Agricultural development in Panama has historically been hampered by a series of structural issues, including fragmented ownership of land, limited access to financing and deficient transport infrastructure, although efforts are now under way to change this. Former President Ricardo Martinelli – who was in office from 2009 to 2014 – designated agriculture as one of the country’s four pillars of economic growth. This emphasis on reviving the sector has gainer further impetus under Martinelli’s successor, President Juan Carlos Varela, who, soon after assuming office in 2014, unveiled a multimillion-dollar plan to boost domestic agricultural production and enhance the country’s food security.
Sector Performance
According to the National Institute of Statistics and Census (Instituto Nacional de Estadística y Census, INEC), agriculture and livestock GDP increased steadily over the 2010-13 period, rising from $764.4m to $863.1m. The upward trend came to a halt in 2014, with the sector’s GDP falling 0.2% to $861.3m. The sector’s contribution to overall GDP, however, has declined rapidly in the past decade, alongside the continuing industrialisation of the economy. In 2014 agriculture and livestock’s contribution to GDP stood at 2.4%, down from 8% in 2000. Although it continues to play an important role in providing a means of subsistence for the vast majority of Panamanians in rural areas, agriculture’s contribution to employment in general has also declined. According to the UN’s Food and Agriculture Organisation (FAO), the sector employed 14% of the population in 2014 – some 250,000 workers – down from 18.2% in 2004.
Agricultural Production
In order of importance, agricultural production is comprised of basic grains, in particular rice, maize and beans; fruits, including pineapples, melons and bananas; and vegetables such as potatoes, onions, yucca and yam. In the past decade, agricultural production has been highly volatile. The production of rice, a staple of the Panamanian diet, has fallen from a high of 7.5m quintals (one quintal is 45.5 kg) in the 2003/04 season to 5.9m quintals in 2012/13, according to the Ministry of Agricultural Development (Ministerio de Desarrollo Agropecuario, MIDA). This decrease in output was primarily due to a reduction in planted area, which fell from a high of 78,550 ha in the 2004/05 season to 63,754 ha in 2012/13.
Despite an increase in planted area, melon production also fell significantly, from 237,987 quintals in 2011/12 to 134,455 quintals in 2012/13, considerably below the 1.1m quintals achieved in 2008/09. Unlike rice, the fall in output was driven primarily by a decrease in average yields per hectare, which fell by more than half in the same period, from 895 quintals to 420 quintals. Production of watermelon and pineapple followed the same downward trend, decreasing by 45.5% and 26.3% to 608,892 quintals and 1.9m quintals, respectively, in 2012/13.
Other segments, however, have registered growth, albeit slowly. The production of maize, another staple of the local diet, has been increasing since 2009, posting record growth of over 2.5m quintals in 2012/13, with planted area increasing from 25,245 ha to 30,718 ha. Yucca production reached 573,151 quintals in the same period, up significantly from 377,367 quintals in 2000/01. Similarly, bean production reached a record 98,357 quintals in 2012/13, the highest since 2000.
Livestock Segment
The performance of the livestock segment has generally been less volatile. Beef production registered a slight decrease in 2013 at just over 84m kg, down from around 91m kg in 2012. However, beef exports have increased every year since 2009, from $14m to $25.3m in 2013. From January to November 2014, beef exports reached $22.4m, suggesting a slight retraction for the year. The slow recovery of the pork segment that began in 2011 came to a halt in 2013, with the number of slaughtered animals falling from 464,867 in 2012 to 463,369. Conversely, poultry production has generally increased since 2003, surpassing 133m kg in 2013, and reaching nearly 130m kg from January to November 2014. Meanwhile, egg production reached 459m units in 2013, up from 444m units in 2012, but below the historical highs of more than 500m units from 2002 to 2007.
