VZCZCXRO7605
PP RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHME #1671/01 1512057
ZNR UUUUU ZZH
P 302057Z MAY 08
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC PRIORITY 2077
INFO RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE PRIORITY
RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY
RHEHNSC/NSC WASHINGTON DC PRIORITY

UNCLAS SECTION 01 OF 03 MEXICO 001671 
 
SENSITIVE 
SIPDIS 
SIPRNET 
 
STATE FOR A/S SHANNON 
STATE FOR EEB/TPP/MTA/VOLTMER, EEB/TPP/ABT/CLEMENTS, 
EEB/TPP/LURIE, WHA/MEX/WOLFSON, WHA/EPSC/SALAZAR 
STATE PASS USTR FOR EISSENSTAT/MELLE/SHIGETOMI 
USDOC FOR 4320/ITA/MAC/ONAFTA/WORD 
TREASURY FOR IA (LUYEN TRAN, RACHEL JARPE) 
STATE PASS FEDERAL RESERVE (ANDREA RAFFO) 
NSC FOR RICHARD MILES, DAN FISK 
 
E.O. 12958: N/A 
TAGS: EAGR ETRD ECON ENRG PGOV MX
SUBJECT: CALDERON ANNOUNCES PLAN TO ADDRESS RISING FOOD 
PRICES, AG MINISTER HANGS ON 
 
REF: (A) SECSTATE 52628 (B) MEXICO 146 (C) MAY 19 
     E-MAIL FROM FRITZ TO VOLTMER 
 
¶1. (U) The Embassy Foreign Agricultural Service Section 
contributed to this report, which responds to questions posed 
in REF A. 
 
Summary 
------- 
 
¶2. (SBU) The rising cost of food in Mexico is provoking 
concerns of another possible outbreak of the sort of 
political unrest caused by last year's spike in tortilla 
prices.  In response, President Calderon announced in a 
nationally televised address a package of measures to offset 
high food prices by reducing import barriers, encouraging 
increased agricultural production, and ensuring access to 
affordable basic foods for poor families by means of consumer 
subsidies and price restraint agreements with producers.  He 
also pledged further austerity on the part of the federal 
government and zero tolerance for hoarding and speculation of 
sensitive food products.  Some farm groups and members of the 
congressional opposition have criticized the plan for being 
tardy and further undermining Mexico's ability to feed 
itself.  Though Mexican Agriculture Secretary Alberto 
Cardenas continues to be unpopular, his role as a lightning 
rod for the Administration and the fact that he is the only 
prominent member of Calderon's cabinet from the more 
conservative wing of the ruling National Action Party (PAN) 
may explain his surprising longevity.  End summary. 
 
Food Prices in Mexico Feeling Global Impact 
------------------------------------------- 
 
¶3. (U) In his May 25 address, Calderon blamed high food 
prices on global factors, including rising energy prices, 
soaring food demand in China and India, and the use of corn 
for ethanol production.  Mexico's overall consumer prices 
rose 4.55 percent in the twelve months ending April 30, with 
food items like tomatoes, chicken, bread, avocadoes, bananas, 
and cooking oil registering much higher levels of inflation. 
Given that food constitutes a relatively larger share of 
total expenditures by poor families, the effective rate of 
inflation has been even greater for them.  The cost of grain 
imports during the first three months of 2008 is up 75 
percent from the same period last year.  Mexico imports the 
majority of the wheat and rice it consumes. 
 
Calderon's Plan -- Actions in Support of the Family 
--------------------------------------------- ------ 
 
¶4. (U) Calderon's plan -- named "Actions in Support of the 
Family Economy" -- is comprised of three principal areas of 
action: facilitating access to food at the lowest 
international prices; encouraging increased domestic 
agricultural production; and safeguarding the economic and 
nutritional well-being of Mexican families.  The key actions 
under each area are listed below. 
 
-- Access to Lowest International Prices: 1) elimination of 
import duties on rice, white and yellow corn, and wheat, 2) 
additional import licenses for duty-free bean imports, 3) 
duty exemption on imports of soy paste and sorghum in order 
to reduce costs in the livestock sector, 4) reduction by half 
of import tariffs on milk powder, and 5) negotiations with 
supermarkets to create an accessibly-priced basic food basket 
and take actions to avoid any sudden surge in food prices. 
 
-- Encouraging Increased Production: 1) elimination of import 
duties on nitrogen-based fertilizer, 2) direct financing to 
around 500,000 small farmers for purchase of fertilizer, 3) 
sales of fertilizer at accessible prices in marginal rural 
areas through the federal government's parastatal discount 
agency DICONSA, 4) support for the development and expanded 
use of irrigation, 5) US$ 1.9 billion of funding for 
purchases of tractors and other agricultural machinery and 
equipment, 6) strengthening of current federal support 
 
MEXICO 00001671  002 OF 003 
 
 
programs for agricultural production, and 7) renewed support 
for specific projects aimed at raising agricultural 
productivity. 
 
