Alta inflación y pérdidas focalizadas de cultivos reducirán las mejoras estacionales de los más pobres

• This year, the lean season has been exacerbated by high prices and agricultural losses in 2021. As a result, poor households in rural and urban areas are expected to be Stressed (IPC Phase 2) until the primera harvest at the end of August. Meanwhile, poorer households in the Dry Corridor and eastern Honduras will continue to resort to coping strategies as they experience Crisis outcomes (IPC Phase 3). From September onwards, the harvest and higher demand for labor will cause a decrease in food insecurity, so the three countries will be classified as Stressed (IPC Phase 2) from October 2022 to January 2023.

• Inflation has increased by between 3.7 and 5.2 percent in all three countries since January 2022, and is expected to remain high until January 2023, limiting seasonal improvements, purchasing power, and access to food for poorer households that have yet to recover from the adverse economic and climate events of recent years.

• The primera agricultural cycle began in May and excess rainfall has caused localized damage to some crops. In addition, high production costs have resulted in medium- and small-scale producers reducing their areas cropped. High humidity conditions are expected to continue due to the La Niña phenomenon, which is forecast to bring above-average rainfall until the end of the year. These conditions could result in adverse events, such as increased incidence of pest infestations and diseases in staple grain crops, and even in cash crops. This could lead to slight to moderate reductions in production at the national level, as well as reductions in the length of time household crop reserves last for, and a decrease in demand for agricultural labor.

Given the onset of the rainy season, primera staple grain crops have already been planted in the three countries. Harvesting will take place through late August and September, with a focus on white maize production. This year, a reduction in production areas has been reported in some regions, mainly due to the increase in the price of fertilizers and agricultural inputs. To date, excess rainfall has been recorded and forecasts are for above-average rainfall throughout the primera cycle, making it likely that there will be localized crop losses due to flooding, landslides, and increased incidence of pest infestations and diseases. The canícula [hottest, driest] period (July and August) is expected to be average, with possible isolated bouts of rainfall. In addition, primera harvesting and postrera planting activities can be difficult in high humidity. According to the La Niña forecast, high humidity will continue during the postrera season (Figure 1), when the main crop in the region is beans. As beans are sensitive to excess rainfall, the incidence of fungal diseases, damage, and localized losses for this crop will increase. However, only a slight reduction in domestic production of both maize and beans is expected, which will not negatively affect their availability on national and regional markets.

In June, the annual lean season is in full swing, meaning that most staple grain producer households have already used up their reserves, especially given the losses reported during 2021. In other words, both urban and rural households are heavily dependent on the markets for food, at a time when staple grain prices tend to be higher as a result of seasonality. However, this year, white maize prices are 64.1, 80.9, and 70.9 percent higher than last year in the San Salvador, Tegucigalpa, and Managua markets, respectively. Bean prices have increased by 55.5, 32.8, and 37.9 percent in the same three markets. Prices have also increased significantly compared to May 2021 for other food products, such as eggs, which have risen by up to 75.8 percent in El Salvador and Honduras, and sugar, which has increased by up to 20 percent. The price of vegetable oil also increased by 19 percent year on year in Tegucigalpa. In El Salvador, Honduras, and Nicaragua, the year-on-year rise in headline inflation in May stood at 7.5, 9.1, and 10.6 percent, respectively, reflecting increases primarily in food and non-alcoholic beverages (13.3, 12.5, and 16.9 percent, respectively; see Figure 2). In addition, due to international trends, significant increases in fuel and fertilizer prices were reported compared to last year. In May, for example, diesel rose 38.3, 55.7, and 40.0 percent compared to the previous year in El Salvador, Honduras, and Nicaragua, respectively, despite subsidies already implemented by their governments. This has direct consequences on transportation costs for all goods and on how people get to different markets and their places of work. 

Inflation in the region is expected to keep rising as a result of international economic trends that will continue for the rest of the year. Difficulties in retail chains and high fuel prices are also expected to persist, given the high dependence on imports throughout the region. As a result, domestic prices of fuel, services, and food will remain high, but government subsidies will remain in place. With regard to staple grains, white maize prices are expected to remain high in all three countries through January, with figures up to 71 percent above the five-year average. Likewise, red bean prices in all three countries are projected to be high throughout the outlook, reaching up to 77 percent above the five-year average.

