Because of their considerable cultural and practical significance, tortillas -- and the masa corn flour of which they are often made -- have traditionally been subsidized by the Mexican government. Price controls have also been instituted to ensure the affordability of tortillas. With subsidies, small tortillerias have been able to sell their tortillas at a price below their production costs. Under this system, the small tortilla makers, or nixtaleros, were able to provide cheap tortillas while still making a profit.
Recently, however, the Mexican government has found the tortilla subsidy to be more and more of a financial burden. In his State of the Nation Report after the economic crisis of 1994, Ernesto Zedillo declared the economic situation to be one of Mexico's three foremost concerns. In response, he proposed a recovery program composed of "drastic -- and indeed painful" measures "to strengthen public finances" (in www.quicklink.com/...). Among these measures was a ten percent cut in public spending. Naturally, the tortilla subsidy -- projected to consume a full $1 billion in 1996 -- was targeted in the spending cut.
Efforts to change the nature of government intervention in the tortilla industry have taken several forms. First, there has been an effort to scale down the amount of the subsidy, while continuing to provide some minimum of support. Second, steps have been taken to direct the subsidy toward the poor with the Subsidy Program for Tortilla Consumption, which provides one kilogram of tortillas per day free to registered low-income families. In addition, the government has experimented with its price control policy, raising the controlled price by 27% in April, 1995, and by another 27% in May, 1997. In "a bit of testing the water," officials have also permitted certain 'gourmet' tortilla shops to sell tortillas at their true market price (in Sheridan). Zedillo and officials of the Ministry of Finance asserted that elimination of the subsidy was a desirable ultimate goal; however, exposure of the tortilla industry to the free market did has not proved to be feasible public policy at the current time. As Felipe Torres of the National Autonomous University of Mexico stated, "You cannot" expose Mexico to free market tortillas "openly, because that would generate conflict. It has to be gradual, in specific places, with special technical requirements" (in Sheridan).
The reconfiguration of the government's policy toward the tortilla industry has become a sensitive political and cultural issue. The changes have not only affected the ease with which the general public procures this staple but also affected the nature of the industry itself. 95% of Mexicans are accustomed to purchasing their tortillas in small tortillerias that do their own baking on the premises. With the subsidy, these shops were able to maintain an adequate profit margin, and since the average Mexican preferred to buy his tortillas there, supermarket tortillas -- and the big businesses that produced them -- did poorly. With the transformation of the subsidy, however, small tortillerias are finding it more and more difficult to succeed. These businesses receive less government support yet are still subject to price controls; at the same time, they are becoming subject to competition from the big tortilla makers, whose product becomes more attractive as its prices become relatively cheaper. The result is that small tortillerias are receding into the background (4,000 of 125,000 tortillerias in one national association closed their doors in 1996) as tortilla big-business explodes into the foreground.
a. Geographic Domain: North America
c. Geographic Site: southern North America
c. Geographic Impact: Mexico
a. Directly Related to Product: Yes
b. Indirectly Related to Product: Yes
c. Not Related to Product: No
d. Related to Process: Tortilla industry officials claim that improved efficiency will have positive environmental effects. The possibility is there: industrial processes yield 20% more tortillas per kilogram of corn, reducing the burden on the land. The traditional method of tortilla-making involves first boiling the corn in steel tubs, then grinding it into dough with a stone wheel. The dough is then stamped into thin circles with a machine, and a conveyor belt takes the tortillas to be cooked over a gas flame. The industrial process, more efficient, uses about half the water, gas, and electricity of the traditional process.
The Mexican government has taken steps to scale back the tortilla subsidy, as the program simply has become unaffordable. The subsidy, previously covering 120 kilograms of tortillas per person per year, had come to cost the government at least $750 million every year, and was expected to balloon to $1 billion by 1996.
In response, the government has reconfigured its subsidy gradually while maintaining a modicum of support. One program it hopes will meet with some success is the Subsidy Program for Tortilla Consumption, under which low-income families are provided with a kilogram of free tortillas every day. This program, providing 47 million kilograms of tortillas a month, cost the Mexican government about 89 million pesos in 1997.
With the changes, large companies are beginning to command the lion's share of its profits as the nixtaleros, or small tortilla producers, recede.
Maseca's second quarter sales in the United States in 1997 exceeded the company's expectations: while only 160,000 of an expected 163,000 tons of tortillas were sold, revenues totaled $152 million, $6 million more than the expected figure of $146 million.
Subsidies and price controls, traditionally keeping cheap tortillas available in the popular small tortillerias, have been popular. Adjustments to these government policies have promoted the rise to power of the tortilla giants, jeopardizing the security of the traditional tortillerias and resulting in both augmented prices and a perceived deterioration in quality. These adjustments have, consequently, been controversial.
On an international scale, the tortilla, so long an integral part of Mexican culture, has climbed in popularity in the United States. This demonstrates, to an extent, the diffusion of culture from Mexico to her neighbor to the north; it also reflects the growing number of Mexican - and other Latin American - immigrants to the United States. Henry Cisneros, in a speech to the Tortilla Industry Association's annual convention, linked the growing popularity of tortillas in the United States to what he called the "Hispanization" of America. He cited three factors in this trend. First, Hispanics are the fastest-growing segment of the U.S. population, with approximately 30 million in the country today. Second, with their demographic growth comes their growth in purchasing power, now equal to $360 billion. Third, since Hispanic families tend to be larger, a greater portion of this purchasing power is devoted to food - to tortillas.
These companies take advantage -- often unfair advantage -- of cheap labor to be found in the pool of recent immigrants to the U.S.
Relevant Web Sites:
Gruma Second Quarter Report 1997
Case, Brendan M. "Freeing Tortilla Prices Would Boost Second-Half '97 Mexico Inflation"
Bacon, David. "L.A.'s Immigrant Strikers Target Mexico's Tortilla King"
Mexican President Ernesto Zedillo's First State of the Nation Report
Trust for the Liquidation of the Tortilla Subsidy Webpage
Tortilla Industry Association Webpage
"Autoriza SECOFI aumentos a los precios de leche y tortilla"
Relevant Periodical Articles:
"Bigger than Baguettes." Economist. May 25, 1996. v339 n7967 p73.
Duggan, Patrice. "Tortilla Technology." Forbes. May 29, 1991. v147 n9 p48.
Millman, Joel. "The streets were paved with tortillas." Forbes. May 25, 1992. v149 n11 p272-274.
Relevant Newspaper Articles:
"Mexico Raises Tortilla Prices." Wall Street Journal, April 12, 1995. p A10.
Millman, Joel. "Mexican Tortilla Firms Stage U.S. Bake-Off." Wall Street Journal, May 10, 1996. p A6.
Moffett, Matt. "Mexico's Campaign to Modernize Sparks Battle over Tortillas." Wall Street Journal, September 9, 1993. p A1.
Moore, Molly. "Flipping over the Tortilla." Washington Post, May 6, 1996. p A16.
Sheridan, Mary Beth. "'Luxury' Tortilla Shops May Signal End of Subsidies." Los Angeles Times, September 30, 1996. p A1.