2000 record harvest cycle, or roughly 25% of Mexico’s total output in that harvest cycle, according to figures from the Mexican Coffee Council. This year’s crop is likely to be markedly lower

Suddenly “fair trade” was hip, but the Archbishop of Chiapas still condemnded coffee buyers (particularly Starbucks) as Satanic.  For once, the Archbishop and I agreed [full disclosure — many years ago I worked for the now-defunct Sugar Creek Coffee Roasting Company. With one Honduran grower, and only minor suppliers elsewhere in the world, we couldn’t compete]. 

Now, it’s corn…

I’ve never bought the rationale that the jump in tortilla prices was caused by U.S. demand for ethanol, but there is a connection.  Tom Philpotts makes one in “Bad Wrap: How Archer Daniels Midland Cashes in on Mexico’s Tortilla Crisis (Grist, 22 February 2007)

…1980s-era privatization schemes dealt a serious blow to the nutritional value of tortillas. Buoyed along by his good friend the now-disgraced former president Carlos Salinas, a magnate named Roberto González Barrera used government power to rig a market for his new industrial tortilla-making process, which relies on refined corn flour rather than whole corn kernels. Its products less flavorful and nutritious than traditional tortillas, González’s method was decisively rejected by the market — and then, in the mid-1990s, it got a boost from his political cronies. Today, it accounts for about half of Mexican tortilla production — and González’s company, Gruma, controls 70 percent of the industrial tortilla market. (In the same bout of privatization that won him his tortilla powerhouse, González also pocketed a bank.)

Evidently impressed by Gruma’s ability to leverage public support for private gain, Archer Daniels Midland bought its stake in Gruma in 1996. For most of the last 10 years, Gruma used its market power with impunity. Indeed, the current crisis doesn’t mark the first time since Gruma gained market dominance that Mexican consumers have endured a jump in tortilla prices. According to Oxfam [PDF], the government watched idly while the retail price of tortillas tripled between 1994 and 1999 — even as the price of Gruma’s raw material, corn, fell steadily.

The Mexican rural population is basically at the mercy of multi-nationals. Sam Logan and Katie Kaires of IRC show that even alternative rural industries geared to foreign consumer demand may not be the answer…For a long time, the United States’ addiction to hard drugs was seen as strictly a domestic problem. Compared to drug demand in the United States, consumption of illegal drugs in Latin America was relatively low. Countries south of the Rio Grande kept mainly to production and distribution—as long as U.S. demand created a market, Latin America would supply. Criminals in Colombia and Mexico, in particular, focused on feeding the beast, making billions of dollars in the process.But the nature of drug demand in the United States has changed. With the heavy and relatively rapid onset of demand for methamphetamine (meth), a new paradigm has formed. In the past, demand for the drugs coming out of Latin America remained inside the United States. Today demand has begun to spread out from the United States to Mexico, and possibly beyond.

Methamphetamine use has risen dramatically throughout the United States, and in the past few years the horror of meth has hit Mexico too. Drug producing and transit countries throughout Latin America have in recent years also become drug consuming countries, as drug traffickers seek profits at home. New findings show that meth—a drug that was previously little known south of the U.S.-Mexico border—is now not only being massively produced in Mexico but also widely consumed.

When Felipe Calderón and “the decider” meet next month in Merida, it’ll be interesting to see what — if anything — is said about agriculture and rural development. Or, about the only alternative (outside of AMLO’s suggestion of more rural development, financial aide to campesinos, price supports and renegotiating NAFTA) available — emigration to the United States.

ADM-controlled Grupo Gruma announced today that they expect to raise corn prices another 3 or 4 percent later this year.

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