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Food price and subsidy policies and nutrition: experiences in Trinidad-Tobago

Curtis E. McIntosh

Introduction
Production, distribution, and pricing of selected products
Conclusions
Recommendations
References
Additional bibliography
Discussion

Introduction

Food Price Inflation

Since the early 1970s, Trinidad-Tobago has been experiencing a phenomenal rate of food price inflation. Between 1970 and 1972, the annual average food price increase was 8.3 per cent, but it rose to 27.3 per cent between 1972 and 1974. Since then there has been a decrease in the rate of increase in food prices, but it is still highly inflationary 111. This trend in food prices has serious nutritional consequences for the population except where there is a compensating increase in income and equity in its distribution.

Incomes have been rising steadily in Trinidad-Tobago, but the rate of inflation in the early 1970s precluded any increase in real income. Between 1970 and 1974 the purchasing power of the dollar decreased from 74 to 47 (in September, 1960 it equalled 100) (1). There is evidence that pre-tax household incomes were more inequitably distributed in 1971 - 1972 than in 1957 - 1958 (2). Because all segments of the population face rising food costs, the low-income groups are at a distinct disadvantage.

Nutritional Consequences of Inflation

A National Household Food Consumption Survey in Trinidad-Tobago in 1970 revealed the relationship between income and expenditure on food. The average monthly income per household was $298.00, of which 56 per cent was spent on food. Households with average monthly incomes below $150.00 spent all of their income on food. Households whose average monthly income was above $150.00 spent progressively less on food as their income increased, declining from 82 per cent for average incomes in the $150 to $250 range to 25 per cent for average incomes over $1,000 (3).

Because food purchases absorb such a high proportion of the budget of low-income consumers, this group becomes particularly vulnerable to rising food prices. The consequences are reflected in adverse effects on the nutrition and health status of the population. The household survey also indicated a close association between protein calorie malnutrition (PCM) and low income. Eighty per cent of the cases of PCM were found to be in children whose parents were unemployed. As inflationary prices erode purchasing power, the level of food prices is of special concern to those who seek to improve the nutritional status of the population.

Objectives of the Paper

This paper attempts to highlight the nutritional consequences of food price and subsidy policies adopted by the Government of Trinidad-Tobago. The paper basically summarizes the pertinent sections of a report on a study designed to identify and measure the components of the retail prices of selected basic foodstuffs, and the effects of these factors on price levels. The basic objectives of the study included: (a) a description of the supply and demand situation for selected foodstuffs in Trinidad-Tobago; (b) cost estimation of the components of retail prices; and (c) an examination of price and subsidy policies.

The selected foodstuffs included sugar, flour, salted cod, chicken, rice, beef, cooking oil, condensed milk, split peas, and selected starchy fruits, roots, and tubers. In selecting the various food items for study, consideration was given to the major sources of nutrients in the diet, the per capita consumption of the items, the proportion of income devoted to the food groups, and produce that could be grown locally.

Production, distribution, and pricing of selected products

Wheat Flour

Production and distribution. All of the wheat flour consumed in Trinidad Tobago is milled and packaged by a single firm-National Flour Mills Ltd., a subsidiary of Maple Leaf Mills Ltd. (Canada), with majority shareholding by the Government of Trinidad Tobago (52 per cent) and a minor participation by Inter-Continental Grain Co., Ltd. The flour is produced from wheat originating in the United States or Canada. The main types of flour produced are overthe-counter flour from hard red winter wheat and bakers'flour from dark red spring wheat, or its equivalent, Canadian No. 1 red spring wheat. Small quantities of packaged all-purpose flour are produced under four different brand names.

All types of flour are fortified with minerals and vitamins added in a pre-mix composite. The levels of vitamin and mineral fortification, in milligrams per pound, are:

Flour production in Trinidad-Tobago increased from approximately 119.8 million Ibs. in 1973 to 133.4 million Ibs. in 1974. The latter figure consisted of 35.8 million Ibs. of bakers'flour, 92.8 million Ibs. of over-the-counter flour, and the remainder all-purpose packaged flour. In addition, approximately 6.4 million Ibs. of bakers'flour were imported in 1974.

