Free Markets and the Food Crisis in Central America

The link between trade liberalization and food availability is becoming a critical factor that, far from improving living conditions, threatens to deepen and entrench the structural causes of hunger, violence and malnutrition in the region.

Source: Americas Program

“Free markets can still feed the world.” – Robert Zoellick, President of the World Bank

“Institutions like the World Bank and the IMF, as well as a few governments, are making the argument for more investment in agriculture, for increasing food aid for poor food-importing countries and for liberalizing markets so these countries can increase incomes through exports. Many argue that we need more intensive models of production, which for proponents means more industrial inputs- including GMOs and fossil fuels!” La Via Campesina, 2008

Poverty and Agriculture in the Central American Transition[1]

During the 1990s, Central America underwent a series of socioeconomic transformations that affects specific sectors, including small and mid-sized agricultural producers and middle-class consumers. New regional patterns of trade and accumulation have redefined the role of local markets and have led to an increase in food imports to meet the nutritional and food needs of Central Americans. According to the FAO, the region is home to two countries that suffer from severe poverty and malnutrition—Nicaragua and Honduras—and the region as a whole has been become heavily dependent on imports and “aid” through free trade agreements, mostly with the United States and the European Union.

During that same period, the tertiary sector of the economy (services, off-shore manufacturing and business) displaced agriculture at the center of the economy, causing widespread migration from the countryside to the cities, contributing to slums around the area’s metropolises and an influx of informal day workers who had formerly made their livings in farming.[2]

According to the State of the Region Report-2008, in 2005 agriculture contributed less to the regional GDP than remittances. The service industry, meanwhile, accounted for about 67% of regional GDP. Along the same lines, agricultural land use decreased by 7.4% between 2005 and 2008.

In only 15 years—from the early 1990s to 2005—land planted in rice, beans, corn, sorghum (staple foods for the poor) fell by half, substituted by exportable goods.[3] The recession of 2008-2009 wiped out some of the supposed economic advances in combating poverty in that period.

The most recent figures from the UN’s Economic Commission on Latin America and the Caribbean (ECLAC) show that the region continued to have “very high” levels of income inequality as measured by the GINI coefficient. A study by the UN’s Fund for Children and Adolescents carried out in 2008-2009 shows that 78.5% of Nicaraguan and Guatemalan children and adolescents live in poverty and in El Salvador the number rises to 86%. Since poverty affects women more severely, significant disparities show up when gender variables are introduced.

Even though many point out some achievements in cash transfer programs and public investment, official poverty statistics have been going up and hunger has emerged as an urgent problem in certain critical areas of the region.[4] The so-called “Dry Corridor” of Central America (Eastern Guatemala, Northern Nicaragua, and South Central Honduras) has been one of the most hard hit by adverse weather, but it’s mainly the insufficiency and/or absence of national and regional policies related to crop loss (principally corn, sorghum, and beans) that is causing the suffering there. In 2009, the Guatemalan government had to declare a state of national disaster because it found more than four thousand at-risk communities, representing some 400,000 thousand families going hungry and malnourished.

A recent State of the Region Report- 2011 highlights, “In 2008 poverty was affected by the rise in international prices of basic goods […] For example, in El Salvador the per capita cost of the basic food basket went from $38.40 monthly in 2007, to $44.8 in 2008 in urban areas, and from $25.10 to $29.10 in rural areas. It was the same situation in all of the other countries of the isthmus as well.”[5]

New information confirms the scope of this region-wide calamity; for example, in 2009 the Center for Latin American Social Ecology (CLAES, by its Spanish initials) incorporated a variable on food security in their country risk-assessment measurements. Its application demonstrated how the food crisis of 2008 placed most of the Central American countries in critical condition or in socio-environmental default. Defaulting countries included Guatemala, Nicaragua, Honduras and Panama.[6]

Economic restructuring in the region has spurred the import of basic grains and led to a change in production in most of the countries. It has also caused a fragmentation of national territory that deepens the divisions between the centers of political and economic power and the periphery— rural areas, indigenous peoples, people of African descent (most of whom are located on the Caribbean coastline). This breakdown makes real regional integration impossible.

