Identifier
Created
Classification
Origin
08BELMOPAN235
2008-05-08 14:22:00
UNCLASSIFIED
Embassy Belmopan
Cable title:
RESPONSE: IMPACT OF RISING FOOD/COMMODITY PRICES - BELIZE
how-toVZCZCXRO8643 RR RUEHGR DE RUEHBE #0235/01 1291422 ZNR UUUUU ZZH R 081422Z MAY 08 FM AMEMBASSY BELMOPAN TO RUEHC/SECSTATE WASHDC 1271 INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE RUCNCOM/EC CARICOM COLLECTIVE
UNCLAS SECTION 01 OF 02 BELMOPAN 000235
SIPDIS
DEPT FOR EEB/TPP/ABT/ATP (JANET SPECK),WHA/CEN (ROIS BEAL)
E.O. 12958: N/A
TAGS: EAGR EAID ETRD ECON PGOV PREL BH
SUBJECT: RESPONSE: IMPACT OF RISING FOOD/COMMODITY PRICES - BELIZE
REF: State 039410
-------
SUMMARY
-------
UNCLAS SECTION 01 OF 02 BELMOPAN 000235
SIPDIS
DEPT FOR EEB/TPP/ABT/ATP (JANET SPECK),WHA/CEN (ROIS BEAL)
E.O. 12958: N/A
TAGS: EAGR EAID ETRD ECON PGOV PREL BH
SUBJECT: RESPONSE: IMPACT OF RISING FOOD/COMMODITY PRICES - BELIZE
REF: State 039410
--------------
SUMMARY
--------------
1. Belize is an import dependent country and the impact of
increasing global prices for commodities and high energy costs
directly add upward pricing pressure to the economy. The inflation
rate reached a ten-year record high of 4.5% in the first quarter of
2008. Dairy products, chicken, corn, and flour reflect the most
notable price increases and have demonstrated shifting markets with
associated price changes. Increasing energy costs are often cited
as the key contributing factor. The Government of Belize (GoB) has
responded by laying out several proposals including a windfall
profits tax on the oil industry to finance subsidies for commodity
imports. Rising commodity prices in neighboring markets are putting
pressure on the domestic price controls Belize imposes on
commodities. Continued rising food prices will quickly and directly
add inflationary pressure to the local economy as Belize is a net
importer of many agricultural products.
--------------
SUPPLY/DEMAND SITUATION
--------------
2. Total agricultural imports into Belize have averaged an increase
of 5.0% each year over the past five years and recorded a local
Consumer Price Index inflation rate in the first quarter of 2008 of
4.5% - the highest in ten years.
3. Dairy product imports such as cheese and powdered milk, have
increased by 4.5% over the past three years and reflect a 52% price
rise. The price of chicken has also been steadily increasing as
producers blame higher fuel and feed costs. Within the past six
months there has been a 24% increase in price resulting in only a
modest decline in consumption. Producers have also diversified into
the processed meat market to cover costs and maintain profits.
4. The past year has seen a shift in the market for corn. This
commodity had been sufficiently produced for local consumption.
However, as global corn price increased, domestic producers began
selling corn to regional markets. This created a shortage on the
local market and in 2007, for the first time, Belize imported corn.
Officials note that local markets are showing a 263% increase in the
price of corn over the past three years and tortilla, a common local
food product made from corn, recorded a 20% price rise late last
year.
5. Flour is also being affected by its key imported input -- wheat.
The price of flour increased earlier this year in response to
rising wheat costs. Flour is still produced in Belize primarily for
domestic consumption resulting from limited processing
capabilities.
6. Local reports indicate that some merchants are hoarding supplies
to ensure maximum prices when supplies fall short and others are
smuggling products across borders in order to obtain higher prices.
Rising energy prices have also had a major impact on food prices.
--------------
POLITICAL/ECONOMIC EFFECTS
--------------
7. (U) The most straining economic issue for Belize has been its
overwhelming foreign debt; a massive debt restructuring in 2007
saved Belize from a near-term crisis. As of September 2007, total
external debt stood at 84.1% of GDP. The Belize economy was
previously able to absorb the impact on the current account as
higher oil receipts neutralized higher import costs. However, the
oil industry here is still relatively new and the GoB is not yet
certain how to deal with complex industry-related issues. Rising
external food and fuel prices are contributing to the record
inflation rate since Belize is heavily import dependent.
