Mexico

Today corn prices hit an all-time high of $7 a bushel. How does this affect Mexico, which gave the world its native maize after European contact? The answer is two-fold: 1) this represents a hardship for the majority of Mexicans while 2) higher prices present an opportunity for large agricultural exports.

As a staple crop for the vast majority of Mexicans, rising corn prices threaten minimal livelihoods. The 75% year-over-year increase in corn prices directly reduces purchasing power and also diverts higher percentages of incomes toward foodstuffs and away from other economic activities.

With Mexico as the world’s fourth-largest maize exporter, this should represent an opportunity for major agricultural exporters. The Mexican Agriculture Secretary, Alberto Cárdenas Jiménez, explained at the beginning of 2007 that agriculture and maize production were one of the greatest beneficiaries of government intervention. However, Professor Roberto Escalante at la Universidad Nacional Autónoma de México, la UNAM, explains the stratification of investment as favoring large producers, which are few in number compared to the bulk of Mexican farms that are under five hectares. In the aggregate, these large producers receive 75% of around $5 million in subsidies annually, whereas small producers receive 25% of this amount. The subsidies are directed to the most efficient farms in the states of Jalisco, Sinaloa, and Chihuahua. Few funds reach the poorest farmers Oaxaca and Chiapas, which struggle to compete without technical and credit assistance, land reform, etc.

Paradoxically, Mexico sends much of its more diverse white maize to higher-paying markets for export, whereas much of the uniform yellow corn is imported from the United States. Mexico producers approximately 20 million tons annually, a tenth of the quantity produced by the U.S. each year, according to the UN Food and Agricultural Organization.

Wall Street Journal columnist Mary Anastasia O’Grady seeks to put the Nafta-bashing on the campaign trail during the Democratic presidential primary into perspective this week. O’Grady says not only will such rhetoric undermine U.S. efforts to assist in the modernization of Latin American economies, it tips the balance of power towards Big Labor when it comes to issues of free trade and globalization. Read the full op-ed.

Mexican officials have also expressed concern with a number of the Democratic candidates’ statements on Nafta, and many Mexicans argue the trade agreement has ushered in a new era of growth.  In a related story, Sen. Barack Obama is facing trouble following a leaked memo that his campaign gave a “wink wink, nudge nudge” to Canadian officials in Chicago, noting that his strong anti-Nafta rhetoric was more “political positioning” than future policy.

Fourteen years after its passage, the North American Free Trade Agreement (NAFTA) is still widely debated, with concerns over issues such as job movement, workers’ rights, and environmental protection. Laura Carlsen, Director of the Americas Policy Program in Mexico City, testified before the U.S. Congress on December 6th that NAFTA has been disastrous for small farmers in Mexico. A detailed report with the findings and analysis she presented to Congress can be found here.

The full text of NAFTA is available here on the website of the Organization of American States (OAS).

President Calderon’s bill to reform Mexico’s tax system has been approved by the national Congress. According to the Economist, the new tax laws will increase the government’s non-oil tax revenue from 10% of GDP to 12% by 2012, resulting in an extra $10.3 billion in federal funds next year. 

In order to gain support for his tax proposal, Calderon approved an opposition-inspired bill reforming the electoral process. The new electoral laws shorten the length of presidential campaigns and ban all political advertising except that arranged by the Federal Electoral Institute (FEI) in designated time slots.

For former Mexican Foreign Minister Jorge Castaneda’s take on all of this, see The Fragile Democracy, which appears in Newsweek.

For additional details, see:

Reforms at Last (Economist)
Key Facts About Mexico’s Tax Reform (Reuters)

The leaders of Mexico, Canada, and the U.S. concluded a two-day summit focusing on issues such as trade, the environment, and border security. Presidents Bush and Calderon discussed a joint plan to combat drug trafficking on both sides of the border. The leaders also met with business executives from across the continent and agreed to block the import of unsafe products into North America. The summit, in Montebello, Quebec, drew crowds of protesters, which has become a regular feature of President Bush’s foreign excursions, especially where trade is at issue.

