Drying up

Latin America has suffered a record series of droughts resulting in water crises.

Latin America is suffering a record series of droughts which have resulted in a water crisis impacting Argentina, Paraguay, Brazil and Mexico. These frequent and intense droughts are having a negative impact on the regional economy including sectors such as agriculture, mining, energy and transport, among others.

According to a Bolivian food security expert, “The bad news for the region is that the droughts don’t seem to stop – this is the second year of intense droughts and there are also intense rainfalls. All of this is having an adverse impact on crops for export such as soybeans or sunflowers, but also basic foods for the family basket such as fruits and vegetables.”

“The bad news for the region is that the droughts don’t seem to stop – this is the second year of intense droughts and there are also supernormal rainfalls.”

Food security expert, Bolivia

These droughts are hitting most crops in the region, from sugarcane to orange, grains and coffee. Grain price increases also affect livestock farmers. The resulting increase in consumer prices has caused higher levels of inflation in the region. Brazil saw its highest level of inflation in 27 years last September as inflation rate rose by 1.14% throughout the month, up to 7.02%. Also, in September the Bank of Mexico expressed concerns about above-target inflation. Consumer prices in the country rose 0.42% with annual inflation reaching 5.87%.

A former Argentine trade official agreed, “The drought is having a very strong impact on MERCOSUR. The yields on land in Brazil and Argentina this year are going to be lower and this is going to increase the pressure that was already present on public finances. Despite the fact that international prices are rising, the decrease in production will not only reinforce inflation but also the fiscal deficit.

The yields on land in Brazil and Argentina this year are going to be lower and this is going to increase the pressure that was already present on public finances.”

Former trade official, Argentina

Although Argentina, Brazil and Mexico are not likely to face food insecurity in the short term, extreme weather in 2020 affected eight million people in Central America, according to the UN’s Food and Agriculture Organisation. Guatemala, Honduras, El Salvador, and potentially Nicaragua, will experience acute food insecurity levels in 2021 due to extreme weather conditions coupled with the repercussions and restrictions of the Covid-19 pandemic.

To mitigate the economic impact of all these structural adversities, Brazil and Argentina agreed, on 8 October 2021, on a framework to reduce MERCOSUR’s common external tariff to increase the bloc’s competitiveness in trade with the rest of the world. The measure will impact a wide range of products, including some involving agri-commodities.

Experts suggest that governments need to make long-term environmental and conservation, restoration and management policies to combat severe droughts. However, governments’ reactions are mixed. While neither Brazil nor Mexico have implemented a consistent plan to manage water reserves in the last years, Ecuador presented its National Drought Plan in June 2021. Additionally, the industry needs to voluntarily invest in water-saving technologies and comply with water behaviour regulations.

A food security expert remained concerned, “I don’t see concrete action being implemented. Some governments are too busy celebrating the rise in mineral prices and they don’t see the big problems to come. Due to the drought, there is less agricultural production, the price of feed for animals and for people will rise. Due to the drought, the rivers are so low that the ships carry less cargo and in some cases, as in Bolivia, there are already sections that are impassable. In addition, Asia is suffering from the same effects. They also have severe droughts which will result in fewer crops. The price of freight from China is still very high, as much as triple the previous cost of shipping to South America.” 

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