Central America Agribusiness Report Q3
2011

Central America Agribusiness Report Q3 2011

BMI View: Following the challenges of the global economic slowdown and the droughts followed by heavy floods in 2009 and 2010, 2011 looks set to be a better year for agricultural producers across the Central America region. An improved economic climate and weather conditions have both encouraged a return to growth in both production and demand across the major agricultural produce. However, food price inflation continues to present a significant threat, particularly to poorer sectors of society, with the prices of corn, a staple food throughout Central America, continuing to increase through Q211.

Furthermore, the upcoming presidential elections in Guatemala and Nicaragua could pose a threat to the region's political stability.

Key Forecasts

Heavy rains hit Central America from June through to November 2010, causing damage to crops and to infrastructure. However, the high prices of coffee on the global market have encouraged farmers to devote land to coffee and invest in improved fertilisation and production techniques. These factors have contributed to a growth in output for the region as a whole, despite adverse weather conditions, with BMI currently forecasting production in the region to increase by 7.0% year-on-year (y-o-y) to 13.12mn bags in 2010/11. For 2011/12, the region's output is forecast to grow by a further 2.1% y-o-y to 13.40mn bags.

We forecast demand for corn to grow by 6.0% y-o-y in 2011 to reach 6.04mn tonnes, as the region's economies recover and demand for feed from the livestock sector picks up. To 2015, we forecast demand growth for the corn sector in Central America increasing by 18.2% on 2010 levels. Corn consumption growth is expected to be strong throughout the region, with variations from country to country ranging from 16.1% growth in El Salvador to 22.2% in Honduras.

After a good harvest of 2.34mn tonnes in 2009/10, Guatemala's sugar harvest is forecast to fall back by 3.0% y-o-y to 2.27mn tonnes in 2010/11. However, in 2011/12, we see the harvest increasing by 5.7% yo- y to 2.40mn tonnes, on the back of 2.5% y-o-y increase in the area planted to a forecast 247,000 hectares (ha). Guatemala accounts for around half of Central America's sugar output.

Beef production in Central America is estimated to have reached 346,000 tonnes in 2009/10, a 4.2% y-o-y increase. Growth was driven by increased output in Nicaragua, the principal country for beef production in the Central America, accounting for 40% of the region's output. Output for the region is forecast to grow by 2.6% y-o-y in 2010/11 to 355,000 tonnes. To 2014/15, BMI forecasts beef production growth in Central America of 20.2% on 2009/10 levels. Nicaragua again is forecast to show the largest gain in beef production, with a 29.1% growth on 2009/10 levels.

Key Trends And Developments

In late April 2011, the price of coffee topped US$300 per quintal on the Intercontinental Exchange in New York, the highest price seen in 30 years. The strong prices have provided encouragement to producers and boosts to exporters throughout the Central America region. The growth in Nicaragua's export sector has continued into 2010/11. During the first seven months of the current harvest year, the value of exports increased by 59% in value terms on the same period in 2009/10. From October 2010- April 2011, exports totalled US$273.6mn. There was good news too for exporters in El Salvador, as exports for the October 2010-May 2011 period were up by 57.1% y-o-y in volume terms, to reach 1.74mn quintals.

In early May 2011, the fourth round of negotiations between Peru and Costa Rica surrounding a free trade agreement (FTA) between the two countries took place in the Peruvian capital, Lima. One of the major developments to emerge from the discussions was the announcement that coffee beans for export, grinding and roasting would be excluded from any trade agreement. The news was welcomed by the Costa Rican producers and coffee institute, Icafé, who had argued against the removal of 15% import duty for coffee, as a result of fears of cheap, low quality imports flooding the domestic market.

In June 2011, the fifth and final round of FTA negotiations took place between Guatemala and Peru. More than 5,000 Guatemalan products will be able to enter the Peruvian market duty free. However, the agreement excludes two major Guatemalan exports: coffee and sugar. Guatemalan sugar producers had previously petitioned for the 9% export duty to be removed. However, Peru had requested for rules of origin certification to apply to sugar imports, which the Guatemalan sugar sector rejected. In contrast, coffee producers had not shown interest in coffee being included in the agreement: Peru is not considered a major market for Guatemalan exports and there was also concern that an FTA may lead to the arrival of cheap, low quality imports onto the Guatemalan market. Also in June 2011, Panama and Peru concluded FTA negotiations. 20 products considered particularly sensitive have been excluded from tariff-free agreements, including some livestock and dairy produce, roasted and instant coffee, certain grains, sugar and alcohol.

