Food Prices and Food Security in Trinidad and Tobago Christian Romer Løvendal, Kristian Thor Jakobsen and Andrew Jacque esa working Paper No. 07-27
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Table 5: Structure of Food Imports – Distribution of Food Import Values, 2002/03
Trinidad and Tobago is a significant producer of agro-processed products. The value of food and agriculture products imported into Trinidad and Tobago in 2002-2003 exceeded the value of exports by 52%, a low value relative to other food importing CARICOM16 countries. This reflects to a large extent the strength of the agro-processing sector, which accounts for nearly half of manufacturing GDP and is a major contributor to the non-oil exports of the country. On the fresh produce side, the country receives 35% of the CARICOM intra-regional imports but only contributes 3.7% of intra-regional exports (Best, 2006). Trinidad and Tobago is the second leading supplier of agriculture and food products in the CARICOM region with approximately 7% of supplies (behind the USA with 50%). When trade among the CARICOM countries is examined, Trinidad and Tobago accounts for more than 45% of food supplies. However, the processing sector has a high dependence on imported inputs and even where it uses of domestic raw materials, there is high dependence on imported inputs to produce these raw materials. The large and small farm crop production systems produce for different markets (export versus domestic) and use different marketing structures. The traditional export commodities of sugar, cocoa, coffee, copra and citrus, typically produced by larger farms, have assured marketing (processing or export) arrangements managed by well organized industry associations. Examples of industry organizations and associated marketing arrangements include the Cocoa and Coffee Industry Board (CCIB), which has the legal mandate for purchasing cocoa beans from farmers, and the export of cocoa beans, the Cooperative Citrus Growers Association (CCGA) and the Coconut Growers Association (CGA) which operate processing plants. In the case of cocoa, coffee, copra, and sugarcane, the State guarantees a
14 minimum price. Small farms typically produce fruits, vegetables, root crops and other commodities, which are directed to the domestic market. These domestic commodities are not supported with guaranteed prices or assured marketing arrangements. In the case of locally produced vegetables, the majority of farm output is sold through the two wholesale markets operated by the State-owned marketing corporation. Some vegetables are also sold to packing houses and distributors who supply supermarkets and hotels. The wholesale markets facilitate the operations of bulk buyers and vendors, who purchase and later resell in the public retail markets or private retail outlets. The majority of fruits and root crops are sold directly to wholesalers who clean and distribute them. In addition, a significant amount of the fruits and root crops are sold direct to consumers by farmers from roadside stalls and small trucks. Several of the main companies in the livestock industries have private led marketing arrangements. The dairy farmers have a guaranteed price and assured marketing arrangements with the largest processing company, Nestle Trinidad and Tobago Ltd. Beef, most of which is a by-product of the dairy industry, is marketed by farmers to independent butchers who then retail in the public markets. Marketing of poultry, the most developed livestock industry in the country, is driven by firms that provide production contracts to farmers, own processing plants and have marketing arrangements with supermarkets and restaurants (See Box 1 for a more detailed description of the marketing system for poultry). The swine industry is dual in nature. The majority of production comes from a few large farms that are contractually tied to processing plants, which produce a range of sausages, hams etc. The small pig farms generally sell to butchers who target the retail fresh market. Small ruminants (sheep and goats) are slaughtered by farmers or butchers and then retailed from roadside stalls and informally through e.g. neighbours. 15 50% of broilers are sold through pluck shops, which operate under conditions close to perfect competition - prices are determined by demand and supply as the birds must be sold every week an cannot be returned to the farm. 25% of the broilers are sold to quality supermarket chains and fast food chains, with another 20%-25% sold to the independent supermarkets and smaller groceries, which mostly sell whole frozen broilers. The fast food chains are continuously negotiating for better prices with the meat supply companies since there is intense competition in their business. Supermarkets adjust the price of chilled chicken and chicken parts to ensure that the products leave their shelves between deliveries. Moreover, supermarkets aim to achieve a margin on categories and across categories. Like the processors, they aim for a weighted average price of the whole bird and not a margin on each different cut. Thus, some categories and products are used as loss leaders to attract customers. The supermarkets have little interest in frozen products and imported leg quarters. These are used as a stop gap measure for shortages of chilled product. Interestingly, in spite of the debate on prices, the cheapest products offered by the processors - whole chilled birds and economy mixed parts packs - are bought in the smallest quantities. Finally, cost of production in the broiler industry is heavily influenced by international markets as grain, chicks and medication are imported.
