Tariffs and Tortillas

BUENOS AIRES – Ever since Mexico’s so-called “Tortilla crisis” this past January, street protests against food shortages and high prices, or against increasing taxes on agricultural production, have spread from Haiti to Central American countries, and across Latin America. Governments have sometimes reacted with protective measures or macroeconomic initiatives, but in some cases with repression.

The paradox of Latin America’s food crisis is that, although the region is a major food producer, it sometimes needs to rely on imports to prevent sporadic shortages. According to the World Bank, Latin America and the Caribbean exported $55 billion of foodstuffs in 2006; yet the continent’s poorest families spend 50% of their budgets on food, and this at a time when Latin America has been experiencing its best economic performance since the 1970’s.

Food prices, which have shot up 83%, are not likely to start falling until after 2009. For Latin America, this is more than a challenge; it is an opportunity. The central challenge is political: correcting state policies formulated when resources, including oil, natural gas and food commodities, were not considered a driving force in the global economy. The key here is to avoid the trap of protectionism and international isolation.

Even before the current crisis, Latin America’s recent “left turn” in politics was tied to the food problem. During his first term, Brazil’s President Luiz Inácio Lula da Silva implemented a “Zero Hunger” plan targeting the most vulnerable people in Brazilian society. Around this time, Argentina’s then President Nestor Kirchner was using price controls to keep food prices low. In Venezuela, Hugo Chávez took a further radical turn and launched a widespread plan of land reform.

None of these measures was uncontroversial; nor did they prevent the impact of today’s global food price inflation. Lula was accused of corruption and patronage. The Kirchner government faced a serious challenge to its credibility when it came under suspicion of manipulating the inflation rate. In Venezuela, land reform and socialist rhetoric did not prevent chronic shortages of milk, sugar, and beef. Yet, despite these failings, such policies retained enough popularity to insure their continuity.

Given this history, it is no surprise that the first reaction of Latin American governments to today’s food crisis was unilateral. On April 23, Brazil announced a temporary suspension of rice exports to prevent internal shortages. Bolivia prohibited the export of corn, rice, meat, and vegetable oil. Argentina’s decision in March to drastically increase the tax on agricultural exports provoked a widespread clash with rural producers, leading to a novel and complex social polarization while generating a political crisis that is still ongoing.

Some of the measures even endangered bilateral relations. To curb inflation, Argentina decided to suspend the sale of wheat to its principal export market, Brazil, where the price of bread had increased 20% over the last 12 months. In Peru, social mobilization against higher food prices led to a renegotiation of the free-trade agreement with the US.

Compared to other regions, the impact of the crisis in Latin America, with the exception of Haiti, has (so far) not been dramatic. The reason is the abundance of natural resources and persistent international demand, which has sustained growth. But regional cooperation to find creative solutions to a crisis that is in many respects interrelated remains absent.

So far, the only initiative with a regional perspective has come from Caracas in the form of the so-called Bolivarian Alternative of the Americas (ALBA). Mexico, Peru, and other nations were suspicious of the anti-American rhetoric of the ALBA grouping, but some practical proposals – such as the creation of a bank of agricultural products to reduce costs for small and midsize producers – have come out of it.

One of the inevitable consequences of the current food crisis will be a re-consolidation of the state’s role in agriculture. Pressure to place food security on the regional political agenda is clear evidence of this.

After the last world food crisis in 1973, agriculture was almost forgotten as a factor in growth. While liberalization was promoted in the late 1980’s and embraced during the 1990’s, food markets in the developed world remained highly protected, with Latin American countries suffering the consequences. One indirect, yet tragic, result has been Bolivian, Peruvian, and Colombian peasants’ continuing cultivation of coca leaves as a means of economic survival.

For Latin American policymakers, assuring food security can really be achieved only if a new international regime of genuinely free trade for agricultural commodities is built. Without such a global agreement, the muddled interventions of today will continue, with little hope of any real improvement.