Poised to grow at an exponential rate in the following years, Colombia’s agriculture sector will be the first to see the benefits of the signing of a historic peace agreement between the government and FARC, a guerilla group that has waged armed conflict in the country for more than half a century. Land, affected by inequality in both distribution and ownership and its impact on rural activity, was at the heart of the conflict, and land rights were one of the most disputed clauses in the peace agreement signed in November 2016. Vast untouched areas that have been inaccessible and unproductive for decades could well become today the motor of growth the sector needs. Many in the country believe the development of agro-industry will have the potential to promote rapid growth and a muchneeded restructuring of the agriculture industry. These and other ingredients make Colombia one of the most attractive countries for investment, and agri-business opportunities abound as the country’s role as a global food supplier continues to grow.
Business leaders in the country agree that the way forward for the sector in Colombia is to enhance its agri-business capacity, or in other words, boost its agricultural sector by focusing on commercial principles, such as using advanced technology and other inputs. Agri-business will help the sector to become a motor of economic growth and development, as well as enable the country to increase its role in the global food market. If done properly, the country could, for example, double the value of production of African palm, cocoa and mango crops from $1.46bn to $3.15bn over the next 10 years, achieving an annual increase of 8-10% in the country’s agricultural production, according to the National Association of Entrepreneurs of Colombia (Asociación Nacional de Empresarios de Colombia, ANDI). For this growth to materialise, the implementation of new policies is one of the most pressing issues for the Ministry of Agriculture and Rural Development (Ministerio de Agricultura y Desarrollo Rural, MADR). Other priorities include increased private sector investment and a focus on crops beyond the traditional ones. In a July 2016 conference ANDI released a study which found that by focusing on non-traditional crops the sector may be able to take advantage of new and growing market, particularly given growing demand for cocoa, mangos and palm oil. Such a strategy could lead to at the very least a 5% spike in exports.
One of the key points of contention between FARC and the Colombian government has been the ownership of farmland, especially by smallholders. The government’s compromise solution has been to reserve farmland for smallholders. In late 2015 Congress approved a law creating rural, economic and social interest zones – zonas de interés de desarrollo rural económico y social, or Zidres. Zidres are a mixed public and private initiative that aims to open up large areas of wasteland to private agri-businesses. What is yet to be decided is the type of development and the areas of focus for each of those zones, how to prevent land accumulation and the role of farmers in the productive chain. The specifics will not be known until the formal Zidres law is introduced, which is expected to happen by the end of 2017. The most optimistic defenders of Zidres see it as a model of economic development appropriate to increasing productivity in some regions of the country. By exploiting vast untouched lands the government seeks to allow investors to develop greater and more varied agricultural projects in remote areas.
The other key policy on the table is the Reforma Rural Integral – or the Integral Rural Reform initiative – which played an important role in the peace accord. The reform aims to be a structural reorganisation of farmland that seeks to close the economic gap between the countryside and more urban areas, reactivating rural land and developing small and community farmers, as well as increase food security. Furthermore, rural land reforms are likely to lead to several benefits for the country: increased access to land for rural dwellers; the formalisation of land titles; the restitution of land to displaced Colombians due to the war; and special credit mechanisms for low-income farmers.
A third initiative has been in place since 2015, when MADR first developed Colombia Sows, or Colombia Siembra, to encourage the production of food staples.
Involving an investment of $500m for the 2016-18 period, the plan aims to boost the agricultural growth rate from 2.3% in 2014 to 6.2% by 2018 by improving machinery, irrigation and technology. The scheme includes the aim of cultivating an additional 1m ha with rice, corn, soya, legumes and vegetables, as well as creating an additional 260,000 jobs in rural Colombia. Between 2015 and 2016 Colombia Siembra resulted in 426,666 ha sown, which corresponds to 43% of 1m ha goal by 2018, according to MADR. The plan should help to replace around 50% of the 10m tonnes of agricultural imports in the country. Furthermore, the ministry seeks to increase productivity, improve credit lines, and guarantee access to land and rural housing programmes for producers, all challenges that must be met if agri-businesses are to succeed.