8. Public debates relating to rising food prices have become more
frequent and food prices have become a daily topic on the radio and
in local newspapers. The GoB has been pressured to subsidize rising
food costs by increasing taxes on the oil industry reducing the
government tax at the pump, and utilizing output from the local oil
producers to supply the local market, thereby lessening the impact
of increased energy prices. Despite the increased prices on
staples, there have so far been no reported cases of public protests
or unrest, nor have there been reports of increases in the theft of
major commodities.
--------------
ENVIRONMENTAL IMPACT MARGINAL
--------------
BELMOPAN 00000235 002 OF 002
9. Though the impact on the environment has been marginal, tensions
between environmental groups and the electricity company as it
expands its renewable energy projects - hydro power - to meet rising
fuel costs are increasing.
--------------
POST PROGRAMS
--------------
10. Rising food prices have not impacted post programs.
--------------
GOB RESPONDS TO RISING FOOD PRICES
--------------
11. The GoB raised the price ceiling on one commodity - flour - by
40% to bridge the gap between the local price and the higher price
in neighboring countries. The difference had encouraged the export
of flour. The Government has also introduced a toll free consumer
hotline as a direct result of consumer complaints about price
gouging (between 25% to 40%) by merchants.
12. Government officials are also discussing various ideas such as
providing subsidies to producers, reducing tariffs on agricultural
inputs, and reducing taxes on other goods/services to ease increases
in the costs of agricultural products. Any of these would have a
negative impact on government finances.
13. The GoB recently announced a plan to introduce a new windfall
profit tax on the country's oil producers benefiting from high oil
prices. Inflows would be used to subsidize key import commodities
to help mitigate current price increases.
--------------
POLICY/PROGRAMMING RECOMMENDATIONS
--------------
14. Belize will face substantial challenges in trying to mitigate
the pressure of high food prices. As a net importer of many
agricultural goods, Belize directly suffers from worldwide price
increases. Encouraging the expansion of domestic agricultural
production may help. Consideration of the following
policy/programming alternatives may also assist Belize in the near
term.
a) A micro-lending program designed for small farmers would assist
the most vulnerable segment of society directly without adding to
the overwhelming outstanding debt on a national level.
b) Belize does not have the capacity to store food inventory.
Improvement of storage facilities and distribution could help ensure
availability in the event of shortages and price fluctuations.
c) Belize could use assistance in developing a more stable
regulatory environment to prevent collusion and price gouging
amongst suppliers.
DIETER
SIPDIS
DEPT FOR EEB/TPP/ABT/ATP (JANET SPECK),WHA/CEN (ROIS BEAL)
E.O. 12958: N/A
TAGS: EAGR EAID ETRD ECON PGOV PREL BH
SUBJECT: RESPONSE: IMPACT OF RISING FOOD/COMMODITY PRICES - BELIZE
REF: State 039410
--------------
SUMMARY
--------------
1. Belize is an import dependent country and the impact of
increasing global prices for commodities and high energy costs
directly add upward pricing pressure to the economy. The inflation
rate reached a ten-year record high of 4.5% in the first quarter of
2008. Dairy products, chicken, corn, and flour reflect the most
notable price increases and have demonstrated shifting markets with
associated price changes. Increasing energy costs are often cited
as the key contributing factor. The Government of Belize (GoB) has
responded by laying out several proposals including a windfall
profits tax on the oil industry to finance subsidies for commodity
imports. Rising commodity prices in neighboring markets are putting
pressure on the domestic price controls Belize imposes on
commodities. Continued rising food prices will quickly and directly
add inflationary pressure to the local economy as Belize is a net
importer of many agricultural products.
--------------
SUPPLY/DEMAND SITUATION
--------------
2. Total agricultural imports into Belize have averaged an increase
of 5.0% each year over the past five years and recorded a local
Consumer Price Index inflation rate in the first quarter of 2008 of
4.5% - the highest in ten years.
