The COVID-19 pandemic is bringing back the ghost of a food security crisis, similar to the one that swept the world more than a decade ago. One concern is that protectionism magnifies the negative economic effects of the confinement measures implemented to rein in the coronavirus. Although these concerns seem overstated, the agriculture sector in Latin America and the Caribbean (LAC) faces severe disruption risks, as discussed in a recent paper. Policymakers should remain vigilant that trade policies are part of the solution and not of the problem.
This crisis is different
This crisis contrasts in many ways with the food price crisis of 2007-2008. Global inventories of cereals are substantially higher. Harvests of staples are expected to be good, particularly in the United States. Oil prices are at historical lows, as opposed to the rising trend that put pressure on food production then, and drove high costs of fertilizers, substitution for energy-bearing crops, and speculation in commodity markets.
On the trade policy front, in the previous crisis more than 30 countries adopted different forms of export curbs, affecting 28% of global trade. Today, only a dozen has implemented protectionist measures, impacting an estimated 6% of trade. Moreover, some quantitative restrictions have already been softened, like the export ban on rice from Vietnam.
But on the supply side, the very nature of the crisis ushered by the COVID-19 epidemic mitigates some risks and exposes the agriculture sector to others. Confinement measures and social distancing are likely to have only a minor impact on the production of mechanized extensive crops, such as wheat or soybean, that are capital-intensive and take place in rural areas. These bulk commodities are also handled with minimum human contact and, despite some disruptions, most ports are still functioning. Likewise, unlike SARS, MERS, or the avian flu, COVID-19 has not spread to the livestock sector.
Because of greater risk of person-to-person contact, the urban midstream and downstream segments of the food value chains are the ones to be potentially disrupted by social distancing measures. High-value, labor-intensive, and perishable food products are the most exposed.
For example, the contagion of meatpacking facilities in the United States is a harbinger of potential disruption in LAC intra-regional trade flows of meat, poultry, and dairy. Likewise, perishable goods such as specialty fruits, vegetables, flowers, and seafood, are being affected by the grounding of passenger aircrafts often used to move cargo.
However, the most significant threat to food security in the region is likely to come from a shock on the demand side. The recession that already started in China, the United States, and Europe—the largest LAC external trading partners—is expected to deepen to levels not seen in decades. In countries where net exports of food account for a significant share of GDP, lower demand and falling commodity prices would translate into income losses, substitution for lower quality in food consumption, and ultimately into poverty and food insecurity.
Food security: Three examples of risk exposure
Haiti is the starkest example of a country exposed to risks on the supply side. Net imports of food account for 11.2% of GDP, and close to a quarter of those correspond to rice, a basic staple for the poor. A surge in world prices or scarcity in international markets could set the country on course for a damaging food security crisis. Other Caribbean islands are in a similar, albeit less critical, situation.
Although in El Salvador trade dependence in food is lower (3.3% of GDP), a large share of food imports is sourced regionally, particularly perishable and labor-intensive products, such as dairy and meat. COVID-19-induced disruptions in regional production, logistics, and cold chains are thus a dire threat to food security. Other Central American countries share the same challenge.
On the other hand, Paraguay is an example of an economy vulnerable on the income side, as net exports of food represent 12.1% of GDP. For net exporters highly dependent on agriculture commodities, like Nicaragua, Costa Rica or Uruguay, the main risks lay in a generalized reduction in global demand. Likewise, exporters of time-sensitive items, such as the Andean countries specialized in high-value fresh products like fruits, vegetables, flowers, or seafood, are particularly exposed to disruptions in global logistics systems.
Trade policies can do more than doing no harm
LAC governments have fortunately been vocal about the risks of trade restrictions in global and regional forums, and they should ensure that the reality on the ground lives up to these commitments. But trade policies can do more than doing no harm. Keeping the food supply chains’ gears moving with trade facilitation initiatives is an opportunity, to assuage the effects of the crisis in the short run and lay the foundation of a resilient recovery thereafter.
In net food-importing countries, the swift implementation of the following key trade policy priority action items would go a long way to facilitate trade and avert the disruption of food logistics chains:
- Promote cooperation among customs and border control authorities to implement a simplified, expedited emergency procedure for clearing critical goods, with a specific focus on food.
- Consider lifting tariffs, at least temporarily, on goods critical for food security, such as basic staples, fodder, and fertilizers.
- Implement expedited licensing and certification processes related to sanitary and phytosanitary standards, to avoid that legitimate health and safety regulations unnecessarily hinder trade.
- Use non-intrusive control mechanisms to fast-track the release of goods, with specific channels for perishable and cold-sensitive items.
- Collaborate with reliable, certified importers, such as the Authorized Economic Operators, and companies that frequently trade essential goods to facilitate import and export processes.
- Maintain lines of communication with public and private players in the logistics chainto communicate new processes and jointly adjust them according to the evolution of the emergency.
- Lay the foundations of coordination border management systems across the region, in order to emerge from the crisis with a more efficient trade infrastructure.
Policymakers in net food-exporting countries can also harness public policy and the export potential of the agriculture sector to improve lives. Trade facilitation would reduce transaction costs along the value chains and boost export competitiveness in world markets. Digital transformation is at the core of these interventions. Paperless processes, risk management, cargo traceability, non-intrusive inspection technologies, and systems interoperability are some of the examples of activities the IDB is helping finance and implement in ports of entry in LAC countries.
Going forward, an overarching trade strategy built upon technical progress, competitiveness, climate friendliness, market diversification, product differentiation, and quality upgrade would be a contribution of the utmost relevance not only to the economic development of the region but also to global food security.