The Latin America and the Caribbean (LAC) region has a staggering degree of potential in the agribusiness sector. Rich in three key elements of agricultural production – land, water, and natural habitat – the LAC region has a third of the world’s fresh water resources and about 28 per cent of the world’s land with medium to high potential for environmentally sustainable expansion. Recognition of this wealth of natural resources has led experts at the Inter-American Development Bank to comment that ‘Latin America may well hold the key to a solution to the world’s food security challenges’. As evidence of that bold statement, the LAC region as a whole has become the largest net food exporting region worldwide.
Not only is the region rich in natural resources, but its human capital is strong and primed for future agribusiness development. Small-scale family farms account for 80 per cent of the LAC region’s farms and employ 64 per cent of the agricultural workforce. Put simply, ‘the essential building blocks for massive and sustainable agricultural growth are already in place,’ so the foundation has been laid for LAC to become the breadbasket of the world. Achieving this title, even with an impressive proportion of global resources, will be no easy feat. Protectionist global trade policies and regulatory barriers have long presented challenges for producers in the LAC region.
Encouragingly, the US legislative status quo may have shifted this past year. Following more than two years of debate in Congress, President Obama signed the 2014 US Farm Bill (2014 FB) into law on February 7, 2014. This reform authorizes US$489 billion in spending for the next five years and significantly shifts how US resources are allocated with respect to agriculture, which is likely to impact agribusiness worldwide. Notably, the 2014 FB has shifted protections and regulations away from individual producers and toward stability and risk coverage for the nation as a whole, which may create opportunities for LAC agribusiness.
One such opportunity stems from 2014 FB’s elimination of counter-cyclical payments, which basically guaranteed minimum prices to individual US producers. This minimum guarantee had negatively impacted agribusiness in regions that did not have similar subsidies and assurances, such as Argentina, Chile, Paraguay, Uruguay and Brazil. These particular countries are ‘major exporters of one or more of the commodities that compete with those from the US’ in the global marketplace. Thus, the elimination of programs offering direct support to the LAC region’s competitors – producers and exporters in the US – may ease the downward pressure on international prices and positively impact agribusiness in LAC.
But not all aspects of the 2014 FB are positive for LAC agribusiness. Two new programs in particular created by the 2014 FB may negatively impact the LAC region. First, the Price Loss Coverage Program allows US producers to recover payments if the average market price for a particular harvest is less than the reference price specific to that crop. Second, the Agricultural Risk Coverage Program guarantees US producers a certain percentage of revenue. Consequently, although some direct support to US producers has been cut away with the elimination of the counter-cyclical payment structure, a broader agricultural safety net and risk coverage for LAC competitors may hinder any potential gains for LAC agribusiness. Indeed, one commentator notes that LAC economic growth ‘is expected to increase at a lower rate this year’ perhaps due to the competing, significant influences of the 2014 FB.
Due primarily to its rich base of natural resources, the LAC region is positioned favorably for further development and success in the agribusiness sector. However, the region is still deeply impacted by protectionist trade regimes. While the 2014 FB has shifted the focus of some of the protections for US producers, it remains to be seen how this legislation will influence international market dynamics, particularly with respect to the promising LAC region.