In its May 2022 report, the United Nations Economic Commission for Latin America and the Caribbean (ECLAC) revised gross domestic product (GDP) growth rates downward to 3.0 percent for El Salvador, 4.1 percent for Honduras, and 2.5 percent for Nicaragua, as a result of international and country-specific economic and trade pressures. Household incomes, on the other hand, are currently still low after the shock caused by the COVID-19 pandemic and the impact of hurricanes Eta and Iota. However, there has been a gradual recovery, in line with the return of activities related to commerce, construction, and services, including tourism. This recovery in tourism is reflected by an increase in hotel and restaurant activity in the Índice Mensual de Actividad Económica (monthly index of economic activity) which, for Honduras, showed year-on-year growth of 5.5 percent in April, while growth in March was 16.6 percent in Nicaragua, and 1.0 percent in El Salvador. A further increase is expected, but not to pre-pandemic levels. With regard to agricultural activity, demand for labor is usually low until October, due to the time between cycles and the seasonality of cash crops that require a large amount of labor. In general, a seasonal drop in income can be observed for rural households during this period, while for urban households, income has not yet recovered to pre-pandemic levels, mainly in informal sectors. The increase in prices further erodes the purchasing power of poorer households, restricting their options for accessing food.

With the start of the harvest of coffee, sugar, and other commercial crops, demand for agricultural labor will increase from October/November 2022 to January 2023. In its May outlook, the United States Department of Agriculture forecast that production of sugar and coffee will be stable in Nicaragua this year, that Salvadoran coffee will drop by 3.1 percent with respect to last year, but that production of sugar in El Salvador will be stable. In the case of Costa Rica, which is a source of employment for Nicaraguan day laborers, an initial estimated increase of 7 percent was forecast for the production of coffee with respect to the previous cycle, while a slight decrease in the production of sugar was predicted. However, these estimates do not account for recent changes in the current forecasts of above-average accumulated rainfall; if these adjustments were taken into consideration, the production estimates would be lowered slightly due to damage and the increase of diseases such as leaf rust, in the particular case of coffee. As a result of this and the reduction in the land allocated to crops such as staple grains, demand for labor is expected to remain slightly below that reported in the region last year.

Most Likely Food Security Outcomes

Between June and September 2022, poor households will have lower purchasing power due to high dependence on purchasing as a source of food, gradually reaching the peak of the annual lean season in early August. During this time, rural households in most of the region will be Stressed (IPC Phase 2). Although they will manage to acquire basic food despite above-average prices, they will not have sufficient resources to cover their non-food needs due to their low incomes and lack of savings. Poorer households in the east and in the Dry Corridor of Honduras have been strongly impacted by climate and economic events in previous years. They will therefore have to resort to unsustainable consumption and livelihood strategies, such as reducing the number of meals they eat per day and depending more on credit or even food support from third parties, placing them in Crisis (IPC Phase 3) during the lean season. From the start of the harvest in August/September, the availability of staple grains will increase. With this increase in supply, a seasonal decrease in prices is expected, improving access to these foods compared to previous months. These improvements will seasonally decrease the proportion of households that are in Crisis (IPC Phase 3) or Stressed (IPC Phase 2).

From October 2022 to January 2023, food security is expected to improve with the postrera harvest and peak demand for labor, which means higher incomes for households dependent on daily wages. Although labor demand is expected to be slightly below normal, it will still increase purchasing power and access to food for rural households. Meanwhile, harvests, especially of red beans, will increase food availability in producer households and reduce market prices, benefiting everyone who is dependent on buying food. This year, due to smaller planted areas and localized losses, it is expected that producer households' reserves will not last as long as usual and that atypical market spending will be observed. In addition, given that international price trends are well above average for transportation, staple grains, oil, and more, seasonal improvements will be minor. As such, it is likely that most rural households will continue to be Stressed (IPC Phase 2) for the remainder of the outlook. However, some of the households that were in Crisis (IPC Phase 3) — especially in Honduras — will move to Stressed (IPC Phase 2), with some pockets of households remaining unchanged.

Until January 2023, urban areas will experience Minimal food insecurity (IPC Phase 1), as a result of economic recovery. However, some poorer households will face Stressed (IPC Phase 2) outcomes, while a smaller proportion — those dependent on informal employment — will be in Crisis (IPC Phase 3). To cover minimum consumption, these households will be forced to intensify their use of consumption and livelihood coping strategies.

Events that Might Change the Outlook

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

FEWS NET: El Salvador, Honduras, and Nicaragua Remote Monitoring Update, June 2022: High inflation and localized crop losses will reduce seasonal gains for the poorest, 2022.