There is a pronounced dichotomy in public policy within the agricultural sector in respect of production systems. The traditional export commodities are supported by a range of risk reduction instruments, including guaranteed prices, marketing and/or processing arrangements (along with Government supported industry associations, input supply channels and access to financing), while the output of smaller farms receive little support. Dairy milk receives the guaranteed price and marketing arrangements similar to the large-farm export commodities. Farm systems producing for the domestic market have no guaranteed prices on outputs and lack the risk reduction support measures offered to the export commodities. This dichotomy also extends to agricultural research programmes, though less pronounced. Agricultural research is fairly well developed and supported for cocoa, coffee, sugar and citrus but much less so for fruits, root crops and even less for vegetables. Particularly for vegetables, technology support is often provided by the input suppliers who have links to chemical and equipment companies located overseas. At the same time, the Government provides fairly effective crop and livestock protection services for all commodities and delivers support services (such as certification and negotiation of agreements) towards export of fresh produce. Local crops (primarily vegetables and root crops) produced for domestic consumption are marketed in two public wholesale markets in Trinidad17, and one in the island of Tobago. The wholesale markets in the island of Trinidad are maintained and managed by the National One in the north (Macoya) and one in the south (Debe). On Tobago in Scarborough. 16 Agricultural Marketing and Development Company (NAMDEVCO), a state agency. In addition, there is a system of public retail markets managed by the Local Authorities (Regional and Municipal Corporations). In Tobago, the wholesale market operates a few days of the week from the same compound housing the retail market. The wholesale and retail markets in Tobago are managed by the Marketing Division of the Tobago House of Assembly. The food system in Trinidad and Tobago includes several packing houses operated by wholesalers. These packing houses purchase in bulk, clean, package and supply the large buyers such as supermarkets and exporters. A few supermarket chains, notably the Hi-Lo Food Stores chain, operate packing house facilities in which produce is procured from farmers and then sorted, packaged and delivered to its supermarkets. The larger high-end supermarkets tend to have pricing systems that reflect efforts to sell quality and brand and therefore prices can be significantly above prices at the public retail markets. The supply to processors are generally ensured through contractual arrangements with farmers or from purchases made by processors during periods of excess supply. More recently, NAMDEVCO has introduced farmers’ markets to encourage direct linkage with consumers and better prices for both parties. NAMDEVCO operated farmers’ markets exist in three locations in Trinidad. Imported fresh produce (mainly root crops, bananas, vegetables and fruits) from neighbouring CARICOM countries use the same marketing channels as the domestic fresh produce. Cargo boats transport produce for ‘Hucksters’ or ‘Traffickers’ mainly from the islands of Grenada, St. Vincent and Dominica to the CARICOM jetty area in the harbour of Port of Spain. The produce is offloaded and sold directly to wholesalers or taken to the wholesale and retail markets in Trinidad. Fresh produce from other CARICOM countries therefore supplements and competes with produce from Trinidad and is an important factor in price formation for several commodity items. Domestically produced and processed products are channelled through a system of distributors. Some processors (such as producers of biscuits, bread, alcoholic and nonalcoholic beverages) have their own distribution systems that supply wholesale and retail food stores. Many other processed items, including imported items, are channelled through a system of importers who also distribute directly to the supermarkets and retail food stores. Imported frozen, processed and temperate fresh foods largely utilize different marketing distribution channels to that for fresh domestic and tropical produce. Imported frozen, processed and temperate fresh produce are brought in by a small number of importers. For any particular product, the number of importers is generally between one and three, thus potentially creating a monopolistic or oligopolistic market situation. The importers generally have wholesale or food distribution operations and supply retailers (including, in the case of fresh temperate produce, the owners of roadside stalls) and supermarkets or through retail outlets controlled by the wholesellers. The majority of retail sales of fresh fruits and vegetables take place in public retail markets, which swell in size during the weekend