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Food Crisis Reverses Middle Class Trend in Latin America

New America Media, News Report, Marcelo Ballve Posted: May 06, 2008

Editors Note: The food crisis in Latin America is eroding the spending power of the new middle class, and with it, their optimism in the future of the regions economy, writes NAM contributing editor Marcelo Ballv.

In Latin America, the global food crisis has done more than just trigger protests and force governments to scramble for stopgap solutions. The crisis has begun to reverse the most positive regional trend of recent years: the decline of poverty and the nascent emergence of a new middle class.

Boosted by consistent economic growth, low inflation and government social spending, working poor people across Latin America especially in Brazil and Mexico saw their spending power climb during the last five years, until they achieved the trappings of a middle class lifestyle. They began to enjoy expanded access to consumer goods, home ownership and credit, as well as more stable jobs and careers.

In Brazil, this phenomenon was dubbed the "China effect," since like in China it seemed as if a new consumer class had been created overnight.

The advent of a new middle-income sector (in reality a post-industrial working class or lower-middle class tied to the services industry) was widely hailed as a sign that Latin America was finally turning the corner in its struggle against poverty and inequality. As recently as late last year, The Economist published a long feature on the theme, headlined, "Adis to Poverty, Hola to Consumption."

For a time it seemed as if there were no clouds on the horizon, and the economic rise of these households couldn't be checked. But now the food crisis is unraveling their spending power, the basis of their new opportunities. In every country in the region, inflation has reared its head again, mainly because of the spiraling upward trend of oil and food prices. Pay raises, if there are any, are not keeping pace, and the end result may be that millions slip back into poverty, their incomes slowly gnawed away by grocery bills.

One study, released April 18, estimates that the food crisis will cause up to 15 million Latin Americans to fall or return to their former place below the poverty line.

"This is a dramatic situation for a large number of people," said Jos Luis Machinea, director of the U.N.'s Economic Commission for Latin America and the Caribbean, which released the study.

Many Latin American leaders have raced to limit or regulate grain out-shipments (Argentina's government has slapped a 27 percent tax on soybean exports), instill price controls, or promise government-financed food stockpiles. But after decades of deregulations, privatizations and free trade agreements such as NAFTA (which led to the liberalization of Mexico's corn market), it seems unlikely that state-directed efforts will turn out to be more than improvised defenses against the tide of price pressures.

What's certain is that the crisis is inflating the prices of Latin America's most emblematic and widely consumed foods.

In Mexico, an alliance of farm groups recently sent a strongly worded message to President Felipe Caldern, the subtext of which was this: It's the price of tortillas, stupid. It was their attempt to shake his administration out of what they believe to be its complacency in the face of the food crisis, which in Mexico has caused the price of staples like eggs, milk and corn to shoot up.

Their communiqu said that within months the price of corn-based tortillas would likely reach the psychological significant threshold of 11 pesos a kilo, or roughly the equivalent of one U.S. dollar. For over a year now, since the January 2007 protests against tortilla price-hikes dubbed "the tortilla wars," Mexicans have feared the advent of the one-dollar kilo. If it arrives, a return of the tortilla wars seems likely.

But instead of racing to implement concrete solutions, Mexico's government "has assumed a calming attitude of 'there's nothing wrong here,'" said Victor Surez Carrera, head of the Asociacin Nacional de Empresas Comercializadoras de Productores del Campo (ANEC), an association of small and medium-sized farms.

Although the government assures Mexicans that there will be no food shortages, "they don't say at what prices or with what economic consequences," Surez added.

In Brazil, the trouble lies with beans and rice. For most Brazilians, it is the side dish and sometimes the main course of every meal. Delivering a report on inflation last month, Brazil's finance minister Guido Mantega said that if it wasn't for the "fiejozinho" Brazilians eat every day (deploying the affectionate diminutive in reference to fiejo, or beans), then the projected inflation for this year would be significantly lower than the official figure of nearly 5 percent.

However, Brazilian media were quick to respond that inflation was worrisome precisely because it was being increased by the soaring price of everyday staples like beans.

As in Mexico, Brazilian leaders have tried to sound upbeat. Because their country is an agricultural powerhouse, one of the world's top producers of foods like corn, soybeans and rice (the only non-Asian country in the rice-producing top 10), government ministers have been quick to sound a positive note and hint at Brazil's invulnerability.

"If there's a country that can reposition itself quickly in order to increase its food production, it's Brazil," said Planning Minister Paulo Bernardo.

Brazilian President Luiz Inacio "Lula" da Silva has gone on a counterattack, blaming rich countries' agricultural subsidies and corn-based biofuels (as opposed to Brazil's own sugarcane-based ethanol) for the food panic.

The reality is that despite Brazil's aggressive diplomacy on the subsidies issue and self-perception as the world's tropical food basket, it can do little in the short term to control the commodity markets, which are driven by speculation based on a variety of factors, including the spiking demand of India and China.

Meanwhile, hunger and riots are not precisely what Latin America's governments should be worried about. The food crisis threatens the region with something more corrosive: a creeping erosion of the optimism and belief in participative democracy that accompanied families' emergence out of the grind of poverty.


Related Articles:

The Hidden Battle for the World Food System

The Global Food Crisis on Two Continents

Could the Global Food Crisis Impact America?



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