Market and Trade Data
CAFTA-DR Helps Dominican Republic’s Food Processing
Industry
October 2006
Printable version
By
Fradbelin Escarraman
See also . .
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FAS Report
DR6015
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Fundamentals in Place
for Growth |
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With
9.1 million residents, half of them under 25 years
old, the Dominican Republic is the largest
democratic country in the Caribbean. Per capita
income was estimated at $3,200 in 2005. Gross
domestic product growth was estimated at 9 percent
in 2005 and forecast at 8 percent in 2006. |
The food
processing sector in the Dominican Republic has been
expanding rapidly, with great potential for U.S.
companies that already supply about half of its annual
$400 million worth of ingredient imports. A healthy
economic picture, particularly in the tourist and HRI
(hotel, restaurant, and institutional) sectors, is
coalescing with the new CAFTA-DR (Central America Free
Trade Agreement-Dominican Republic) to provide the
conditions for tremendous sector growth.
As
evidenced by their market share, U.S. suppliers are
regarded as reliable sources in terms of volume,
standards, and quality. The largest competitors for the
United States outside the Caribbean region include
Spain, the Netherlands, Venezuela, Canada, and Chile,
with Central and South American countries also vying for
sales.
Local Products Still Protected, Expensive
Despite
being a food deficit country, the Dominican Republic
uses nontariff barriers such as import permits and
domestic price quotas to protect its producers of dairy
and meat products, beans, rice, sugar, chicken and pork.
Consequently, these products are priced significantly
higher than on the world market. CAFTA-DR sets
tariff-rate quota regimes for these products to phase
out over 5-20 years.
Why CAFTA-DR Is a
Good Deal
for U.S. Suppliers |
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The
United States exported a total $567 million worth
of agricultural, forestry, and seafood products to
the Dominican Republic in 2005. CAFTA-DR promises
improved market access for U.S. suppliers and
investment opportunities to further enhance the
food processing sector.
Currently, the Central American countries and the
Dominican Republic are allowed to charge very high
tariffs, limited only by WTO (World Trade
Organization) commitments. The average allowed
tariff on agricultural products is 40 percent in
the Dominican Republic. Applied tariffs may be
lower on specific products, but in many cases
these tariffs still restrict U.S. exports.
Moreover, there had been no assurance the Central
American countries would not raise tariffs to
their WTO limits.
In contrast, under
the CBI (Caribbean Basin Initiative), of which the
Dominican Republic is a member, the United States
allows over 99 percent of imports from members to
enter the United States duty-free, effectively
preserving tariff protection only for out-of-quota
imports of products under U.S. tariff-rate quota
programs.
A
primary U.S. objective in the CAFTA-DR
negotiations was to change the "one-way-street" of
duty-free access currently enjoyed by CAFTA-DR
countries on most of their exports to a
"two-way-street." |
To reduce
cost of domestic inputs, some processors are vertically
integrating their operations by producing their own
products, or avoiding middlemen. In addition to buying
products, they also may provide financing and technical
assistance to producers. The largest producers have
direct distribution systems to end consumers.
Food Processors Concentrated in Urban Areas
Of 500-plus food processors, 40 percent are located in
the capital Santo Domingo, with 14 percent in Santiago.
The remaining processors are scattered throughout the
country. The fastest growing segments in 2005 based on
sales were dairy (22.3 percent), beer (16.4 percent),
edible oils (14.9 percent), and pasta (10 percent).
Local
consumers and the HRI sector are contributing to the
demand for high quality products. As the economy
improves, imports of consumer-oriented products have
grown, raising the bar for quality domestic production.
As a massive rural to urban migration continues and more
women join the workforce, demand for consumer-oriented
products will increase.
The country’s food processing industry has made a big
effort to improve standards and efficiency so it can
compete domestically and internationally. Businesses are
restructuring and investing in new technology to
modernize production, distribution, marketing, and
information systems.
The prospect of CAFTA-DR is also bringing in more
investment money as countries outside the region invest
in food processing plants to take advantage of the
agreement and the strategic position of the Dominican
Republic.
Personal Touch Welcome
While most
processors are also importers, many suppliers have local
representatives who maintain relationships with
processors. U.S. companies should be familiar with the
market and know their business contacts well before
reaching a legal agreement. Information about the
market, key contacts, local laws, and business practices
is available through the FAS Office of Agricultural
Affairs at the U.S. Embassy in Santo Domingo.
Products that promise more growth include flour, pasta,
and bakery goods. Ingredients used in dairy products,
edible oils, beer, juices, and soft drinks also show
strong potential. Though not present in significant
quantities yet and protected by import permits, future
sales potential exists for chicken products, turkey
meat, pork trimmings and fat, and rice.
The author is an agricultural marketing assistant
with the FAS Office of Agricultural Affairs at the U.S.
Embassy in Santo Domingo, Dominican Republic. E-mail:
AgSantoDomingo@usda.gov
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