Pursuant to the “EXTRACT of the Preliminary Findings in Case File IEBC-004-2022 issued on September twenty-seven, two thousand and twenty four” (EXTRACTO del dictamen preliminar del expediente IEBC-004-2022, emitido el veintisiete de septiembre de dos mil veinticuatro) (the “Preliminary Findings”) published in the Official Gazette of the Federation on October 7, 2024, the Investigative Authority of the Federal Economic Competition Commission (Comisión Federal de Competencia Económica) (“COFECE”) determined the probable existence of barriers to competition and free trade in the markets for the production, commercialization and distribution of bulk white and blue corn flour for the commercial production of corn tortillas, with a regional geographic dimension divided into eight regions in Mexico (the “Relevant Markets”), due to the dominant position of the economic interest group of GRUMA S.A.B. de C.V. (“GRUMA”).

COFECE conducted an investigation into the markets for the production, distribution and commercialization of corn and corn flour (the “Investigated Market”), from November 2022 to June 2024. Based on this investigation, the Investigative Authority reviewed the conditions of competition pursuant to Article 59 of the Federal Economic Competition Law (Ley Federal de Competencia Económica) (“LFCE”), and determined, on a preliminary basis, that there are no conditions of effective competition in the Relevant Markets, because:

  • GRUMA leads all Relevant Markets with market shares ranging from 50% to 90% in terms of total sales and from 45% to 100% in terms of installed capacity in each of these markets.
  • GRUMA has the ability to fix prices, maintaining through its main brand an average price differential of 9.5% higher than its competitors.
  • There are barriers to entry for new competitors in the Relevant Markets, such as: (i) financial costs and limited access to financing; (ii) limited access to efficient distribution channels compared to the extensive distribution network developed by GRUMA; (iii) high investment costs and long payback periods; (iv) the need to achieve minimum efficient scale for competitiveness in these markets; (v) access to rail transportation due to its advantages in logistics costs; (vi) the lack of alternative uses for the infrastructure in corn flour production, making the investment a sunk cost; (vii) the importance of developing an effective sales force and building trust relationships with customers, which requires significant time and resources; (viii) the ability to offer a wide range of differentiated products; and (ix) GRUMA’s commercial strategies regarding the provision of machinery and financing to Corn Dough and Tortilla Makers (Industriales de la Masa y la Tortilla) (“IMyT”).
  • GRUMA’s competitors exert limited competitive pressure.
  • GRUMA has grown inorganically through the acquisition of Agroinsa de México S.A. de C.V. and Agroindustrias del Norte S.A. de C.V. in 2005. None of the plants acquired as part of that transaction are currently in operation.

In conclusion, the Investigative Authority identified that the Relevant Markets are highly concentrated and dominated by GRUMA, holding a significant and irreversible advantage over all its competitors in the Relevant Markets, allowing it to fix high prices without sufficient competitive pressure. Moreover, the Investigative Authority found that GRUMA has implemented strategies specifically designed to make it difficult for tortilla makers to switch suppliers.

After assessing the conditions of effective competition in the Relevant Markets, the Investigative Authority identified the existence of a potential structural barrier to competition related to GRUMA’s market concentration over the years, with a dominant position in all Relevant Markets, supported by commercial strategies stemming from this structure, contributing to the lack of competitive conditions in these markets.

In order to eliminate the identified restriction, the Investigative Authority is seeking to have COFECE put in place the following corrective measures:

  • The Investigative Authority proposes ordering GRUMA to sell five key production plants in the Relevant Markets. These plants must be acquired by companies that are not linked to GRUMA to ensure the creation of a more competitive environment.
  • The Investigative Authority proposes that GRUMA eliminate several of its commercial strategies that make it difficult for customers to switch to other suppliers, such as (i) minimum purchase commitments; (ii) exclusive purchase commitments; (iii) tying debt payment to flour purchases; (iv) prohibiting inspection clauses; and (v) implementing transparency and regulatory oversight mechanisms in its contracts with IMyT customers.

The Investigative Authority points out that these measures are intended to promote contestability in the market, reduce high switching costs, and ensure the viability of the transferred businesses.

Pursuant to Article 94 of the LFCE, now that the Preliminary Findings have been issued, affected economic agents may submit their arguments and supporting evidence before the Board of Commissioners of COFECE, which may, following its assessment of this case, ratify, modify, or revoke such findings. Economic agents having legal standing in this matter may submit evidence and present arguments in this case.

If the Preliminary Findings are confirmed, COFECE could order GRUMA to eliminate the barriers that affect the process of free trade and competition in the Investigated Market and Relevant Markets.

At Ritch Mueller, we have extensive experience in economic competition matters, with a team of professionals available to advise clients and prospective clients whose activities may be impacted by COFECE’s recommendations and orders related to the corn flour market.

For additional information, please contact Octavio Olivo Villa ([email protected]) or James E. Ritch ([email protected]), leaders of Ritch Mueller's competition team.

Visit our site www.ritch.com.mx or reach us at (+52) 55 9178 7000 | [email protected]