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Viewing cable 08SANJOSE347, IMPACT OF RISING FOOD PRICES IN COSTA RICA

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Reference ID Created Released Classification Origin
08SANJOSE347 2008-05-05 15:03 2011-03-02 16:04 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy San Jose
Appears in these articles:
http://www.nacion.com/2011-03-02/Investigacion.aspx
VZCZCXYZ0000
RR RUEHWEB

DE RUEHSJ #0347/01 1261536
ZNR UUUUU ZZH
R 051536Z MAY 08
FM AMEMBASSY SAN JOSE
TO RUEHC/SECSTATE WASHDC 9664
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC
UNCLAS SAN JOSE 000347 
 
SENSITIVE 
 
SIPDIS 
 
DEPT FOR EEB/TPP/ABT/ATP JANET SPECK; PLEASE PASS TO USDA 
 
E.O. 12958: N/A 
TAGS: EAGR EAID ETRD ECON PGOV PREL CS
SUBJECT: IMPACT OF RISING FOOD PRICES IN COSTA RICA 
 
REF: STATE 39410 
 
------- 
SUMMARY 
------- 
 
1.  (U) Costa Rica has experienced rising food prices which have had 
minimal political impact to date.  There have been no food 
shortages, although local price increases have been high as Costa 
Rica imports 100 percent of its wheat, yellow corn, and soybean 
consumption; 50 percent of its rice consumption; and 66 percent of 
it bean (pulse) consumption.  The regulated price of rice in Costa 
Rica has been high by international standards in recent years, so 
the impact of the recent rise in world prices has been muted.  In 
spite of food price increases, substitution by consumers has not 
occurred thanks to wage gains, although wages generally have not 
kept pace with the recent rise in prices.  Most producers have not 
abandoned planting of higher margin, non-staple goods.  In political 
terms, reports of shortages and sharp price increases in other 
countries attract the most media attention, and President Arias's 
May 1 State of the Nation address mentioned the global food and 
energy concerns.  Media focus on the pinch on the Costa Rican 
pocketbook and domestic food security concerns is gaining strength, 
however. 
 
2.  (U) As for policy changes, the leading opposition party has 
suggested a more interventionist governmental response, but we do 
not expect a drastic change in the GOCR's relatively market-oriented 
approach any time soon.  The GOCR is planning to play an indirect 
role in increasing the share of profits received by producers.  In 
the mid-term, the GOCR has announced 2010 production target goals 
for rice, white corn, and beans.  For the longer term, the GOCR 
wants to improve efficiencies through research, technology transfer, 
and infrastructure in an effort to improve productivity and raise 
production levels of rice and bean crops.  Note:  This cable 
reflects the combined efforts of our Economic section, FAS office 
and Regional Environmental Hub.  END SUMMARY. 
 
------------------------------- 
FOOD PRICE TRENDS IN COSTA RICA 
------------------------------- 
 
3.  (U) In accordance with reftel, Post prepared the following 
report: 
 
Begin Report 
 
DEMAND: Costa Rica's food consumption pattern is that of a 
moderately affluent nation generally open to international markets. 
The nation has posted progressive gains on the FAO consumption 
measure of grams per person per day relative to its Central American 
(CentAm) neighbors since the late 1960's.  For the most recent 
period of data reporting, Costa Ricans consumed over thirty percent 
more food per day than their neighbors, see below: 
 
Food Consumption:  Grams per Person per Day 
 
            Costa   Cent 
Year        Rica    Am    Index 
----       ------  ----   ----- 
1969-1971   1259   1169   1.08 
1979-1981   1411   1267   1.11 
1990-1992   1735   1352   1.28 
1995-1997   1732   1333   1.30 
2001-2003   1914   1452   1.32 
 
Source:  FAO 
 
Rice and beans are dietary staples, but, when compared to the 
region, the Costa Rican diet is notably different. Costa Ricans 
consume relatively more fruits, dairy products, and vegetable oil 
and consume relatively less grains and beans than their neighbors 
(see table below): 
 
Food Consumption:  Percentage of Grams per Person per Day 
By Food Group, 2001-2003 
 
