Carolyn Said, Chronicle Staff Writer

Saturday, January 13, 2007

Who jacked up the tortilla?

Prices for corn tortillas, a staple of Mexican diet and culture, are soaring south of the border.

Some tortilla prices in Mexico have risen as much as 60 percent, hurting the low-income people who depend on it as their basic food.

Elizabeth Rosas, a 20-year-old office cleaner in Mexico City, was discouraged to find that her usual tortilla shop this week raised the price of its corn tortillas from 8 pesos (73 cents) to 10 pesos (91 cents) a kilogram.

"My family doesn't have the budget to pay more for tortillas," said Rosas, who makes $40 a week and shares a two-bedroom apartment with her husband, five relatives and her newborn son.

"If prices continue to rise, we'll have to switch to bolillos," said Rosas, referring to manufactured sandwich rolls with less flavor and nutritional value than tortillas.

Just why tortillas cost so much remains murky.

Corn prices are spiking in the United States, with crop yields low and demand high. The production of the gasoline additive ethanol has taken off in the past year, consuming millions of bushels of corn.

But Mexico grows most of its own corn for consumption. And the yellow corn used for ethanol and livestock feed is different from the sweet white corn that's ground into masa for handmade tortillas, although some mass-produced tortillas are made from yellow corn.

Mutters about monopolies and price gouging have been rising, leading Mexico's antitrust agency to say on Thursday that it will investigate hoarding and price manipulation.

Mexico also said it will import 650,000 tons of white corn, mainly from the United States, to help lower tortilla prices.

El Universal, a daily Mexico City newspaper, called the rising tortilla prices "criminal" and demanded that the government help control the price of a basic good consumed by 97 percent of Mexicans, especially the poor.

Some economists say the culprit could be globalization, as products around the world increasingly are linked in a complex supply chain.

"The price of oil is driving up the price of corn (because of increased ethanol production), which is driving up the price of tortillas," said Peter Navarro, a business professor at UC Irvine. "You push on one thing and another thing moves," added Navarro, the author of "If It's Raining in Brazil, Buy Starbucks."

He said the U.S. ethanol stampede could be thought of "as a regressive tax on Mexico, because it raises the price of a basic commodity. In economics, we call these general equilibrium effects. Something happens in one market and it ripples through other markets."

There's no question corn prices are high.

"Usually at this time of year, corn (futures are) about $2 a bushel and here we are at almost $4 a bushel," said Chris Kraft, president of Chicago's RCI Advisory Services, a trader in commodity futures. The supply of corn from the growing season that ended in September "is the lowest amount we've had on hand in the past 20 years," he added.

Even all that doesn't explain why Mexican tortillas cost so much.

"It's hard to imagine that corn prices would cause a bigger spike in tortilla prices than the original" price increase, said Richard Norgaard, an economist in the UC Berkeley Latin American Studies Group. "The price of tortillas includes a fair amount of labor and processing."

In the United States, more-expensive corn could have a domino effect on everything from Coca-Cola (sweetened with corn syrup) to Big Macs (from corn-fed cattle).

"The most important products (likely) to be affected are meats," said Daniel Sumner, an agricultural economist at UC Davis. Corn price increases could "show up in pork chops as a few cents per pound. Consumers may not notice it, but I can tell you the hog farmer does."

Some Mexican tortilla shops are refusing to raise prices in hopes of keeping customers loyal.

Abraham Dominguez, a 23-year-old who manages a tortilla shop in Mexico City, was doing brisk business this week selling his product for about 63 cents a kilogram.

"They say the price of corn is up," said Dominguez, wiping sweat from his forehead and brushing corn flour from his apron. "But we still haven't felt the pinch, so there's no reason to punish our customers."

Meanwhile, large supermarkets are keeping their tortilla prices low, at about 55 cents a kilogram. Yet Dominguez added what most Mexicans know -- there's no comparison between mass-produced tortillas and those freshly made at the corner shop.

Chronicle foreign service correspondent Monica Campbell contributed to this report from Mexico City. E-mail Carolyn Said at csaid@sfchronicle.com.