Mexico's Soaring "Narco-Inflation"

Even the price of orange juice is impacted by cartels

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This is part of the series Piso, on the problem of extortion in Mexico.

Covering 600 acres in the east of Mexico City, the sprawling “Central de Abasto” is one of the biggest wholesale food markets in the world, opening before dawn to serve thousands of tons of fruit, veg, meat and fish trucked in from across the country. Walking through its labyrinth of stalls, you find dozens of types of chili, mountains of limes, gigantic sweet corns, creamy avocados just ready to munch and endless other treats.

Supplying the vast metropolis of the Mexican capital and beyond, the Central is second only to the stock exchange in its value of commerce in Mexico. Yet tragically, the price of this trade is being pushed up by gangsters. As cartels (or to be more precise, hierarchical networks of paramilitary organized crime) shake down agricultural producers, as well as suppliers and transporters, the price hikes are evident in the stalls of the Central. Opposition federal deputy Rubén Moreira has dubbed 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 autodefensas, or self-defense squads, from 2013 to 2014 and it has got so bad that lime farmers are currently halting production over it. (In some spots, prices have doubled to over 60 pesos or $3 a kilo.)

But gangsters have also expanded to shake down an array of producers across the country from chicken factories in Mexico State to tortilla shops in Guerrero to fishermen in Sonora. In the end, consumers take a hit as it impacts prices in markets and then in restaurants. While inflation eases in the United States, Mexico’s consumer price index ticked up in July to above 5 percent and is much higher on certain food goods.

One example is fresh orange juice, which I like to get daily from the stalls dotted every few blocks in Mexico City. The price of a liter has shot up from about 40 pesos to 80 pesos ($2 to $4) over a few months. While it does go up seasonally and a drought in the spring contributed, a wholesaler in the Central told me that extortion is a factor. “Our suppliers are having to pay quota [an extortion fee] and they pass the price onto 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 are picked in remote orchards and taken down the same dirt roads, or brechas, used for drug and human smuggling. The orchards themselves don’t pay but both the truck companies moving the fruit and warehouses storing them give a fee to the cartel, a farmer in the region said.

Most victims don’t report extortion for a very real fear of repercussion; in July, the head of the chamber of commerce in Matamoros was shot dead after publicly condemning shakedowns. As a result, Mexican police statistics on extortion are close to useless and really reflect threatening phone call scams to the general public.

However, economist (and former deputy) Mario Di Costanzo says his investigations show a huge increase of extortion and estimates that cartels are now banking about 200 billion pesos or $10 billion a year from the crime. “They are seizing control of all the economic activities,” Di Costanzo said.

This level of shakedowns poses a real threat to the economic life of tens of millions of Mexicans who had not before been touched by organized crime. It’s a culmination of a shift of cartels from the primary activity of drug trafficking to a range of rackets over the last two decades that has reached fever pitch.

It’s tough to find historical comparisons. The mafia runs protection rackets in southern Italy but they are different as I will get into below. Central American countries such El Salvador have suffered widespread extortion from gangs but this is focused on small businesses in an economy a fraction of the size. Mexican cartels are sucking from a GDP of almost $1.5 trillion.

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

The Business of Private Protection

Italian academic Diego Gambetta wrote a landmark book on the Sicilian mafia called “The Business of Private Protection.” In it, he argued the mafia had survived so long because they were rational actors who provided a service and many paid them protection voluntarily. They created a stable industry.

One example that Gambetta cited was how the mafia oversaw transactions in the illicit meat trade outside slaughter houses.

“There is an incentive to bypass the legal procedure: the opportunity to avoid tax. At a cost which must be lower than the tax, the presence of “Peppe” [a Mafiosi] as informer and guarantor makes this attractive but illegal transaction feasible.”

However, Gambetta draws a line between this genuine protection and clearly coercive extortion. “This practice differs from extortion proper, where the payment aims only to avoid costs directly threatened by the ‘protectors.’ ”

In Mexico, cartels also run a protection racket on independent smugglers that is more like the Sicilian model. Traffickers voluntarily pay the cartel a percentage on each kilo because it allows them to move their dope and they can enjoy the cartel’s corruption networks. As historian Benjamin T. Smith wrote in this essay here on CrashOut, the cartels actually first emerged to take over this protection racket from corrupt police.

Of course, not every drug smuggler wants to pay the cartel, and this leads to murder. But the cartel is providing a service here and allowing people to make money.

