Highlights

Poultry production growing at five percent a year continues to drive demand for imported U.S. corn, making Peru our fifth largest overseas market. During MY 2017/2018, the U.S. corn market share is forecast down due to Argentina’s projected return to the Peruvian market. The U.S.–Peru Trade Promotion Agreement established a duty-free tariff rate quota for U.S. origin corn in Peru and excludes U.S. corn from the Peruvian price band while in-quota. Wheat imports are forecast up slightly in MY 2017/2018 due to consumption fueled by economic growth. The high quality of U.S. wheat continues to give the United States opportunities to compete against Canadian product. The USDA’s Animal and Plant Inspection Service (APHIS) negotiated less restrictive sanitary requirements for U.S. rice to Peru, offering possible opportunities to boost sales here.

Executive Summary

Wheat production in MY 2017/2018 (July/June) is forecast at 190,000 metric tons (MT), remaining at the same levels compared to the previous year and falling 13 percent compared to MY 2015/2016. Wheat imports in MY 2017/18 are forecast at 2.0 MMT, a 5 percent increase compared to the previous year. Due to more competitive pricing, Canadian wheat held 68 percent market share in CY 2016 (about the same levels as CY 2015), followed by imports from the United States with 23 percent and Russia nine percent. Corn production in MY 2017/2018 (October/September) is forecast at 1.5 MMT, remaining at the same levels as the previous year. Corn consumption in MY 2018 is forecast at 4.5 MMT. Strong demand from the poultry sector responding to rising domestic consumption is the main driver for increasing corn consumption. Peru currently produces 55 million broilers per month. Total corn imports in CY 2016 were 3 MMT of which 94 percent originated from the United States. Peruvian corn imports from the United States in CY 2016 were valued at $452 million, a 50 percent increase compared to the previous year. Rice production in MY 2018 is forecast at 2.2 MMT (milled basis), remaining constant at MY 2016/2017 levels. The total rice harvested area for MY 2018 is forecast at 400,000 hectares, remaining constant to MY 2016/2017 area. Imports in CY 2016 were 291,966 MT, led by Uruguay with 62 percent of the market share.

Commodity: Wheat

Wheat

2015/2016

2016/2017

2017/2018

Market Begin

Peru

July 2015

Jul 2016

July 2017

USDA

Official

New

Post

USDA

Official

New

Post

USDA

Official

New

Post

Area Harvested

140

140

140

130

0

130

Beginning Stocks

590

590

477

491

0

320

Production

219

219

210

190

0

190

MY Imports

1800

1877

1900

1900

0

2000

TY Imports

1800

1877

1900

1900

0

2000

TY Imp. from

275

294

0

600

0

700

Total Supply

2609

2686

2587

2581

0

2510

MY Exports

67

70

90

90

0

90

TY Exports

67

70

90

90

0

90

Feed and Residual

70

75

80

80

0

80

FSI Consumption

1995

2050

2010

2091

0

2040

Total Consumption

2065

2125

2090

2171

0

2120

Ending Stocks

477

491

407

320

0

300

Total Distribution

2609

2686

2587

2581

0

2510

Wheat production in MY 2017/2018 is forecast at 190,000 metric tons (MT), remaining at the same levels compared to the previous year and falling 13 percent compared to MY 2015/2016. Wheat production in Peru has been decreasing slightly from 240,000 MT four years ago to the current level. Farmers are shifting away from less profitable wheat cultivation to more lucrative native Andean grains such as quinoa. Local wheat currently trades at about $490 per MT, compared to $5,000 per MT that producers can reasonably expect to receive for cash crops such as quinoa. Wheat is a minor crop in Peru, and production is concentrated mostly in the southern highlands between 2,800 and 3,500 meters above sea level. Wheat production is rudimentary and cultivation remains limited by mountainous geography. Wheat production is limited to mostly soft wheat, which is often consumed as purees or as a soup ingredient, and not good for milling.

The total wheat crop area harvested for MY 2017/2018 is forecast to remain at 130,000 hectares. The total wheat crop area in MY 2015/2016 was 140,000 hectares. The wheat area harvested varies significantly from one year to the next depending on prices, farmers’ profit margin expectations, and the profitability of alternative crops such as quinoa, barley and oats. The average yield in CY 2016 was 1.6 MT/hectare. Domestic millers have established a program promoting durum wheat cultivation for pasta production. They provide small farmers with seed and technical assistance, as well as purchasing production. Farmers are now producing around 12,000 MT of durum wheat for a pasta plant in Arequipa (approximately 1,000 kilometers south of Lima). Millers expect durum wheat production to reach 25,000 MT within the next few years.

