In his first year, Rodrigo Chaves owes to his greatest promise: lowering the cost of living
QCOSTARICA (Semanario Universidad) In the campaign, Rodrigo Chaves’ biggest promise was not only to lower the cost of living but to do it expeditiously, from day one. However, after the first year of the Chaves administration, the gimmicky speeches executed with decrees still owe to the promise.
According to data from the National Institute of Statistics and Censuses (INEC), between April 2022 and April 2023, electricity fell in price and is now pointing upwards, while fuel maintains a downward trend and the Canasta Básica (Basic Food Basket) rose in price.
After several months without variation, rice presented its first significant drop in March 2023, but this April it stagnated, while medicines rose in price.
The cost of these products – connected with the main policies announced by the Government and with the discourse of accountability – depend on internal and external factors in which the Government has no influence to a greater or lesser extent. What factors influence their price? And to what extent did the government influence?
In August, the Government announced the signing of two decrees with the purpose of lowering the price of medicines, one of them, the president assured, “destroys import monopolies” by eliminating the exclusivity for the importation or production of medicines in the territory national.
This measure, however, was absent both in the accountability speech and in the report on the first year of the Chaves government, and 8 months after the decrees, medicines increased in price.
Between August 2022 and April 2023, the price of the “pharmaceutical medicines” category of the INEC Consumer Price Index increased – generally – by 2.63%.
Among the 16 subcategories of medicines included in this index, only one presents a significant price reduction (medicines to treat gastritis -3.30%), while 14 have significant increases between 1.64% (diabetes) and up to 7.19% (heart disease).
Leiner Vargas, economist and drug cost researcher at the Universidad Nacional de Costa Rica (UNA), considered that the measures promoted by the Executive are “on the right track”, but they were “mucho rin rin (y nada de helados)” because they were insufficient to deal with the main reason why prices are supported: market concentration.
“The drug sector in Costa Rica is an oligopoly dominated by four pharmaceutical groups with control over points of sale, distributors, and others. Even if the prices of raw materials or final products drop due to the appreciation of the colon and the effects of the decrees, these pharmaceutical groups simply do not allow prices to drop,” Vargas commented.
The economist values that what is needed to really lower the prices of medicines is a “vehement and competent action” of the Consumer Protection Commission and the Commission for the Promotion of Competition (Coprocom).
“In this context (of oligopoly) what must be done is to regulate the 20 medicines most used by Costa Ricans, setting a return rate that allows for a 50% price reduction, because at this time Mrs. Purral or Mrs. Nandayure, which is the one that at 90 years old invests 80% of their income in medicines, still pays premiums”, he concluded.
Although in the second semester there were “atypical” placements that allowed the price of electricity to drop significantly, the INEC’s CPI registers a cumulative 3.19% in its cost between April 2022 and April 2023.
The price of electricity in Costa Rica is mainly influenced by the weather and that is why in October the effect of energy exports is reflected, with a 13% reduction, while in January —in a particularly dry summer— it rebounds with a an increase of 12.61% and the increase of April 2023 of 7.36% is added.
“(The price of electricity) is normally positive in the first half of the year in the dry season, when it is probable that thermal generation is used, where it is possible that a lack of energy is imported and that exports are low,” Mario explained. Mora, Mayor of Energy of the Public Services Regulatory Authority (Aresep).
In the second half of the year, he added, it is the opposite: “during the rainy season, it is normal that thermal generation is not required and that there are surpluses in energy exports that translate into price reductions.”
Mora explained that the year 2022 was “interesting” in terms of price behavior because the energy security that Costa Rica has, being one of the few countries with almost 100% renewable energy, the impact on the price of hydrocarbons that affected other countries did not reach local prices.
“Costa Rica was one of the few countries that in 2022 had the luxury of lowering the price of electricity, despite the fact that other countries had to resort more to thermal,” he mentioned.
Another factor that can influence a change in the price of electricity is the ordinary cost studies, which are requested by the electricity companies and which can result in decreases. However, the last one that was carried out was one of the Instituto Costarricense de Electricidad (ICE) in 2021.
Prices among the eight energy companies in the country can vary depending on how dependent they are on buying energy from ICE, the most important in the country. Coopelesca, for example, produces around 80% of its energy, so it is less affected when the price rises and less benefited when it falls, while the CNFL (a subsidiary of ICE) is the opposite when buying close to this same percentage.
Mora considers that it is unquestionable that, although there are no particular policies that particularly influence the price of electricity, maintaining good management from ICE, which results in good export sales, for example, results in stable prices or discounts as those received last year.
Basic basket and rice
The monthly cost per person of the Basic Food Basket (CBA) went from ¢53,206 in April 2022 to ¢59,140 in April 2023, an increase of about ¢6 thousand. In this regard, in his report and accountability speech, Chaves highlighted the approval of the new Basic Tax Basket to which sales taxes are reduced in which products left and others entered.
However, undoubtedly, the policy that the president has most publicized related to the cost of food are the decrees of the Ruta del Arroz that reduced tariffs by 31% and eliminated price regulation with a view to lowering the price of this highly consumed grain in the Costa Rican diet.
The opening of the market implies that consumers could be paying less, more or the same as before the Rice Route, depending on the trade and the brand. The weighting of these variations in the CPI did not reflect significant drops in rice until March 2023 – close to the year of the signing of the decrees – with 1.95% and last April the price stagnated.
The Conarroz statistical control team explained to UNIVERSIDAD that, after the opening of the Ruta del Arroz market, the factor that most influences the cost of the grain is the international price and in particular that of the southern cone (Brazil and Uruguay) from where about 90% of the rice is imported.
Imports in 2022 leaned downward, but, by 2023, they are estimated to increase, they pointed out. However, in the case of rice pilado (rice that is imported ready to pack) the cost structure also saw significant reductions due to the cost of sea travel from $170 dollars per ton in February of last year, to $79 dollars in part for passing to import with bulk containers.
After the approval of the Ruta del Arroz, importers of pounded rice, Conarroz estimates, have a production cost of ¢518 per kilo and before it was ¢780, however, the entity’s studies indicate that this is not being reflected at points of sale.
Finally, the liberation of the price allows importing companies, industrialists and merchants to impose the profit margin that market power allows them to sustain, so it is not a guarantee that none of the aforementioned discounts will be received by the consumers.
The reduction in fuel prices has been maintained and this responds to two factors: the international price and the exchange rate, explained Aresep’s Energy Mayor, Mario Mora. In May 2022, a new methodology was implemented that allows international prices to be used in real time to avoid lags in price variations.
Even at the beginning of Chaves’ administration, the country perceived high fuel costs due to the war between Ukraine and Russia. This was recognized by the president when in August he said “it got out of hand” and in the same way the subsequent reductions were also highly influenced by the adaptation of the oil market to the conflict.
“The international price considering the effect of the exchange rate weighs around 65% of the final price to consumers, the tax 30%, the rest of the components are minimal,” Mora mentioned.
In Costa Rica, Mora added, the finished product is purchased and for this reason, the price of international crude oil has a lag and its cost may also vary depending on the seasonality of the eastern Gulf coast, mainly the United States, when due to the snowfall issue increases demand pressure for the product.
The article was originally published in Spanish at Semanario Universidad. Read the original here.