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Latin America: Friend or Foe to U.S. Agribusiness?

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U.S. free trade agreements with Colombia, Panama and Peru can help boost U.S. agricultural exports.

BY JOHN PRICE
InfoAmericas

American agriculture exports have stopped growing, in spite of record global demand spurred by growing affluence in developing countries.  America’s declining presence in global food markets is owed to diminishing competitiveness of American exports, the result of higher handling and transportation costs facing American farmers whose products historically entered every market around the globe.  The U.S. domestic transportation system is increasingly configured to handle in-bound containerized value added imports, to the neglect of the agriculture sector that not so long ago was the largest customer of U.S. rail and maritime shipping services.

LATIN AMERICA,THE THREAT

As U.S. exports have stalled, South American food exports have grown upwards of ten times faster than U.S. competitors in key agrifood segments such as soybeans, rice, corn and wheat.  The competitive advantages of Brazil and Argentina as agrifood powerhouses are compelling.  Land prices in central and northern Brazil are 1/10th of those in the American mid-west.  Semi-skilled agricultural labor costs less than 1/5th the level of American farm help.  Climate conditions are favorable, with far less reliance on irrigation than U.S. farming.  Today, South America has approximately 48 percent of the world’s arable land and utilizes less than 2/3rds of it. There is room to expand, even without damaging valuable rainforests.

A lack of investment and poor transportation infrastructure to bring harvests to market has held back Brazilian agriculture historically. Land reform and a much improved domestic financial system are helping Brazil capture record investment in its agrifood sector. Close to $20 billion in new investment has poured into the sector in the last 12 months alone, thanks in no small part to the burgeoning sugar-based ethanol industry, in which Brazil boasts global technological and cultivation leadership. 

An emerging player in global horticulture markets is Peru, which has proven its competitiveness in the asparagus market. In the seven months of the year that Peru enjoys duty-free access to the U.S. market, it dominates with 90 percent import share.  Peru is home to a uniquely productive climate that is capturing the attention and investment of agri-players from Chile, Spain and the U.S.  Peruvian yields of fruits and vegetables are almost twice that of Chile when equally modern farming techniques are introduced.

LATIN AMERICA, THE OPPORTUNITY

Mexico, Colombia, Venezuela, the Caribbean and parts of Central America together are net importers of agricultural products and are faithful customers of American food exports, to the tune of $15 billion per year.  From 2002 to 2006, these markets, known colloquially as “northern Latin America” led all regions in the world in new agricultural sales, adding more than $3 billion in annual purchases. 

NAFTA and now CAFTA are very effective vehicles for opening up markets to U.S. agrifood exports.  Pending trade agreements between the U.S. and Panama, Peru and Colombia promise to have an equally positive impact on U..S agrifood exports. After Mexico, Colombia leads the region in U.S. agrifood imports, in spite of existing import barriers. U.S. agrifood exporters have been some of the most vocal supporters of the free trade agreement with Colombia for they understand the competitive advantage they hold vis-à-vis Colombian producers.

LATIN AMERICA, THE LOGISTICS PARTNER

Besides being a growing market for U.S. agrifood that can divert exports southward instead of westward, Latin America may also provide U.S. agrifood shippers with new options that will help to lower U.S. Pacific coast port congestion and lower shipping costs and delivery times. 

Panama will spend $5.2 billion from 2006 to 2014 to double the capacity of its canal from 300 to 600 million PCUMS tons.  Panama will also expand its air cargo capabilities so that it can combine air and ship capacity for horticulture and other high value exports that require timely deliveries.    Not to be outdone, Mexico is planning a $2 billion dry canal that will connect the Salina Cruz and Coatzacoalcos ports via high speed cargo train service.  An agreement is signed between the Mexican company MHFM Transport Holding and vendors from Japan like Fukken, Takenaka, Japan Railroad Technology Center, Kawasaki and Toshiba, and various smaller Chinese suppliers.    A third alternative will be a dry canal through El Salvador and Honduras.  The government of El Salvador has already raised $300 million and begun construction of a four lane highway that connects its leading Pacific port with a sister Gulf of Mexico port in Honduras.  Further north, the Pacific Mexican ports of Manzanillo and Lázaro Cárdenas connect to U.S. western and central markets via a much improved rail system that was privatized in the late 1990s.  Both ports operate presently at 60 percent of capacity, offering immediate solutions to some of the California port congestion.

TIME TO ENGAGE

As long as U.S. agrifood relies on west coast American ports to get to its export markets, it remains at the mercy of an inefficient and overpaid long-shore men union, the trade tax advocates within the California political machinery and rising port fees. To provide U.S. farmers with some negotiating leverage, they should be looking south. Opening up the markets of Colombia, Panama and Peru through trade agreements will provide immediate new business sold through southern and Atlantic seaboard ports.  Greater market development efforts in Mexico and Central America will provide the same southerly diversion of U.S. agriculture exports. 

For agrifood investors, seeking higher ROI in Brazilian, Argentine, Uruguayan, Chilean and Peruvian agriculture will help strengthen the long-term competitiveness of U.S. agribusiness.  ADM and Cargill have already invested heavily in Brazil and Argentina, betting on ethanol and Asian grain demand respectively.  It is time for their peers to follow. 

John Price is president of InfoAmericas. This article originally appeared in the company's Tendencias magazine. Republished with permission.

 

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