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Mexico taps private sector again to try to keep food prices down

Economy Oct 03, 2022 04:03PM ET
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© Reuters. FILE PHOTO: Customers walk past vegetables on a makeshift stall in a market in Mexico City, Mexico April 8, 2022. REUTERS/Luis Cortes
 
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By Brendan O'Boyle, Anthony Esposito and Valentine Hilaire

MEXICO CITY (Reuters) -Mexican officials on Monday announced the details of a new deal with companies to halt rising food prices, doubling down on a collaborative effort with the private sector as inflation hovers at a 22-year high.

More than a dozen foodmakers and retailers are part of the plan, which will waive certain regulatory requirements, Mexican Finance Minister Rogelio Ramirez de la O said.

Signatories will be granted a license exempting them from quality checks from national health regulators Senasica and Cofepris as well as a general import tax, Ramirez said in a news conference with President Andres Manuel Lopez Obrador.

The Mexican government "will suspend the review of any regulation that is considered to prevent or make the importation and entry of food or its movement within the country more expensive," Ramirez said.

Ramirez added that tariffs and other import costs were included under the deal, which he said in a radio interview later in the day affects all food products, not just basic foodstuffs.

The plan will also pause exports of white corn, beans, sardines and aluminum and steel scrap used in food packaging.

The stoppage of white corn exports "is the strongest measure" that is being taken under the plan, with the hope of making Mexico self-sufficient in its production, Ramirez said in the interview.

Cooperation with private firms is a key element of a multi-pronged package of anti-inflation and scarcity policies first announced in early May and known as the PACIC for its initials in Spanish, which aims to keep prices stable for 24 basic products. These include corn tortillas, rice, soap, tomatoes, milk, sliced bread and toilet paper.

PACIC has helped stave off "7.5 percentage points of additional inflation among the 24 products in the basic basket," the finance ministry said in September when it presented its 2023 budget package.

There is some dispute over how effective the costly program launched in May has been, given consumer prices in Latin America's second-largest economy are at more than a two-decade high.

The finance ministry estimates prices for the 24 products included in PACIC fell 0.4% since the program's start in early May through the second week of August, while a basket of alternative brands and products grew 7.08% over the same period.

Mexico's most recent inflation data showed food, beverage and tobacco prices rose 13.27% on a year-on-year basis in the first 15 days of September, higher than the annual headline rate of 8.76%.

HELPING MEXICO'S POOREST

The government says that price data published twice monthly by the INEGI national statistics agency does not accurately reflect the effectiveness of the PACIC.

While INEGI measures a basket of products representative of all the different brands at supermarkets and shops across Mexico, the PACIC only covers a limited number of specific brands and products within the wider basket, Rodrigo Mariscal, the finance ministry's head of economic planning, told Reuters.

Pasta-maker La Moderna (NASDAQ:MRNA), for example, introduced two new lower-priced products, whereas supermarket chain Soriana said it had worked with producers to keep prices down for items in the government's list of 24 basic products.

Grupo Bimbo announced in May it was also participating in the plan, but only promised to freeze the price of its large white bread. Bimbo was not part of the agreement announced on Monday.

The PACIC's impact needs to be measured differently to take into account those products and show how effective the program has been in helping Mexico's poorest consumers, Mariscal argues.

He said a cheaper no-frills sliced white bread was introduced in southern Mexico, traditionally the country's poorest region, to help strapped consumers.

"It's a specific line of bread for the south, sold very cheap, and it's done strategically," Mariscal added.

Critics have cast doubt on the program's deals with big producers and supermarket chains, since Mexicans often get their groceries at smaller mom-and-pop shops or markets.

"Only 5% of tortillas are sold in self-service stores or large chains like Walmart (NYSE:WMT). The rest is sold in the more than 110,000 tortilla shops in the country," said Juan Carlos Anaya, director of the Agricultural Markets Consulting Group.

Meanwhile, the head of Mexico's consumer protection agency, Ricardo Sheffield, recently acknowledged food prices are still trending higher.

The government says that PACIC's biggest impact has been helping to keep fuel prices in check through a subsidy, arguing that annual inflation would have reached 14% without the measure.

But the subsidies have come at a high cost for a government largely defined by its commitment to austerity.

Subsidies from the Mexican government to combat rising inflation in the country have cost some 575 billion pesos ($28.04 billion) this year, the government said in August.

Mexico taps private sector again to try to keep food prices down
 

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