Why is Latin America the region with the highest food inflation in the world?
Q REPORTS (BBC Mundo) While the world is moving slowly but steadily toward recovering food prices to Russia’s pre-war levels in Ukraine, Latin America and the Caribbean are moving at a slower pace.
The regional average of annualized food inflation was 43.9% in September 2022, while globally it did not exceed 23%, according to the United Nations Food and Agriculture Organization database. (FAO).
Although the average inflation for food worldwide indicates a drop of 20.5% from the record reached at the start of the war, Haiti with 48.6%, Suriname with 58.3%, Argentina with 110% and Venezuela with 158%, according to the latest data recorded by country in Trading Economics, make it much more difficult for Latin America to reverse the negative curve.
On the other hand, in several Latin American countries, the increase in the value of food exceeds the average of general inflation. “In half of the countries, food inflation more than doubled general inflation,” economist Gabriel Sánchez, professor of International Trade and Regionalism in the master’s program in Public Policy at the Torcuato Di Tella University in Buenos Aires, told the BBC.
Which are the countries with the highest food inflation?
The latest global comparative record of food inflation in the world (from September 2021 to the same month of 2022), published by the United Nations Development Program (UNDP) based on FAO data , shows that Venezuela ranks first with 110.39%.
Although general inflation in Venezuela has slowed to 4.2% in March, according to the Venezuelan Finance Observatory, food continues to become more expensive.
Venezuela is followed by Argentina with 86.62% as of September last year, according to UNDP. The data is not encouraging, if we see that the latest numbers published by the country’s National Institute of Statistics and Censuses registered an increase in food prices of 9.3% only in the month of March.
In Argentina, food prices are also above general inflation, which registered 7.7% in March. In other words, food rose an average of 1.6% more than general inflation for the last month on record.
Meat has been the product that increased the most. It exceeded 14% only in March, twice general inflation, according to a report from the Institute for the Promotion of Argentine Beef.
Suriname is third on the list with 39.77%. The IMF approved in December 2021 a line of credit for more than US$688 million for the country.
Haiti, with 32.85%, is in fourth place. In a country submerged in a deep political crisis, exacerbated since the assassination of President Jovenel Moise, 40% of the population experiences a situation of serious food insecurity, according to the United Nations Office for the Coordination of Humanitarian Affairs (OCHA).
It is followed by Colombia with 26.6% and Chile with 22%.
Countries with the lowest food inflation
Among the Latin American countries, Bolivia with 2.21% in the interannual register of the FAO is the one with the lowest food inflation. The National Institute of Statistics of Bolivia announced that in March the monthly variation in food prices was -0.26%.
“We maintain the stability of the economy with controlled inflation!” President Luis Arce said on his social networks.
“In the first quarter of 2023, the Consumer Price Index was -0.19%, one of the lowest in the region, thanks to policies that guarantee our security with food sovereignty,” he added.
Among the factors that influence the particular situation in Bolivia are the extensive subsidies that the government provides to agricultural producers, the importation of food charged to public accounts, and the restriction on food exports to increase the supply in the market and thus lower the price of food.
Despite low food inflation, Bolivia is currently in the midst of a deep economic crisis triggered mainly by a rampant fiscal deficit.
Panama had 5% year-on-year. Although the country went through a tough cycle of protests in the middle of last year, in which the main claim was the growing increase in fuel and food prices, it is the second with the lowest inflation in Latin America.
Panama registered an interannual variation in food in March of only 0.1%, according to data from the National Institute of Statistics and Census of Panama.
Also Ecuador, a country with a dollarized economy, registered one of the lowest rates in the region with 7.14%.
The factors (and consequences) of high food inflation
The cases of Argentina, Venezuela, Suriname and Haiti, countries where food prices grow constantly and with a strong depreciation of the local currency, have a negative influence on the regional average.
«If we consider Latin America without Haiti, Suriname, Argentina and Venezuela, the regional average is reduced to 11.8%. These numbers compare favorably to those of Europe, where average food inflation was 19.1% annually in March,” explains economist Gabriel Sánchez.
For the specialist, the problem is that “inflation in food prices in the region is systematically higher than general inflation.”
The average dissonance between inflation in food and the rest of the products is 4.6%, while median inflation, that is, of the country that is right in the middle of the ranking of the group of countries in the region, is of 5.9%.
Why does the price of food rise more than the rest of the products? There are many reasons that explain it.
Russia’s invasion of Ukraine sparked a global food crisis. As the two countries were among the main producers of agricultural products in the world, especially cereals, the war reduced their supply in international markets and prices shot up to historical levels.
In addition, since Russia has traditionally been a large exporter of fertilizers, the decline in its exports directly impacted the productive capacity of many countries in the region.
On the other hand, the war also caused a large increase in the price of oil, another key factor in the increase in the price of food.
This happens because when the price of fuel rises, it becomes more expensive to transport food and, consequently, its price has an impact.
Another key factor in food inflation is the drought that has affected vast areas of Latin America. When crops are damaged, there is less food production and therefore the price goes up.
Thus, experts say, climate change is one of the reasons that has a direct effect on the cost of food, since it increases the frequency of droughts and floods.
One of the consequences of food inflation is that it hits households with lower incomes harder.
Vulnerable families spend a large part of their income on food and, as real incomes have fallen, they have enough to buy fewer products.
“Inflation forces people to adopt increasingly severe survival mechanisms, such as reducing the quantity, frequency and diversity of food consumed or making irreversible decisions, such as emigrating,” Lola Castro, the director, told the BBC. Regional Office for Latin America and the Caribbean of the World Food Programme, a program of the United Nations.