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1、1INTERNATIONAL PRICES AND FOOD SECURITY:AN ANALYSIS OF FOOD AND FERTILIZER PRICE TRANSMISSION IN CENTRAL AMERICAViviana M.E.Perego,Melissa Brown,Francisco Ceballos,Manuel Hernandez,Mara Luca Berrospi,Luis Dias Pereira,Salomon Salcedo,McDonald P.Benjamin,Luis Flores,Elena MoraPublic Disclosure Author
2、izedPublic Disclosure AuthorizedPublic Disclosure AuthorizedPublic Disclosure Authorized1 2024 The World Bank1818 H Street NW,Washington,DC 20433Telephone:202-473-1000;Internet:www.worldbank.orgSome rightsreserved.This work is a product of the staff of the World Bank with external contributions.The
3、findings,interpretations,and conclusions expressed in this work do not necessarily reflect the views of the Executive Directors of the World Bank or the governments they represent.Although the World Bank makes reasonable efforts to ensure all the information presented in this document is correct,its
4、 accuracy and integrity cannot be guaranteed.Use of any data or information from this document is at the users own risk and under no circumstances shall the World Bank or any of its partners be liable for any loss,damage,liability or expense incurred or suffered which is claimed to result from relia
5、nce on the data contained in this document.The boundaries,colors,denomination,and other information shown in any map in this work do not imply any judgment on the part of the World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries.Rights and Permis
6、sionsThe material in this work is subject to copyright.BecausetheWorld Bank encouragesthedisse-mination of its knowledge,this work may be reproduced,in whole or in part,for non-commercial purposesas long asfull attribution to this work is given.Photo creditsCover photos:Kraiwut,Serghei V-Stock Adobe
7、AttributionPlease cite this work as follows:World Bank.2024.International prices and food security:An analysis of food and fertilizer price transmission in Central America.Perego,V.M.E.,Brown,M.,Ceballos,F.,Hernandez,M.,Berrospi,M.L.,Pereira,L.D.,Salcedo,S.,Benjamin,M.P.,Flores,L.,Mora,E.World Bank:
8、Washington,DCAny queries on rights and licenses,including subsidiary rights,should be addressed to:World Bank Publications,The World Bank Group,1818 H Street NW,Washington,DC 20433,USA;fax:202-522-2625;e-mail:pubrightsworldbank.org2Table of contentACKNOWLEDGEMENTS .5ACRONYMS AND ABBREVIATIONS.6EXECU
9、TIVE SUMMARY.9I INTRODUCTION.20II ARE INTERNATIONAL FOOD PRICE INCREASES AND VOLATILITY TRANSMITTED TO DOMESTIC MARKETS IN CENTRAL AMERICA?.32III THE WELFARE EFFECTS OF GLOBAL FOOD AND FERTILIZER PRICE INFLATION IN CENTRAL AMERICA.49IV WHAT POLICY RESPONSES HAVE ACCOMPANIED RECENT FOOD PRICE CRISES?
10、.59V CONCLUSIONS AND RECOMMENDATIONS.76REFERENCES.84ANNEX 1-ECONOMETRIC MODELLING AND RESULTS.96ANNEX 2-FINDINGS FROM AGRICULTURAL IMPACT EVALUATIONS.126ANNEX 3 SETTING FOOD SECURITY WITHIN THE BROADER CONTEXT OF SUSTAINABLE DEVELOPMENT.137ANNEX 4 HOW A CHANGING CLIMATE AND NATURAL DISASTERS ARE EXA
11、CERBATING FOOD INSECURITY IN CENTRAL AMERICA.139ANNEX 5 DETAILED POLICIES ADOPTED IN CENTRAL AMERICA IN RESPONSE TO FOOD PRICE CRISES.141ANNEX 6-GLOBAL TRENDS IN POLICY SUPPORTS TO ADDRESS FOOD PRICE CRISES.147LIST OF FIGURESFigure ES.1:People with moderate and severe food insecurity in Central Amer
12、ican countries:2020-2022 compared to 2014-2016.9Figure ES.2:Food price inflation vs.general inflation in Central America,January-June 2022.10Figure ES.3:Evolution of real global food prices 1961-2023.11Figure ES.4:Global prices of fertilizers(Urea And DAP)and energy(Natural Gas),2019-2022.11Figure E
13、S.5:Tariff and Non-tariff trade barriers.16Figure 1.1:Households Reporting Running Out Of Food In The Last 30 Days(2021).22Figure 1.2:Acute Food Insecurity(Panel A)And Chronic Food Security(Panel B)In Honduras(2022).23Figure 1.3:Food Price Inflation In Central America(2005-2022).24Figure 1.4:Food Pr
14、ice Inflation in Guatemala and Honduras(February 2023).25Figure 1.5:Trends In Fertilizer(Urea And DAP)And Energy(Natural Gas)Prices (January 2019 August 2022).27Figure 1.6:Urea And DAP Farmer Prices In The Dominican Republic,Guatemala,and Honduras(January 2019 August 2022).273Figure 1.7:Latin Americ
15、a And The Caribbean:Change In Net Fertilizer Trade,By Type Of Nutrient 2018-2022(Tons Per 1,000 Hectares Of Cultivated Land).28Figure 1.8:Local Food Prices In Tegucigalpa(2021,2022 And Most Recent Five-Year Averages By Month).28Figure 2.1:FAO Food Price Index,1961-2023(2014-16=100).33Figure 2.2:Elas
16、ticities of Price Return Transmissions.42Figure 2.3:Elasticities of Price Volatility Transmission.44Figure 2.4:Time-Varying Conditional Correlations For Rice In Nicaragua And Maize In Panama.46Figure 4.1:Support Estimates for Agriculture in Countries in Central America(US$Million).62Figure 4.2:GSSE
17、Expenditures in Central America and Combined GSSE Investments by Key International Financial Institutions.65Figure 4.3:GTA alerts for agricultural products and fertilizers in Central America,2008-2022 .67Figure 4.4:Type of“red and amber alert”interventions implemented in Central America,2008-2022 .6
18、8Figure 4.5:Count of NTMs on agriculture products and fertilizers in Central America,2008-2021 .68Figure 4.6:GTA red and amber alerts and NTMs.69Figure 5.1:Central America:Domestic Food CPI versus International Commodity Prices,2019-2023.77Figure A1.1:Evolution Of Domestic And International Prices B
19、y Commodity And By Country.112Figure A1.1:Evolution Of Domestic And International Prices By Commodity And By Country(Cont.).113Figure A1.1:Evolution Of Domestic And International Prices By Commodity And By Country(Cont.).114Figure A1.1:Evolution Of Domestic And International Prices By Commodity And
20、By Country(Cont.).115Figure A1.2:Evolution Of Domestic And International Price Returns By Commodity And By Country.116Figure A1.2:Evolution Of Domestic And International Price Returns By Commodity And By Country(Cont.).117Figure A1.2:Evolution Of Domestic And International Price Returns By Commodity
21、 And By Country(Cont.).118Figure A1.2:Evolution Of Domestic And International Price Returns By Commodity And By Country(Cont.).119Figure A1.3:Conditional Correlations Between International And Domestic Markets.120Figure A1.3:Conditional Correlations Between International And Domestic Markets(Cont.).
22、122Figure A1.3:Conditional Correlations Between International And Domestic Markets(Cont.).123Figure A1.4:Three-Month Elasticities of Price Return Transmissions.124Figure A1.5:Three-Month Elasticities of Price Volatility Transmissions.125Figure A2.1:Results Per Intervention Category As Classified By
23、IEG.128Figure A4.1:Changes In Reported Household Incomes,Mid-2021 Vs.Pre-Pandemic (Percent Of Households).140Figure A4.2:Agricultural Losses And Damages In Guatemala Due To Tropical Storms Eta And Iota.140Figure A6.1:Policy Actions Adopted Around The Globe To Address The 2007-08 Global Food Crisis.1
24、48Figure A6.2:Share Of Global Food And Feed Exports Affected By Restrictions In 2022 (Percentage By Product).1484LIST OF TABLESTable 1.1:Prevalence Of Food Insecurity In Central America(Percent Of Population).22Table 1.2:Overall Inflation Versus Food Price Inflation In Central America(January-June 2
25、022).25Table 3.1:Compensating Variation As A Percentage Of Household Expenditure After A 10 Percent Increase In International Food Prices.54Table 3.2:Simulated Impact On Fertilizer Use,Crop Production,And Rural Incomes Of A Given Percentage Increase In International Fertilizer Prices.55Table 4.1:OEC
26、D Indicators of Producer,Consumer and General Services Supports for Agriculture.60Table 4.2:General Support Services Estimates in Central America,2017.62Table 4.3:Assessment of the Effects of Policies Measures Implemented in Central America.69Table A1.1:Summary Statistics And Selected Normality,Auto
27、correlation And Stationary Tests.100Table A1.2:Selected Domestic And International Price Time Series And Sources of Data.101Table A1.2:Selected Domestic And International Price Time Series And Sources of Data(Cont.).103Table A1.3:Ranking Of Daily Calorie Contributions To Per Capita Diets By Country.
