2012-11-12 12:26:42 - New Food research report from Business Monitor International is now available from Fast Market Research
Adverse weather conditions continued to affect Central American agricultural producers through Q312, signalling the ongoing threat of unpredictable and extreme climactic factors to our outlooks for the region. Guatemala's corn and bean crops have been hard hit by persistent drought conditions through 2012, posing a significant threat to the food security of more than 50,000 families.
Central America has also been hit hard by the increase in price of staples such as corn and beans, caused primarily by the droughts in the US. However, the Inter-American Institute for Cooperation on Agriculture has moved to alleviated concerns that the situation may lead to a food crisis in the region of the magnitude of 2007-2008. The institute has stressed that it considers the
phenomenon to be temporary and limited to three crops, corn, soybeans and wheat. The recent trend does, however, highlight the vulnerability of Central American agribusiness to commodity price fluctuations. Central American coffee producers are currently struggling to adapt to the steep fall in coffee revenues since prices peaked in April 2011.
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* The region's economic trajectory remains highly divergent. We have increased our forecasts for Panama's real GDP growth rates to 9.1% year-on-year (y-o-y) in 2012 and 8.0% in 2013. However, the government's recent decision to raise its deficit ceiling is likely to see the country's fiscal deficit increase to 2.4% in 2012 and 2.1% in 2013. Panama's economy remains strong in comparison with other countries in the region. El Salvador's economic outlook continues to deteriorate on the back of weak private consumption and we forecast GDP growth of 1.5% in 2012 and 2.2% in 2013.
* Demand for sugar in Central America is estimated to have increased by 1.2% y-o-y in 2010/11 to 1.91mn tonnes. Growth was strongest in Nicaragua at 3.4% y-o-y. In 2011/12, we see demand growing by 4.1% y-o-y to 1.98mn tonnes, as nominal GDP grows across the region, with Honduras seeing the fastest expansion at 14.0% y-o-y. We see growth slowing to 1.5% y-o-y in 2012/13, with demand levels diverging across the region: from a 1.1% y-o-y decline in Guatemala, to an 8.0% y-o-y increase in Honduras. Over our forecast period to 2016, we see regional demand growth increasing by 10.0% on the 2011 level to 1.99mn tonnes. Growth is forecast to be strongest in Nicaragua and Honduras, at 16.9% and 28.5%, respectively.
* For the region as a whole, coffee production in 2012/13 is forecast to grow by 1.5% y-o-y to 13.94mn bags. Output is forecast to be particularly strong in El Salvador at 22.1% y-o-y, as arabica plants enter the 'on' year in their production cycle. However, production in Honduras is likely to be hit by an outbreak of coffee rust during H212. To 2016, BMI forecasts coffee production in Central America to grow 21.6% on the 2011 level to reach 15.68mn bags. Output will be boosted by work to rejuvenate and replant ageing coffee plantations and modernise production techniques. However, our forecast could be revised down if international coffee prices continue to fall, providing a disincentive for producers to continue to invest in improving yields.
* We see 2011/12 corn production declining by 0.2% on the 2010/11 harvest to reach 3.18mn tonnes. We forecast that production will increase by 1.8% y-o-y in 2012/13 to 3.24mn tonnes, with Nicaragua set to post the strongest growth of 3.2% y-o-y, owing to an increase in area planted. Out to 2015/16, BMI forecasts corn production growth in Central America of 9.2% on 2010/11 levels. However, as recent years have demonstrated, Central American producers are being forced to contend with increasingly extreme and erratic weather conditions, which could cause further significant crop damage going forward.
* Having increased strongly in 2011, beef output for the region is forecast to grow by a more moderate 1.1% y-o-y in 2012 to 394,400 tonnes. To 2016, BMI forecasts beef production in Central America to grow 11.3% on the 2011 levels. Nicaragua will remain the region's most significant producer.
Key Trends And Developments
* Central American exports posted strong growth during the first four months of 2012. Agricultural exports made a significant contribution to overall export growth of 6.8% on the same period in 2011 to US$10.45bn. The export value of coffee, tea, mate and spices grew by 17.6% to US$1.83bn, sugars and sugar confectionery were up by 7.1% to US$741mn, while the value of exports of edible fruit and nuts, citrus peel or melons grew by 10.1% to US$1.05bn.
* In July 2012, the government of El Salvador announced a further US$24mn investment to replant 40,000 acres of land by 2014 as part of the president's Rescue and Development of National Coffee Culture programme. The programme will support farmers to improve production techniques and develop sustainable business and marketing plans. El Salvador also continues to promote the production of speciality coffee - higher quality coffee now accounts for more than half of total exports.
* The free trade agreement (FTA) between Nicaragua and Chile is set to come into force on October 19 2012. Plans are also in the pipeline for a Nicaraguan-Chilean Chamber of Industry, Commerce and Tourism. The second round of negotiations of the controversial FTA between Costa Rica and Colombia began in Bogota in late September. However, a number of agricultural products which both countries export has been excluded from the proposed agreement, including coffee, sugar and bananas.
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