COFECE Proposes Divestment of Gruma Plants to Boost Competition

Gruma, the world's largest corn flour consortium, may be forced to sell five of its production plants. This divestment is expected to improve competition in the sector and offer better prices to consumers.

The Federal Economic Competition Commission (COFECE) issued a preliminary ruling proposing the sale of five of Gruma's 18 corn flour production plants, along with the entire distribution fleet and sales force of these facilities. These plants, located in Veracruz, State of Mexico, Tamaulipas, Guanajuato, and Sinaloa, represent, on average, 17% of Gruma's total market capacity. The estimated value of this divestment is yet to be determined, as it will be part of discussions between Gruma and COFECE.

COFECE's investigative authority (AI) launched the investigation after identifying a constant increase in corn flour prices, despite stable corn prices. According to the report, Gruma maintains a significant and irreversible advantage over its competitors, allowing it to set high prices without facing sufficient competition.

To reach this conclusion, the AI divided the country into eight regions and analyzed total sales and installed capacity between 2016 and 2022. It found that Gruma holds between 50% and 90% of sales in each region. In some areas, nearly 9 out of 10kg of flour are sold by Gruma, giving it a market share up to nine times larger than its closest competitor in each region. Additionally, Gruma's average price is nearly 10% higher than that of its competitors nationwide.

The report also noted that Gruma uses strategies to make it difficult for tortilla makers to switch suppliers. José Manuel Haro, AI Director, Gruma, explained that the company provides machinery and equipment to tortilla shops under the condition that they use its flagship product, Maseca. “Over the past 10 years, new entrants have barely captured 3% of the market's value in terms of production,” he said in an interview with El Financiero.

In addition to the proposed divestment, COFECE has called on Gruma to eliminate strategies that prevent tortilla makers from switching suppliers and to implement transparency and oversight mechanisms to promote more competition in the market.

Examples from across the country support COFECE's findings. In Veracruz, the introduction of new corn flour brands has helped stabilize tortilla prices over the past year. Zenón Uscanga, leader of the Veracruz-Boca del Rio Millers Union, highlighted that new brands such as Omalli, Optimasa, and Harimasa, which offer similar quality at lower costs, have entered the market, benefiting tortilla makers.

COFECE expects these measures will positively impact the number and size of corn flour companies in Mexico, incentivizing Gruma to lower its prices, increase innovation, or improve its products, ultimately benefiting tortilla consumers.

The AI's preliminary ruling is the first step in the process. Gruma has around 45 days to respond to the ruling, after which COFECE’s plenary will analyze all evidence and issue a final decision. The final resolution may adopt, modify, or reject the AI's proposals, meaning Gruma is not yet obligated to implement the corrective measures. However, if the final ruling mandates the sale of the five plants and Gruma fails to comply, it could face fines of up to 10% of its income, Haro emphasized.

Corn tortillas are a staple food for Mexicans. According to data from PROFECO, 98.6% of the population consumes corn tortillas, with 68% consuming them daily. Furthermore, corn tortillas account for nearly 6% of household food spending, and nixtamalized corn flour represents nearly half of the production cost for corn tortillas not made from fresh dough.