Decades of conflict, affecting primarily rural areas, have taken their toll on Colombia’s agricultural sector. High fragmentation and rural poverty have stifled large-scale investments and prevented productivity gains, while a deficient transport and infrastructure network add to domestic production costs. In recent years, increased global competition as a result of a number of new free trade agreements (FTA) has put further pressure on Colombia’s farmers, as lower global prices for some of its key exports, such as coffee, has affected export revenues. Meanwhile, an appreciating peso continues to hurt Colombia’s international competitiveness. More frequent occurrences of climatic phenomena such as El Niño and La Niña round out the list of challenges facing the sector.
Continued profitability losses led to a series of strikes involving multiple subsectors in the first half of 2013, which culminated with a large-scale national strike mid-year, placing agriculture centre-stage politically. Paradoxically, the sector ended 2013 posting growth of 5.2%, higher than overall economic expansion of 4.7%. The government of Juan Manuel Santos, re-elected for a second term in June 2014, has prioritised agricultural development and an increasing budget reflects the government’s commitment to revitalising the sector. With the possibility of negotiating a peace agreement enhanced by the re-election of Santos, the next decade could see the sector play a more prominent role in the national economy.
According to the National Statistics Agency (Departamento Administrativo Nacional de Estadística, DANE), in 2013 the 5.2% growth rate in the agricultural sector, including forestry, hunting and fisheries, was the highest since 1990. The rise was due primarily to an enlargement of the planted area, particularly in permanent crops, as well as productivity increases facilitated by favourable climatic conditions. Stable growth has continued into the first three months of 2014 with the sector registering an expansion of 6.1%. Coffee was the main growth driver in 2013, expanding by 22.3%. Without coffee, which represents 40% of sector revenues, it expanded only 2.6%. Other agricultural products grew by 5.4%, fuelled by an 8.8% increase in temporary crops. Livestock, which represents around 40% of agricultural GDP, grew by 2.5%, driven by production rises in eggs (5%), milk (4.5%) and pork (1.5%).
Despite solid growth in 2013, the contribution of agriculture to GDP has declined consistently over the past decades, as the rest of the economy industrialises. According to DANE, in 2011 agriculture contributed 6.8% to the national GDP, having decreased from 7.6% in 2001. Nonetheless, the sector remains a significant employer, providing jobs for 16.5% of Colombia’s workforce in early 2014, and accounting for 61.3% of rural COFFEE: Traditionally the most important cash crop in Colombia, coffee’s 22.3% expansion made it the sector’s shining star in 2013. Growth was primarily due to a coffee tree renovation campaign that began in 2008 and saw replacement of more than 3bn trees, around 500,000 ha, according to the National Federation of Coffee Growers (Federación Nacional de Cafeteros, FNC). “The tree renovation campaign was a massive effort and investment of around COP3trn ($1.5bn), but we were able to bring down the average age of coffee trees from 12.4 years in 2008 to 7.3 years in 2014,” Luis Fernando Samper, FNC’s chief communications and marketing officer, told OBG.
Coffee trees take on average three to four years to reach full productivity. Therefore, the campaign’s impact on production started to be felt in 2013. National output increased 41% reaching 10.9m 60-kg bags, the highest growth in the past 36 years. The rise came after a significant drop in 2012 when excess rain and the replanting campaign saw production decline to 7.7m 60-kg bags, the lowest level in three decades. The FNC forecasts production to continue expanding in 2014 to reach some 11.3m 60-kg bags. In the first three months of 2014 alone, production was up 28% compared to the same period the previous year, with an additional 600,000 bags produced.
The increase in national output placed Colombia back on the world map as the third-largest producer of coffee, after Brazil and Vietnam. Demand for Colombian coffee was further aided by the fact that its main competitors, in particular Brazil, have seen their output affected by drought and the spread of coffee leaf rust. The decline in the international offer led prices to rise in 2013, after two consecutive years of low prices. Around 90% of national production is exported, with the coffee subsector accounting for 31% of total export revenues. After a dip in export volumes in 2012, signs of recovery were seen in 2013 as shipments reached 9.3m bags. However, export revenues fell 1.7% from $1.96bn to $1.92bn, as a result of lower international prices. While the US is Colombia’s largest export market for the bean, it exports to more than 50 countries around the world.
