BMI View: Agricultural export revenue grew by 23% year-on-year (y-o-y) in 2011, according to data from the Ministry of Agriculture. The primary export products are coffee, which grew by 58% y-o-y in 2011 on the back of high prices, grapes and avocados. Revenues from cocoa were up by 31% y-o-y. Peru's export capacity has been boosted by a number of free trade agreements, including with the US, the Andean Community, Mercosur, Venezuela, South Korea and China. Peru's agricultural sector grew by 3.8% y-o-y in 2011, with livestock production up by 5.2% and crops up by 2.8%. Strong growth in the Peruvian economy is expected to encourage investment in infrastructure and technological development. Hence, we believe that the agricultural sector should continue to expand and become more efficient.
.. BMI expects that Peru's economic growth will be among the strongest in Latin America over the medium term. We forecast GDP increasing by 4.8% year-on-year (y-o-y) in 2012 and 2013 and by 4.9% in 2014.
.. We forecast coffee production falling by 3.7% y-o-y in 2011/12 to 3.95mn bags as the arabica crop enters the off-year in its cycle. However, good weather conditions have aided flowering, and high prices have continued to encourage investment in plantations. Over our forecast period, we expect growth to continue and are forecasting coffee production to reach 4.65mn bags in 2014/15, before dipping to 4.35mn bags in 2015/16, the off-year for arabica crops.
.. With soft drink and confectionary sales set to grow, we forecast demand for sugar growing by 4.5% y-o-y in 2012 to reach 1.21mn tonnes. Out to 2016, BMI forecasts sugar consumption to grow by 30.8% on the relatively low 2011 level to 1.51mn tonnes.
.. In 2012, we see cocoa production growing by 15.4% y-o-y to reach 65,200 tonnes, driven by an expansion in the area planted and improved yields. Over our forecast period to 2016, we expect cocoa production to grow by 43.7% on the 2011 level to 81,200 tonnes.
.. We believe that corn consumption grew strongly in 2010/11 on the back of increased demand from the poultry sector; we estimate 10.9% growth to 3.55mn tonnes. In 2012, we forecast consumption growing by a further 2.0% y-o-y to 3.62mn tonnes, driven by demand from the livestock sector. Out to 2016, we see consumption increasing by 18.7% on the level seen in 2011 to reach 4.21mn tonnes.
Key Trends And Developments
.. In March 2012, the Peruvian government announced its intention to transfer all remaining shares in shares of sugar producers Pomalca, Tumán and Cayalti to workers by the end of June. Workers will be able to buy shares in the three companies in exchange for wages, health insurance and other benefits owed to them by the companies. The move signals the final withdrawal of the state from the sugar sector, which had been expropriated by a military regime in 1969.
.. In December 2011, the UN Office on Drugs and Crime announced that around 800 hectares (ha) in the central Peruvian region of Huanuco would be used for cultivating cocoa. The project is being carried out with US$2mn investment from US Agency for International Development (USAID). It is hoped that the programme will benefit 700 families from 21 communities in the province of Leoncio Prado who previously cultivated coca leaves. It is hoped that the programme will produce more than 1,000 tonnes of cocoa. USAID has pledged US$20mn in support of Peru's National Strategy for the War Against Drugs 2012-2016, the majority of which will be directed towards encouraging alternative crop production.
.. The strong growth of Peru's cocoa export industry continued into 2011, with cocoa exports increasing by 83.8% y-o-y in value terms to reach US$62.8mn. Exports to Colombia and Belgium rocketed by 597.8% and 118.2%, respectively. In volume terms, total exports increased by 80.5% to 19,700 tonnes. Belgium accounted for 21.9% of exports, followed by Colombia (21.6%), Italy (15.7%) and the Netherlands (15.7%). There are, however, concerns that a fall in prices will hit Peruvian exporters in 2012. From a peak of US$3,472 per tonne in February 2011, prices fell to US$2,356/tonne in February 2012 as a result of falling demand and global economic uncertainty. Economic instability in Europe represents a further risk, as 66.3% of exports were destined for the European market in 2011.
.. In late February, the Peruvian government announced that it would invest PEN100mn (US$37.44mn) in 2012 to boost agricultural production in the most deprived areas of the country. The investment will be directed towards the construction of small water reservoirs to enable families living in poverty to improve the quality and yields of their crops.
.. Also in February, it was reported in the local news that the Ministry of Agriculture was working on a bill which will cap the area of land that any individual or company can own. Further details are not yet available. The largest land owner is food conglomerate Gloria Group, with 81,000 ha. There is widespread opposition to the plans from Peru's business sector. Leading export organisations Amex and Comex and the Lima Chamber of Commerce have condemned the proposed bill, warning that it could deter foreign investment in Peru.
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