Overall changes in food imports, production and availability

Average tariffs in Central America declined from 45% in 1985 to around 6% in 2000. In line with this, total food imports into the Central American countries more than doubled between 1990/92–2003/05 from 4.5 to 9.6 million tonnes [19]. Honduras and Costa Rica registered the highest rates of growth, followed by Guatemala and El Salvador (Figure 1, Table 1). Food imports into Central America from the United States alone almost tripled since 1990 [17].

Table 1 Food imports, production and availability for consumption in the Central American countries, 1990/92–2003/05*, million metric tonnes Full size table

Figure 1 Total food imports into the Central American countries, 1990–2005. Note: "Food" includes animal meat (bovine, swine, sheep, poultry); fish; animal products (e.g. dairy products, eggs); vegetables; fruit; cereal grains; flours; raw nuts & seeds; fats & oils (some appear to be for industrial use, but are not split out for this spreadsheet); processed meats; sugar; cocoa beans & derivatives; cereal foods (processed); preserved foods (esp. vegetables); food preparations; non-alcoholic beverages. It excludes: live animals; inedible animal products (e.g. hair); plants, cut flowers etc; coffee, tea, spices; seeds definitely for planting etc; gums & saps; vegetable material (inedible); vegetable waxes & residues; alcohol & alcoholic drinks. Source [15]. Full size image

Between 1990 and 2005, the increase in the amount of food imported was relatively greater than the increase in production, indicating that imports became a more important source of foods consumed in the region (Table 1). Food available for consumption increased by less than the combined increase of production and imports, reflecting the fact that a greater proportion of the food supply is exported (90% increase between 1990 and 2005) or used as animal feed (75% increase). While these trends reflect the overall situation in Central America, there is a great deal of variation between the different food groups and countries, which are discussed below in relation to changing trade policies in the region.

Staple grains

The United States is the leading source of imports of the three major grains, corn, rice, and wheat, into Central America. By volume, these grains comprise over 80% of all food imported from the United States [17], and imports have grown significantly since 1990, particularly of rice (Table 2).

Table 2 Imports of the three major grains into Central America from the United States, 1990/91 and 2005/06 Full size table

As rice imports have increased, domestic production has declined. However, the rise in imports has been greater than the decline of production, resulting in a greater overall level of supply, with rice availability increasing in all countries (Figure 2). In 1990, 39% of rice available for consumption in Central America was imported; the figure now stands at 69%. Over 90% of these imports are of rough rice (which needs to be milled before consumption).

Figure 2 Production, imports and consumption of rice in Central America, 1990–2005. Source [15]. Full size image

Since rice is an important crop for domestic producers, it has historically been subject to high levels of protection and high tariffs remain in place (30–60%). Nevertheless trade policies for rough rice have been liberalized through alternate means: the removal of import licensing systems, the elimination of price banding mechanisms, the introduction of tariff-rate quotas, and the relaxation of phytosanitary requirements.

These new trade policies have had a clear impact on imports. In Honduras, for example, the replacement of the system of import licensing and administrative permits by a quota system in 1994 and relaxation of phytosanitary restrictions in 1997 were followed by a steady increase of rice imports [20–22]. In 1999, the government lowered the import tariff to 1%, further stimulating imports. In contrast, Nicaragua has had the smallest increase of rice imports in the region. Again, this reflects trade policies. In 1992, the government implemented a price band mechanism for rice, which directly restricted rice imports from the US and since then policies have remained restrictive. Notably, as a means of protecting the local rice milling industry – and in response to extensive lobbying by this industry – the market for milled rice has hardly been liberalized at all and imports have remained extremely low.

Trade policies have, then, facilitated greater availability of rice in the region, but with variation between countries due to policy differences. The situation for corn is a little more complex because there are two types of corn: yellow (animal feed) and white (human consumption). While corn imports into Central America have increased, this is overwhelmingly the result of increasing imports of yellow corn for animal feed (discussed in the next section) (Table 2). Imports of staple grain used for human consumption, white corn, remain limited due to high import barriers in place designed to protect domestic producers. These barriers continue under CAFTA implementation.

Meat and animal feed

The United States is the leading exporter of meat into Central America, and since 1990, meat exports have grown significantly (Figure 3). This largely reflects increasing exports of poultry and pork: poultry imports into Central America increased from 22% to 71% of total meat imports between 1990 and 2006, and pork imports from 6–18% (previously, imports were dominated by offal and preserved meat) (Figure 3). The steep increase of poultry imports is largely due to frozen poultry cuts, which now form 30% of all meat imports from the United States. Eighty-eight percent of these cuts are frozen chicken leg quarters, a by-product of chicken breast production in the United States [23].

Figure 3 Meat imports from the United States into Central America, 1989–2006. Source [16]. Full size image

Guatemala receives 90% of all poultry imported from the United States [17], and 58% of all chicken imports into the region [19]. In 2005, imported poultry from the United States represented approximately 30% of local consumption in Guatemala [24].

