WASHINGTON, 12. August 2008: Latin American and Caribbean countries should strengthen social programs to alleviate the impact of higher food prices among 71 million poor people in the region, newly-released numbers on the potential impact of food prices by Inter-American Development Bank show. More than 26 million people in Latin America and the Caribbean could fall into extreme poverty if food prices remain high, according to the IDB.
Low-income families may be pushed deeper into poverty if high prices for commodities such as wheat, rice and soybeans remain persistently high and countries fail to boost agricultural output and income to the poor, according to IDB data, which estimated the impact of the crisis in 19 countries in the region.
Poor households spend the majority of their income on food and have insufficient assets and savings to cope with the rising cost of basic staples, the IDB data shows. Rising prices may force households to cut down on food intake if other options are not available.
“Recent advances in nutrition and education could be in jeopardy if food prices remain high” said Suzanne Duryea, one of the IDB researchers who conducted the Bank study. “Countries will need to expand investment in social protection programs in order to ease the impact of the crisis.”
Central America and Caribbean countries that import large quantities of food face the greatest risk of deepening poverty. For instance, Haiti would need to transfer 12 percent of its gross domestic product to the poor so they may maintain their pre-crisis levels of consumption; Peru would need to transfer 4.4 percent of its GDP and Nicaragua 3.7 percent, the IDB numbers show.
In order to calculate the impact of higher food prices on poverty, researchers assumed a 30 percent price increase in corn, rice, wheat, soybean, sugar and beef. They also assumed that international price increases will be fully passed on to consumers.
The study also assumed that consumers would not change their consumption habits and that food production will not increase in response to the price signals. It calculated the net impact of the crisis, which is the difference between sectors that gain and lose with rising prices.
“We analyzed the impact on poverty under an extreme scenario,” said Duryea. “Even though this worst case scenario is unlikely to happen, it clearly shows the serious consequences rising food prices can have on poverty levels in the absence of effective policies.”
Worldwide food prices soared 68 percent on average between January of 2006 and March of this year. The rise has been especially steep for some basic food items, such as corn and wheat, with prices more than doubling in the period.
Several factors have driven prices up in recent years. Rising incomes in China and India have fueled demand for food, not only in terms of quantity but in quality too. Chinese per capita consumption of beef has soared 40 percent since 1980, increasing demand for grains. The production of one kilogram of beef requires as much as 7 kilos of grains.
The increase in the use of corn to make ethanol has also been a contributing long-term factor for rising demand.
In the short-run, prices have also been affected by the weakening dollar and the rising cost of energy and other agricultural inputs. Export restrictions in several countries and a drought in Australia that wiped out 10 percent of its agricultural output in the 2006–2007 crop year have also hurt supplies.
“Prices may level off in the future,” said Duryea. “At this moment researchers are unsure to what extent the factors that have been driving prices up will be permanent or transitory.”
Persistent high food prices would also push more people into poverty in the sample of 19 countries. The number of poor people in Chile, for example, would increase from 12,3 percent of the total population to 17,2, net of positive impacts from rising commodity export prices. Mexico’s poor would rise by a third to 27,5 percent of the total population from 20,6 percent, and Costa Rica and El Salvador would also register a significant increase in poverty.
The region’s governments are considering several policy options to cope with the rising cost of food, including price controls, subsidies, export restrictions and food distribution. If not carefully designed, those polices can be counterproductive because they may benefit households that do not need subsidies and may limit incentives to increase food supply, said José Cuesta, one of the IDB researchers who conducted the study.
When conditional cash transfers schemes are available, the best policy may be to increase transfers to the poor because it will allow households to adjust their diet to relative prices while not diminishing income for those who provide food to the poor. In the longer-run, conditional cash transfers offer the right incentives to the poor such as preventing children from leaving school and ensuring that infants and pregnant women do not miss health visits, Cuesta said.
In addition, countries ought to take steps to boost domestic agricultural production, including lowering trade barriers so that local producers can take advantage of higher prices abroad. Governments also need to streamline food imports and improve transportation and logistics to reduce the costs to consumers.
To support such initiatives, in May the IDB announced plans to provide a $500 million credit line for countries to improve agricultural productivity and expand cash transfer programs.
Mexico, Honduras and Jamaica are already working with the IDB to expand and strengthen their existing social protection programs in order to help the poor cope with the rising cost of food, Duryea said.
Kilde: IDB
