60 CHAPTER 3


This index indicates that export prices denominated in the currencies of other exporters of maize, wheat, and rice have declined by about 15–17 percent (relative to dollar-denominated prices) from 2002 to 2008. In many instances, however, there is relatively little opportunity for coun- tries to switch suppliers. First, countries that peg their currency to the U.S. dollar will generally have experienced the same depreciation that the dollar experienced. Second, variations in transport costs are still a significant cost of trade. Third, variations in trade patterns determine the composition of foreign exchange reserves for countries, so limited trade with other countries also limits foreign exchange capacity. A country might earn foreign reserves in euros, for example, but might want to purchase cereals from the United States in dollars. This limited room for maneuver vis-à-vis food supplies sug- gests that we should investigate the relationship between dependency on U.S. food imports and exchange rate movements, because countries that are both dependent on the United States and have not benefited from appreciation against the dollar may be particularly vulnerable in a macroeconomic sense. Table 3.2 reports data for the two largest U.S. cereal exports, wheat and maize, as well as real exchange rate movements and foreign reserves, for regions and selected countries. Unsurprisingly, the regions that are most dependent on the United States as a source of food imports are Central America, the Caribbean, and some of the more northern countries of South America. A few other countries and regions are fairly dependent on the United States for food imports, but there are strong mitigating circumstances in most cases. First, many of these countries are either wealthy or only major consumers of U.S. wheat, whereas Central America, the Caribbean, and some South American countries consume both U.S. wheat and U.S. maize. The second mitigating factor is currency appreciation. In Africa the only country seriously dependent on U.S. food imports is Nigeria, but its currency appreci- ated by 42 percent in real terms against the U.S. dollar, and of course it is benefiting substantially from increased oil revenues.


As for foreign exchange reserves, the IMF has calculated months of imports as of the first quarter of 2008. Disconcertingly, the Caribbean and Central American countries appear to be highly vulnerable in this dimension as well. (In Africa some discrepancy exists between oil and non-oil export- ers, but there is variation in both groups, suggesting that mineral exporting capacity alone does not wholly explain the status of reserves—policies mat- ter more.) This evidence therefore suggests that, so far, it is the Central American and Caribbean countries that have been most vulnerable to rising U.S. dollar–denominated export prices because of their dependence on U.S. exports and their lack of any major compensating currency movements.


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