28、104Table A1.3:Ranking Of Daily Calorie Contributions To Per Capita Diets By Country(Cont.).105Table A1.4:Selected Model Results And Residuals Tests.106Table A1.4:Selected Model Results And Residuals Tests(Cont.).107Table A1.4:Selected Model Results And Residuals Tests(Cont.).108Table A1.4:Selected M
29、odel Results And Residuals Tests(Cont.).109Table A1.5:Net Food Imports As A Share Of Domestic Availability.111Table A2.1:OECD Producer And General Service Categories .133Table A3.1:Poverty Rates In Central America.137Table A5.1:Policy Measures Adopted In Central America Since 2008 .141LIST OF BOXESB
30、ox 1.1:Food Security And Food Crises.21Box 1.2:Food insecurity In Honduras.23Box 4.1:How restrictive has trade been in Central America during and between crises?.67Figure A6.3:Latin America And The Caribbean:Number Of Countries That Implemented Measures In Response To Rising Food Prices,By Subregion
31、(During February To May,2022).149Figure A6.4:Latin America and the Caribbean:Number of Countries that Implemented Measures in Response to Rising Fertilizer Prices,by Subregion(During February to May,2022).1505ACKNOWLEDGEMENTS This report was prepared by a World Bank team including Viviana Maria Euge
32、nia Perego(Task Team Leader,Senior Agriculture Economist,World Bank),Melissa Brown(Task Team Leader,Senior Agriculture Specialist,World Bank),McDonald Benjamin(Consultant,World Bank),Elena Mora(Agriculture Analyst,World Bank),and Luis Flores(Consultant,World Bank).Original analysis and inputs were p
33、rovided by a team of the International Food Policy Research Institute(IFPRI)including Francisco Ceballos,Manuel Hernandez,and Mara Luca Berrospi;as well as a team of the Food and Agriculture Organisation of the United Nations(FAO)including Luis Dias Pereira and Salomon Salcedo.The team is grateful f
34、or the guidance and support of Diego Arias(Practice Manager,World Bank)and David Trguer(Program Leader,World Bank).Leah Germer(Agriculture Specialist,World Bank),Jan Nijhoff(Senior Agriculture Economist,World Bank),and Alberto Portugal(Senior Economist,World Bank)kindly served as Peer Reviewers for
35、this report.The team acknowledges advice and brainstorming from Edward Bresnyan(Lead Agriculture Economist,World Bank),Hans Jansen(Senior Agriculture Economist,World Bank),Francisco Bueso(Senior Agriculture Specialist,World Bank),Eva Hasiner(Agriculture Economist,World Bank),Hira Channa(Agriculture
36、Economist,World Bank),Hector Pea(Consultant,World Bank),Emilio Urteaga(Consultant,World Bank),Joaqun Arias and Eugenio Daz-Bonilla(Inter-American Institute for Cooperation on Agriculture),Valeria Pieiro and Nicholas Minot(IFPRI),Ricardo Rapallo,Ivn Len,Rodrigo Castaeda,Adoniram Sanches,Maya Takagi,C
37、ristian Morales Opazo,Yerania Snchez(FAO),Dalila Cervantes-Godoy(Organisation for Economic Co-operation and Development),Carolina Trivelli(Instituto de Estudios Perunanos),Paolo de Salvo and Gustavo Rondinone(Inter-American Development Bank),ngel Murillo(Central American Bank for Economic Integratio
38、n),Edith Flores(Secretariat for Central American Economic Integration),Lucrecia Rodrguez Pealba(Secretariat of the Central American Agricultural Council),Manuel Gonzlez Tejera(Ministry of Agriculture,Dominican Republic).Domestic fertilizer data for Honduras were kindly shared by the Honduras Foundat
39、ion for Agricultural Research(FHIA)and the Information System for Markets of Agricultural Produce in Honduras(SIMPAH).The team recognizes with gratitude the support from the Inter-American Institute for Cooperation on Agriculture(IICA)in co-hosting a validation workshop of the preliminary results of
40、 this report at the IICA headquarters in San Jos,Costa Rica,in February 2024.The contributions made by participants in the workshop were essential to validate,refine,and finalize the contents of this report,and the team wishes to acknowledge all attendees for their active participation and insights.
41、The team expresses its gratitude for logistical and administrative support from Sofia Neiva(Team Assistant,World Bank),as well as Eugenia Salazar and Viviana Chacn(IICA).Graphic design services were provided by Jaime Sosa.6ACRONYMS AND ABBREVIATIONSADFAugmented Dickey-Fuller testAMISAgricultural Mar
42、ket Information SystemCAFTACentral America Free Trade AgreementBCIEBanco Centroamericano de Integracin Econmica(Central American Bank for Economic Integration)BSOBuffer stock operationCCClimate ChangeCEPAL/ECLACComisin Econmica para Amrica Latina y el Caribe(Economic Commission for Latin America and
43、 the Caribbean)CERCContingency Emergency Response ComponentCIATCentro Internacional para la Agricultural Tropical(International Center for Tropical Agriculture)CIDESCentro Internacional para el Desarrollo Sostenible(International Center for Sustainable Development)COPConference of the Parties(United
44、 Nations Climate Change Conference)COVID-19Coronavirus Pandemic 2019CPIConsumer Price IndexDAPDiammonium phosphateDCCDynamic Conditional Correlation modelDR-CAFTADominican Republic-Central America Free Trade AgreementENAHOEncuesta Nacional de Hogares(National Household Survey,of Costa Rica)ENCOVIEnc
45、uesta Nacional sobre Condiciones de Vida(National Survey of Living Conditions,in Guatemala)EHPMEncuesta de Hogares de Propsitos Mltiples(Multipurpose Household Survey,of El Salvador)ENHOGAREncuesta Nacional de Hogares de Propsitos Mltiples(National Multipurpose Household Survey,of the Dominican Repu
46、blic)EPHPMEncuesta Permanente de Hogares de Propsitos Mltiples(Multipurpose Permanent Household Survey,of Honduras)EUEuropean UnionFAOFood and Agriculture Organization of the United NationsFAOSTATFAO Food and Agriculture DatabaseFEWS NETFamine Early Warning Systems NetworkFIDA/IFADFondo Internaciona
47、l de Desarrollo Agrcola(International Fund for Agricultural Development)FPMAFood Price Monitoring and Analysis toolGAFSPGlobal Agriculture and Food Security ProgramGAPsGood Agricultural PracticesGDPGross Domestic ProductGHGGreenhouse Gases7GMOGenetically Modified OrganismGSSEGeneral Services Support
48、 EstimateGVGross ValueGWPGlobal Warming PotentialIBRDInternational Bank for Reconstruction and DevelopmentICOInternational Coffee OrganizationICTInformation and Communications TechnologyIDBInter-American Development BankIEImpact EvaluationIFPRIInternational Food Policy Research InstituteIICAInstitut
49、o Interamericano de Cooperacin para la Agricultura(Inter-American Institute for Cooperation on Agriculture)IPAInnovations for Poverty ActionISFPInitiative on Soaring Food PricesLACLatin America and the Caribbean RegionLBLyung-Box StatisticLMEngle ARCH Lagrange Multiplier StatisticMGARCHMultivariate
50、Generalized Auto-Regressive Conditional Heteroskedasticity ModelMSMEsMicro-,Small-and Medium-scale EnterprisesNDCNationally Determined ContributionNRMNatural Resources ManagementOECObservatory of Economic ComplexityOECDOrganisation for Economic Co-operation and DevelopmentOPS/PAHOOrganizacin Panamer
51、icana de la Salud(Pan American Health Organization)P4PPurchase for Progress Program(of the World Food Programme)PPPPublic-Private PartnershipPRONAFPrograma Nacional de Fortalecimento da Agricultura Familiar(National Program for the Strengthening of Family Farming,in Brazil)PROSAPPrograma de Servicio
52、s Agrcolas Provinciales(Provincial Agricultural Services Program,in Argentina)PSEProducer Support EstimateR&DResearch and DevelopmentROWRest of the WorldSAGSecretara de Agricultura(Ministry of Agriculture,of Honduras)SBICSchwarz Bayesian information criterionSDGsSustainable Development GoalsSESANSec
53、retariat of Food and Nutritional SecuritySFPSchool Feeding ProgramSIECASecretara de Integracin Econmica Centroamericana(Secretariat for Central American Economic Integration)SIMMAGROSistema Regional de Inteligencia y Monitoreo de Mercados Agrcolas(Regional System for Intelligence on and Monitoring o
54、f Agricultural Markets)8SIMPAHSistema de Informacin de Mercados de Productos Agrcolas de Honduras(Information System on Markets for Agricultural Products of Honduras)SIRSSSistema Informtica de Reconocimiento Mutuo de Registros Sanitarios(System for Mutual Recognition of Sanitary Records)SMSShort Mes
55、sage ServiceSPFSSpecial Programme for Food SecurityT-BEKKBivariate T-Student Baba,Engle,Kraft,and Kroner ModeltCO2eTons of Carbon Dioxide EquivalentUNUnited NationsUNCTADUnited Nations Conference on Trade and DevelopmentUNICEFUnited Nations Childrens FundUSAUnited States of AmericaUSAIDUnited States
56、 Agency for International DevelopmentUSDAUnited States Department of AgricultureVAMVulnerability Analysis and MappingVARVector Autoregressive ProcessVATValue-Added TaxVECVector-Error Correction processPMA/WFPPrograma Mundial de Alimentos(World Food Programme)WHOWorld Health Organization916.114.224.3
57、13.87.91.821.123.52216.2132.942.741.654.242.227.612.259.856.152.148.43916.200EXECUTIVE SUMMARY1.The region composed of Costa Rica,El Salvador,Guatemala,Honduras Nicaragua,Panama,and the Dominican Republic,(referred to as“Central America”in this report)is currently facing an emerging food
58、security crisis.Central America had long experienced chronic food insecurity,but in recent years food insecurity has increased sharply,with more than 40 percent of the population of El Salvador,Guatemala and Honduras(19.4 million people)classified as moderately or severe food insecure during the COV
59、ID-19 pandemic(2020-22)compared to the previous period 2014-16(see Figure ES.1).Between a quarter and a third of populations surveyed in mid-2021 in the seven countries analyzed in this study reported having run out of food in the previous 30 days,a large increase from the pre-pandemic situation.Fig
60、ure ES.1:People with moderate and severe food insecurity in Central American countries:2020-2022 compared to GuatemalaHondurasDominicanRepublicEl SalvadorLAC averageCosta RicaPrevalence of severe food insecurity 2014-2016Prevalence of severe food insecurity 2020-2022Prevalence of moderate
61、 and severe food insecurity 2014-2016 averagePrevalence of moderate and severe food insecurity 2020-2022 average2.This report explores the dynamics between domestic food security inCentral America and global price inflation.The report analyzes the extentto which international food and fertilizer pri
62、ces have been passed through toCentral American countries,their impacts in terms of household expenditureand income,and the effectiveness of governments domestic policy responsesin the face of high food prices.The report also explores the historic evolution ofagriculture and food public policies in
63、Central America during previous instancesof international food price hikes,so as to derive lessons for Central Americanpolicymakers on the adequacy of the policy ecosystem to prevent the emergenceof,and respond to,food security crises.3.This work is part of an effort to better understand the impact
64、of the recentfood price spikes on developing countries.The study draws on primary datafrom key informant interviews with actors in the agriculture sector;secondary data 10sources,including international databases and national databases and surveys;and policy trackers developed by regional and intern
65、ational organizations.This report is intended for a broad audience of policymakers,program managers,development professionals and academics in Central America and the broader development community.A.CONTEXT4.Countries in the Central America region that have long experienced chronic food insecurity e
66、xperienced significant increases in domestic food prices in 2022,when global food prices reached historic highs in real terms.Overall domestic price inflation was fairly high in Central American countries in 2022,but food price inflation substantially exceeded overall inflation,and in various countr
67、ies the gap between the two widened during the course of the year(see Figure ES.2).This mirrored major spikes in global food prices,which started to increase in 2020 and by 2022 reached their highest levels in sixty years(see Figure ES.3).The increase in food prices in Central America has also been
68、accompanied by a doubling of fertilizer prices since 2020(see Figure ES.4).Figure ES.2:Food price inflation vs.general inflation in Central America,January-June 2022 01020GuatemalaHondurasEl SalvadorNicaraguaPanamaCosta Rica%YoY inflationDominicanRepublicConsumer Price Index(CPI),All items Jan-22Con