Colombia is particularly competitive in the top-end coffee segment with its Arabica bean. Recognised as one of the highest-quality coffees in the world, it attracts correspondingly high prices in international commodity exchanges. With premiums above the normal price of coffee being transferred to producers, the Arabica segment has been attracting more producers in recent years. The number of specialty coffee growers more than doubled from 68,624 in 2008 to 184,146 in 2013.
Net exports of specialty coffee also grew by 16.2%, from 993,820 bags in 2012 to 1.1m bags in 2013, surpassing the previous record set in 2011 with just over 1m 60-kg bags exported. “We have noticed a significant increase in interest in specialty Colombian coffee in the past few months, with many former buyers returning and many new buyers arriving in Colombia for the first time,” Samper told OBG.
The FNC has played an important role in promoting the development of the specialty segment as part of an added-value strategy for the coffee industry, providing technical assistance, setting production standards and assisting with commercialisation efforts. “We are making efforts to penetrate new markets in China, South-east Asia and the Middle East, and we hope to be in North Africa in a few years,” Samper told OBG.
Production and export increases have not, however, translated into greater profitability for small and medium-scale producers, as low international coffee prices continue to affect revenues. Despite a brief rise in prices in early 2014, local Colombian coffee prices saw more than a week of daily price drops at the end of March. Moreover, given the rise in production, premiums for specialty Suave coffee also fell. Continued profitability losses eventually prompted a series of strikes throughout 2013, in pursuit of government subsidies to help stabilise prices. The protest led the government to introduce price subsidies through its Coffee Revenues Protection ( Protección del Ingreso Cafetero, PIC) programme.
Flower production in Colombia increased 9% in 2013. The country’s climatic conditions, in particular its humidity and temperature, facilitate growing and allow for a stable supply throughout the year. With a 16% share of the global market, Colombia is the second-largest exporter of flowers in the world, after Holland, sending blooms to around 90 countries, according to the Colombian Association of Flower Exporters. Around 95% of national production is destined for external markets. Flowers account for 19% of total agro-industrial exports and are therefore an important source of foreign reserves.
In 2011 and 2012 a decline in demand led to a drop in export volume. However, export revenues were not affected and have been increasing steadily since 2009. In 2013 exports grew 5% reaching 211,979 tonnes from 201,949 tonnes in 2012, while export revenues registered a similar rise of 5%, exceeding $1.3bn. Planted surface has also seen an increase, surpassing 7000 ha in 2013 compared to 6300 ha in 2011.
The vast majority of production – around 75% – is exported to the US, followed by Russia, Japan and the UK, with much smaller shares of 5%, 4%, and 3%, respectively. Nonetheless, according to Proexport, a state-owned investment agency, exports opened to a number of new markets in 2012-13, including Papua New Guinea, Turkey, Qatar and Bulgaria.
Livestock production grew by 2.5% in 2013, spurred by increases in the production of eggs (5%), milk (4.5%) and pork (1.5%). Conversely, the production of cattle fell by 0.5% to 848m tonnes. Livestock and meat exports reached $496m, up by 24.7% compared to 2012, according to DANE. The cattle stock has been declining in recent years due to the effects of adverse climatic conditions and higher exports to Venezuela. Consequently, the number of animals destined for slaughter fell by 1.7% to just over 4m, of which 97% was for domestic markets. Beef consumption has remained relatively flat in the past decade at around 20 kg per capita.
By contrast, 2013 was a good year for poultry production. The subsector saw overall growth of 11%, mainly due to higher egg consumption. The National Federation of Poultry Producers of Colombia (Federación Nacional de Avicultores de Colombia, FENAVI) forecasts production to grow by 4% in 2014.
Chicken production increased by 14.7% in 2013 compared to the previous year, reaching almost 1.3m tonnes, supported by rising domestic consumption that saw a significant growth in 2013 to 27.1 kg per capita, up from 23.7 kg in 2012. Chicken consumption has been rising steadily since 2004 when it was measured at 16.4 kg per capita, and since 2006 has become the meat most consumed by Colombians, partly because it is around 50% less expensive.
