The roots of success: A key economic driver and major employer, the sector looks set for continued growth

Ever since the heyday of the Inca Empire, agriculture has played a central role in Peru’s economic structure. Home to the origins of irrigated farmland and more than 7000 domesticated species of fruits and vegetables, including several thousand types of potatoes, an innovative agricultural approach has brought regional and international fame. Close proximity to the equator, favourable climatic conditions, a rapidly expanding irrigated surface and investment incentives have allowed for diversification into other export products, too, such as asparagus, grapes, sugarcane and peppers.

Besides its contribution to the trade balance, agriculture also plays a significant socioeconomic role. More than 25% of Peru’s population is employed by the industry, with much higher proportions in the highlands and jungle areas. As a sizeable number of these populations are among the country’s poorest, rural agricultural development has become a priority on the current administration’s agenda. The successful fulfilment of President Ollanta Humala’s promises of social inclusion hinges largely on the effectiveness of agricultural policies aimed at these regions.


Increased domestic consumption, exports and investment have led to consistent sector growth since 2004, averaging 4.14% per year in GDP terms from 2003-12, according to central bank figures. In 2012 the sector, comprising both agriculture and livestock, grew by 5.1%; agriculture, which accounted for just under 60% of sector activity, expanded by 5.2% and livestock by 4.9%. Agro-industry performed similarly, reporting a rise of 4.5% for a value of PEN7.45bn ($2.8bn).

In the first half of 2013 agricultural production expanded by another 1.9% year-on-year (y-o-y) with a value of $7.84bn, according to the Ministry of Agriculture (Ministerio de Agricultura y Riego, MINAGRI). Fisheries recorded annual average growth of around 3.27% between 2003 and 2012. Fluctuating quantities of anchovy – chiefly caused by changing climatic conditions – led to volatility, particularly in 2009 and 2010, when the segment reported falls in catches of 7.9% and 16.44%, respectively, in GDP terms. While the volumes rose by 30% in 2011, 2012 proved disappointing. As per figures from the Ministry of Production (Ministerio de la Producción, PRODUCE), total volumes were down by 42.4%, causing a drop in anchovy destined for processing into fishmeal, the segment’s prime catalyst, as well as a dip of 8.5% in fish for direct consumption (see analysis). According to MINAGRI, livestock was up 3.3% y-o-y in the first half of 2013, to $4.72bn.


Despite consistent growth, the sector’s contribution to GDP has gradually declined as strong expansion in sectors such as construction and retail has seen their shares rise. Agriculture’s contribution, including livestock, fell from 6% in 2004 to 5.9% in 2012, while fisheries accounted for an average of 0.4% over the same period, according to the central bank.

Though Peru’s agriculture is highly diversified, with more than 75 cash crops, half of the production value is generated by a concentration of produce including potato, alfalfa, rice, coffee, sugarcane and corn. Growth was experienced in all of these in 2012 with the exception of coffee, a key export, the production of which fell by 7.3% partly due to global price fluctuations and adverse climatic conditions, according to the central bank. In the livestock segment, most of the production value was derived from poultry, which accounted for more than 48% in GDP terms in 2012. This was followed by beef, which contributed 17%. Production of milk and sugar were key to agro-industry performance, each accounting for 19% of sector value. Their contributions are closely followed by the production and processing of meat, oils and butter, and flour.


Coffee is a key contributor to Peru’s income, accounting for 30% of total agricultural exports, according to the central bank. However, a drop in global prices, heavy rainfall and crop disease reduced production from 327,927 tonnes in 2011 to 304,121 tonnes in 2012, lowering production value by 7.3%. The industry’s issues were exacerbated by the struggle to compete for manpower with coca cultivation, which has been on the rise since neighbouring Colombia’s successes in battling illegal trade. Coca traders reportedly pay their workers around $38 per day, compared to $15 for coffee workers. Meanwhile, in 2012, revenues from exports have dropped by 36% to just above $1bn. The first half of 2013 registered a further y-o-y drop of 22%, for a total production value of $596.9m.

Thanks to fertilisation programmes and renovation of old, low-yielding plantations, production is expected to grow by 20% over 2013, according to MINAGRI. Despite a disappointing performance in 2012, Peru continues to carve out a niche in organic coffee, in which it is a leading exporter. While exact production figures are unavailable, the high prices these coffees command on the global market, ranging anywhere between $18 and $500 per kg, support government efforts to deter coca planting.


