CLASSIFICATION: NOT OFFICIAL USDA DATA                                          
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 AGR Number: MX5027                                                             
                                                                                
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 From:   American Embassy, Mexico City, Mexico                                  
 To:     USDA/FAS Washington D.C.                                               
 Country:     MX                                                                
 Year:        1995                                                              
 Report Code: 11  Post Report Sequence Number: 007                              
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 Report Title: Grain and Feed                                                   
 Report Type:  V  - Voluntary Report                                            
 Report Subject: NEW MEXICAN PRODUCER PRICE POLICY FOR CORN                     
 Approved By: DANIEL B. CONABLE                                                 
 Drafted By:  MICHAEL L. CONLON                                                 
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 Security Classification: NOT OFFICIAL USDA DATA                                
                                                                                
                                                                                
 Date Due (MM/DD/YY): 04/03/95                                                  
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Report Code: MX9511V       AGR Number: MX5027           Page:    1              
Grain and Feed                                                                  
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Title: NEW MEXICAN PRODUCER PRICE POLICY FOR CORN                               
                                                                                
SUMMARY: After several weeks of internal debate, Mexico has taken another       
step in the direction of free market pricing of corn, establishing a            
"reference price" derived directly from international prices as the floor       
price for purchases by CONASUPO, the government's buying agency.  The           
reference price for white corn is N$715/MT or about $110/MT, or                 
$2.80/bushel.  This policy is designed to encourage private sector              
participation in the marketing of Mexico's corn crop, and may serve as a        
stepping stone to total non-intervention by the government in the domestic      
corn market, beginning in 1996, although the corn flour subsidy designed        
to keep tortillas inexpensive is likely to continue for several years.          
Private sector participation in purchasing corn from farmers has already        
increased sharply over the last two months, while CONASUPO is gradually         
withdrawing from the market as a supplier of corn for livestock feed.           
                                                                                
CORN PRICING POLICY: Shortly after assuming office, Mexico's Secretary of       
Agriculture announced that the support price for corn would be raised           
substantially to compensate farmers for higher input costs following peso       
devaluation.  After reviewing various proposals, including a rejected           
scheme which would have given direct marketing subsidies to farmers who         
chose to sell to private sector buyers, the government decided on a             
reference price system, restricting its initial price policy announcement       
to cover the three states starting their harvest of the fall/winter crop.       
In Sinaloa, Sonora, and Tamaulipas, CONASUPO (The National Commission of        
the Distribution of Basic Food) will offer N$715/MT for white corn              
delivered to its buying stations.  During the last crop cycle, most of          
which took place before the peso devaluation, the guaranteed price offered      
by CONASUPO was N$600/MT.  In dollar terms, the support price has actually      
fallen from about $185/MT to about $110/MT, reflecting devaluation of the       
peso.                                                                           
                                                                                
                                                                                
                                                                               
Report Code: MX9511V       AGR Number: MX5027           Page:    2              
Grain and Feed                                                                  
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Over the last several years, CONASUPO bought around 40 percent of the corn      
harvest, the private sector bought 20 percent of the harvest, and the rest      
was consumed on-farm.  Under the new pricing scheme, farmers are free to        
sell to either the private sector or to CONASUPO.  According to CONASUPO        
officials, the parastatal's price should act as a floor price in most           
areas of Mexico because private traders will bid up the price for corn          
well above N$715/MT.  CONASUPO forecasts its own purchases in CY 1995 at        
about 7 million tons (against 8 million tons last year), but many               
observers expect that the actual quantity of CONASUPO purchases will be         
considerably less, possibly no more than half of the amount procured in         
1994.                                                                           
                                                                                
END-USERS: The end-users of corn in Mexico are the feed industry, the wet       
milling industry and the food industry.                                         
                                                                                
THE FEED INDUSTRY: According to the U.S. Feed Grains Council, there are         
more than 300 feed mills in Mexico, with an installed capacity of 14            
million tons per year.  CONASUPO began selling corn for feed in 1991            
because of high stock levels.  In 1994, CONASUPO sold 4.176 MMT of corn in      
the domestic market as feed.                                                    
                                                                                
The feed industry is beginning to purchase corn directly from producers         
because local corn is now somewhat cheaper than imported corn, and because      
the supply of subsidized CONASUPO corn (always priced under imported corn)      
is beginning to dry up.  According to sources within CONASUPO, that             
organization is likely to discontinue selling corn for feed in April.           
                                                                                
The feed industry was allocated 1.69 MMT by the Mexican government to           
purchase corn from the United States under the Tariff Rate Quota (TRQ) for      
corn for 1995.  According to Mexican government data, as of February 28,        
the feed industry had imported 116,759 MT of corn under the TRQ.                
                                                                                
