South America is one of the world market’s most important suppliers of agricultural products – and yet the population there is experiencing the highest food price increases in the world. The reason: farmers export their products, and their prices are quoted in dollars. This further increases the prices in real and peso for food.
by Alexander Busch, Latin America correspondent for Handelsblatt and Neue Zürcher Zeitung
South American farmers have harvested a record crop in recent months and have been able to export correspondingly more to China, the main buyer of soybeans, chicken meat and corn from Brazil, Argentina, Paraguay and Uruguay.
However, this is no consolation for consumers in these countries: Prices for beans, rice, sugar and vegetable oils, but also for beef, poultry and pork, rose more sharply in May than at any time in the last ten years. In Argentina, the government has therefore banned beef exports in order to curb the undersupply and price increases. It has done little good.
The reason for the high prices is, on the one hand, on the supply side the severe drought in Brazil, which will reduce production. In addition, the high oil prices also make biodiesel and ethanol attractive again. Farmers sell their corn or soybeans to energy companies, which convert the seeds into biodiesel. Sugar companies produce ethanol instead of sugar. The dilemma of “tank or plate” takes on a new relevance.
In South America, for example, there is a paradox: The continent is the most important supplier of food to the world market – but its own population can afford it less and less. The tendency is that price increases will only really increase – namely when producers will pass on their price increases for fuel and agricultural products to consumers. In 2020, farmers were still able to produce at almost the same cost as the previous year. But now prices for crop protection products, fertilizer and diesel have risen sharply.
Already, South Americans pay even more for food than other populations: Their currencies are weak against the dollar. But agricultural commodities, like energy and industrial raw materials, are traded in dollars. Consumers in São Paulo and Buenos Aires still pay an exchange rate premium on top of the higher prices.
For the governments in South America, this is an explosive mixture: Price increases such as for corn in Mexico or in the Andean countries have already led to revolts in 2007 and 2010. Already, people in Ecuador, Colombia, and recently Peru, Bolivia and Chile are demonstrating for better services from the state and more social justice. The pandemic has relegated many South Americans from the middle class to poverty. Even in rich Brazil, hunger – which actually seemed to have been conquered long ago – is rampant again.
COVID-19 in Latin America
Development of case numbers in the region
Currently reported cases in the countries
COVID-19 vaccine doses administered
Share of people vaccinated by country