Seasonal improvement in income limited by continued rise in prices of basic foodstuffs

The staple grains planted for the primera, the only cycle in the western Altiplano, are at different stages of growth. Although some rainfall has been conducive to crop development, in some localized areas in the north, south, and west of the country, excess rainfall in June caused damage as a result of flooding and landslides. This primera season provides rural households with the majority of their maize production. It is also when they produce bean seeds for the postrera cycle, which begins between August and September. For this cycle, farmers are facing high prices for agricultural inputs, especially fertilizers: compared to May 2021, urea has increased by 100 percent and 15-15-15 and 20-20-20 chemical blends have increased by 50 to 80 percent. As a result, farmers have had to make adjustments such as reducing the amount of fertilizer they use, reducing the area planted, substituting their preferred fertilizer with lower-quality mixtures, or not planting at all. In some areas of the country, the cost of leasing land has also risen (by between 10 and 20 percent compared to last year), which particularly affects poorer households without land of their own.

The increase in the proportion of households that will not have their own production due to high costs during this cycle has led to reduced demand in labor for clearing land, planting, and the maintenance of crops. The reduction in activities in the primera production cycle has negatively affected the income of poorer rural households, especially those who depend on agricultural day labor. Although sporadic, it is their only source of income during these months until October, when peak demand for labor to work on cash crops for export begins.

Following the impact of COVID-19 on the economy, the various sectors are still on the road to recovery. The monthly index of economic activity for April 2022 shows a year-on-year increase of 4.5 percent, which has remained stable throughout 2022. According to the most recent data available, disaggregated by economic activity in December 2021, hospitality, transportation, warehousing, and construction services showed the highest increases. In addition, recent changes to the health alert system, which now allows for larger gatherings and reduced social distancing requirements, have resulted in improvements in service- and trade-related activities in June 2022. Likewise, after being hit hard by COVID-19, the tourism sector is finally enjoying a significant recovery this year, with a 257 percent increase in foreign visitors in May 2022, compared to the same period last year. However, it is still 13 percent below the figure for May 2019, prior to the COVID-19 pandemic. 

According to the Bank of Guatemala, exports grew by 24.2 percent in the first four months of 2022 compared to the same period in 2021. The main products, according to their share of the total value of exports, were clothing (11.3 percent), coffee (8.5 percent), and edible fats and oils (6.2 percent) and bananas (6 percent). A comparison of the data for 2021 and the first four months of 2022 shows a 54 percent increase in the value of coffee exports, and at the close of the 2020/21 harvest, there was a 14.4-percent increase in the volume of coffee exported compared to the 2019/20 harvest, and a 34.8-percent increase in its value.

According to data from the Bank of Guatemala, cardamom is the exception to the increases in the value of exports, having fallen by 30 percent in the first four months of 2022 compared to the same period in 2021, mainly due to the drop in international prices. These export data show that, despite logistical and economic constraints in other countries, these commodities remain in demand, which is positive for the stability of production and, in turn, sources of employment. However, according to the World Bank, growth expectations are lower than expected for 2022 and 2023, which could slow down the country's economic recovery. 

Nevertheless, household purchasing power continues to be negatively affected. Following the shock of COVID-19, which included supply chain disruptions and rising fuel prices, the war in Ukraine has exacerbated these problems. There is now new pressure on food prices, both directly (for goods such as oil and flour) and indirectly, due to higher fertilizer, fuel, and transportation prices. The Consumer Price Index, calculated by the National Statistics Institute of Guatemala, indicates that, in May, monthly inflation was 1.3 percent and the year-on-year inflation rate was 5.8 percent. According to the National Statistics Institute, these are the highest monthly and cumulative inflation rates seen in May between 2015 and 2021. The transportation and food sectors reflect the most significant variations in general price levels. Local prices are following international trends, showing significant year-on-year and five-year variations. Propane gas, electricity, diesel, and gasoline have been subsidized for several months. Nevertheless, at the beginning of June, their prices remained above the five-year average (Table 1). According to data from the Ministry of Energy and Mines, diesel and regular and premium gasoline are the basic expenses that have the highest year-on-year percentage increases in the Consumer Price Index. Consequently, the cost of urban and peri-urban transportation has increased by 41 and 49 percent, respectively, when comparing May 2022 with May 2019 (as a pre-pandemic reference point). In some regions these increases have been higher, sitting at between 60 and 100 percent.