Imports of frozen chicken leg quarters into Guatemala grew particularly fast after 1997, a change that reflects the liberalization of trade policy, which progressed after the signing of the Peace Accords in 1996 [25]. Up until to 1997 (from at least 1995), there was a 3600 MT/year quota with a 20% in-quota tariff and 50% out-of-quota tariff, which created a strong disincentive to exporters [26]. However, in October 1996, the government announced a new poultry import policy that doubled the annual TRQ, and reduced the in-quota tariff to 15% [27]. Imports started to rise immediately (Figure 4). Reinforcing this policy, the TRQ was increased to 39,452 MT in 2005 with an in-quota applied tariff of 5%. According to analysis by the USDA "This greatly stimulated U.S. exports, and by 2005 poultry exports reached the highest value ever reported ($ 44.8 million)" [28]. As a result of the policy changes, "the growth in consumption is likely to have been picked up by US imports, leaving insignificant production growth" [29].

Figure 4 Imports of chicken meat from the US into Guatemala, 1990–2005. Source [16]. Full size image

Rising chicken imports into Guatemala have had a discernible impact on total chicken availability in the region (Figure 5). Reflecting much more restrictive import policies, imports into other countries have increased by a smaller amount. However, the limited import liberalization that did occur in the other Central American countries also boosted imports. For example, for most of the 1990s, Honduras implemented a 100% tariff on poultry meat and phytosanitary requirements restricted imports. In 1999, Honduras' tariff binding for poultry meat declined to 50%, and the country loosened its zoosanitary import requirements for poultry in an effort to comply with its WTO commitments [30, 31]. Subsequently, poultry imports have increased by 20% per year and Honduras has emerged as the second largest chicken importer in the region [32].

Figure 5 Production, imports, and availability for consumption of chicken meat into Central America, 1990–2005*. Source [15]. *The graph includes all chicken imports into the region, but the change since 1997 reflects imports from the United States. Full size image

Trade liberalization policies in Central America have clearly had an impact on chicken availability. However, the vast majority of increasing availability has been a result of increased domestic production (Figure 5). Yet this, too, partly reflects the impact of trade liberalization, since trade policies have stimulated the import of one of the major inputs into chicken production: yellow corn.

Imports of yellow corn into Central America from the United States increased by 283% between 1990 and 2006. During the same time period, most countries implemented limited but consistent measures to open up their market for yellow corn. In 1997, Guatemala, the leading corn importer in the region, opened up the TRQ for yellow corn imports, at a 5% in-tariff quota and a 55% out-of-quota tariff [33]. The quota was subsequently increased, reaching 100,000 MT by 2000 [34] and 501,820 MT in 2001 (5% in-tariff quota and out-of-quota tariff of 35%) [35].

The result has been increased availability of yellow corn for animal feed in the region (Figure 6). The increase cannot be explained by rising domestic production, since this is almost exclusively of white corn for human consumption. It is worth pointing out that the main user of yellow corn, the poultry sector, lobbied strongly for declines on import barriers for yellow corn. The reduction in the tariff on yellow corn implemented in El Salvador in 1995 was, for example, "mostly a result of pressure brought to bear on the government by poultry producers" [36].

Figure 6 Production, imports, consumption of corn (yellow and white) in Central America, 1990–2005. Source [15]. Full size image

Dairy

In contrast to other commodities, the United States is not the leading dairy exporter into Central America: Europe and Australasia are important exporters, and there is considerable intra-regional trade. But between 1990/91 and 2004/06, imports of dairy products from the United States into Central America increased by 949%, and the United States became the leading exporter of two products: processed cheese and whey. Between 1990/91 and 2004/06, imports of processed cheese – such as cheese slices, sold in supermarkets and used by fast food outlets [37] – rose 3215% to comprise 37% of all cheese imports from the US [17]. It is notable that the two leading importers of processed cheese, Guatemala and Honduras, had significantly lower tariffs than the other countries: less than 20% compared with 35–66% in 2003 [38]. That these relatively high tariffs have clearly not been completely prohibitive, is likely to be because processed cheeses are predominantly sold to the fast food industry, or wealthier consumers able to afford higher prices in supermarkets.

The second product in which the United States dominates is whey – the liquid byproduct of cheese production – which formed 24.4% of all dairy product imports in 2004/06, an increase of 719% since 1989/91. The United States is the leading producer and exporter of whey in the world [39]. Whey and its derivatives are used in animal feed, pet foods, and as an ingredient in many processed foods [40]. The increase in imports is unlikely to have been directly affected by changing trade policies, since tariffs on whey in Central America have been consistently low; in 2003, tariffs were 0–1% for all countries [38]. Rather, increased imports reflect increased demand from the growing food processing industry in the region and extensive marketing by US whey exporters, with imports responding in the absence of trade barriers.

Fresh and processed fruits and vegetables (including potatoes)

Imports of fresh fruits and processed fruits and vegetables from all countries into Central America have risen significantly since 1990, while imports of fresh vegetables have declined. Fresh fruit imports are largely (77%) of apples and grapes, of which the United States, alongside Chile, is the leading source of imports [18]. Although apples and grapes make up just 5% of total fruit consumption in the region, that they are consumed at all is a direct result of imports, since domestic production is low (Figure 7). In turn, increased imports have been associated with reduced trade barriers. Imports of apples into the regions' largest importing country, Guatemala, began to rise steeply in 1996, coinciding directly with the liberalization of the import market for apples through implementation of a TRQ and reduced in-quota tariff (12%). The new policy also eliminated the import licensing requirement for apples and allowed apple imports all year round [41]. Imports in 1996 filled the set quota; subsequent increases in imports reflect the higher TRQ of 10,000–15,000 MT set the following year [42].

