Peru Pulls Off Market Success Story

By Gaspar E. Nolte and Maria Eugenia Vizcarra

Peru's bustling economy, engendered by tough-minded market reforms, is good news for U.S. exporters wanting to expand their markets in South America. Of the $2 billion in goods and services that the United States exported to Peru in 1996, agricultural, fish and forestry products made up over $300 million.

Revamped Economy Prospers

Since the election of Peru's President Fujimori in 1990, the country's economy has spiraled upwards. Once in office, the Fujimori administration began massive reforms, eliminating nearly all controls on trade, investment and foreign exchange.

In further keeping its financial ducks in a row, Peru has adhered to the strict monetary guidelines of the International Monetary Fund (IMF). These guidelines are enabling Peru to make full repayment to its commercial bank creditors. The administration's economic restructuring program has reduced domestic deficit financing through tax reform and elimination of subsidies.

A further enhancement: The government has succeeded in privatizing almost all previously state-owned enterprises.

These market-oriented policies brought major changes to the agricultural sector, including land tenure laws, credit availability, domestic and foreign investment, market access and increased production.

The expanding market economy, fueled by growth in sales of metals and minerals (mainly copper), fish, agricultural and petroleum products, has provided Peru with a strong gross domestic product (GDP), estimated at $65 billion in 1997. The 1997 growth rate is projected to weigh in at 7 percent, with 6 percent projected for 1998.

With current agricultural exports of $700 million and an outstanding economic restructuring record in his back pocket, President Fujimori is aiming for $1 billion in agricultural exports by 2000.

Agriculture Expects Hit From El Niño

But increasing the country's output carries some attendant risks. The biggest wild card this year is El Niño and the irregular ocean currents and weather patterns that could disrupt fish harvesting and crop production--cotton, rice and corn in the north and cattle and horticultural crops in the south.

While Peru=s agricultural sector offers great promise, continuing problems from a less market-friendly era--land titling, credit unavailability and production inefficiency--still hamper global competition. The Peruvian government hopes to remedy some of the problems through legislation, but consensus among its members of Congress has been hard to come by.

Bulk Commodities Lead U.S. Imports

With its own economy in good shape and needing raw materials, Peru has been able to ratchet up its purchases of U.S. agricultural products.

Peru's imports of wheat reached $161.6 million worth in 1996 (Peruvian customs data). Contributing to this upward turn in wheat exports: USDA's GSM-102 short-term export credit guarantee program and reduced supplies from competing sources.

The United States expects to export 350,000 metric tons of wheat to Peru in 1998, 50,000 tons over 1997 export figures.

Peru's poultry sector has increased dramatically in the past few years, leading to increased use of corn for feed. U.S. corn exports are expected to top 450,000 tons in 1998, up from 400,000 tons in 1996.

Though 17 percent of Peru's cropland is planted to rice, the country still imported around 250,000 tons in 1997, a fifth of this coming from the United States.

Peru's growing economy has encouraged greater consumption of milk. Though the country's domestic dairy industry is developing, it's not yet capable of totally supporting local consumption. Thus Peru now imports 42 percent of its milk products, with New Zealand and the European Union sharing billing as principal suppliers.

This growing industry has piqued the interest of U.S. livestock and genetics suppliers; sales are already up.

Snack Food Sales Rising

U.S. snack foods have enjoyed popularity with Peruvian consumers since their introduction in 1991. Peruvian firms, noting this popularity, have improved their competitive posture by improving the taste, packaging and quality of their own goods, which already possess a price edge over U.S. products. U.S. snacks currently hold a 30-percent market share compared to domestic companies' 65-percent share.

So far, Frito Lay is the only U.S. snack manufacturer planning a joint venture with a domestic company. Once the plant swings into operation, its products should not only be price-competitive with local goods, but will still carry the coveted U.S. brand name.

Supermarket Sector Growing

There are 30 supermarkets in Peru, most of them in Lima. In 1996, sales in this retail food sector surpassed $600 million. By the year 2000, sales could double. At that point, supermarket sales will constitute a 30-percent slice of food product retail sales, double the current share.

Since supermarkets cater to middle- and upper income consumers who can afford the higher priced U.S. goods, U.S. exporters might want to make this sector their number one priority.

Regarding the other food retail sectors: Mini-marts carry some U.S. imports, but in limited supplies; corner stores and street vendors stick to domestics, seldom carrying the more expensive U.S. products.

Supermarket owners with their share of market include: Wong (48 percent), Santa Isabel (28.5 percent), Metro (13.8 percent), Maxi (4.9 percent) and Top Market (4.9 percent). These stores are mostly domestically owned.

The distribution system for imported foods in Peru is multi-tiered, adding to the final price of a product. After tariffs, other taxes and distribution expenses, products end up with a 75-percent markup, resulting in prices that are almost twice as much as domestic prices.

U.S. exporters with their high-quality products can counter the Peruvian manufacturer's less expensive product with several measures:

• Promotions: Peruvian customers respond readily to product advertising and promotions. Give-aways, contests and in-house tastings are especially effective.
• Market Research: U.S. export firms stand to improve their market share if they cater to Peruvian tastes and cultural preferences.
• Spanish Labeling: Peruvian consumers read nutrition information and find serving suggestions helpful.
• Attractive Packaging: Peruvian consumers appreciate products with well-designed packaging and some type of security feature, like the popular Pringle's canister.
• Distributors: And, last but not least, working with a reputable distributor with market knowledge eases a new exporter's market entry.

Import Regulations and Packaging

U. S. exporters must factor in imported food tariff rates in Peru ranging between 12 and 25 percent. An 18-percent general sales tax further adds to product cost. Also, an additional selective consumer tax tacks on 30 percent to beer imports and 10 percent to wine imports.

U.S. exporters must register their processed foods in a Sanitary Registry managed by the General Directory of Medicines (DIGESA) of the Board of Health. The registration document can be obtained from:

Oficina de Tramite Documentario
Las Amapolas 350
Urb. San Eugenio, Lince
Lima 14-Peru

Information required for the registration includes:

• Name and address of the importer and/or distributor and the country of origin of the product.
• Name of the product--brand name and exact description of the product.
• Type of packing (as authorized by Peruvian regulations).
• Net content in mass or volume in International Standard (IS) units. Liquids must be in volume, solids in weight and semi-solid or viscous foods in weight or volume; solid foods packed in liquids must be measured in the drained weight.
• Lot numbers.
• A sample of the proposed label must be submitted. Additional labeling requirements--besides the normal brand, product and nutrition information--must include the Sanitary Registration number, expiry date, and the name and Unified Registry of the importer or general distributor.
• A free trading certificate from country of origin, dated within six months, must accompany the imports.

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Gaspar Nolte is an agricultural specialist and Maria Eugenia Vizcarra is a marketing agricultural assistant with the Foreign Agricultural Service's Office of Agricultural Affairs in Lima, Peru. Tel.: (511) 434-3042; Fax: (511) 434-3043.

Last modified: Thursday, October 14, 2004 PM