Food availability, especially of basic grains, is strongly controlled by import chains, posing a special challenge to attaining food sovereignty and the right to food.[7] The Guatemalan case illustrates clearly the relationship between the food crisis and neoliberal policies promoted by the free market. According to the Institute of Agricultural and Rural Studies, “Commercial liberalization, with its maximum expression in the Central American and Dominican Republic Free Trade Agreement (CAFTA–DR), has been problematic by de-incentivizing the domestic production of the same goods that are entering the country at highly subsidized prices and flooding local markets. So when prices in those products rise, there has already been a reduction in the capacity to produce them internally—especially in the crops that are the most heavily imported. As such, the applied model has generated dependency that worsens the crisis.”[8]

At the same time, according to the Association of Guatemalan Palm Growers palm oil monocultures are growing about 3,238 thousand acres per year in that country alone. This rate makes Guatemala the world’s foremost producer in palm oil by area[9] and affects agricultural production in places like San Marcos, Retalhuleu, Suchitepéquez, Escuintla, Quiché, Izabal and the south of Petén.[10] While Central American nations suffer from the food crisis, the cultivation of crops for biofuels is being expanded in numerous countries, promoting the systematic territorial displacement of local indigenous and farming communities.

Export-based agriculture is currently concentrated in extensive monocultures for foreign markets (e.g. pineapple, bananas and biofuel-producing crops like cane sugar and palm oil). This leads to a rise in the use of fertilizers and pesticides that has in turn produced the release of tons of contaminating and greenhouse gases[11] documented over the period between 2003-2005.[12]

Central America serves as a good example of how trade liberalization can be the source of inequality and international exclusion, destroying the potential for regional integration based on the specific needs of the countries in the region.

The link between trade liberalization and food availability is becoming a critical factor that, far from improving living conditions, threatens to deepen and entrench the structural causes of hunger, violence and malnutrition in the region.

Prelude to the crisis: free trade and food prices

Central America continues to suffer from historical conditions of malnutrition and poverty that are getting worse as a result of its form of insertion into the globalized economy, and especially its trade and financial liberalization policies. Free trade, which is commonly claimed to be a fundamental component of development for impoverished countries, seems to be operating in the current framework as a source of inequality and inequity at a regional and international level.

As underlined in the State of the Region Report-2008, “[…] the accessibility of food hadn’t been a problem in Central America. However, through the effects of international economic integration, the agricultural sector has been neglected, especially in the areas of domestic food production […] and dependency on imported food increased, most of all in basic grains; […] the situation has been further complicated by the recent spike in these prices (international food prices), among other reasons, due to the increased use of food products to generate biofuels.”[13]

In its 2008 report entitled The State of Food Insecurity in the World, the FAO pointed out that among the many causes driving the elevation of food prices was the growth in food crops used for agrofuels (the FAO calls them “biofuels”) and trade policies that favor “[…] practices of re-supplying or pre-supplying large importers for speculative purposes…”[14] A similar situation began to develop again in 2010, when grain prices increased up to 50%, pushing more than 70 million people worldwide into extreme poverty.

According to the FAO report, socioeconomic factors (this includes changes in imports and exports) represent 27% of the cause of the food crisis since 2000, as opposed to only 2% in the 1980’s.[15] The links between globalization and food availability have grown in recent decades so that international trade agreements cannot be separated from the issue of the right to food in low-income countries.

Just to give an idea of what this means, when prices of basic grains began to rise in 2010, countries with a food deficit were forced to spend 20% of their budgets on importing food than in 2009 — $164 billion USD.[16]

In regards to Central America, the 2008 State of the Region Report, based on indicators from ECLAC, calculated that an increase of 15% in the price of food could mean 2.5 million more people in extreme poverty, particularly in Guatemala and Honduras. A model of rising imports (wheat, rice and corn went up to about 30% in available food between 1990-2003) with tripled prices for wheat and doubled prices for corn and rice (2008-2009), leads to profits for the companies that import the goods, but growing malnutrition, especially among the region’s rural and indigenous poor.

Trade and investment rules negotiated within the framework of the World Trade Organization (WTO) and bilateral trade and investment agreements assure a base for the exportation of specific local stock agricultural products and a wide range of facilities for the massive imports of food products controlled by large global marketing and distribution chains.

