the peruvian asparagus industry

Las Dalias 136 Miraflores . [email protected] Phone 511- 242-1199 / 242-5541 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, 2004

I.- THE PERUVIAN ASPARAGUS INDUSTRY 1.1. Peruvian asparagus exports to the United States in the year 2002 were US$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 of Peruvian asparagus is exported to the US between the months of August and December. During this period, there is practically no domestic production of asparagus in the US ( Chart 1 ) Chart 1: Peru Imports to the USA 2002 ( in US $ thousand ) Asparagus to the USA Fresh Frozen Canned Total World $140,647.00 $5,323.00 $2,782.00 $148,752.00 Peru $62,059.00 $3,819.00 $1,474.00 $67,352.00 Participation 44% 72% 53% 45%

Peru / Total agricultural imports 0.16% Source: Department of Commerce, US Census Bureau, Foreign Trade Statistics 1.2. Asparagus is the most important agricultural export in Peru. It is a value added and labor intensive crop. In the last years asparagus production has increased its demand for labor in Peru. Annually, the industry directly employs over 50,000 workers in the different production areas. From this number an estimated 30,000 jobs are for women which contribute with an extra salary for low income families in the area, and most significant, around 40% of all workers in the asparagus industry come from the mountain areas of Peru that are close to where the coca leaves originate, Therefore, these workers from the mountain areas have found alternative 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 very important. Non-skilled unemployed workers in the Peruvian mountains are basically the population that used to seek employment in the illegal coca production areas. The asparagus industry offers a legal alternative for those workers. The Department of Ica (150 miles south Lima) is where the greatest part of the green asparagus crop is grown, harvested and processed. Until the early


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 the rain forest and working in illicit activities such as coca leaf cultivation and drug trafficking in general or migrating to the coast, specifically to Ica, and working in asparagus production. The same situation occurs with the Department of La Libertad, second largest asparagus production area in Peru, which is an important alternative of legal agricultural activity for the inhabitants of the lower Huallaga, an important coca cultivating area. 1.4.As we can appreciate from the employment figures in the Peruvian asparagus industry, it will contribute significantly to the Free Trade Agreement ( FTA ) primary goal 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 the battle against terrorism and will be successful only if new legal jobs are created as an alternative to illegal activities. The asparagus industry in Peru is an example of how this policy is successful. 1.6. Peru is committed to winning the war on drugs. The Peruvian Government has demonstrated significant success in this effort, reducing the illicit coca crops from 115,300 hectares ( 1995 ) to approximately 28,000 hectares in 20031. The only way Peru will be able to continue to move in the right direction is by offering alternative forms of development. 1.7. In Peru, the processed asparagus industry (canned and frozen) competes for raw material with fresh asparagus exporters. It is not true that they can buy cheap raw material due to an excess of production. The key factors for competitiveness is that 90 percent of the processing companies in Peru have invested important amounts of money to develop their own farms in order to achieve an integrated value chain. Additional costs It is true that we have a lower cost of labor in comparison to US growers but it is important to consider that Peruvian products must be transported to the US and pay a very high freight cost. For instance, the air freight cost for an 11 Lb. box of fresh 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 an extra US $ 10 to US $ 15 per shipment for the Pre-notice required by the Act ( to US Customs Brokers ) . These are just examples of several important extra costs that Peruvian asparagus exporters have to pay, compared to US growers. 1.Comisión Nacional para el Desarrollo y Vida sin Drogas ( DEVIDA )


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 STATES 2.1. CONSUMERS´ “FRESH VEGETABLE” PREFERENCE AND YEAR ROUND AVAILABILITY According to the last report to Congress by the General Accounting Office (GAO)2, the extended product availability throughout most of the year, due to Peruvian exports, has been responsible for the rise in per capita US consumption of fresh asparagus. This has benefited the overall consumption of asparagus, domestic as well as imported, resulting in lower prices for consumers and greater production in the US. The figures from this report are clear: the consumption of fresh asparagus in the US has increased 70% since 1990 and consumption of processed asparagus has declined 37% since that year. GAO’s report mentions that “the shift in the per capita consumption of asparagus is part of the general trend toward increased consumer preference for fresh vegetables”. Pricing to the consumer has fallen over $2.00 per pound over last few years (fresh asparagus) and the consumer has the ability to purchase asparagus year-round. Producers of the States of Michigan and Washington of processed asparagus have to deal with the U.S. consumer's preference for fresh asparagus, which benefit fresh asparagus growers of California, the biggest producer. For this reason, Washington producers have been shifting production from processed to fresh asparagus in the last years. According to GAO’s report and the USDA3 the overall production of asparagus in the US has increased in the last years. Peruvian asparagus exports to the US come as fresh, frozen and canned and are mainly green asparagus. It is important to mention that this crop is exported to the US 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 the year, 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). 2GAO “Impacts of the Andean Trade Preference Act on Asparagus Producers and Consumers”. March 2001 3. USDA, “ Vegetables 2000 Summary “


