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Don't laugh. This is most certainly not a laughing matter. Lemons are indeed important in Mexico. We don't know how they came to be important, but they are a very important food in their diet. As such, anything that affects their supply causes distress and misery in the population.

THE FACTS

The price of lemons in Mexico used to be in the order of 5 to 7 MXN/kg (Mexican Pesos) which was expensive but still reachable considering local wages:

Minimum monthly salary: 2300 MXN

Minimum survival monthly salary: 6600 MXN

Average monthly salary: 8000 MXN

However, during the summer of 2013–2014 there were severe rains in several lemon growing Mexican regions which suspended the harvest for few days. Consequently, the supply of lemons was affected. As it is to be expected, the price of lemons raised about 20% between Dec 2013 and Feb 2014.

As supply continues to dry out, lemon prices continued to climb. Currently they have raised more than 600% and are oscillating somewhere in the area of 70 MXN/kg. This price is quite high because it approaches the price of poultry. Consider this. One kilogram of lemons is worth the same as one kilogram of chicken.

The Mexican newspaper El Universal has something to report in its article titled "Lemons On The Clouds". According to this source, the speaker for the Latin American Federation of Food Markets (or Flama in spanish –meaning flame–) stated that higher prices are due to market "accommodations" and that the price is unlikely to diminish since distributors are paying up to 35 MXN/kg. Hence, a price between 45 and 50 MXN/kg is in agreement with market values. However, prices reaching 70 MXN/kg are "gross speculation". The speaker also called for the government to step–in and install a national food program to plan [food supplies] since currently Mexican dependency is in the order of 40%.

THE ANALYSIS

Well, it would seem obvious that the government needs to intervene because lemon prices approaching chicken prices are way beyond what an average Mexican can afford to pay. And again, appearances are deceiving… and we too. We purposely left outside two critical pieces of information.

It is true that the price of lemons begun to climb due to climate issues. Naturally, the market adjusted adequately by raising prices. However… and there is always a however, a climatologic problem cannot explain a raise of +600%. Not unless the entire lemon crop was wiped–out, which is clearly not the case. So, where does the gigantic increase in price come from?

Well, it so happens that in 2013 a new Revenue Act was approved and came into effect in Jan 2014. This act dictated drastic increases in tax, particularly in transportation fuels (such as gas and gas–oil) which drastically affects the cost of transporting lemons from the producers to the consumers.

This is strange to say the least, considering that Mexico is a net exporter of transportation fuels and that the state owns PeMex (a monopoly); which generates about 10% of all annual export earnings and about 33% of all tax revenues!

And so, we can follow the chain of events backwards. The government of Mexico declares a state monopoly on oil and creates PeMex. Said government mis–manages (allegedly defrauds the public trust) this immense wealth to the point that the government cannot continue to operate without a significant tax raise. This is, Mexicans not only do not benefit from Mexican oil, which is in state hands, but on top of that they must pay high taxes for said oil!

These taxes in turn raise the transportation price of lemons which ensures their astronomical prices.

In addition, the importation of lemons is severely restricted, because lobbying organizations prefer to have a local monopoly to protect profits. During normal conditions, lack of lemon imports is not that critical, but in these conditions where the harvest was low and taxes increase, it is fatal.

Furthermore, these very same organizations are now claiming that a price of 70 MXN/kg is "gross speculation". As if there would be an objective limit between "normal" speculation and a "gross" one. As if "speculation" would be a bad word with negative connotations. As if the whole point of having a market would not be speculation!! Ridiculous! This is typical socialistic or communist verbal diatribe. To trade is to speculate. Speculation is the engine that provides wealth and constantly raising standards of living. Regulation is the exact opposite.

And what is the solution? You got it! Government intervention and… planning!!!

Seriously? Planning from the same government that by itself managed to squander all the Mexican oil riches for so many decades?

Planning? So that the government can expand even more hence requiring higher taxes which will in turn rise fuel prices hence increasing lemon prices? Really? Planning?

Let's see:

  • Remove taxes
  • Open borders

Problem solved!

Now, how difficult is this? Alas, it will never happen.

Who benefits? The government and food market owners.

And who suffers? The people. Those that can't even make it to the minimum monthly survival salary.

The great Mexican Lemon Crisis is nothing more than yet another example of the effects of governments meddling in markets through intervention. Had the government not raised taxes and allowed free lemon imports, the price would have been above normal prices but nothing approaching a +600% rise. Yet, this is not to be. The reason? Artificial monopolies and protectionist policies.

This proves that in the end, nothing is too economically tiny for governments not to meddle with. Nothing a government does is free from side effects. The great Mexican Lemon Crisis is here to stay bringing misery to Mexicans and with it lower standards of living.

The Mexican government is indeed a lemon, as all others are.

Note: please see the Glossary if you are unfamiliar with certain words.

 

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