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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

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