2.2. ADDITIONAL SUPPLY Peruvian asparagus exports represent an additional supply in the US market, it does not replace the American production, and the consumers had benefited from the availability of the different presentations of asparagus all year round. As can be shown below: In the middle of the 90´s to 2003, the American asparagus production had been stable, with 99,000 MT per year with slightly ups and downs (Chart 2) and the monetary value had been increased from US $ 177 millions in 1995 to US $ 198 millions in 2003 (Chart 3). For this reason the American production had been affected 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 2003 TOTAL US 101.2 99.5 101.3 99.0 109.6 106.21 97.80 87.52 95.59 Source: NASS Agricultural Statistics Board Chart 3: US Asparagus Total Value Production (in US$ million) 1995 1996 1997 1998 1999 2000 2001 2002 2003 TOTAL US 177.1 156.6 182.5 199.5 234.1 221.3 230.2 172.9 198.7 Source: NASS Agricultural Statistics Board 2.3 INCOME AND JOBS TO US CITIZENS 2.3.1.Peruvian asparagus in the United States not only benefits American importers and consumers, it also benefits other economic activities, such as shipments to the US and local destinations, specialized storage, sanitary and Customs controls, wholesalers and retailers, and generates substantial income for the Miami Airport and Government Agencies.


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 US economy ( only considering the fresh asparagus presentation ) 2.4 DIVERSIFIED OFFER 2.4.1. With the Peruvian offer the American consumer had benefited from a diversified range of products in all three presentations (canned, frozen and fresh), giving employment to American companies that support the international and local logistics in the commercial chain 2.4.2. The American market for frozen asparagus consumes Peruvian and American product, as well as frozen asparagus from China and Chile. The frozen asparagus from Peru has a higher price than the frozen asparagus produced in the US because we export individually quick frozen (IQF) asparagus that requires more investment in technology and costs more to process and pack compared to the block frozen Wet Pack asparagus produced in the US. Nevertheless, American production of frozen asparagus has been stable in the last five years ( Chart 4 ) representing $ 6.7 million in 1999 and $ 4.6 million in 2003. Peruvian frozen asparagus imports have increased due to the superior quality of IQF asparagus compared to wet pack asparagus. This has benefited US consumers as well as retailers and wholesalers. It is also important to consider that 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 frozen asparagus, has created a new, different market segment. 4. Peruvian Asparagus Importers Association


Chart 4: ASPARAGUS – TOTAL VALUE – 1000 DOLLARS 1999 2003 FOR FREEZING

6,770 4,560

Source: NASS Agricultural Statistics Board III. – OTHER CONSIDERATIONS SIZE OF THE US CANNED INDUSTRY The figures5 show that Peruvian exports of processed asparagus (canned and frozen) in 2000 were 5.3 million lbs., which represents only 2.6% of total US asparagus production of 209.20 million lbs., in the same year. Peruvian main export was fresh green asparagus and has not affected US production: in 2000, total Peruvian asparagus exports to the US were 71 million pounds, which 65.7 million pounds (92.5%) were fresh asparagus. In the same year, US production of fresh asparagus reached 150.4 million pounds, only 8 million pounds more than 1992 production. The canned asparagus imports to the US do not represent an important value considering the size of the market, and the participation of the American canned industry, this can be seen in Chart 5 that shows that in 2002 the total US Peruvian canned asparagus imports were US$ 1.5 million and in this same year the US production for the canning industry was US $ 33.3 million (Chart 6). The Peruvian canned asparagus represented only 4.5 % of the US market. In this sense, it is inaccurate to affirm that the asparagus canned imports from Peru could affect the US production. Chart 5: US Imports of Peruvian Canned Asparagus (in US$ million) Canned vegetables 2002

Asparagus 1.5 Source: Department of Commerce, US Census Bureau, Foreign Trade Statistics 5. American Farm Bureau Report ( 2002 )


Chart 6: US Asparagus Total Value Production (in US$ million) 2003 For Canning 33.26

Source: NASS Agricultural Statistics Board

the peruvian asparagus industry

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