69、sumer Price Index(CPI),All items Jun-22Food and non-alcoholic beverages CPI Jan-22Food and non-alcoholic beverages CPI Jun-22Source:IMF11Figure ES.3:Evolution of real global food prices ,00140,00120,00100,0080,0060,0040,0020,000,005773198519871
70、9895072009200023NominalRealBad weather,export bansWeather,export bans,low stocks,high oil prices,high demand for biofuels,speculation,groing incomes in emerging economies,exchange rate fluctuationsCOVID,Ukraine warNote:FAO Food Price Index,2014-
71、16=100.Source:FAO,https:/www.fao.org/worldfoodsituation/foodpricesin-dex/en/Figure ES.4:Global prices of fertilizers(Urea And DAP)and energy(Natural Gas),.00400.00350.00300.00250.00200.00150.00100.0050.000.001000.00800.00600.00400.00200.000.00DAP(S/mt)Urea(S/mt)Natural gas in dex(2010-1
72、00)2019M012019M022019M032019M042019M052019M062019M072019M082019M092019M102019M112019M122020M012020M022020M032020M042020M052020M062020M072020M082020M092020M102020M112020M122021M012021M022021M032021M042021M052021M062021M072021M082021M092021M102021M112021M122022M012022M022022M032022M042022M052022M06202
73、2M072022M08260.00250.63 247.50247.50247.50 247.50247.50263.50262.50237.50237.00224.50217.50215.40214.38231.12235.00235.00201.90202.00214.40249.50250.50250.00245.50245.4 0245.00265.00335.00352.88328.10331.63393.25441.54446.88418.75695.00900.50890.00846.38744.17872.50925.00707.50690.00601.00591.25Sour
74、ce:Own elaboration,based on data from World Bank(2022)5.Why are international prices important to food security?If international prices are transmitted to local markets,rising food and fertilizer prices can have an impact on food security by affecting consumers ability to purchase food and by affect
75、ing farmers production decisions(including whether,how,and what to produce),although they can also potentially increase net producers incomes.6.Why does volatility transmission matter for food security?Food price volatility has important implications for food security.First,a lack of stability in fo
76、od prices can have detrimental effects on consumers ability to meet their food needs,especially low-income households who spend a large share of their income on food.Second,food price volatility affects poor,small-scale farmers who rely on food sales for a significant part of their income and posses
77、s limited capacity to time their sales.Third,especially in the absence of efficient risk-sharing mechanisms,price volatility is likely to distort input allocation,inhibit 12agricultural investment,and reduce agricultural productivity growth,with long-run implications for farmers,the aggregate domest
78、ic food supply,and consumers.7.The high global food price inflation since 2020 was accompanied by broader volatility(i.e.,frequent and considerable fluctuations in food prices)around mean prices in international markets.Food price volatility has important implications for food security.First,a lack
79、of stability in food prices can have detrimental effects on consumers ability to meet their food needs,especially low-income households who spend a large share of their income on food.Second,food price volatility affects poor,small-scale farmers who rely on food sales for a significant part of their
80、 income and possess limited capacity to time their sales.Third,especially in the absence of efficient risk-sharing mechanisms,price volatility is likely to distort input allocation,inhibit agricultural investment,and reduce agricultural productivity growth,with long-run implications for farmers,the
81、aggregate domestic food supply,and consumers.B.ESTIMATING INTERNATIONAL PRICE PASS-THROUGHS TO CENTRAL AMERICAN MARKETS8.Econometric analysis was used to test the extent to which international food prices and volatility were transmitted to domestic markets in Central America.The analysis assessed ho
82、w increases in international prices and volatility translated into changes in domestic prices and volatility in Central America.The degree of transmission of international to local food prices varied significantly across countries and across crops,but overall it was found to be relatively low.The lo
83、west degrees of transmission of mean prices were found to occur in the case of maize,beans,wheat,and bananas,while moderate elasticities of price transmission were found for rice,coffee,and fertilizers.Honduras exhibited some of the highest levels of price transmission across most products(including
84、 fertilizers).For example,in the case of rice in Honduras,when the international price changed by 1 percent,the local price changed by 0.67 percent after one month.Guatemala and Nicaragua had more moderate transmission for rice(0.5 per cent and 0.3 per cent,respectively),and little to no transmissio
85、n was found in the cases of Costa Rica,the Dominican Republic,El Salvador,and Panama.9.The degree of volatility transmission from international to domestic markets was found to be considerably stronger than that for price levels.Domestic price fluctuations for maize,black beans,and bananas correlate
86、d strongly with international price fluctuations in several cases,despite their low degree of mean price transmission.Costa Rica,Honduras,and Panama were characterized by some of the highest degrees of volatility transmission,with El Salvador,Guatemala,and Nicaragua showing more mixed results,depend
87、ing on the commodity under consideration.In terms of the degree of co-movement between international and domestic food and fertilizer price variations over time,13the analysis found moderate changes in the extent of co-movement following the 2007-2008 food price crisis,the COVID-19 pandemic,and the
88、Russia-Ukraine war,depending on the market and commodity under consideration.10.The price elasticities estimated in this analysis could generally be regarded as low,and are in line with existing evidence for developing countries.In principle,an elasticity greater than one is generally considered rel
89、atively high,and values lower than one are deemed relatively low.The results in this analysis are thus indicative of moderate levels of international-to-domestic price transmission in Central America.These findings are consistent with similar studies for Central America,and in line with existing evi
90、dence for other developing countries globally.Price pass-through is typically stronger in countries with more modern and dynamic agrifood sectors.In the United States,for example,domestic producer prices for wheat and maize have been found more consistently associated with international prices.Withi
91、n Latin America,the degree of pass-through for maize and rice prices has been shown to be larger in Brazil,Chile,and Uruguay than in other countries in the region.C.THE WELFARE EFFECTS OF GLOBAL FOOD AND FERTILIZER PRICE INFLATION IN CENTRAL AMERICA11.To assess how international price shocks and vol
92、atility translate into welfare changes in Central America,the findings on the degree of pass-through from international to domestic food prices are used to extrapolate the likely impact of international food inflation on livelihoods and food and nutrition security.The overall impact on household wel
93、fare is estimated considering both income and substitution effects,and the balance between net food producers and consumers in the countries under study.The analysis also assesses how the ongoing fertilizer price crisis is affecting input access and incomes for farmers using granular fertilizers,add
94、ressing impacts in terms of costs increase and resulting production choices.12.Consistent with a moderate pass-through,international food and fertilizer price inflation was found to have modest but non-negligible welfare effects on producers and consumers in Central American countries,which however
95、do not match the magnitude of the crisis currently observed in the region.Simulation exercises were conducted to assess the impact of increases in international food prices on household welfare in Central American countries,as well as the impact of international fertilizer price increases on rural p
96、roducers in Costa Rica and Honduras.Simulations of a hypothetical increase of 10 percent in the international price of different food commodities revealed small yet non-negligible effects on both urban and rural household welfare that varied across commodities.An increase in international fertilizer
97、 prices was found to have non-negligible negative effects on rural incomes,especially in Honduras.For certain crops,such as rice in Guatemala,Honduras,and Nicaragua or beans in 14Costa Rica,the positive effect of a price increase on local households that are net sellers and/or have access to substit
98、ute food groups seems to more than compensate,on average,the negative effect on net food consumers stemming from an increase in its international price.The opposite appears to occur,although to a lower extent,with maize in Costa Rica,Guatemala,Honduras,and Nicaragua,where an increase in the internat
99、ional price is found to reduce household welfare.13.The results of the fertilizer analysis suggest that increases in international prices of fertilizers result in reduced rural incomes in Costa Rica and Honduras.Crop production was found to decline by 1 to 5 percent in Honduras and Costa Rica in res
100、ponse to simulated international fertilizer price increases in the range of 23 to 38 percent,resulting in depressed rural incomes by 0.2 to 1.8 percent.The differences between the two countries are explained by the larger price elasticity and the larger share of crop sales to total rural incomes in
101、Honduras,particularly among poorer rural households.14.It is important to note that the results of the simulation stem from using the highest observed month-to-month increase in international fertilizer prices,because of the focus of the analysis on short-term adjustments.However,compounded internat
102、ional fertilizer price increases have been significantly larger over longer time spans:in the case of urea,the international price increased by 125 percent in 2022,while for phosphorous and potassium fertilizers,prices increased by 67 percent and 100 percent,respectively.Thus,the impact on crop prod
103、uction and rural incomes of the recent inflation in international fertilizer prices is likely to have been substantially larger than the simulations presented in this analysis.D.WHAT POLICY RESPONSES HAVE ACCOMPANIED RECENT FOOD PRICES?15.The results on imperfect international to domestic price pass
104、-through suggest that the policy ecosystem in Central American countries may be dampening the local transmission of undistorted market signals,for better or worse.The most recent era of global food price spikes that began with the 2008 global crisis has elicited a range of policy responses in Centra
105、l American countries,typically an array of short-term measures.A common policy response has been to lower import tariffs on food and fertilizers,which served to dampen the pass-through effects from international to domestic food prices.Budgetary measures adopted by Central American countries in the
106、2008-11 period included the implementation or expansion of school feeding programs in El Salvador and Honduras,support for community seed banks in El Salvador,and reduced production taxes on grains in Honduras.Guatemala invested in policy responses 15to reduce longer-term risks,including by providin
107、g payments for soil recovery and fertility improvements,implementing a program to boost strategic food reserves,piloting increased agricultural insurance,and encouraging the participation of family farmers as suppliers in the national school feeding program.16.In response to the latest food and fert
108、ilizer price increases in 2022,Central American countries have adopted additional policy measures.For example,Costa Rica joined other Central American countries in reducing import tariffs(in this case for red beans).Guatemala introduced a temporary propane gas subsidy,as well as cash transfers to im
109、prove health and nutrition.El Salvador also introduced a price control on fuel in April 2022 that remains active,eliminated customs duties for food and fertilizers for one year(March 2022-March 2023),and increased minimum wages by 20 percent towards the end of 2021.Nicaragua introduced price control
110、s on fuel and liquified propane gas.Moreover,various countries implemented food and energy price controls,food and energy subsidies,reduced tariffs on fertilizers and fertilizer subsidies for farmers,as well as support for the use of(local)organic fertilizers and for more efficient use of inputs.17.
