Future looks bright for food production in Latin America and Caribbean
October 16, 2013
- Over the past 20 years, the Latin America and the Caribbean region has significantly increased its share in global agricultural trade
- Forecast models show the region could take an even larger role as a global food and agricultural produce supplier.
- Infrastructure, trade regulations and institutions are among the most significant constraints for future expansion
Food security is consistently seen as one of the key challenges for the coming decades. To understand why, think about the following. By the year 2050, the world will need to produce enough food to feed more than 2 billion additional people, compared to the current 7.2 billion. Most of the population growth will be concentrated in developing countries, adding pressure to their development needs. To meet future food demand, agricultural production will need to increase by 50-70%, according to different estimates. And this will happen as the impacts of climate change are projected to intensify overall, particularly hitting the poorest and most vulnerable countries.
Increasing global food production will be just a part of the story. The other side is trade, or more precisely, ensuring that food exports from countries with a natural comparative advantage can increase and reach those most in need. In this context, a recent World Bank study takes a closer look at how Latin America and the Caribbean (LAC) can meet this global challenge – and concludes the region has a lot to say.
LAC: a potential food superpower?
Looking back at the past few decades, Latin America has done more than its share to contribute to global agricultural production and trade. While there are significant differences from country to country, the region is overall a net food exporter. Exports of agricultural products have grown at about 8% annually since the mid-90s, and now make up about a quarter of the region’s total exports – more than LAC’s share of any other sector in world trade. Latin America is also a bigger player at a global level: it now represents 13% of agricultural trade, up from 8% in the mid-90s.
The region is also well placed to scale up agricultural production and trade. Its sources of comparative advantage lie, among others, in its water and land resources. Latin America is home to about 28% of potential new arable land (second only to sub-Saharan Africa). And despite droughts and water scarcity in some sub-regions, it also holds the highest share of renewable water resources.
Another good sign is the increasing diversification of agricultural exports, both in terms of destination and type of products. Agricultural trade is shifting away from the EU and the US, the region’s traditional and crisis-hit partners. Instead, emerging and developing economies, including China, now make up 36% of LAC agricultural exports, just below the EU share. Experts note that diversification, along with strong public policies and crisis response mechanisms allow the region to better deal with the impact of fluctuating commodity prices in international markets.
Latin America is home to about 28% of potential new arable land. And despite droughts and water scarcity in some sub-regions, it also holds the highest share of renewable water resources.
So does this mean that LAC is on the right track to become a food powerhouse? Yes and no. The study, “Agricultural exports from Latin America and the Caribbean: harnessing trade to feed the world and promote development” identifies some key constraints for the region to reach its full potential, most notably obstructive trade rules and weak infrastructure and regulations.
Trade regimes in Latin America – like those in other developing countries -- traditionally suffered from an anti-export and anti-agricultural bias. This bias from LAC countries’ own trade policies has been to a large extent corrected, with a few exceptions such as export taxes and controls in some countries. But barriers for agricultural exports from policies of trade partners are still higher than for any other sector This needs to change to allow the region realize its full potential.
Improving infrastructure and logistics will be also essential to make the region more competitive. Lack of proper infrastructure pushes logistics costs to as much as 25% of the food product value for many countries, compared with around 9% for OECD countries. These costs are proportionally higher for small producers, which are a majority in LAC. Strengthening regulations and institutions, or “soft infrastructure”, will be even more important to boost agricultural trade, especially if compared to other sectors. For instance, if they improved to OECD levels, the rise in agricultural exports would be equivalent to the region’s partners cutting tariffs by 80%.
Using forecasting models, the publication analyzes the region’s role as food, fiber and biofuel supplier in different future scenarios. In most, Latin America would increase its trade share in the four main categories (cereals, oilseeds, meat and fruit and vegetables) by 2050 compared with 2010 levels. The most likely scenario shows that the region could supply a third of meat, a third of fruit and vegetables and half of oilseeds traded worldwide. But with further improvements to its trade policy and infrastructure, the share could be even higher.
With this in mind, the study recommends several actions to increase agricultural production and trade:
- Improve infrastructure, regulations and institutions, with different priorities for each country and sub-region
- Take specific actions to promote a more efficient use of water and other natural resources, to ensure a sustainable growth of agricultural and food production
- Avoid “beggar thy neighbor” policies like export taxes or controls. While these can help shield domestic markets during a price crisis, they shift the adjustment to other countries, intensifying global price volatility.
- Reduce global barriers to trade in biofuels, so that production takes place in countries where it is most efficient to do so. This could ensure that expansion of biofuel production is sustainable, without diverting land from growing food and while reducing GHG emissions.