-- Safeguarding Families: 1) DICONSA will continue to sell 
food at accessible prices (e.g., corn flour for 50 cents per 
kilo) in marginal areas, 2) LICONSA, another parastatal 
discount retail chain for milk, will maintain the price of 
milk at 40 cents per liter, 3) creation of a strategic corn 
reserve to safeguard DICONSA's ongoing ability to sell cheap 
corn to low-income families, 4) strengthened support for 
modernization of the tortilla production chain, 5) additional 
cash subsidies for food purchases to families registered in 
social safety programs such as "Opportunities," which offers 
direct payments to poor families that send their children to 
school and get regular health check-ups, and "Live Better," 
an umbrella for a number of federal anti-poverty programs, 
and 6) ongoing government subsidization of gasoline, LP gas, 
and other fuel prices. 
 
A Deal on Rice, Targeting Government Waste and Speculation 
--------------------------------------------- ------------- 
 
¶5. (U) On May 28, the ministries of agriculture and economy 
signed an agreement with rice growers and processors under 
which the productive sector pledges to keep rice prices in 
the Mexican market 10 percent lower than the international 
level.  Agriculture Secretary Alberto Cardenas touted the 
agreement as a show of solidarity and support for President 
Calderon's plan, and added that this year 25,000 hectares of 
rice farmland will be improved by the application of 
high-tech advances, which should benefit 1,750 producers and 
result in a 42 percent increase in Mexican rice production, 
which he predicted would allow domestic growers to meet half 
of Mexico's demand. 
 
¶6. (U) In addition to the measures contained in his plan, 
Calderon has publicly vowed zero tolerance for hoarding and 
price gouging of scarce food items, and has instructed the 
federal consumer protection agency to remain vigilant 
regarding such conduct.  He also said that the federal 
government would tighten its own belt, and that all savings 
from enhanced austerity measures would be funneled to helping 
feed poor Mexican families. 
 
 
Cardenas' Staying Power: Lightning Rod and Party Unity 
--------------------------------------------- --------- 
 
¶7. (SBU) A staffer of a PAN legislator involved in 
agriculture issues told econoff that many people in politics 
are surprised that Secretary Cardenas remains in office, 
given continuing illwill on the part of many in Congress and 
the farm community (REF B).  His hypothesis is twofold. 
First, Cardenas absorbs much of the political heat generated 
by sensitive agricultural issues such as final NAFTA 
implementation and rising food prices, providing some degree 
of insulation to President Calderon and the rest of his 
administration.  Second, the PAN is divided into two camps. 
Calderon and the great majority of key officials in his 
administration come from the PAN's more progressive wing. 
Cardenas is one of the few member's of his cabinet from the 
PAN's more conservative wing, and Calderon might be keeping 
him onboard in order to maintain party unity. 
 
Comment 
------- 
 
¶8. (SBU) The Calderon Administration is working hard to avoid 
being caught flat-footed as it was by the January 2007 
"tortilla crisis."  None of the measures in the recently 
announced plan will be a panacea for the global phenomenon of 
increasingly expensive food, but the government is 
successfully portraying itself as responding to the situation 
energetically.  Given the familiar protests of those who 
favor "food sovereignty," i.e., greater agricultural 
protectionism, Calderon has shown courage and good instincts 
 
MEXICO 00001671  003 OF 003 
 
 
by using this situation as an excuse to cut agricultural 
tariffs.  This  sets an excellent example, especially in 
light of the export restrictions being implemented by other 
Latin American countries.  (Note: As reported in REF C, 
Mexico opposes export restrictions and is proceeding slowly 
on bio-tech experiments.  End note.)  If these tariff cuts 
can be maintained into the future, they will certainly 
benefit average Mexican consumers.  It is doubtful, however, 
that they will result in significant price savings anytime 
soon since most of Mexico's agricultural imports come from 
the U.S. and Canada, which under NAFTA already enjoy 
duty-free treatment.  Similarly, the schemes aimed at ramping 
up rural productivity are similar to many that have promised 
more than they have delivered.  Direct subsidies to poor 
families and pressure on producers and sellers to keep prices 
down stand the best chance of actually easing the pain of 
Mexico's lower income consumers in the short-term.  The rice 
agreement is one example of the latter.  We recently heard of 
another from a reliable source who told econoffs that the 
government has on occasion passed money directly to large 
food processors (like tortilla giant Maseca) with the order 
to "keep prices down."  End comment. 
Visit Mexico City's Classified Web Site at 
http://www.state.sgov.gov/p/wha/mexicocity and the North American 
Partnership Blog at http://www.intelink.gov/communities/state/nap / 
GARZA