Magazine article SourceMex Economic News & Analysis on Mexico

Government's Anti-Monopoly Agency to Investigate Milk Industry

Magazine article SourceMex Economic News & Analysis on Mexico

Government's Anti-Monopoly Agency to Investigate Milk Industry

Article excerpt

The government's anti-monopoly agency Comision Federal de Competencia (CFC) has initiated an investigation of Mexico's largest milk producers to discover whether they are inhibiting competition.

In an announcement published in the government's daily register (Diario Oficial de la Federacion) Oct. 17, the CFC said the agency will conduct a 30-day investigation to determine whether several major milk producers conspired to control supply to manipulate prices.

The daily newspaper El Financiero reported that the investigation would center on dominant milk manufacturer Grupo Industrial Lala (GILSA), managed by Javier Iriarte Maisterrena. He is the brother of Ramon Iriarte, the former head of the Consejo Nacional Agropecuario (CNA).

Increase in milk prices sparks investigation

The CFC's announcement comes only days after milk producers implemented a price increase of 7%, or about 50 centavos (US$0.05), to 7 pesos (US$0.73) per liter.

The price increases were initiated by GILSA, which controls 22% of the market. Other major manufacturers such as Jalisco-based Sello Rojo followed GILSA's lead, eventually forcing most other companies to implement their own increases.

Milk producers had no comment on the increase. But the Asociacion Nacional de Ganaderos Lecheros (ANGLAC) said the increase was necessary to compensate for higher costs for electrical energy, diesel, and labor.

Increasing costs for natural gas especially have forced some companies involved in energy-intensive industries like mining and steel production to cut back on their activities (see SourceMex, 2000-09-27).

The increases in natural-gas prices have boosted costs of electricity, which is expected to affect manufacturing and other sectors, including the dairy industry. The state-run electric-power utility company (Comision Federal de Electricidad, CFE) said costs so far this year are running about 2 billion pesos (US$208 million) ahead of last year because of high fuel prices.

ANGLAC also contends that labor costs have risen, especially in northern areas where the maquiladora sector has expanded. "They are competing for workers," said ANGLAC officer Felipe Cedillo Vela. He noted the trend was particularly evident in the dairy region of La Laguna, which straddles the border of Coahuila and Durango states. Milk- producing giant GILSA is based in La Laguna region.

But some influential labor groups attribute the increases in milk prices in part on the government's decision to eliminate price controls in 1998. "There is no justification in maintaining this policy of liberated milk prices, when the minimum wage remains at levels imposed by the government," said Mario Suarez, leader of the Confederacion Revolucionaria de Trabajadores (CRT).

ANGLAC and milk producers have defended the elimination of price controls on milk as necessary to help the industry survive. Cedillo said milk producers have been able to keep prices relatively low during the past two years by gradually increasing supply. Production this year is expected to total 9.2 million liters, compared with 7.9 million liters in 1997.

In the aftermath of the latest increase in milk prices, the influential Congreso del Trabajo (CT) released a study showing that the cost of this basic product has risen by more than 1,200% during the past six years. It has risen from about 55 centavos (US$0.057) per liter in December 1994 to about 7.50 pesos (US$0.78) in some instances this year.

"This latest price increase will allow us to keep modernizing our operations to remain competitive at the global level," Cedillo told the daily newspaper Reforma. …

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