Counter flour could be purchased directly from the factory on a cash basis by anyone with a minimum order of 12,000 Ibs. However, there was a restriction on the amount of bakers' flour that could be purchased. Numbers of customers purchasing flour directly from the National Flour Mills Ltd. in 1973 and 1974 were:

The packaged all-purpose flour is picked up from the factory by the distributors and stored at their own facilities. Other costs to these distributors are for advertising and distribution services to customers.

In percentage terms, the composition of the production costs for bakers' end counter flour was as follows in 1976:

Pricing and subsidy. The prices of these two types of flour are controlled, and a government subsidy is granted to the flour mill to ensure a positive net return at the manufacturing level. The price levels and subsidies are shown in tables 1 and 2.

Wholesalers usually purchase 100-lb. bags of counter flour at $19.25 per bag. As there is a rapid turnover of flour (600 bags per month), the major additional costs to the wholesaler are transportation and handling charges. In the Port of Spain area, where the major wholesaling activity takes place, these charges amount to 30 cents per bag. This leaves a gross profit margin to the wholesaler of 10 cents per bag at the wholesale selling price of $19.65, or 0.5 per cent. Because of the high rate of turnover (a turnover of working capital can be as high as five times per month), a monthly net profit margin of 1.5 per cent is attainable, allowing 1.0 per cent for interest and administrative expenses.

The retailers" purchase price is $19.65 per 100 Ibs. Modal transportation and handling charges are 50 cents per 100 Ibs. for various points outside Port of Spain but within County St. George. Storage, weighing, and packaging charges amount to $1.50 per 100 Ibs. At the modal retail price of 22 cents per lb., the retailers' gross profit margin is estimated at 35 cents per bag, or 1.6 per cent. Turnover at small retail shops is lower- 35 bags per month on average. Net profit to these retailers after interest charges is estimated at 7 per cent per annum. These figures suggest a much lower return to retailers in this commodity than to wholesalers when the volume handled by wholesalers is considered.

The essential difference in the components of the retail price is the effect of transportation cost. Modal transportation rates per 100 Ibs. of produce by type of product and major population centres are shown in table 3. As transportation and handling charges increase, the net profits of small retail shops are eliminated. Because these shops could not sustain continuous losses, control prices are either violated or other items not under Government control are priced higher to cover losses on controlled items.

Rice

Production and distribution. The major portion of the rice consumed in Trinidad Tobago has traditionally been produced in Guyana. For example, in 1972 Guyana accounted for virtually 100 per cent of the imports, constituting 71 per cent of consumption, the rest being made up by domestic production. More recently, in 1974 the inability of Guyana to supply the requirements of Trinidad-Tobago led to the importation of large quantities from Venezuela, which supplied 57 per cent of imports compared with 36 per cent from Guyana (4).

During 1974 local paddy production increased from the 1972 - 1973 average of 27.1 million pounds to 39.6 million pounds, and reached 44.6 million pounds in 1975 (Table 4).

Bulk rice is imported by the Ministry of Industry and Commerce and is distributed to wholesalers and retailers on a quota basis in 178-lb. bags. The rice is usually taken by the wholesalers at shipside or from warehouses at the docks. They, in turn, supply retailers and institutions at the controlled prices.

Pricing and subsidy. Rice is under price control and is subsidized. Wholesalers and retailers holding quotas with the Ministry of Industry and Commerce obtain bulk rice in bags containing 178 Ibs. at a price of $50.77 per bag. In the Port of Spain area, transportation and handling charges amount to 35 cents per 100 Ibs. Outside of the Port of Spain area, transportation and handling charges reach as high as 80 cents per 100 Ibs. The wholesale selling price is $51.69, leaving a gross profit margin to the wholesaler of 30 cents, or 0.6 per cent. With a turnover of working capital four times per month, a net profit of 1.4 per cent could be attained after interest and administrative charges of 1 per cent are added in.

Retailers, who purchase from wholesalers at $51.69 per bag, incur handling and transportation and packaging charges of $1.00 and $1.50, respectively, and sell at 30 cents per lb., taking a loss of 79 cents on each bag of rice. The loss is higher when interest charges are taken into account. When, however, the rice is purchased directly from the Ministry of Industry and Commerce, the gross profit margin is 13 cents, or 0.24 per cent, which hardly covers interest charges. It is not surprising, therefore, that price control regulations are frequently violated.

