## Latin America and the Caribbean: Dealing with Another Food Price Shock

_IMF Blog, October 25, 2012_

## Source details

**Canonical URL:** [Latin America and the Caribbean: Dealing with Another Food Price Shock](https://www.imf.org/en/blogs/articles/2012/10/25/latin-america-and-the-caribbean-dealing-with-another-food-price-shock)

## Other formats

- [Markdown version](/en/blogs/articles/2012/10/25/latin-america-and-the-caribbean-dealing-with-another-food-price-shock/index.md)
- [Structured JSON version](/en/blogs/articles/2012/10/25/latin-america-and-the-caribbean-dealing-with-another-food-price-shock/index.json)
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## Bibliographic details
- Authors: Luis Cubeddu, Sebastian Sosa
- Published: October 25, 2012

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### Overview
- Authors: Luis Cubeddu, Sebastián Sosa
- Date: October 25, 2012
- World food prices are rising mainly due to global weather-related shocks.
- The recent increase in food prices has been less acute than the two previous episodes (in mid-2008 and early 2011).
- Price movements differ across commodities: soybeans, corn, and wheat are up sharply; coffee and sugar prices are down.
- Market projections suggest corn, soy, and wheat prices will stay high through end-2012, then decline gradually as supply conditions normalize.

### Inflation risks and monetary policy
- The impact on domestic inflation in Latin America and the Caribbean is beginning to be felt.
- Pass-through to core (underlying) inflation has been relatively limited thus far.
- Monetary authorities need to remain vigilant because global food price shocks can affect inflation and inflation expectations with a lag.
- Countries with weaker monetary policy frameworks should be particularly alert and ready to act decisively given historically high pass-through from global to domestic food prices and from domestic food prices to core inflation.
- Wage restraint will be required in countries with pegged exchange rate regimes or dollarized economies.

### External balances and regional heterogeneity
- Impact on the balance of payments will differ across the region:
  - Southern Cone countries (exporters of soybeans, corn, and wheat) stand to benefit from higher prices.
  - The Caribbean, a large food importer, stands to lose the most.
  - Central America will be adversely affected despite being a net food exporter because it imports corn and wheat (whose prices have risen) and exports coffee and sugar (whose prices have declined).
- These food price trends add to external imbalances in the Caribbean and Central America, which have been affected by high energy prices for several years.

### Protecting the poor and fiscal implications
- Poor households spend a larger share of income on food; policies to protect them must be accommodated within tight budgets.
- Fiscal constraints differ by country:
  - The Caribbean needs to reduce public debt.
  - Central America needs to regain policy space.
  - South America’s commodity exporters operating near potential would need to reallocate spending from other areas to income support for the poor to keep fiscal positions in check.
- Policy options and cautions:
  - Scale up well-targeted social safety net programs (avoid generalized price subsidies).
  - Reduce taxes/tariffs on food items temporarily (avoid export taxes/restrictions as they generally distort production incentives and are difficult to unwind).
  - Consider supply-side policies to encourage food production (for example, subsidies on fertilizers and seeds), but limit these to clear cases of market failure in the agricultural sector.

*IMF blog post: Latin America and the Caribbean: Dealing with Another Food Price Shock (October 25, 2012).*

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## Content in this bundle

- **IMF Regional Economic Outlook: Western Hemisphere - Rebuilding Strength and Flexibility, April 2012**
  - [IMF Regional Economic Outlook: Western Hemisphere - Rebuilding Strength and Flexibility, April 2012 (Markdown version)](/external/pubs/ft/reo/2012/whd/eng/pdf/wreo0412.pdf.md){rel="alternate" type="text/markdown"}
  - [IMF Regional Economic Outlook: Western Hemisphere - Rebuilding Strength and Flexibility, April 2012 (PDF)](/external/pubs/ft/reo/2012/whd/eng/pdf/wreo0412.pdf){rel="external" type="application/pdf"}

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## References

- [https://www.imf.org/wp-content/uploads/2012/10/eng-lac-food-prices-series.jpg](https://www.imf.org/wp-content/uploads/2012/10/eng-lac-food-prices-series.jpg)
- [commodities](http://www.imf.org/external/pubs/ft/survey/so/2012/RES101212A.htm)
- [Latin America and the Caribbean](http://www.imf.org/external/pubs/ft/survey/so/2012/CAR101212C.htm)
- [inflation](http://www.imf.org/external/pubs/ft/fandd/basics/inflat.htm)
- [dollarized](http://www.imf.org/external/pubs/ft/fandd/2010/03/dataspot.htm)
- [https://www.imf.org/wp-content/uploads/2012/10/eng-lac-net-food-exports1.jpg](https://www.imf.org/wp-content/uploads/2012/10/eng-lac-net-food-exports1.jpg)
- [food price trends](http://www.imf.org/external/pubs/ft/survey/so/PodcastArchive.aspx)

_Source: https://www.imf.org/en/blogs/articles/2012/10/25/latin-america-and-the-caribbean-dealing-with-another-food-price-shock_