Egg production also increased from 10.6bn in 2012 to 11.1bn in 2013, while annual egg consumption reached around 236 eggs per capita, a figure expected to increase to 252 in 2014, according to FENAVI. While almost all national production is for domestic consumption, recent FTAs could open new export markets, particularly in Asia. Andrés Valencia Pinzón, FENAVI’s executive president, told OBG, “Asian markets like China, Korea and Japan are particularly attractive for their high chicken consumption. The FTA with Korea will come into effect very soon and could present an interesting opportunity for exports.” In late 2013 Colombia succeeded in clearing sanitary requirements for chicken exports to Japan.
Pork production continued to increase in 2013 for the fifth consecutive year, reaching 254,000 tonnes, according to the Colombian Association of Pork Producers (Asociación Colombiana de Porcicultores, PORCICOL). The number of slaughtered animals increased by 2.2% reaching 3m. As with chicken, growth was largely spurred by rising domestic demand for pork. Annual pork consumption has nearly doubled since 2004, increasing from 3.3 kg per capita to 6 kg in 2012, according to PORCICOL. In 2013 it rose by an additional 11% to 6.7 kg per capita.
Consumption seems also to be driven by affordability. According to DANE, in the past four years consumer prices of beef and chicken have grown at faster rates than pork. Since March 2012 the price of beef has increased by 5% compared to pork, and since mid-2011 the price of chicken has risen by more than 15% compared to pork. PORCICOL forecasts output growth of 2.7% for 2014, surpassing 3.1m animals for slaughter, while consumption could grow by 4.8%.
According to the National Association of Milk Producers (Asociación Nacional de Productores de Leche, ANALAC) milk production rose 1.1% in 2013, surpassing 5.7bn litres, with favourable climatic conditions supporting productivity. Nonetheless, the average price paid to Colombian producers fell by 3.1%. Exports registered a dramatic increase from 300 tonnes in 2012 to 6702 tonnes in 2013, with the vast majority making its way to Venezuela. Conversely, imports saw a sharp decline, falling 72% from nearly 23,000 tonnes to 6000 tonnes in 2013. The contraction was primarily due to a combination of higher international prices for powdered milk as well as a resolution issued by the Ministry of Trade, Industry and Tourism in April 2013 restricting imports of powdered milk from Argentina to protect the national industry and to curb the rising imports of the past few years. Imports of other milk products also fell by 1%.
The potential of the milk subsector seems to be attracting foreign interest. In early 2014 the vice-minister of agricultural affairs, Hernán Miguel Román Calderón, announced a cooperation agreement with New Zealand to invest COP7bn ($3.5m) to increase productivity and enhance the competitiveness of Colombia’s milk producers. The initiative specifically targets small and medium-sized producers.
The production of palm oil rose 7% in 2013 to 1.04m tonnes, according to the National Federation of Oil Palm Growers (Federación Nacional de Cultivadores de Palma de Aceite, FEDEPALMA). Sales of crude palm oil to the domestic market increased 8.8%, from 802,000 tonnes in 2012 to 873,000 tonnes in 2013. Accounting for around 19% of global output, Colombia is the world’s fifth-largest producer of palm oil, behind Indonesia, Malaysia, Thailand and Nigeria, according to GreenPalm, which certifies sustainable palm oil. Exports reached 171,000 tonnes, as global demand for palm oil in food products rises. The EU, Brazil and Mexico are Colombia’s main markets.
In Colombia the popularity of the cash crop has also soared in recent years as the government targets a six-fold rise in output by 2020. According to data from the Palm Sector Statistic Information Centre, planted area increased by 5.4% in 2013 reaching 447,000 ha, having registered annual average growth of 7.2% between 2009 and 2013. FEDEPALMA expects planted area to grow to 743,000 ha by 2020. According to the organisation, an estimated 3.5m ha are suitable for oil palm cultivation. If utilised for this purpose, it would bring Colombia to a level playing field with the world’s leading producers in South-east Asia.
There is also considerable room for productivity gains. Given limited infrastructure networks, and the incidence of budrot, a crop disease which has affected thousands of hectares of oil palm trees across the country in past decades, plantations average 2.9 tonnes per ha compared to a global average of 3.7 tonnes. FEDEPALMA estimates the disease has reduced output by between 6% and 11% annually.
