By Marcela Valente
BUENOS AIRES, Nov 29 2007 (IPS)

Why are the prices of bread, potatoes, tomatoes and beef on the rise in the Southern Cone region of South America? In this predominantly agricultural area, many blame the price rises on circumstantial local factors. But analysts point to a wider phenomenon: the rising global demand for food and biofuels commodities, which is here to stay.

Traditionally cheap in producer countries, basic food items like corn, potatoes, onions, meat and fruit have suddenly become luxury items in this subregion. Retailers complain of drought, heavy rain or frost to explain the shortages of tomatoes or lettuce, but a closer look at the markets reveals a more complex process.

"We are witnessing a cycle of rising prices of basic farm products that we have not seen in years, which is very good for producer countries," Fernando Vilella, with the University of Buenos Aires Agribusiness and Food Programme, told IPS.

"Now what has to be resolved is how to ensure the affordability of food for local consumers," he added.

In recent years, growing demand for food in China, India and Southeast Asia has led to a steady rise in global prices of agricultural commodities. "Living standards are improving in China. Beef consumption, for example, is growing at a rate of one kilo per person per year," said Vilella.

The rising demand is driving up production of corn and soybeans, widely used as animal feed. But other factors putting pressure on prices is the increased use of these two crops, as well as sugar cane, to produce biofuels, and the soaring oil prices, which have increased the costs of production, transportation and sales.

But domestic consumers are unprotected. The prices of basic food products are rising much higher than other prices, and governments have been forced to take temporary measures to protect consumers.

According to Argentina’s National Statistics and Census Institute, so far this year the consumer price index has gone up 6.6 percent, and food prices 8.0 percent.

But a study by the Equis polling firm points to an even wider gap. The pollsters, who monitored the cost of the basic food basket starting in July, found that the prices of this set of products, used to calculate the threshold for extreme poverty, went up 30 percent in just four months.

The higher relative increase in the prices of basic foodstuffs is seen throughout the Southern Cone subregion, made up of Argentina, Chile, Uruguay and southern Brazil.

According to the Brazilian Institute of Geography and Statistics (IBGE), the October inflation rate in Brazil was 0.3 percent, but the prices of cereals, beans and oilseeds went up 6.4 percent, of fruit seven percent, and of root vegetables (potatoes, sweet potatoes, carrots, etc) nine percent.

In Chile, the Agriculture Ministry’s Office of Agrarian Studies and Policies reported that the consumer price index rose by 4.7 percent and food prices went up 13 percent in September, while the increases were 5.8 and 14.8 percent, respectively, in October.

In Uruguay, inflation stood at 8.4 percent in the first 10 months of the year. And although the consumer price index went down by .23 percent in October, the prices of food and beverages went up 2.28 percent, of fruit 7.4 percent and of vegetables five percent.

Authorities in the Southern Cone countries have adopted different measures to deal with the problem.

"In Argentina, ‘retentions’ or taxes on exports of grains and cereals have kept domestic prices 30 percent below global prices on average," said Vilella. These taxes, in effect since 2002, went up this month by five to eight percent.

The government is also negotiating sector-specific voluntary price caps aimed at keeping down the cost of key products, while it has temporarily reduced import duties (on potatoes, for example), has restricted beef exports, and has expressed support for consumer boycotts of certain products, like tomatoes.

This year, the Secretariat of Agriculture, Livestock, Fisheries and Food has disbursed 187 million dollars to more than 30,000 agricultural producers in order to bolster the "expansion of the sector, while protecting local consumers from feeling the impact of the high international prices," it reported.

Another pending task is fighting the increasing concentration of production, which is a decisive factor with respect to the behaviour of prices. Since the late 2001 economic meltdown in Argentina and subsequent depreciation of the peso, inflation has totalled 99 percent, while food prices have gone up 136 percent, and some have increased by as much as 250 percent.

Argentina&#39s Secretariat for the Defence of Competition and Consumers, the government antitrust agency, reported that the 20 basic food products whose prices have risen the most are controlled by a handful of businesses.

In Brazil, Uruguay and Chile there are no taxes on exports, but their national currencies are stronger against the dollar than the Argentine peso, and the impact on the consumer is not as strong.

In Brazil and Uruguay, to keep food prices affordable, the authorities have decided on temporary imports of some products or consumer tax cuts. Producers in Brazil are compensated with soft loans, and in Uruguay, sectoral agreements have been reached on the prices of certain products.

In Chile, on the other hand, government intervention in the market is much less frequent.

What is clear is that food has become more expensive in this subregion, especially due to the steadily growing international demand for agricultural products.

The boom in commodity prices seen in the last five years has given rise to a new term, "agflation", for the phenomenon of food prices driving up consumer prices.

The way to counteract this, according to some observers, is by increasing supply – a tactic that has its limits, however. Others say that even by doing so, it will be difficult to control the phenomenon, because if foreign markets are more attractive, agricultural producers will increase exports accordingly.

Federico Ganduglia, a researcher at the Inter-American Institute for Cooperation on Agriculture (IICA), said the main factors are increased demand, the growing need for corn to produce ethanol, and the sky-high oil prices.

"Demand for wheat is being pushed up by population growth," he told IPS. "China went from exporter of wheat to importer, and that is driving up prices." Meanwhile, the "new industrial revolution in that country and in India has brought millions of workers into the market for foodstuffs."

Another question is the impact of speculative investment, which has made food prices more volatile. "The mere expectation of an increase draws in speculative capital, and bubbles are created," said Ganduglia.

In summary, he said there is no one single factor to blame, but several aspects that have come together to make food less affordable for Southern Cone consumers.

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