Mexico’s Rising "Narco-inflation"

The vast 600-hectare area in eastern Mexico City “Central of Abasto” is one of the largest wholesale food markets in the world, opening before dawn to serve thousands of tons of fruits, vegetables, meats and fish shipped in from all over the country. As you wander through the maze of stalls, you’ll find dozens of varieties of chili, mountains of limes, giant sweet corn, creamy avocados ready to eat and endless other delicacies.

The vast metropolis of the Mexican capital and beyond is supplied by the Central is second only to the stock exchange in the value of trade in Mexico. But tragically, the price of this trade is being driven up by gangsters. As cartels (or more precisely, hierarchical networks of paramilitary organized crime) extort agricultural producers, as well as suppliers and transporters, the price increases are clearly visible in the stalls of the Central. Opposition member Rubén Moreira has called it “narco-inflation.”

Cartel extortion of lime and avocado farmers in the western state of Michoacán has long been documented. This was a major reason for the rise of self-defense, or self-defense teams, from 2013 to 2014 and it has gotten so bad that lime farmers are now shutting down production for it. (In some places, prices have doubled to more than 60 pesos or $3 per kilo.)

But gangsters have also expanded to extort a range of producers across the country, from chicken factories in Mexico State to tortilla shops in Guerrero to fishermen in Sonora. Ultimately, consumers take a hit because it affects prices in markets and then in restaurants. While inflation in the United States is slowing, Mexico’s consumer price index rose above 5 percent in July and is much higher for some foods.

One example is fresh orange juice, which I like to buy daily from the stalls that pop up every few blocks in Mexico City. The price of a liter has risen from about 40 pesos to 80 pesos ($2 to $4) in a few months. Although the price increases seasonally and a spring drought has contributed, a wholesaler in Central told me that extortion is a factor. “Our suppliers have to pay a quota (an extortion fee) and they pass the price on to us, and then you end up paying more on the street,” he said.

Much of the summer supply of oranges comes from southern Tamaulipas, where the fruit is picked in remote orchards and transported over the same dirt roads, or fracturesused for drug and human trafficking. The orchards themselves do not pay, but both the trucking companies that transport the fruit and the warehouses where it is stored pay the cartel, according to a farmer in the region.

Most victims do not report extortion for fear of repercussions; in July, the head of the Matamoros Chamber of Commerce was shot dead after publicly condemning extortion. As a result, Mexican police statistics on extortion are virtually useless and actually reflect threatening phone scams to the general public.

However, economist (and former deputy) Mario Di Costanzo says his studies show a huge increase in extortion, estimating that cartels are now making about 200 billion pesos, or $10 billion, a year from the crime. “They are taking control of all economic activity,” Di Costanzo said.

This level of extortion poses a real threat to the economic lives of tens of millions of Mexicans who have never before been affected by organized crime. It is the culmination of a shift by cartels from the primary activity of drug trafficking to a series of rackets that has reached a peak in the past two decades.

It’s hard to find historical comparisons. The Mafia runs protection rackets in southern Italy, but they are different, as I’ll explain below. Central American countries like El Salvador have seen widespread gang extortion, but it’s targeted at small businesses in an economy a fraction of the size. Mexican cartels suck away nearly $1.5 trillion in GDP.

The expansion of extortion has happened under President Andrés Manuel López Obrador, who has failed to come up with a strategy to stop it. We can hope that his successor Claudia Sheinbaum takes it seriously, otherwise it could cause a social explosion, a Michoacán-style uprising throughout the country.

The business side of private security