Consumption

Wheat consumption in MY 2017/2018 is forecast at 2.1 MMT, remaining about the same as current levels. Overall wheat consumption is 64 kilograms per capita a relatively low level compared to potato and rice consumption of 110 and 89 kilograms per capita respectively. Wheat consumption is relatively constant, fluctuating slightly with the economy. Peru produces about 1.6 MMT of wheat flour per year. Of this amount 63 percent is used by the local baking industry, 20 percent goes to pasta manufacturing, 12 percent to the cookies and crackers sector, and 5 percent for small-scale, family use. Roughly 70 percent of domestic flour is sold through traditional markets, while only 30 percent of flour is sold in supermarkets.

The wheat milling industry is highly concentrated accounts for over 60 percent of total wheat milled. around 85 percent of the wheat milled in Peru. Bread consumption in Peru is 35 kilograms per person, one the lowest in South America. Per capita consumption of bread is 75 kilograms in Argentina and 95 kilograms in Chile. Bread in Peru is normally purchased fresh daily in bakeries.

Peruvians are heavy consumers of pasta. Peru, with pasta consumption at 11.9 kilograms per person, is South America’s second largest pasta consumer. Pasta consumption is concentrated in the capital city of Lima, which accounts for half of all pasta consumed nationwide. Sources indicate that pasta consumption is now growing at a faster pace in Peru’s provinces than in the capital thanks to economic growth. Pasta production in Peru totals 220,000 MT per year. Peruvian consumption of cookies and crackers remains low by regional standards at only 1.7 kilograms per year. Cookies and crackers production is about 80,000 MT per year.

Trade

Wheat imports in MY 2017/18 are forecast at 2.0 MMT. Wheat imports in CY 2016 were 1.6 MMT. Due to more competitive pricing, Canadian wheat held a 68 percent market share in CY 2016 (about the same levels as CY 2015), followed by imports from the United States with 23 percent and Russia nine percent. Argentine wheat imports into Peru were practically no-existent in CY2016. U.S. and Canadian wheat exports to Peru have benefited from reduced imports from Argentina in recent years. With the agricultural policy changes occurring in Argentina to phase-out export taxes, it remains to be seen if it will regain market share in Peru. The U.S. Wheat Associates (USWA), a USDA Cooperator with the regional office based in Santiago, Chile, is active in the Peruvian market, providing trade servicing to the millers aimed to increase the variety and usage of wheat varieties to appeal to more consumers.

Peru’s wheat millers are increasingly sophisticated. Over the last two decades, the industry has shifted from importing solely hard red winter wheat (HRW) to a mix of different wheat types (e.g., soft, spring, white, durum northern spring) for blending purposes. This is largely due to the USWA’s activities over the years.

Policy

Wheat is imported duty-free. Although Peru does not specifically promote wheat production, the government does have in place credit and technical assistance programs for farmers. These programs seek to improve crop quality and protect consumers from international wheat price spikes.

Commodity: Corn

Corn

2015/2016

2016/2017

2017/2018

Market Begin

Oct 2015

Oct 2016

Oct 2017

Peru

USDA

Official

New

Post

USDA

Official

New

Post

USDA

Official

New

Post

Area Harvested

516

470

473

470

0

470

Beginning Stocks

368

368

472

444

0

384

Production

1750

1540

1600

1500

0

1500

MY Imports

2954

2985

2900

2900

0

2900

TY Imports

2954

2985

2900

2900

0

2900

TY Imp. from

2538

2620

0

2400

0

2000

Total Supply

5072

4893

4972

4844

0

4784

MY Exports

10

9

10

10

0

10

TY Exports

10

9

10

10

0

10

Feed and Residual

4200

4050

4200

4000

0

4100

FSI Consumption

390

390

450

450

0

450

Total Consumption

4590

4440

4650

4450

0

4550

Ending Stocks

472

444

312

384

0

224

Total Distribution

5072

4893

4972

4844

0

4784

Production

Corn production in MY 2017/2018 (October/September) is estimated at 1.5 MMT, remaining at the same levels as the previous year. High production costs, more profitable alternatives, and economies of scale make it more difficult for the small scale corn farmers who grow corn in Peru to compete with other suppliers in the region. Additionally, in 2012, Peru published a regulation establishing a 10-year biotechnology moratorium on planting genetically engineered crops, including corn. Peru grows many varieties of corn. The two most important are starchy corn for human consumption and yellow corn for feed. Starchy corn production in CY 2016 was 300,000 MT and production of yellow corn was 1.2 MMT.

