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Colombia Agribusiness Report Q1 2012
Business Monitor International, Dec 2011, Pages: 64
Business Monitor International's 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.
BMI View:
On October 12 2011, the long-stalled free trade agreement (FTA) between Colombia and the US was finally approved by the US Congress. The US-Colombia FTA was first signed in 2006, but had not been ratified, due to continuing concerns in the US over Colombia's human rights record. The agreement is expected to enter into force in H112. The agreement is good news for some agribusiness sectors. Preferential access to the US market will provide a boost for exports such as coffee, cocoa and sugar. The US is already the largest export market for Colombian goods and the deal is expected to triple exports within the next five to six years.
However, the FTA has raised concerns among Colombia's grain, rice, dairy and livestock farmers as the arrival of inexpensive, tariff-free imports from the US could see local producers lose market share. Once the agreement comes into force, more than 80% of US goods will immediately have tariff-free access to the Colombian market, with the remainder of tariffs removed over the coming decade.
Key Forecasts:
- BMI's view of Colombia's growth prospects remains optimistic. Following real GDP growth of 5.2% in Q211, BMI holds to its forecast of full-year growth of 4.8% y-o-y in 2011. We see real GDP expanding by a further 4.5% y-o-y in 2012.
- Q311 brought further misery for coffee producers as heavy rains disrupted flowering and caused extensive damage to crops. Production in September 2011 fell by 13% y-o-y, according to the National Federation of Coffee Growers. Roya fungus continues to pose additional challenges for producers. As a result, BMI has revised down its forecast for the 2011/12 harvest to 8.50mn 60kg bags, a y-o-y decline of 6.1%. This forecast could be revised down further, if fears of more heavy rains caused by La Niña weather phenomenon are realised. Out to 2015/16, BMI forecasts growth of 32.6% on the low 2010/11 level to reach 12.10mn bags.
- The 2010/11 cocoa harvest has also been hit by the heavy rains. Incidences of Moniliophthora (Monilia), or frosty pod rot, were also reported to be on the rise. The poor weather has also damaged the quality of the cocoa beans, which will hit export potential. BMI now estimates that production in 2010/11 fell by 12.0% y-o-y to 35,200 tonnes. BMI currently forecasts production to rebound to 42,230 tonnes in 2011/12 as modernisation of agricultural techniques continues to improve yields, and high prices on the international market encourage farmers to dedicate more land area to cocoa.
- BMI sees demand for corn from the livestock sector continuing to grow in 2012 and forecast consumption to rise by 3.6% y-o-y to 5.39mn tonnes. Through to 2016, BMI forecast corn
- High meat prices hit beef consumption in 2011 and estimate that more moderate growth of 2.0% y-o-y took consumption to 902,000 tonnes. BMI sees demand growth slowing further to 0.8% y-o-y in 2012 to reach 909,000 tonnes. Over the forecast period to 2016, BMI sees growth recovering and forecast that consumption will rise by 16.6% from the 2011 level to 1.05mn tonnes.
Key Trends And Developments:
In late October 2011, the National Federation of Coffee Growers (FNC) unveiled a new programme to encourage coffee growers to plant corn in between young coffee plants in order to boost their income. The programme, called 'Coffee and corn: a happy marriage', will be rolled out by the FNC in partnership with the Colombian government. Investment of US$163,000 will be provided to coffee growers to fund the purchase of corn seeds. As young trees take two to three years to come to production, planting corn in new plantations is designed to provide farmers with an alternative income stream as they wait for the new plants to bear fruit.
The Colombian agricultural sector has been hit by devastating floods through Q311 which have caused widespread damage, particularly to cocoa and coffee crops. The rains have led to mudslides that have killed 48 people in the city of Manizales, at the heart of the coffee-growing region. The Minister of Agriculture and Rural Development Juan Camilo Restrepo Salazar has offered reassurance that the heavy rains will not lead to food shortages or price hikes. However, there are fears that La Niña weather phenomenon could lead to further heavy rains through the remainder of 2011 and into 2012.
Diplomatic relations between Venezuela and Colombia continue to improve.
In late October 2011, the two countries agreed to extend preferential tariff agreements for a further 90 days, pending the finalisation of an agreement to govern their trade relations. The extension to preferential tariffs was agreed at a meeting in Bogotá between the foreign ministers of both countries. President Santos is scheduled to meet his Venezuelan counterpart Hugo Chávez in the second half of November to finalise the trade agreement. The continued improvement of trade relations is good news for Colombia's agricultural sector, as Venezuela is the country's second largest trading partner, after the US.
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