ANALYSIS - Access to international raw materials is increasingly complex and costly. In recent weeks, the unsustainable prices of corn, soybeans and wheat are drowning the world agribusiness sector. Central America has been particularly affected by the price increases due to its dependence on imported grains, observes Jorge Calderon from PIPASA, Costa Rica's largest poultry processor and part of Cargill Central America.
The agribusiness industry on every continent feels the effects of increasing prices in raw materials. Corn, soybeans and wheat, as well as their byproducts, cannot be replaced or substituted in the development of multiple food products.
The world agricultural industry has felt the effects on commodities as a result of the losses faced by the US drought, which has reduced the supply and caused a substantial increase in prices.
There are many companies affected by these increases in international prices. One of these is Cargill. Jorge Calderon, Corporate Affairs Manager for Cargill Central America and spokesman for PIPASA in Costa Rica says: “Everyone knows the situation, the news has traveled the world, but it is worth analyzing in depth given that it afflicts virtually the entire productive sector and will have deep implications for the economies of Central American countries.
“The increases in commodity prices result in such high food and feed production costs that it becomes an unsustainable situation in the long run. This is a structural issue that requires attention. The sharp price increases in international agricultural commodities have exceeded the boundaries of what was expected, due to the drastic climate changes which have affected crops.
“The issue has important implications for agricultural production, livestock and food for human consumption and animal feed consumption worldwide. The Central American countries are immersed in the problem by relying on imports of these commodities.
“The more than 30 per cent increases in international prices of wheat, corn and soybeans in the last month affect the entire Costa Rican productive sector. The dependence of these inputs in international markets is a major blow to our local industries. Just in the last month, corn prices increased by 42 per cent, and wheat increased by 30 per cent. As for soy, the price has risen by over 16 per cent in the last month,” said Mr Calderon.
“There are many factors that affect the price of raw materials. This year the drought in the US has resulted in the loss of approximately 20 per cent of the corn and soybean crops. The reduced availability of these products inevitably lead to sharp price increases. This resulted in a 50 per cent increase in the cost of corn and a 30 per cent rise in the price of soy.
“A considerable part of the annual production of US corn has been allocated for the production of other products, such as ethanol, thus reducing the availability of grain for food.
“Unfortunately livestock production in Central America depends 100 per cent on imported raw materials. Not having local availability of these is very problematic and there are no substitutes for them.
“The increase in costs will be unsustainable for local production, forcing it to adjust prices at the consumer level.
“Corn, wheat and soybeans, as well as their byproducts are found in many food production processes both in animal and human nutrition, and they are perhaps more common on our tables than we imagine,” concluded Mr Calderon.
National economies have also projected the effects of high commodity prices on their macroeconomic goals. The Central Bank of Costa Rica (BCCR) had projected inflation to year-end at a maximum of six per cent. But that goal will be difficult to meet since sustained increases in raw material prices will eventually translate into increases in the price of goods, reports the CRHoy.com web site in Costa Rica.
Rudolf Lucke of the Economic Research Institute at the University of Costa Rica, told CRHoy.com that although inflation is low, if the increase in the price of these products remains high, it will undoubtedly impact the domestic consumer as 18 per cent of consumer spending goes towards corn and wheat products.
The price of meat will also increase because the nutrition of these animals is based on these commodities and this will affect inflation, noted Mr Lucke.