The harvested corn area in CY 2016 was 215,000 hectares and 268,000 hectares for starchy and yellow corn respectively. Average yields in CY2016 were 1.4 MT per hectare for starchy corn and 4.6 MT per hectare for yellow corn. Yellow corn yields vary greatly depending on the locality and producers’ access to technology (i.e., improved seeds, fertilizer, irrigation, and mechanized equipment). In Peru’s coastal agricultural areas, yellow corn yields improved significantly over the course of the past decade, from about 6.5 MT/hectare to over 8.8 MT/hectare. On the eastern slope of the Andes, in Amazonian fields the yellow corn yields fell to 2.1 MT/hectare and lower due to degraded soils and less sophisticated production methods.

Consumption

Corn consumption in MY 2017/2018 is forecast at 4.4 MMT, remaining at the same level as previous year. Strong demand from the poultry sector responding to rising domestic consumption is the main driver for increasing corn consumption. Peru currently produces 55 million broilers per month. About 70 percent of the yellow corn available in the country goes towards chicken feed to supply the country’s 1,000 plus poultry farms.

A challenge that poultry producers face is the increasing number of informal (non-registered) poultry farms, a problem that becomes more evident when poultry prices are high. These unregistered producers, which do not pay taxes, account for about 25 percent of overall poultry meat production.

Trade

Peru’s corn imports in MY 2017/2018 are forecast at 2.9 MMT, remaining at the same levels as the previous year. Total corn imports in CY 2016 were 3.0 MMT of which 94 percent originated from the United States. Peruvian corn imports from the United States in CY 2016 were valued at $452 million, a 50 percent increase compared to the previous year. As Argentina phases out taxes for corn exports, it will become more competitive in the market affecting U.S. corn exports. The majority of Argentinean commodities, including corn, reach Peru via vessels.

The U.S. Grains Council (USGC), a USDA Cooperator, services the Peru market to promote continued U.S. corn purchases and to increase Peru’s use of corn by-products such as DDGS and ethanol. Peruvian feed and poultry producers continue claiming that Argentine and domestically produced corn is cleaner and flintier than U.S. corn. However, due to trade preference advantages granted under the U.S.-Peru Trade Promotion Agreement, U.S. corn was imported into Peru at significantly lower prices, between $30 and $60 per MT.

Peru is also importing distiller’s dried grains with solubles (DDGS), seeking to improve the quality of domestically produced animal feeds. U.S. DDGS have good market prospects and that Peru could be a 100,000 MT market for U.S. DDGS. FAS Lima jointly with the U.S. Grains Council have carried out DDGs promotion activities aimed at increasing demand in the poultry and dairy sectors.

Policy

Corn enters Peru duty-free. Peru’s unilateral elimination of import tariffs on most commodities in 2011 eliminated many of the trade advantages afforded by the U.S.-Peru Trade Promotion Agreement (PTPA). However, Peru maintains a Price Band System for corn that is activated when commodity prices are low. The PTPA established a duty-free tariff rate quota (TRQ) of 500,000 MT for U.S.-origin corn with annual increases of 6 percent and full duty-free access within 12 years. The TRQ for 2017 is set at 796,924 MT, which was filled by the end of February. This exclusion from the price band system while in quota makes U.S. corn more competitive in the Peruvian market when compared to competitors, such as Argentina.

Peruvian Price Band System

Peru’s Price Band System imposes a variable levy aimed at ensuring that corn imports enter the market at a minimum threshold price (floor price). Peru imposes this tax on certain “sensitive” products (i.e., corn, rice, sugar, and powdered milk). In-quota U.S. corn is imported duty free. After the WTO ruled in favor of Guatemala in the case filed against Peru’s price band for sugar, the Peruvian government amended the price band system to limit the levy of to 20 percent of c.i.f. value. Out-of-quota U.S. corn is assessed up to 6.3 percent price band.

