The Potential of Intraregional Trade for Improving Food Security in Latin America and the Caribbean

The annual meeting of the IDB's Board of Governors is the ideal time to reflect on the strategic challenges facing Latin America and the Caribbean (LAC) and the agenda for addressing them. President Ilan Goldfajn opened this year's meeting by highlighting that LAC may be at a turning point: "There is a great opportunity for the region to become part of the solution to shared global challenges." Food security is emblematic of this opportunity.

A turning point

In 2022, an estimated 735 million people in the world went hungry, 122 million more than in 2019, before the COVID-19 pandemic and Russia's invasion of Ukraine. That same year, 42% of the world's population (3.1 billion people) could not afford a healthy diet, while 30% (2.4 billion people) experienced severe or moderate food insecurity.

These trends need to be reversed to achieve the Sustainable Development Goal of eradicating hunger by 2030. LAC is clearly part of the solution. The region is the world's largest net food exporter, and through international trade it contributes more than any other region to global food availability.

However, the idea that LAC is the world's breadbasket is paradoxical. The region is the world's main supplier of cereals, oilseeds, bananas, coffee, and sugar. It also plays an indispensable role in producing other crops, such as fruits and vegetables, essential for a healthy, balanced diet. Nevertheless, food insecurity continues to affect 37% of the population on average, or nearly 250 million people.

Since the 2000s, the weight of the region's agricultural exports has increased significantly, growing from 15% to 25% of total exports. Agriculture employs an average of 15% of the labor force and, in some cases, as much as 30%. The sector accounts for 6% of GDP on average but reaches as high as 15% in some countries. These figures may even double if production linkages are included-that is, the production of goods and services that are indirectly related to agriculture.

Being a major contributor to household income, especially among poorer households in rural areas, LAC's agricultural sector is essential to food security not just globally but also within the region itself.

The potential of intraregional trade

Reconciling this paradox is the objective of a series of studies sponsored jointly by the Food and Agriculture Organization of the United Nations (FAO) and the IDB. A key preliminary observation from these publications is that LAC countries import 40% of their external purchases of agricultural and food products from their neighbors. Moreover, while LAC's trade with the rest of the world tends to focus on primary products, intraregional trade is oriented more toward processed foods, which tend to create greater value-added, more jobs, higher revenues, and more positive spillover effects for economic development.

Expanding intraregional trade in agrifoods is thus a necessary, albeit insufficient, condition for food security in LAC. Growth in agrifood trade would enable the region to bring down food costs by making the most of geographic proximity and regional integration. It could also create jobs, raise incomes, and increase LAC's competitiveness in extraregional markets.

Examining the region as a whole, the studies identified 67 products with potential for growth in the intraregional market. This potential arises when three factors are present: complementarity between the structures of a country's exports and its partners' imports, the product being important in the country of origin's export pattern, and the existence of room for increasing market share in the destination country.

Trade in these products between LAC countries is currently worth US$21.6 billion. The potential market for the products with the best growth prospects is estimated at US$24.7 billion, representing 8.5% of LAC's total agrifood exports, 21% of its imports, and 57% of its intraregional trade. Numbers on this scale cannot go unnoticed and should make us sit up.

The biggest opportunities in terms of potential market size are cereals, food residues, meats, fats and oils, food preparations, oilseeds, beverages, and dairy products. These are indeed some of the key foods that make up a healthy, affordable diet.

The results by country show that the greatest potential for growth is in Mexican imports from Mercosur countries, as well as in some bilateral relationships between South American countries. There is also significant potential for sales of some products from Mexico to Chile and Colombia.

Focusing on the most exposed countries

However, assessing results solely in terms of potential market size underestimates their importance for smaller economies that are more vulnerable to food security risks. For this reason, a specific study was conducted to analyze trade between Central American and Caribbean countries.

Eighty products were identified as having the greatest growth prospects, representing a potential market of US$2.8 billion. Most of these products (64%) are processed foods, such as vegetable oil-based preparations, sausages, canned tuna, sugar, pasta, cereal-based products, pineapple juice, sauces and condiments, and animal feed. Meanwhile, the main primary products (36%) were beef, dairy, tomatoes, cauliflower and broccoli, beans and other vegetables, bananas, and coffee.

Guatemala, Costa Rica, and Honduras have the most products with potential for growth among the Central American countries. Jamaica, Barbados, and Trinidad and Tobago stand out in the Caribbean.

An agenda to make an impact

A critical aspect of these studies is that they are not limited to economic analysis. They include interviews with public and private stakeholders to identify the obstacles they perceive as being most restrictive and the actions that need to be prioritized to make an impact on the ground.

The list below is by no means exhaustive, but the most promising initiatives include the following:

• Negotiating preferential trade agreements between LAC countries to offset the more favorable market access conditions which external competitors currently benefit from.
• Overcoming structural and regulatory barriers through investments to improve transportation infrastructure, the compatibility of quality control systems, and logistics networks.
• Bringing sanitary and phytosanitary authorities closer as a steppingstone to negotiating regulatory convergence regimes, including by focusing pragmatically on specific products with proven potential for trade growth.
• Adopting or developing single windows for foreign trade and other trade facilitation measures to streamline export and import procedures.
• Strengthening export promotion and investment attraction agencies to improve access to information on external markets and coordinating closely with agricultural extension services.
• Promoting public-private dialogues and partnerships to identify effective courses of action in areas where private-sector involvement is needed.

The IDB is committed to supporting a trade expansion agenda to feed the world. Progress in any of the areas mentioned in this post will also help boost intraregional trade in agricultural products. A more integrated regional market would have a significant impact on LAC's food security, as it would contribute to improving the availability, access, utilization, and stability of food provision.

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References in links

IDB (2024). Governors Approve Three Historic, Transformative Changes for the IDB Group to Support the Region, press release, March 10.

FAO and IDB (2024a). Oportunidades para promover el comercio agroalimentario intrarregional en América Latina y el Caribe. FAO and IDB.

FAO and IDB (2024b). Opportunities and Challenges for Agrifood Trade Between Central American Integration System and Caribbean Community Countries FAO and IDB.

FAO, IFAD, WHO, WFP, and UNICEF (2023). The State of Food Security and Nutrition in the World 2023. Urbanization, Agrifood Systems Transformation and Healthy Diets Across the Rural-Urban Continuum. FAO.

Giordano, P., R. Campos, and K. Michalczewsky (2023). What's Next: Boosting Competitiveness to Meet Food Security and Climate Change Demands. Trade and Integration Monitor. IDB.

Granados, J., and F. Opertti (2023). Trade to Feed the World: A Strategic Agenda for Latin America and the Caribbean. Beyond Borders Blog. IDB.

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