New Market Research Report: Peru Agribusiness Report Q4 2010

Oct. 4, 2010 - PRLog -- The Peruvian economy continues to fire on all cylinders, with recently released data showing real GDP expanding 11.9% year-on-year (y-o-y) in June. While BMI maintains its current forecast of full-year GDP growth of 5.9%, up from 0.9% in 2009, we stress that upside risks to this projection are steadily building. Our outlook for Peru's agricultural sector is similarly optimistic, despite the fact that some producers - most notably in the dairy and grain sectors - may come under pressure as a result of a raft of new free trade agreements with the EU, US and Canada. Over our forecast period, we see agricultural output increasing as domestic production is boosted by increased investment as the economy surges ahead.

However, in Q310, concerns surfaced over the rising rate of inflation, which has been fuelled by an increase in the price of food. Peruvian inflation accelerated to an annual 1.8% rate in July 2010, the fastest in almost a year, as consumer demand rose in response to the country's economic growth. The increase prompted Peruvian Central Bank Governor Julio Velarde to voice his concerns that full-year inflation could reach 3%, the top of the bank's target range of 1-3%. The inflationary trend has been further driven by the spiralling cost of wheat on the international market in response to Russia's decision to suspend wheat exports from August-December 2010 after fires and drought devastated its crop. As Peru produces only a tiny fraction of the wheat it consumes, it is heavily reliant on imports so is vulnerable to the international price spike. The government has begun to ease public spending and remove fiscal stimulus in order to ease inflationary pressures.

On July 24 2010, the Peruvian government declared a state of emergency after hundreds of people in remote Andean communities in the south of the country were killed by freezing temperatures that dropped below -24C. The freezing weather has hit cattle farmers and it is estimated that around 34,000 heads of cattle, out of a total population of 2.7mn, have perished.

In July 2010, it was announced that the Peruvian government would sell its remaining shares in six sugar producers before the end of the year, to comply with a recently passed law that seeks to encourage private investment in the agricultural sector. The move represents a further step forward in the development of Peru's sugar sector, as it promises to bring further investment that will, eventually, improve productivity, helping the country to move towards sugar self-sufficiency. BMI is currently forecasting sugar production to grow by 12.1% y-o-y to reach 1.20mn tonnes in 2009/10.

Coffee output is forecast to drop by 14.5% y-o-y in 2009/10, which is an 'off' year in biennial arabica production. However, it promises to be a good year for exports of Peruvian coffee. In August 2010, the Peruvian Exporters' Association (Adex) announced that exports for H110 were up by 28% in value terms in comparison with the same period in 2009, bringing the first half total to US$153.5mn. The increase was primarily due to the steep rise in the price of coffee on the international market as the volume exported rose by a much more modest 4%.

Domestic coffee consumption is on the increase and BMI now sees demand reaching 153,000 60kg bags in 2009/10, a 2% y-o-y increase. Rising disposable incomes and increasing popularity of coffee-drinking among the urban young are fuelling demand. However, 75% of consumption still comes in the form of instant coffee, rather than the high quality speciality coffee for which Peru is famous.

We see milk production increasing once again in 2009/10 and forecast an increase of 4.7% to bring output to 1.97mn tonnes as the Peruvian economy continues to recover from the global financial crisis. The Peruvian dairy sector continues to register growth in production. In 2009/10, output for fluid milk, butter and cheese are forecast to post y-o-y growth of 4.7%, 3.0% and 7.0%, respectively. Demand is also buoyed by the country's strong economic growth. However, Peru's long-running social welfare programme, 'Glasses of Milk', which aims to distribute milk to improve nutrition among the poorest members of society, once again came under fire in Q310 amid allegations of inefficiency and irregularities in contracting.

For more information or to purchase this report, go to:
-  http://www.fastmr.com/prod/87259_peru_agribusiness_report...

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Fast Market Research is an online aggregator and distributor of market research and business information. We represent the world's top research publishers and analysts and provide quick and easy access to the best competitive intelligence available.