Cooking Oil

Production and distribution. Edible oil is produced in Trinidad-Tobago from copra produced locally, or is imported from regional or extra-regional sources, and vegetable oil, mainly soybean, is obtained from extra-regional sources. Edible oil is only one of the kinds of fat and oil products produced by Lever Brothers West Indies Ltd. Edible oil is also produced by the Coconut Grower's Association. Several brands of corn oil are marketed in Trinidad-Tobago by various importing agents, but they are beyond the reach of most consumers.

Edible oil is distributed in 45-gallon drums, 4-gallon tins, or in 26 and 2/3 oz. and other sized glass bottles. The typical channel of distribution is via wholesalers to retailers and then to consumers. The supermarkets usually trade in bottled oil, while the country shops prefer the 45-gallon drums or 4-gallon tins. The oil is transferred from the drums and tins to 26 and 2/3 oz bottles for sale to customers.

Pricing and subsidy. The price of edible oil in Trinidad is controlled. When costs are higher than the control price, a subsidy is applied.

The estimated manufacturing cost for edible oil in 45-gallon drums is $6.578 per gallon and $7.022 per gallon for tins. The manufacturer is allowed a 6 per cent profit margin, which gives an ax-factory cost of $6.97 per gallon in 45-gallon drums and $7.44 per gallon in 4-gallon tins.

The wholesaler who purchases a 4-gallon tin of edible oil thus pays $29.77. He is allowed a 2 and 1/2 per cent markup. Thus, the retailer buys from the wholesaler at $30.51. {The retailer in Tobago pays $30.61.) The retailer, in turn, is allowed a 7 per cent mark-up so he can sell a 26 and 2/3 oz. bottle of edible oil for $1.36. Retailers in special districts are allowed to sell at $1.37, and those in Tobago at $1.42 At present, there is no subsidy on edible oil.

Transport costs and handling charges average 30 cents per tin. The gross profit margin to the wholesaler is 41 cents per tin, or 1.4 per cent.

Transport and bottling charges to the retailer (including wastage) are $1.60 per 4-gallon tin. The gross profit return is 54 cents per tin, or 1.65 per cent.

Condensed Milk

Production and distribution. Condensed milk is produced in Trinidad and Tobago by Trinidad Food Products Ltd. The company makes two brands of condensed milk- Nestle and Teapot. A third brand-Libby's-is produced on contract for Trinidad Distributors Ltd.

The basic inputs in the manufacture of condensed milk are skim milk, butter oil, sugar, and tin plate. These contribute approximately 33 per cent, 15 per cent, 12 per cent, and 15 per cent, respectively, of the cost of a case of milk containing 48 tins. Sugar is a local input but, when unavailable, it has to be imported. Fresh milk is used in the manufacture of condensed milk, but its contribution in terms of quantity input and cost is rather small. Another big cost factor is factory overhead-approximately 17 per cent. Labour input is small and contributes only 3 per cent to the cost.

The channel of distribution is from the manufacturers to wholesalers and large retailers. Wholesalers sell to small retailers who, together with the large retailers, sell to consumers.

Pricing. Condensed milk is another of the controlled items in Trinidad-Tobago. A full-cost pricing policy with a fixed dollar mark-up for the manufacturer, the wholesaler, and retailer is used to arrive at the final retail prices. The following illustrates:

More recently, price increases have been allowed, making the wholesale price per case of Nestle and Teapot milk $34.56 and $31.68, respectively, and their corresponding retail prices 74 cents and 68 cents per tin, respectively. Special districts are allowed an additional one cent per tin. These price increases have been allowed because of increased costs of raw materials.

The manufacturer undertakes a delivery service for customers. Some retailers, however, still obtain their supplies from wholesalers, in which case a transportation cost of approximately 60 cents per case is incurred. Where supplies are delivered, retailers make a gross profit margin of 96 cents on each case, or 3 per cent. There is thus a sizeable profit margin on condensed milk.

Poultry

Production and distribution. Poultry is produced from eggs laid in the United States and hatched in Trinidad Tobago, and the chickens are fed with imported feed milled and compounded in Trinidad-Tobago.