Peru’s cotton producers are facing challenging times. Due to a drop in prices on global markets in recent years the cultivated surface has fallen sharply. While 83,000 ha were planted with cotton in the 1995/96 season, only 20,000 ha remained in 2012/13. Production value in 2012 reported a y-o-y decline of 8.9%, totalling PEN178.1m ($67m). Thus far in 2013 production has dropped even further, down by almost 26.8% y-o-y in the first six months, according to MINAGRI. Although the government has rescinded production subsidies, pushing many producers to opt for more lucrative crops, the state claims it remains committed to helping cotton recover. As such, the authorities are working with farmers in areas such as Chincha, Pisco, Cañete, Ica, Piura and Lambayeque to support their access to inputs, water and crop protection.

Palm Oil

Production of palm oil has seen notable growth since the start of the millennium. While in 2000 production totalled 181,000 tonnes, planted on just over 10,000 ha, by the end of 2012 some 518,300 tonnes were produced and the surface had increased six-fold, according to MINAGRI. Production value in 2012 alone was up some 44% from the PEN58.7m ($22.1m) reported in 2011. The rapid growth is testament to the government’s ambitions to encourage agro-industries in the vast, forested areas. As with coffee, it is also a distraction from coca cultivation.

While the segment’s growth so far has been largely driven by small to medium-sized plantations, Peru has initiated talks with investors from established palm oil-producing nations in a bid to further spur development. Investors from Malaysia and Indonesia, the world’s leading palm oil producers, are looking at virgin markets, as suitable surface at home is increasingly hard to come by. Peru, with Amazonian forest covering 53% of its surface, is a prime contender for their funds.

One example is Malaysia-based Sime Darby, which has been offered 70,000 ha for investment of up to $300m. Meanwhile, the Singaporean private equity firm Asian Agri Capital announced it planned to invest $100m in palm oil in South-east Asia and Latin America, 50% of which has been earmarked for Peru. One obstacle to these plans is land access. Bureaucracy and opaque administration of titles slow the pace of investment.

“Large-scale plantations require significant investment as the suitable regions often lack infrastructure,” Ronald Campbell, general manager of local grower Grupo Palmas, told OBG. “Investors are willing to bear these costs as long as they can be sure of transparency and protection with regard to land entitlement.”


Generating 41% of the sector’s value, livestock plays a key role in Peru’s agricultural production. The highest growth in value was reported in the poultry segment, which is also its primary contributor. Reporting a y-o-y increase of 7.8%, poultry closed 2012 at a value of PEN4.45bn ($1.68bn); a marked rise from the start of the millennium, when production was reported at just under PEN2bn ($753m). As of the first half of 2013, poultry registered a y-o-y increase of 3.2%, reaching a total value of PEN2.24bn ($843.58m). This can be largely attributed to solid economic growth over the past 15 years, which has pushed up consumption.


The fishing industry had a challenging 2012. Due to a combination of adverse climatic conditions and overfishing, PRODUCE reduced the quota for anchovy, the industry’s prime catalyst, by 68% in the second fishing season starting in November. It also implemented regulations aimed at diverting quantities from the lucrative export market for anchovy-based fishmeal to support domestic direct consumption (see analysis). As a result, production of processed anchovy fell 48% y-o-y in 2012, and was down by 13.9% y-o-y in the first half of 2013. Meanwhile, the output of fish for consumption was down by 8.5% from 2011 volumes. The first half of 2013 saw a further y-o-y drop of 13.1%.

As anchovy serves as food for bigger fish, catches were also down for hake, mackerel, tuna, pota and shark, with the sector total catch dropping 42% to 4.79m tonnes in 2012. Similarly, in the first half of 2013 a y-o-y drop of 13.7%, to 3.23m tonnes, was registered.


Agriculture accounted for 9% of all exports in 2012, according to the central bank. Sales of agricultural goods abroad have reported solid growth over the past decade, netting some $4.1bn in 2012, according to the central bank, up from $925m in 2002. However, the 2012 figure represented a drop from $4.5bn in 2011. This can largely be attributed to volatility in the global price of coffee – which accounted for more than 28% of the sector’s export revenues in 2012 – and cocoa. Non-traditional exports grew 29% over the 2011 value, largely driven by grapes, organic bananas and animal feed. In the first half of 2013, exports rose 7% y-o-y in value terms to $1.43bn, showing signs of recovery. While the segment’s trade balance has fluctuated over the past decade, it has been positive since 2009. In 2012 the surplus stood at $34m; however, results from the first three quarters of 2013 suggest that the trend may be changing, as a $124.4m deficit was recorded over this period.

