Food Security in Latin America: Short and Long-term Responses to the Global Food Crisis

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1 ISSN Food Security in Latin America: Short and Long-term Responses to the Global Food Crisis Pablo Heidrich & Zoe Williams. SerieBrief # 76 Septiembre 2011

2

3 3 Food Security in Latin America: Short and Long-term Responses to the Global Food Crisis This brief summarizes work done by Latin American researchers from The Latin American Trade Network (www.latn.org.ar) on food security issues, in the context of the current global food crisis, and making special reference to The Canadian International Development Agency s policies on this subject. This project was made possible through the fieldwork support provided by The Association of Universities and Colleges of Canada (AUCC), and The International Development Research Council (IDRC) joint program Canada- Latin America and The Caribbean Research Exchange Grants (LACREG). Food security describes a situation in which people have secure access to sufficient amounts of safe and nutritious food for their normal growth and development and an active and healthy life. The main reasons for food insecurity, in contrast, are the physical unavailability of food, insufficient purchasing power or inappropriate distribution. Such conditions can be chronic, seasonal or transitory (FAO, 2010). While Latin America is a net food exporting region, food security remains a concern given the high income inequality and persistent levels of poverty there. In this context, it is certainly fitting that CIDA has food security as one of its priority themes for its work in this region. This brief contributes to such policy and its public debate by bringing in key conclusions of Latin American research on food security, that focused on the effects of the global food crisis of and the policy responses developed by different countries there. Its purpose is to provoke rethinking and improvements in Canadian aid s effectiveness there. These will matter to both, short-term projects to reduce the immediate worst effects of the food crisis and, mid to long-term development policies that can improve food security in the foreseeable future. Impact of the Global Food Crisis Now grown into a global food crisis, the rise in food prices around the world in fact began in the mid-1990s, as increased global demand, particularly in emerging economies, and biofuel policies in the USA and the EU, put upward pressure on international food prices. The effects in Latin America have been exacerbated by a number of supply and demand side factors. These include: Reduced productivity due, in part to climate change; Reduction in cultivated land dedicated to food crops; Lower productivity per hectare in cereals and oleaginous seeds; The dedication of arable land to biofuel rather than agricultural production; Greater global consumption of meat; and, The rise in global fuel prices, thus increasing fertilizer costs. The result of these has been a progressive shift in the balance between the global supply and demand of food, translating into a 30% increase in the food price index for consumers in Latin America between 2006 and 2008 (Piñeiro and Bianchi 2009). Central America and the Andean region experienced particularly high increases; with food prices in Nicaragua and Honduras increasing by 45% and in Bolivia, by 40% (Cuesta and Jaramillo 2009). As all Latin American countries have been deeply affected, this has led to an overall rise in poverty levels. The lower income countries, such as Nicaragua and Honduras, have been the most negatively affected seeing a 7.8% rise in total poverty and a 10.8% rise in urban poverty. Bolivia has also seen a significant increase in the rate of poverty, which rose by 6.9% (Bianchi, Piñeiro and Uzquiza 2009). Left side, quote: The result of these has been a progressive shift in the balance between the global supply and demand of food, translating into a 30% increase in the food price index for consumers in Latin America between 2006 and 2008 (Piñeiro and Bianchi 2009). The effect of the crisis on food security in Latin America has varied from country to country, depending on its food balance (food products it imports and exports) and its overall capacity to fund food imports. A country that is a net exporter of food may in fact benefit from higher food prices as a whole but the poorer sections of its population will have their food security threatened by higher domestic prices as much as a net food importer would. However, the experience has not been equally positive across the region. The Andean countries have seen the price of their main agricultural exports stay relatively low in comparison to the price of cereals, and Central America and the Caribbean have suffered more due to their lower capacity to import food (Bianchi, Piñeiro and Uzquiza 2009).

