April 23, 2008 -- The steep and persistent rise in international food prices is hitting particularly hard on the poorest in Latin America and the Caribbean, worsening income distribution, stated ECLAC Executive Secretary José Luis Machinea. Poverty and indigence will rise if urgent measures are not taken to reduce the effects of these hikes.

International food prices have been rising over the past few years, but price increases have been particularly steep in the past 12 months. Most concerning is the growing cost of corn, wheat, rice and oilseeds, which in some cases has gone up over 100%.

As of early 2006 and especially as of 2007, food consumer price indexes have risen in the majority of the region's economies at an annual rate between 6% and 20%, with an average of about 15%.

Based on indigence projections for 2007, ECLAC estimates that a 15% rise in food prices will increase indigence by almost three points, from 12.7% to 15.9%. This means that elevating food prices will lead another 15.7 million Latin Americans to destitution. A similar number will also fall under the poverty line.

However, if household incomes were to go up by 5%, similar to the average inflation rate in the region, nearly ten million people would become indigent due to price hikes, and a similar number would increase the ranks of the poor. This is not even considering the aggravating social situation of those who were already poor or indigent prior to the price rises.

"This is a dramatic situation for a large number of people," said the ECLAC Executive Secretary.

This data (see details in chart below) reveals the clearly negative effects of the rising cost of food on people's welfare. But the scenario worsens due to rising fuel prices, which are pushing up the price of transportation and public utilities.

"In this context, it is a priority to implement and/or maintain policies focused on diminishing those effects," said José Luis Machinea. There are different types of policies that may be put in place, and that will depend on the specific reality of each country and the experience it may have in the use of different instruments, as well as its fiscal situation.

The ECLAC Executive Secretary recommended that these policies include taking measures to buffer food price increases in domestic markets and/or improve income, especially that of the poor. Among the former, Machinea mentioned reducing tariffs and/or consumer taxes, while the latter includes subsidies directed to certain sectors, or raising existing subsidies.

It is additionally necessary for developed countries -and to a certain extent mid-income net food exporters as well- to make an exceptional contribution to programmes and agencies such as the United Nations World Food Programme, which can deliver emergency aid to populations at risk.

Given that the high food prices apparently are not transitory, but rather "are here to stay", the ECLAC Executive Secretary suggested countries design medium and long range proposals to increase supply and productivity in a sustainable manner, as well as maintain specific policies focused on low-income sectors.