Tortilla Price Stabilization Pact
Encyclopedia
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 tortilla
s in early 2007.
(maize) had been rising dramatically throughout 2006, leading to the inflation of tortilla
prices in the first month of Calderón's term. Because tortillas are the main food product consumed by Mexico's poorest people, national concern over the rising prices immediately generated political pressures for Calderón's administration.
for tortillas that protect local producers of corn. 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.
ignored the agreement, leading to price increases in well in excess of the $8.50. 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. That is interpreted by liberals as evidence that price controls, and the Tortilla Price Stabilization Pact, were unnecessary and potentially harmful for the market.
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. 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 pesos 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.
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
.
Mexico
The United Mexican States , commonly known as Mexico , is a federal constitutional republic in North America. It is bordered on the north by the United States; on the south and west by the Pacific Ocean; on the southeast by Guatemala, Belize, and the Caribbean Sea; and on the east by the Gulf of...
Federal Government, headed by President
President of Mexico
The President of the United Mexican States is the head of state and government of Mexico. Under the Constitution, the president is also the Supreme Commander of the Mexican armed forces...
Felipe Calderón
Felipe Calderón
Felipe de Jesús Calderón Hinojosa is the current President of Mexico. He assumed office on December 1, 2006, and was elected for a single six-year term through 2012...
, and several tortilla
Tortilla
In Mexico and Central America, a tortilla is a type of thin, unleavened flat bread, made from finely ground maize...
producing companies in Mexico to limit the volatility of price
Incomes policy
Incomes policies in economics are economy-wide wage and price controls, most commonly instituted as a response to inflation, and usually below market level.Incomes policies have often been resorted to during wartime...
in tortilla
Tortilla
In Mexico and Central America, a tortilla is a type of thin, unleavened flat bread, made from finely ground maize...
s in early 2007.
Background
The international price of cornMaize
Maize known in many English-speaking countries as corn or mielie/mealie, is a grain domesticated by indigenous peoples in Mesoamerica in prehistoric times. The leafy stalk produces ears which contain seeds called kernels. Though technically a grain, maize kernels are used in cooking as a vegetable...
(maize) had been rising dramatically throughout 2006, leading to the inflation of tortilla
Tortilla
In Mexico and Central America, a tortilla is a type of thin, unleavened flat bread, made from finely ground maize...
prices in the first month of Calderón's term. Because tortillas are the main food product consumed by Mexico's poorest people, national concern over the rising prices immediately generated political pressures for Calderón's administration.
The Pact
President Calderón opted for using price ceilingsIncomes policy
Incomes policies in economics are economy-wide wage and price controls, most commonly instituted as a response to inflation, and usually below market level.Incomes policies have often been resorted to during wartime...
for tortillas that protect local producers of corn. 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
Gruma
Gruma is the largest manufacturer of corn flour and tortillas in the world. Its brand names include Mission , Maseca, and Guerrero. Founded in 1949 as "Molinos Azteca, S.A.", the company is now based in Monterrey, Mexico and has subsidiaries in the United States, China, England, Central America,...
and Bimbo
Grupo Bimbo
Grupo Bimbo is the largest Mexican food company and the largest bakery in the world with brands in Americas, Europe, and China.-History:Grupo Bimbo was established in Mexico in 1945 by Lorenzo Servitje, Jose T. Mata, Jaime Sendra, and Jaime Jorba...
, to put a price ceiling at MXN
Mexican peso
The peso is the currency of Mexico. Modern peso and dollar currencies have a common origin in the 15th–19th century Spanish dollar, most continuing to use its sign, "$". The Mexican peso is the 12th most traded currency in the world, the third most traded in the Americas, and by far the most...
