Colombia Agribusiness Report Q1 2011: New research report available at Fast Market Research

Jan. 18, 2011 - PRLog -- During Q410, Colombia was hit by torrential rains brought about by La Nina weather phenomenon that have caused widespread flooding and left at least 1.5mn people homeless. At least 170 people have been killed by landslide and floods. The scale of the devastation led the Colombian government to declare a national state of emergency in late November 2010. The flooding is the worst in 60 years and there are fears that the rains could continue into 2011. The adverse weather conditions have flooded some 800,000 hectares of crop and pasture land and washed away roads, disrupting transportation. The rains have caused particular damage to the 2010/11 coffee harvest, denting hopes for a recovery in output after two successive years of low production. The rains have also raised fears that inflation will increase, with food prices likely to come under pressure.

Despite the widespread devastation caused by the flooding, our outlook for the Colombian economy going forward is extremely positive. Its accommodative business environment and investor-friendly policy mix imply its growth is set to accelerate over the medium term, while other key economies in the region are slowing down. We forecast real GDP growth to come in at 3.9% in 2010, 4.7% in 2011 and 4.9% in 2012. The new President Juan Manuel Santos' social reform agenda and strong stance against the rebel movement augurs well for an improvement in the country's security situation over the medium term. This in turn will aid the agricultural sector by encouraging much needed investment in modern technologies and infrastructure.

Key Forecasts

We have revised down our estimate for the 2009/10 coffee harvest to 8.40mn 60kg bags on the back of poor weather. We have also revised down our forecast for 2010/11 as a result of the recent heavy rains. We now see increasing by 10.8% year-on-year (y-o-y) on historically low levels to reach just 9.30mn bags.

Sugar production is forecast to increase by 2.5% y-o-y in 2010/11 to take output to 2.26mn tonnes. This comes after a disappointing harvest in 2009/10, which saw production fall by 3.2% y-o-y to 2.21mn tonnes after drought followed by heavy rains caused extensive crop damage. Demand is forecast to grow by 3.5% y-o-y to 1.66mn tonnes as Colombia's economy posts strong growth and demand from the baking and confectionary industries picks up along with increases in consumers' disposable incomes.

The increased demand for feed from the livestock and dairy sectors will see corn consumption growing strongly in 2010/11. Demand is forecast to rise by 4.9% y-o-y to 5.33mn tonnes.

Production and demand for processed dairy products are both forecast to increase in 2010/11, fuelled by strong economic growth and the increase in consumers' disposable incomes. We forecast butter output increasing by 4.6% y-o-y to reach 23,420 tonnes, and anticipate a 6.1% y-o-y expansion in cheese production to 62,320 tonnes. On the demand side, we see demand in 2011 for butter rising by 5.6% y-o-y to 24,110 tonnes; while cheese consumption is forecast to increase by 2.9% y-o-y to 61,670 tonnes.

Key Trends and Developments

Relations continue to improve between the Colombian and Venezuelan governments following the longrunning dispute that led to the suspension of trade in July 2009. Colombian President Juan Manuel Santos met with his Venezuelan counterpart Hugo Chavez in Caracas in November 2010 to discuss a free trade agreement (FTA) that will govern trade between the two countries following Venezuela's withdrawal from the Community of Andean Nations (CAN) in April 2011. The meeting was the first of six planned rounds of negotiations.

In October 2010, the Federacion Nacional de Avicultores de Colombia (FENAVI) won the inaugural International Poultry Council (IPC) generic marketing award at the IPC annual meeting held in Santiago, Chile. The award came in recognition of the success of FENAVI's three-year campaign to increase Colombia's consumption of chicken. The campaign featured cartoon chicken commercials, with the straplines 'Let's eat chicken' and 'Without chicken, there is no meal'. The campaign helped to increase per capita consumption from an estimated 21.3kg to 23.7kg in two years. Per capita consumption of chicken now outstrips beef, which stands at just over 19kg per person.

The duty on imports of US corn to Colombia was reduced from 15% in September 2010 to 5% in October in response to the spike in the price of corn on the international market. Corn prices surged by more than 70% from May-October, due to increased demand from emerging markets, along with reduced output in the US, the world's largest corn exporter. Grain production in Russia, Ukraine, Kazakhstan and South America has also been hit by drought, fuelling fears of a supply shortage. The tariff reduction is intended to offset to some extent the price hike. The reduction is likely to lead to an increase in imports from the US between December and March, when there is little supply of corn from Argentina and Colombia.

The 27th National Congress of cocoa growers took place in Bogota in November 2010. At the Congress, the Colombian government pledged to increase its support to the beleaguered cocoa sector during 2011. Juan Camilo Restrepo Salazar, the Colombian Minister of Agriculture and Rural Development, assured cocoa growers that the government would increase investment to ensure that cocoa production continues to grow over the coming years. In particular, funding will be made available to combat Moniliophthora (Monilia), or frosty pod rot, a fungal disease that attacks cocoa trees, particularly during the winter, causing major decreases in yield. The government's backing for the cocoa sector will prove crucial going forward, as investment is urgently needed in order to modernise ageing cocoa plantations and to maximise the sector's rich potential.

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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.