111、Overall,it appears that short-term measures have largely prevailed over strategic long-term policy interventions that could increase food production and resilience,thereby enhancing food security.On the whole,the policies enacted by Central American countries in this period have been in line with pr
112、actices applied in other contexts around the world,and in most cases have avoided the worst international practices,such as increased trade restrictions in response to food price spikes.Looking at the overall ecosystem of public support to agriculture,however,a number of potentially distortionary tr
113、ends can be identified in Central America as governments adopted a set of interventions with mixed expected effectiveness.The policies that are currently being enacted by Central American countries can be expected to produce positive food-security effects in the short term,but would benefit from a m
114、ore long-term vision.For example,despite their immediate benefits to producers,input subsidies(for example,for fuel)have proven to be inefficient and costly for governments with tight budgets.Furthermore,while trade barriers may have helped smooth price changes for producers when international price
115、s have fallen,in the long run they are likely to keep prices higher for domestic consumers and make national(protected)production systems non-competitive at international prices(Figure ES5).Based on global evidence and research,it can be argued that most of the measures that have been adopted in Cen
116、tral America have been sound in terms of their short-term potential to impact positively on food security.However,there is no evidence on how lasting the effects of these policies could have been,nor on whether they have increased countries resilience to future crises.16Figure ES.5:Tariff and Non-ta
117、riff trade barriersType of red/amber alerts implemented since 2008 byCentral American countries 75101520-20-20192020-2022Import tarifImport tarif quotaAnti-dumpingImport banSafeguardPrice stabilisationExport banTax or social insurance reliefNumber
118、of GTA alerts for agriculture productsand fertilizers in Central America 024688200920000022GreenRed/Amber007020082009200001920202021Quantity of Non-tarif barriers applied by GTM,NIC,HON,SLVGuatemalaHon
119、durasNicaraguaEl SalvadorSource:Own elaboration,based on data from Global Trade Alert Database and UNCTAD,TRAINS NTMs database(2024).E.CONCLUSIONS AND RECOMMENDATIONS18.This report concludes that there has been little transmission of international to domestic food prices in the Central America regio
120、n,although there has been greater transmission of international price volatility to domestic markets.Possible factors which may be responsible for the low extent of price pass-through include domestic market structures and policy ecosystems,which future research should address rigorously.Consistent
121、with low levels of pass-through of mean international price movements,the welfare losses produced by the current spikes in international food prices only account for a fraction of the food security crisis currently experienced in Central America.Domestic considerations,which may include climate-chan
122、ge-induced disruptions and natural disasters,high cost of inputs(like petroleum)which drive up agrologistics costs and underinvestment in modern technologies,and the toll of widespread violence and fragility,among others,are factors that can explain the recent situation in Central American domestic
123、markets.19.Central American countries are left with the imperative to improve the efficiency of their domestic markets,while at the same time introducing countercyclical and non-distortive public policies and programs for both food consumers and producers.Options for strengthening policy responses i
124、n efficient ways that can also prevent and mitigate future food crisis include measures involving consumer support,producer support and general services support.These measures include:17Consumer support Re-assessing trade measures,including options to lower import tariffs,which can be an effective t
125、ool to decrease price distortions and reduce consumer prices.Retaining expanded safety nets,which proved to be valuable instruments to ensure food access during the 2008,2011,and ongoing food crises.Producer support Reviewing direct transfers to producers via the national budget through input distri
126、bution interventions or measures with similar objectives,such as conditional cash transfers and vouchers tied to technology adoption with the aim of moving beyond short-term goals to also achieve broader medium to long term welfare impacts and larger positive externalities.Promoting family farmers a
127、ccess to markets,finance,and services(for example via the productive alliances approach)can increase incomes and resilience for producers.General Services Support Improving the information,research and development systems that enable the sector to innovate and build competitiveness,and to identify a
128、nd address effectiveness of policies.Comprehensive long-term investment in infrastructure,services strategy in order to generate increased productivity,higher incomes for farmers,and enhanced climate resilience.20.Looking ahead and beyond the current food crisis,redirecting public support towards th
129、e provision of public goods and services will contribute to constructing a solid basis to attenuate the severity of impacts of future crises,or to reduce their likelihood of occurring.Moreover,while trade and recurrent expenditure measures(subsidies)have been favored in the course of the recent cris
130、es,it is essential to direct more resources to public investment in areas that can increase agricultural productivity and resilience,reduce food losses,and improve domestic markets.These investments could,for example,include improved water resources management,soil improvement,feeder roads,(cold)sto
131、rage and warehousing facilities,as well as improved ports handling.Such investments can serve to mitigate not only against acute risks arising from shocks in international markets,but also the more chronic risks associated with climate change.21.Beyond national boundaries,coordinating and promoting
132、a regional agenda for food security can also play a major role in strengthening agricultural production and resilience,as well as food security in Central America.The Central American Integration System(SICA)offers a valuable potential platform for coordinating regional policy initiatives and mainta
133、ining 18consistent,best practice approaches,and achieving synergies across the various countries initiatives,notably in areas involving general services support.Moreover,regional data coordination via SICA would allow for the improved collection of agrometeorological,climate,production,prices,and fo
134、od security data to enable both policymakers and producers to improve planning and risk management.22.Finally,intra-and inter-regional collaboration can be strengthened in order to increase transparency and efficiency in food and fertilizer trade.In particular,it will be important to continue to sys
135、tems such as the Agricultural Market Information System(AMIS)to assess global food supplies and coordinate policy action in times of market uncertainty,while alternative mechanisms for financing imports,such as import facilities,can be set up for highly indebted countries.1 1 See ECLAC,FAO and WFP(2
136、022).19INTRODUCTION1?G?Z?l?Z?e?v?y?M?k?l?b?g?h?Z?6?W?R?F?N?$?G?R?E?H20I INTRODUCTIONA.AN EMERGING FOOD SECURITY CRISIS IN CENTRAL AMERICA1.1 The region composed by Costa Rica,El Salvador,Guatemala,Honduras Nicaragua,Panama,and the Dominican Republic,(referred to as“Central America”in this report)is
137、currently facing an emerging food security crisis(Box 1.1).While Central America had long experienced chronic food insecurity,with more than 40 percent of the population of El Salvador,Guatemala and Honduras classifying as moderately or severely food insecure prior to the COVID-19 pandemic,in recent
138、 years all countries in the region,with the exception of the Dominican Republic,2 have experienced a further worsening of food security indicators(Table 1.1).An estimated 10.6 million Guatemalans(59.8 percent of the population)are food insecure,up from 6.9 million(43 percent of the population)during
139、 2014-16.3 The prevalence of severe food insecurity in Guatemala has also increased in the country,from 16.1 percent of the population in the period 2014-2016(2.6 million people),to 21.1 percent(3.7 million people)in the period 2020-2022.4 In Honduras,56.1 percent of the population faced moderate or
140、 severe food insecurity in the period 2020-2022,compared to 50 percent of the population in the period 2019-2021 and 42 percent of the population in the period 2014-2016.The worsening food insecurity is aggravating the nutritional health of the Honduran population:in 2021,44.8 percent of Hondurans(a
141、round 4.6 million people)were unable to afford a healthy diet,5 while chronic child malnutrition rates were around 29 percent in rural areas and 14.6 percent in urban areas,and reached as much as 58 percent of the population in the Dry Corridor(Box 1.2).6 In El Salvador,heavy rains in 2022 depressed
142、 grains production,leading to low grains stocks and continued upward pressure on prices until the harvests at the end of August 2023.At the same time,populations in El Salvadors Dry Corridor are experiencing lPC Phase 3(Crisis)levels of food insecurity.More broadly,one-quarter to one-third of the po
143、pulations surveyed in mid-2021 in the seven countries analyzed in this study reported running out of food in the previous 30 days,up sharply from pre-pandemic situations(Figure 1.1).The Famine Early Warning Systems Network(FEWSNET)reported that Guatemala,Honduras,Nicaragua,and El Salvador would requ
144、ire external food assistance in August 2023.72 The decline in food insecurity in the Dominican Republic has been attributed to enhanced food production and availability.It is important to notice,however,that 52.1 percent of the population still experienced moderate or severe food insecurity from 202
145、0 to 2022,which calls for continued efforts to ensure adequate food access for more than half of the population(https:/presidencia.gob.do/noticias/fao-afirma-republica-dominicana-logra-bajar-el-indice-de-hambre-de-83-67).3 See FAO(2022b),and World Bank(2023d).4 The levels of mild,moderate,and severe
146、 food insecurity more than doubled in rural areas across the western region of the country,which have large indigenous populations(see Ceballos,Hernandez and Paz,2021;Ceballos,Hernandez and Paz,2022).Indeed Guatemala has the highest rate of malnutrition among children under five in LAC:nearly 50 per
147、cent,according to the World Food Program.For indigenous children the malnutrition rate is even higher:close to 70 percent.During the first half of 2022,Guatemala registered 16 children under the age of five who had died due to lack of food,while another 11,437 were reported as suffering from acute m
148、alnutrition,according to statistics from the Secretariat of Food and Nutritional Security,SESAN(https:/.gt/cultura/salud/2022/07/21/guatemala-desatiende-problemas-de-crecimiento-por-desnutricion/).5 See FAO,IFAD,UNICEF,WFP and WHO(2023).6 See Global Nutrition Report(2023).7 See FEWSNET(2023).21Box 1
149、.1:Food Security And Food CrisesThe United Nations Committee on World Food Security(CFS)defines food security as follows:8“Food security exists when all people,at all times,have physical,social,and economic access to sufficient,safe,and nutritious food that meets their food preferences and dietary n
150、eeds for an active and healthy life.”9This standard definition divides food security into four further components:availability;access;utilization;and stability of the food supply:Availability refers to the physical presence of food that could be acquired by a population,either through production or
151、by importation,but does not imply that the population in fact has access to it.Access refers to having the means to obtain that food,whether by purchase,or granted by an institution such as a school-feeding program or food stamps,or by local production for sale,barter,or direct consumption.Utilizati
152、on represents the extent to which a household or individual receiving the food can extract nutritional benefit from it to lead healthy lives.The obstacles to physiological utilization include low nutritional quality of the food,food safety issues such as spoilage and biological or chemical contamina
153、tion,potable water quality,and compromised health,which can limit the full absorption of the foods caloric,vitamin,and mineral content.Stability of the food supply refers to the absence of discontinuities and disruptions in the supply chain occasioned by such things as pandemics,military hostilities
154、,natural disasters,embargos,port strikes,terrorist attacks,shipping interruptions,or shortages elsewhere in the world caused by economic upheavals such as those triggered by warfare or cataclysmic weather events.More recently,the concept of food security has been expanded to include the notion of nu
155、trition security.The World Bank defines nutrition security as“the ongoing access to the basic elements of good nutrition,i.e.,a balanced diet,safe environment,clean water,and adequate health care(preventive and curative)for all people,and the knowledge needed to care for and ensure a healthy and act
156、ive life for all household members”10.Situations of food insecurity can arise that can be chronic or acute,or both.Chronic food insecurity arises when there is persistent food insecurity in a given area,even in absence of exceptional circumstances,in terms of a persistent shortfall in the quantity(i
157、.e.energy/caloric intake)and quality(i.e.micro-nutrients)relative to a minimum daily intake required for the population to lead a health life.This shortfall can arise because of a chronic lack of available food supplies(whether produced domestically or imported)in a given country of an adequate qual
158、ity,or where there is an inability for a large share of the population to access such food supplies or to process such foods nutritionally(inadequate utilization).Acute food insecurity arises when exceptional circumstances prompt a reduction in food availability,access,utilization or stability(e.g.,
159、due to armed conflict,natural disasters,or sudden sharp increases in global food prices),resulting in an acute spike in food insecurity as populations cannot access or afford the minimum quantity and quality of daily intake required for a healthy life.8 See Annex 3 for the relationship between food
160、security and the Sustainable Development Goals(SDGs).9 This consensus definition emerged from the 1996 World Food Summit.See FAO(2006).10 This definition was included in the report Improving Nutrition Through Multisectoral Approaches.See World Bank(2013).22Table 1.1:Prevalence Of Food Insecurity In
161、Central America(Percent Of Population)Prevalence of severe food insecurityPrevalence of moderate and severe food insecurity2014-2016 average2020-2022 average2014-2016 average2020-2022 averageCosta Rica1.82.912.216.2Dominican Republic24.322.054.252.1El Salvador13.816.242.248.4Guatemala16.121.142.759.