Fisheries
The fisheries sector has recovered since 2011, when it contracted 21.2%, ending with a total GDP of $118.7m, down from $150.7m the previous year. The segment subsequently grew by 3.4%, 15.2% and 19.6% in 2012, 2013 and 2014, respectively, reaching a total of $169m in the latter year, according to figures from INEC. The sector’s strong performance in 2014, driven primarily by an uptick in exports, saw its contribution to GDP increase from 0.4% in the period from 2011-13 to 0.5% in 2014, although this remained below the 0.6% achieved in 2010.
Exports
Panamanian agro-food exports have lost competitiveness on the international stage in recent years. In 2013 agricultural exports represented 28.4% of total exports (representing $239.8m in revenues), while fisheries accounted for an additional 18.1% ($152.9m) and agro-industry another 15.5% ($130.7m). With the exception of agro-industrial exports, which saw its proportion increase from 6% in 2006 as a percentage of total exports, agriculture and fisheries have declined significantly in the past decade. The two segments represented 41% and 37% of total exports in 2006, respectively.
Banana exports currently account for around half of the sector’s total export value, followed by melon, watermelon, pumpkin, shrimp and lobster. Lower international prices affected export revenues in 2014, with the export value of pineapple, melon and watermelon declining by 20.4%, 25.1% and 6.5% year-on-year, respectively, in the period from January to May. Banana exports reached $90.6m in 2013 and $84.6m from January to November 2014.
Coffee exports were up in 2014 (from January to November) at 1.85m kg, from 1.5m kg in 2013, raising the export value from $6.9m to $8.3m, although this figure is still far below historical values of over $16m in revenues achieved in 2007 and 2008 or $13m in 2005 and 2006. Sugar exports also saw an increase, from 51m kg in 2013 to 56m kg as of November 2014. As for fisheries, exports of shrimp and shrimp larvae rose 48.9% and 197%, respectively, in the period from January to June 2014. Fishmeal and fish oil exports reached $46.2m from January to November 2014, up significantly from $34.8m in 2013, while exports of yellowfin tuna, fresh fish and fish fillet were also up significantly in the same period, reaching a value of $43.2m, compared to $36.5m in 2013. The US and Europe remain the two main destinations for Panamanian agro-food exports.
Imports
The slow recovery, and in some cases decline, of domestic production has coincided with a rapid rise in agricultural imports. According to INEC, food imports reached over $915m in 2013, more than double the value of agro-food exports for that year and a significant increase from $562m in 2009. Moreover, imports of vegetable and animal products reached $414m and $190m, respectively. Panama has grown increasingly dependent on imports to meet domestic demand for many staples, including rice, potatoes, onions and maize.
“Panama imports around 60% of the food products it consumes,” Ursula Kiener, the director of agriculture at the Panamanian Chamber of Commerce, Industries and Agriculture, told OBG. “This is in large part a result of the lack of production and export incentives for national producers.”
For Kiener, domestic producers’ inability to compete with cheaper imports has discouraged farmers from producing certain crops. Only an estimated 15% of the overall farming community is focused on producing agro-foods for export, with this activity concentrated mainly in the Azuero, Chiriquí, Veraguas and Panama regions.
Challenges
Beyond added competition from cheaper imports, the sector has also been affected by adverse climatic conditions in recent years, including longer dry spells and intense rainy seasons. This has contributed to a rise in crop disease which has primarily affected export products such as bananas.
The sector also faces other structural challenges. In recent years, the rapid pace of urbanisation, accompanied by a surge in real estate development, has led to a gradual reduction of cultivated surface and rising land prices. It has also exacerbated the sector’s labour shortage. “The construction boom in urban areas attracted many farmers looking for better salaries,” Juan De Dios Cedeño, the executive secretary at the National Technical Agriculture Council, told OBG. “To a certain extent we saw an exodus from rural to urban areas, which led to the subsequent shortage of workers.” According to the FAO, the rural population was around 23% of the total in 2014, down from 30% a decade earlier. An ageing workforce is another concern, with INEC reporting that 62.6% of farmers are over the age of 45.
According to MIDA, 43% of farmers operate on land plots of less than 0.5 ha. As a result, the fragmentation of land has prevented efficiency increases, a factor further exacerbated by the slow adoption of technology. “Only some 10% of producers have irrigation systems. This limits the potential for productivity immensely,” Kiener told OBG.
