Remote Monitoring Report

Economic and food security improvements hampered by high fuel, utilities, and transportation costs

October 2021 to May 2022

October 2021 - January 2022

February - May 2022

IPC v3.0 Acute Food Insecurity Phase

1: Minimal
2: Stressed
3+: Crisis or higher
Would likely be at least one phase worse without
current or programmed humanitarian assistance
FEWS NET classification is IPC-compatible. IPC-compatible analysis follows key IPC protocols but does not necessarily reflect the consensus of national food security partners.
FEWS NET Remote Monitoring countries use a colored outline to represent the highest IPC classification in areas of concern.

IPC v3.0 Acute Food Insecurity Phase

1: Minimal
2: Stressed
3: Crisis
4: Emergency
5: Famine
Would likely be at least one phase worse without current or programmed humanitarian assistance
FEWS NET classification is IPC-compatible. IPC-compatible analysis follows key IPC protocols but does not necessarily reflect the consensus of national food security partners.

IPC v3.0 Acute Food Insecurity Phase

1: Minimal
2: Stressed
3+: Crisis or higher
Would likely be at least one phase worse without
current or programmed humanitarian assistance
FEWS NET classification is IPC-compatible. IPC-compatible analysis follows key IPC protocols but does not necessarily reflect the consensus of national food security partners.
FEWS NET Remote Monitoring countries use a colored outline to represent the highest IPC classification in areas of concern.

IPC v3.0 Acute Food Insecurity Phase

Presence countries:
1: Minimal
2: Stressed
3: Crisis
4: Emergency
5: Famine
Remote monitoring
countries:
1: Minimal
2: Stressed
3+: Crisis or higher
Would likely be at least one phase worse without
current or programmed humanitarian assistance
FEWS NET Remote Monitoring countries use a colored outline to represent the highest IPC classification in areas of concern.

Key Messages

  • Seasonal improvements in food availability and access across the region are improving outcomes to Stressed (IPC Phase 2) for most poor households. However, Crisis (IPC Phase 3) outcomes will prevail in Honduras’ Dry Corridor and east due to smallholder farmer’s primera crop losses and reduced coffee-related income.

  • For poor rural households, an increasing proportion of income will be allocated to non-food needs as prices for fuel, utilities, and transportation increase, as well as to accumulated debts from the atypically long lean season and the recovery of livelihoods in agriculture, tourism, and informal sectors following COVID-19 and storm-related deterioration. Furthermore, rising fuel and transportation costs are likely to influence higher food prices and result in reduced household purchasing power.

  • Economic activity in El Salvador and Honduras is likely to slowly recover as formal and informal employment opportunities, especially in tourism, begin to come back and remittances continue to fill gaps in income for middle and better-off households. Meanwhile, political uncertainty and insecurity are disincentivizing existing and future investment in Nicaragua, slowing the pace of recovery.

  • Climate forecasts anticipate average cumulative rainfall throughout most of the region. National postrera and early 2022 postrera tardía/apante harvests are expected to be near average as a result; however, below-average rainfall in northeastern Honduras is likely to cause crop losses and a below-average postrera harvest for smallholder farmers.

