Food Prices: Eating the Cost of Logistics

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Déjà vu.

Once again we find ourselves trying to dissect the root causes of food price increases as they bump and grind their way back toward their 2008 peaks. Is it speculation in commodity markets? Is it the booming demand from Asia for feed grains? Is it land use switching out from food crops to biofuels? The sentiment among our agriculture, energy and transport specialists is that the answer to these questions is: "Yes. All of the above."

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While we labor away at understanding the inter-linkages of these causes so that, someday, painful spikes in food prices may be avoided, it may be worth focusing on one contributor to prices that doesn't seem to go away---not during low food price periods and not during high food price periods: logistics.

On a recent visit to Central America, I watched an old crane drop its clamshell bucket into a ship's hold and pull out a massive bite of unmilled rice. The crane's boom swung lethargically over the side of the ship and dumped the grain into an open truck. Rice spilled onto the berth while the small bulk carrier—which had made the long trek to the Pacific Coast of Central America from Houston through the Panama Canal—sat and waited to be emptied of 12,000 tons of rice, one lift at a time.

This outdated practice is how many countries in Latin America and the Caribbean still unload their rice, wheat and corn. It is slow, inefficient and costly. So too are the region's practices for trucking, warehousing and handling grains. And the cash crops of the region that feed local communities and provide export earnings are no more blessed with efficient logistics systems than the cereals that are imported. Road linkages are poor by global standards, trucking is uncompetitive, cold storage is in short supply, warehousing is costly and the freight forwarding and consolidation business remains stunted.

A recent set of supply chain analyses conducted by the World Bank shows that between 29 and 48 percent of the delivered price of grain imports into Central America come from logistics costs. Tomatoes, snow peas and other higher value fruits and vegetables show similar levels from farm gate to market. The smaller the producer, the higher the logistics burden.

What are the main logistics costs and what can governments do?

There is no single logistics "silver bullet" that will bring down this cost burden, helping farmers and consumers across the region with a sweep of the pen. But there are a few steps that governments can take—as regulators, investors in infrastructure and rule-setters.

Employing modern inspection and border crossing procedures; harmonizing phytosanitary and customs controls; allowing for reciprocal backhaul on international trucking routes; harmonizing shipping and trucking regulations across borders; protecting the rights of way of road corridors so that they remain free of congestion; allowing for modern port management practices --all of this will help. Setting up a logistics council or observatory at the national level may help to focus attention on this insidious contributor to food prices and poverty.

In the meantime, every time we think we are eating food, we will really be eating the cost of logistics.




Jordan Z. Schwartz

Incoming Director for Eastern Europe

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