Moreover, the country’s transport and infrastructure networks will require significant upgrades in the coming years to avoid adding to domestic production costs. At present, according to government estimates, up to 60% of produce is lost due to deficient post-harvesting techniques and a lack of handling, storage and transport infrastructure.
Agricultural Financing
Agricultural financing is available through the Agricultural Development Bank (Banco de Desarrollo Agropecuario, BDA) at a competitive interest rate of 2%. However, bureaucratic procedures and institutional inefficiencies have prevented the timely disbursement of loans by the BDA. “Because credit approval for BDA loans takes so long, many producers are forced to look for financing with private entities, where interest rates are higher, but these too are slow. Farmers effectively have no means of meeting their short-term cash flow needs,” Kiener told OBG.
According to INEC, loans disbursed by the BDA have decreased considerably in recent years, from $52.7m in 2009 to $25.8m in 2013. That year the largest share of its credit portfolio was allocated to the livestock segment ( just over $15m), followed by agriculture ($5.7m), fisheries ($427,200) and others ($4.6m). However, institutional limitations to financing have contributed to a general sense among the farming community that incentives are lacking.
“The problem is not availability of incentives, it is getting through bureaucratic obstacles to access the different programmes,” De Dios told OBG.
Cold Chain
A significant contribution to the sector during the administration of former President Martinelli was the launch of the cold chain initiative in 2010. Overseen by the Secretariat of the Cold Chain, the project has represented an investment of $277m so far, and was designed to improve the handling, distribution and transport of produce from the points of production to the points of sale. Based on their importance in the national diet, the secretariat identified 24 key crops, around which strategically placed storage and distribution centres were designed. The master plan for the cold chain called for the establishment of three post-harvest centres in Chiriquí Province, where 80% of agricultural production is concentrated, and a fourth post-harvest centre in the southern province of Los Santos, representing an investment of $75m. The project envisaged the construction of seven municipal markets, representing an additional investment of $202m, in Panama City, David, Chiriquí, Chitre, Publico de la Chorrera, Abastos de la Chorrera and Colón.
Initially scheduled to begin operations in 2014, the project has faced a series of delays. As of early 2015, the four post-harvest centres and the markets in David and Chiriquí were completed, although the market in David was operating at 40% of capacity. The market in Panama City – Merca Panama – which was inaugurated in March 2014, was 80% complete, and was still not in operation as of early 2015. Construction of the retail areas and access roads had yet to be completed. In addition, the Chitré, Publico de la Chorrera and Abastos de la Chorrera markets were 40%, 38% and 38% complete, respectively, and construction of the Colón market had yet to begin.
According to the Secretariat of the Cold Chain, the six markets in construction are expected to be fully operational between June and July of 2015. Once operational, the cold chain project is expected to have a significant long-term impact on the sector, reducing losses, raising income for farmers, improving quality and sanitary standards for agricultural products, and ultimately reducing consumer prices.
Revival Plan
The government of President Varela has continued to prioritise the sector. Shortly after assuming office, in July of 2014, Varela’s government unveiled a 10-point plan aimed at reviving the sector, known as the national pact for agriculture, or pacto nacional por el agro.
Among other things, the multimillion-dollar plan envisages reforms to the functioning of the National Agriculture Institute, the creation of an agricultural Cabinet to facilitate policy development and implementation, and the reduction of interest rates for agricultural loans to 0% from August 1, 2014 to December 31, 2016. Other measures under way include a new tax deduction of net income up to 30% of the total amount of new investments, as well as the cancellation of debt owed by farmers in the amount of $30m (see analysis).
The adoption of technology is another central component of the revitalisation programme. Of its investment budget of $102.4m for 2015, MIDA has allocated the largest portion ($31m) to a series of irrigation projects expected to improve productivity and guarantee year-round production. The list of projects includes the $35m Altos de Bambito irrigation project in Chiriquí, for which $18.6m was allocated in 2015. Consorcio Riego de Panamá won the tender for construction of the project in 2013. However, in early 2015 construction had yet to begin due to disagreements regarding changes to the initial design. Once completed, the project will provide irrigation for an extension of 450 ha and benefit some 111 producers, primarily of vegetables.
