Advanced BioFuels USA

by Joanne Ivancic (Advanced Biofuels USA)  In light of signs of a moderation in the long upward trend in commodity prices, and recurrent assignment of blame for food insecurity and high food prices to the emergence of biofuels markets, particularly markets for ethanol made from corn, it may be useful to remember the remarkable episode in Mexico eight years ago when tortilla prices reached unprecedented levels. A Brazilian study elucidates how the combination of international instability with domestic elements can have dangerous implications for food security of vulnerable populations.  It becomes clear that biofuels, even corn-based ethanol, cannot bear all the blame that has been imposed on them for the 2007’s $20.00 tortillas in Mexico.

Laís Forti Thomaz and Carlos Eduardo Carvalho analyse in their paper, “Tortilla Crisis in Mexico (2007): The Rise of Commodities, Financial Instability and Food Security,” price formation in commodities markets, national policies, local tortilla production characteristics, as well as international trade agreements, and much more. They find that food insecurity is caused more often by nation-specific internal high production prices than commodity supply constraint. And, they find that that this problem coexists with the traditional concern with the occurrence of balance of payments crises in importing countries and the price fluctuations in food exporting countries.  They note that it is too early to evaluate whether we are experiencing the beginning of a prolonged downward shift of food commodity prices. However, recurrent instability in the markets for these products is almost certain, with strong influences from financial factors in price formation.

Thomaz and Carvalho conclude that the crisis of tortillas in Mexico highlighted the risks of the sharp combination of two elements: (1) fluctuation in international prices of agricultural commodities;  (2) structural markets problems. Mexico is simultaneously producer and importer of a product essential to the food security of its population. The possible change of the medium-term trend in commodity prices should not eliminate the instability of markets, linked to the so-called “financialization” of commodities, next to the uncertainties about the supply and demand for these products. In Mexico, there was the influence of subsidy policies to US corn and domestic pricing problems, corn and tortillas, due to peculiar aspects of Mexican domestic markets.

Of  particular interest is their observation that “The price of tortillas jumped from $5.00 per unit in January 2006 to up to $20.00 one year later, when there were popular protests.”  While, ” Corn prices showed a different pattern. According to CEFP, corn jumped from $2.10 dls/bu in May 2000 to $3.52 dls/bu in June 2007, i.e. 67,1% in seven years. From August 2007 to April 2008 the increase was 57,9%, peaking at US$5.48 dls/bu in June 2008, 68% above August 2007 (as in all other markets, there was a sharp decline since mid-2008 and in October corn was back at US$3.99 dls/bu – a fall of 27.2% below the June peak). Thus, the jump in the price of tortillas took place long before the strong increase of corn prices, which remained until mid-2008…”   Download study

Laís Forti Thomaz–PhD student, Graduate Program in International Relations San Tiago Dantas – Unesp, Unicamp, PUC / SP.  And contributing author to Advanced Biofuels USA.

Carlos Eduardo Carvalho–Professor, Department of Economics, PUC / SP and at the Graduate Program in International Relations San Tiago Dantas – Unesp, Unicamp, PUC / SP.

Summarized and updated version of the paper: THOMAZ, LF; CARVALHO, C.E.F. The tortilla crisis in Mexico (2007): the upward trend in commodity prices, financial instability and food security. The Perspective of the World Review, v. 3, p. 81-108, 2011. Home page: [http://www.ipea.gov.br/agencia/images/stories/PDFs/130726_rtmv3_ingles02.pdf]