Tortilla Price Stabilization Pact facts for kids

The Tortilla Price Stabilization Pact was an agreement made in early 2007 between the Mexican government and several companies that make tortillas. The main goal was to stop the price of tortillas from going up too much. This agreement happened during the time Felipe Calderón was the President of Mexico.

Why Tortilla Prices Went Up

For a long time, U.S. farmers grew a lot of corn (also called maize). The U.S. government even helped them with money, which is called a subsidy. This meant there was often extra corn, and it was sold cheaply to other countries, including Mexico. This helped keep corn and tortilla prices low in Mexico.

However, this also made it hard for Mexican farmers to compete. In the early 2000s, something changed. Farmers in the U.S. started using more corn to make biofuel, which is a type of fuel for cars. Because more corn was used for fuel and less for food, the price of corn began to rise very quickly in 2006.

Since corn is the main ingredient in tortillas, the price of tortillas also went up a lot. Tortillas are a very important food for many people in Mexico, especially those with less money. So, when prices increased, it caused a lot of worry and pressure on President Calderón's government.

What the Pact Did

To deal with the rising prices, President Calderón decided to put a limit on how high tortilla prices could go. This is called a price ceiling.

The government created the "Tortilla Price Stabilization Pact." They made this agreement with many of the biggest tortilla-making companies, like Grupo Maseca and Bimbo. These companies agreed to sell tortillas for no more than 8.50 Mexican pesos per kilogram. The idea was that if the big companies kept their prices low, it would encourage other sellers across the country to lower their prices too.

Why Some People Didn't Like It

The Tortilla Price Stabilization Pact received criticism from different groups. Some people argued that the agreement was not strong enough. They also pointed out that the pact actually accepted a price increase of about 30% for tortillas. Before the pact, the price was around 5.95 pesos per kilogram, and the pact allowed it to go up to 8.50 pesos.

Many smaller tortilla shops, called tortillerías, did not follow the agreement. They continued to charge more than 8.50 pesos. Critics said this showed that the government's plan failed to protect people who couldn't afford higher prices. In response, PROFECO, which is the government agency that protects consumers, even warned that tortilla producers who charged too much could face jail time.

However, some large supermarkets, like Soriana and Comercial Mexicana, sold their tortillas for less than the agreed price. Some even sold them for as low as 5.10 pesos per kilogram, which was even lower than the original price. People who believe in economic freedom saw this as proof that price controls, like the Tortilla Price Stabilization Pact, were not needed and might even harm the market.

What Happened After

Three months after the pact was signed, the Secretariat of Economy announced that tortilla prices had gone down in most of Mexico's 53 largest cities.

However, in 27 cities and 15 states, the price was still higher than the agreed 8.50 pesos. For example, in cities like Tijuana, Morelia, San Luis Potosí, Ciudad Victoria, and Nuevo Laredo, tortilla prices had actually gone up. This happened even though the average price of corn had dropped from 3,500 to 2,500 pesos per ton.

The Director of the Maize Industry Council defended the pact. He said that the price increases in those cities were small. He also claimed that the agreement was mainly meant for the Valley of Mexico area, not the entire country.

Guillermo Ortiz Martínez, who was the governor of the Bank of Mexico, called the agreement "a success" for consumers. He suggested that it should continue as a way to fight against rising inflation, which is when prices for things go up generally.