4 Food Security in Latin America: Short and Long-term Responses to the Global Food Crisis SerieBrief # 76 Septiembre 2011 The negative effects of the rise of the cost of food are diverse and include: A decline in purchasing power due to the rise of food prices, and for which substitutes are not easily found locally; A reduction in the profitability of non-food agricultural activities and the impact of this on rural employment and income levels; and, A reduction in household income due to the scaling back of other subsidies directed at poor sectors of the population, or an increase in taxes that negatively affects the poor (Bianchi, Piñeiro and Uzquiza 2009). Taken together, these factors have been shown to increase the percentage of a population living below the poverty line, with some families becoming poor and others falling into more extreme poverty (Bianchi, Piñeiro and Uzquiza 2009). Most at risk of being food insecure are the urban poor and rural families who are either landless labourers or producers in marginal agricultural areas. Both of these groups are subject to higher food prices as consumers without the chance to benefit from higher food prices as producers (Piñeiro and Bianchi 2009). Within the household, women, the elderly, and children are most at risk of being food insecure due to the unequal distribution of resources within it, and regarding the latter, due to their nutritional vulnerability (Piñeiro and Bianchi 2009). Context for CIDA s Food Security Priority Theme The global food crisis has threatened more than one billion people globally, with small-scale farmers, women and children being most at risk. Although the 2009 economic downturn temporarily dampened the increase in food prices, prices have begun to rise again, hitting an all-time high in June of 2011 (FAO 2011). This sustained high demand and price volatility necessitates that food security continues to be an item on the agenda of development agencies and policy makers at the national and international level in years to come. It is in that context that CIDA has defined food security as one of its priority themes. Its operational policy definition is that a population is food secure when nutritious foods are available through domestic production, imports or food aid and this happens consistently throughout the year (CIDA 2009). The initiative has a focus on increasing the availability of food through improved agricultural production of nutritious food and improving the reliability in access to food through better management of global, regional and national food value chains. These are all, however, mid to long-term solutions and CIDA s policy priority would certainly benefit from a clearer take on how to address the challenge of improving food security in developing countries in the short term. Here, the lessons from this Latin American research on the region s experience and policy responses can be of help. Latin American Policy Responses Right side, quote: A country that is a net exporter of food may in fact benefit from higher food prices as a whole but the poorer sections of its population will have their food security threatened by higher domestic prices as much as a net food importer would. All Latin American countries have adopted a wide range of policies to face the rise of food prices. They can, however, be summarized into three types so far: Immediate input and credit subsidies to increase agricultural production International trade policies such as tariffs and export controls to stabilize prices Consumer-oriented policies including price controls and transfer programs Fertilizer, seeds, and credit subsidies aimed at increasing food production have, so far, had little effect, though they might result in increased production later on. Increased public investment in physical infrastructure and improvements in natural resource management (water, especially) will have a greater positive effect in the long-term. It is important to note that these policies often require or at least greatly benefit from temporarily high levels of trade protection in order to take full effect (Bianchi, Piñeiro and Uzquiza 2009). On the other hand, other trade policy measures, such as the export bans or quotas implemented in Brazil and Argentina to keep domestic food prices low, have been much cheaper and faster to implement, having immediate effects on prices. However, for the mid-term they have introduced further volatility into agricultural production decisions. That effect can be more onerous than the short-term (and affordable) loss in some export earnings (Bianchi and Uzquiza 2009). Some consumer-oriented policies aimed at the most vulnerable sectors of the population with a goal of increasing food availability and raising household incomes have accelerated in their coverage in the region during this time, often explicitly linked to issues of food security. The forms taken have been conditional transfer payments, school nutritional programs, and/or food rations or coupons (Bianchi,

