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Politics : Politics for Pros- moderated
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From: LindyBill4/6/2007 7:09:16 AM
   of 793658
 
Corn prices in Mexico
MARGINAL REVOLUTION BLOG
By Tyler Cowen on Food and Drink

A loyal MR reader asks:

[Please discuss] food prices in Mexico (especially in light of the recent corn/tortilla issue)

Tortilla prices have long been subsidized and controlled, though the market was liberalized in 1999. Due largely to ethanol demand, corn prices in Mexico rose 14 percent last year. There are now new price controls on tortillas, circa 2007. Mexico also continues to restrict the importation of American corn.

Tortillas provide about half of the protein and calories of the Mexican poor.

Those looking for "optimal worlds" might argue that tortilla subsidies are an efficient means of transferring income. Mexican governments aren't honest or organized enough to administer a traditional welfare state with much effectiveness. For instance Mexican bureaucrats may be too corrupt to stop the non-poor from claiming direct welfare payments. But low tortilla prices select for poor consumers automatically, as tortillas are an inferior good.

Note that tortilla price controls require, in the long run, subsidies for tortilla producers. The low price transfers real income and the subsidy ensures that supply continues and that quality does not fall apart.

American corn ethanol policy seems like a bad idea for sure. Let's open up our markets to superior Brazilian sugar-based ethanol. That would lower American and also Mexican corn prices.

And Mexico? My head knows what is right but my heart is torn. Can Mexico can afford the protectionism which keeps local producers going and gives it the world's best and most diverse corn, the world's best tortillas, and supports a major part of its national identity, most of all with its most oppressed and politically sensitive groups? I am emotionally too torn to proceed with the question any further.

I might add that the flour tortillas of northern Mexico are, slowly but surely, gaining ground on the corn tortillas of the Mexican interior. Flour tortillas are in any case cheaper and easier to store.
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