Several large producers earn a living from raising poultry. Because of its high capital requirements and rigid price structure, high-volume production is the answer to low profit margin per bird. Many small farmers have had to divert to other agricultural enterprises and there is a trend toward large-scale, integrated production systems.

Contract production is becoming popular. Under this system, the chicks and feed are provided to the farmer by a processing and marketing agency, and the farmer then sells the poultry to this processor/distributor. Chicken is usually readily available, though there are periodic gluts and shortages.

The birds are processed in one of six major processing plants or in one of several "pluck" shops distributed throughout the major population centres. Some birds are sold live and taken home to be killed and plucked, or the killing and plucking may be done by the seller for a fee. The sellers are many and handle small quantities-500 a week. The large processors/distributors deal in chilled and frozen birds (whole or in parts). These are distributed mainly through supermarkets, in amounts as high as 3,000 Ibs. per week.

Pricing. Feed cost is the main component in chicken production. Final retail price is very sensitive to feed prices. A 33 and1/2 -lb. Iive bird costs approximately $3.45 to produce, of which $2.37 (68.7 per cent) represents the feed cost. A wholesale margin of 10 cents is allowed above the 99 cents per pound cost of production, and a 15-cent markup is allowed the retailer. Live chickens are therefore sold at the controlled wholesale price of $1.09 per lb. and at a retail price of $1.24 per lb. The comparative figures for chilled chicken are $1.32 and $1.42 per lb. (in some areas $1.44), and for frozen chicken $1.35 and $1.45 (some areas $1.47). There are subsidies on poultry meat, poultry feed, and hatching eggs.

Beef *

Production, importation, and distribution. The production of beef in Trinidad-Tobago cannot keep up with demand, hence the country depends on imports to meet the deficit. Principal suppliers are New Zealand and Australia.

Consumption of beef in Trinidad-Tobago for the period 1963 - 1973 was relatively stable, with the 1973 quantum showing an increase of only one million pounds over the 1963 figure. Over this same period, the yearly per capital consumption remained fairly constant (around 10 pounds). This constancy in per capita consumption may be attributed partly to the control on imports exercised by the Ministry of Industry and Commerce, and partly to the several constraints that limit local beef production.

Locally produced beef reaches consumers directly from farmers who slaughter the animals themselves, or from butchers and meat vendors. The current trend in the marketing of locally produced beef is for farmers to take their animals to the abattoir and have them slaughtered. Meat vendors then buy the carcasses for retail. Imported beef is distributed via large wholesalers and retailers (supermarkets and specialized meat shops). The wholesalers and retailers themselves often import beef directly.

The importation of beef is handled by some 53 firms, each of which must obtain an import license from the Ministry of Industry and Commerce before bringing in supplies.

The market for imported beef and wholesale and retail activities are concentrated among a few firms, in contrast to marketing activities for locally produced beef (Tables 5 and 6).

Pricing. The main policy employed for imported beef is full-cost pricing, for which the cost of marketing is determined along with the cost of the product and a percentage profit margin added. Price controls are in effect for the retailing of frozen beef steak and frozen beef stew at $1.31 and $1.05 per pound, respectively ($1.32 and $1.07 in certain districts). There is no evidence that these controls are adhered to.

The retail value of an imported 85-lb. veal side was estimated at $177.38 during a meat cut-out demonstration at a leading supermarket. The components of this retail price were as follows:

• Retail value 100 %
• Cost of veal side 62.3%
• Overhead expenses 15.6%
• Profit 22.1%

Importers of beef usually operate at a 5 per cent mark-up on landed cost to cover brokerage, inland insurance, and commission. The wholesaler's mark-up is 10 per cent on the importer's selling price, plus a transport cost of 60 cents per 100 Ibs. and storage charges of $5.25 per 100 Ibs. per month, or any part thereof.

Most of the importers place orders every six to eight weeks. This suggests that there is a relatively high rate of turnover of working capital. Importers are thus assured a net profit of 14 per cent per annum. Where importers combine the functions of wholesaling and retailing, as is so often the case in the beef industry, profit rates in the imported beef sector are rather high.

