Famine Early Warning Systems Network

The year-on-year rises in general inflation reported in March (Figure 1) were 6.7, 7.0 and 8.7 percent for El Salvador, Honduras, and Nicaragua, respectively. These rises are largely driven by high food prices, with inflation in the food sector at 9.8 percent in El Salvador, 3.3 percent in Honduras, and 13.7 percent in Nicaragua. Food products with the biggest price increases included vegetable oils and fats, cheese, bread, and staple grains. For example, in March, the price of white maize in the San Salvador market increased by up to 16.3 percent compared to the previous month. Red bean prices remained stable in March thanks to the flow of freshly harvested grain to the market, but they continue to reach levels up to 46.5 percent above the five-year average. 

This high inflation, reported in the region since about mid-2021, is negatively and progressively impacting household economies, both in urban areas since households depend exclusively on food purchases, as well as in rural areas since these areas experience food shortages during the annual lean season which begins in April, making these households dependent on food purchases as their main source of food. In some areas of Honduras and Nicaragua that were affected by irregular rainfall in 2021, this lean season started earlier than usual, in March. 

A combination of factors has produced price rises, including the agricultural losses suffered in 2021 due to irregular rainfall, the high fuel prices that are raising transport costs, and rising fertilizer prices at the end of 2021, which increased production costs during the postrera and apante seasons. Market speculation has also contributed to these price rises, driven by the considerable uncertainty in the world economy and trade, itself a result of the COVID-19 measures imposed in 2020 and, since February 2022, of the crisis in Ukraine. 

Governments have taken various actions to limit inflation and the impact on the household economy. For example, in March 2022, the government of El Salvador cut fuel taxes to try to reduce the cost to the consumer. It then introduced fuel subsidies and froze fuel prices at the beginning of April, as well as applying subsidies to propane and price controls to public transport fares. In Honduras, the government decreed a price cut, of 10 lempiras, for fuels in general in February. Moreover, it introduced a 50 percent subsidy for propane (beginning in February) and for diesel (beginning in mid-March), and will gradually release strategic reserves of maize and beans in an attempt to curb speculation and increase supply to the market. The Nicaraguan government was the last to introduce measures to support the economy, and has done so to a lesser extent than its counterparts. Having already subsidized public transport, it then also froze fuel prices on March 20, 2022. It is, however, the country with the highest inflation in the region. Although all these government measures across the region did lead to a slowdown in price increases in April, prices remain atypically high.

This high-price scenario, coupled with high debt — a product of consecutive shocks in recent years — not only restricts access to food, but also affects the resilience and response capacity of poorer households. It is likely that debt declined as income was generated during the season of peak demand for labor, which ended in February. However, paying these debts, and the persistence of atypical debts, reduce the cash available and the purchasing capacity of poor households during the lean season, especially considering that employment options decline seasonally in rural areas. 

Limited access to food is also seen in urban areas, where employment rates, particularly in the informal sector, have not returned to pre-pandemic levels in the three countries. Data from the Salvadoran Social Security Institute show a decrease in the number of workers paying contributions to the institute in January 2022 compared to the previous month, although there was a slight increase compared to January 2021 and January 2020. However, the construction sector shows negative trends for all periods analyzed, while the domestic services sector, although recovering, remains below pre-pandemic levels. For Nicaragua, the Continuing Household Survey shows a moderate improvement in the unemployment rate during the fourth quarter of 2021, compared to the same period in 2020, but remaining below levels reported prior to the political crisis in 2018. For Honduras, although there are no updated employment-related data, the monthly index of economic activity showed in January 2022 a decline from December 2021 and a year-on-year fall of 8.2 percent. This may indicate that although employment has recovered to some extent from the effects of the pandemic, growth is not yet constant. 

The rainy season has not yet begun in the region, despite some precipitation in El Salvador. Farmers are therefore waiting for more regular rains to start the primera planting cycle. This year, despite forecasts of close-to-average rainfall, producers (especially medium- and large-scale producers) are likely to reduce the cropped area in this cycle, due to the high cost of agricultural inputs. For example, March 2022 saw a year-on-year increase in fertilizer prices of 133.4 percent. It is expected that high prices will continue to be reported during the outlook period. Some subsistence producers will receive agricultural packages, which often include fertilizers, from governments. However, this group does not represent the majority that will reduce or even eliminate the use of fertilizer before further reducing their planting areas. 

Given the factors described above, Crisis (IPC Phase 3) outcomes are expected to persist until the primera harvest, which takes place in August/September, in areas affected by drought in 2021 in central and southern Honduras. In the rest of the region, urban areas will mostly be in Minimal (IPC Phase 1), but households whose livelihoods depend on informal employment will face Stressed (IPC Phase 2) or, in the worst cases, even Crisis (IPC Phase 3) outcomes. Rural households have experienced economic decline and damage to livelihoods due to a series of heterogeneous, consecutive shocks in previous years. This situation, coupled with the forecasted persistent inflationary dynamics, will lead to Stressed (IPC Phase 2) outcomes, which will worsen until around mid-August, before improving with the harvest of staple grains from the primera cycle. This harvest will allow rural producer households to restock their food reserves, and non-producers to benefit from increased market supply and the consequent fall in prices, which will partially reduce the pressure on their budgets. 

It is expected that the poorest households, both urban and rural, will have to resort to more extreme coping strategies, such as replacing typical foods with less-favored or lower-quality food and, eventually, reducing the amount and variety of food they consume, in addition to reducing non-food essential expenditure. In households in Crisis (IPC Phase 3), consumption-based coping strategies are expected to intensify, with households reducing the number of meals per day, especially for adults, for the benefit of children — even when borrowing money or receiving food support from third parties — , as well as selling productive assets to maintain minimum consumption. 

Events that Might Change the Outlook

Table 1. Possible events over the next eight months that could change the most likely scenario