Thursday, April 03, 2014

Psst, buddy - want some mangos?...

As horrified tequila, gin, and guacamole consumers are discovering, the price of limes has quadrupled due to disease, drought, and...organized crime.
As a result of high prices and rampant lawlessness in some Mexican regions, criminals who may be linked to drug gangs are plundering fruit from groves and hijacking trucks being used for export, said Bill Vogel, president of Vision Produce, a Los Angeles-based importer. A truck headed for Vision’s sister company in Texas was hijacked two weeks ago in Mexico, he said, and growers and shippers now are hiring armed guards to protect their green gold.The produce wars on the ground are not limited to limes. Criminal cartels now control, to a shocking extent, the growing and packing of much of the Mexican produce on which United States consumers depend. An article last November in the Mexican newspaper Vanguardia reported that the Knights Templar drug cartel has used kidnapping, murder, money laundering and terror to take over the lucrative avocado business in Michoacán, the top state for production and export of the fruit.Criminal elements also have significantly infiltrated the Mexican mango industry to launder money, said Richard Campbell, a horticulturist and mango expert who travels to Mexico several times a year as a consultant. “Many growers don’t go to their fields because they’re afraid,” Mr. Campbell said. “I’m sure that this has lowered the quality of the mangoes, because it’s harder to control quality.” [More]

As bizarre as it looks in print, US drug enforcement success is pressuring cartels to find new things to extort money from. But seriously, mangos and avocados?
The green citrus fruits are largely grown in one specific region: the state of Michoacán in the country's southwest. And that's where a cartel called the Knights Templar has been elbowing in.
Gustavo Arellano, a syndicated columnist and author who writes about Mexican cultural issues, says the Knights Templar have been making their presence known in an area called La Tierra Caliente for a few years now. 
"So what they've done over the last couple of years, is that, if they're nice, they put humongous taxes on the farmers. If they're not nice, they just kill farmers and take the land and take over lime production themselves." [More]
First off - Knights Templar Cartel???

There are all kinds of guessing as to the effect of creeping legalization in the US on the cartels' income. They don't exactly provide press release balance sheets, but all the models show significant losses.
However, experts and studies note that legalization in two U.S. states -- even if the federal government allows it -- probably won't put Mexico's drug cartels out of business.In the lead-up to the referenda in Mexico and Colorado, the Mexican Competitiveness Institute released a study estimating that Mexico’s cartels would lose $1.425 billion if the initiative passed in Colorado and $1.372 billion if Washington voted to legalize. The organization also predicted that drug trafficking revenues would fall 20 to 30 percent, and the Sinaloa cartel, which would be the most affected, would lose up to 50 percent. [More]
If legalization were to become national - which is increasingly being seen as inevitable -  I can't see Big Tobacco simply stepping aside from this lucrative business. Most experts disagree, but I think they underestimate the ability to of our domestic tobacco industry to change course and compete even with illegal challengers.
The only feasible way for Altria, Reynolds American, and Lorillard to compete against lower-priced competitors is to build premium brands that deliver consistent quality. Marijuana comes in all different varieties and potencies; the average consumer of legal marijuana may not want to get a surprise every time he or she inhales a new purchase. Big tobacco companies are in position to provide large-scale, consistent-quality marijuana cigarettes to an American public that wants to take the edge off.For instance, Altria's Marlboro brand already has a strong following of loyal cigarette smokers. Marlboro has a 43.7% share of the tobacco market. Reynolds' Camel and Pall Mall brands have a combined 17.8% market share. Lorillard's retail market share is nearly 15%, thanks to Newport's 12.6% market share. Although not all tobacco smokers will smoke legal marijuana, those that do may stick to their cigarette brand. So Newport marijuana cigarettes will have an advantage over some upstart brand. This gives tobacco companies a built-in advantage in the nascent market.Moreover, tobacco companies can leverage their current infrastructure and distribution channels to dominate the marijuana market. Altria lists $4.7 billion in land, machinery, buildings, and equipment on its balance sheet (before depreciation). Reynolds' fixed assets exceed $2.5 billion and Lorillard's cost nearly $800 million. Tobacco companies have already made the huge investments in infrastructure required to manufacture and distribute cigarettes; all they would have to do to enter the marijuana market is change the ingredients. No other group of companies in the U.S. is better-suited to dominate the marijuana market, which is why Altria, Reynolds, and Lorillard can do so if and when it makes sense.  [More]
But meanwhile, back in the orchards, how serious could this problem become if the drought continues in the Southwest? Mexico is already gaining serious market share of produce - thanks to NAFTA and the CA shift to tree nuts.

Also this excerpt from a supporting chart (same source):

[Click to enlarge]

I find myself growing more uneasy with the trends toward concentration of ag production - whether it's the corn monoculture in the Midwest or almonds in CA. This seems to be asking for a catastrophic failure. I think it is tied to what happens with capitalism after years of success: concentration of wealth. The problem with discussing this of course, is the economist who first postulated this problem. Recently, Marx has gotten some respect despite his failure to see the problems of communism. Free markets are a great answer for growing economies, but seem to have some problems with mature ones.

We may be about to see those problems face-to-face.

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