Peru Agribusiness Report Q4 2009

In BMI's Peru Agribusiness Report for Q409 we introduce the new Grains Outlook. Demand for grains has risen rapidly over the past decade driven by both the expansion of the livestock sector and increased consumption of wheat-based products such as bakery goods and pasta. Corn consumption has seen the most rapid growth, expanding more than 50% between 1998 and 2008. Demand for feed from Peru's expanding poultry sector will see strong corn consumption growth in the decade to come. Production of corn has grown even faster than consumption, more than doubling in the last decade. The expansion in production was spurred by tax breaks introduced at the end of the 1990s to encourage poultry producers to use locally grown corn. Despite the growth in production, Peru is still reliant on imports for around half its annual corn consumption.

Demand for wheat has also been growing this decade, though at a far slower rate than for corn. The strong growth of Peru's economy over the past few years has seen demand for processed food products rise. Bread consumption remains very low by Latin American standards. As incomes rise, we expect demand for wheat-based goods to continue to grow. Production of wheat remains largely small scale. Peru's organic food export trade has continued to grow over the past two years despite the global recession. Many feared that demand for expensive organic products in the West would fall in 2008 and 2009 as consumers traded down to cheaper varieties. This does not appear to have been the case, however. Peru's Tourism and Export Promotion Board is forecasting that the value of the country's exports of organic food will rise 13% in 2009 to US$225mn.

Organic coffee is the major revenue earner - Peru is the world's leading exporter of certified organic coffee beans. It also exports organic cocoa and bananas among other products. July brought welcome news for the organic sector with the release of the North American Organic Coffee Industry Survey. It found that organic coffee consumption in the US grew by 12% year-on-year to around 673,000 bags in 2008. With interest in the perceived health and environmental benefits of organically produced food continuing to rise in the West, we expect the value of Peru's organic exports to continue to rise bringing valuable extra revenue to the country's small-scale farmers. Peru's sugar mills are also having a good year. The industry has been gradually creeping back to health following the collapse of production in the 1970s and 1980s. Over the past decade investment in the sector has boomed. In the first seven months of 2009, sugar production reached 569,205 tonnes, up 9.7% from the same period of 2008.

Millers have been benefiting from the high world prices of the commodity this year. With continuing investment in milling capacity and expansion of the area planted to sugar cane, we expect Peru to soon be self-sufficient in sugar. A potential risk to the sector in the short term, however, are the El Niño conditions that have been developing through the middle of 2009. The El Niño phenomenon causes heavy rains in the north of the country where most of the sugar industry is based. This has the capacity to seriously disrupt production as happened in 1998 when sugar output dropped by more than 30% following the disastrous floods of that year. At present, the El Niño effects this year are expected to be relatively mild.