3 Review of food and agricultural trade

3.1 Macroeconomic context

Peru’s policy in the 1990s was to use a free floating exchange rate (the exchange rate is given in NS per US$). The trends in nominal exchange rates and price indexes in Peru and the United States - its most important trade partner - are presented in Table 9. The real exchange rate calculated from these figures is also shown.

Table 9. Nominal and real exchange rates for Peru 1991-2000

Source: IMF 2002. The price indexes are the GDP implicit deflators.

The nominal exchange rate increased continuously between 1991 and 2000 (350 percent overall growth) at a higher pace than internal inflation (321 percent rise). Given a low rate of increase of international prices in the 1990s (19 percent increase), the real exchange rate increased almost continuously in the 1991-2000 period with an overall growth of 27.7 percent.

Regarding interest rates, Peru’s policy in the 1990s was also to allow a free market determination of interest rates, expressed in both domestic and foreign currency (US$). Thus, the internal rate in soles should reflect the country’s inflation rate, and the internal rate in dollars should reflect international rates plus a mark-up for the country’s risk. The trends in nominal interest rates and the price index in Peru are presented in Table 10. The real interest rate increased almost continuously between 1992 and 1999 from -7.8 percent to 16.3 percent annual rate. In the year 2000, the real rate decreased somewhat to 10 percent per annum, following trends in international markets. In summary, there should be no distortions on trade flows caused by market interest rates in Peru.

Table 10. Nominal and real interest rates for Peru 1991-2000

Source: IMF 2002. The formula for the real interest rate (r) is (1 + r) = (1 + i) / (1 + p), where i is the nominal rate, and p is the inflation rate. The nominal rate variable is the discount rate at the end of the period.

3.2 Trends in agricultural trade

The following sections provide data and analyses relating to the experience of agricultural and food trade during the pre-UR and post-UR negotiation periods. Time series data from 1991 to 1995 (previous period) and from 1996 to 2000 are used. The period 1985-1990 was volatile and unstable for Peru’s trade and will not be used in the analysis. The importance of food both in exports and imports is highlighted.

The overall evolution of exports and imports of agricultural products for the period 1991-2000 is presented in Table 11. The value of exports increased by 67 percent from 1994 to 1997, and then decreased by 18 percent from 1997 to 2000. The overall rate of export growth in the 1990s is 8.5 percent annually.^[88] The value of imports increased steadily between 1991 and 1998 by 126 percent, and then decreased by 39 percent between 1998 and 2000. The overall rate of import growth in the 1990s is only 3.6 percent annually. The trends in both variables, exports and imports, seem to reflect the impact of the economic slowdown that began with the Asian Crisis of 1997. For the recent period, the macroeconomic evolution seems to be a more important explanatory variable of trade flows than the impact of the trade liberalization undertaken as a result of the UR.

Table 11. Agricultural exports and imports (US$ million)

Source: FAOSTAT. Exports do not include fish products. 2000 values are estimated by the author from Webb and Fernandez-Baca (2001).

The description above of a habitual agricultural trade deficit changes dramatically if we account for exports of fishing products (Table 12). In this case, the huge deficit of the 1990s turns into a significant surplus in the food trade balance.

Table 12. Peru: Exports of fishing products (US$ million)

Source: Webb and Fernandez-Baca (2001).

One important point to make regarding export performance is that there has been a substantial diversification of exports of agricultural commodities during the 1990s. Data on total agricultural exports (to all markets) show that “nontraditional” exports increased more rapidly than “traditional” exports (coffee, cotton, sugar), which are actually decreasing in volume and value for the latter part of the period. Since 1996, the value of non-traditional agricultural exports is higher than traditional exports, and their share is increasing (Table 13). The country is facing important changes in consumer preferences in export markets. US consumers are changing their preferences in favour of natural products and healthy food and against fatty foods and meat. The consequent effects on exports reflect the expansion of the market for natural products and some healthy foods (fruits). This explains the growth of the most dynamic non-traditional exports (asparagus, mangoes, grapes, marigold, cochineal).

Table 13. Traditional and non-traditional agricultural exports (US$ million)

Source: Webb and Fernandez-Baca (2001). Exports do not include fishing products. The figures for total exports here are only slightly different from the FAOSTAT values.

Data on total agricultural imports show that there is a certain trend in the value of imports during the 1990s, with a peak in 1997-1998. This peak is explained by El Niño, which created a domestic food shortage and a corresponding increase in the demand for imports.

Table 14 presents data on agricultural imports for the most important commodities divided into two periods: 1991-95 and 1996-2000. It is assumed that the former is the pre-UR period and the latter the post-UR period. The Peruvian food import bill has definitely gone up after the Marrakesh Agreement. Total value of imports increased by 37 percent from the five-year period 1991-1995 to the five-year period 1996-2000. However, it would be hard to argue that this is due to the implementation of UR commitments. More sensible explanations are: (1) there is a natural trend in food import growth owing to population increases and income gains in Peru, and (2) the impacts of El Niño phenomenon in 1997-1998 caused a decrease in domestic food output and a corresponding enlargement of the demand for imports.

Table 14. Evolution of value, volume and unit value of agricultural imports

Source: Webb and Fernandez-Baca (2001).

