A bitter taste

The price of basic food staples has surged in recent months alluding to broader inflationary pressures in Mexico.

Lemons are not typically thought of as bellwethers of inflation, but in Mexico – where they are a vital ingredient in the nation’s cuisine and a top export – a dip in production points to broader economic pressures. Lemon production decreased 4% over the last year according to data from the Ministry of Agriculture and Rural Development. The price of lemons has increased an astonishing 153% over the past year according to the Economy Ministry. Climate change has posed challenges for agricultural production in Mexico this year, but other factors are at play too.

A former senior official in the Ministry of Agriculture said, “Production levels in the agricultural industry undoubtedly vary due to the influence of climate change. But, there other issues that affect production including the presence of drug cartels in areas of intensive cultivation, particularly the states of Michoacán and Colim. Organised crime in these areas leads to bottlenecks when it comes to domestic and international export.”

“Production levels in the agricultural industry undoubtedly vary due to the influence of climate change. But, there other issues that affect production including the presence of drug cartels.”

Former senior official, Ministry of Agriculture, Mexico

Inflation is currently running at around 7.4% after reaching a peak of 7.7% in the second half of November 2021. Mexicans have not experienced inflation like this for around two decades. Inflationary pressures will be hard to control so long as important supply chains in Mexico – lemon production included, continue to face disruptions.

The owner of one of Mexico’s largest exporters of tropical fruits said, “I see the short-term outlook as fairly grim. Pandemic-related measures which have been disastrous for business, especially in the agricultural sector, are likely to continue. In addition, we are faced with a scarcity of credit, weak economic policy and the lack of a unified position between Mexico’s farmers to try to influence government policy.”

“I see the short-term outlook as fairly grim.”

Owner, one of Mexico’s largest exporters of tropical fruits

The government is looking to implement significant energy reforms – could these better protect supply chains? President Obrador has embarked on a zealous attempt to nationalise – and thereby bring under government control – much of the country’s energy sector. To this end, he has sought to eliminate independent regulators. Populist economics has not worked very well for Mexico but voters get excited about sticking the middle finger to large foreign corporations who tend to dominate domestic rivals.

Mr Obrador may not find it quite too easy to progress his plans to fruition. The proposals still require constitutional changes which are unlikely given Mexico’s heavily divided congress. Nonetheless, resource nationalism is popular with voters, less so with investors. Mexico is in chronic need of investment into its energy infrastructure, which will in turn make supply chains cheaper and more effective, logistically.

The former senior official argued that the reforms are more generous than they might seem to private investors, “Obrador’s electrical reforms for example mean 60% of production can be exported to foreign markets.”

Nonetheless, the business owner said, “It seems absurd to me that Obrador seeks to punish successful companies such as BACHOCO – a leading producer of eggs -, BIMBO – a top producer of bread – or MASECA in corn.”

Exports from these companies has bought a great deal of much needed foreign currency to Mexico – Mr Obrador’s penchant for “Mexicanisation” goes down well with working class voters. It is sadly ironic that such policies make it even harder to tame the inflation that has made their weekly food shops a lot more expensive.

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