In an effort to boost productivity, the Ministry of Agriculture and Rural Development ( Ministerio de Agricultura y Desarrollo Rural, MADR) along with FEDEPALMA established the Reactiva la Tierra, Reactiva la Palma (“reactivate the land, reactivate the palm”) programme, aimed at raising awareness, treating or replacing infected trees, as well as facilitating access to more resistant seeds for smallholders. The programme, established in 2012, should see results in the coming years as new palm trees reach full productivity mode in about seven years.
Palm oil can also be used as a renewable energy resource in the production of biodiesel. Since 2008 the palm oil industry has been supported by Law 939, also known as the biodiesel decree, which mandates a minimum amount of palm oil in every litre of diesel sold. The minimum amount, initially 5%, has been raised to 10% and will increase to 15% by 2015. FEDEPALMA has been lobbying for the minimum amount to be 20% by 2020. In 2013, 44% of domestic sales of palm oil were used for the production of biodiesel. At present, Colombia has installed capacity to produce up to 600,000 tonnes of biodiesel annually. In mid-2014 Carlos Mateus, director of planning, development and innovation for the National Federation of Biocombustibles, told local press that new projects could help boost installed capacity for diesel production by another 50% over the next 18 months.
Maize production fell to just under 1.7m tonnes in 2013, 205,000 tonnes less than 2012, while the production of sorghum and wheat dropped by 29.7% and 25.6%, respectively. Production levels were affected primarily by a 13.2% decline in planted area. According to the Colombian Farmers Association (Sociedad de Agricultores de Colombia, SAC), lower international prices affected domestic revenues, and made it more difficult for producers to access credit, given the risk associated with the activity, lower international prospects and producers’ already high debt.
To ease the pressure, the government allocated COP3.5bn ($1.75m) in subsidies to compensate yellow maize producers for the drop in prices and gave out commercialisation subsidies of COP40,000 ($20) per tonne for the first harvest of the year and COP75,000 ($37.50) per tonne for the second.
Agro-industrial exports accounted for 12.1% of the value of total exports, with revenues reaching almost $6.6bn in 2013, an increase of only 0.1% from the previous year. The modest growth was due to lower export volumes, which have been decreasing since 2011. In 2013 export volumes fell by 4% to 3.9m tonnes from nearly 4.1m tonnes in 2012 following a significant decline in exports of sugar (17.9%) and bananas (10%), which registered a drop in value of 7.1% and 33%, respectively. Appreciation of the peso continues to hamper the competitiveness of Colombia’s exports, while low international coffee prices further affected export revenues. Meanwhile, growth in exports of frozen beef (356.4%) and flowers (5%) made up for some of the losses.
Imports rose marginally from 9.842m tonnes in 2012 to 9.847m tonnes in 2013 at a cost of $6.12bn, allowing the sector to end the year with an agricultural trade surplus of $454m. However, if coffee is excluded, the trade balance presents a deficit of $1.47bn. Colombia’s agricultural trade surplus has been reducing at a stable rate in the past decade. Between 2005 and 2013 exports grew at an average annual rate of 4.6% while imports rose at 15.5% a year.
The US remains the main export market for Colombia’s agro-industrial products, accounting for 37% of the value of exports on average, followed by the EU with 25%. Neighbours Venezuela and Chile take an additional 8% and 2%, respectively. In 2013 the volume of exports to its main partners fell in all markets with the exception of Canada and Japan where it increased 49% and 38%, respectively (see analysis).
Despite stable growth, 2013 was not an easy year for the sector, which faced a number of challenges. The appreciation of the peso continues to have a negative impact on Colombia’s global competitiveness, while instability in foreign markets as well as lower international market prices for key commodities like coffee, affected export revenues and limited producer’s profits. Infrastructure and transportation deficits, which raise costs associated with the movement of products domestically, contribute to higher domestic production costs. In recent years a greater incidence of weather phenomena such as La Niña, characterised by heavy rainfall, have also adversely affected productivity, flooding crops and cattle grazing lands, and raising humidity to levels that facilitate the spread of crop diseases.
An estimated 70% of the sector is composed of small producers, and such high fragmentation has further prevented efficiency increases. Moreover, decades of conflict affecting primarily rural areas have resulted in land dispossession and the displacement of many farmers. As a result, lack of land titles is not uncommon among small farmers. A study done by the Universidad de los Andes estimates one-fifth of rural land units lack titles. Among smallholder farms, lack of titles reaches 48%. This has had a negative impact on productivity, stifling investment. Rural poverty is another pressing challenge. According to DANE, in 2012 approximately 26% of the population – roughly 12m people – lived in rural areas. Of these, 46.1% were considered as living in poverty while an additional 22.8% lived in extreme poverty.