                       Costa   Cent 
Food Group              Rica    Am    Index 
----------             -----  -----   ----- 
Alcohol                 2.9%   4.5%   0.65 (-) 
Animal fats & prods     0.6%   0.7%   0.83 
Cereals & products     15.9%  23.0%   0.69 (-) 
Dairy products         25.4%  18.5%   1.38 (+) 
Fish, seafood & prod.   0.9%   1.2%   0.76 
Fruits, Nuts, Spices   24.9%  21.4%   1.16 (+) 
Meat & prod.            6.1%   6.3%   0.97 
Offals edible           0.3%   0.3%   0.95 
Oilcrops, excl. prod.   0.6%   1.0%   0.65 (-) 
Pulses & products       1.5%   2.3%   0.65 (-) 
Starchy roots & prods   3.8%   3.5%   1.07 
Sugar & Beverage Crops  8.8%   8.6%   1.03 
Vegetable oils & prod.  1.8%   1.5%   1.17 (+) 
Vegetables & products   6.5%   7.3%   0.89 
Total                 100.0% 100.0% 
 
Source:  FAO 
(+) denotes Costa Rican is significantly higher than the region 
(-) denotes Costa Rican is significantly lower than the region 
 
As measured in the local currency, the rise in price of the basic 
"market basket" of foodstuffs paralleled minimum wage increases from 
March 2006 to March 2007, with food prices rising 13.2 percent while 
the minimum wage increased 12.7 percent.  However, the rise in food 
prices outstripped the rise in wages from March 2007 to March 2008, 
23.9 percent versus 10.5 percent. 
 
Rice is the only agricultural commodity under government price 
controls.  A two kilogram bag of 80 percent whole grain/20 percent 
broken grain rice costs CR colones 888 (USD 1.79) at retail and the 
March 2007-2008 12 month price increase was 14 percent, or barely 
more than wage increases.  (Prices of other grades of rice are not 
controlled.)  Price increases in sugar products averaged less than 
wage increases in 2007-2008.  Sugar demand is met by local 
production.  Most locally consumed animal products are produced in 
the country.  To date, the population has not changed its 
consumption pattern of the main staples, even though some prices 
have increased sharply. 
 
SUPPLY:  There is no shortage of food in the country at this time. 
Costa Rica imports all the wheat, yellow corn, and soybeans it 
consumes.  It also imports roughly 50 percent of the rice it 
consumes.  Beans, another important staple, are locally produced but 
roughly two-thirds of total consumption is imported.  Almost all 
imports of wheat, corn, soybeans, and rice originate in the U.S. 
Black bean imports come primarily from Nicaragua (which reportedly 
has imposed export restrictions) and China.  Over the years, many 
farmers shifted production from staple crops with lower relative 
productivity such as corn and beans to more profitable crops such as 
citrus, melons, or even beef cattle production.  Most of these 
farmers are not likely to go back to corn or bean production, unless 
the long-term market outlook suggests that these crops will generate 
greater profits. 
 
Despite strong world prices, Costa Rican rice production has not 
experienced a significant change so far.  Current official rice 
prices are as follows: 
 
- farmers sell rice in the hull for $407 per ton; 
- processors sell hulled rice for $790 per ton; 
- wholesalers sell hulled rice for $814 per ton; and 
- retailers sell 80/20 grade rice in kilogram packaging based on 
$895 per ton. 
 
Since these prices are set by the GOCR, are supposedly based upon 
the cost of local production, are also influenced by consumer 
considerations, and do not change frequently, producers making 
planting decisions now are somewhat sheltered from the price signals 
world markets are sending.  As a result, area planted to rice may 
not expand as much would be expected in a less regulated 
environment.  CONARROZ, the corporation made up of rice producers 
and millers, has asked the GOCR for a 20 percent price increase to 
be implemented in coming months.  Whether the GOCR will approve the 
full increase remains to be seen. 
 
In general, the price increase of commodities such as soybeans, 
yellow corn, and wheat are transferred to the consumer.  The degree 
to which this is happening depends on the cost structure of each 
particular value-added industry, and the degree of protection from 
import competition that each enjoys.  For example, imported grains 
constitute up to 85 percent of the cost of pork production, but 
processors are reportedly not paying significantly higher prices to 
producers who tend to be small and lack pricing power.  Other 
sectors such as poultry or dairy are vertically integrated, with the 
larger and stronger companies directly importing grains, processing 
them, and supplying their own feed production.  Moreover, tariffs on 
poultry and dairy products run as high as 150+ percent.  Thus, these 
producers can better manage rising costs and ultimately pass 
significant cost increases to the consumer. 
 
POLITICAL IMPACT:  To date, the Costa Rican discussion regarding 
food prices and quantities has been framed primarily by reports of 
shortages and sharp price increases in other countries.  The profile 
of the issue has risen in the media since the World Bank, United 
Nations, and other multilateral institutions highlighted the issue 
at the recent IFI meetings in early April.  The recent announcement 
by Sam's Club (Wal-Mart) and COSTCO that they are limiting retail 
sales of rice in the U.S. received considerable attention in the 
local media. 
 