Zone CURRENT ANOMALIES PROJECTED ANOMALIES
Honduras Northeastern Honduras and, to a lesser extent, the Dry Corridor have observed below average rainfall for several weeks. This, along with high fertilizer prices, has negatively impacted primera yields for smallholder farmers. The delay of this harvest is expected to delay sowing for the postrera season, as some farmers use the same land plot for both cycles. Cumulative rainfall in the northeast is expected to be below average, which is likely to drive localized losses during the postrera season, particularly for smallholder farmers whose capacity to mitigate losses is limited.
    The coffee harvest, which starts in October and ends in January/February, is expected to be slightly below average according to United States Department of Agriculture (USDA) forecasts, due to last year’s crop damage, irregular rainfall early in 2020, and an increase in the prevalence of coffee rust and other pests. Nevertheless, the harvest is expected to be higher than that of 2019/2020, improving income opportunities for poor and very poor households.
Regional Erratic rainfall distribution and localized below average rainfall in parts of Nicaragua and Honduras led to below average primera production for smallholder farmers and delayed harvests by approximately 10-15 days. Although national harvests and market supply remain near average, affected households are experiencing a slight extension of the lean season. Remittances are expected to remain above average although their growth rate is expected to decrease from that at the beginning of the year.
  Annual inflation has risen in all three countries, with reported increases between 4.6 and 5.9 percent in September 2021 as compared to the previous year. This is driven by higher prices of gas, fuel, and electricity in El Salvador, and transportation in Honduras and Nicaragua. Food prices (including tortillas, vegetables, and animal protein such as eggs and chicken), and general inflation are likely to continue increasing in all three countries as the main drivers of this increase (fuel prices and transportation costs) are expected to continue to be above average through at least May 2022.
  Despite the release of the primera harvest and average market supply, all white maize retail and wholesale monitored prices in the region reported increases compared to last month, last year, and the five-year average. These atypical increases are mainly driven by high costs in transportation, gas, electricity, and agricultural inputs. For example, in Honduras, the cost of fertilizer reportedly increased 15.8 over last year and sits at 29.3 percent over the five-year average. Local factors also played a role, such as the above-mentioned delay in the primera harvest in Honduras and Nicaragua and an increase in the demand in El Salvador as food assistance from the government has decreased. Unemployment and subemployment levels are expected to remain high, particularly in Honduras and Nicaragua, due to the impacts of COVID-19, hurricanes Eta and Iota, and political uncertainty in Nicaragua. Formal employment will slowly rebound in urban areas, while the peak demand for manual labor (coffee, sugar cane and other cash crops) and the easing of cross-border restrictions will increase informal employment in rural areas. However, high transportation costs will negatively impact income throughout the harvest. Tourism and related sectors will see a gradual recovery in all three countries, with recovery in the informal sector lagging that of the formal sector.
  Red beans wholesale prices in the monitored markets in San Salvador, El Salvador have seen a downward trend since April, while in Tegucigalpa, Honduras there have been increases since August, mainly driven by rising costs and the concern over the losses expected as a result of the below-average rainfall throughout the primera cycle. White maize prices in El Salvador are expected to be slightly above average, while in Nicaragua, they are projected to be up to 22 percent above average due to significant transportation costs and below-average crop area and production.
    Slightly reduced postrera harvests due to localized losses are expected to be offset by imports, resulting in near average red bean supply in all three countries.
    Increasing agricultural input costs are likely to reduce crop areas in Nicaragua and Honduras. Red bean prices are expected to be near average until November, after which increases of over 20 percent due to higher fuel prices and inflation are expected. Prices in El Salvador are expected to be over 10 percent below average, due to the sharp drop since last April.

 

PROJECTED REGIONAL OUTLOOK THROUGH MAY 2022

In October, primera harvests are already flowing to markets, even in the areas of the Dry Corridor, central and northeastern Honduras, and northwestern Nicaragua where a 10-15-day delay occurred. National level maize production is expected to be above- average in El Salvador and Honduras and average to slightly below-average in Nicaragua. These flows will increase the market’s supply, driving a seasonal drop in prices. At the household level, poor and very poor urban households and non-producing rural households will benefit from this seasonal price trend, improving their food access, as they meet their food needs via market purchase. This harvest also allows producing rural households to replenish their food stocks for the next 3 or 4 months. However, according to a crop assessment carried out by Honduras Permanent Commission of Contingencies (COPECO) and the World Food Program (WFP), yields for smallholder farmers in the Honduran departments of Choluteca, Valle, Paraíso, and Francisco Morazán, and in the Dry Corridor in Nicaragua were below average following erratic rainfall distribution and below average rainfall throughout the season (Figure 1). Those who suffered losses will have reduced stocks (an average of 40 percent or 1.5 months’ worth of reserves less), that will force them to rely on markets to meet their food needs earlier than usual. In addition, although prices are expected to seasonally reduce, they are likely to remain above the five-year average across the region given high fuel prices and transportation costs, constraining some households’ purchasing power.

