Monday, January 29, 2007

On Mexican Tortillas, Milk, Oil and Drugs

By Allan Wall

Mexican President Felipe Calderon has made his first trip to Europe, beginning in Germany, Mexico’s biggest economic partner on the Old Continent.  German chancellor Angela Merkel invited Calderon to attend the G-8 meeting as an observer, and Calderon promoted Mexico as a destination for German investment.

Meanwhile, back in Mexico there is plenty going on, ensuring that Calderon will have his hands full upon his return.

Despite efforts to keep a lid on tortilla prices they are not going down.  The consumer price crisis is a political problem for the Calderon administration because it has a disproportionate impact on poorer Mexicans, which plays right into the hands of the political opposition. The PRD (Party of the Democratic Revolution) has called for the government to control tortilla prices at $6 pesos a kilo [US$0.54].

But if the government’s tortilla accord failed to keep prices at $8.50 a kilo [US$0.77], how wise would it be to try to force dealers to sell at an even lower price?  Such a measure would hurt the smaller tortilla dealers, who were excluded from the tortilla accord anyway.

These are the problems however that governments encounter when they artificially tinker with the economy. There are always winners and losers.

That’s certainly the case with the milk crisis. Liconsa (the state entity that purchases milk from small- and medium-sized dairies in order to then sell it at reduced costs to the poor) wants to cut the price of milk.  But that involves paying the dairy producers less money.

Therefore, Mexican dairymen protested in front of the Mexican Secretariat of Agriculture. The dairy demonstrators brought cows into the street where they milked them.  (Some bystanders asked for — and received — the milk).  The dairymen are threatening more protests, including a threat to pour milk in the streets of Mexico.

The Mexican war on drugs continues apace. The army has been sent to the northern city of Monterrey, where officials were recently assassinated, while the anti-cartel operative continues in Guerrero state in the south.

In Guerrero, a 300-kilometer highway between Acapulco and Ixtapa-Zihuatanejo has been dubbed the “Corridor of Death.”  So how bad is the “corridor of death”?  In calendar year 2006 it was the scene of 213 executions (most in the Acapulco sector), including 11 decapitations.  There were 35 grenade attacks (although 14 didn’t detonate), mostly against police, and 24 police were killed during the year.  The 213 executions comprised about half of the total executions in the whole state.

This region is a popular tourist destination, yet ironically some of the very features that make it good for tourists also attract drug traffickers.  The beautiful beaches are useful for unloading drug shipments, and nearby mountains and canyons are good places to hide.   The area is also the scene of a good deal of smalltime drug dealing to tourists and locals, as well as of the struggle between the Sinaloa and Gulf cartels.

The big question about these military operations is if they can make a permanent difference, or if things will just return to normal after the soldiers leave?  Quizzed on the subject by the media, some residents suspect the latter.

Calderon has his hands full dealing with the drug trade, because it’s not simply a question of apprehending drug smugglers but too of getting corrupt officials who facilitate the traffic. And, as Calderon has pointed out, the demand side must be dealt with as well. The United States has waged a war on drugs for decades yet it has failed to reduce demand — and as long as there are buyers there are sellers.

Oil is Mexico’s biggest legal business, but it doesn’t look like it will be for long.  Cantarell, Mexico’s biggest oilfield off the coast of Campeche, has hit a peak and is now going down.  Which could mean a drop in exports to the United States by PEMEX (Petroleos Mexicanos), the Mexican government’s oil monopoly, meaning that other oil-selling nations would have to take up the slack.

There are still potential deep-water sources of oil, but PEMEX lacks the capability to exploit them. But Mexico’s monopolistic petroleum law prevents the partnerships that could exploit the oil.  So the very laws designed to protect Mexico’s oil stymie Mexico’s economic development.

Calderon understands the PEMEX mess, having served as Secretary of Energy under Vicente Fox.  But will he be able to do anything about it during his six-year term in office?

Calderon certainly has his work cut out for him.

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Allan Wall, a MexiData.info columnist, recently returned from a tour of duty in Iraq.  He currently resides in Mexico, where he has lived since 1991. He can be reached via e-mail at allan39@prodigy.net.mx.