Mexico taps private sector again in effort to keep food prices down

MEXICO CITY, Oct 3 (Reuters) – Mexican President Andres Manuel Lopez Obrador is expected to announce 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.

Cooperation with private firms is a key element of a multi-pronged package of anti-inflation and scarcity policies 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,” said the finance ministry when it presented its 2023 budget package in September.

In a follow-up to PACIC, Lopez Obrador on Sept. 23 said he had reached a new agreement with producers and distributors of corn, chicken, eggs and beef, among others, to maintain prices of basic food items, but ruled out unilateral price controls on food.

He promised to unveil the particulars during his regular news conference Monday.

The new deal comes as there is some dispute over how effective the costly program has been, given consumer prices in Latin America’s second-largest economy are at an over two-decade high.

The finance ministry estimates that prices for the 24 products included in PACIC have fallen 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% year-on-year 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, for example, introduced two new lower-priced products, whereas supermarket chain Soriana said it worked with producers to keep prices down for items in the government’s list of 24 basic products.

Grupo Bimbo (BIMBOA.MX) announced in May they were also participating in the plan, but only promised to freeze the price of its large white bread.

The PACIC’s impact therefore 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 Wal-Mart. 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.

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