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New markets for agricultural mechanization: the "discovery" of Peru

Unlike other South American countries, which are still affected by economic imbalances and political variables generating uncertainties, Peru presents a stabilized system and a constant economic growth. The agricultural production is consistent and largely oriented to foreign markets, while the demand for mechanization is potentially very high

by Alessio Nanni
May - June 2016 | Back

While Brazil is suffering from the deep political crisis that split the country into two factions and Ve­nezuela lives one of the most difficult moments of its history, the new millennium Peru seems to resist the wave of crisis that involved the whole globalized world. In the past, the economy of South America has already been crossed by deep internal turmoil mainly caused by the rise of military governments in the ‘80s and serious debt crisis in the ‘90s that heavily hindered the growth. However, the beginning of the XXI century represented for South America a renaissance. This century has brought deep changes such as the consolidation of democracy and the adoption of new policies of trade openness, although these events have not occurred everywhere at once and were not all characterized by a long duration. The case of Peru is a clear example of a stable model of growth over time. This country emerged as one of the economies of the subcontinent with a major and constant growth, a current trend next to its potential level and a GDP that has almost doubled since 2002, that marks an average percentage increase of 6% per year over the past decade. According to the report published by the IMF, the Peruvian economy can be considered as the most dynamic in the region, with an estimated growth around 3.5% in 2016 and 4% in 2017. Despite the deep financial crisis that hit the global economy, Peru was able to maintain positive growth rates, proving to be less vulnerable to the dynamics of the external economic environment. Of great importance were the pragmatism and the cautious macroeconomic policies adopted by the actual government and the Central Bank of Peru. The strong points of the Peruvian economy derive not only from the abundance of natural resources and precious metals – such as gold and copper – but also from its solid fiscal position, the strong financial system and reliable monetary institutions which have been essential for the consolidation of growth. Specifically, the country has a low rate of inflation, a currency that remains strong and stable and increasing exchange reserves which have created a favourable economic climate. A turning point in this regard is shown by the decreasing levels of country risk that are transforming Peru into a “magnet” for foreign investment. Although the economic situation of the country and the future forecasts are very positive, some risks remain. In the short term, the Peruvian economy still seems vulnerable to external performance: a strong decrease of the Chinese growth – with China as the main trading partner of the country – as well as the falling foreign demand and the resulting price reduction of raw materials, could cause an economic slowdown in the medium term. In this sense, the diversification of export markets and the large number of economic cooperation and free trade agreements signed with crucially important trading partners such as the United States, China and recently the EU, are of great importance. In addition, the start of a growth path based on less fragile areas, the focus on the industrialization of the country and the economic diversification could reduce the risks arising from the changes of the international economic system. In this sense, the forecasts suggest a strong improvement of the agro-industrial sectors, fishery and mining (both for the reactivation of mines and the entry into production of new ones). Although 2016 is an election year, great investment projects (such as the Lima Metro – lines 3 and 4 – , the southern gas pipeline and Chincheros Airport) have been scheduled. The agro-industrial sector in particular seems to be one of the main engines of the Peruvian economy: in 2015 livestock breeding increased by 2.2% with a positive forecast for 2016 with a rate of 2.6%, confirming the trend displayed in the last five years. According to the Ministry of Agriculture, 30% of the national territory is dedicated to agriculture and livestock, with a total area of 38 millions 742 thousand hectares. The products that occupy the main surfaces are coffee, potatoes, corn, bananas and rice. The agro-industrial part of the Peruvian economy is divided into two types of offer: on the one hand, the well-established production of coffee, sugar cane, cotton, corn, potatoes, rice and bananas; on the other hand the modern, more diverse and industrialized activity related to the cultivation, collection, storage and processing of products.

Coffee, cocoa, rice, sugar cane, corn and cotton are the “standard” production of large farms, which are the basis of an integrated production with the businesses operating from the early stage (sowing, cultivation and breeding) until the final stage of collection, processing and promotion. At the present moment, after the reforms implemented by the previous governments, the small and medium-sized businesses are spreading throughout the country with a financial structure that appears still weak, due to the lack of capital and financial resources as well as of modern tools and machinery necessary to a rapid launch, able to respond to the demands of both domestic and international markets. The development of the sector also had a strong knock-on effect on imports of agricultural machinery and equipment. In 2015, despite all the problems and the natural hazards, the export of agricultural products amounted to 5.04 billion USD, while the import of machinery amounted to 454 million USD, the 69% of which corresponded to tractors, with a huge part related to the transportation sector and the mining industry, 7% to equipment and irrigation systems, 6% to machines and equipment for feed preparation and another 6% to equipment to cut, clean, classify, collect, thresh, etc. As for the Italian part, in 2015 the second main item was represented by tractors for agricultural use. The figures of the sector reflect the substantial complementarity between Italy (among the most important producers and exporters worldwide of industrial goods, machinery and know-how) and Peru (producer of raw materials and interested in the purchase of machinery, capital goods and know-how). As for the representatives and stakeholders operating in the agro-industrial sector, the majority of farms has constantly updated technical staff, able to identify and propose those machinery and plants necessary to production development and modernization. Representatives, importers and distributers are still very important, due to the possibility of operating at the technical departments of large businesses and at smaller manufacturing sites, suggesting solutions and proposing the purchase of specific equipment.

The Peruvian government is extremely conscious of the potential of the agro-industrial sector, that has substantial room for improvement and profit; for this reason the range of programmes in support of the sector is rich and varied: from Purchasing for Progress, which guarantees purchases from the state to the businesses, in order to develop the agricultural production of the country and  promote the economic and social growth of small-cap companies, to the initiatives of the firm Sierra Exportadora, which has already had some positive results assisting small and medium-sized businesses located in the Sierra in the cultivation of products mainly destined for export. The new project is well integrated with the already existing micro-cap businesses, increasing the offer and the strong demand for socio-economic development from local communities. The main stakeholder is the Ministry of Agriculture, which has developed a plan for a total amount of 180 million USD (in the four years 2014/18) intended for financing of the purchase of machinery, equipment for laboratories, technical courses for farmers. In these opportunities can be seen growing positioning margins for the production of the Italian agricultural mechanization and for these reasons the Peruvian situation requires a gradual monitoring, as a precondition of actions aimed at the promotion of Made in Italy and at seizing the opportunities that the country has to offer, starting up an ongoing dialogue between the Peruvian demand and the Italian offer.

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