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Rising food prices could sway voters in Latin America

Apples at produce market

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The rising cost of food in Latin America is squeezing workers and families already struggling to survive below the poverty line and could give opposition parties a boost in elections from Peru to Mexico.

Governments are scrambling to contain food prices and inflation in general, handing out discounted beef in Argentina and helping small Mexican food producers buy contracts in financial markets to buffer against higher corn prices.

The World Bank's index of global food prices rose 36 per cent in the year through March. Even if food inflation slows in coming months, as many economists expect, the World Bank expects a boom in food prices over the long term.

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That will keep pressure on leaders with presidential votes planned in six Latin American nations by the end of 2012.

"It's going to be an issue that could have repercussions on government stability," said political risk analyst Carlos Ramirez at Eurasia Group. "Not necessarily putting governments at risk, but yes hurting their chances of reelection."

Combating poverty is a big issue in Peru's presidential contest, where the right-wing front-runner is seen by many as having stronger inflation-fighting credentials.

Meanwhile, Mexico's main opposition party is already stepping up criticism about the ruling conservatives' track record tackling poverty ahead of a 2012 presidential election.

Hurt by a weak economy and higher food prices, the ranks of Mexico's poor have likely grown since President Felipe Calderon took office in 2006, said World Bank economist Joost Draaisma.

Latin America has reduced poverty substantially over the last decade through strong economic growth, lower inflation rates and improved social safety nets. Some 16 per cent of the region earned less than $2.50 a day in 2009, down from 25 per cent in 2003, according to the World Bank and the Center for Distributional, Labor and Social Studies.

But a key factor in the region's success - China's voracious appetite for its grains, soybeans and minerals - is fueling what the World Bank expects will be an extended period of high food prices.

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Because the poor can spend half or more of their income on food, Latin America's progress lifting people out of poverty will largely stall this year, said Ethel Sennhauser, the World Bank's regional manager for Latin American agriculture.

Lower food stocks could also make prices more volatile in coming years, creating further inflation headaches, she said.

In the Peruvian capital, fruit vendor Maria Gonzalez is buying less chicken after meat prices shot up 7 per cent in the year through April. Overall, food prices jumped 1.2 per cent in the month of April alone.

Anxiety over prices for food and energy has led Peru and much of the region to raise interest rates aggressively to contain inflation.

Hyperinflation wrecked Peru's economy in the late 1980s until former President Alberto Fujimori tamed prices in the 1990s. While later convicted of using death squads against opponents, he is remembered for steadying the economy.

Now his daughter Keiko Fujimori, a conservative, narrowly leads polls ahead of a June 5 presidential runoff election with leftist Ollanta Humala. Ms. Fujimori has highlighted her father's success fighting inflation, which resonates with some voters.

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"Under Fujimori, everything was always cheap," said Ms. Gonzalez as she left a local produce market. "I think I'm going to vote for his daughter."

The World Bank is urging Latin America, a net food exporter, to boost farm output, keep a closer eye on hunger levels and waste less food. While food riots are generally not expected, they are a latent menace.

"This is the time to open our eyes," said Ms. Sennhauser. "If we have people outside in the streets - as some African countries are having today - it will be too late to act."

Argentine President Cristina Fernandez, who could run for reelection in October, has put mobile butchers in neighborhoods offering cheap steaks. Investors say her government underestimates inflation, which some private analysts pin at around 25 per cent. Inflation runs at 23 per cent in Venezuela.

In Brazil, the memory of early 1990s hyperinflation means fast-rising prices could boost the opposition by hurting President Dilma Rousseff's standing with working-class voters. Brazil's next general election is three years away, but a weakened Ms. Rousseff may have more trouble pushing her agenda through Congress.

Mexico's moribund jobs market has kept inflation more muted than in other Latin American countries at under 4 per cent. But in a blow to Mexico's poor, food prices rose in April at their fastest annual rate in 17 months.

The head of Mexico's Institutional Revolutionary Party (PRI), the main opposition force, recently challenged Mr. Calderon to debate the country's poverty problem.

The PRI is currently leading in polls ahead of the 2012 election, helped by disappointment in the president's anti-poverty efforts, said political scientist Jose Antonio Crespo. In his defense, Mr. Calderon says Mexico is turning a corner from the sharp 2008-2009 recession, which he notes was caused by bad policies abroad, not in Mexico.

The PRI is nonetheless sharpening its knives. Party president Humberto Moreira recently called on Mr. Calderon to freeze increases in state-controlled gasoline prices.

"If not, food will keep on rising," he said at a recent press conference, flanked by charts and graphs about Mexico's 40 million poor. "Food prices go up and those 40 million vulnerable Mexicans get poorer every day."

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