Figure 7 Imports of apples and grapes into Central America, 1990–2005*. Source [15]. * This graph shows imports into Central America from all countries, but imports are overwhelming dominated by the United States and Chile. Full size image

With regard to processed products, the most significant trend is the rise of imports of French fries, particularly post-2000 (Figure 8). French fries formed 23% of all imports of fruits and vegetables in 2004/06. The amount imported varies between countries: Guatemala led with 35% in 2006, compared to Costa Rica at 5%. The United States and Canada are the leading exporters of frozen potatoes to the region [18].

Figure 8 Imports of french fries (frozen) into the Central American countries from the United States. Source [16]. Full size image

There are no data on availability of French fries in Central America, but if information from Costa Rica is illustrative, it is likely that all frozen French fries are imported, since domestic producers do not grow the specific type of potato required by the industry [43]. Thus imports are 100% responsible for availability. Sales of frozen French fries are largely to fast food outlets, restaurants and hotels. In Costa Rica, 75% of all frozen French fries enter this market, with the remaining 25% being sold by supermarkets [43]. In Guatemala, sales from supermarkets are apparently negligible, so it is likely that all imports are sold by the food service industry [37, 44].

Tariffs on frozen French fries are not particularly high for four of the countries -15% – but it is notable that the country with the lowest amount of imports, Costa Rica, has a tariff of 41%. While imports into Costa Rica rose during the 1990s, fuelled by demand from fast food restaurants and the tourism industry, in the 2000s, imports from Canada grew rapidly to the detriment of other importers (Table 3). This was the direct result of policies arising from the Canadian-Costa Rica trade agreement, implemented in 2003. In the agreement, Costa Rica implemented a TRQ with a zero in-quota tariff for imports of Canadian French fries, with the 41% out-of-quota tariff phased out over eight years.

Table 3 Export Volume of Frozen French Fries to Costa Rica (2001–2005) (Metric Tons) Full size table

No information could be obtained about trade policies specific to frozen French fries for the other countries. It is likely that increased imports stems from increased demand from the spread of the fast food industry in the region and the lack of a punitive tariff [45].

Snacks

Snacks are defined by the USDA FAS data system as chocolate confectionary, sugar confectionary, chewing gum, cookies and pastries (sweet snacks) and popcorn, potato chips and other chips (savoury snacks). Imports of all snacks into Central America – as well as intra-regional trade – increased during the 1990s (Figure 9).

Figure 9 Pastry, biscuit and confectionary imports into Central America, 1990–2004. Source [14]. Full size image

Specifically, imports of chocolate, candy, cookies and pastries and popcorn from the United States into Central America grew in the early 1990s, and of potato and other chips in the late 1990s (Figure 10). As of 2006, the largest snack categories imported by weight were confectionary (chewing gum, sugar-based candy and chocolate) and popcorn.

Figure 10 Snack imports from the United States into Central America, 1989–2006. Source [14]. Full size image

There are no data on total availability of snacks in the countries, but expenditure data in two of the largest importing countries, Costa Rica and Guatemala, suggests that consumption is rising. In these two countries, sales of chips, popcorn, chocolate, confectionary and cookies all show a markedly increasing trend [37, 44].

Tariffs on snacks into Central America are not notably high – all are under 20% with the exception of potato chips into Costa Rica, which faced a 41% tariff in 2003 [38]. Specific trade policy changes affecting snacks could not be identified from the available literature but trade barriers were reduced across the board in many Central American countries during the 1990s [46]. In addition, the growth of large supermarkets in the region – itself encouraged through the liberalization of investment policies – is likely to have increased the incentives for manufacturers to export into the region, particularly for commodities with low trade barriers [47–49]. Many of these supermarkets have established relationships with American processed food suppliers, and because of their size, capital base, economies of scale in storage and distribution and technological advancements in supply logistics, are able to make available a far wider range of snack foods relative to small stores [4].

It is also noteworthy that during the 1990s, the growth in processed food sales by US affiliates in Guatemala and Costa Rica significantly outstripped growth in sales of US exports [50]. Indeed, much of the market for chips in Guatemala is dominated by U.S. companies which have invested in the region. In 2005, PepsiCo had a 60% share of the market for sweet and savoury snacks [44]. US companies (Kraft, Mars, Hershey) also dominate the market for chocolate confectionary in both Costa Rica and Guatemala [37, 44] This suggests that much of the market for snack foods from the United States is the result of foreign direct investment (FDI) into Central America by the food industry, rather than direct exports. American companies do, however, face significant domestic competition from leading snack food companies like Diana in El Salvador and Señorial in Guatemala. In cookies, for example, local companies have a greater market share than the U.S.-based Nabisco [44].