THE WET MILLING INDUSTRY: The wet milling industry purchases yellow corn        
for processing, principally from the United States.  Total industry             
capacity is around 1.2 million metric tons.  The Mexican government             
allocated the wet milling industry 1.015 MMT under the TRQ for 1995.            
According to Mexican government data, as of February 28, the wet milling        
industry had imported 14,194 MT of quota corn.                                  
                                                                                
                                                                                
                                                                               
Report Code: MX9511V       AGR Number: MX5027           Page:    3              
Grain and Feed                                                                  
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THE FOOD INDUSTRY: Corn is the staple of the Mexican diet, with per capita      
consumption around 120 kg per year.  The largest sector of the food             
industry is the tortilla sector.  Because of the importance of the              
tortilla in the Mexican diet, there is a system of subsidies to keep the        
tortilla price down for the consumer.                                           
                                                                                
For the fall/winter 1994/95 crop cycle, CONASUPO will purchase the              
domestic corn crop at the reference price, and resell the corn to               
semi-industrial producers at a lower price.  For example, CONASUPO will         
buy corn for N$715/MT and in turn sell the corn to semi-industrial              
producers outside of Mexico City for N$425/MT and to semi-industrial            
producers in Mexico City for N$225/MT.  The subsidy is more for Mexico          
City because the city has the largest concentration of poor in Mexico.          
                                                                                
The Mexican government also gives subsidies to four large corn processing       
companies (MASECA, AGROINSA, MINSA and HAMASA) to buy locally produced          
corn from producers.  MASECA is the largest dry miller of corn, with a          
large share of the market for dry milled corn for tortilla manufacture.         
AGROINSA, MINSA and HAMASA are also major corn flour producers.                 
                                                                                
About 70 percent of the tortilla market is served by the traditional            
semi-industrial producer, while the rest of the market is supplied by           
brand-name products from MASECA, AGROINSA, MINSA and HAMASA, and a few          
other food processing firms, including one that imports its white corn          
flour from the United States for quality reasons.  According to officials       
from SECOFI (The Ministry of Commerce and  Industry), in the                    
semi-industrial producer sector, there are around 20,000 small corn             
millers, 15,000 integrated producers of flour for dough and tortillas, and      
19,465 tortilla producers.                                                      
                                                                                
The four corn processing companies purchase corn from producers and sell        
corn flour to semi-industrial producers at subsidized prices.  These            
companies sell flour at N$750/MT in states where there is no CONASUPO           
presence and at N$762/MT in states where there is CONASUPO presence.  The       
companies receive a subsidy for the corn it purchases from farmers.  For        
corn flour destined for areas outside of Mexico City, the subsidy is            
N$550/MT, the difference between N$975 and N$425. The N$975 is the              
reference price of corn (N$715/MT) along with shipping, storage, finance        
and spoilage costs (N$260/MT).  The N$425 is the price CONASUPO sells corn      
to the semi-industrial producers outside of Mexico City.  For corn flour        
destined for Mexico City, the subsidy is N$750/MT, the difference between       
N$975 and N$225.  The N$225/MT is the price CONASUPO sells corn to the          
semi-industrial producers in Mexico City.                                       
                                                                                
                                                                                
                                                                               
Report Code: MX9511V       AGR Number: MX5027           Page:    4              
Grain and Feed                                                                  
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The price of tortillas are controlled at the consumer level.  Tortilla          
makers sell tortillas to consumers for N$.75/kg ($0.50/lb) in Mexico City       
and N$1.00/kg outside of Mexico City.  The Mexican government also              
operates a program (El Programa de Tortillas sin Costo), where 2.1 million      
people receive free tortillas.  Under the program, each eligible household      
receives tortilla stamps to obtain 1 kg of free tortillas per day from          
tortilla manufacturers.                                                         
                                                                                
Corn flour producers are also allowed to import corn under the TRQ.  For        
1995, the Mexican government allocated 242,483 MT of corn to the corn           
flour industry under the quota.  According to Mexican government data, as       
of February 28, corn flour producers have imported 38,973 MT of corn under      
the quota for 1995.                                                             
                                                                                
The very low cost of tortillas remains the largest remaining distortion in      
Mexico's corn economy, with an end product so cheap that a small livestock      
producer could be tempted to buy tortillas as a feed ingredient.  Cost          
notwithstanding, the government will move very cautiously in the direction      
of raising the price of this essential item of mass consumption.                
END OF REPORT                                                                   
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