Central America´s Business Blog

High food prices create opportunities for Central America.

A global food crisis would be bad for poor people everywhere.
But with the right approach, Central America could produce more food for export and generate more revenue.
This would reduce the impact of high food prices for many Central Americans.
It would also be good for investors.
When it comes to agriculture, Central America has five major assets - fertile soil, abundant water, a year-round growing season, competitive labor and convenient access to major markets.
At the same time, the region is less productive than it could be.
Some land is too dry for crops.
Many farms are small, with owners who can’t afford to install irrigation systems, and who don’t have access to modern agricultural techniques.
Small farmers, who generally sell their crops in nearby town or village markets, have no idea how to export their products.
Much of the region consists of mountain ranges, with narrow valleys and limited farming areas on each side.
Then there is the problem of six national borders, each with its own often interminable procedures, which increase the time and cost of moving farm products and personnel between countries.
But if prices stay high for several years, as seems likely, there are several ways in which Central America could grow more food, without cutting down existing forest or jungle.
One approach involves government support for the agricultural sector, especially in seed research and other technical-support programs.
The region’s governments generally have low tax revenues and little if any spare cash.
But high food prices could create enough incentive for them to find money for farmers.
Meanwhile, it doesn’t cost much to speed up border procedures.
For their part, private investors can afford irrigation and crop-improvement projects.
In addition, these investors would know the tastes of foreign consumers, and understand transportation and financing issues, as well as how to promote and sell their products to buyers in other countries.
Exporting can be expensive – one of the factors pushing up international food prices is the cost of petroleum.
But most agriculture exports would go to the United States (by far the region’s biggest potential market) by ship, a relatively cheap system of transportation.
Since no Central American country is more than three days away from southern U.S. ports, perishable products would still be fresh when they arrive.
Except for sugar, every current or future Central American agricultural product, including processed foods, can - or under the terms of the region’s free trade agreement, will soon be able to - enter the United States without duties or quotas.
High food prices should result in the creation of more Central American farmland, as ranchers turn excess pastures into crop-growing areas.
Even if geography means that the region will never have many big farms, small can be beautiful.
Small farms are fine for specialty crops, which often produce a higher rate of return than commodities.
Besides, small farms can in the right circumstances be big businesses.
By building strong cooperatives, local growers could share resources.
A private investor who buys numerous small farms would save money by consolidating the group’s research and administration functions.
During the last decade, a tourism boom dramatically pushed up land values and created hundreds of thousands of well-paying jobs in Central American beach areas.
An agricultural boom could do the same thing in farm country.