GRAIN eloquently sums up this international problems:

“These policy prescriptions were reinforced in the 1990s with the establishment of the World Trade Organization and more recently through the avalanche of bilateral trade, free trade, and investment agreements. Together with a package of other measures, they have implacably dismantled tariffs and other means of protection that developing countries had in order to protect their local agricultural production, and forced open their markets and land to global agribusiness, to speculators and subsidized exports coming from rich countries. Today, approximately 70% of so-called developing countries are net importers of food.”[17]

Trade agreements have caused a reduction in the diversity of crops grown in the area as growers concentrate their yields around exportable goods.[18] So although the total availability of goods rises, it isn’t destined for local consumption, or it is based on imported goods, which means that price hikes primarily affect the poor and extremely poor. We quit producing food for the local market and what we do produce is sent abroad through trade agreements. The diversification of production has been done at the expense of starving the local population to satisfy demand for tropical products in “developed countries.”

In the past couple of years, this trend has led to an exponential increase in the production of tropical goods while growth of staple grains for the local market has experienced a dramatic decline. Costa Rica, the country with the highest percentage of exports in the region, is a case in point. From 1990 to 2005, the land area devoted to rice, beans, corn, and sorghum declined by 52%, while land devoted to crops for foreign markets (mainly the United States and the European Union)–such as fruits, legumes, vegetables, and oils–doubled.[19]

The result is an apparent paradox provoked by the insertion of regional economies into the world market: a greater availability of food—based on the imports of grain, meat, and milk— that heightens international dependency and weakens food sovereignty. The more trade and investment that flow in the region, the more imports are needed to satisfy food demands.

When we analyze the composition of regional markets and companies, we find that the majority are small or medium-sized and operate on a local or regional level. This creates a two-pronged economy: One prong is linked to foreign markets through trade agreements (agribusiness for export), and the other is rural-indigenous, family subsistence-level agriculture, which is currently threatened by structural conditions of violence and poverty.

On the basis of this dual and unequal structure, the countries in the region have failed to comply with a single criterion of adequate nutrition (with a few limited exceptions). The direct availability of food through natural resources and access to arable land is severely limited or poorly distributed, the systems for distribution and marketing are oriented toward satisfying the demand of foreign markets, and physical and economic access to food is impossible in the face of a growing pattern of unemployment and poverty concentrated in rural areas and among African descendents, indigenous groups and peasant communities.

Food supply, where possible, is acquired through greater dependence on imports and is severely threatened by all of the above conditions.[20] Guaranteeing the Human Right to Adequate Food as a principle formally incorporated into the body of Human Rights, is impeded by trade agreements that limit the capacity of autonomous economics, politics and production for small farmer in Central America.

Proposals for Central American Regional Integration to Confront Poverty and Guarantee Access to Food for the People

Central American countries urgently need to open up debate and begin to develop new proposals for integration that break with the current model of open regionalism promoted by ECLAC in accordance with the globalization tenets of attracting foreign investment and aggressive trade liberalization.

The starting point for alternative integration proposals should consider that no country in the region can face the multiple challenges inherent in escaping poverty and misery alone. What’s needed is a coordinated regional strategy with supranational policies (joint sovereignty)[21] based on new principles of institutional and political organization.[22] We urgently need a concrete mechanism for maintaining reserves of the foods that make up the mainstay of the Central American diet, regionally administered with the goal of controlling price volatility and imports of grains and cereals in the area.

Proposals:

1. Develop a coordinated regional plan with supranational policies on the basis of new organizational and political principles

2. Establish a mechanism for regionally administered food reserves

3. Strengthen state investment in agriculture

4. Strengthen the democratic participation of diverse sectors of the population in the definition, creation, and implementation of public policies addressing hunger

5. Advance agrarian reform to guarantee that food production returns to the hands of small farmers

6. Establish policies that provide credit and technology transfer for production of basic foods and support agroecology production and marketing.

7. Develop agricultural policies that take into account environmental impact on ecosystems and biomes and seek alternatives

These policies would require Central American governments to strengthen agricultural investment and political control in defining national and regional strategies, based on broader and more informed democratic participation by diverse sectors of society in defining, producing, and implementing public policy aimed at eliminating hunger and poverty. They require deep democracy, which at present doesn’t exist in the region and can’t exist under the current institutional conditions of violence and displacement.