In the market for locally produced beef, a 665-lb. Iive-weight animal represents the average carcass weight handled by butchers (Table 5). If the animals are slaughtered and retailed as stew beef by the butcher, the following shows the components of the retail value:

Table 5 also shows that the average weekly sale per butcher-544 Ibs.-is greater than the average carcass weight of 398.2 Ibs. While some butchers do not achieve this weekly average, the rate of turnover of working capital is expected to be high, thus implying a rather high profit margin on local beef. Even higher profit margins are realized in specialized meat shops.

Salted Fish

Production and distribution. The processing of salted fish in Trinidad-Tobago is still in its infancy. Canada, Norway, and the United Kingdom are the main suppliers of salted cod.

Salted fish is distributed through wholesalers, supermarkets, and small shops in a manner similar to that for the other basic foodstuffs.

Pricing. There are no price controls on this commodity, and it is therefore traded on a competitive basis. Prices vary, depending on import prices and location. Based on current prices, the components of the retail price are as follows: 100 Ibs. of salted cod can be imported for $150.00. It is sold for $170.00 per 100 Ibs., thus allowing $20.00 for transport and other handling charges, and for profit to the importer/wholesaler of 13 per cent. Because the transport cost in the Port of Spain area is approximately 30 cents per 100 Ibs., the net profit to the importer/wholesaler is quite high, considering the turnover rate.

Retailers who incur additional charges for transportation, packaging, weighing, etc., of $2.00 per 100 Ibs. and then sell the fish for $2.29 per lb. make $57.00 on the sale of 100 Ibs., or a 33 per cent profit. There are high profit rates at both the wholesale and retail levels. It appears that advantage is taken of the fact that this item is not price controlled in that additional mark-ups increase the overall profit for this product, thus compensating for losses that might be incurred on price-controlled items.

Split Peas

Production and distribution. Split peas are produced locally from imported raw materials. Traditionally, this product has been used as a soup, combined with rice, and is a basic ingredient in "dahl pourri," a meal of Indian origin. Small quantities of the latter are still imported.

The distributive channels are similar to those for wheat flour. The processing plant is a subsidiary of a large firm dealing in the importation and distribution of foodstuffs.

Components of the retail price. Supplies are available from the factory in 98-lb. bags at prices ranging from $55.65 to $57.00 per bag, or from wholesalers at $58.00 to $63.00 per bag. Based on transportation and hauling charges of 30 cents per bag, wholesalers make a gross profit margin of approximately $4.00 per bag, or 7 per cent.

Retailers incur transport and handling and packaging charges of $2.10 per bag, and sell at an average of 75 cents per lb., realizing a gross profit margin of $15.00 per bag, or 25.7 per cent. Here again, mark-ups on uncontrolled items are high.

Sugar

Production and distribution. Sugar has been, and continues to be, the major export crop of Trinidad-Tobago. Sugar cane is produced on some 100,000 acres, the majority (55,000 acres) of which is under large-scale estate production controlled by the Government of Trinidad-Tobago, The remainder is produced by medium- and small farm private enterprises.

Raw sugar is produced by five factories and exported in this form. Refinery capacity is being increased to make Trinidad-Tobago self-sufficient in refined granulated sugar. Refined sugar is an important input in the production of condensed milk, soft drinks, fruit juices, confectionery, jams and jellies, ice cream, and bakery products, which, until recently, were made from imported refined sugar.

Large-volume purchases are made by wholesalers and retailers directly from the factories on a quota basis. Small retailers obtain their supplies from wholesalers. Washed grey sugar is usually distributed in 224-lb. bags, while the refined sugar is packaged in polyethylene bags of 2- or 4-lb. capacity, and then into 48-lb. bales.

Pricing and subsidy. A 224-lb. bag of washed grey sugar costs $44.08 ax-factory. Transport and handling charges, on average, cost $1.00 per bag in the Port of Spain area, and weighing and packaging cost $2.50 per bag. This item is price-controlled and the wholesale price is $45.25 per 224-lb. bag, while the retail price is 21 cents per lb.

The wholesaler thus realizes a gross profit margin of 17 cents, or 0.3 per cent on his outlay. The retailer who purchases from the factory loses 75 cents per bag, and $1.71 per bag if he purchases from a wholesaler.

