Biodiesel and the price of tortillas in Mexico

What does filling your car’s gas tank in Portland have to do with the cost of corn tortillas in Mexico? Sounds like a riddle, huh? According to the BBC, Mexico’s President, Felipe Calderon, is claiming the soaring price of tortillas, one of his country’s staple foods, is due to lower imports of American corn because more is being used for biodiesel here. So I wondered, is that accurate? Because I’m guessing even the most ardent environmentalists in Portland would question having greener fuel in our cars, if it means starving Mexican children can’t afford tortillas.

First point: corn is used mainly to make ethanol gasoline additives. Biodiesel is made more from other vegetables such as soybeans, canola, and mustard, and from animal and vegetable food wastes such as cooking oil. See Grist. So we’re talking about ethanol biofuels, not biodiesel, potentially taking corn out of children’s mouths. But that’s semantics, maybe lost in translation. Is use of corn for fuel in the US causing increased prices for its sale as food in Mexico?

Yes and no.

Both the North American Free Trade Agreement (NAFTA) and policy choices by the Mexican government, have contributed to rising tortilla prices over the past ten years. There isn’t a shortage of corn in the US, partly because there was a huge surplus stockpiled which has been halved in recent years. But now, significantly more corn is being taken domestically for ethanol production, with no increase in the amount of corn grown. Exports have fallen. We do need to be aware of the impact of our own use of corn as fuel, and look to help other countries become more self-sufficient in growing their food.

From another BBC article from 2004:
“It is impossible to overstate the importance of corn in Mexican life. A quarter of the population depends on it for their income, over half the planted land in Mexico is given over to it, and the corn tortilla remains the staple food of Mexico despite the conquest nearly 500 years ago of the wheat bread eating Spaniards.”

“Spanish society remains riven by the corn/wheat divide. Mexico’s predominantly Spanish middle and upper classes tend to eat the many wheat breads baked in the country, while the indigenous Indian Mexicans still make and eat corn tortillas.”

Many US unions and civil rights groups blame the North American Free Trade Agreement (NAFTA), implemented in 1994, for increasing poverty among the 60% of Mexican farmers dependent on corn crops and for consumers. From an International Relations Center report:

“The case of corn in Mexico demonstrates how the theory of free trade has often been at variance with the realities of international and production economics. Another premise that has not been borne out is that free trade will benefit consumers by providing lower prices. Over the NAFTA period the domestic price for corn has fallen. But the price of corn food–especially the Mexican staple, the tortilla–did not decrease; in fact, it has increased 279%.”

“The reasons for this are twofold: first, and most important, tortilla prices were subsidized until 1996, when manufacturers were able to transfer their increased costs to consumers. Second, the Mexican tortilla market is a monopoly where the two largest companies–GIMSA and MINSA–account for 70% and 27% of the market respectively. These companies operate like cartels, using their market power to set higher prices.”

“[And] the Mexican government could have used NAFTA regulations to protect the corn sector until 2008, giving its farmers a longer adjustment period.
But the Mexican government did just the opposite. Since NAFTA implementation began, annual imports of corn into Mexico have always exceeded the allotted tariff-free quota. The planned 15-year transition period was compressed between January 1994 and August 1996, when prices fell 48% forcing Mexican producers into a rapid adjustment. This accelerated process took place along with decreases in government support for farmers, further compounding the adverse effects on corn farmers. The decision to truncate the adjustment period proved favorable to large companies importing corn as animal feed.”

In other words, government policy helped the rich corporations and cartels get richer. Sounds familiar. Note that there isn’t agreement that NAFTA has impacted Mexican corn prices at all: a 2004 World Bank study concluded it did not, in part because rising tortilla prices predated NAFTA by at least ten years.

Productivity per acre in Mexico is less than one fourth the yield per acre in the U.S., partly because of climate and terrain, partly due to more advanced farming practices and increased use of fertillizers and irrigation here. So given this and the political decisions mentioned above, some of the reasons for soaring Mexican corn tortilla prices are found in Mexico, rather than related to the biofuels issue.

But from the January 12, 2007, Houston Chronicle:

“The U.S. Agriculture Department said today that ethanol plants and foreign buyers are gobbling U.S. corn supplies, pushing prices as high as $3.40 a bushel, the highest in more than a decade.”

Biodiesel and ethanol production plants are now consuming 20% of the annual US corn crop, about the same proportion as the amount exported. There are more than 110 ethanol plants and 88 biodiesel factories across the US. The corn experts at Iowa State University‘s Corn Production, Agronomy Extension say in this November 2006 assessment that if the demand and payback for corn grown for ethanol production continues to rise, corn exports and domestic production of pork and poultry will likely fall. Economists in the state of Nebraska are predicting that half of Nebraska’s corn will soon be used by the state’s ethanol plants. Nebraska, Illinois, Iowa, and Minnesota together grow more than 50% of the United States’ corn, so this is a significant amount. Is anyone talking about the future of corn as food, as well as its future as a fuel?

Portland’s fuel regulations are found in Chapter 16 of City code. After July 1, 2007, all diesel sold in Portland will be required to contain at least 10% biodiesel, and all regular gasoline at least 5% ethanol, year round. I didn’t participate in the process of adopting these regulations last year – does anyone know if the issue of the cost of corn as food, in relation to increased use as fuel, was discussed?

Obviously, I’m not an expert on this, I’ve just shared a few hours’ research. I bet some of the good folks at Portland Peak Oil know a lot more. They meet every Wednesday night, 7 p.m. at St. Francis Church in SE Portland’s Buckman neighborhood, 1182 SE Pine. I’d like to hear from anyone with more information or insights. I don’t have a major conclusion to share…. just the observation that things are seldom as simple as we want them to be. Fixing one problem may cause another. Neither biodiesel nor ethanol for fuel can be a panacea with no cost to us, the American consumers. Using less fuel must still be part of the solution to global problems such as energy, warming, and feeding hungry families.