Table 1. Percentage increases of main raw materials

*includes subsidy of 7.00 GTQ for diesel, and 5.00 GTQ for gasoline until August 4, 2022

Sources: FEWS NET Global Price Watch, World Bank Pink Sheet, Ministry of Energy and Mines   

Products that form part of the basic food basket have experienced year-on-year increases, with wheat-based products, edible oils, onions, and tomatoes showing the highest increases of between 11 and 37 percent compared to the three-year average. The prices of other products that form the basis of rural households' diets, such as white maize and black beans (with price increases of 50 and 33 percent, respectively, compared to the five-year average) continue to rise, despite stable supply in the markets thanks to reserves from the last domestic harvests and continuous formal and informal imports from Mexico. In addition to the global economic shocks that have had an impact on these increases in the last month, there have been river overflows, floods and landslides as a result of excess rainfall in June. These have affected not only homes and crops, but highways too, in turn impacting the normal flow of transportation of people and goods.

Continued below-normal incomes and rising food and transportation prices have caused households to resort to atypical borrowing, incurring formal and informal debts for longer than normal. The World Food Programme (WFP) has confirmed this trend, with data collected in the field in April indicating that debts remain in similar ranges to last year for 32 percent of the households interviewed, and are higher for 22 percent.

Remittances from the United States continue to increase, with those sent in May up by 29 percent compared to last year. Migration to the United States continues to be a strategy for some Guatemalans seeking a better income. However, in the first four months of the year, there has been a 124.3 percent increase in the number of migrants forced to return compared to the same period in 2021, according to a study conducted by the International Organization for Migration and the United States Agency for International Development (USAID) on returns to northern Central America; the departments with the highest number of returnees are Huehuetenango, San Marcos, Guatemala, and Quetzaltenango. According to a study on migration published by the Migration Policy Institute and WFP, 91 percent of people interviewed in Guatemala indicated that money was their main reason for migration, and 79 percent traveled through illegal networks (such as "coyotes"). The average monthly remittance amount is 350 USD (2,700 GTQ), which is used to cover basic needs and subsistence costs, particularly food and general household expenses.

Up to the week of May 22–28, the Epidemiology Department of the Guatemalan Ministry of Public Health and Social Assistance had reported a cumulative number of 9,422 cases of acute malnutrition (moderate and severe) in children under five years of age in the country in 2022 — a reduction of 9.9 percent compared to 2021. However, when disaggregated by severity, the data show an 8 percent increase in cases of severe acute malnutrition. The health areas of Escuintla, Sacatepéquez, and Retalhuleu have the highest risk of acute malnutrition in children under five years of age.

Institutions such as Catholic Relief Services, World Vision, Save the Children, WFP, Action Against Hunger, Trócaire and Food for the Hungry are set to provide cash transfers with money from USAID's Bureau for Humanitarian Assistance and their own funds. The departments selected are Quiché (six municipalities), Huehuetenango (two), Totonicapán (four), Alta Verapaz (four), Chiquimula (four), Jalapa (seven), Jutiapa (four), Sololá (five), Izabal (four), and Santa Rosa (six). Installments will be made every two to six months, transfer amounts and delivery quantities will vary, and municipal coverage will range from 2 to 19 percent of households.