A focus on development of export farms over the past 15 years has given rise to a diversified range of produce. In the first half of 2013 non-traditional products – such as asparagus, grapes, mangoes, olives and cocoa – accounted for approximately 85% of sector exports, valued at a total of $1.43bn.


One item raising attention on the world stage is quinoa, exports of which were worth $30.8m in 2012, up 23% on 2011. As of the first half of 2013, its export value had already reached just under $20m, a y-o-y increase of 55.9%. While its export value remains marginal compared to established cash crops such as coffee and asparagus, a global rise in demand and price is progressively attracting Peruvian growers to start planting the grain. Quinoa has also received international attention from the UN, which designated 2013 the “International Year of Quinoa”, a move likely to accelerate export growth (see analysis).

Fish Sales

At $3.3bn in free-on-board value, traditional and non-traditional fish exports were up 5.6% yo-y in 2012, according to the central bank. Fishmeal and oil were the largest contributors, accounting for 2.29m tonnes, up 9% on the previous year. The global price for fishmeal averaged $1329 per tonne in 2012, compared to $1368 per tonne in 2011. China has been the leading export market for fishmeal since 2012, accounting for 51% of the total, followed by Germany and Japan. Figures for 2013 are down significantly due to reduced fishing quotas, with fishmeal and fish oil outputs falling by 47.9% and 54.5% y-o-y in the first half of 2013, respectively. The production of fish for human consumption dropped 5.4% y-o-y to $574.7m during the same period, with all three factors contributing to a 39.7% drop in total exports, to $1.07bn.

According to MINAGRI data, agricultural exports reached 152 countries in 2012. The biggest market has traditionally been the US, accounting for more than a quarter of export revenues in 2012, followed by Europe, in particular Germany, Holland and Spain. Depressed economies in Western Europe and consistently rising demand in the Latin American region and the Asian subcontinent are gradually marking a shift in the composition of the leading export markets.

In 2012 Ecuador and Colombia ranked fifth and sixth among export destinations, accounting for more than 9.8% of revenues. A free trade agreement (FTA) signed with China in 2009 and the pending conclusion of one with India are set to substantially raise the ranking of these countries, while talks have also started on a possible trade agreement with Russia.


In his presentation of the national budget, President Humala branded 2013 the “Year of Investment for Rural Development and Food Security”, and allocations towards the agricultural sector have benefitted as a result. In all, PEN1.46trn ($550bn) has been made available to MINAGRI and its related offices, including the Agricultural Health Service, the Institute for Agricultural Innovation and the National Water Authority. Up 44% on 2012, the agricultural budget is the highest in Peru’s history, reflecting the policy measures the government has announced to include the nation’s poorest classes, most of who are dependent on agriculture, in the ongoing economic development. As such, the overall aim of the budget is to invest in new technologies, strengthen productive capacity, facilitate market access and improve and expand vital infrastructure. While the biggest budget allocation will go towards the Lima region, home to the nation’s capital and one-third of its population, the regional benefactors include areas with predominantly small-scale and subsistence farming, such as Cajamarca and Puno.

The lion’s share of the 2013 budget, PEN1.03bn ($388m), will go to MINAGRI, a rise of 58% compared to 2012. Of this, 60% has been reserved for investments and 40% towards recurrent spending, which have been increased by 64% and 50%, respectively.

In addition to the budget, an irrigation fund of PEN1bn ($377m) has been set up. The Mi Riego (my irrigation) fund is targeting investments in water management for the Andean region, home to the largest share of subsistence farmers. “Water is the backbone of our agricultural policy,” the minister of agriculture and irrigation, Milton von Hesse, said at Mi Riego’s launch. The fund targets projects above an altitude of 1500 metres, which typically have abundant water supplies but lack the infrastructure to put it to agricultural use.

The first allocation, totalling PEN120m ($45m), is destined for the construction of canals, reservoirs and dams in the regions of Ayacucho, Huancavelica, Puno, Apurimac, Cajamarca, Pasco and Junin. However, Peru has a history of underspending. Despite lower funding levels in 2012, only 77% of the budget was allocated, up from 53% in 2010, not counting misallocations and unfinished projects. “Our biggest challenge is to identify enough viable projects and find the capacity to implement them,” Guillermo Rebosio, director-general of MINAGRI’s planning and budget office, told OBG.

