The peruvian asparagus industry

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  • 1. Written Statement of the Instituto Peruano del Espárrago y Hortalizas (Peruvian Asparagus and Other Vegetables Institute ) regarding the probable Economic Effect of Duty Free treatment Under a U.S. Andean Countries Free Trade Agreement ( FTA ) February 26, 2004I.- THE PERUVIAN ASPARAGUS INDUSTRY1.1. Peruvian asparagus exports to the United States in the year 2002 wereUS$67.3 million, 92% of which were fresh asparagus (US$62.1 million) and 8%processed asparagus (US$3.8 million frozen and US$1.5 million canned). Most ofPeruvian asparagus is exported to the US between the months of August andDecember. During this period, there is practically no domestic production ofasparagus in the US ( Chart 1 )Chart 1: Peru Imports to the USA 2002 ( in US $ thousand )Asparagus to the USA Fresh Frozen Canned TotalWorld $140,647.00 $5,323.00 $2,782.00 $148,752.00Peru $62,059.00 $3,819.00 $1,474.00 $67,352.00Participation 44% 72% 53% 45%Peru / Total agricultural imports 0.16%Source: Department of Commerce, US Census Bureau, Foreign Trade Statistics1.2. Asparagus is the most important agricultural export in Peru. It is a value addedand labor intensive crop. In the last years asparagus production has increased itsdemand for labor in Peru. Annually, the industry directly employs over 50,000workers in the different production areas. From this number an estimated 30,000jobs are for women which contribute with an extra salary for low income families inthe area, and most significant, around 40% of all workers in the asparagus industrycome from the mountain areas of Peru that are close to where the coca leavesoriginate, Therefore, these workers from the mountain areas have foundalternative legal employment in the asparagus industry in the coast of Peru.1.3.The social impact of the jobs generated by the asparagus industry is veryimportant. Non-skilled unemployed workers in the Peruvian mountains arebasically the population that used to seek employment in the illegal cocaproduction areas. The asparagus industry offers a legal alternative for thoseworkers. The Department of Ica (150 miles south Lima) is where the greatest partof the green asparagus crop is grown, harvested and processed. Until the early Las Dalias 136 Miraflores . contact@ipeh.org Phone 511- 242-1199 / 242-5541 1
  • 2. 1990s, areas very close to Ica, such as departments of Ayacucho and Apurímac,were at the mercy of terrorists. Inhabitants had to choose between migrating to therain forest and working in illicit activities such as coca leaf cultivation and drugtrafficking in general or migrating to the coast, specifically to Ica, and working inasparagus production. The same situation occurs with the Department of LaLibertad, second largest asparagus production area in Peru, which is an importantalternative of legal agricultural activity for the inhabitants of the lower Huallaga, animportant coca cultivating area.1.4.As we can appreciate from the employment figures in the Peruvian asparagusindustry, it will contribute significantly to the Free Trade Agreement ( FTA ) primarygoal of promoting broad-based economic development in the Andean countries.1.5. It is essential to understand that the war against drugs is another face of thebattle against terrorism and will be successful only if new legal jobs are created asan alternative to illegal activities. The asparagus industry in Peru is an example ofhow this policy is successful.1.6. Peru is committed to winning the war on drugs. The Peruvian Government hasdemonstrated significant success in this effort, reducing the illicit coca cropsfrom 115,300 hectares ( 1995 ) to approximately 28,000 hectares in 20031. Theonly way Peru will be able to continue to move in the right direction is by offeringalternative forms of development.1.7. In Peru, the processed asparagus industry (canned and frozen) competesfor raw material with fresh asparagus exporters. It is not true that they can buycheap raw material due to an excess of production.The key factors for competitiveness is that 90 percent of the processing companiesin Peru have invested important amounts of money to develop their own farms inorder to achieve an integrated