ECLAC, FAO and IICA Analyse Food Price Volatility in Latin America and the Caribbean

(2 March 2011) Food price volatility has increased in recent months and will remain high for the time being, according to a joint bulletin launched today by ECLAC, FAO and IICA.

The document entitled "Price volatility in agricultural markets (2000-2010): implications for Latin America and policy options" describes the current scenario: frequent, unpredictable and dramatic changes in the prices of agricultural raw materials, with the impact on countries varying in accordance with national conditions.

For countries specialized in exports of food raw materials, for instance, a price rise offers significant opportunities to improve their terms of trade, while for other countries this may represent a risk to food security (especially for net food importers).

According to the Executive Secretary of the Economic Commission for Latin America and the Caribbean (ECLAC), Alicia Bárcena, "Major price fluctuation is here to stay, and the region must prepare itself.  The study we are presenting today may help countries to implement and combine the best policy instruments that take account of national realities".

In the second half of 2010 and the first few months of 2011, international food prices have climbed again, and are now even higher than the levels seen during the crisis in 2008.

In the words of Alan Bojanic, Regional Representative for Latin America and the Caribbean of the United Nations Food and Agriculture Organization (FAO), "Ongoing food price volatility will remain a major source of uncertainty for agricultural producers, and it is thus vital to create tools to regulate this and promote agricultural development in the region".

Víctor Villalobos, Director General of the Inter-American Institute for Cooperation on Agriculture (IICA), said that "instability is a constant in the global scenario, and it is therefore important to generate information that enables our countries to plan and make the right decisions. This is what we three agencies are trying to achieve jointly.  To tackle this situation, it is crucial to innovate and invest more in agriculture."

Possible consequences of price volatility include economic efficiency losses, reduced food security and rising undernutrition, as well as negative effects on the trade balance, according to this document from ECLAC, FAO and IICA.

Instability also involves high risk for producers, especially small-scale farmers, as there is increased uncertainty over their expected income. Nor should we rule out the possibility that volatility may lead to social unrest, as was the case during the 2007-2008 food crisis.

Although the bulletin states that there are no universal solutions to tackling this situation, it does highlight the benefits of increasing food production in countries, mainly by supporting small-scale producers.

According to the three agencies, small-scale producers have great potential for increasing their food production, and this may help to improve food security not only at the level of households but also at the local and national levels.

In their responses to such high volatility, the region's countries have placed relatively more emphasis on inflation and consumers, rather than on producers and the agricultural production structure (according to the bulletin).

Generally speaking, policy measures have also focused mainly on the short term, despite the fact that seeking solutions to the structural problems could significantly reduce the vulnerability of countries in this regard.

The report also points to the role that conditional transfer programmes can play in supporting the most vulnerable in society, and such programmes can also trigger productive activities in extremely poor areas.

ECLAC, FAO and IICA consider it vital to invest in the institutional development of the agricultural sector, as well as allocating larger budgets to agriculture. In the long term, it is essential to develop national and territorial markets by reducing transaction costs for small-scale producers and creating efficient marketing channels for fresh foods, so that production is more directly linked to local demand.

The bulletin that was published today is the first in a series relating to the publication "The Outlook for Agriculture and Rural Development in Latin America and the Caribbean", which is a joint study that the three agencies have been working on since 2009, thanks to the creation of a tripartite committee thought up by José Graziano da Silva, former FAO Regional Representative for Latin America and the Caribbean.

Any queries should be addressed to the ECLAC Public Information and Web Services Section. E-mail: dpisantiago@cepal.org; telephone: (56 2) 210 2040.