In recent years, the sector has also faced increased international competition as a result of a number of new FTAs. In 2011 Colombia’s FTA with Canada came into effect. The following year the US-Colombia FTA came into force and in 2013 the FTA between Colombia and the EU went into effect. The most recent FTA, with South Korea, was signed in February 2013 but has yet to become effective.
Colombia’s agricultural sector has been particularly hit by the FTA with the US. Agricultural imports have risen significantly – by 37% – from $1.1bn in 2012 to $1.5bn in 2013. From January to March 2014 imports grew an additional 51% compared to the same period in the previous year, from $378m to $573m. The sector is sensitive to rising international competition since it has traditionally suffered from low productivity. To prevent land concentration, current legislation stipulates that farmers are restricted to one family agricultural unit. While the size per unit varies across the country, the measure has prevented large-scale farming and has kept foreign direct investment (FDI) low. In 2012 agriculture accounted for only 1% of overall FDI. Nonetheless, 2013 may have been the start of a turning point. FDI in agro-industries grew by 238% compared to 2012, reaching $69m at the end of 2013. The largest share came from Mexico (45%), followed by the US (27%), Canada (18%) and Switzerland (10%).
High fragmentation, and in many cases the lack of land titles, have also made access to credit among small and medium-sized producers particularly difficult. The sector’s credit portfolio has nevertheless increased in recent years, though at steadily decreasing rates of 30.9% in 2011, 18.9% in 2012 and 7.6% in 2013. That said, small producers, who make up more than 70% of all farmers, received just 38% of total financing to the sector in 2013. Commercial banks, which account for 60% of the value of agricultural credit lines, remain primarily focused on large, industrialised farms as these present less risk.
The government remains the main source of funding for small and medium-sized farmers, disbursing subsidies, grants and loans through development programmes. Banco Agrario, the leading institution offering microcredit to the sector, saw its portfolio increase by almost 14% in the first three months of 2014 reaching COP8.4trn ($4.2bn). Nonetheless, it represents only 3% of the total banking system. The banks’ credit allocation to microfinance institutions remained stagnant at 49% in 2013, with commercial loans accounting for a nearly equal 48%.
Sector funds are disbursed primarily through the Agriculture Sector Finance Fund (Fondo para el financiamiento del sector agropecuario, FINAGRO), a second-tier financing institution. From January to May 2014 FINAGRO’s credit to small producers fell by 6% compared to the same period the previous year, from COP687bn ($343.5m) to COP645bn ($322.5m). At the same time, the number of projects benefitting from FINAGRO’s Agricultural Guarantee Fund, which guarantees small producers’ credit applications, dropped from 103,211 to 99,150, while the value declined from COP657.4bn ($328.7m) to COP632.4bn ($316.2m).
FINAGRO’s Rural Capitalisation Incentive plays an important role in promoting investment in the sector by subsidising up to 40% of investments by small and medium-sized producers in productive areas like machinery and equipment, and irrigation infrastructure. Between January and April 2014 it disbursed COP105.8bn ($52.9m) in funding for 23,497 projects, a decrease from COP124bn ($62m) for 32,713 projects the same period the previous year.
The informal nature of the sector, combined with the fact that the distribution of FINAGRO’s funds remains in the hands of commercial banks adverse to risk, makes access to credit a pressing challenge for the sector and an issue that is exacerbated by the low banking penetration levels in rural areas.
Continued profitability losses from the past few years led a number of agricultural subsectors, including coffee, rice, cacao and milk, to initiate strikes throughout the first half of 2013. In August 2013 the confluence of waves of strikes resulted in a large national strike that lasted into September. Protestors asked for special measures, including stopping imports of products such as milk, the renegotiation of FTAs and subsidies to assist with production costs.
After several rounds of negotiations, the government entered into a series of agreements entailing the disbursement of specific subsidies. However, in early 2014 a new wave of strikes began, with farmers claiming the government had not fulfilled the promises negotiated during the 2013 strike.