162、8Honduras14.223.541.656.1NicaraguaN/AN/AN/AN/APanamaN/AN/AN/AN/ALAC average 7.913.027.639.0Source:FAO,IFAD,UNICEF,WFP and WHO(2023)Figure 1.1:Households Reporting Running Out Of Food In The Last 30 Days(2021)El Salvador454035302520151050GuatemalaCosta RicaMid 2021End 2021Pre-pandemic(feb 2020)Nicara
163、guaPanamaLACHondurasDominican Republic24.020.527.920.523.021.126.522.127.024.732.430.134.834.834.038.618.8Source:World Bank and UNDP(2021)1.2 Food insecurity has also affected the relatively wealthier countries in Central America.In Costa Rica,one in six persons(around 800,000 people)faced moderate
164、or severe food insecurity during 2019-21.According to an IPC analysis,15 percent of the Dominican population faced emergency(Phase 3-14 percent)or crisis(Phase 4-1 percent)levels of food insecurity during the period October 2022-February 2023,while another 34 percent of the population faced Phase 2(
165、Stressed)conditions.11 In the case of Panama,according to IDB data,substantial progress was made in reducing undernourishment of the population over the period 2002-19,however child malnutrition has remained high,at 15.8 percent,above the LAC average of 11.8 percent,and indeed is reported as the fou
166、rth highest percentage in the region.1211 See IPC(2023).12 See Deza and Ruiz-Arranz(2022).23Box 1.2:Food insecurity In HondurasAn analysis of food insecurity in 2022 in Honduras revealed a high prevalence of both chronic and acute food insecurity in the country.Chronic food insecurity at Levels 3 an
167、d 4 affected more than 1 million Hondurans in 2022,especially in the Dry Corridor.13 An additional 1.6 million Hondurans faced Level 2(Stressed)food insecurity conditions(see Panel B of Figure 1.2).However,the global food crisis resulted in critical acute food insecurity,with almost 2 million Hondur
168、ans facing Phase 3(Crisis)food insecurity and an additional 310,000 Hondurans facing Phase 4(Emergency)food insecurity.14 Moreover,3.3 million Hondurans were facing Phase 2(Stressed)food insecurity conditions(see IPC(2023b),and Panel A of Figure 1.2).B.THE PRICE INCREASES BEHIND THE CRISIS1.3 Among
169、other factors,such as compounded climate-related events and natural disasters and the COVID-19 impacts that affected agricultural supply chains and food trade,15 the current emerging food security crisis in Central America has been attributed to sustained international food price inflation.Beginning
170、 in 2020,global food prices began to rise sharply,and by 2022 real global food prices had reached the highest levels on record in more than 60 years(3.2 percentage points higher in real terms than the previous record reached in 1974).Food supply chains around the world were disrupted significantly a
171、s a result of the COVID-19 pandemic.This was followed by the Russian invasion of Ukraine in February 2022,which contributed further to the most recent spikes in global food prices.In particular,the Ukraine war disrupted the grains,oilseeds,and vegetable oil exports of two of the worlds leading agric
172、ultural exporters,namely Ukraine and the Russian Federation.13 See IPC(2023c).14 See IPC(2023b).15 See Annex 2 for a summary of the effect of climate-induced hazards on recent food insecurity in the region.Figure 1.2:Acute Food Insecurity(Panel A)And Chronic Food Security(Panel B)In Honduras(2022)Ph
173、ase 1#%4,133,97942%Phase 2#%3,310,24334%Phase 4#%310,7073%Phase 5#%00%Phase 3#%1,990,21920%Total#(pp)9,745,149Total#(pp)Level 1Level 2Level 3Level 44,601,030#%#%#%#%1,930,34042%1,621,94135%804,84417%266,3376%Sources:IPC(2023b)and IPC(2023c)241.4 The sharp increases in global food prices have been fe
174、lt in the Latin America and Caribbean(LAC)region in general and in Central America in particular(Figure 1.3).In September 2022,the 12-month average increase in the food price index for LAC reached 11.7 percent,compared to 7.1 percent for headline inflation.16 In February 2023,the price of white maiz
175、e rose for the third consecutive month in Guatemala and Nicaragua,and for the second consecutive month in El Salvador and Honduras,to levels in all four countries that were at least 20 percent above their levels one year earlier.In February 2023,the year-on-year price difference was largest(45 perce
176、nt)in El Salvador.17Figure 1.3:Food Price Inflation In Central America(2005-2022)-505005200620072008200920000022Costa RicaDominican RepublicEl SalvadorGuatemalaHondurasNicaraguaPanamaSource:Own elaboration,based on data from FAOs FAOSTAT databas
177、e1.5 Overall domestic price inflation was fairly high in Central American countries in 2022,but food price inflation18 substantially exceeded overall inflation,19 and in various countries the gap between the two widened during the course of the year(Table 1.2).For example,in January 2022,El Salvador
178、 registered an overall inflation of 6.5 percent and a food inflation of 7.8 percent year on year.By June 2022,El Salvador registered an overall inflation rate of 8.9 percent and a food inflation index of 14.4 percent year on year.20 Similarly,in the Dominican Republic,food price inflation of 9.5 per
179、cent in January 2022 exceeded overall consumer price inflation of 8.7 percent by 0.8 percentage points,but by June 2022 the gap between food price inflation and overall consumer price inflation had widened to 3.7 percentage points,with food price inflation at 13 percent.In mid-June 2022,Honduras mai
180、ze was added to FAOs update of food price warnings,as the price of white maize continued to rise and was nearly 80 percent higher year-on-year.21 16 See ECLAC,FAO and WFP(2022).17 See FAO(2023).18 IMF data.Measured as year-on-year change in the food and non-alcoholic beverage component of a countrys
181、 Consumer Price Index(CPI).19 IMF data.Measured as year-on-year change in the overall CPI.20 IMF data.Accessed September 11,2022.21 https:/www.fao.org/giews/food-prices/pricew-arnings/en/?page=1&ipp=10&no_cache=1&tx_dynalist_pi1%5bpar%5d=YToxOntzOjE6IkwiO3M6MToiMCI7fQ=25Table 1.2:Overall Inflation V
182、ersus Food Price Inflation In Central America(January-June 2022)Consumer Price Index,All itemsFood and non-alcoholic beverages CPIJanuary 2022 June 2022 January 2022 June 2022 Costa Rica3.510.6-Dominican Republic8.79.59.313.0El Salvador6.57.88.914.4Guatemala2.97.53.110.6Honduras6.210.27.514.7Nicarag
183、ua7.710.410.315.5Panama2.65.22.14.2Source:IMF data,available at.imf.org/en/Data1.6 The food price inflation has continued into 2023 and indeed worsened relative to 2022 in various countries in Central America(Figure 1.4).For example,in Costa Rica,food price inflation reached 14.5 percent in February
184、 2023,compared to an overall inflation rate of 5.5 percent.Similarly,by February 2023,food price inflation in Guatemala had surged to 15.4 percent,compared to 10.6 percent in June 2022,and to headline inflation in February 2023 of 10 percent.In Honduras,food price inflation had surged to 17 percent
185、as of February 2023,compared to 14.7 percent in June 2022,and to headline inflation in February 2023 of 10 percent.Figure 1.4:Food Price Inflation in Guatemala and Honduras(February 2023)Target BandHousing&UtilitiesCore0TransportationHeadlineFoodGuatemala Annual Inflation,by category,Febr
186、uary 2023Target BandHousing&UtilitiesCore0TransportationHeadlineFoodHonduras Annual Inflation,by category,February 2023Source:National Sources/Haver Analytics 1.7 These escalating food prices exacerbate food and nutrition insecurity in the region,particularly amongst the most vulnerable p
187、opulations.Surges in food price inflation have affected the most vulnerable households disproportionally,because they spend a larger share of their incomes on food.For example,in Honduras,moderately and extremely poor households spend 36.1 and 44.5 percent of their income on food,respectively22.Rece
188、nt evidence on low and middle income countries 23 also highlights the severe impacts of food prices on child malnutrition and dietary quality,especially in rural,asset-poor households,and those lacking access to farmland.22 See World Bank(2023d).23 See Headey,D.,&Ruel,M.(2023).The study,examining sp
189、anning 44 low-and middle-income countries,reveals that a 5 percent increase in the real price of food significantly increases the risk of wasting by 9 percent and severe wasting by 14 percent among children under five.The heightened risk of wasting,suggesting prenatal harm from declining maternal nu
190、trition,is especially prevalent among younger children,particularly those from rural,asset-poor households,and those lacking access to farmland.The study also finds that a 5 percent real food price increase in the past 12 months predicts a 3 percent decrease in the likelihood of having an adequately
191、 diverse diet as consumption shifts to cheaper,starchy staples.261.8 The increase in food prices in Central America has been accompanied by a doubling of fertilizer prices since 2020,which has held back a production response to higher food prices.Fertilizer prices have been on the increase since lat
192、e 2020,as a consequence of logistics issues due to COVID-19-induced disruptions to global supply chains,high prices of energy and natural gas,and the occurrence of several tropical storms destroying natural gas factories in the Gulf of Mexico.With 67 percent of the global fertilizer output being nit
193、rogen fertilizers,24 and as the key raw material inputs for nitrogen-based fertilizer production are air and natural gas(respectively a source of nitrogen and energy),fertilizer prices are strongly linked to this latter energy input:for instance,natural gas represents 86 percent of the production co
194、st of ammonia and 81 percent of the production cost of urea at the manufacturing plant.Since September 2021,as the earliest signs of COVID-19 recovery led to higher inflation,higher fuel prices,and higher natural gas prices,countries in LAC have experienced price increases of up to 300 percent in ur
195、ea and up to 200 percent in other popular fertilizer formulas such as diammonium phosphate(DAP),ammonium nitrate and potassium chloride compared to prices in 2019 and 2020(Figure 1.5).Countries that introduced outright bans on(or imposed additional licensing processes for)exports of fertilizers also
196、 accentuated the increase in global fertilizer prices.Indeed,the International Food Policy Research Institute(IFPRI)estimates that such export restrictions affected approximately 20 percent of global fertilizer trade25.1.9 The Russia-Ukraine conflict is putting further pressure on the international
197、price of fertilizers and fuel.Russia and Belarus are respectively the largest and fourth-largest exporters of fertilizer worldwide,and most Central American countries are net fertilizer importers mostly from Russia,Belarus,and Ukraine.Starting in February 2022,the Russia-Ukraine conflict triggered a
198、 more aggressive hike in prices from one week to another.Moreover,sanctions imposed on the Russian Federation have affected oil,gas and fertilizer trade and prices,resulting in higher agricultural input prices and transportation costs.26 In the case of urea,the price increased by 125 percent in one
199、year,while for phosphorous and potassium fertilizers,the price increased by 67 percent and 100 percent,respectively.27 The international price of oil has followed a similar same trend:in one year,the price of a barrel of West Texas Intermediate oil has increased by 64.5 percent.28 24 Source:FAOStat,
200、Global production 2019-2020.25 See World Bank(2023b).26 In 2021,the Russian Federation was the worlds largest exporter of nitrogen fertilizers,the second-largest supplier of potassium and the third-largest exporter of phosphate fertilizers.Although fertilizers,as well as food,have been excluded from
201、 the sanctions imposed on the Russian Federation by the international community,logistical and financial restrictions operate as barriers to trade in these inputs,driving up prices.Added to this are the high prices of natural gas,a fundamental input in the production of nitrogen fertilizers.See ECLA
202、C,FAO and WFP(2022).27 https:/ https:/ 27Figure 1.5:Trends In Fertilizer(Urea And DAP)And Energy(Natural Gas)Prices (January 2019 August 2022)260250.63247.5247.5247.5247.5263.5262.5237.75237224.5217.5215.4214.38231.13235201.9202214.4249.5250.5245245245265335352.88328.1331.63393.25441.5446.88418.7569
203、5900.5890846.38744.17872.5925707.5690601591.250500300350400020040060080010001200DAP($/mt)Urea ($/mt)Natural gas index(2010=100)Source:Own elaboration,using data from World Bank(2022)1.10 Increases in fertilizer prices are affecting the affordability and availability of food in Central Ame
204、rica.The inflation in global fertilizer markets has been mirrored by sustained increases in local fertilizer prices(Figure 1.6).Moreover,increased production costs were exacerbated by higher transportation costs.29 Based on interviews conducted at the local level,the cost of granular fertilizers as