Corn prices have continued to increase in Guatemala. By June 2011, corn prices had reached GTQ220 per quintal, up from GTQ140 in January and the highest price on record. In response to the continuing high prices, in June 2011, the Guatemalan economics ministry extended the deadline for duty-free imports of white maize from June 21 to December 31. In Nicaragua, the rising price of corn has also led the government to increase imports to relieve supply shortages. In June 2011, the government authorised the import of an additional 20,000 tonnes of corn from countries with which Nicaragua has trade agreements, notably Mexico and the US. It is hoped that the imports could drive down prices by as much as 48%.

Nicaragua remains the principal beef exporter in the region. In value terms, exports in 2010 reached US$311.6mn, according to data from Nicaragua's Centro de Trámites para las Exportaciones (Cetrex). In 2011, it is forecast that export revenues will reach US$350mn. For the first six months of 2011, Venezuela overtook the US as the primary export destination, accounting for 47% Nicaraguan beef in value terms. For the year as a whole, it is expected that 53% of Nicaragua's revenues will come from Venezuela. The US is the second most important destination, followed by El Salvador.

• Executive Summary
• Key Forecasts
• Key Trends And Developments
• SWOT Analysis
• Central America Agricultural SWOT
• Industry Forecast Scenario
• Central America Grains Outlook
• Costa Rica, Guatemala, Honduras, Nicaragua, Panama, El Salvador Corn Production, Consumption & Trade
• Costa Rica, Guatemala, Honduras, Nicaragua, Panama, El Salvador Corn Production, Consumption & Trade
• Central American Coffee Outlook
• Costa Rica, Guatemala, Honduras, Nicaragua, El Salvador Coffee Production, Consumption & Trade
• Costa Rica, Guatemala, Honduras, Nicaragua, El Salvador Coffee Production, Consumption & Trade
• Central America Livestock Outlook
• Costa Rica, Guatemala, Honduras, Nicaragua, El Salvador Beef & Veal Production, Consumption & Trade
• Guatemala, Honduras, Panama, El Salvador Pork Production, Consumption & Trade
• Guatemala Poultry Production, Consumption & Trade
• Costa Rica, Guatemala, Honduras, Nicaragua, El Salvador Beef & Veal Production, Consumption & Trade
• Guatemala, Honduras, Panama, El Salvador Pork Production, Consumption & Trade
• Guatemala Poultry Production, Consumption & Trade
• Central America Sugar Outlook
• Belize, Costa Rica, Guatemala, Honduras, Nicaragua, Panama, El Salvador Sugar Production, Consumption & Trade
• Belize, Costa Rica, Guatemala, Honduras, Nicaragua, Panama, El Salvador Sugar Production, Consumption & Trade
• Commodity Price Analysis
• Monthly Softs Update
• Cocoa
  • Table: Cocoa
• Coffee
  • Table: Coffee
• Milk
  • Table: Milk
• Sugar
• Sugar
• Monthly Grains Update
• Corn
• CORN
• Rice
• Rice
• Soybean
• Soybean
• Wheat
• Wheat
• Downstream Supply Chain Analysis
• Industry Forecast Scenario- Food
• Consumer Outlook
• Food
• Total Food Consumption
  • Table: Guatemala Food Consumption, 2006-2015
  • Table: El Salvador Food Consumption, 2006-2015
  • Table: Costa Rica Food Consumption, 2006-2015
  • Table: Honduras Food Consumption, 2006-2015
• Mass Grocery Retail
  • Table: Sales Breakdown By Retail Format (%), 2009-2019
  • Table: Guatemala Mass Grocery Retail Sales, 2006-2015
  • Table: El Salvador Mass Grocery Retail Sales, 2006-2015
  • Table: Costa Rica Mass Grocery Retail Sales, 2006-2015
  • Table: Honduras Mass Grocery Retail Sales, 2007-2015
• Trade
  • Table: Central America Food And Drink Trade Balance, 1999-2009
• Macroeconomic Forecast
• Costa Rica
  • Table: Costa Rica -- Economic Activity
• Guatemala
  • Table: Guatemala - Economic Activity
• Honduras
• Nicaragua
  • Table: Nicaragua -- Economic Activity
• Panama
  • Table: Panama -- Economic Activity
• El Salvador
  • Table: El Salvador -- Economic Activity
• Global Food & Drink View
• Food & Drink Roundup Q111: Core Views
• BMI FOOD & DRINK CORE VIEWS
• BMI Forecast Modelling
• How We Generate Our Industry Forecasts