The government’s commitment to the revitalisation of the sector is visible in the increase in funds allocated to the sector in recent years. In 2014 the sector budget rose some 40%, from COP3.74trn ($1.87bn) in 2013 to COP5.2trn ($2.6bn), the highest in the past 14 years, surpassing sectors such as housing (COP3.5trn, $1.75bn), and mining and energy (COP2.8trn, $1.4bn). Funding for the sector has nearly trebled from COP1.8trn ($900m) in 2010. President Santos told OBG, “We are allocating a budget like never before to the sector and, most importantly, we are working together with farmers, unions and the academy to outline a National Pact for Agriculture, which will establish the policy for the following years to positively transform our rural sector.”
A significant portion of the 2014 budget will go to fulfilling the commitments the government assumed with the various subsectors during the national strike. A total of COP1.8trn ($900m) has been allocated to cover subsidies; coffee producers will receive the largest portion – COP1.4trn ($700m) – for the continuation of the PIC programme. The budget’s remaining COP3.4trn ($1.7bn) will be invested in several areas, including the provision of public goods, mostly in irrigation and drainage projects, another area in need of development. One initiative that came out of the national strike was the launch of the Agricultural Pact (Pacto Agrario), in September 2013. The platform brings together national and local governments as well as other stakeholders in the sector and seeks to advance rural policy while enhancing the industry’s competitiveness. Some COP1.7trn ($850m) was allocated to the initiative.
Funds budgeted for rural housing, another priority area, have nearly doubled reaching COP500bn ($250m) in 2014. According to the MADR, the additional funds will provide homes to 34,000 households in 2014 while another 4390 displaced families will benefit from COP80bn ($40m). Bridging the rural housing deficit, estimated at 2.2m, has been a priority for the ministry since Santos assumed office in 2011.
Agricultural policy has remained consistent over the past decade by focusing predominantly on modernisation, the expansion of production and public infrastructure, and increasing access to financing. The current administration is also looking to increase the amount of cultivated land. According to the US Food and Agriculture Organisation, Colombia has an estimated 14.5m ha of land available for agricultural use. To this end, the MADR announced in June 2014 the launch of an investment banking unit aimed at promoting large-scale projects with significant profitability potential in five main subsectors: maize, soy, fruits and vegetables, forestry and cacao. According to minister of agriculture and rural development Rubén Darío Lizarralde, the goal is to expand planted area to 1m ha per crop by 2020. The initiative is expected to have a significant social impact, generating direct and indirect employment for more than 540,000 small producers and having a projected contribution to GDP of more than COP3trn ($1.5bn).
Since assuming power the Santos administration has also placed particular emphasis on addressing the lack of land titles through MADR’s Formalisation of Rural Property Programme. Since August 2010 more than 2m ha of land has been formalised, benefitting almost 65,000 families. This is expected to have a positive impact on productivity, incentivise production and ultimately contribute to a reduction of rural poverty. Efforts have also been made to address challenges in financing the sector. In 2014 the government launched a line of credit to allow farmers to buy agricultural components directly from wholesalers, at prices up to 35% lower by eliminating intermediaries. The line of credit is scheduled to be available in August 2014 at Banco Agrario. Moreover, in line with commitments made during the strike negotiations, in early 2014 the government announced creation of the Agricultural Solidarity Fund. The initiative is designed to help small and medium-sized producers whose assets do not exceed 700 minimum salaries by assuming their overdue debts up to COP20m ($10,000). Thus far COP133bn ($66.5m) has been allocated for the first phase of the programme.
With Colombia’s overall economy estimated to grow by around 5% in 2014, the SAC forecasts agriculture growth will slow down to between 3% and 3.5%. According to the organisation, slower prospects are based on a combination of muted global economic growth and low international prices for some agricultural goods, particularly grains and oil products, as a result of larger supplies.
Growth will continue to depend on infrastructure improvements, better access to financing and achieving productivity gains, all of which require substantial investments. The increase in funds allocated to the sector reflects the government’s commitment to its revitalisation. The potential negotiation of a peace agreement stands to have the greatest impact on agriculture. “The peace agreement being discussed in Havana will be key, and ending the conflict will be the best incentive for the development of our fields,” President Santos told OBG. Agricultural expansion is central to lifting millions of Colombians out of poverty.