Peru Agribusiness Report Q3 2009

In BMI's Peru Agribusiness Report for Q3 2009 we introduce the new Livestock Outlook. Peru's beef production is small by Latin American standards. Domestic production of 163,339 tonnes in 2008 was only around 50% of that in Venezuela and less than a fifth of the amount of beef produced in Colombia. Even Andean neighbour Ecuador, which has a population less than half the size of Peru's and a lower GDP per capita, produces more beef.

Consumption is also tiny by beef-loving Latin American standards. In 2008, per capita beef consumption stood at around 6kg. This compares to 13kg in Colombia, 32kg in Paraguay and almost 70kg in Argentina. Despite these low figures, the beef sector has been growing strongly this decade as Peru's economy has boomed. From 2000 to 2007, beef production rose 25.4% while consumption increased 20.9%. We expect growth to slow in 2009 as the economy feels the effect of the world economic slowdown. Beyond this year, however, we expect both consumption and production growth to continue as Peruvian consumers are able to afford to spend more on food.

Far more significant to the Peruvian diet is chicken. Poultry production has seen rapid growth this decade, expanding by more than 60% from 2000 to 2007. In 2008, consumers were hit by a rapid rise in the price of chicken as producers passed higher feed costs onto consumers and increased demand drove up the price. With spending on chicken making up 10% of the country's total food expenditure, the price of chicken is closely tracked by the authorities. With the slowdown in GDP growth to a forecast 3.2% this year from 9.8% in 2008, the price of chicken has fallen back since the end of last year. We expect demand for chicken, the most affordable meat, to remain strong despite the economic troubles faced by the country. Dominating the political agenda in Peru at the end of the second quarter of 2009 was the fatal clashes between police and indigenous protesters in the Amazonian province of Bagua.

While the protests were spurred by the expansion of oil and gas exploration into indigenous lands in the Amazon, the unrest will have repercussions for the country's agricultural sector. Rapid economic growth will see demand for agricultural products in Peru rise. The development of a biofuels sector will also see demand for land increase. The free trade agreement with the US which came into force in February this year will give added impetus to the development of more modern, efficient and large-scale agricultural concerns. New agricultural developments are bound to come into conflict with existing systems of land use among Peru's still-poor rural population. The recent violence has shown that local concerns will have to be taken seriously as the agricultural frontier expands if production is not to be disrupted.