Cartels have also taken over other criminal activities in which smaller players work under them for a fee. Human smugglers pay the mob, which can support them with its infrastructure and genuinely protect them from other crews and law enforcement. Again, some don’t want to pay, but the cartel is providing a service.

However, as cartels have expanded to shakedown regular businesses, they really are offering no benefit. It’s more like a second tax with nothing in return, a purely predatory action that just sucks from the economy.

Extortion has also spread extremely fast across Mexico and the cartels keep putting the price up so businesses have not gradually factored it in. It’s sowing instability.

The first notable extortion hit border cities during the 2000s. José Reyes Ferriz, who was mayor of Ciudad Juárez from 2007 to 2010, described to me how it spread.

“The criminals first started charging protection at used car lots, which have always had a certain link to organized crime. Then it started growing to affect bars, pharmacies and funeral parlors. Then they got money from schools and doctors. Then they just went for everything in sight.”

However, this early extortion did not come from the main core of the Juarez Cartel but from corrupt police officers who Reyes had fired on mass. In 2010, another renegade group, the Zetas, broke away from their bosses in the Gulf Cartel and also shook down the cities they controlled.

Down in Michoacán, the bizarrely-named “Knights Templar,” under the megalomaniac meth trafficker Nazario Moreno, carried out mass shakedowns of farmers in the early 2010s. Nazario showed how you could extract money from several links in the chain, charging farmers, warehouses and transporters. While the Central de Abasto itself is fairly secure, the cost of the extortion is passed along the chain to sellers there.

The Knights Templar were being hit hard by federal police so Nazario could have wanted protection money to fight back. But he may have done the shakedowns simply because he could; cartels are like expanding corporations ever wanting to get into new markets.

When vigilantes overthrew Nazario in 2014 and likely beat him to death, extortion temporarily ceased. But it crept back as new gangsters established themselves, including some former vigilantes. Once the genie of extortion is out of the bottle it seems hard to put back in.

In some cases, cartels have lost drug money and get into extortion to compensate. In Guerrero for example, there was a booming trade in opium but this collapsed because of the synthetic fentanyl. But in other cases, mobs such as the Jalisco Cartel can move massive amounts of dope and still do extortion. Again, mafias can keep expanding into every terrain possible - until they finally meet a force that will stop them.

The Coming Reaction?

In December, farmers gathered on a football pitch in the village of Texcapilla in Mexico State to meet operatives of La Familia cartel. The gangsters wanted to hike the price they demanded from farmers for every square meter they planted. The farmers came with machetes and shot guns and refused.

When Familia thugs opened fire on the farmers, they fought back. Four of the farmers were killed. But they hacked to death 10 thugs from La Familia including their local leader known as “El Payaso,” or “The Clown.”

Notably, Mexican prosecutors brought no charges against the farmers as it ruled they were acting in self-defense. It was a popular decision that illustrates the mood of the country.

Such actions could easily spread. New armed groups claiming the banner of self-defense squads are emerging in Chiapas to counter the rapid rise of cartel extortion there. In May, truck drivers called a national strike and blocked highways over insecurity. Michoacán’s lime farmers are still holding a stoppage and demanding the government protect them from paying “quotas.”

You might see an anti-cartel uprising a positive development. People power could be the only force that stands in the gangsters’ way. But then as I saw in Michoacán in 2014, such an uprising would get ugly, with many deaths and the “good guys” with guns can easily turn into bad guys, who themselves murder and rob.

A better hope could be that the new government of Sheinbaum, who takes power in October, will react. While fighting cartels is a Herculean task, a campaign to liberate people from extortion would be much more popular and better supported than a war on drugs. The government could create extortion-free zones where nobody pays and gradually expand them across the country. And unlike the war on drugs, this would actually help the economy.

A third possibility also exists. Farmers could keep paying and the government do nothing. Cartels could learn that they can only push so far and keep the charges at a level producers can manage. The long-term normal would be of paying tax to a predatory mafia that gives nothing in return.

It’s a grim vision. Yet, I expect this will not be the future. The cartel expansion is too unstable and while the Mexican people put up with a lot, they also react if pushed too far. The pendulum I think will have to swing back, but I fear there will be more bloodshed before it does.

The series Piso is produced by CrashOut Media with the support of Transformative Incorporated (thanks there Transformative for reading CrashOut and getting involved). More info to follow.

Juan Alberto Cedillo contributed to this report.

Copyright text and photos Ioan Grillo and CrashOut Media 2024