205、a share of total production cost per hectare has increased between 45 and 66 percent for basic food staples in the region.These increases are much higher for farms far away from the central warehouses of fertilizer distribution companies.National agriculture research and innovation centers estimate
206、that resource-constrained farmers may apply only 50 percent of the recommended amounts or only apply the recommended doses at planting.In Honduras,one out of five farmers stated they were reducing the planting area for maize,beans,sorghum or rice in 2022.30 Most of the Central American countries ana
207、lyzed in this report experienced a decline in the use of chemical fertilizers(relative to their cultivated areas)higher than the median reduction for the LAC region,with the largest declines occurring in Guatemala and Costa Rica(Figure 1.7).The combination of higher production costs and reduced plan
208、ting areas is resulting in a reduction in food available to subsistence producers,as well as in increased food prices in local markets(Figure 1.8).Figure 1.6:Urea And DAP Farmer Prices In The Dominican Republic,Guatemala,and Honduras(January 2019 August 2022)020040060080001600Urea Price D
209、R($/mt)Urea Price Gua($/mt)Urea Price Hon($/mt)020040060080001600DAP Price DR($/mt)DAP Price Gua($/mt)DAP Price Hon($/mt)UreaDAPSource:Own elaboration,using data from fertilizer retailers in target countries29 See FAO(2023)and World Bank(2023d).30 See Unidad Tcnica de Seguridad Alimentari
210、a y Nutricional(2022).28Figure 1.7:Latin America And The Caribbean:Change In Net Fertilizer Trade,By Type Of Nutrient 2018-2022(Tons Per 1,000 Hectares Of Cultivated Land)6004002000Potassium fertilizers-200-400-600-800ChileBolivia(Plur.State of)Venezuela(Bol.Rep.of)Saint Kitts and NevisAntigua and B
211、arbudaCubaMexicoArgentinaGuyanaPanamaBarbadosNicaraguaJamaicaDominican Rep.El SalvadorParaguaySurnameColombiaUruguayHondurasPeruSaint LuciaBahamasBrazilDominicaGuatemalaEcuadorBelizeCosta RicaNitrogenous fertilizersPhosphate fertilizersSource:ECLAC,based on the FAOSTAT data baseFigure 1.8:Local Food
212、 Prices In Tegucigalpa(2021,2022 And Most Recent Five-Year Averages By Month)White maizeRed beansHNL/5 pounds454035302520151050AugSepOctNovDecJanFebMarAprMayJunJul5-year avgHNL/5 poundsAugSepOctNovDecJanFebMarAprMayJunJul50403020Source:FEWS NET Honduras Price Bulletin,Aug.2022.
213、C.SCOPE AND STRUCTURE OF THE REPORT 1.11 This report takes a critical look at past international food price crises to unveil the complex dynamics of the current food security crisis in Central America.The narrative presented so far depicts a clear link between international to domestic markets,where
214、by major events occurring on the global arena reverberate onto the local scene,with direct consequences for domestic food security.However,the degree to which Central American markets of food products are integrated into international ones is still a subject of debate.In fact,a previous World Bank s
215、tudy31 examined the pass-through of international to domestic prices of key agriculture commodities in Honduras and Nicaragua from 2000 to 2009,and concluded that the degree of price transmission in those two countries in that period had been limited at best.Clearly,policy recommendations on how to
216、respond to a situation of mounting inflation vary substantially depending on whether international and domestic markets co-move,or whether instead the home market is insulated from international market signals and domestic food price movements depend more on domestic factors.If the former is true,th
217、en efforts to reduce price spikes and volatility can potentially rely more on concerted 31 See Arias and De Franco,2011.29regional and international actions(e.g.through the World Trade Organization and/or other multilateral bodies),while on the domestic side strengthened safety nets can shield consu
218、mers while farmers can receive undistorted market signals and take advantage of higher international prices.Alternatively,if food price spikes and volatility are mostly attributed to domestic factors,then the most effective policy remedies would likely include domestic policy actions to stabilize or
219、 expand food production,reduce food storage and transport costs,and improve market efficiency and competition vis-vis existing distortions.The report thus analyzes the historic co-evolution of international and domestic food and fertilizer prices in Central American countries,to assess the expected
220、impact of changes in the international price of given food and fertilizer products on rural livelihoods and food and nutrition security in the region.The analysis also simulates the expected welfare impacts of the current international food and fertilizer inflation,to benchmark it against the real-l
221、ife crisis observed in Central American countries.1.12 To complement the retrospective analysis on the transmission from international to domestic prices,the report also explores the historic evolution of agriculture and food public policies in Central America.The study takes a historical look at th
222、e policies that were deployed in Central America in support of agriculture and during previous instances of international food price hikes,to derive lessons on the adequacy of the policy ecosystem to respond to and prevent the emergence of food security crises.The exercise looks at the broad categor
223、ies of public support to agriculture(producer support,consumer support,general support services)in Central America,and assesses policies that were enacted during recent international food price increases(2007/8,2011/12,and during the 2020/21 COVID-19 pandemic)as well as the current one.The analysis
224、documents both successful experiences and those that had a more limited impact,with an eye to highlighting resilient approaches focusing on productive inclusion,climate-smart agriculture,and nutrition-smart agriculture,as well as the expansion of the support provided to public goods and services.1.1
225、3 This report is intended to reach a broad audience of policy makers,program administrators,development professionals,and academics in Central America and in the broader development community.The contents of this report are based on information derived from a wide range of primary,secondary,and priv
226、ate data sources.These include:primary data from key informant interviews,including with smallholders,farmer organizations,agro-input stores,women-led farming businesses,fertilizer and agribusiness companies,logistics service providers,government agencies,and development partners;secondary data sour
227、ces,including the FAOStat database of the Food and Agriculture Organization of the United Nations(FAO),the World Banks“Pink Sheet”on commodity prices,global trade databases(e.g.,the United Nations COMTRADE database,and Panjiva Inc.s database of commercial import and export shipments),national databa
228、ses,such as Honduras Information System on Markets for Agricultural Products(SIMPAH),national surveys(e.g.,Guatemalas National Survey of Living Conditions(ENCOVI),Honduras Multipurpose Permanent Household Survey(EPHPM),El Salvadors Multipurpose Household Survey(EHPM),and the Dominican Republics Nati
229、onal Multipurpose Household Survey(ENHOGAR),among others;private sources,such as information from major fertilizer companies and retailers.In order to track policy measures,the report relied on key policy trackers,including the Inter-American Institute for Cooperation on Agricultures(IICAs)Observato
230、ry of Public Policies for Agrifood 30Systems,as well as ad hoc reviews prepared by FAO,the World Bank,the International Food Policy Research Institute(IFPRI),and the International Monetary Fund(IMF).321.14 In addition to this introductory chapter,the report is organized as follows.Chapter II uses ti
231、me-series techniques to analyze the extent to which global increases and volatility of food and fertilizer prices have historically been transmitted from international to local markets in Central America.Chapter III estimates theimpact of the current global food and fertilizer inflationon livelihood
232、s and food and nutrition security in Central America region,based on the findings on the degree of pass-through from international to domestic food prices.Chapter IV reports on the nature and effectiveness of responses to past food crises by Central American governments,and comments on the expected
233、soundness of policies and programs that are currently being enacted in the region.Finally,Chapter V concludes and proposes a set of broad policy recommendations,that can be considered and potentially operationalized at the level of individual countries.32 See FAO,IFAD,PAHO,UNICEF and WFP(2023);IICA(
234、2022);IFPRI(2023),IMF(2022),and World Bank(2023).31ARE INTERNATIONAL FOOD PRICE INCREASES AND VOLATILITY TRANSMITTED TO DOMESTIC MARKETS IN CENTRAL AMERICA?2Paul-Stock Adobe32II ARE INTERNATIONAL FOOD PRICE INCREASES AND VOLATILITY TRANSMITTED TO DOMESTIC MARKETS IN CENTRAL AMERICA?A.A RECAP OF RECE
235、NT FOOD PRICE TRENDS 2.1 This chapter examines the degree of transmission(pass-through)of average prices and of price volatility from international to domestic food and fertilizer markets in the Central America region.It uses an econometric analysis to assess the degree of price transmission especia
236、lly in the short run,focusing on the domestic price response after one period(one month)to a shock(the impulse)in the international price.The analysis aims to identify the elasticity of average price transmissions from international to domestic markets,and the elasticity of price volatility transmis
237、sions from international to domestic markets,so as to assess how increases in international prices and volatility,respectively,translate into changes in domestic prices and volatility.The chapter also calculates conditional correlations(co-movements)over time between international and domestic price
238、 variations,so as to assess whether the observed trends may be linked to specific international and/or domestic events,shocks,and/or policies in place.As the analysis uses historical data spanning over the last two decades,this chapter starts with a quick overview of the major events that shaped the
239、 evolution of international prices of food in the same period.2.2 Following a general downward trend since the mid-1970s,global food prices started increasing in real terms in 2001,with three major peaks in 2008,2011,and 2022.International food prices had been declining in real terms for more than 2
240、5 years from 1974 to 2001,but began to increase slowly after 2001(Figure 2.1).In 2006,the global Food Price Index measured by FAO rose by 7 percent,and in 2007 it surged by 27 percent,with a further sharp acceleration in the first half of 2008 to reach the highest levels in three decades.Overall,bet
241、ween January 2006 and April 2008,international prices for rice soared 257 percent,while prices for yellow corn spiked 140 percent,and those of soybean and wheat more than doubled by 126 and 117 percent,respectively.33 Although food prices decreased in 2009-10,they did not return to their pre-peak le
242、vels,and the Food Price Index surged again in real terms in 2011,reaching a level that was 4.5 percentage points above the spike in 2008.34 After almost a decade of declining prices,beginning in 2020,global food prices began to rise sharply again,and by 2022 real global food prices had reached the h
243、ighest levels on record in more than 60 years(3.2 percentage points higher than the previous record reached in 1974).While the current context of international food inflation has been described in Chapter I,the following paragraphs provide a short historical account of the food 33 See World Food Pro
244、gramme(2008).34 See FAO(2011).33price crises of 2008 and 2011,to set the stage for the price and volatility transmission analysis that follows.Figure 2.1:FAO Food Price Index,1961-2023(2014-16=100)160,00140,00120,00100,0080,0060,0040,0020,000,0057731985198
245、739200072009200023NominalRealBad weather,export bansWeather,export bans,low stocks,high oil prices,high demand for biofuels,speculation,groing incomes in emerging economies,exchange rate fluctuationsCOVID,Ukraine warSource:FAO,https:/www.fao.org
246、/worldfoodsituation/foodpricesindex/en/A.1.The 2008 Global Food Crisis 2.3 A combination of factors drove the increases in global food prices in 2007-08.On one hand,demand for agricultural products sharply increased:this was the case for example for grains,whose demand increased both for conversion
247、into biofuel production and as an input into livestock production(notably in China and India but also in other emerging markets),in response to growing demand for meat consumption in light of rising incomes.On another hand,persistent droughts in key producing countries resulted in severe harvests lo
248、sses,which in turn contributed to the lowest levels of cereal stocks in more than 30 years.A simultaneous increase in global fuel prices aggravated the situation by driving up costs of transportation for inputs and food,as well as fertilizer production costs,while the 2008 global financial crisis th