This month also marks the start of peak demand for unskilled labor for the harvest of cash crops, such as coffee, peanuts, sugar cane, and vegetables, among others; this season is expected to last until February. During this time, the poorest households, which rely heavily on labor opportunities for income, usually increase their income enough to cover their immediate basic needs and save some to support food purchases into the lean season. This year, the sugar cane harvest is expected to be average to slightly above-average, while the coffee harvest is expected to be slightly above average in El Salvador and Nicaragua, but below-average in Honduras due to weather-related damages and an increase in the prevalence of coffee rust and other pests. Therefore, except in Honduras, the income from these opportunities is expected to be average but is not likely to last as long as usual as households will allocate an increasing share of their income to non-food needs, such as transportation, the repayment of debts from the last lean season, or the recovery of their livelihoods, which have deteriorated significantly since the onset of COVID-19. According to a survey carried out by WFP, in January, 45 percent of the surveyed households in Nicaragua reported borrowing money or purchasing on credit. These atypical debts now require repayment, reducing poor households’ ability to continually meet their food needs. Similarly, in Honduras, a WFP survey carried out in September, indicates that around 42 percent of the households were still borrowing food, which is an indication of the continued reliance on debt to access food.

Livelihoods mostly affected by recent shocks include those which rely on informal daily/casual labor, informal trade, and self-employment and, although economic improvements are well underway in the region, income for these livelihoods tends to be irregular and recovery is difficult to measure. Livelihoods dependent on agriculture and fishing, however, require more capital to affect recovery, further impacting household budgets. 

Tourism and other travel have been gradually resuming. From January to August 2021, the sector’s revenues in El Salvador exceeded the government annual projections, with an increase of 26 percent in the arrival of tourists, which is the highest for the Central American region. This growth has been driven mainly by Salvadoreans living abroad traveling back to visit. The August Economic Activity Index is showing positive variations from August 2020 in lodging and restaurants for Honduras and Nicaragua, with vaccination progress and the return of some travel during the traditional extended holiday in El Salvador; nonetheless, these remain below 2019 levels. Other economic sectors have been gradually recovering, such as commerce, construction, and manufacturing (including the apparel industry and the manufacture of equipment and machinery), although these sectors are characterized by a high proportion of informal jobs, which tend to pay less and be more irregular. 

Remittances have continuously grown after the initial COVID-19 shock, with higher figures in 2021 than in 2020. For this outlook period, the upward trend is likely to continue, albeit with a slowing growth rate. Middle income households are the typical recipients of these remittances, who use it mainly for consumption and filling gaps in basic food and non-food need, but some indirect impacts may be felt by poor and very poor households through increased spending and employment. 

The postrera season, which is mostly focused on beans production, spans from October to November/December, although this year a delay is expected in areas with irregular rainfall (Dry Corridor in Honduras and Nicaragua, and northeastern Honduras). Climate forecasts call for cumulative average rainfall for most of the region, except in northeastern Honduras, where below-average rainfall is expected. An average harvest is therefore expected at the national level, with localized losses in smallholder farmers’ production due to rainfall deficits. The affected households will likely experience a reduction in their stocks, but also in income from crop sales.

The forecasted rainfall is expected to result in an average production of beans during the apante/postrera tardía cycle, supporting the regional markets’ supply from February/March throughout the rest of the outlook period. The areas of production for this season are in the north of Honduras and the central part of Nicaragua. Furthermore, the 2022 rainy season is expected to have an average start in most of the region, with a slightly above average rainfall in the Pacific Basin of El Salvador. These conditions will likely be conducive to an average start of the 2022 primera season, in April/May.  

Staple prices for this period are expected to be influenced by the flows of freshly harvested grains, the seasonal decrease in the demand of producing households and, this year, by the increase in the inflation reported in all three countries, although the impact is different for each (Figure 2). For instance, Nicaragua’s inflation is highly influenced by increases in transportation costs, with yearly variations between 12.8 and 15 percent since April. Fuel, gas, and utilities also account for large increases in El Salvador with annual variations of 10 percent in September, compared to the rest of the region reporting variations of around 4.5 percent. Meanwhile, in Honduras, increases in transportation costs between April and July have since decreased due to newly introduced government subsidies for fuel, electricity, and gas. Honduras does not report significant variations in food prices in the last six months, while in El Salvador the increase in food prices was evident through September and Nicaragua has seen significant positive variations since January.