Post knows of no public protests or violence resulting from food 
price increases.  However, popular awareness of events is starting 
to catch up with the rest of the world.  The developing story line 
in the media has emboldened some in the agricultural sector (most 
notably rice growers) and in the political classes (most notably the 
leading opposition party -- Partido de Accion Ciudadana, PAC) to 
pressure for a more interventionist governmental response that goes 
beyond the Arias Administration's relatively market-oriented 
approach. 
 
ECONOMIC IMPACT:  The impact of rising food prices is lessened by 
Costa Rica's relative prosperity.  The National Statistics Institute 
found that unemployment in July 2007 had dropped to 4.6 percent, the 
lowest in over a decade.  The economy has remained strong since 
then; for example, the number of tourists visiting Costa Rica in the 
first quarter of 2008 was 17 percent higher than the previous year. 
 
 
Home survey data from 2004 shows that for the poorest 20 percent of 
the Costa Rican population, 46 percent of consumer spending is on 
food, as contrasted with 21 percent spent on food for the wealthiest 
20 percent of the population.  For the population as a whole, 30 
percent of consumer spending is on food.  Food prices have not had a 
noticeable effect on macroeconomic variables. 
 
ENVIRONMENTAL IMPACT:  Adviser to the Minister of Environment Ana 
Luisa Leiva noted that rising food prices have not had a noticeable 
environmental impact to date.  Furthermore, Ministry of Agriculture 
representatives stress that any increases in area cultivated for the 
principal crops of interest would not come at the expense of forests 
or protected areas. 
 
GOVERNMENT POLICY RESPONSE:  Most staple crops already enjoy low 
import duties:  one percent on wheat, corn, soybeans, and rice 
imported by CONARROZ to meet the gap between production and 
consumption.  (Note:  other rice importers must pay a 35 percent 
duty.)  Therefore, the cost of imports is determined by the 
international market and the cost of transport.  So far, the 
government has not imposed export restrictions on any agricultural 
product. 
 
The broader trends of food prices are not lost on the head of state 
as President Arias mentioned global food and energy concerns in his 
May 1 State of the Nation address.  From the perspective of Ministry 
of Agriculture officials, the GOCR is planning to play an indirect 
role to try to facilitate relations between producers and 
industrials or producers and middlemen with the goal of increasing 
the share of the profits received by producers.  In the medium term, 
the GOCR announced at the end of April the outline of a program that 
would achieve certain production targets within two years:  local 
production would meet 80 percent of the demand for rice and 70 
percent of the demand for white corn and beans.  However, the 
mechanics of such a plan remain unclear.  For the longer term, the 
government wants to improve research, technology transfer, seed 
quality, and infrastructure, in an effort to improve productivity 
and higher production levels.  In addition, the GOCR is also 
evaluating options to reduce transportation costs between the main 
grain port (Caldera on the Pacific) and processing facilities, many 
of which are located in the Central Valley.  The GOCR has not 
undertaken any new initiatives to assist segments of the population 
that are vulnerable to food price increases. 
 
End Report. 
 
------- 
COMMENT 
------- 
 
4.  (SBU) Rising international agricultural commodity prices 
increasingly impact the Costa Rican pocketbook directly and 
indirectly. The PAC's use of food prices as a bargaining chip and 
rhetorical aid could prove to be politically volatile, although 
their oratory is mostly posturing at the moment.  Rising food prices 
could bolster the popularity of the notion of food "security" 
defined as self-sufficiency, or production meeting 100 percent of 
consumption.  This definition, which has been refuted by GOCR 
officials and some economists in the media, has great emotional 
appeal and could strengthen the hand of those who oppose trade 
liberalization, including CAFTA, and those who seek greater 
government intervention in theQgricultural sector.  If Qe global 
food challenges reach crisis level, especially if other Central 
American countries are hard hit, and if the domestic debate 
continues heating up as the CAFTA-DR legislative agenda progresses 
toward a critical juncture between July and September, food price 
issues could complicate CAFTA implementation. 
 
5. (U) From the broader economic perspective, the rise in food 
prices will likely continue to fuel overall inflation.  Those hit 
hardest will be individuals already near or below the poverty line 
who are not experiencing strong wage gains (and are not likely to). 
Consumers in this segment will have to make tough purchasing 
decisions about how to feed their families when they visit their 
local "pulperia" or "super." 
BRENNAN