249、at followed the collapse of Lehman Brothers sparked a flight to safety and therefore large withdrawals of international finance from emerging markets.352.4 Domestic food prices increased sharply in most countries during the global food crisis,the exceptions being a few large countries that were more
250、 able to insulate themselves from world markets.However,this trade insulation by large producers itself contributed to higher food prices and volatility in international markets,resulting in larger domestic price increases in smaller,import-dependent countries.For example,estimates of the impacts of
251、 food export restrictions during the 200708 food price crisis suggest that such policies were responsible for 40 percent of the increase in food prices.36 Thus,in many instances,unpredictable government policies were a 35 Aggregate net capital flows to selected emerging markets fell from a net inflo
252、w of US$175 billion at the start of 2008 to a net outflow of US$230 billion by the end of 2008.See the United Nations Conference on Trade and Development(UNCTAD)2015.At the same time,there was an inflow of speculative funds into agricultural commodity futures markets as the global financial downturn
253、 weakened,which may also have contributed to the crisis.See FAO(2009).36 See ECLAC,FAO and WFP(2022).34more important contributor to domestic price volatility than world market price fluctuation.372.5 While the high prices encouraged an expansion in cereals production by major producers,such as Braz
254、il,China and India,cereals production actually fell across most developing countries between 2007-08.38 An important reason was that smallholder farmers find it hard to invest in expanding production,especially when price changes are unpredictable or when the farmers do not benefit completely from t
255、he transmission of higher food prices.In addition,the poorest households usually buy more food than they sell.39 In net importing countries whose local currencies were pegged to the dollar(e.g.,El Salvador and Panama in Central America),or whose local currencies were relatively weak due to macro-fis
256、cal factors,the depreciation in the dollar following the 2008 financial crisis further increased the cost of procuring food and resulted in an unfavorable environment for smaller producers to increase food production.40 The rise in fertilizer prices following fuel price increases also held back expa
257、nsion of food production.2.6 Central American countries were badly affected by the 2008 global food crisis in light of their high dependence on grain imports,ranging from 70 percent for rice to almost 100 percent for wheat.41 However,even domestically produced grains experienced sharp price increase
258、s due to delayed rains followed by storms(notably Hurricane Felix)in Central America in 2007.Thus,white maize prices increased 20 percent while prices for red beans rose 80 percent between January 2007 and April 2008.42 These products are integral parts of the basic diet in Central America,accountin
259、g for around 47 percent of the basic food in Honduras,50 percent in Nicaragua,54 percent in Guatemala and as much as 75 percent in rural El Salvador.43 Since one-fifth of the populations of El Salvador,Guatemala,Honduras and Nicaragua were undernourished,i.e.,had insufficient caloric intakes prior t
260、o the 2008 food crisis,44 the chronic food situation in these countries was greatly aggravated by the crisis.The World Food Programme(WFP)estimated that one in eight households in El Salvador reduced their food consumption as a result of the 2008 crisis,while more than one-quarter of household did s
261、o in Nicaragua.45 Although many households may have been able maintain food consumption levels by substituting cheaper for more expensive foods,nutritional quality would have declined.Thus,the WFP estimates that in El Salvador,87 percent of poor households reduced either the quantity or quality or b
262、oth of the foods consumed as a result of the price increases.46 The particularly large adjustment in food consumption among poorer households(who spend a larger share of their incomes on food than do rich households)reflects the differential impact of the food crisis on poorer versus wealthier house
263、holds,especially in the Central America region,which the Economic Commission for Latin America and the Caribbean(ECLAC)has characterized as the most unequal in the world.472.7 The World Bank estimates that the number of poor in Honduras rose by 150,000 in 2008,while in Guatemala the combination of t
264、he 2008 global food price rises and a drought in 2009(which led to famines and harvest losses of certain crops of up to 90 percent)resulted in the 37 See FAO(2011).38 See FAO(2009).39 See FAO(2011).40 See FAO(2009).41 See World Food Programme(2008).42 See World Food Programme(2008).43 See World Food
265、 Programme(2008).44 According to an FAO assessment of the food conditions in these countries for the years 2002-04.See FAO(2007).45 See World Food Programme(2008).46 See World Food Programme(2008).47 See Krozer(2010).35declaration of a state of national emergency,as over 4,000 communities were at ri
266、sk of acute malnutrition.48 Moreover,according to World Bank data,8.2 million persons were undernourished in 2008 in the seven countries analyzed in this report.49A.2.Global Food Prices Spiked Again in 20112.8 Demand for grain continued to be a driving factor for international food inflation in 2011
267、.A doubling of demand for grains(from an average of 21 million tons per year during 1995-2005 to 41 million tons during 2005-10)and the related depletion of global grains stocks was a key factor behind the renewed spike in global food prices.For example,the stocks-to-use ratio for maize fell to arou
268、nd 13 percent in 2011,the lowest level since the 1970s.50 Other factors include continuing structural changes,notably climate change-related heat waves in key North American and Eastern European producing countries,as well as the plateauing of yields on major crops and the conversion of croplands an
269、d water uses to urban uses,due to population pressures,all at a time of soaring demand for grains.51 2.9 The crisis was felt most severely in Eastern Africa,notably in Somalia and Ethiopia,with widespread famine,but Central America also witnessed a further spike in food insecurity.For example,in the
270、 Dominican Republic,the price of maize soared by 82 percent between April and June 2011.52 Concerns about worsening food security conditions in the region led to country-level coverages of El Salvador and Guatemala being launched under the multi-partner Integrated Food Security Phase Classification(
271、IPC)system in 2012 coverage of Honduras had already begun in 2010.53 The prevalence of undernourishment in Guatemala,which had declined from 18.3 percent in 2009 to 17.1 percent in 2010,rose again to 18 percent by 2012,i.e.by an additional 170,000 people,aggravating a chronic food insecurity situati
272、on reflected in a 50 percent stunting rate in 2011 for Guatemalan children under 5 years of age.54B.ESTIMATING INTERNATIONAL PRICE PASS-THROUGHS TO CENTRAL AMERICAN MARKETS2.10 In the context of recurring international food price crises documented above,this chapter formally investigates the extent
273、to which food price increases and volatility have been transmitted from international to local markets in the Central America region.55 Rising food and fertilizer prices are major factors that can have an impact on food security,by increasing the cost of food and affecting farmers production decisio
274、ns(including whether,how,and what to produce),but at the same time potentially increasing net producers incomes.In addition to food price 48 See World Bank(2010)and World Bank(2010b).49 According to data from the World Banks World Development Indicators,see:https:/databank.worldbank.org/source/healt
275、h-nutrition-and-population-statistics#50 See World Bank(2011).51 See Brown(2011).52 See World Bank(2011).53 The Integrated Food Security Phase Classification(IPC)system was developed by FAO to provide a rigorous standard for classifying food insecurity contexts in five stages,to inform policymaking
276、and responses:1:Minimal;2:Stressed;3:Crisis;4:Emergency;and 5:Famine.See https:/www.ipcinfo.org/ipcinfo-website/ipc-overview-and-classification-system/en/.Partners include UN agencies such as the WFP and UNICEF,bilateral donors such as the European Union and the United States Agency for Internationa
277、l Development(USAID),and non-governmental organizations(NGOs)such as Oxfam,Action Against Hunger,Care,and the Famine Early Warning System Network(FEWS NET).54 See the Global Nutrition Report(2023b).55 The analysis in this chapter is drawn from a background paper prepared for this report by the Inter
278、national Food Policy Research Institute(IFPRI).See IFPRI(2023).The analysis in this chapter updates and expands on the results of Arias and De Franco(2011),who applied time series analysis to evaluate the likely results of the Central America Free Trade Agreement(CAFTA)on food markets in Honduras an
279、d Nicaragua in the early 2000s.36inflation,food price volatility(i.e.frequent and sizeable fluctuations in food prices)can have severe impacts on food security,because it makes food prices the unpredictable.On one hand,vulnerable households tend to react to unexpected food price shocks through a red
280、uction in caloric intake and in dietary quality(as well as other coping strategies such as increased work by women and children,asset sale,and interruption of schooling and/or medical treatment).56 On the other hand,price uncertainty affects poor small-scale farmers who rely on food sales for a sign
281、ificant part of their income and possess limited capacity for timing their sales.57 In the absence of efficient risk-sharing mechanisms,volatility also inhibits physical and human investment and distorts input allocation,reducing agricultural productivity growth and creating a poverty trap for poor
282、farmers.58 2.11 It is important to note that the transmission of average food price increases from international to local markets does not necessarily go hand in hand with the transmission of food price volatility.Although it seems reasonable to assume that markets with high transmission of prices w
283、ould also be characterized by high transmission of volatility,prices from highly volatile world markets may be transmitted to local markets only with a certain delay,thus insulating local markets from international price fluctuations and resulting in local prices that exhibit much less volatility.Al
284、ternatively,even if there were no direct price transmission,it is possible for local market volatility to be determined by the degree of uncertainty among local traders,which could be influenced by frequent and sizeable fluctuations of food prices(i.e.,high volatility)in world markets.B.1.Methodolog
285、ical Approach2.12 The empirical strategy for the analysis relies on a multivariate generalized auto-regressive conditional heteroskedasticity(MGARCH)model.59 Full details on the studys methodology,as well as supplementary tables and figures,are presented in Annex 1 to this report.2.13 The starting p
286、oint is the collection of country-commodity pairs of domestic and international prices.A single country-commodity pair entails two price series that span the same time period and capture the domestic and the international price of a fixed unit of weight for a given commodity,both internationally and
287、 in a specific country in Central America(for example,the international price of 1 kilogram of red beans and the domestic price of 1 kilogram of red beans in Honduras).While the series reflect actual prices collected at markets,it is standard to work with price returns,or the percentage change in ea
288、ch price from one period to the next to assess how changes in prices internationally relate to changes in prices domestically.60 2.14 Based on these pairs of domestic and international price returns,a two-stage approach is then followed.First,in line with the economic time-series literature,each pai
289、r of domestic-international price returns is modelled by assuming that the domestic(international)return for a given period oscillates around an average value(i.e.,the constant),and depends on both domestic(international)returns and international(domestic)returns from previous months(the number of p
290、revious months depending on the number of lags in the model),in addition to an unknown shock(the error term).The dependence of current returns on past returns is usual in time series analysis 56 Jacquet(2012).57 According to recent work by Magrini,Morales Opazo,and Baile(2015),estimates of household
