As an Iowa farmer who grows corn for the Mexican market, I’m disappointed that the press and some academics are unfairly suggesting that the growing demand for biofuels is too blame.
In response to growing political pressure, the government of newly inaugurated president Felipe Calderon has responded by persuading business leaders to cap tortilla prices at 78 cents per kilogram (about 2.2 pounds).
The agreement is supposedly voluntary and worse solutions were certainly conceivable. As a farmer whose business is dependent on export markets, I have not seen evidence that governments solve economic problems by imposing controls on markets, especially when they misperceive the source of their problems.
Tortillas, the basic staple of the Mexican diet and crucial for the poor, are made from white corn. Most of the ethanol and livestock feed used in the United States and Mexico, by contrast, is derived from yellow corn. Sweet white corn does not end up in gas tanks–it goes into tortillas, flour, and other products consumed by people. I should know, I grow both white and yellow corn on my Iowa family farm.
The sources of Mexico’s tortilla problems are complex: There’s a growing demand for white corn in the United States, increasing numbers of Mexican producers are switching to yellow corn so that they can feed livestock, the Mexican market has resisted building inventories of white corn and therefore have made themselves vulnerable to price swings, and Mexican white-corn importers must receive special authorization from the government before they can purchase abroad to name a few.
To be honest, Mexico imports little white corn from the U.S. In addition to providing incentives to their own farmers to increase white corn production domestically, in 2004 the Mexican government attached a 72 percent tariff on all white corn coming into that country over-quota. The tariff was lowered to 54 percent in 2005 but it still provides a significant layer of protection for Mexican domestic growers. According to El Economista, Mexico has tried to become self-sufficient in white corn but at what cost?
The growing demand for biofuels does play a role. Demand for corn is high, driving prices up. Some corn producers in the United States are moving away from white corn in order to grow yellow corn, making an economic-based decision not merely because yellow corn can become ethanol but also because of its potential biotech characteristics, including increased yields. Currently, GM white corn is not grown in the US market.
Yet biofuels and biotechnology are just two factors among many. If the Mexican government wants to see the price of tortillas drop back down to where they were not so long ago, or at least stabilize at a reasonable level, it will have to quit pointing a finger at American farmers and start scrutinizing its own practices.
Price controls, for starters, usually create more problems than they solve. That’s because prices convey information to producers–when the price of a product rises, producers know to make more of it. But when they’re capped, as Mexico is now attempting to do, the market does not convey this information. Supply doesn’t keep up with demand. In many cases, the original predicament actually worsens, as price-controlled producers receive an actual disincentive to produce more of what’s truly needed.
One possible idea is to encourage the development of genetically improved white corn. South African farmers already grow it–last year, I traveled to their country and learned about their operations. They love this product, and it could easily be adopted in North America. The biotech revolution has transformed the production of yellow corn, and there’s no scientific, nutritional, or economic reason why it shouldn’t improve the production of white corn.
I know biotechnology is not a ‘magic bullet’. The Mexican government needs to examine the monopolistic tendencies of its own economy. Striking deals may solve a pressing political problem, but it cannot replace structural reforms that would promote forms of competition that benefit Mexican consumers.
Blaming ethanol won’t solve the problem.
Darrell McAlexander grows white and yellow corn on his family farm in south west Iowa.