White maize prices are expected to follow a seasonal trend but remain slightly above average in El Salvador and higher in Nicaragua, while continuing to be near average in Honduras. In the case of red beans, El Salvador will continue with prices well below average, of up to -13 percent; in Honduras and Nicaragua prices are significantly above average will likely persist, particularly for the latter, as fuel prices are the highest of the region, along with a critical political and economic situation. 

The deterioration of food security throughout the region has contributed to increased external migration to North America. The poorest households do not have the resources to pay for the trip, but higher wealth groups are able to take out sufficient loans to finance it. The August report from the International Organization for Migration (IOM) indicates an increase of 30.7 percent in the number of migrant returnees from Honduras (36,690 returnees), during the period of January-August 2021, when compared to the same period in 2020. Conversely, for El Salvador (3,237 returnees), a decrease of 60.8 percent is reported. Most of these returnees did not even reach the United States, as they were returned by Mexico. Nonetheless, these numbers are below those reported in 2018 and 2019. The returnees’ households find themselves in even worse economic conditions than when the migration first started. Not only the migrant member not successfully established to send remittances, but now there is a debt to be paid for the migration, which exacerbates food insecurity for affected households.

Through January 2022, seasonally high agricultural labor opportunities, well supplied markets, and relatively lower prices, along with progressive economic recovery will drive Stressed (IPC Phase 2) outcomes in rural areas of El Salvador, Nicaragua, and most of Honduras. For urban poor households, the lifting of most COVID-related restrictions and the progressive growth of the economic activities is expected to improve income and food security outcomes, driving Minimal (IPC Phase 1) outcomes for many. Nonetheless, high and increasing prices in food, utilities and transportation continue to hinder food access and full economic recovery, particularly for very poor urban households more vulnerable to price shocks and rural households which suffered COVID-19 and hurricane-related livelihoods and assets losses, and which have incurred high debts over the past year to cover their basic food and non-food needs. Some pockets of urban households, particularly those that work informally in the services and commerce sectors are, therefore, expected to face Stressed (IPC Phase 2) or even (IPC Phase 3) outcomes. Rural households in the Honduran Dry Corridor and the eastern part of the country who suffered crop losses, compounded with high prices and debts will likely face Crisis (IPC Phase 3) outcomes.

From February to May 2022, food security conditions are expected to seasonally deteriorate, particularly in rural areas, as households deplete their food stocks and rely more on market purchase with limited purchasing power giving rising prices. For urban households, seasonality plays a lesser role, and households are likely to continue slowly recovering from the shocks of the past two years. Nonetheless, overall classifications are not likely to change for any of the countries through May 2022 given the carry over impacts of previous shocks, compounded by high food prices and inflation, with no significant change in income, hindering further improvements in food access.

Events that Might Change the Outlook

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

AREA EVENT IMPACT ON FOOD SECURITY OUTCOMES
Regional Hurricanes According to the compilation by the Barcelona Supercomputing Center and Colorado State University Seasonal Hurricane Predictions, an above-average hurricane season is forecast through November 2021. Depending on the trajectory and magnitude of a storms, the direct or indirect impacts could change crop production prospects and negatively affect other food and income sources. Crop and other livelihood losses would likely increase the population in Stressed (IPC Phase 2) and Crisis (IPC Phase 3).
Regional Additional increases in fuel and transportation prices Significant price increases for fuel and transportation would cause even higher prices of food, fertilizers, and raw materials, further reducing food access for the poorest households, hindering the economic recovery country wide, and likely increasing the population in Stressed (IPC Phase 2) and Crisis (IPC Phase 3).

 

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About FEWS NET

The Famine Early Warning Systems Network is a leading provider of early warning and analysis on food insecurity. Created by USAID in 1985 to help decision-makers plan for humanitarian crises, FEWS NET provides evidence-based analysis on approximately 30 countries. Implementing team members include NASA, NOAA, USDA, USGS, and CHC-UCSB, along with Chemonics International Inc. and Kimetrica.
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