(Reuters photo of U.S. President George W. Bush, Canadian Prime Minister Stephen Harper, and Mexican President Felipe Calderon)

The Council on Foreign Relations hosted a discussion titled “Biofuels in the Americas” featuring David J. Rothkopf and C. Ford Runje. Participants discussed the drawbacks of corn-based ethanol as well as the opportunity that Latin American countries have to diversify their economies via the energy sector by developing biofuel industries. Listen to an audio podcast of the program here.

Alan Greenspan, former Chairman of the U.S. Federal Reserve, said recently that Mexico should privatize its oil industry to raise production through increased capacity for exploration. Greenspan stated that Mexico’s declining oil production could lead to a major fiscal crisis in the country. Mexico is the world’s 9th largest exporter of crude oil and a key supplier to the U.S. Petroleos Mexicano (PEMEX) is the state-owned, nationalized petroleum company.

Former Mexican presidential candidate Manuel Lopez Obrador has voiced his opposition to Greenspan’s recommendation, and despite Greenspan’s global stature, it is not clear that his comments will be well-received or have any impact on policy decisions in Mexico.

Often referred to as “banking for the poor,” microcredit programs provide collateral-free small loans to those too poor to qualify for traditional bank loans.  Originating in developing countries, microcredit has provided a successful model for enabling impoverished individuals to engage in self-employment projects to generate income.  It is part of the larger microfinance movement, and often focuses on lending to women, who have shown to be more reliable in repaying the loans and also more likely to devote their earnings to benefit the entire family.

Two organizations, BanComun de la Frontera and Grameen de la Frontera, focus on microlending in Mexico’s northern regions.  The latter is named after the famed Grameen Bank in Bangladesh, which is credited with developing the microcredit model that is now widely replicated worldwide.  BanComun loans, which range from just $50 to $800 per person, have reached over 1,500 residents in the poorest neighborhoods of Nogales.  Approximately 85% of the clients are women, and the program has a 95% repayment rate.  BanComun is expanding to other cities including Juarez and setting up a social investment fund that will allow people to help finance the socioeconomic welfare of its clients. 

Meanwhile, the Dallas-based Chiapas Project has helped more than 4,000 impoverished women in the state of Chiapas, through a partnership with Alternative Solidaria. The loan repayment rate has been 98%, encouraging organization leaders to further expand their reach through the Grameen Foundation. According to the Chiapas Project, with loans as small as $50, women can buy chickens and sheep to raise, plant trees to produce and sell fruit, purchase a corn grinder to make tortillas for the market, or buy cloth to create and sell handicrafts. The hope is that through microfinance, women such as those in Chiapas who typically live on less than $2 a day, are able to earn the income necessary to rise above poverty.

The Supreme Court of Mexico struck down the national “Televisa law,” which was enacted last year to give away bandwidth for television, Internet, and telephone services exclusively to two media giants, Televisa and TV Azteca, without bids or compensation to the government.  Lawmakers will now have to re-draft the law to allow competition. 

In making the ruling, Justice Olga Sanchez said, “The fact that the media is concentrated in a few hands distorts the right to information because it allows those in control of the media to manipulate, to mold public opinion.”

Mexican President Felipe Calderon kicked off a five-nation tour of Europe this week, hoping to promote trade relations, increase investment in Mexico, and boost European tourism to Mexico.  Calderon began his trip in Rome, where he met with Italian Prime Minister Romano Prodi. Calderon was scheduled to meet with 400 Italian business executives in Milan on Tuesday before attending the G8 Summit in Germany on Wednesday, representing Mexico in the “Group of Five” or G5 — the five countries selected by the G8 as “emerging powers.” He will also visit France, Belgium, and Denmark on his European tour.

According to the Latin Business Chronicle, Mexico is the top Latin American destination for European Union exports and the second largest EU trade partner in the region. Calderon commented in Italy that it was important for Mexico to diversify its relations in the EU.

(Photo: Calderon with Prime Minister Romano Prodi in Italy)