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LATIN AMERICA: Factors in Climbing Food Prices – A Baker’s Dozen

Humberto Márquez

CARACAS, Jun 4 2008 (IPS) - Where today’s high food prices are concerned, there are 13 villains of the piece: the structural and circumstantial causes associated with supply and demand, according to the Latin American and Caribbean Economic System (SELA), which says that to tackle them, regional cooperation is essential.

"Action must be taken on different fronts, with political coordination to defend regional interests," the permanent secretary of SELA, José Rivera, told IPS ahead of a regional meeting which discussed the problems last weekend.

The goal of the meeting was to arrive at a common Latin American and Caribbean position, prior to the High Level Conference on World Food Security taking place in Rome Tuesday to Thursday.

"A host of meetings are happening, because there is awareness that the food crisis hits the poor the hardest," Gerard Gómez, the head of the United Nations Regional Office for the Coordination for Humanitarian Affairs, told IPS.

An additional 10 million people could join the 80 million in this region who already cannot afford a minimum diet, said Gómez, citing a study by the Economic Commission for Latin America and the Caribbean (ECLAC).

Why are food prices rising? A SELA study has identified 13 structural and circumstantial causes that are related to food supply and demand.

The first is the growth of financial investment in commodities. Over the last four years, investment in gold and metals has remained stable, but has increased seven-fold in other commodities.

Analysts at the Bank for International Settlements in Basel, Switzerland estimate that financial speculation accounts for 30 percent of the increase in food prices, based on the seven trillion dollars invested in "other commodities" between 2004 and 2007, compared to less than one trillion dollars in the previous four years.

The first cause is related to the second, namely the weakness of the dollar and low international interest rates, which drive financial operators to seek shelter for their funds in the acquisition of commodities, thus driving up prices.

The third is the price hike in oil, which is not only needed for food production and transport, but also promotes increased food consumption in oil-producing countries taking in windfall profits, Rivera said.

In 2000, when crude cost around 30 dollars a barrel, a tonne of powdered milk cost 1,500 dollars. Now that oil costs over 130 dollars a barrel, a tonne of powdered milk is priced at 4,500 dollars.

Restrictions on food exports are another factor. Countries in Asia, and Ecuador in Latin America, have restricted rice exports, while others, like Argentina, have imposed curbs and export taxes on meat and grains.

The fifth reason, a circumstantial one, is the low levels of food stocks, particularly of cereals, which have fallen at a rate of 3.4 percent a year since 1995. Historically, cereal reserves have stood at 30 percent of world production, compared to 20 percent today.

Another structural cause is increased demand from Asia. For example, maize consumption in south, east and southeast Asia totalled 200 million tonnes in 2003-2004, and 227 million tonnes in 2007-2008.

Demand for animal feed, especially maize, is also up. The United States devoted 47 percent of the 332 million tonnes of maize it produced in 2007 to animal fodder.

Another "villain" is increased demand for biofuels. SELA points its finger at maize for ethanol in the United States and rapeseed for biodiesel in Europe. "Of the 48 million tonnes by which domestic U.S. consumption of maize increased in 2007, nearly 30 million were used exclusively for ethanol production," says the SELA study.

"On principle, FAO (U.N. Food and Agriculture Organisation) condemns using foods to manufacture biofuels," FAO representative in Venezuela Francisco Arias told IPS.

"We must research ways of producing biofuels that do not depend on food," said Mexican Ambassador to Venezuela Mario Chacón.

"In Mexico, we have the physic nut tree (Jatropha curcas), which has oil-bearing seeds, and straw and vegetable waste can also be used instead of food products," he told IPS.

Another structural factor with an impact on prices is climate change, which has caused severe droughts in countries which are normally large food producers, such as Australia, Ukraine and the United States.

In Latin America, tropical storms Noel and Olga and hurricane Felix affected food production in Cuba, Haiti, Nicaragua and the Dominican Republic. Floods also devastated agricultural areas in Bolivia and Ecuador.

Production costs (of fertilisers, seeds, pesticides and machinery) have also risen, as have transport and logistical costs (food storage and distribution), in line with the soaring oil prices.

One factor that has not yet had a major effect in Latin America is limitations on water and agricultural land, which in other regions is in competition with other types of land use, especially the expansion of towns and cities.

In addition, there is a lack of new technology, due to low levels of investment in research and development in much of Latin America. Rivera said that "the best way to cut food prices is to raise productivity, rather than increase surface area for crops."

Finally, protectionist policies in the industrialised countries of the North "have distorted the global agricultural market for more than five decades," the SELA study says.

For example, Haiti was almost self-sufficient in rice 30 years ago, but it was forced to cut import tariffs in order to qualify for credit from the multilateral lending institutions in the 1980s. The result was massive imports of subsidised rice from the United States, which undercut local prices. Haitian farmers, unable to earn a living, left their land and migrated to the cities.

Rivera said that policies implemented by countries of the North, such as supporting domestic farmers, subsidising exports and restricting access to their markets, "prevent investment and expansion of production and trade in efficient producer nations." The delegations attending the meeting held by SELA, which is made up of 26 Latin American and Caribbean nations, agreed that the region must respond to the food price crisis with a regional food security programme.

Interested governments may form a food security Action Committee, the kind of body that was in vogue in SELA’s earlier years (the 1970s and 1980s) to tackle specific practical tasks jointly.

"I told the meeting that Colombia, which has only four million hectares under food production, and Venezuela, which has barely two million, could cooperate on a plan to bring another three million hectares into production in the valleys of the (shared) Orinoco and Meta rivers," Fernando Marín, Colombia’s ambassador in Caracas, told IPS.

The SELA meeting indicated that a special fund is needed to assist countries in the region facing acute food crises, following the model of the Bolivarian Alternative for the Americas (ALBA), made up of Bolivia, Cuba, Nicaragua and Venezuela, which has set up a 100 million dollar fund for this purpose.

Finally, the representatives asked SELA to convene another meeting after the current FAO Conference in Rome, to analyse the conference results and continue to develop the Latin American and Caribbean food security strategy.