Price Supports Lead to a Black Market in El Salvador

A black market for food. When one hears the words “black market,” the first images that come to mind are most likely not food, but other things such as drugs, prostitution, cigarettes, and perhaps TV or movie piracy (or if you really have a good imagination/listen to too many urban legend stories, human organs). And to be sure, those are the highest profiting black markets  (minus the organ trade, although a good black market kidney can run you around $150,000). A black market either sells things below cost (this is more common), or well above cost (as in the case of drugs due to the risks taken to produce and sell them). According to an article in Scientific American, the black market industry – which is not just one industry, but several underground economies working in relative isolation of one another – provides jobs to approximately 1.8 billion people. That means about half of the employed population of the world earn a living “off the books.”

In a recent study done by the National Association for Private Businesses (ANEP), they found that the food price controls set by the Salvadorean government reduces production, which creates local shortages, thus spurning the development of a black market for basic grains. This increase in food contraband has caused an increase in prices for these basic grains above the prices set by the government. The local Chamber of Commerce stressed that economic relations should be governed by the free market system, which takes care of balancing prices through free competition and full legal security, and that government intervention can only be legitimized when it seeks to avoid distortions that affect the free market. However, if local farmers cannot sell their products for a profitable price, they have no incentive to produce, and that is what produces local shortages. Many people feel that if the government did not intervene, more farmers would be encouraged to produce, which would increase the supply, and thereby decrease the price to a fair market price. After all, the whole reasoning behind the government’s price control is to make sure the basic foods are not being sold at prices that the majority of the population of El Salvador cannot afford. In a country where about 38% of the population lives below the poverty line – although that is much lower than all of the neighboring countries – it’s a valid concern on the part of the government.

Even before the recent tropical depression that gave us nearly two weeks straight of rain, Salvadorean farmers needed incentives to produce more, invest more….and still shortages were predicted and basic grains would have to be imported (perhaps from China) to supplement for the local food deficit. Now the problem has gone from bad to worse, as nearly half of the local production drowned during the rains. Forcing local prices to be below the cost of production is creating even greater food insecurity in a country that needs just the opposite to be happening. After the rains, when vendors of basic grains heard about the massive crop losses across the country, they drastically increased their prices. Overnight, a quintal (100kg or 220lbs) of corn increased $14, in response to the now certain local food shortages. The government naturally wants to ensure immediate protection for its constituents in the face of this natural disaster event. But it also needs to think long-term and realize that while people are hungry today, even more people will be hungry tomorrow if it continues to implement short-term plans in favor of real solutions.

Some excellent photos of the floods can be found on the World Food Program’s website.

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