In addition, in June the Government of Guatemala launched its Programa Nacional de Emergencia [National Emergency Program] to address the economic impact of the war in Ukraine. Measures comprise social protection actions such as the implementation of electricity, gas, and fuel subsidies, the building of strategic staple grain reserves through WFP, and the delivery of cash transfers. A stipend of 1,000 GTQ (130 USD) is also planned for 300,000 farmers who implement soil conservation practices on their land under the supervision of staff from the Ministry of Agriculture.

Economic activity continues to recover in the country, supported by the move to a traffic light COVID-19 alert system and the lifting of social distancing restrictions, limits on gatherings, and the use of masks in all municipalities, except those on red alert. This has allowed the recovery of sources of employment that until a few months ago were still only partially operating. The figures for most main-export products remain positive, and macroeconomic activity indicators and economic outlooks point to economic activity remaining stable. However, lower-than-normal incomes and high food, fuel, and transportation prices are negatively affecting household purchasing power.

Rural households located in the Dry Corridor and northern areas and affected by last year's storms entered the lean season earlier than usual due to decreased staple grain reserves following smaller harvests in 2021. This is also compounded by the high cost of food and transportation, and lower demand for sporadic agricultural labor. As a result, these households are facing a considerable decrease in purchasing power and are therefore resorting to unsustainable coping strategies, such as adjusting the amount of food in their diet, engaging in atypical labor migration, and selling productive assets. This is why these households are currently considered to be in Crisis (IPC Phase 3). The remaining rural households in most of the country are Stressed (IPC Phase 2). Stressed outcomes are expected because households have not had enough income to purchase food of sufficient quality, they are having to use various coping strategies, such as adjusting their diet, spending their savings, and applying for credit and loans to supplement their food and basic needs. Meanwhile, urban areas, which are home to most commercial activity and which are experiencing the benefits of economic recovery, are classified as Minimal (IPC Phase 1).

Assumptions

The outlook from June 2022 to January 2023 is based on the following national assumptions:

• The La Niña phenomenon will continue throughout the period analyzed, so above-average rainfall and a normal canícula [hottest, driest period] in terms of duration and timing are expected.
• Normal development of primera staple grain crops is expected. However, above-average rainfall during that cycle could cause damage or losses due to flooding or landslides in localized areas.
• For the second rainy season, above-average rainfall is expected, which could lead to postrera planting starting early and cause flooding and damage to crops due to excess humidity and the outbreak of diseases and plagues (Figure 1).
• An increase in the price of agricultural inputs will lead to a reduction in crop areas. As a result, and due to excess humidity, production volumes of staple grains for both production cycles, melon, vegetables, coffee, and cardamom for small- and medium-scale producers are expected to be below average. 
• A fall in employment and a reduction in work days is expected for staple grains and melon crops and for small- and medium-scale coffee, cardamom, and vegetable production. In addition, due to the low selling price of cardamom, demand for labor on commercial farms is expected to be below average.
• Cash-crop export volumes and the international prices of coffee, African palm oil, bananas, and sugar are expected to remain in normal ranges and demand for labor on large commercial farms is therefore expected to be stable. In the case of coffee, the forecast of above-normal accumulated rainfall in some areas of the country could cause infestation outbreaks and a drop in beans, but it is expected that the day labor opportunities available will remain stable. Demand for coffee harvesting labor on farms in Mexico and Honduras is expected to be within normal ranges.
• Income generated by non-agricultural work and informal labor is expected to continue to improve but remain slightly below pre-pandemic levels due to either fewer days of work, part-time work, or lower pay per day worked. Tourism activity is projected to continue to recover and it is hoped that households dependent on these sources of employment, whether formal or informal, will begin to see improvements in their livelihoods and incomes, although they are not yet expected to reach pre-pandemic levels.
• Fuel and fertilizer prices are both expected to continue following the current trend, with prices well above the five-year average. High transportation costs and debt payments are expected to continue to reduce the proportion of household income allocated to food purchases.
• Market supply is expected to be normal but forecasts predict that prices of staple foods such as maize and beans will be above the five-year average (45–50 percent and 25–30 percent, respectively) (Figure 2).

