Thursday 1 June 2023

Butter shortage in Costa Rica

Shortage of butter and the high cost of its imports expose the locks of an 'open market' National dairy products enjoy tariff protection that is about to disappear in 2025.

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QCOSTARICA – Many consumers are scratching their heads at the lack of butter in the supermarkets and pulperias (corner stores) over the last couple of weeks. Mainly in the national brand Dos Pinos, forcing consumers to grab up the small number of imported brands.

The reason behind the shortage is due to the dry season, which affects the amount of milk produced by the cows. Added to this is the increase in international prices of feed for livestock and chemicals that make up veterinary products.

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Importing butter runs into rules that put barriers to dairy products and derivatives, such as a tax burden of tariffs and taxes that add up to 87%, despite Costa Rica considered an open market due to free trade agreements.

“Butter pays 65% import duties, plus 1% of Law 6,946 and 13% Value Added Tax (VAT). This is calculated in a cascade, so that the at the end gives comes to 87.58% of the tax burden,” explained Jaime Morales, Foreign Trade manager at Grant Thornton, to El Financiero (EF).

Impacted most by the decrease in supply is the productive sector, which uses butter in the elaboration of its products, for which butter cannot be easily substituted. Yes, there is margarine, of which there is not scarcity in the market, but it gives a different flavor and consistency.

High prices for the existing stock are another factor in production.

Lowering tariffs on imports is a temporary solution to what is considered a temporary situation. This, the temporary lowering of tariffs, can be achieved through Article 26 of the Agreement on the Central American Tariff and Customs Regime (Convenio sobre el Régimen Arancelario y Aduanero Centroamericano), where it is mentioned that tariff adjustments can be made as a result of the ‘sudden and widespread shortage of raw materials and basic final goods’.

“Broadly speaking, the procedure consists in that, if one of the States party to the aforementioned agreement finds itself in the situations described, it can unilaterally adopt measures to modify its import tariffs on a certain product, for a maximum period of 30 days,” Óscar Campos, a specialist in Customs Law at the firm Ecija Legal, told EF.

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This would fall on the shoulders of the Ministerio de Comercio Exterior de Costa Rica (Comex) – Costa Rican Ministry of Foreign Trade – which to date has not issued any alert of a shortage.

EF reports that according to the Comex, there are alternatives for importing butter.

“One option is to import butter produced in Central American countries, which is not subject to any quantity limit. Another option is to import butter produced in the United States, under the tariff quota set forth in the free trade agreement with that country, which allows importing a certain volume per year duty-free, for which requires submitting a request for the use of the quota to the Ministry of Foreign Trade,” EF was assured from the Comex.

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The Comex also added that there is the possibility of importing butter produced in the US by paying a reduced or preferential tariff of 13.2%, and, butter produced in any member country of the World Trade Organization (WTO) could also be imported, under the protection of a tariff quota that Costa Rica offers within the framework of said organization, which has a reduced tariff of 35%.

There are limits on the volume of the imports and it requires Comex to request authorization.

All these import options require the will of the current government to face the butter shortage, that as announced by Dos Pinos, will last at least three more weeks.

According to the Consumer Price Index (CPI), the interannual variation in the price of butter in March was 12.42% (hile in the case of liquid milk was 11.19%.). Inflation in the country stood at 4.42% in March.

In an editorial published Saturday, April 15, 2023, EF retells the story of small Costa Rica having to open itself to large markets and integrate itself commercially with the world, “since it took its first steps exporting bags of coffee, until its deepening in recent decades as a result of globalization and the extraordinary development of telecommunications and means of transportation.

In practice, however, while the industrial sector began a sustained process of tariff reduction, the agricultural sector has done so in a much slower and more deliberate manner, even with subsectors still very protected by tariff and non-tariff measures that have caused a lag in their modernization.

That is the case with dairy, from the obligation to request import licenses to a “tariffication” that, despite its greater transparency, produced exaggerated tax rates for imported products.

While it is true the drop in milk production due to the dry season and the costs of inputs in international markets (fertilizers, corn, soybeans, etc.) is blamed,  it is also true that the main national supplier has placed greater emphasis on those products with the highest profitability, which would not be at all reprehensible, if at the same time, the free importation of other dairy products was allowed.

It is not justifiable that, given the difficulties for national production to satisfy the demand for products required by consumers, the country is not capable of supplying them with imported products in an expeditious manner, as would happen in any market economy,” says the EF editorial.

With notes from “Escasez de mantequilla y el alto costo de su importación exponen los cerrojos de un ‘mercado abierto” and “Desabasto de lácteos en el país


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