The next step is to compare the corresponding evolution of agricultural imports in volume terms. Table 14 also presents the data on import volume for the most important commodities in the two defined periods: 1991-1995 and 1996-2000. The total volume of imports increased by 36 percent from the five-year period 1991-1995 to the five-year period 1996-2000. The total volume increased from 14.8 million tonnes in the former period to 20 million tonnes in the latter period. The conclusion is that the volume increase is similar to the value increase of food imports, implying that agricultural import prices in the post-UR period are more or less similar to the previous period. Unit import prices can be calculated for the 12 commodities included. The prices are similar for both periods except for fruits (23 percent fall) and for wheat flour (23 percent rise). In fact, if one were to compute a Laspeyres price index, the results would be an index equal to 99 in the period 1996-2000 (100 in the first period). These prices are in nominal terms, so they represent a fall in real terms between the two periods.

3.3 Direction of trade^[89]

Exports

Data used in this study provide information on the trend and fluctuations in agricultural and food exports. The data are presented for each important export commodity for the period 1991-2000. To take account of the direction of trade, the data are presented for the most important export commodities destined for three important markets of Peru: United States, EU and CAN.

Table 15 presents a sample of most important agricultural exports to the Andean Group countries. The five most important export items in the period 1991-2000 are: Fishmeal (23012010), Other fish preparations (16042000), Sardines (16041300), Fish fillets (03042000) and Cotton fabric (denim) (52094200). Note these are mostly fish products. The total value of exports increased from US$21.4 million to US$41.6 million in the period 1991-2000, which represents a 7.3 percent average growth rate. A peak is achieved in 1997 (US$84 million), which is explained by higher sales of fishmeal, fish preparations, and cotton fabric.

Table 15. Peru’s exports to CAN countries (US$ thousand)

Source: CAN Secretariat.

Table 16 presents a sample of the most important agricultural exports to the United States, which is the most important trade partner of Peru. The five most important export items in the period 1991-2000 are: Coffee, ground (09011100), Fish fillets (03060000), Sugar (17011190), Asparagus (07092000) and Fishmeal (23012010). The total value of exports increased from US$121 million to US$210 million in the period 1991-2000 (15.9 percent average growth rate). A peak, equal to US$321 million, was reached in 1997, which is substantially explained by higher coffee prices. Note the vigorous growth of asparagus exports to the US market during the whole period.

Table 16. Peru’s exports to the United States (US$ thousand)

Source: CAN Secretariat.

Table 17 presents a sample of most important agricultural exports to the EU, which is the second most important trade partner of Peru. The five most important export items in the period 1991-2000 are: Fishmeal (23012010), Coffee, ground (09011100), Asparagus (07092000), Fish fillets (03042000) and Fish oil (15042010). The total value of exports increased from US$199 million to US$606 million in the period 1991-1997 (21.4 percent average growth rate) and then decreased to US$460 million in the year 2000. The 1997 peak is explained by higher coffee prices, and by higher sales of fishmeal and fishoil.

Table 17. Peru’s exports to the EU (US$ thousand)

Source: CAN Secretariat.

In order to place these trade flows in context, Table 18 shows the direction of trade with Peru’s main trading partners over time. The table presents data on the most important commodities divided into two periods 1991-1995 and 1996-2000 (we assume that these are the pre-UR and post-UR period, respectively). One conclusion is that trade is growing most strongly for the EU market (58 percent growth between periods) and the United States market (56 percent rise between periods), helped by improved duty-free access to both markets during this period. As a result, the Andean Group market has become less important for these agricultural commodities.

Table 18. Peru’s exports to principal markets (US$ thousand)

Source: Estimated from previous tables.

Imports

The direction of imports is shown through data for the main import sources of Peru: United States, EU and CAN.

Table 19 presents a sample of the most important agricultural imports from the Andean Group countries. The five most important import items in the period 1991-2000 are: Sugar and products (17019900, 17041010, 17049010), Soycake (23040000), Cotton tops (52010000), Soy oil (15079000), and Soymeal (12081000). The total value of imports increased from US$69 million to US$169 million in the period 1991-1997 (17.8 percent average growth rate) but then decreased to US$65 million in the year 2000. The 1997 import peak is explained by higher bills for sugar, cotton and animal feed.

Table 19. Peru’s imports from the Andean Group (US$ thousand)

Source: CAN Secretariat.

Table 20 presents a sample of most important agricultural imports from the United States, which is the most important source of imports for Peru. The five most important import items in the period 1991-2000 are: Wheat (10011090), Maize (10059011); Rice (10063000, 10062000); Soycake (23040000) and Fertilizers (31053000). The total value of imports increased from US$58 million to US$313 million in the period 1991-1999 (20.4 percent average growth rate) but then decreased to US$173 million in the year 2000. The 1999 import peak is explained by higher purchases of grains and animal feed.

Table 20. Peru’s imports from the United States (US$ thousand)

Source: CAN Secretariat.

Table 21 presents a sample of the most important agricultural imports from the EU. The four most important import items in the period 1991-2000 are: Milk powder (04021090, 04022119), Alcoholic beverages (22083000), Barley (10030090) and Other food products (21069090). The total value of imports increased from US$15 million to US$39 million in the period 1991-1998 (13.5 percent average growth rate) but then decreased to US$29 million in the year 2000. The 1998 import peak is explained by higher purchases of milk and grains.

Table 21. Peru’s imports from the EU (US$ thousand)

Source: CAN Secretariat.

As with exports, we present an overall table of imports showing the direction of trade with Peru’s main partners over time. Table 22 presents import values for the most important commodities divided into the periods 1991-1995 and 1996-2000 (pre-UR and post-UR period, respectively). The origin of imports is highly diversified, with the three partners supplying different commodities. Trade is growing most strongly with the United States (109 percent rise between periods). Import trade is growing slowly with the Andean Group (36 percent growth between periods) and the EU (28 percent growth between periods).

Table 22. Peru’s imports from important countries (US$ thousand)

Source: Estimated.