Most Likely Food Security Outcomes

Between June and September 2022, rural households will continue to experience the most pronounced period of scarcity until the end of August. Seasonally, during these months, income decreases as opportunities for seasonal agricultural work are in short supply. This year, the income of agricultural day laborers who are usually hired for work related to staple grain crops will remain lower than normal, as high fertilizer prices caused small- and medium-scale producers to reduce their primera planting areas, in turn reducing or even eliminating labor costs. The high cost of agricultural inputs will also have a negative impact on the crops that small-scale farmers produce for their own consumption, because in order to lower costs, they will reduce their planting areas, avoid using fertilizers, or only use minimal amounts or low-quality fertilizers. This will significantly reduce their primera production, which is normally enough for their own consumption for one to three months. Subsistence farmers who have not been able to lease land or plant seeds will not have their own crops for home consumption and will be completely dependent on market purchases.

For the months that follow, food, transportation, and fertilizer prices are expected to remain above the five-year average and increase month on month due to the continued influence of international factors, together with rain damage to roads. As a result, until September, rural households will have to resort to spending their savings, using loans, and reducing the quality of their food, in addition to cutting back on other essential household expenses, in order to meet their food needs. They will therefore be categorized as Stressed (IPC Phase 2). Poorer rural households in the Dry Corridor, western Altiplano and the north of the country, affected by Hurricanes Eta and Iota, entered the lean season earlier than usual due to agricultural losses from past cycles and low incomes. These households have depended on buying food in the market at high prices for a long time, and since they have no savings, they will continue having to resort to loans and credit. In order to ensure a basic minimum diet, they will reduce the amount of food they eat and the frequency of their meals, and implement negative coping strategies — such as atypical migration and the sale of productive assets — that will put their livelihoods at risk. They will therefore be classified as in Crisis (IPC Phase 3) until September.

The next period covered by this outlook (October 2022 to January 2023) is a time of high labor demand for the main cash crops for export and coincides with the primera and postrera staple grain harvests. Labor supply and income are expected to be within average ranges for most export crops, with the exception of cardamom, given its lower selling price, and small- and medium-scale coffee harvesters who are finding it difficult to cover agricultural input prices and will thus be forced to reduce their labor costs. At the national level, excess rainfall and humidity and the decrease in planting areas due to high fertilizer costs will reduce staple grain production volumes, particularly for small- and medium-scale farmers. This will result in lower reserves for subsistence farmers, lower sales volumes for those who manage to sell part of their harvest, and, consequently, greater reliance on the market for food while food and transportation costs remain high. However, recently received income will allow rural households to improve their diets and avoid the use of critical coping strategies, making them Stressed (IPC Phase 2) until January 2023. However, within these areas, some pockets of the population will still be in Crisis (IPC Phase 3) as their recently received income will be used up quickly and access to food will gradually reduce.

The improvement in income will not be sufficient for poorer rural households in some of the hardest-hit areas in the Dry Corridor, the western Altiplano, and Alta Verapaz that have not been able to recover due to unpaid debts and deteriorating livelihoods. The aforementioned economic factors will prevent these households from having their own staple grain crops, which would meet their family consumption needs for one to three months. These households will use their recently received daily wages to pay off debts and buy basic foodstuffs (at higher prices than usual), but they will continue to resort to reducing the number of meals they eat, taking out loans, and engaging in atypical migration to complete their diet, thus experiencing Crisis (IPC Phase 3) outcomes until January 2023.

For the two periods covered by this outlook, urban areas are expected to remain in Minimal (IPC Phase 1), benefiting from an upturn in economic activity thanks to the removal of restrictions on gatherings and social distancing. However, the increase in fuel and basic food basket prices will put pressure on household purchasing power, so some pockets of people in these areas will be classified as Stressed (IPC Phase 2).

Events that Might Change The Outlook

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