Below-average production and labor demand negatively affecting parts of Honduras and El Salvador

• Crisis (IPC Phase 3) outcomes are expected to persist in the Honduran Dry Corridor and the coffee-producing areas of central and eastern Honduras and western El Salvador through January. In these areas, smallholder farmers face below-average maize and bean production while households that rely on income from agricultural labor face reduced demand for labor on coffee farms. Many of these households have already accumulated debt and lost productive assets due to previous shocks.

• For the postrera season, national harvests are expected to be near average. However, localized excess moisture during the August to November rainy season may cause some bean crop losses – the season’s main crop –due to this crop’s vulnerability to fungal diseases.

• Since most COVID-19-related restrictions have been lifted, cash crop labor demand will likely be higher than 2020, improving poor households’ income. In Honduras, however, 2021/2022 coffee production is expected to be below-average due to this year’s irregular rainfall and the carryover effects from past shocks, such as Eta and Iota.

• Multiple waves of COVID-19 are expected in the region, as new variants appear, and vaccination progress continues unevenly. Despite this, national governments are not likely to implement more stringent COVID-19-related restrictions throughout this outlook period. This is expected to continue to permit a gradual economic recovery and improvement in household incomes, particularly for those most impacted by restrictions, such as households reliant on tourism, commerce, services, or informal employment.

The primera harvest marks the end of this year’s atypically long lean season brought about by hurricane-induced crop damage in late 2020. Although the harvest in El Salvador is anticipated on time at the end of August, the harvest will be delayed in Honduras and Nicaragua until late September due to irregular early-season rainfall. National level production is expected to be close to average in the three countries, but the yields for smallholder farmers are expected to be below-average, particularly in Honduras and Nicaragua, given that erratic rainfall throughout the season and above-average rainfall in August (Figure 1) expected to cause some localized losses. Despite this, the harvest will increase available food stocks for all producing households and increase market supply. A seasonal decrease in prices, particularly for maize, is expected, but all prices are still expected to remain near the five-year average.

Throughout the postrera season, localized incidences of excess moisture may result in some losses of beans due to this crop’s particular moisture sensitivity and vulnerability to fungal diseases. Although governments in the region have committed to providing fertilizers and improved seed, smallholder farmers will remain vulnerable to above-average rainfall as they will still have limited access to fungicides. Large and medium producers’ production, on the other hand, is expected to be near-average.

A seasonal increase in demand for agricultural labor will occur in October with the beginning of the 2021/2022 coffee harvest, followed by the harvest of other cash crops, such as sugar cane, peanuts, vegetables, among others. As movement restrictions from last year have been reduced and as vaccines are made available, overall labor demand is expected to be higher than the 2020/2021 harvest and reach approximately average levels. Normal labor demand is expected to translate into an increase in incomes for rural households. At the same time, staple food prices are expected to decline in response to the flow of freshly harvested grain. As a result, most rural households will experience an improvement in their purchasing power and access to food, enabling Stressed (IPC Phase 2) outcomes in households of most of the region.

In Honduras, however, coffee production is anticipated to be even lower than 2020/2021 due to the combined impacts of damage from hurricanes Eta and Iota, irregular rainfall during the first rainy season, and an increase in coffee rust incidence. The decline will affect labor-dependent households that typically work on coffee farms, further impeding their economic recovery from the previous shocks of COVID-19 and the hurricanes. Reduced incomes will further decrease their purchasing power during the 2022 lean season, as cash earned during the coffee harvest will not last as long. In areas affected by the irregular rainfall in the Honduran Dry Corridor, smallholder farmers are also expected to have a reduced primera harvest in September, which will likely reduce their food access as less food stocks mean they will have to purchase food from the market earlier than usual to meet their food needs. Poor households in the Dry Corridor and coffee-producing areas in the center and eastern Honduras are therefore likely to experience Crisis (IPC Phase 3) outcomes throughout this outlook period.

In addition, poor households in coffee-producing areas of El Salvador, particularly in Ahuachapán, have been struggling with debt accumulation and the erosion of productive assets due to declining coffee production over the last decade. This trend was compounded by the economic impacts of COVID-19 last year. As poor households use part of the cash generated during the high labor season to pay down some of their debt, the amount left to cover food and other basic needs is expected to be inadequate, resulting in at least slight food consumption gaps during the outlook period. Asset deterioration also hinders households’ ability to invest in their livelihoods, prolonging the time horizon for recovery. Consequently, this area is expected to remain in Crisis (IPC Phase 3) through January 2022. Recently, the Salvadoran government announced the continuation of food assistance delivery through the end of this year as part of the measures to mitigate the impact of COVID-19. However, limited information on the scope and delivery of assistance makes the impacts on food security outcomes difficult to determine.

In urban areas, economic activity is gradually recovering as national governments have loosened COVID-19-related restrictions and promote vaccination efforts in El Salvador and, to a lesser extent, in Honduras. In Nicaragua, the slow vaccination campaign and recent political challenges are likely to stall economic recovery. In all three countries, COVID-19 cases remain high, hindering a full return to normal activities and higher investment in economic revitalization programs. Poor urban households across the region will therefore still experience lower incomes from being un- or under-employed in both the formal and informal sectors through January 2022. Additionally, high fuel prices are expected to increase transportation costs and constrain households’ budgets, reducing the share allocated for food purchases as they are totally dependent on markets. Meanwhile, in El Salvador, the government has introduced a 20 percent increase in the official minimal wage beginning August 1. While the wage hike will increase income for many formally employed households, it is possible that some employers may downsize to reduce costs, which would negatively affect other households. The government is providing payroll support to small businesses to cover these increased costs during 2021, but some economic analyses suggest this support is likely insufficient to offset the added costs for formal sector employers and deter layoffs. Based on the above factors, Stressed (IPC Phase 2) outcomes are expected in urban areas across the region. However, some of the poorest households are likely to face Crisis (IPC Phase 3) outcomes, particularly those that work in the services, commerce, and tourism sectors.

Events that Might Change the Outlook

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