In 2016 Colombia’s agricultural sector expanded below 1% year-on-year (y-o-y), well under the country’s objectives and below the already low 2.9% growth the sector recorded in 2015, according to the Colombian Agriculture Association (Sociedad de Agricultores de Colombia, SAC). This is partly due to a complex situation created by the meteorological El Niño phenomenon, which hit crop production very hard in the first half of 2016, as well as lower global commodity prices in some of Colombia’s main crops. In the first three quarters of 2016 the agricultural sector’s performance declined 0.3% y-o-y, showing that a strong last quarter of the year was fundamental to picking up already low performance. There have been concerns over low public investment in the sector, which is seen as one of the factors leading to slow growth, something that contrasts with the country’s needs in a post-conflict environment. In the 2017 budget the total granted to agriculture was COP2.1bn ($630,000), a 12.5% reduction compared to the COP2.4bn ($720,000) approved by congress for the sector in 2016 and around 53% lower than the COP4.5bn ($1.4bn) that the sector received in 2015, according to figures from the Ministry of Finance. Agriculture’s share of the national budget for 2017 is 0.9%, which contrasts with the sector’s contribution to GDP of 6% in 2016.
According to the World Food Programme, in 2015 Colombia was one of seven countries in the world that is taking advantage of less than half of its true agricultural capacity, largely due to the conflict with FARC, signalling the enormous opportunities the sector offers. In 2016 the country registered 240,000 ha of new planted land, while over the last two years over 434,000 ha have been newly cultivated, according to the MADR. In addition, under the Colombia Sows plan in 2015 and 2016 a total of 498,000 producers benefitted from technical assistance programmes. The majority of these new hectares was dedicated to rice with 112,192 ha, followed by maize (40,000 ha), palm oil (22,000 ha), fruit (19,485 ha), timber production (13,000 ha) and cocoa (10,176 ha), among others. Local production of staples such as corn, wheat, potatoes and rice, which for years had been in decline due to cheap imports, saw 2016 as a turnaround year. In the case of rice, one of the most important staple foods for families, the production of mechanised rice reached nearly 3m of green paddy, the highest ever, with 570,802 ha sown, compared to 2.3m tonnes in 2015, according to figures from the National Administrative Department of Statistics. This means a higher productivity rate of 5.7 tonnes per ha in 2016.
Imports & Exports
Colombian exports of agricultural and agro-industrial products reached 4.5m tonnes, worth $6.8bn, during the period between January and December 2016, representing a decrease of 1.2% in volume and 1.1% in value compared to the same period of 2015, according to SAC figures. This trend is largely due to the decrease in volume of exported sugar (34.9%), molasses (85.6%), milk (96.7%), frozen fish (16.7%), cocoa beans (24%) and palm oil (7.5%). The top five destinations for the country’s agricultural exports were the US, which accounted for 38.7% of exports, followed by Belgium (6.2%), the Netherlands (5.2%), Germany (5.2%), the UK (4.9%) and Japan (4.6%).
The dip in volumes was also accompanied by lower coffee prices, a commodity that experienced a simultaneous 3% increase in export volumes and a 4.4% decrease in value. However, there were spikes in exports of bananas (16.4%), other fruits (56.4%), margarine (82.4%) and flowers (5.7%), according to SAC. “Coffee, flowers, bananas, sugar and palm oil accounted for 76.6% of the exported value in 2016, showing that Colombia has found its areas in which to rely on and that at the same time our sector is not diversified enough,” Alejandro Vélez, vice-president of SAC, told OBG. “Looking ahead, we must decide what crops we want to focus on, and develop a strategy and policies for them to become drivers of growth in the sector.”
Meanwhile, imports of agricultural and agro-industrial products to Colombia during the same period in 2016 amounted to 12.7m tonnes worth $6.1bn, which means an 11% increase in imported tonnage by 1.3m tonnes and 5.1% y-o-y rise in value, according to SAC. Cereal imported totalled 7.3m tonnes, 4.4% more than the previous year. This segment was largely maize, which totalled 4.6m tonnes, a 2.8% decrease, followed by wheat, which rose 22.9% to reach 2.1m tonnes. There were also significant increases in imports of sugar (277%), milk (144%), mineral and soda water (104%), and animal and vegetable fats (28.8%). Overall, the country’s agricultural trade balance made some progress and shrunk some of the deficit at the end of 2016, when it reported a surplus of $1.1bn, 27% lower than in 2015, when it reached $1.5bn. Excluding coffee, the balance shows a deficit of $1.4bn, an increase of 27.2% compared to the deficit reported in 2016 at $1.1bn.