Sanitation
Another significant portion of the investment budget – nearly $23.9m – will go towards programmes aimed at strengthening phytosanitary standards, while $16.3m has been allocated to rural development programmes. MIDA’s total budget for 2015 is $142.3m, a small increase from $138.1m in 2014, but still significantly lower than the $271m that had been requested by MIDA. Additional incentive programmes target production increases in key crops. The priority crops include maize, beans, onions, potatoes and milk, segments in which production is around 35-40% below domestic consumption.
The country’s plan is to compare demand and offer to determine a course of action that will benefit the country and advance its food security, thereby creating stability between demand and offer.
Growth Opportunities
Despite the challenges it faces, Panama’s agricultural sector also presents significant growth potential. A stable investment framework, current incentives and the availability of land in Panama make the sector attractive for investment – domestic and international – particularly in areas such as rice, maize and onions, where domestic consumption is high and local production is significantly below demand. Rice production for instance, was 5.9m quintals in the 2012/13 season, some 6.8m quintals below the estimated annual domestic consumption of 12.7m quintals, according to figures from MIDA.
Once local production recovers, the potential for increasing exports is also significant considering the string of free trade agreements Panama has entered into in recent years, granting it access to key markets such as the US, Canada and the EU. Although it is still in a nascent phase, protected agriculture is another export-focused growth area with demonstrated potential. The largest project, and one of the very few in the country, is by Panamanian company Veggie Fresh, which invested $11.5m in 2012 to set up 10 ha of hydroponic greenhouses, where it cultivates peppers for export to the US.
New Law
Panama also has potential to expand the production of sugarcane and palm oil. Sugarcane production has increased steadily in recent years, from 1.98m tonnes in the 2007/08 season to over 2.5m tonnes in 2012/13, according to INEC. Palm oil production has seen a similar trajectory.
In line with the regional trend of encouraging production and consumption of biofuels, Panama passed Law 42 in 2011 to regulate the production and use of biofuels, including ethanol and biodiesel. According to the law, which became effective in 2013, the requirement for the use of ethanol in petrol and palm oil in diesel was initially set at 2%, and gradually increases to 10% by April 2016. A study undertaken by Intracorp, a local consultancy, estimated that Panama would need up to four production units across the country, as well as $38m of investment in plantations and agricultural equipment to fulfil the 10% ethanol requirement.
The law has affected palm oil production in particular, which has seen steady growth since 2012. Palm oil production is concentrated in the province of Chiriquí, where it accounts for the largest share of agricultural production, as well as a total of 704 small to medium-sized producers. According to figures from MIDA, the planted area in that region reached 22,815 ha at the end of 2014, up from 6000 ha before 2010; the Barú district alone accounts for some 15,000 ha of the total.
With average yields at around 20 tonnes per ha, annual production surpasses 342,000 tonnes, most of which makes its way to local processing companies, with a small percentage being exported to Costa Rica. According to MIDA, production is quickly spreading to Veraguas, Colón, Chepo, Los Santos, Bocas del Toro and Darién. Producers have also signed contracts to expand exports to a number of Central Americans countries, including Nicaragua, Honduras, Guatemala and El Salvador.
Outlook
Despite the numerous challenges facing the agricultural sector, the introduction of a revival plan has contributed to a sense of optimism among industry stakeholders. The country is experiencing a moment of transformation, in which Panama is making an effort to move beyond a strictly services-based economy, and the primary sector is coming into focus as its importance increases.
The availability of financial incentives in particular will boost local production of key crops for the domestic market. Nonetheless, the effectiveness of these instruments remains dependent on institutional capacity. In the medium term the sector’s outlook is broadly positive, with the completion of the cold chain initiative likely to enhance local producers’ competitiveness vis-à-vis imports, as well as further acting as an incentive to increase production.
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