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Central America Agribusiness Report Q1 2012
Business Monitor International, Jan 2012, Pages: 76
Business Monitor International's Central America 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 Central America's agribusiness service.
BMI View:
Widespread flooding across the Central America region in October 2011 affected an estimated 1.2mn people and caused significant crop damage, particularly in El Salvador. 10 days of torrential rainfall caused by a tropical depression led the United Nations to launch an emergency appeal for assistance. Corn and bean crops in El Salvador have been hit particularly hard, with an estimated 988,000 quintals of corn and 340,000 quintals of beans thought to be lost. Fruit and vegetables, including apples, bananas and papaya, were also lost in the floods. It is thought that sugar and coffee crops have not been significantly damaged. The price of basic food stuffs is reported to have increased significantly as a result of the flooding.
In response, the agriculture minister Guillermo López Suárez announced plans to invest US$11mn to support the sector. Measures include importing 50,000 tonnes of white corn dutyfree and 25,000 tonnes of red beans to avoid supply shortages. The Ministry also plans to distribute more than 8,000 packets of seeds and fertilisers to producers.
The flooding highlights once again the vulnerability of the Central American agricultural sector to extreme and unpredictable weather patterns. Unstable climatic conditions are set to continue to represent a significant downside to our forecasts for our forecast period.
Key Forecasts
Demand for sugar in Central America is estimated to have increased by 2.4% y-o-y in 2011 to 1.93mn tonnes. Growth was strongest in Honduras at 5.8% y-o-y. In 2012, BMI sees demand growing by a further 1.5% y-o-y to 1.96mn tonnes, with Honduras again seeing the fastest expansion. Over our forecast period to 2016, BMI sees regional demand growth increasing by 9.1% on 2011 levels to 2.11mn tonnes. Growth is forecast to be strongest in Costa Rica and Nicaragua, at 13.8% and 13.3% respectively. To 2016, production growth for sugar will far outpace consumption demand in Central America, meaning that the area will remain an important exporter for sugar.
Heavy rains and flooding in October 2011 damaged prospects for the 2011/12 corn harvest. Crop damage has been particularly severe in El Salvador, where an estimated 34% of corn-growing areas have been affected by the rainfall. BMI currently forecasts production in El Salvador to decline by 7.6% y-o-y to 785,000 tonnes, although damage could be more severe than BMI currently anticipates. Guatemala is forecast to register moderate growth of 1.3% y-o-y to 1.22mn tonnes, still lower than the 2009 harvest. For the region as a whole, BMI sees corn production declining by 1.3% on the 2010/11 harvest to reach 3.15mn tonnes, as a result of the flood damage.
Beef output for the region is forecast to grow by 0.7% y-o-y in 2011/12 to 382,500 tonnes, with production slowing in Nicaragua. To 2016, BMI forecasts beef production growth in Central America of 15.7% on 2011 levels. Nicaragua again is forecast to show the largest gain in beef production, with a 22.1% growth on 2011 levels.
Pork consumption is forecast to grow by 3.4% y-o-y in 2012, with Panama continuing to post strong growth of 8.2%. Out to 2016, consumption is forecast to continue growing rapidly at 24.6% on the 2011 level for the region as a whole. Growth is forecast to be strongest in Honduras and Panama, at 34.7% and 47.8% respectively, while in Guatemala increase in demand is expected to be much slower at 6.1% on the 2011 level.
For 2011/12, the region's coffee output is forecast to grow by a further 3.1% y-o-y to 13.09mn bags. Nicaraguan production is forecast to bounce back by 23.0% y-o-y, while BMI currently sees output in El Salvador declining by 9.2% y-o-y owing in part to damage caused by floods in October 2011. To 2016, BMI forecasts coffee production growth in Central America of 15.9% on 2011 levels to reach 14.71mn bags. Output will be boosted by work to rejuvenate and replant ageing coffee plantations and modernise production techniques. With global coffee prices remaining high, there will be a strong incentive for producers to increase the area planted to coffee and to make the necessary investments to boost yields.
Key Trends And Developments
The governments of Guatemala and Peru have concluded negotiations over a free trade agreement (FTA) between the two nations. The bilateral agreement, which was signed into law on December 6 2011, will grant 81.4% of Guatemalan exports tariff-free access to the Peruvian market for a five-year period. 94.7% of Peruvian exports will be exempt from tariffs for the same period. It is hoped that the agreement will boost trade between the two countries, which is currently relatively low: Guatemalan exports to Peru were worth US$79.9mn in 2010.
In November 2011, Guatemala's swine sector was hit by an outbreak of swine flu. Outbreaks were reported in the department of Chimaltenango in the west of the country, leading to the slaughter of 16,000 pigs in one farm. In response, the Guatemalan Ministry of Agriculture declared an animal state of emergency and created a special commission to tackle the outbreak, prevent economic losses and threats to food security. The Ministry of Agriculture also lifted the ban on imports of swine flu vaccine, which had been in place since 2009 and announced a first consignment of 250,000 doses. In response to the outbreak, all Central American countries, along with Mexico, closed their borders to imports of Guatemalan pork in an attempt to prevent the outbreak spreading. Sanitary measures have also been increased. The outbreak is a setback for Guatemalan swine producers. Having grown by just 1.5% between 2006 and 2011, we currently see pork production increasing by 10.4% from 2011-2016. However, our forecast could be revised down should the outbreak prove difficult to contain. The majority of Guatemalan pork is destined for domestic consumption: only 2,000 tonnes were exported in 2011.
Panama's livestock sector is showing signs of growth, according to Economic and Social Analysis published by Panama's Ministry of Economy and Finance in December 2011. During the first seven months of 2011, cattle production was up by 9.0% to 223,000 heads on the same period in 2010, while production of chicken meat increased by 9.4% to 66,000 tonnes.
The increase in production has, however, led to the saturation of the local market for beef, according to local press reports. Panama's exports of live cattle have been close to zero for the past two years and the falling price for beef on the domestic market has led to calls from producers to boost exports. According to Panama's Cattlemen's Association, the price paid to producers per pound of cattle is the lowest in the region at US$1.16-1.18, in comparison with US$1.30-1.40 in Costa Rica, Honduras and Nicaragua. It is hoped that current negotiations with Costa Rica, Venezuela and Middle Eastern countries will lead to export agreements, which will relieve saturation in the local markets and help to stabilise prices.
In December 2011, the Nicaraguan tourist institute Intur, in partnership with the Grand Duchy of Luxembourg, unveiled investment of US$9.2mn in the 'Ruta del Café', or Coffee Route. This follows investment of US$6.9mn in the first phase of the Coffee Route, which encompasses the departments of Jinotega, Matagalpa, Estelí, Madriz and Nueva Segovia. The first phase of developing the coffee route saw the opening of 31 tourism projects, including museums, parks and cultural centres. The second phase of the project will direct the investment towards further pilot projects, training, technical assistance and micro-financing for small and medium-sized producers in the five departments, according to an Intur representative.
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