Price curbs lead to cheaper food

Shoppers in Bolivia are seeing food prices fall, following government moves to secure food supplies.

Last year food price rises were a problem - reaching 11.8% - leading the socialist government of Evo Morales to take drastic action.

It started to import flour and it banned the export of some cooking oils to fight inflation.

It has also set up shops where rice, flour, red meat, poultry and oil are sold at lower prices.

Happy shoppers

The results have been dramatic. Bolivia's National Statistics Institute says the latest figures show deflation, in other words prices are actually falling.

TAKING THE PULSE OF THE GLOBAL ECONOMY

• The BBC is Taking the Pulse of the Global Economy, looking at a range of subjects this summer
• Consumer behaviour - how have lifestyles changed over the year
• Food prices - which remain a concern particularly in many developing economies
• Highly volatile energy prices - which have been a major issue in the past year
• The plight of migrant workers - as the global recession takes hold in many economies
• Housing markets - which have turned from boom to bust in many countries
• Rising unemployment levels - as firms cut back because of falling orders

BBC World Food Price Index

Taking the Pulse explained

Although the government's decision to commercialise and even import and produce its own foodstuffs caused friction among businessmen in the eastern part of Bolivia, prices in the private sector dropped dramatically.

Oscar Sandy, the director of Insumos, Bolivia's Board of Trade, says that last month the government imported huge quantities of flour from Argentina which has meant the price of bread has remained frozen.

At first, the cheap imported flour was sold to only two bakeries, on condition that they did not increase the price of their goods.

However, flour is now also being sold in small quantities, direct to the public.

Mr Sandy says that by doing this the Morales government has managed to "regulate market prices and ensure food safety".

Worried farmers

The moves are popular with shoppers. Benigna Lira told BBC Mundo that she has been able to save money by buying from the shops set up by EMAPA, the food production support agency.

Mrs Benigna says cooking oil is 20% cheaper in state shops.

However when this policy was put into place, farmers were indignant.

As well as producing its own products, the government ordered the restriction of some exports, particularly oil and maize.

The farmers complained they were losing overseas business.

Things have changed now, because the government and the farmers in the east of the country have come to a compromise.

Leading farmer Mauricio Roca, told BBC Mundo that production promoted by the government and that of the private sector "can co-exist, as long as (the government) plays its part and does not distort the market."

"We import those items which we do not produce in sufficient quantities to meet demand," says Mr Sandy.

This is the case with flour where Bolivia has reported a shortfall in production.

As well as importing items, the government has also chosen to produce its own foodstuffs.

But there are doubts that cooking oil in particular may not be as good as the oil produced in the private sector.

As for rice, the state supports the smaller farmers, whose produce is gathered together in one place and then distributed via the government shops.

And in the case of meat, the government opted to buy direct from the farmers.

In fact, the former Minister of Production, Susana Rivero, personally transported the meat in military planes for distribution to La Paz and El Alto.

These state products, are released onto the market if there is a shortage or prices show signs of rising.

But some critics say that such heavy-handed state intervention will inevitably stifle the private sector and innovation.

Bolivia has succeeded in slashing inflation but it now faces new concerns as its policy has perhaps been too successful, and prices have began to fall, leading some economists to worry about the impact of long-term deflation on the economy.

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