periods, with lesser amounts sold in privately owned roadside stalls and shops along major roadways in urban and rural areas. Global changes to food markets and food consumption patterns such as the rise of large supermarkets offering discounted bulk buying and one-stop shopping, the escalation of meals 17 consumed away from home and movements towards increased convenience on food purchases, are also making their way to Trinidad and Tobago. In a study in 2006 conducted for the Caribbean Regional Negotiating Machinery (Best, 2006) it is estimated that there were 80 supermarkets, 250 smaller self service food stores (groceries), 750 counter shops, and about 2,000 ‘mom and pop’ stores. The study concluded that the food retailing landscape had changed considerably in the past five years with the rise of megastores and the arrival of a large international food retailer (PriceMart). Supermarkets accounted for a significant share of consumer food expenditures and were winning shares from smaller food retailers and specialty food retailers. Thus, according to the study, the four largest supermarket chains accounted for an estimated 28 percent of market share and the specialised food retailers accounted for an estimated 15 percent, though this was considered larger in terms of fruits, vegetables, meat and fish. Marketing Margin Analysis To have an indication of the role of the marketing system in the price increases, price data were assembled for selected food commodities. The data in Table 6 provide information on import prices on CIF18 basis (cost insurance freight) and retail prices. The data indicate that between 2001 and 2005, import prices of most of the identified commodities experienced some increases, although some commodities, such as chicken meat and bananas, experienced declines. The changes in percentage mark-up between CIF and retail prices are calculated and the commodity level mark-ups for the period 2001-2002 and compared with the average for 2004-2005 (see Table 6). As can be seen, with only a few exceptions (wheat flour, powder milk, Irish potatoes and cabbage), the mark-up has increased significantly. In other words, the relative profit earned in the various steps of the distribution system between importer/producer and consumer has risen significantly, both for commodities with high and low import dependency. As an illustration, when a consumer bought 1 kg of chicken meat in 2001, 1.48TT$ went to the wholeseller and retailer. In 2005, a consumer would pay these 4.90TT$, or over three times more than in 200119. Table 6: CIF-Retail Price Marketing Margins on Selected Food Products
Source: Central Statistics Office, Trinidad and Tobago, retail and trade statistics, own calculations. CIF: Cost, insurance and freight included. This was perhaps part of the reason for the surcharges on broiler meat in 2005. 18 Implications of the marketing and food import structures for food prices The high dependence on food imports suggest that food prices in Trinidad and Tobago should be influenced by fluctuations in import food prices. The country has a high import dependence on North-America and Europe (for temperate fresh, frozen and processed produce) and the CARICOM countries (for root crops, and fresh tropical fruits and vegetables). Additionally, the absence of State interventions in food markets (including the absence of import restrictions, import and business licensing requirements, and price controls) provides an environment conducive for effective price transmission. The extent to which changes in international prices are transmitted into domestic markets would be affected by the overall economic environment – a smaller proportion in times of a depressed economy (mid 1980’s through the mid 1990s) and a higher transmission during a booming economy (after 2002). The transmission of international food prices is also influenced by market structure. In the case of fresh produce from domestic and CARICOM sources, there are several marketing channels for transfer of produce from importers or producers to consumers. These markets are more competitive and subject to prices determined by the forces of supply and demand. In the case of temperate fresh products and processed food products, the specific items are imported by one or few businesses that typically also conduct distribution to the wholesale and retail levels. Imported temperate fresh and processed products are therefore more subject to oligopolistic pricing and deviation from international price developments, leading to higher marketing margins as seen above. Fresh tropical produce (root crops, tropical fruits and vegetable) would be subject to the forces of domestic demand and supply while that of temperate fresh produce would be more subject to fluctuations in international prices. In the case of processed products, these would be subject to the influence of international prices given the high import content in these goods. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