value chain.Additional costsIt is true that we have a lower cost of labor in comparison to US growers but it isimportant to consider that Peruvian products must be transported to the US andpay a very high freight cost. For instance, the air freight cost for an 11 Lb. box offresh asparagus represents between 40% to 45 % of the overall cost of production( basically US airlines ). We need to comply with the Bioterrorism Act and pay anextra US $ 10 to US $ 15 per shipment for the Pre-notice required by the Act ( toUS Customs Brokers ) . These are just examples of several important extra coststhat Peruvian asparagus exporters have to pay, compared to US growers.1.Comisión Nacional para el Desarrollo y Vida sin Drogas ( DEVIDA ) Las Dalias 136 Miraflores . contact@ipeh.org Phone 511- 242-1199 / 242-5541 2
  • 3. We must take into consideration also the different Power Purchasing Parity (PPP)as the US has a GDP per capita of US$35,000 and Peru only US$2,000.II.- BENEFITS AND ADVANTAGES OF THE FTA FOR THE UNITED STATES2.1. CONSUMERS´ “FRESH VEGETABLE” PREFERENCE AND YEAR ROUNDAVAILABILITYAccording to the last report to Congress by the General Accounting Office (GAO)2,the extended product availability throughout most of the year, due toPeruvian exports, has been responsible for the rise in per capita USconsumption of fresh asparagus. This has benefited the overall consumption ofasparagus, domestic as well as imported, resulting in lower prices for consumersand greater production in the US. The figures from this report are clear: theconsumption of fresh asparagus in the US has increased 70% since 1990 andconsumption of processed asparagus has declined 37% since that year. GAO’sreport mentions that “the shift in the per capita consumption of asparagus is part ofthe general trend toward increased consumer preference for fresh vegetables”.Pricing to the consumer has fallen over $2.00 per pound over last few years (freshasparagus) and the consumer has the ability to purchase asparagus year-round.Producers of the States of Michigan and Washington of processed asparagus haveto deal with the U.S. consumers preference for fresh asparagus, which benefitfresh asparagus growers of California, the biggest producer. For this reason,Washington producers have been shifting production from processed to freshasparagus in the last years. According to GAO’s report and the USDA3 the overallproduction of asparagus in the US has increased in the last years.Peruvian asparagus exports to the US come as fresh, frozen and canned and aremainly green asparagus. It is important to mention that this crop is exported to theUS in a period of time where there is practically no US production.Fresh asparagus exports to the US are basically in the second semester of theyear, considering that Peru exported 10.3 million boxes x 11 pounds to this market,82 % were between July to December, 10 % between January and March and 8%between April and June (Washington harvesting season).2 GAO “Impacts of the Andean Trade Preference Act on Asparagus Producers and Consumers”.March 20013. USDA, “ Vegetables 2000 Summary “ Las Dalias 136 Miraflores . contact@ipeh.org Phone 511- 242-1199 / 242-5541 3
  • 4. 2.2. ADDITIONAL SUPPLYPeruvian asparagus exports represent an additional supply in the US market, itdoes not replace the American production, and the consumers had benefited fromthe availability of the different presentations of asparagus all year round. As can beshown below:In the middle of the 90´s to 2003, the American asparagus production had beenstable, with 99,000 MT per year with slightly ups and downs (Chart 2) and themonetary value had been increased from US $ 177 millions in 1995 to US $ 198millions in 2003 (Chart 3). For this reason the American production had beenaffected mainly due to the entrance of the Peruvian asparagus.Chart 2: US Asparagus Production (in thousand of tons) 1995 1996 1997 1998 1999 2000 2001 2002 2003TOTAL US 101.2 99.5 101.3 99.0 109.6 106.21 97.80 87.52 95.59Source: NASS Agricultural Statistics BoardChart 3: US Asparagus Total Value Production (in US$ million) 1995 1996 1997 1998 1999 2000 2001 2002 2003TOTAL US 177.1 156.6 182.5 199.5 234.1 221.3 230.2 172.9 198.7Source: NASS Agricultural Statistics Board2.3 INCOME AND JOBS TO US CITIZENS2.3.1.Peruvian asparagus in the United States not only benefits Americanimporters and consumers, it also benefits other economic activities, such asshipments to the US and local destinations, specialized storage, sanitary andCustoms controls, wholesalers and retailers, and generates substantial income forthe Miami Airport and Government Agencies. Las Dalias 136 Miraflores . contact@ipeh.org Phone 511- 242-1199 / 242-5541 4
