April 15, 2014

Cartel battle targets limes in inflation face-off

Limes were the biggest contributor to Mexican inflation in March, and the higher prices have made their way to Texas supermarkets.

Weeks after capturing the head of the Sinaloa drug gang, Mexican officials are focusing on another cartel: lime growers who raised prices 41 percent last month.

The country’s consumer protection agency filed a complaint April 2 against farmers in Michoacan state for fixing prices on the tart citrus fruit, which is a staple of Mexican cuisine from tacos to margaritas. Limes were the biggest contributor to Mexican inflation in March, and the higher prices have made their way to Texas supermarkets, which get most of their supplies from south of the border.

Mexican officials are seeking to keep a lid on inflation, which has exceeded 4 percent in 5 of the past 12 months. Though the farmers in Michoacan are linked to the vigilantes that the military has backed in its fight against drugs, Mexico won’t tolerate the pressure on prices, according to Nomura Holdings.

“This is a very strange phenomenon,” Benito Berber, a strategist at Nomura, said in a phone interview from New York. “There are even jokes about limes being more expensive than this or that, so the government had to say, ‘Hey, you can’t keep prices there.’ ”

Limes have “suffered an excessive price increase so far this year because of immoderate profit sought by producers, distributors and traders,” Mexico’s consumer protection agency said in an April 2 statement. Fixing prices is punishable by up to 10 years in prison.

Last month, members of the Citrus Growers Association of Apatzingan Valley limited supply to guarantee a minimum price for producers, association spokesman Leonardo Santibanez said at the time.

Association members pushed up prices after lime infestations from the neighboring state of Colima crimped production, Santibanez said. Atypical rainfall hurt production in Michoacan, further reducing supply, he said. Santibanez denied that the growers were engaging in illegal activity. He didn’t respond to phone calls and text messages last week seeking comment on the government’s complaint.

In February, Mexico apprehended Joaquin “El Chapo” Guzman, the world’s most-wanted drug lord, who gained fame after escaping from a high-security prison and building up the Sinaloa Cartel.

The government has also deployed the army and brought down drug lords in Michoacan, where armed vigilantes have clashed with criminals and police officers, accusing them of extortion.

Ezequiel Aguirre, a strategist at Bank of America, said in an e-mail that core inflation, which excludes more volatile agricultural and energy prices and is a better indicator of future price increases, has bottomed “since we expect activity to improve significantly.”

Combating lime increases will be “an additional factor that will help keep inflation low,” said Alejandro Padilla, a strategist at Grupo Financiero Banorte SAB. “It’s not a good time to invest in” Mexican inflation-linked bonds, he said.

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