3. Dairy product imports such as cheese and powdered milk, have
increased by 4.5% over the past three years and reflect a 52% price
rise. The price of chicken has also been steadily increasing as
producers blame higher fuel and feed costs. Within the past six
months there has been a 24% increase in price resulting in only a
modest decline in consumption. Producers have also diversified into
the processed meat market to cover costs and maintain profits.
4. The past year has seen a shift in the market for corn. This
commodity had been sufficiently produced for local consumption.
However, as global corn price increased, domestic producers began
selling corn to regional markets. This created a shortage on the
local market and in 2007, for the first time, Belize imported corn.
Officials note that local markets are showing a 263% increase in the
price of corn over the past three years and tortilla, a common local
food product made from corn, recorded a 20% price rise late last
year.
5. Flour is also being affected by its key imported input -- wheat.
The price of flour increased earlier this year in response to
rising wheat costs. Flour is still produced in Belize primarily for
domestic consumption resulting from limited processing
capabilities.
6. Local reports indicate that some merchants are hoarding supplies
to ensure maximum prices when supplies fall short and others are
smuggling products across borders in order to obtain higher prices.
Rising energy prices have also had a major impact on food prices.
--------------
POLITICAL/ECONOMIC EFFECTS
--------------
7. (U) The most straining economic issue for Belize has been its
overwhelming foreign debt; a massive debt restructuring in 2007
saved Belize from a near-term crisis. As of September 2007, total
external debt stood at 84.1% of GDP. The Belize economy was
previously able to absorb the impact on the current account as
higher oil receipts neutralized higher import costs. However, the
oil industry here is still relatively new and the GoB is not yet
certain how to deal with complex industry-related issues. Rising
external food and fuel prices are contributing to the record
inflation rate since Belize is heavily import dependent.
8. Public debates relating to rising food prices have become more
frequent and food prices have become a daily topic on the radio and
in local newspapers. The GoB has been pressured to subsidize rising
food costs by increasing taxes on the oil industry reducing the
government tax at the pump, and utilizing output from the local oil
producers to supply the local market, thereby lessening the impact
of increased energy prices. Despite the increased prices on
staples, there have so far been no reported cases of public protests
or unrest, nor have there been reports of increases in the theft of
major commodities.
--------------
ENVIRONMENTAL IMPACT MARGINAL
--------------
BELMOPAN 00000235 002 OF 002
9. Though the impact on the environment has been marginal, tensions
between environmental groups and the electricity company as it
expands its renewable energy projects - hydro power - to meet rising
fuel costs are increasing.
--------------
POST PROGRAMS
--------------
10. Rising food prices have not impacted post programs.
--------------
GOB RESPONDS TO RISING FOOD PRICES
--------------
11. The GoB raised the price ceiling on one commodity - flour - by
40% to bridge the gap between the local price and the higher price
in neighboring countries. The difference had encouraged the export
of flour. The Government has also introduced a toll free consumer
hotline as a direct result of consumer complaints about price
gouging (between 25% to 40%) by merchants.
12. Government officials are also discussing various ideas such as
providing subsidies to producers, reducing tariffs on agricultural
inputs, and reducing taxes on other goods/services to ease increases
in the costs of agricultural products. Any of these would have a
negative impact on government finances.
13. The GoB recently announced a plan to introduce a new windfall
profit tax on the country's oil producers benefiting from high oil
prices. Inflows would be used to subsidize key import commodities
to help mitigate current price increases.
--------------
POLICY/PROGRAMMING RECOMMENDATIONS
--------------
14. Belize will face substantial challenges in trying to mitigate
the pressure of high food prices. As a net importer of many
agricultural goods, Belize directly suffers from worldwide price
increases. Encouraging the expansion of domestic agricultural
production may help. Consideration of the following
policy/programming alternatives may also assist Belize in the near
term.
a) A micro-lending program designed for small farmers would assist
the most vulnerable segment of society directly without adding to
the overwhelming outstanding debt on a national level.
b) Belize does not have the capacity to store food inventory.
Improvement of storage facilities and distribution could help ensure
availability in the event of shortages and price fluctuations.
c) Belize could use assistance in developing a more stable
regulatory environment to prevent collusion and price gouging
amongst suppliers.
DIETER