Panama: A budding relationship
The recent association agreement signed between Panama, along with five other Central American countries, and the EU could help to stimulate growth within Panama’s growing agriculture industry. As one of the largest sources of employment in Panama, the agriculture sector is crucial to overall economic development, a fact recognised by the Ministry of Economy and Finance’s (MEF) Strategic Economic Plan 2010-14, which acknowledged the sector as one of the country’s four main economic growth engines.
However, despite employing some 16.7% of the population as of August 2011, the agriculture sector was responsible for just 2.9% of GDP last year, with total production valued at $683.5m, according to data from the Panama National Statistics Institute (INEC).
The MEF’s plan calls for the creation of 860,000 new or better jobs by 2020, many of which will necessarily come from the agriculture sector. Indeed, it was highlighted as a growth engine due to its social impact and ability to create jobs, and it scored above logistics, tourism and financial services (the other three growth engines mentioned in the plan) in this regard.
The signing of the comprehensive association agreement with Europe in late June could provide the necessary impetus to propel the agriculture sector to greater importance within the national economy by opening new markets to agricultural goods. The agreement, which also includes Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, covers three areas: political dialogue, cooperation and trade.
The trade portion of the agreement is due to begin in early 2013 and will give the countries involved privileged access to Europe’s market of 500m consumers. The EU is already Panama’s second-largest trading partner after the US and the largest importer of Panamanian agricultural products. The agreement calls for the EU to liberalise 91% of tariff lines immediately following its introduction, while Central American countries will liberalise 48% of tariff lines over a 10-year period.
Importation tariffs for key agricultural products are to be largely eliminated on the Central American side, though “sensitive areas” for local markets are being respected. For example, Panama is the region’s primary importer of European whisky and it will liberalise tariffs as soon as the agreement enters into force, though all other countries will wait six years to liberalise whisky tariffs.
For its part, the EU will be eliminating tariffs on nearly all dairy products. It is also expected that the agreement will contribute to significant growth in the Panamanian fruit, vegetable and nuts (FVN) market, according to an independent Trade Sustainability Impact Assessment commissioned by the EU. There will also be duty-free quotas with annual growth for sugar, beef, rum and rice, while banana tariffs will be reduced to €114 per tonne by 2017 and to €75 per tonne by 2020.
However, there are challenges that the country will have to overcome in order to fully capitalise on the benefits of the agreement. First, Panama will face stiff competition from neighbouring countries that will also benefit from the agreement. Michael John Holloway, the British ambassador to Panama, told local press that, “England has some of the largest supermarket chains in the world, many of whom already import products from Costa Rica. We would like to see Panama export products to the UK market and take advantage of some of the benefits of the agreement between the EU and Central America.” However, in order to do so, many Panamanian farmers hoping to increase exports to the EU will need to meet the rigorous demands in place in many European nations regarding environmental sustainability and quality.
Despite posting positive growth in four of the past five years – 2.7%, 4.5%, 10.1%, 1.8% and 3.8% from 2006 to 2011 – the agriculture sector’s expansion has yet to match that of the wider economy, which has seen GDP grow 12.1%, 10.1%, 3.2%, 8.3% and 10.6% during the same period, according to data from the World Bank. Thus, the trade portion of the new association agreement could very well help to stimulate the agriculture sector and potentially help it play a larger role in the national economy.