Colombia is the world’s second-largest producer of Arabica coffee. Between January and December 2016 production totalled 14.23m 60-kg bags, signifying a production capacity of 18 bags per ha, according to the National Federation of Coffee Growers (Federación Nacional de Cafeteros, FNC). While production was negatively impacted by El Niño, the silver lining is that this figure is still slightly above 14.17m 60-kg bags in 2015. Colombia is looking to boost production to 20m 60-kg bags by 2020, as planned by the FNC, so it is necessary to increase current productivity to 22 bags per ha in the next three years. In 2016 Colombia’s coffee exports reached 12.9m bags, 1% higher than the 12.7m bags sold abroad in 2015.
In a 2015 study MADR established that there were more than 26.5m ha that could potentially be cultivated, representing more than 23% of total territory. Felipe Fonseca, director of MADR’s Rural Agricultural Planning Unit, told local media, “It is necessary to lead a series of reconversion processes and, especially, to take advantage of the agricultural frontier already available. It is not necessary to continue deforesting, as the already available land of these frontiers is being underutilised.”
A critical crop in Colombia for centuries, sugarcane remains one of the most important agricultural segments today. According to the UN’s Food and Agricultural Organisation, Colombia holds the highest yield rate at 85.96 tonnes per ha and is among the world’s largest sugarcane producers, surpassing countries such as Brazil with 75.34 tonnes per ha, China (70.59 tonnes per ha) and India (67.43 tonnes per ha). While cane growers can take comfort from the recovery of international sugar prices in 2016, there are still concerns over the possible import of corn ethanol.
One of the crops that the country has been looking to position as a stimulator of agricultural growth in the following decades is cocoa. The government hopes it will become as iconic as coffee, and the country’s geographical characteristics are conducive to cocoa plantations. Cocoa production has seen steady years and increased by 3.6% to a record high of 56,785 tonnes in 2016, up from 54,798 tonnes in 2015, according to the National Cocoa Federation. The federation reported that in 2016 average cocoa prices were above COP8000 ($2.40) per kg throughout the year, with a low trend at the end due to overproduction in Côte d’Ivoire, the world’s top producer of the crop. In 2016 the federation estimated cocoa exports at 10,572 tonnes, compared to 13,744 tonnes in 2015, with main markets being Spain, Belgium and Mexico. Colombia has 2m ha that have cocoa crop potential, and this would be large enough of an area to place the country among the world’s top cocoa growers, according MADR figures.
The Colombian government supports the expansion and use of palm oil and has been trying to establish a reputation as an important provider of the commodity. Even if in terms of production it is far from the world’s leading producers such as Indonesia and Malaysia, which boast around 85% of global production, the country looks to establish itself as the regional leader. Colombia produces more than 1m tonnes of palm oil and palm kernel oil, making it the fourth-largest producer of palm oil in the world and the largest producer in Latin America. Palm oil represents 6% of the country’s agricultural GDP, according to the National Oil Palm Growers Federation (Federación Nacional de Cultivadores de Palma de Aceite, Fedepalma).
In February 2016 MADR said Colombia would seek to increase land for palm oil plantations by 150,000 ha in the next three years through COP1.6trn ($480m) in investment spread out during this period. This strategy is part of the Colombia Sows plan, with which the government hopes to move from 7.1m ha of cultivated land in the country to 8.1m ha over the next three years, according to MADR. To this end, Colombia has prepared a series of special credit lines which have gained the support of Palmvit, a Spanish firm that specialises in the extraction of plant phytonutrients, and Fedepalma, William Granados Pérez, coordinator of MADR’s permanent cultivation unit, told local media.
As with most crops, the production of palm oil was affected by El Niño, and production from January to September 2016 reached 877,775 tonnes, a decrease of 11.2% from 988,675 tonnes for the same period of 2015, according to Fedepalma. During the period from January to September 2016, palm oil exports reached 334,000 tonnes, approximately 7%, or 23,000 tonnes, above that registered in the same period of 2015. The majority of palm oil exports went to the EU, which accounted for 64% of the market, followed by Mexico (11%) and Brazil (5%). It is expected that the crop will continue to increase its participation in the agricultural sector and the national economy.
