Sunday, April 15, 2007

The tortilla problem...

For those of us who eat Mexican just for a change of pace, the story of tortilla prices may seem mildly annoying. But to Latin America, it is not. The NCGA wandered off the Logic Reservation with their spin-laden response:
Rising tortilla prices in Mexico are due to a supply issue in that country – not increased U.S. ethanol production or U.S. corn prices. The U.S. Grains Council (USGC) and the National Corn Growers Association (NCGA) report that lower corn production in Mexico and the lack of import licenses have caused white corn shortages there. [More]
Umm - guys, you can't proclaim ethanol as the reason for higher corn prices and then say higher corn prices can't be blamed on ethanol. White corn prices are calculated from the same CBOT price as yellow. Even if we had open corn trade, white corn prices would be high. The short crop is an issue, and so is ethanol.

Economist Tyler Cowen has an excellent post on the tortilla price issue in light of ethanol demand. And his normally hard-nosed capitalist approach falters unexpectedly.
American corn ethanol policy seems like a bad idea for sure. Let's open up our markets to superior Brazilian sugar-based ethanol. That would lower American and also Mexican corn prices.

And Mexico? My head knows what is right but my heart is torn. Can Mexico can afford the protectionism which keeps local producers going and gives it the world's best and most diverse corn, the world's best tortillas, and supports a major part of its national identity, most of all for its most oppressed and politically sensitive groups? I am emotionally torn and will not proceed with the question any further.
The analysis is sound, but like many of us, there are some issues where allegiance to a free market is tested and found wanting. This does not suggest that we have a binary choice for economic policy, but simply litmus-testing every question is insufficient criticism.

Markets can be inefficient - recognizing when they are, and how to adjust is the tough part.

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