Because retailers cannot be expected to subsidize sugar consumers, price control regulations are violated, and/or food items that are not price-controlled are sold at exorbitant prices to compensate for losses incurred on price controlled items.

Starchy Fruits, Roots, and Tubers.

The nutritional significance of this group of foodstuffs lies not so much in its contribution to total calories for consumers as in the fact that they are mainly locally produced. Thus, when staples such as wheat and rice are unavailable or in short supply, consumers turn to this food group to supply a greater proportion of their calorie intake. This food group claims, on average, 5 per cent of consumer income compared with 15 per cent for nearly six times the caloric equivalent in cereal products dominated by flour and rice (6)-a clear indication of the high cost of calories from starchy fruits, roots, and tubers.

Production. The pattern of production and supply of the starchy fruits, roots, and tubers has been closely linked to developments and declines in the major export crops, particularly sugar. Because of the dominance of sugar in the Trinidad-Tobago economy, and its consequent strong competition for land resources, the production of fruits, roots, and tubers is confined to lower quality lands, often on steep slopes, and on small, spatially dispersed acreages (7).

In the past, farmers engaged in producing these crops were able to make additional income to supplement their earnings from work on sugar and other plantations, or employment elsewhere in the economy. Of significance was the fact that a high proportion of the production was consumed by the farm family. The level of production, however, was perforce low because of the small size of the production units, limited still further by the practice of multiple cropping (not necessarily an economically disadvantageous practice), lack of production incentives, strong competition from imported substitutes, and an unsophisticated marketing system that failed to link the producers and consumers adequately. Time series data on the production of starchy fruits, roots, and tubers demonstrate a virtual stagnation in production in recent years.*

Marketing. The marketing of these starchy fruits, roots, and tubers is undertaken mainly by a large number of entrepreneurs operating individually and handling small quantities-1,500 pounds or less per week-of a limited range of these crops. Some marketers are members of the farm, families marketing their own, and sometimes other farmers', produce. Others purchase directly from the farmers or at the public markets. These marketers sell, for the most part, at 19 public markets in various locations around Trinidad and Tobago. Where no public facility exists, or it is inadequate, the selling area extends to the roadsides, often under the eaves of other business establishments. Recently, there has been a marked development of small shacks from which produce can be sold along highways-an excellent way to reach the travelling public.

A smaller proportion of these crops is distributed through a few supermarket chains, and an even smaller proportion through provision shops. As might be expected, these establishments are concentrated in areas of high population densities and are patronized by nearby residents or by those who have transportation at their disposal.

The Central Marketing Agency (CMA), a statutory body empowered to undertake the efficient marketing of agricultural produce, purchases farmers' produce and sells to government institutions such as prisons, hospitals, the army, and through other distributive channels such as provision shops, supermarkets, and vendors. Minimum guaranteed prices are in force for a wide range of commodities, including starchy fruits, roots, and tubers (Table 7).

The marketing of these crops in Trinidad and Tobago is characterized by a high degree of spoilage losses, especially among vendors at public markets. However, vendors at these markets are able to distribute the bulk of the produce at lower net returns than provision shops and supermarkets can, yet at the same time return a higher percentage of their sales dollar to the producer.

Transportation is not an important element in the marketing cost. The cost of transportation might be reduced further, however, as Port of Spain is the source of over 72 per cent of the produce consumed in all areas. This reduction might be brought about by the establishment of wholesale markets at appropriate locations, thus eliminating the double transportation cost for a high proportion of the produce.

Conclusions

1. The two-tier price control policy adopted by the Government gives some consumers a price advantage over others.
2. Shortages, price control violations, tie-in sales, and unjustified price increases on non-controlled items all occur under present price control policy.
3. The high dependency on imports for many basic food items, and the method of arriving at the final retail price (controlled or uncontrolled) often lead to unjustified price inflation.
4. Subsidies are applied equally to the rich and poor, when the poor need them most.
5. Price control with a subsidy on imported items has a long-term debilitating effect on agricultural development, because the provision of cheap, imported substitutes limits the demand for relatively high-priced, locally produced items such as starchy fruits, roots, and tubers.
6. Minimum guaranteed prices seem ineffective in bringing about increased production.

These conclusions point out certain adverse implications of the food price policy system in Trinidad-Tobago.

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