‘Luxury’ Tortilla Shops May Signal End of Subsidies

MEXICO CITY —  For 3,000 years, it has been Mexico’s staff of life--nourishing the country’s children, fortifying its native Indians and scooping up the beans of presidents and peasants alike. Now the humble tortilla is going upscale.

A Mexican company, promising to do for cornmeal what Gucci did for handbags, has opened two “luxury” tortilla shops, complete with glistening new machines, workers in neat golf shirts, big-league sanitation standards and a better grade of corn.

But this is much more than a marketing gimmick. In a sharp break with the past, authorities are permitting the new shops to sell tortillas at their true market price. That’s about double the government-controlled price.

Could this be the first step in dismantling a subsidy that dates to the left-wing government of President Luis Echeverria in the early 1970s and has provided Mexicans with a buffer against economic turmoil ever since? Many industry representatives think so.

“There is a great tendency toward the liberalization of the tortilla,” said Carlos Sanchezarmas, president of a credit union for the tortilla business.

Authorities are treading cautiously, to say the least, in introducing capitalism to cornmeal. The issue is extremely delicate--so much so that, despite three weeks of requests, no government official would grant an interview to The Times about the subsidies.

Finally, one official, after being promised anonymity, admitted that the luxury tortilla shops “are a bit of testing the water.”

Although Mexicans have accepted the dismantling of much of their state-dominated economy in recent years--watching the elimination of import quotas, tax credits, bloated government industries and many price supports--many see the prospect of eliminating the cheap tortilla as beyond the pale.

“This opening of luxury tortilla shops is practically Mexico’s opening to free-market prices for tortillas,” said Felipe Torres, a professor at the National Autonomous University of Mexico who has studied the corn crepes.

“You can’t do it openly, because that would generate social conflicts. It has to be gradual, in specific places, with special technical requirements.”

Subsidy Is a Symbol

The tortilla subsidy is one of the last important symbols of the paternalistic economic policies that Mexico pursued for decades. And for all its benefits to the people, the tortilla program has grown enormously--it is projected to cost a staggering $1 billion this year--and has been plagued by charges of corruption and of illegal sales of subsidized corn to other industries.

“There’s recognition among most people in the government that subsidizing the tortilla is a major failure,” the government official said.

The tortilla is as basic to Mexicans as rice is to the Chinese. The average Mexican wolfs down nearly 300 pounds a year of the chewy, slightly tangy corn rounds, industry leaders say. That compares with 39 pounds of bread for the average American.

Wrapped around chicken, dunked in spicy mole, used to wipe your mouth after a meal--the tortilla does it all. And for millions of poor Mexicans, it provides over half the daily intake of calories and protein.

“Since the Aztecs, the tortilla has been the backbone of our diet,” said Gabriel Hurtado, director-general of La Fabrica de la Tortilla (the Tortilla Factory), a subsidiary of the corn-flour giant Grupo Minsa, which has opened the luxury tortilla shops.

“It’s a delicate issue to fool around with prices.”

But fooling around he is.

Unlike in the United States, where many consumers buy plastic-wrapped tortillas at the supermarket, Mexicans purchase their tortillas fresh and warm from shops that typically sell nothing else.

A Shop Goes All Out

In Polanco, a swanky Mexico City neighborhood where Christian Dior and Gucci boutiques vie for space, Hurtado’s tortilla shop boasts a sign: “We’ve given the tortilla a flip.”

That’s obvious inside. A shiny machine the size of a limousine punches out nearly 1,000 pounds a day of neat, 6-inch tortillas made with purified water. With its bright, freshly painted yellow walls and smartly dressed staff, the shop is a far cry from the grungy, garage-like tortillerias in other parts of the city.

Buying better ingredients results in a whiter tortilla with a smoother texture. The rounds are nicely packaged and sold for about 36 cents for a pack of 40 versus the subsidized price of about 19 cents.

Rodrigo Mariscal, 55, who bought a warm pack of the boutique tortillas the other day, admits they’re expensive. “But it’s worth it because they’re delicious,” he said, trudging off in his blue work coat to a nearby fabric shop.

The free-market experiment was piggybacked on an effort by Minsa to establish a new, more profitable kind of tortilla shop.

Despite the tortilla’s popularity, many of Mexico’s 50,000 tortilla shops barely squeak out a profit. While they receive cheap, government-subsidized corn, their energy costs have been steadily rising. But they still must sell at the government price.

Minsa tried a different approach--”sort of a 7-Eleven with a tortilla shop,” Hurtado said. Realizing a well-placed tortilla shop could attract 600 customers a day, the company used the staple food as a magnet in stores also stocked with cola, eggs, canned chilis and other goods.

It also established higher workplace standards, requiring everything from environmentally friendly machinery to hairnets for workers.

In June, the government offered to permit two of the 7-Eleven-style shops to sell tortillas at market price, in order to gauge public reaction, Hurtado said.

So far, the company considers the experiment an economic success. Since increasing the price, the stores have sold 35% fewer tortillas. But the profit margin on each tortilla doubled.

“Initially, people didn’t like it. But we explained the reason behind the price,” said the Polanco store manager, Amelia Munoz, noting that the shops don’t have access to subsidized government corn.

Now, she said, “most customers buy them.”

Go ‘Cold Turkey’?

Meanwhile, the government is deciding how quickly to move--whether to phase out the subsidy gradually or go “cold turkey,” the government official said. It would presumably be smart to wait at least until after next year’s congressional elections, which are expected to be tough enough as it is for the ruling Institutional Revolutionary Party, or PRI.

“It’s mostly a hard political decision as to how you can phase out something going on for a long, long time,” the official said.

Earlier this year, Mexican newspapers reported that the government had drawn up a plan to change the tortilla program to benefit only the needy.

The plan involved giving poor families a “smart card” with a microchip that could be used to buy basic foods. For other Mexicans, the food subsidy system would be dismantled, the newspapers said.

That hasn’t yet happened. But the government has begun testing the “smart card”--dubbed the “poor-o-matic”--in the southern state of Campeche.

Authorities also recently have cut back the role of Conasupo, an agency that used to be the official supplier of corn for tortillas. That agency is now awash in corruption scandals surrounding former Conasupo official Raul Salinas de Gortari, the jailed brother of former President Carlos Salinas de Gortari. On Thursday, the PRI-dominated Chamber of Deputies voted to send a report to President Ernesto Zedillo that concluded there was no widespread corruption at the food distribution firm.

Since spring this year, corn-flour companies and mills have been free to buy their own corn in U.S. or other markets and then bill the government for part of the cost. Many describe the change as another step away from government control of tortillas.

Many Mexicans complain that the quality of their national staple has suffered because Conasupo provided poor-quality corn, some of it even animal feed, in recent years.

One of them is Socorro Gutierrez, a 40-year-old mother of three. She wrinkled her nose as she considered the cheap tortillas she bought at a Mexico City shop recently.

Maybe, she said, a luxury tortilla shop wasn’t a bad idea, despite the higher price.

“If the tortillas were better, I’d pay,” she said. “But if they’re like these, no. They don’t have good quality.”