$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). Many tortilleríasTortilleria
A tortilleria, or tortilla bakery is a shop that produces and sells freshly made tortillas. Tortillerias are native to Mexico and Central America, and some are being established in some areas of the USA. Tortillerias usually sell corn tortillas by weight...
ignored the agreement, leading to price increases in well in excess of the $8.50. Government opposition see this as an indication of the failure to protect the economy of poor consumers. In response to this, PROFECO
PROFECO
The Procuraduría Federal del Consumidor, or Office of the Federal Prosecutor for the Consumer is an organization of the Mexican government, dependent of the Attorney General, designed to protect consumers against abuses or fraud by companies operating in Mexico.Mexico became the second Latin...
, the government consumer protection agency, has also threatened with jail those tortilla producers who charge "excessive" prices.
However, some major supermarkets such as Soriana
Soriana
Organización Soriana is a Mexican public company and Mexico's largest retailer. Soriana is a grocery and department store retail chain headquartered in Monterrey, Nuevo León, Mexico. The company is 100% capitalized in Mexico and is publicly traded on the Mexican stock exchange the Bolsa Mexicana...
, or Comercial Mexicana
Comercial Mexicana
Comercial Mexicana is a Mexican hypermarket group, which features stores similar to those owned by Carrefour in France or Wal-Mart in the United States...
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. That is interpreted by liberals as evidence that price controls, and the Tortilla Price Stabilization Pact, were unnecessary and potentially harmful for the market.
Results
Three months after the pact was signed, the Secretariat of EconomySecretary of Economy (Mexico)
In Mexico, the Secretariat of Economy is the government department in charge of economic affairs...
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. In fact, in Tijuana
Tijuana
Tijuana is the largest city on the Baja California Peninsula and center of the Tijuana metropolitan area, part of the international San Diego–Tijuana metropolitan area. An industrial and financial center of Mexico, Tijuana exerts a strong influence on economics, education, culture, art, and politics...
, Morelia
Morelia
Morelia is a city and municipality in the north central part of the state of Michoacán in central Mexico. The city is in the Guayangareo Valley and is the capital of the state. The main pre-Hispanic cultures here were the P'urhépecha and the Matlatzinca, but no major cities were founded in the...
, San Luis Potosí
San Luis Potosí, San Luis Potosí
San Luis Potosí, commonly called SLP or simply San Luis, is the capital of, and most populous city in the Mexican state of the same name. The city lies at an elevation of 1,850 meters...
, Ciudad Victoria
Ciudad Victoria
Ciudad Victoria , is the capital city of the Mexican state ofTamaulipas. It is located in the western-central region of the state. Ciudad Victoria is also the municipal seat of the surrounding Victoria Municipality, which covers an area of 1,638 km²...
, and Nuevo Laredo
Nuevo Laredo
Nuevo Laredo is a city located in the Municipality of Nuevo Laredo in the Mexican state of Tamaulipas. The city lies on the banks of the Río Grande, across from the United States city of Laredo, Texas. The 2010 census population of the city was 373,725. Nuevo Laredo is part of the Laredo-Nuevo...
the price of tortillas has risen, despite the fact that the average price of maize has dropped from MXN $3,500 to $2,500 pesos per ton
Tonne
The tonne, known as the metric ton in the US , often put pleonastically as "metric tonne" to avoid confusion with ton, is a metric system unit of mass equal to 1000 kilograms. The tonne is not an International System of Units unit, but is accepted for use with the SI...
. 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
Greater Mexico City
Greater Mexico City refers to the conurbation around Mexico City, officially called Mexico City Metropolitan Area , constituted by the Federal District—itself composed of 16 boroughs—and 41 adjacent municipalities of the states of Mexico and Hidalgo...
, and not the whole country.
Guillermo Ortiz Martínez, governor of the Bank of Mexico
Banco de México
The Bank of Mexico , abbreviated BdeM or Banxico, is Mexico's central bank and lender of last resort. The Bank of Mexico is autonomous in exercising its functions, and its main objective is to achieve stability in the purchasing power of the national currency.On December 15, 2009, Agustín Carstens...
, labeled the agreement "a success" for consumers, and urged for it to continue as means to combat rising inflation
Inflation
In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...
.