5 5 Piñeiro and Uzquiza, 2009). However, there is no evidence to suggest that the Latin American countries most affected by food insecurity have increased their use of these types of intervention beyond existing programs. Nevertheless, Bolivia, Ecuador, and Peru have plans to do so in the near future. The research suggests that conditional transfer programs have had a positive, non-distortionary effect, reducing the extreme poverty caused by the food crisis by increasing the buying power of the poor and diversifying their diets, without reducing the income of poor food vendors or providing disincentives to produce (Bianchi, Piñeiro and Uzquiza 2009). By focusing on vulnerable households or individuals, these policies have had the greatest positive effect in the short-term, increasing immediate access to food. The most successful examples include Oportunidades in Mexico and Bolsa Familia in Brazil (Piñeiro, Bianchi, Piñeiro and Trucco 2009). In some, the short-term effects of these policy responses to the food crisis production subsidies, trade measures and income policies have naturally varied with the mix of instruments applied, the nature of the emergency faced, and the institutional capacity available. Clearly, there are a number of lessons learnt for policies to be successful: Have a consistent design to be either of wide coverage when deployed early on, or be focused on the poorest sectors of the population if started after price rises are already in full swing; Have a low to moderate fiscal cost, apart from clearly scalable projections; Have low levels of market distortion, and those created must be production-increasing incentives; and, Be easily reversible or down-sizeable once the desired outcome is realized. Conclusions and Policy Recommendations Left side, quote: The Latin American experience of the food crisis demonstrates that successful policy responses must be multidimensional, and simultaneously incorporate short and long-term policy goals. The Latin American experience of the food crisis demonstrates that successful policy responses must be multi-dimensional, and simultaneously incorporate short and long-term policy goals. These researchers found that such policies will necessarily entail a work strategy that links policies among a number of previously poorly-linked areas in public policy: Investment in agricultural research and development; Spending on communication and transportation infrastructures in rural areas; Agro-industrial policies that maximize the effectiveness of supply chains; Policies for environmental sustainability; A macroeconomic framework that facilitates appropriate access to credit for farmers. The complexity in the response required to the food crisis thus means that no one-size-fits-all policy prescription or policy support can be appropriate. That applies as much to the short as to the long term goals and instruments used. This complexity makes the task of aidgiving agencies such as CIDA particularly difficult. Therefore, the recommendations that can be drawn so far are: Support technically and financially the implementation of new, or the extension of existing, consumer-focused transfer programs that can meet the immediate and urgent food needs of vulnerable populations; Encourage developing country production and investment in food-producing agriculture by reducing in-kind food aid when not urgently needed; Invest in agricultural physical infrastructure to improve the efficiency and productivity of developing country agriculture; and, Support long-term research and development in developing country agriculture to increase productivity in an environmentally sustainable manner.

6 Food Security in Latin America: Short and Long-term Responses to the Global Food Crisis SerieBrief # 76 Septiembre 2011 References Bianchi, Eduardo and Uzquiza, Laura A Latin American perspective about food security and the global food crisis. Latin American Trade Network (LATN). Brief 52. Bianchi, Eduardo; Piñeiro, Martin; and Uzquiza, Laura Respuestas de política en América Latina al incremento en los precios internacionales de los alimentos y el escenario post-crisis Parte I. Latin American Trade Network (LATN). Working Paper 119. CIDA Increasing food security. CIDA s Food Security Policy. Cuesta, Jorge and Jaramillo, Fabian Taxonomy of causes, impacts and policy responses to the food price crisis in the Andean Region. World Bank Working Paper # 674. FAO FAO Food Price Index. worldfoodsituation/wfs-home/foodpricesindex/en/ Piñeiro, Martin and Bianchi, Eduardo Precios de los alimentos, comercio internacional y pobreza. Latin American Trade Network (LATN). Working Paper 105. Piñeiro, Martin, Bianchi, Eduardo, Piñeiro Valeria, and Trucco, Mario Respuestas de política en América Latina al incremento en los precios internacionales de los alimentos y el escenario post-crisis Parte II. Latin American Trade Network. (LATN) Working Paper 120. Right side, ending note: The North-South Institute 55 Murray Street, Suite 500 Ottawa, Ontario Canada K1N 5M3 Telephone: (613) Fax: (613) Website: The North-South Institute thanks the Canadian International Development Agency for its core grant and the International Development Research Centre for its program and institutional support grant to NSI.

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