291、s willingness to pay to eliminate cereal price volatility in five developing countries range from only 0.06%of household income where price volatility is lo)to 1%where price volatility is higher.58 Cf.Fafchamps(1992)and Poulton et al.(2006).59 The analysis uses a two-stage procedure that involves mo
292、deling both a conditional mean equation and a conditional variance-covariance equation for the modelled international and domestic percentage changes in prices(price return series).See Ceballos,Hernandez,Minot and Robles(2017).60 While the information contained in a price series is the same as that
293、in a return series,the latter has certain statistical properties that make it appropriate to work with in the models under consideration,namely stationarity.37of prices,because price downturns and upturns that reflect underlying market events typically occur over periods of time,sometimes spanning s
294、everal months.Thus,observing the price rise in the previous month(s)is indicative of a potential upward trend in prices.Of course,such a trend can be counteracted by an unknown shock(the error term)in either market(domestic or international).A mathematical model of the joint dynamic of domestic and
295、international prices enables one to estimate parameters,using statistical techniques,and derive certain stylized facts about the relationship between domestic and international prices,and to formally test hypotheses.61 2.15 This process obtains a mathematical model for the so-called conditional mean
296、 behavior of a given pair of domestic and international prices(a country-commodity pair),i.e.the relationship between mean international and domestic prices for a given commodity and country.At this stage,a time-series of residuals or shocks can also be estimated,i.e.,any movements in the domestic a
297、nd international prices not being explained by the mathematical model.Second,using the residuals or unexplained shocks from the conditional mean models,the corresponding domestic and international conditional variance-covariance equations are estimated.62 The conditional variance-covariance equation
298、s do not measure the relationship between mean international and domestic prices,but rather the transmission of volatility from international to domestic markets,be they immediate spillovers or persistent effects across markets.Thus,this approach enables one to characterize the magnitude and persist
299、ence of volatility transmission from international to domestic markets.It also enables the derivation of time-varying conditional correlations to assess the degree of co-movement between international and domestic price variations.632.16 As the main interest is in the degree of price transmission in
300、 the short run,the focus of the analysis in this chapter is on the domestic price return response after one period(one month)to a simulated shock in the international price return.64 Since the size of the shock that can be introduced into this mathematical system can be manipulated,the reaction obse
301、rved in the domestic price is standardized as a fraction of the shock in the international price.This enables a comparison of the size of price shocks from international to domestic markets across different commodities,and the resulting measure is equivalent to the elasticity of price transmission f
302、rom the international market to the domestic market for given commodities.The same process is also undertaken for price volatility,i.e.,for variations in the domestic conditional variance after a 61 In more technical terms,the conditional mean equation for each country-commodity pair is modelled as
303、either a vector autoregressive(VAR)or vector-error correction(VEC)process,two alternatives for jointly modelling a pair of time series that are appropriate under different underlying characteristics of the country-commodity pair under consideration.For each country-commodity pair,the selection betwe
304、en models and the number of lags used for each is decided based on standard tests.If a Johansen trace test finds evidence for cointegration between the domestic and international returns,a VEC model is used for that pair,and a VAR model is used otherwise.The number of lags(k)for either model is sele
305、cted based on the Schwarz Bayesian information criterion(SBIC).This criterion favors more parsimonious models over more complex ones,adding a penalty based on the number of parameters estimated in the model(Schwarz,1978;Bauldry,2015).Table A1.4 shows the optimal number of lags,as determined by the S
306、BIC criterion,which are either one or two in every country-commodity pair.More details on the econometric modeling are provided in Annex 1.62 This is done using a bivariate T-BEKK model,as proposed by Engle and Kroner(1995).63 In addition,the selection of the above models and their goodness of fit i
307、s determined following a number of statistical tests that determine whether the statistical properties of the price return series under consideration align with the features of the mathematical models chosen to represent their behavior.Thereafter,both models,i.e.,conditional mean and conditional var
308、iance,are calibrated based on the price data for a given country-commodity pair.64 It is important to distinguish between the number of lags used in the underlying econometric model depicting the international-domestic price and volatility relationships and the number of periods considered for the i
309、mpulse-response function calculations.The optimal number of lags used to model the bivariate(international-domestic)conditional mean process for each country-commodity pair is determined empirically,based on the SBIC criterion.Once the above models are estimated,a hypothetical shock to the internati
310、onal price or volatility is introduced in the model,and the effect after one period(month)on the domestic market is calculated(the impulse-response function),providing the basis for the international-to-domestic price and price volatility elasticities.The choice of calculating elasticities after one
311、 single period allows for a direct(immediate)estimate of the international-to-domestic price and price volatility transmission that is not dependent on additional shocks to either the domestic or international market and follows what is commonly found in the price transmission literature.However,Ann
312、ex 1 presents,as a robustness check,elasticities that account for the effect of an international shock on the domestic market after three months,assuming that no other shocks are introduced in the system.38shock in the international market to derive the elasticity of domestic price volatility with r
313、espect to international price volatility.The resulting volatility transmission indicator shows the reaction(after one period)of domestic price volatility to a shock to(i.e.,a change in)the volatility of the international market.An elasticity equal to one implies that the domestic price volatility in
314、creases in the same proportion as the international price volatility in the presence of a shock in the international market.2.17 Caveat:what this exercise does not do.The analysis in this chapter is mainly motivated by the recent important price spikes and high volatility in global agricultural mark
315、ets.65 In this context,the empirical strategy focuses on measuring how increases in price and price volatility in international markets transmit to local markets in Central America.Admittedly,the underlying price transmission process may vary across different periods of time,and it might be asymmetr
316、ic to price rises and declines(e.g.,local prices may be sticky and not decrease after international prices start to fall).Since the exercise was not intended to uncover varying short-term price and volatility transmission across different periods,however,the analysis presented in this chapter is not
317、 formally testing for structural breaks,nor is it attempting to identify asymmetric transmission(i.e.,whether positive and negative shocks in international markets affect domestic markets differently).66 The potential presence of structural breaks in the modeled series would have been of concern had
318、 the analysis been focused on price forecasting,but this was not the objective of this study.Another potential risk of not accounting for structural breaks would be spurious volatility transmission(over-rejecting the null hypothesis that there is no transmission),67 but this does not seem to be the
319、case here as most elasticity estimates presented in the rest of this chapter are not statistically significant.The inclusion of three-month price elasticities in Annex 1(see Figures A1.4 and A1.5)could provide some preliminary hints or suggestive evidence around the issue of price stickiness.Address
320、ing these issues formally will be a promising avenue for future research.B.2.Data Sources2.18 The analysis is based on a large set of monthly prices for different agricultural commodities and fertilizers.This set includes 26 domestic prices of food staples,cash crops,and agricultural inputs in Costa
321、 Rica,the Dominican Republic,El Salvador,Guatemala,Honduras,Nicaragua and Panama.68 The analysis focuses on domestic prices of key food staples(notably rice,beans,maize and wheat flour)with at least 10 years of available data that are considered important for local diets,as determined by the proport
322、ion of the daily caloric intake per person that they represent in each country.69 Bananas and coffee are also included,given their importance as cash crops and because of their employment-generating potential in the region.Finally,the analysis includes prices of ammonium-based fertilizers,with a foc
323、us on ammonia,di-ammonium 65 Cf.Glauber,Hernandez,Laborde,Martin,Rice,and Vos(2022);Headey and Ruel(2022).66 Considering that the period of analysis encompasses the COVID-19 period,it would be informative to assess whether the pandemic induced any structural change in the degree of price and/or vola
324、tility transmission.However,given the short period after the end of the peak of COVID-19 to date,the available data is not sufficient to estimate post-COVID parameters and test whether they are different to pre-COVID ones.Identifying potential asymmetric effects would have also required estimating a
325、n alternative MGARCH model imposing additional restrictions to estimate all necessary parameters,which would have been hampered by the relatively small sample size for several of the domestic price series included in the analysis.As more post-pandemic data become available,future research could furt
326、her explore price and volatility transmission in the presence of sudden price changes(breaks),using models that allow for time-varying and asymmetric price transmission(see e.g.Koop,Leon-Gonzalez and Strachan,2011;Saikkonen and Choi,2004;Gtz,Qiu,Gervais,and Glauben,2016).67 See Caporin and Malik(202
327、0).68 See Annex 1 Table A.1.69 Data on dietary importance are derived from FAO(2020)-see Annex 1 Table A.2.By way of example,in the case of Costa Rica the analysis considers rice,which is second in importance in terms of per capita daily caloric intake;wheat(third in importance);maize(seventh),and b
328、eans(ninth).Other foods representing an important fraction of the caloric intake in Costa Rica,such as sugar(first),milk(fourth),or soyabean and palm oil(fifth and sixth)are not included in the analysis for Costa Rica,due to a lack of domestic price data series fulfilling the requisite criteria.The
329、minimum length for data availability was set according to the data requirements of the mathematical models used in this analysis.39phosphate(DAP),and urea,given their importance for smallholder farming in the region.Overall,the crops and agricultural inputs that are analyzed include:bananas,black be
330、ans,coffee,maize(white),plantains,red beans,rice,and wheat,as well as ammonia,DAP,and urea.Annex 1,Figure A1.1 provides line graphs of domestic price trends for the various commodities in Central American countries,together with the corresponding trends in international prices over time.Annex 1,Figu
331、re A1.2 does the same for returns(i.e.month-to-month changes in prices,rather than the prices themselves),which serve as the inputs for the statistical models described above.2.19 The data for this analysis come from a range of different sources.The two main portals from which price data for food st
332、aples were retrieved are the Food Price Monitoring and Analysis(FPMA)Tool of the Food and Agriculture Organization(FAO)and the Vulnerability Analysis and Mapping(VAM)platform of the World Food Program(WFP).Additionally,some price data on other agricultural commodities were obtained from SIMMAGRO(the
333、 Regional System for Intelligence on and Monitoring of Agricultural Markets,of the Secretariat for Central American Economic Integration,SIECA);the Honduran Institute of Coffee,and the Dominican Ministry of Agriculture.Data regarding fertilizers were obtained from the Honduran Information System of Markets of Agricultural Products(SIMPAH)and the Costa Rican National Council of Production.The choic