VZCZCXRO8643
RR RUEHGR
DE RUEHBE #0235/01 1291422
ZNR UUUUU ZZH
R 081422Z MAY 08
FM AMEMBASSY BELMOPAN
TO RUEHC/SECSTATE WASHDC 1271
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RUCNCOM/EC CARICOM COLLECTIVE

UNCLAS SECTION 01 OF 02 BELMOPAN 000235 
 
SIPDIS 
 
DEPT FOR EEB/TPP/ABT/ATP (JANET SPECK), WHA/CEN (ROIS BEAL) 
 
E.O. 12958:  N/A 
TAGS: EAGR EAID ETRD ECON PGOV PREL BH
SUBJECT:  RESPONSE: IMPACT OF RISING FOOD/COMMODITY PRICES - BELIZE 
 
REF:  State 039410 
 
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SUMMARY 
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¶1.  Belize is an import dependent country and the impact of 
increasing global prices for commodities and high energy costs 
directly add upward pricing pressure to the economy.  The inflation 
rate reached a ten-year record high of 4.5% in the first quarter of 
¶2008.  Dairy products, chicken, corn, and flour reflect the most 
notable price increases and have demonstrated shifting markets with 
associated price changes.  Increasing energy costs are often cited 
as the key contributing factor.  The Government of Belize (GoB) has 
responded by laying out several proposals including a windfall 
profits tax on the oil industry to finance subsidies for commodity 
imports.  Rising commodity prices in neighboring markets are putting 
pressure on the domestic price controls Belize imposes on 
commodities.  Continued rising food prices will quickly and directly 
add inflationary pressure to the local economy as Belize is a net 
importer of many agricultural products. 
 
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SUPPLY/DEMAND SITUATION 
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¶2.  Total agricultural imports into Belize have averaged an increase 
of 5.0% each year over the past five years and recorded a local 
Consumer Price Index inflation rate in the first quarter of 2008 of 
4.5% - the highest in ten years. 
 
¶3.  Dairy product imports such as cheese and powdered milk, have 
increased by 4.5% over the past three years and reflect a 52% price 
rise.  The price of chicken has also been steadily increasing as 
producers blame higher fuel and feed costs.  Within the past six 
months there has been a 24% increase in price resulting in only a 
modest decline in consumption.  Producers have also diversified into 
the processed meat market to cover costs and maintain profits. 
 
¶4.  The past year has seen a shift in the market for corn.  This 
commodity had been sufficiently produced for local consumption. 
However, as global corn price increased, domestic producers began 
selling corn to regional markets.  This created a shortage on the 
local market and in 2007, for the first time, Belize imported corn. 
Officials note that local markets are showing a 263% increase in the 
price of corn over the past three years and tortilla, a common local 
food product made from corn, recorded a 20% price rise late last 
year. 
 
¶5.  Flour is also being affected by its key imported input -- wheat. 
 The price of flour increased earlier this year in response to 
rising wheat costs.  Flour is still produced in Belize primarily for 
domestic consumption resulting from limited processing 
capabilities. 
 
¶6.  Local reports indicate that some merchants are hoarding supplies 
to ensure maximum prices when supplies fall short and others are 
smuggling products across borders in order to obtain higher prices. 
Rising energy prices have also had a major impact on food prices. 
 
 
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POLITICAL/ECONOMIC EFFECTS 
-------------------------- 
 
¶7. (U) The most straining economic issue for Belize has been its 
overwhelming foreign debt; a massive debt restructuring in 2007 
saved Belize from a near-term crisis.  As of September 2007, total 
external debt stood at 84.1% of GDP.  The Belize economy was 
previously able to absorb the impact on the current account as 
higher oil receipts neutralized higher import costs.  However, the 
oil industry here is still relatively new and the GoB is not yet 
certain how to deal with complex industry-related issues.  Rising 
external food and fuel prices are contributing to the record 
inflation rate since Belize is heavily import dependent. 
 
¶8.  Public debates relating to rising food prices have become more 
frequent and food prices have become a daily topic on the radio and 
in local newspapers.  The GoB has been pressured to subsidize rising 
food costs by increasing taxes on the oil industry reducing the 
government tax at the pump, and utilizing output from the local oil 
producers to supply the local market, thereby lessening the impact 
of increased energy prices.  Despite the increased prices on 
staples, there have so far been no reported cases of public protests 
or unrest, nor have there been reports of increases in the theft of 
major commodities. 
 
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ENVIRONMENTAL IMPACT MARGINAL 
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BELMOPAN 00000235  002 OF 002 
 
 
 
¶9.  Though the impact on the environment has been marginal, tensions 
between environmental groups and the electricity company as it 
expands its renewable energy projects - hydro power - to meet rising 
fuel costs are increasing. 
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POST PROGRAMS 
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¶10.  Rising food prices have not impacted post programs. 
 
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GOB RESPONDS TO RISING FOOD PRICES 
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¶11.  The GoB raised the price ceiling on one commodity - flour - by 
40% to bridge the gap between the local price and the higher price 
in neighboring countries.  The difference had encouraged the export 
of flour.  The Government has also introduced a toll free consumer 
hotline as a direct result of consumer complaints about price 
gouging (between 25% to 40%) by merchants. 
 
¶12.  Government officials are also discussing various ideas such as 
providing subsidies to producers, reducing tariffs on agricultural 
inputs, and reducing taxes on other goods/services to ease increases 
in the costs of agricultural products.  Any of these would have a 
negative impact on government finances. 
 
¶13.  The GoB recently announced a plan to introduce a new windfall 
profit tax on the country's oil producers benefiting from high oil 
prices.  Inflows would be used to subsidize key import commodities 
to help mitigate current price increases. 
 
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POLICY/PROGRAMMING RECOMMENDATIONS 
--------------------------------- 
 
¶14.  Belize will face substantial challenges in trying to mitigate 
the pressure of high food prices.  As a net importer of many 
agricultural goods, Belize directly suffers from worldwide price 
increases.  Encouraging the expansion of domestic agricultural 
production may help.  Consideration of the following 
policy/programming alternatives may also assist Belize in the near 
term. 
 
a) A micro-lending program designed for small farmers would assist 
the most vulnerable segment of society directly without adding to 
the overwhelming outstanding debt on a national level. 
 
b) Belize does not have the capacity to store food inventory. 
Improvement of storage facilities and distribution could help ensure 
availability in the event of shortages and price fluctuations. 
 
c) Belize could use assistance in developing a more stable 
regulatory environment to prevent collusion and price gouging 
amongst suppliers. 
 
DIETER