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Does Latin America have the Recipe to End the Food Crisis?

Carlos Molina's picture


In the current food price debate, there's plenty that Latin America can bring to the table.

A newly released World Bank report highlights the region's potential to help solve the food crisis given its huge natural resources -land, water- and agricultural expertise.

A net food exporter, Latin America & Caribbean (LAC) accounts for almost one third of world corn exports, 52 percent of soybeans exports, 44 percent of beef exports, and 42 percent of poultry. In 2006-2009, LAC's share of world agricultural exports reached 14 percent, up from 11 percent in 1995-1999.

'High Food Prices: Latin American and Caribbean Responses to a New Normal' argues that LAC "is well positioned to benefit from high prices and increased food production." Spiraling food prices are here to stay –the study argues- while noting that international food prices have jumped by more than 43 percent since June 2010, igniting concerns about a repeat of the 2008 food crisis.

The report goes on to say that "even some countries and sub-regions that are net food importers have a comparative advantage in other kinds of agricultural production (e.g., Central America with coffee), and some countries with a low degree of comparative advantage as measured by agricultural trade are nonetheless important producers (e.g., Mexico)."

LAC has all the ingredients to become a key player in the world's food markets and, in doing so, do well while doing good.

First, there is the land. LAC has almost one third or 28 percent of the world's land suitable for sustainable expansion --in other words, land with high agro-ecological potential, non-forested, unprotected, and with population density less than 25 per hectare (only Africa beats Latin America with a share of 45 percent of agro-suitable land). In addition, LAC's lands are very accessible: 36 percent of suitable hectares within 6 hours of travel time to the closest market are in the region.

Second, LAC support policies are yielding their fruit. After several decades of reforms, with some exceptions, incentives today are perhaps the least distorted in the world, the report argues. By contrast, many countries in Africa continue to tax agricultural exports, while developing countries in Asia subsidize agricultural production, following in the footsteps of the industrialized world.

Third, LAC's cutting edge farming expertise has already made some countries leaders in a "food revolution" of sorts. In just three decades Brazil turned its most unproductive region, the cerrado,into one of the world's largest food reserves. This unique position has allowed Brazil to launch a successful South-South partnership with Africa to help countries improve their agricultural productivity.

These and other factors combine to allow the region to respond efficiently to higher prices and adopt appropriate investments to increase production, the report argues.

LAC's to do list to achieve its full agro-potential includes increasing investments in agricultural research and development which is lagging behind international averages. With the exception of Brazil and Uruguay, Latin American countries spend around 1 percent of agricultural GDP in R&D, about half of what is considered a desirable target for developing countries.

Distribution is also a challenge in most regional economies. The costs of handling, storing and transporting food puts a premium on both the price consumers pay and farmers receive, penalizing both.

The World Bank has estimated Latin American logistics costs as percentage of GDP to be between 16 and 26 percent compared to the OECD benchmark of 9 percent.

Poor infrastructure not only affects export but import prices as well -the report argues. In a glaring example of external distortions the study points out that the total costs of US corn exports to Nicaragua –including land and ocean transport and logistics-- is much lower than transporting it within the Central American country.

"To both lower costs to consumers and maximize contribution to global food supply, Latin America clearly needs to do much more to lower distribution costs," concludes the report.

 

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