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Colombia Agribusiness Report Q4 2010
Business Monitor International, Sep 2010, Pages: 69
The Colombia Agribusiness service provides proprietary medium term price forecasts for key commodities, including corn, wheat, rice, sugar, cocoa, coffee, soy and milk; in addition to newly-researched competitive intelligence on leading agribusiness producers, traders and suppliers; in-depth analysis of latest industry developments; and essential industry context on Colombia's agribusiness service.
In June 2010, former defence minister Juan Manuel Santos achieved a resounding victory in the second round of the presidential election in Colombia. Santos was elected with 69.0% of the vote, against 27.5% for his rival, former mayor of Bogotá Antanas Mockus. The elections were marred by the killing of 10 members of Colombia's security forces by leftwing guerrilla rebels, which was a warning that the country's security problems are far from over. However, Santos' election bodes well for the future security in the country as he has pledged to continue his predecessor Álvaro Uribe's commitment to tackling insurgency and guaranteeing national security. He will also continue Uribe's economic policies of cultivating strong relations with the US. Addressing Colombia's social and economic inequalities will be higher on Santos' agenda, however, with the country still suffering from high levels of poverty and unemployment.
The new president has already taken important steps towards resolving Colombia's long-running trade dispute with neighbouring Venezuela. In July 2009, Venezuelan President Hugo Chávez suspended trade relations with Colombia in retaliation against accusations that Venezuela was aiding guerrillas belonging to Fuerzas Armadas Revolucionarias de Colombia (FARC). The dispute has severely disrupted agricultural exports, particularly for grains, livestock and dairy producers. However, in August 2010, it was announced that the two countries had resumed diplomatic relations and made a commitment to improve security along their shared border to prevent drug traffickers and guerrillas taking shelter or launching attacks from the area. Joint committees will be established to resolve the other disagreements between the two nations. This opens up the prospect of resuming trade, which would come as welcome relief to Colombian exporters.
- Colombia's economic recovery is in full swing, with year-on-year (y-o-y) real GDP growth coming in at 4.4% in Q110, up on the 3.4% recorded in Q409. We believe its economy is well on track to meet our above-consensus 3.9% y-o-y real GDP growth projection for 2010, with upside risks to our forecast. It appears that fixed investment is driving the rebound, with gross fixed capital formation increasing by 8.0% y-o-y in Q110.
- In June 2010, the Canadian House of Commons and senate ratified the Canada-Colombia Free Trade Agreement. The agreement had stalled since it was first signed in November 2008 as a result of concerns over Colombia's human rights record. The FTA is expected to boost Colombian imports of Canadian livestock and grains, particularly wheat and barley, as well as industrial products. The agreement could put pressure on Colombia's domestic producers, which may struggle to compete with the arrival of tariff-free imports.
- Despite hopes for a swift recovery, coffee producers have faced difficulties in 2010 as adverse weather conditions once again damaged harvests. There was drought during Q110 and we have revised down our forecast for 2009/10 to 8.78mn 60kg bags, an increase of just 1.4% y-o-y from the 2008/09 harvest, which registered the lowest output in 30 years. However, improved weather in Q210 and Q310 bodes well for the 2010/11 harvest. Increased daylight is expected to help flowering, boosting yields. In addition, an increase in fertiliser use and a greater number of rejuvenated coffee trees will also lead to improvement. As a result, we have forecast output of 11.05mn bags, up by 25.9% y-o-y.
- The resumption of diplomatic relations with Venezuela will come as a relief to Colombia's livestock farmers, who have been particularly hard hit by the trade dispute. We have revised up our forecast for Colombian poultry production as the economic outlook has improved. We now forecast production of 1.05mn tonnes, up by 2.1% y-o-y.
- Colombia's sugar exports dipped markedly in Q210, as the price of sugar plummeted on the international market. Exports fell to 115,185 tonnes, down by 45.2% from Q110. During Q210, the average price of sugar fell to US$15.53/lb, a 37.3% fall in comparison with Q110.
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