Ethanol subsidies push up the price of corn tortillas

(Reprinted from
Mexico this week removed the last tariffs on U.S. and Canadian farm products as called for by the North American Free Trade Agreement. The removal of the tariffs is a gamble by Mexicans that the positives of globalization will outweigh the negatives, especially in the case of corn, the historical food staple that has fed the people of Mexico for centuries.

The playing field for Mexicans in the corn markets would be fairer, however, if the United States didn't continue to ladle outrageous subsidies on corn producers even as corn prices soar. Those prices are a direct outgrowth of the demand for corn-based ethanol, which itself is a creation of the farm lobby and presidential politics.

Only the most plain-speaking presidential candidate would have taken on the corn subsidy before this week's caucuses in Iowa, a heavy corn growing state, either to suggest that the subsidy is an anachronism from the Depression era or that U.S. tariffs on sugar-based ethanol from Brazil should be removed to drive down fuel prices. Not likely.

Protestors who blocked the international bridge at El Paso this week were wrong about globalization being the bogey man of Mexican farmers. Other Mexican farmers, such as those who grow tomatoes, winter vegetables and avocados, have found a new market in American supermarkets because of NAFTA.

Likewise, American consumers get the benefit of fresh produce and more food choices. The demonstrators, who dispersed after a few hours, do have a valid point regarding corn. American vegetables and fruits don't get federal farm subsidies, but corn does and will continue to get federal support in the recently passed farm bill. That makes for an uneven playing field that leaves poor Mexican farmers further out in the cold.

The subsidies undermine faith in the power of free markets and open trade. Globalization already has fewer friends in Congress than it had when NAFTA was negotiated in 1993. Democratic presidential hopefuls are acting more like Lou Dobbs, the cable television free trade alarmist, than Bill Clinton who signed NAFTA and called it essential to America's ability to compete across the world.

In Mexico, those same views are heard by those who say that Mexico is on the short-end of the globalization stick.

Ironically, Mexico has done more, in many ways, to erase barriers to free trade than the United States. Mexican administrations removed the price supports for corn that protected small corn farmers and artificially kept prices low for tortillas. As a result, tortilla prices have soared, putting political pressure on President Felipe Calderon. But Calderon, aside from some action on putting a ceiling on tortilla prices, has resisted demands that Mexico tinker with NAFTA.

Mexico will have to do more. A protected market has kept Mexican corn producers from being more efficient and from leaving behind the tiny plots that simply can't match the production of American corn farmers. But anti-NAFTA critics mostly say that if American corn producers are protected by subsidies, so should Mexican farmers. The losers there would be consumers in Mexico and the United States.

Defenders of subsidies point out that Americans produce yellow corn, not the white corn that Mexicans produce for domestic consumption. But markets make no differentiation; all corn prices are distorted by subsidies and the demand for ethanol.

One fear is that Mexican corn farmers, unable to compete, will be forced to leave rural areas and eventually wind up as illegal immigrants. It would be tragically ironic if Iowa corn subsidies result in more undocumented workers in a Des Moines meat- packing plant.

Globalization, despite NAFTA critics in Mexico and the United States, can't be stopped; overall, more people benefit when trade is allowed to flow fairly and freely. There's nothing fair, however, about American crop subsidies.

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