Among the issues with budget allocation, Rebosio argues that years of terrorism, which primarily affected rural areas, have caused a drain of the skilled professionals needed to design, implement and supervise projects. In addition, decentralisation since the early 2000s has shifted much decision-making power to regional and local authorities. This has resulted in lengthy consultation and implementation procedures, which are often interrupted by changes of elected officials, including those at the helm of the ministry.


Agricultural credit lines have typically been costly and hard to access, with the exception of large-scale agro-exporting and industrial segments. In 2011 loans to the sector grew 20.6% y-o-y, reaching PEN4.8bn ($1.81bn), while the number of beneficiaries rose by 20.4% to 253,867. In 2012 loans increased 15.9% y-o-y, to PEN5.7bn ($2.15bn), while the number of beneficiaries was up by 12% to 283,557.

As of May 2013, PEN6.2bn ($2.33bn) in loans had been advanced to a total of 293,670 beneficiaries, a yo-y increase of 27.6% and 9.4%, respectively. Among the various financial institutions taking part in the programme, multi-service banks, known as “bancas multiples” are the participants, with over 66% of all credit provided as of May 2013. Municipal and commercial banks follow, with 13.4% and 8.3%, respectively.


Agrobanco, a state-owned outfit dedicated to agricultural financing, was the largest single participant, accounting for 7.2% of all credit provided. By May 2013 average interest rates had dropped y-o-y in most cases, making loans more affordable. The biggest reduction was observed at the multi-service banks, where average rate fell five points y-o-y to 40.1%. The rural banks (cajas rurales) segment was the only one to report a rise in rates, from 41.7% in May 2012 to 43.9% in May 2013, while Agrobanco’s rate remained unchanged and, at 19%, was the industry’s lowest.

As of May 2013, Agrobanco reported total loans of PEN447m ($168.34m), up by 59% from the previous year. Some 30,088 agricultural outfits accessed this funding, most of which are located in the Andean and Amazonian regions, where penetration of financial products is lowest. The bank has experienced significant growth in its loan book, which stood at PEN46.5m ($17.5m) in 2006. Its expectations for 2013 are high. The bank projects a rise in allocations to PEN800m ($301m) and hopes to more than double its clientele to 55,000 beneficiaries. According to Hugo Wiener, Agrobanco’s president, this growth will partly come from funding for infrastructure projects of up to $1m for small-scale producers in the Andes that will be financed via syndication with other development banks.


Over the past 15 years, policies aimed at boosting the lucrative agro-exporting industry have consistently been characterised by access to global markets, construction of irrigation infrastructure and facilitating direct investment. Peru has concluded 19 FTAs, many with leading export destinations, while more are on the table. Corporate income tax has been maintained at 15% (compared to 30% in other industries) and an annual 20% depreciation is applied to investments in irrigation. Furthermore, labour laws for the sector enjoy more flexibility than in other industries.

Significant success has been achieved. In the 1990s production values in modern and traditional agriculture were on a par, but since then the former has risen at an annual average of 6.7%, compared to 2.2% for the latter. Growth has exploded in exported produce, such as asparagus, mangoes, avocados and grapes, which saw double-digit growth rates from 2000 onwards.

High fragmentation of land, ownership and crops has traditionally complicated effective policy design for the sector’s two other segments, small to medium-sized commercial producers and subsistence farms. These comprise the bulk of Peru’s farming community of 2.3m producers, mostly based in the Andean and Amazonian areas. As part of President Humala’s overriding objective to optimise social inclusion, these segments have a key place in today’s agricultural policies.

In a bid to modernise the sector, in October 2013 the government approved a request to apply for a $80m loan from the Inter-American Bank and the World Bank. With an additional $100m from the government, the funds will finance the National Agrarian Innovation programme (Programa Nacional de Innovación Agraria, PNIA). Set to begin in 2014 and end in 2018, the PNIA targets the adoption of technology and innovative practices in 15 key agricultural segments and is expected to benefit some 250,000 people, mostly in the high Andean mountain region, through technical assistance, infrastructure development and fertiliser vouchers. The development of production associations also plays a central role. “Our goal is to incorporate 500,000 producers into associations by 2016,” Von Hesse told the press. “This is set to reduce poverty in rural areas, increase economic inclusion and bridge the gap in competitiveness between the various members of our nation’s farming community, thus securing sustainability.” Associations are also targeted to facilitate adoption of technology and innovative farming practices, improve and extend vital infrastructure, and preserve ancient cultivation traditions.