Commodity: Milled Rice

Rice, Milled

2015/2016

2016/2017

2017/2018

Market Begin Year

Apr 2015

Apr 2016

Apr 2017

Peru

USDA

Official

New

Post

USDA

Official

New

Post

USDA

Official

New

Post

Area Harvested

395

395

400

400

0

400

Beginning Stocks

261

261

304

281

0

271

Milled Production

2156

2156

2180

2200

0

2200

Rough Production

3125

3125

3159

3188

0

3188

Milling Rate (.9999)

6900

6900

6900

6900

0

6900

MY Imports

262

239

300

300

0

280

TY Imports

298

292

260

310

0

300

TY Imp. from U.S.

0

7

0

10

0

10

Total Supply

2679

2656

2784

2781

0

2751

MY Exports

50

50

60

60

0

60

TY Exports

50

50

60

60

0

60

Consumption and Residual

2325

2325

2350

2450

0

2450

Ending Stocks

304

281

374

271

0

241

Total Distribution

2679

2656

2784

2781

0

2751

Rice production in MY 2017/2018 is forecast at 2.2 MMT (milled basis), remaining constant at MY 2016/2017 levels. Rice production is limited by water availability in the northern deserted coast and demand. The total rice harvested area for MY 2017/2018 is forecast at 400,000 hectares, remaining constant with MY 2016/2017 area. Sufficient water supply and good weather conditions resulted in a rice production of 2.1 MMT in MY 2015/2016. Rice production is concentrated in Peru’s arid northwestern coastal region (mainly in Lambayeque and Piura provinces). Production contends with poor quality soils and increasing soil salinization due to field flooding irrigation techniques. Peruvian rice is surface irrigated, dependent upon water draining from Andean rivers hundreds of kilometers away. Average rice farm size is about five hectares.

The government of Peru has sought to expand rice cultivation along the eastern slope of the Andes (particularly in San Martin province), to relocate the coastal rice producers. But these low-income, small-scale farmers currently have no real incentive to switch to a less water intensive crop (e.g., quinoa or cotton). Water fees charged to farmers are almost non-existent and along with decent returns, hinder government attempts to shift production away from the arid coastal areas. The water costs average about $250/ hectare.

Rice is normally harvested April through May, averaging $418 per MT in CY 2016, slightly higher than the previous year. Despite the bulk of rice cultivation being farmed by smaller producers, whose quality and yields fluctuate widely, yields averaging 7.8 MT/hectare are respectable (the world average is about 4 MT/hectare).

Consumption

Rice is a staple product in Peru; per capita consumption averages at 60 kilograms/year. Rice is traditionally sold in 50-kilogram sacks. But with the expansion of supermarket chains, consumer habits are changing towards prepackaged, one-kilogram bags. Rice consumption increased slightly from MY 2015/2016 to MY 2016/2017 and is forecast to remain constant.

Trade

Rice imports in MY 2017/2018 are forecast at 280,000 MT, 7 percent reduction compared to the previous year. Imports in CY 2016 were 291,966 MT, led by Uruguay with 62 percent of the market share. Uruguay has dominated imported the rice market in Peru historically due to U.S. rice’s less competitive price and a longstanding relationship between the main Uruguayan supplier and Peru’s major importer. The former is said to supply advantageous credit conditions. Peru’s sanitary agency (SENASA) published a Resolution on January 26, 2017, easing sanitary requirements related to grass seeds for U.S. paddy rice imported by Peru as a result of negotiations with USDA’s APHIS. FAS Lima does not foresee this change to immediately benefit U.S. rice exports due to strong domestic and Uruguayan competition. FAS Lima estimates that some 50,000 MT of paddy rice was unofficially exported from Peru to Ecuador in CY 2016.

Policy

Rice enters duty-free. Peru’s unilateral elimination of import tariffs on rice in 2011 eliminated many of the trade advantages afforded by the U.S.-Peru Trade Promotion Agreement. However, Peru maintains a Price Band System for rice that is activated when commodity prices are low. The PTPA establishes a duty-free TRQ of 72,000 MT for U.S.-origin rice with annual increases of 6 percent and full duty-free access within 17 years.