The fruit segment saw a positive year in 2016, with this trend likely to continue (see analysis). Coffee, bananas and flowers remained the largest export items, though the country has seen foreign demand for fresh fruits grow. Banana harvests in Colombia are one of the country’s great successes, with an estimated 120,000 boxes exported per week, 73% of which is exported to the EU, according to the Colombian Banana Growers Association. As the world’s third-largest exporter after Ecuador and Costa Rica, it remains one of the most sought-out crops. Colombia has about 47,000 ha of banana crops and some 400,000 ha of plantain meant for domestic consumption. In the fruit trees segment in 2016, 19,485 ha were planted, with pineapple productivity being the principal crop and increased its productivity rate from 50 tonnes per ha to 80 tonnes per ha in that year, according to MADR figures. Mangos also saw increased productivity in 2016, from 11 tonnes per ha to 15 tonnes per ha, followed by avocados, which went from 8 tonnes per ha to 9 tonnes per ha.
Access to credit is key if producers can finance their agricultural developments. Financing available for farmers has grown and coverage is much higher than it was years ago, but formal credit still only covers 8-12% of demand. During the first half of 2016 a sum of $4.9bn was granted in financing for the agricultural sector. Of this total, around 13% was used for sowing, renewal and maintenance activities, of which $322.8m was granted to permanent crops. This represented 31,636 credit lines. Many suggest state policy in this regard has to improve. “We need a public goods strategy focused on agricultural development such as road infrastructure, collection centres and regional marketplaces that facilitate domestic marketing and opening the country up further,” Vélez told OBG.
One of the challenges is the generational shift that must take place in the countryside, both from a human resources point of view and in terms of technological advancements. The challenges created by a sector workforce too small to sustain the expected production rate that the country seeks is especially noticeable among small- and medium-scale farmers. “We have to change the mentality of the producers by seeking alliances and synergies, emphasising their own food security, supporting leadership, organizing crops depending on the type of land and adapting to the demand side,” Uveimar Ulloa Cáceres, entrepreneurship coordinator at the Colombian Horticultural Association, told OBG. “Farmers need to be provided with the machines and technology to improve productivity and efficiency in the agro-sector, financing from the private and public sector, as well as educated on soil preparation methods, new fertilising methods, state of the art fumigation techniques and machines to control their crops. Human resources are important for the success of the sector, though the reality is that today we have poorly qualified people working the land combined with very poor technology penetration.”
Technical assistance is one of the areas that the government is trying to encourage the most and part of the peace agreement with FARC. The new technical assistance system is expected to be designed so as not to be limited to the planting of crops, but include a range of activities from planting to commercialisation of the products. The system is also being created with the well-being of the rural population in mind, and the aim is cut rural poverty by half over the next years.
While official production numbers are not yet available, there are plans for 2017 to be the year in which the cannabis crops for medicinal purposes kick off. The segment could mean investments of $170m in the long term, according to figures from Sannabis, a company that legally produces medical marijuana products in Colombia. “Colombia has areas that are only crops of marijuana, which it could monetise at a national level by developing a sustainable cannabis industry, given that there are ideal conditions here and a low cost of production. The market for medical products in general is growing by the minute,” John Campo, president of New Colombia Resources, the US-listed parent company of Sannabis, told OBG.
Alejandro Gaviria, the minister of health and social protection, has stated that he wants Colombia to become the world’s top research centre on the medicinal use of marijuana. In addition to experimenting with small co-op farms, the government is working on a legal framework for the cultivation, processing and export of the crop. In 2017 Canada-based PharmaCielo bought 3.8 ha of land next to its 27-ha Rionegro nursery and propagation facilities. The company announced that both its cannabis processing and oil extraction facilities, and research and technology centre will be located on the new property. In 2016 PharmaCielo became Colombia’s first recipient of a licence for the processing and manufacture of cannabis oil extracts.
Colombia’s vast natural resources, diverse climate and varied topography – taken along with the peace dividend and economic development plans – combine to create the best scenario possible for its agricultural sector. Whether the industry can become a driver of growth is yet to be seen, but the rebirth of rural Colombia will be key to any future success. In the new environment of peace, sector growth may well break records the country has not even considered in years. Signalling specific crops to focus on and defining objectives are likely to help, yet both public and private investment will be necessary for progress to occur. Given Colombia’s ideal climate, sufficient water resources and available land, the years ahead will likely see a focus on realising the potential of this sector.