A group of tortilla shops in the southern state of Chiapas, Mexico operated a real cartel in which they regulated the pricing and production of tortillas dividing the capital city of Tuxtla into four areas that granted them exclusive rights to sell the staple food. Municipal authorities were also associated because they granted permits to sellers and fined those who sold tortillas outside of their area. When the cartel operations were discovered, the Mexican antitrust authority, the Federal Competence Commission (CFC) fined tortilla sellers and municipal authorities with more than $74,000 this past September.
The “tortilla cartel” in Chiapas is not an exception but almost a rule in this market. The CFC found other 98 municipal ordinances across the country that attempted interference against free market principles. Those ordinances established minimum distances to open a new tortilla shop according to existing ones, obligated new entrants to sell the product at the same price as existing businesses, imposed strict requisites to open and operate a store, and required them to purchase local ingredients.
Because it is the world’s second largest importer of corn, Mexico was among the first countries affected by international price surges in grains from 2008 to 2011. Prices of grains around the world increased as a result of high energy prices that drove up demand for commodities related to biofuel production. But the competitive structure of the food industry in Mexico played an important role as shown in the case of tortillas.
One company, Grupo Maseca (Gruma), concentrates 71.2% of the imports, stockpiles, and sales of corn, and it is the main supplier of tortilla shops across the country. Another company, Minsa, holds another 23.54% of the market resulting in two companies controlling 95% of the corn sold in Mexico. Both companies concentrate imports, stockpiles, and sales of corn across the country because they have the storage capacity and a large distribution network to reach every corner of the country. Farmers have reported intimidating practices to sell their harvest at prices below market while these companies are hoarding imported corn to speculate with prices.
Tortillas are only a snapshot of the market concentration that prevails in the Mexican food industry. A few companies control a large percentage of the production and distribution of dairy products, corn, processed meats, vegetable oils, bread, water, sodas, eggs, chicken, and beer. For example, Bachoco is a company that controls 92% of the national sales of poultry. There also exists a duopoly of milk in which companies Lala and Alpura produce 80% of this beverage.
In most of these markets, oligopolies establish prices, quality standards, and consumer preferences. Large food companies have a great bargaining power with farmers, government, retailers, financial institutions, and media conglomerates. However, most of these companies rely heavily on imports of agricultural products increasing the vulnerability of the Mexican market to international food spikes.
The market concentration in the food industry affects mostly the poor, who spend a higher percentage of their household income on food. In Mexico, the lowest 10% earners spend 41% of their total expenditures on food. Therefore, poor households have been the most affected with the global food crises. Since 2006, the cost of the monthly food basket per person in Mexico increased 53%. As a consequence, 3.2 million people fell into poverty and a total of 28 million people in Mexico currently lack access to food.
While the Mexican government has tried to expand its cash transfer programs and set price controls, the real solution is to fight food cartels through stricter competition rules. But these days, there are more talks about other cartels that are threatening the rule of law in Mexico.