Farming incentives for the Andean region include exemption from income tax, import duties and sales tax on capital goods for agricultural use. Farmers in the Amazon enjoy similar incentives as well. These policies are aimed at encouraging young people in economically deprived regions to farm, a move that would have the added benefit of curbing urbanisation.


One of the side effects of private investment in modern agriculture over the past years has been the consolidation of large areas by a small number of producers growing a small number of crops. Preliminary findings of the 2012 census show that 21% of coastal agricultural land, measuring more than 1000 ha, was largely dedicated to sugarcane cultivation by private conglomerates (latifundios), such as Grupo Gloria, Romero and Camposol. This rise in the area under single-crop cultivation came about mainly because of the auction of land from two irrigation projects, Chavimochic I and II and Olmos Tinajones, totalling 78,000 ha. The latter has been particularly criticised for squeezing out small to medium-sized farmers, as the minimum plot size available was 1000 ha.

Opponents claim that land irrigation policy is creating monopolies and that communities in and around the irrigated areas benefit only marginally from public efforts to make their lands arable, while large private companies focus on profit margins and efficiency instead of employment. MINAGRI expects an additional 184,000 ha of new, irrigated lands to come on the market over the next few years, fuelling speculation that, similar to the experience with Olmos Tinajones, latifundios will be the main beneficiaries. As a result, legislative amendments have been proposed in Congress aimed at capping the area of land per producer. At present, two proposals are under review. The first, led by congressman Virgilio Acuña, proposes a maximum of 25,000 ha per producer anywhere in the country. Congress member Jose León is leading a second bill, which proposes a cap of 10,000 ha on coastal lands, 5000 ha in the highlands and 20,000 ha in the jungle.

While opposition to the few large landholders is deep-rooted and substantial, the majority vote is likely to stay on the agro-exporters’ side. “Land in Peru is not scarce, so restricting successful agro-exporters to smaller plots is a hard argument to sell,” Adolfo Valle, general manager of global produce provider UNIVEG, told OBG. Alternative solutions may find more political support. One option is a gradual shift of the production of rice and sugarcane, requiring large areas for comparatively low profit margins, to the east of the Andes, which would make coastal lands available for more concentrated and profitable horticulture.

While irrigation has created some challenges, much more of it is needed. Peru’s arid coastal lands depend on water from various rivers in the Andes. The Andes offer potential for additional irrigated lands, as only 10% of all the water streaming towards the Pacific coast is exploited for agricultural purposes. Additional infrastructure is needed to supply the coast with sufficient and consistent water supplies and regional authorities have taken the lead on a range of new irrigation projects open for private investors (see analysis).

Labour Laws

Another topic of much debate is the sector’s flexible labour laws. To accommodate seasonal peaks, a liberal policy of hiring and firing has been implemented. Rather than using the annual or permanent contracts seen in other industries, employers recruit their workers on a daily basis and pay their salaries at the end of the shift. Compensation is based on a minimum wage and a proportional share of holiday compensation, as well as half of the standard 9% social security. Workers’ unions are lobbying to cancel the flexible recruitment laws and to increase social security payments. Their argument is countered by exporters, who claim the success of exports hinges on the ability to manage costs in line with production. “Seasonality is the nature of the agricultural sector,” said Valle, “and it requires a corresponding labour model as is applied in agricultural economies around the world.” The rapid growth of the sector has put the availability of labour under pressure. “Obliging producers to keep a maximum number of workers on a permanent payroll would price them out of business,” Valle told OBG.


Its consistency in the business-minded approach towards agricultural exports has turned Peru into an agricultural power. Favourable weather complemented by growing domestic demand (estimated at 6% for 2013), increased irrigation and improved production techniques will support output growth. The growing popularity of quinoa, although still a minor component of total exports, is helping cement Peru’s reputation as a source of high-end food products. In addition, upward price developments of most export produce, facilitated by a number of FTAs, bode well for revenues.

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The Report: Peru 2014

Agriculture chapter from The Report: Peru 2014

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