  • 5. THE FRESH PERUVIAN ASPARAGUS4 • 10.3 million (11 lb.) cases were imported into the United States ( 2003 ) • Over 35 U.S. based companies are importers of this product • On average, each company employs about 12 people (420 people) • For every dollar spent on Peruvian asparagus, 70 cents stays in U.S. hands (US $16.00 Average Sale Price)This makes a total amount of over $ 115.4 million dollars that stays in the USeconomy ( only considering the fresh asparagus presentation )2.4 DIVERSIFIED OFFER2.4.1. With the Peruvian offer the American consumer had benefited from adiversified range of products in all three presentations (canned, frozen and fresh),giving employment to American companies that support the international and locallogistics in the commercial chain2.4.2. The American market for frozen asparagus consumes Peruvian andAmerican product, as well as frozen asparagus from China and Chile. The frozenasparagus from Peru has a higher price than the frozen asparagus produced in theUS because we export individually quick frozen (IQF) asparagus that requiresmore investment in technology and costs more to process and pack compared tothe block frozen Wet Pack asparagus produced in the US.Nevertheless, American production of frozen asparagus has been stable in thelast five years ( Chart 4 ) representing $ 6.7 million in 1999 and $ 4.6 million in2003.Peruvian frozen asparagus imports have increased due to the superior quality ofIQF asparagus compared to wet pack asparagus. This has benefited USconsumers as well as retailers and wholesalers. It is also important to considerthat American frozen asparagus is focused on the production of cut asparagus(cuts & tips), while Peruvian frozen asparagus imports are basically whole spears.This fact shows that Peruvian frozen asparagus, instead of replacing US frozenasparagus, has created a new, different market segment.4. Peruvian Asparagus Importers Association Las Dalias 136 Miraflores . contact@ipeh.org Phone 511- 242-1199 / 242-5541 5
  • 6. Chart 4: ASPARAGUS – TOTAL VALUE – 1000 DOLLARS 1999 2003FOR 6,770 4,560FREEZINGSource: NASS Agricultural Statistics BoardIII. – OTHER CONSIDERATIONSSIZE OF THE US CANNED INDUSTRYThe figures5 show that Peruvian exports of processed asparagus (canned andfrozen) in 2000 were 5.3 million lbs., which represents only 2.6% of total USasparagus production of 209.20 million lbs., in the same year. Peruvian mainexport was fresh green asparagus and has not affected US production: in 2000,total Peruvian asparagus exports to the US were 71 million pounds, which 65.7million pounds (92.5%) were fresh asparagus. In the same year, US production offresh asparagus reached 150.4 million pounds, only 8 million pounds more than1992 production.The canned asparagus imports to the US do not represent an important valueconsidering the size of the market, and the participation of the American cannedindustry, this can be seen in Chart 5 that shows that in 2002 the total US Peruviancanned asparagus imports were US$ 1.5 million and in this same year the USproduction for the canning industry was US $ 33.3 million (Chart 6).The Peruvian canned asparagus represented only 4.5 % of the US market. In thissense, it is inaccurate to affirm that the asparagus canned imports from Peru couldaffect the US production.Chart 5: US Imports of Peruvian Canned Asparagus (in US$ million)Canned vegetables 2002Asparagus 1.5Source: Department of Commerce, US Census Bureau, Foreign Trade Statistics5. American Farm Bureau Report ( 2002 ) Las Dalias 136 Miraflores . contact@ipeh.org Phone 511- 242-1199 / 242-5541 6
  • 7. Chart 6: US Asparagus Total Value Production (in US$ million) 2003For Canning 33.26Source: NASS Agricultural Statistics Board Las Dalias 136 Miraflores . contact@ipeh.org Phone 511- 242-1199 / 242-5541 7