The Real Reason Behind Costa Rica’s High Product Prices

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    President Luis Guillermo Solis is a strong devotee of economic nationalism. One of his precepts of public policy is the “food sovereignty.” This ideology states that Costa Rica has to produce what it consumes, no matter how expensive it is.

    Not only is Costa Rica an expensive country, many of the same foreign products can be much cheaper in Mexican or other Central American supermarkets. Even more disturbing is that Costa Rican products are cheaper in neighboring countries. How do we explain this last phenomenon?

    The justification that production costs in Costa Rica are more expensive (rising cost of electricity, high taxes, bureaucratic disorder, social security, etc.) is obviously a poor explanation in that product shipped abroad face have the same production costs.

    The actual reason is very simple: certain grocery companies from Costa Rica, in particular giants like Dos Pinos and Pipasa, are protected by high tariff barriers that shield them from foreign competition. The tax on the importation of milk, for example, is 65%. For some parts of the chicken, tariff reaches 150%. By not having to face competition, these companies can raise prices of their products in Costa Rica to squeeze a little more profit from the local consumer. This guarantees higher margins of profit allowing them to export to other countries in the region with competitive prices. For that reason we find cheaper products from Dos Pinos in Panama and Honduras.

    The Costa Rican consumer has no choice to face up to the higher cost of living brought on by this ‘commercial protectionism.’ For the middle and wealthy classes, who defend the concepts of “food sovereignty,” this extra cost is not very perceptible. But for low-income consumers and many expats, the higher prices can have significant impact. Studies have indicated that the poorest 20% of the population carries the heaviest burden of agricultural and commercial protectionism.

    [quote_box_right]Costa Rica Fact:

    The best place to find fresh food and low Costa Rica prices are the ferias or farmer’s markets.[/quote_box_right]

    Costa Ricans such as those living close to the border in the South Zone can cross the border and buy cheaper Tico products in Panama and the price differences are significant. According to one resident of Paso Canoas, buying a newspaper, for example, is ₡50 cheaper. What is the response of the Solís administration’s to this? Jail Time! The government wants to incarcerate those who dare to cross Panama to buy cheaper products, many of which are Costa Rican products.

    Instead of eliminating tariff barriers that artificially increase the cost of living in our country, disproportionately hurting the poor, the government suggests sending offenders to our overcrowded prison system.

    While the idea of ”economic nationalism” and a “social solidarity economy” proclaimed by the administration of Luis Guillermo Solis is a good idea on the surface, combining this idea with conglomerate commercial protectionism, is a failing strategy.

    Read the original article on El Financiero.

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