The right to food plays a major role in this perspective, since the process of integration must deal with the immediate urgency to confront increasing malnutrition and hunger, and not just the demands of foreign markets. There is a documented link between poverty and limited access to land, which proves the need to move forward with agrarian reform so small farmers can feed their families and their nations.

The starting point should be that every Central American has adequate access to food, and for this to happen, the structure of production and commerce must change. National and regional production should, first and foremost, attend to the needs of local markets. We must produce to cover the food and nutritional needs of Central America. But it’s not only about guaranteeing food, which could be achieved in the short term through imports. It’s about creating and strengthening the production chain of local and regional markets.

Figures from 2009 show that approximately 45.6% of intraregional trade comes from agriculture.[23] Redeveloping the role of the Central American common market and the responsibilities of regional producers requires the urgent task of defining a strategy that slows massive food imports. Thus businesses in the region have an important role in this strategy and should be more proactive in developing policies to enhance their capacity to interact with other productive sectors in the region.

In Central America most trade is carried out by small and medium-sized producers, marketers, and distributors. Without a shared, common policy that strengthens these sectors, it is impossible to think about better access to food. The current structure needs to be complemented and supported by policies that provide credit to those producing staple goods and foodstuffs. Policies also need to provide new technologies and promote agro-ecological production and commercialization.

Agricultural Policy and the Environment

Central America is a very small but growing region. If we continue using a model of production and marketing of the same products in each of the countries, we run the risk of worsening hunger and malnutrition and irreparably damaging the area’s delicate ecosystems and overall environment.

The entire region shows critical levels of social and environmental vulnerability, especially in Nicaragua and Honduras. The State of the Region- 2011 signaled, “Among the major areas of impact of climate change, are pressures on food security, the availability water (including its potential energy use), alteration and loss of biodiversity in its ecosystems (with an emphasis on forests and marine-coastal resources), all this alongside an increased propensity toward natural disasters, harm to human health and livelihoods (particularly in indigenous and rural communities).[24]

This means that the strategy must prioritize and reorganize the basis of agriculture policy that coordinates with estimates of ecological impact and alternatives to protect ecosystems and biomes. This also means that joint management needs to extend beyond political boundaries, especially in relation to transnational water basins that are currently threatened by mineral extraction projects, and a new form of geopolitics based on bioregions. In general, what predominates today is the fragmentation of habitats and a concentration of economic and productive activities along the coasts.

It’s no coincidence that from the mid-1980s to the middle of the last decade the region lost 35% of its wetlands, causing serious impacts on local flora and fauna. The Mesoamerican Biological Corridor, a shared area threatened by a series of initiatives to link up physical and informatic infrastructure, is an area of high biodiversity, especially in the Maya Biosphere Reserve in Guatemala and Bosawas Biosphere on the Atlantic coast of Nicaragua.[25]

Large consortiums for tourism and mineral extractions, along with increased agricultural activity for the production of monocultures, are causing pressure on ecosystems that destroys not only forests but also any possibility of food sovereignty. The region urgently needs to reorient its physical and infrastructure capacity to incorporate the goals of the right to food, the protection and rehabilitation of fundamental ecosystems, coordinated policies of complementary and competitive production, and more control by the people in defining and implementing public policy on territory and common goods.[26]

A new structuring of land use will mean that some areas should be totally protected, while others can be selectively used for certain activities. Some areas present better conditions for growing basic foods, while others are better used for farming exportable products. What we can’t continue to allow is a trade regime that concentrates profits while shunting the environmental costs onto local populations and continuing to make crucial political decisions within small, anti-democratic elites of businessmen and women.

Central America needs a new form of alternative integration based on a new institutional architecture–one with broad participation from social movements and strict application of the right to food and food sovereignty. The current conditions of the crisis and the accumulated effects of liberalization should urgently point to the need to restore the strategic leading role that rural farmers have had in the region’s historical development. The present threat to our indigenous-African descendent-peasant populations signals that it is time to think about and build a Central America without hunger and poverty. It’s time for a present with promise for all generations of Central Americans.

Carlos G. Aguilar Sanchez is a member of the regional coordination of Grito de los Excluidos Mesoamérica (Cry of the Excluded Mesoamerica) and a contributor to the Americas Program www.cipamericas.org

(Bibliography available upon request)