Economic Commission for Latin America and the Caribbean The socio-economic and environmental impacts of soaring food and oil prices Alicia Bárcena EXECUTIVE SECRETARY Economic Commission for Latin America and the Caribbean ECONOMIC AND SOCIAL COUNCIL DIALOGUE WITH THE EXECUTIVE SECRETARIES OF THE REGIONAL COMMISSIONS New York, 7 July 2008 b 1

(II Q 2006 – I Q 2008, annual average 2005 = 100) What is the problem? QUARTERLY AVERAGE PRICE INDEX FOR ENERGY, AGRICULTURAL COMMODITIES AND FOOD (II Q 2006 – I Q 2008, annual average 2005 = 100) RATES OF VARIATION IN PRICE INDICES FOR ENERGY, AGRICULTURAL PRODUCTS AND FOOD GROUPS (Percentages) CATEGORY II T 2006- II T 2007 I T2007- I T 2008 II T 2006- I T 2008 ------------------------------------------------------------------------------------------------------------------------- Energy -3.2 66.5 39.5 Non-energy commodities 14.4 35.3 44.3 Agriculture 9.9 35.5 43.7 Foods 13.3 55.6 67.8 Fats and oils 46.0 83.3 138.5 Grains 15.6 59.3 86.5 Source: Calculated on the basis of data from the World Bank, Commodity price data (Pink Sheet) Source: Economic Commission for Latin America and the Caribbean (ECLAC).

FOOD PRICE INCREASES (Percentages)

During the last five years food inflation has been higher than general inflation in most LAC countries INTER-ANNUAL GROWTH RATES IN THE CONSUMER PRICE INDEX, BY COUNTRY, 2002-2007 RATES OF VARIATION IN PRICE INDICES FOR ENERGY, AGRICULTURAL PRODUCTS AND FOOD GROUPS (Percentages) CATEGORY II T 2006- II T 2007 I T2007- I T 2008 II T 2006- I T 2008 ------------------------------------------------------------------------------------------------------------------------- Energy -3.2 66.5 39.5 Non-energy commodities 14.4 35.3 44.3 Agriculture 9.9 35.5 43.7 Foods 13.3 55.6 67.8 Fats and oils 46.0 83.3 138.5 Grains 15.6 59.3 86.5 Source: Calculated on the basis of data from the World Bank, Commodity price data (Pink Sheet) Source: Economic Commission for Latin America and the Caribbean (ECLAC).

Causes Multiple socio-economic and natural factors, both structural and temporary in nature Financial volatility and slowdosn in world growth Global surge in inflation (6%-2006 to 10%-2008 in LAC) Increased world demand generated by Asia (China and India) Supply shocks: key countries stopped exporting (Indonesia) Rise in prices of oil and oil-based agrochemicals (100%-fert) Growing demand for biofuels and effect of subsidies (US+EU) Speculative purchases on future markets Climate-related factors a

Climate-related factors affected production in 2007 THE REGION A late frost in some important wheat-growing areas in the United States An unusually hot and dry summer in Canada during the harvest period A late frost in Argentina followed by a drought THE WORLD A dry spring in Northern Europe with floods during the harvest period Second consecutive year of drought in Ukraine and Russian Federation Third consecutive year of drought in Australia; the worst multi-year drought in a century Some of these factors would explain the standstill in yields seen in the last few years, especially in maize and wheat. These factors are partially responsible for poor yields of maize, wheat and oats in the last few years.

Biofuels Ethanol: rising production from maize in the United States from 2003 onwards Biodiesel: rising production in the European Union since 2004 and in the United States since 2006 a Source: R. Trostel, Global Agricultural Supply and Demand, May, 2008.

FOOD AND AGRICULTURAL NET BALANCE IN LATIN AMERICA AND THE CARIBBEAN The region is a net food exporter, but most of the countries are net importers and at least one faces a critical situation FOOD AND AGRICULTURAL NET BALANCE IN LATIN AMERICA AND THE CARIBBEAN (Averages 2000-2002, in United States dollars) FAOSTAT | © FAO Statistics Division 2008 | 18 July 2005 Positive food trade balance Negative food trade balance a Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of A. Valdés and W. Foster, “Agricultural Trade Liberalization and the Rural Economy in Latin America and the Caribbean”, document presented at the workshop Rural Development and Agricultural Trade, Washinhton, D.C., Inter-American Development Bank, 2005.

LATIN AMERICA AND THE CARIBBEAN (24 COUNTRIES): DIETARY In the Latin American and Caribbean region, undernourishment is due mostly to access issues, not shortages of food supply LATIN AMERICA AND THE CARIBBEAN (24 COUNTRIES): DIETARY ENERGY SUPPLY (DES) AND UNDERNOURISHED PEOPLE, 2000-2002 (Kilocalories and percentages) CUB ARG MEX BRA CHI CRI URU TYT GUY JAM SUR PAR ELS VEN HON RDO NIC PAN GUA HAI PER ECU COL BOL LAC y = 6374.7e -0.0025x R 2 = 0.7944 5 10 15 20 25 30 35 40 45 50 1800 1900 2000 2100 2200 2300 2400 2500 2600 2700 2800 2900 3000 3100 3200 3300 Dietary Energy Supply (DES), in kilocalories per person per day Undernourished people (percentages) a Source: ECLAC, The Millennium Development Goals: A Latin American and Caribbean Perspective (LC/G.2331), Santiago, Chile, 2005, page 61.

Economic impact: risk of inflation LATIN AMERICA: INFLATION RATE (Quarterly moving average, annualized percentages) a

Social impact: risk of reversing progress in poverty reduction LATIN AMERICA: POVERTY AND INDIGENCE, 1980-2007 (Percentages) 12.7 13.4 15.4 19.4 18.5 19.0 22.5 18.6 35.1 36.5 39.8 44.0 43.8 43.5 48.3 40.5 10 20 30 40 50 60 1980 1990 1997 1999 2002 2005 2006 2007b Percentage Indigent Non-indigent poor It seems that the emphasis in this section of the speech is on the fact that most extremely poor live in MICs. If you want to provide a sense of progress in achieving MDG 1 , however, you could point out that poverty went down from 44% in 2002 to 36.5% in 2006 and extreme poverty from 19.4% to 13.4% in the same period. However it must be stressed that the absolute number of poor people in the region is much higher now (2006, 194 million) than it was in 1980 (136 million). Poverty decreased from 44% in 2002 to 35% in 2007. But the poor still number 194 million, including 71 million in extreme poverty. This is higher than the 1980 figures.

Sustainable development impact More areas under production and therefore more pressure on native forests (and on biodiversity). Increased pollution of agrochemicals (health, biodiversity and climate change from nitrous oxides). Pressure on already stressed watersheds from added demand. Increased climate change drivers (deforestation, soil erosion, agrochemicals, methane from cattle and fossil a

Public policy challenges Short term Measures to buffer food price increases in domestic markets and/or improve income, especially that of the poor: Direct subsidies for lower income groups Reduce taxes on or subsidize the production of certain foods Tariff reductions for food and inputs Support international efforts to deliver emergency aid to populations at risk Long term Policies to increase supply and productivity in a sustainable manner: Investment in R&D for efficient and sustainable food and for biofuel production Adequate investment for climate-change mitigation Re-establishment or strengthening of extension services Some of these factors would explain the standstill in yields seen in the last few years, especially in maize and wheat. Economically, the region is better prepared: current account surpluses, better public finances and lower levels of debt, mores international reserves Socially without public policies extreme poverty would grow from 70 m to 85 m people