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Peruvians plan for trade agreement implementation
By Jennifer M. Latzke Peru is a country on the rise. Through political initiatives, there is an economic boom. Gross domestic productis expected to grow by more than seven percent in 2007, and the government is trying to manage its economy with better tax collection and decentralization initiatives that will bring about more small businesses. Driving through the streets of Lima, one can see the affect of foreign investment, with signs for popular U.S. businesses dotting the cityscape. However, there is still a long way for the Peruvian government to go to fully wipe out poverty across the nation. In some areas, the policy has worked well, reducing poverty by up to 37 percent in the past five years or so. Nationally, though, poverty has only been reduced by 5 percent. And, while the "middle class" in Peru makes about $3,500 per year, more than half of the population lives on less than $2 per day. For Peru, trade agreements are one way the country can improve and stabilize its economy. And, in talking with government officials and businessmen, the recently ratified U.S.-Peru Trade Promotion Agreement, which takes the place of the Andean Trade Preferences and Drug Eradication Act, is one step toward helping this nation. A done deal The U.S.-Peru Trade Promotion Agreement is a done deal. It's been ratified by the Peruvian Congress and by both houses of the U.S. Congress. All that's left is for both the U.S. and Peru to implement changes to comply with the agreement. Peru is preparing by reviewing and updating its own legislation, and updating its infrastructure. Peru is also working to comply with requirements within the agreement for intellectual property rights (IPR) protection, which should be implemented by July 1. IPR protections, for example, will cover the pharmaceuticals and entertainment industries and halt the production of generic drugs and pirated DVDs. The goal for both nations is to have implementations steps completed by Jan. 1, 2009. U.S. Agricultural Attaché to Peru Eugene Philhower was on the negotiations team that created the agreement. He explained the agreement was embraced by most of the Peruvian agricultural industry, and especially its horticultural sector. Peru is the biggest exporter of high value agricultural products on the Pacific Rim, such as asparagus and coffee. "On the coast, where it's more of a desert and growers use water management to turn the desert into asparagus and avocado, dairy and grape production, the economy is booming," Philhower said. "In the Highlands, where it's more subsistence agriculture with local producers growing potatoes, corn and trees, many fought this ag agreement tooth and nail." Those farmers wanted $40 million in payments but the Peruvian government has decided to use that money to improve the country's transportation infrastructure. "The advantage of trading agricultural products with Peru is that it brings a stable economy to foreign investors," Philhower said. Local growers can plan their production choices with a more predictable market. This benefits growers and the country in general, he said. Another benefit to improving trade with Peruvian farmers is that by increasing the agricultural production in the country, the labor force is migrating from the illegal coca plantations in the jungles to legitimate agricultural production. "Cocaleros," or the coca leaf growers, pressure farmers to work in their processing operations. Farmers may want to get out of the business, but they would face violent retaliations, Philhower said. In areas where there is violence, the government will be less likely to implement schools and services. Plus, the economies of scale show that coca can be marketed for $35 per pound, whereas berry production, for example, brings in 35 cents per pound, Philhower explained. U.S. wheat market is bright The market opportunity for U.S. wheat is great because most Peruvian farmers raise little wheat, and millers and bakers have found it's easier and less costly to buy wheat from the U.S., Philhower said. America is also Peru's largest trading partner, accounting for nearly 18 percent of the country's imports, and accepting about 30 percent of Peru's exports. The Peruvian market is growing, and grocery stores are growing more prominent throughout the country. Most grocers have a bakery on the premises and specialize in artisan breads traditional to Peru. "There was a great market in Peru for U.S. wheat in 2007," Philhower said. U.S. wheat had a market share of 36 percent or greater, or sales of $200 million. And, Peruvian millers and bakers like the high quality wheat they can buy from the United States. The trade agreement declares 90 percent of products duty free, and creates trade quotas for sensitive products. Wheat will have duty-free access to Peru right away, Philhower explained. Wheat consumption in Peru is encouraging, Philhower added. Peruvians consume a lot of pasta in comparison to other Latin American countries. The Peruvian diet also includes a lot of rice and potatoes, and President Alan Garcia has declared 2008 the International Year of the Potato. However, there is a push among Peruvians to consume more traditional Peruvian wheat breads. Annual per capita bread consumption is about 70 pounds. Overall, the free trade agreement will be a tremendous benefit to American agriculture, Philhower said. "There will be duty free access immediately for wheat, beef and more," he added. Additionally, the improved relations between the two countries will benefit U.S. wheat growers and Peru millers and bakers for years to come. Jennifer M. Latzke can be reached by phone at 620-227-1807, or by e-mail at jlatzke@hpj.com. This is the second in a series of articles from Jennifer's recent trip to Latin America with members of the board of U.S. Wheat Associates. Future articles will feature the tour's stops in San Jose, Costa Rica; and Mexico City, Mexico. To view her online blog of the trip, or to see previous articles, visit www.hpj.com. 6 Star Midwest Ag 4/28/08 1 B
Date: 4/25/08
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