Required Report - public distribution

**Date:** 12/30/2004

**GAIN Report Number:** PE5001

PE5001

**Peru**

**Grain and Feed**

**Annual**

**2005**

**Approved by:**

![](media/image1.wmf)Melinda D. Sallyards

U.S. Embassy

**Prepared by:**

Gaspar E. Nolte

**Report Highlights:**

Wheat production in MY 2005 (July/June) is forecast at 162,000 MT. Wheat
imports in CY 2004 reached 1.4 MMT, the U.S. was the largest wheat
supplier with 885,325 MT. Corn production is estimated at 1.6 MMT for MY
2004 (October/September). Corn consumption in CY is estimated at 2.45
MMT. Rice production in MY 2005 (January/December) is forecast at 1.45
MMT.

Includes PSD Changes: Yes

Includes Trade Matrix: Yes

Annual Report

Lima \[PE1\]

\[PE\]

**Executive Summary**

Wheat production in MY2005 (July/June) is forecast at 162,000 MT and
will probably remain around that level in the near future. At about 39
kilograms per year, bread consumption remains at very low levels
compared with consumption in other countries in the area. Flour
production in CY 2004 is estimated at 980,000 MT, of which 65 percent
was used for bread flour and the rest for pasta and crackers. Pasta
production in CY 2004 was around 290,000 MT. Peru's wheat imports in CY
2004, reached 1.4 MMT, a slight increase compared to the previous year.
With 885,325 MT, the U.S. was, for the second year in a row, the largest
wheat exporter to Peru.

Corn production in Peru is estimated at 1.6 MMT for MY
(October/September) 2004/2005, an increase of ten percent compared to
the previous year. Harvested area in CY 2004 is estimated at 255,000
hectares and 180,000 hectares for yellow and starchy corn respectively.
Corn consumption is estimated at 2.45 MMT in CY 2005. Peru imported
1.018 MMT of yellow corn in CY 2004, of which 820,830 MT came from
Argentina. U.S. corn imports recovered almost four fold to 188,900 MT.

Rice production for MY (January/December) 2005 is forecast at 1.45 MMT
(milled basis), an increase of 3.6 percent compared to the previous
year. The severe drought that affected Peru in CY 2004 caused a
significant reduction in rice production (14 percent). Nevertheless,
this reduction was not as sharp as estimated at the beginning of the
year due to planting in new areas. Peru imported 52,217 MT of rice in CY
2004, a significant increase from the 15,000 MT imported the previous
year.

MERCOSUR officially accepted Peru's request to become an associated
member (country with which MERCOSUR is interested in signing an FTA) in
December 2003. Though the annexes specifying the tariff reduction
schedule is still under negotiations, grains will probably be one of the
most important agricultural trade issues, especially for Argentina.
Under the MERCOSUR agreement Peru could grant tariff preferences to
Argentine wheat and corn, and Uruguayan rice making U.S. grains less
competitive in this market.

+---------------+------+------+------+------+------+------+---------+
| ####          |      |      |      |      |      |      |         |
| ### PSD Table |      |      |      |      |      |      |         |
+---------------+------+------+------+------+------+------+---------+
| **Country**   | **Pe |      |      |      |      |      |         |
|               | ru** |      |      |      |      |      |         |
+---------------+------+------+------+------+------+------+---------+
| **Commodity** | ##   |      |      |      | (    |      |         |
|               | #### |      |      |      | 1000 |      |         |
|               | ## W |      |      |      | HA)( |      |         |
|               | heat |      |      |      | 1000 |      |         |
|               |      |      |      |      | MT)  |      |         |
+---------------+------+------+------+------+------+------+---------+
|               | 2003 | Rev  | 2004 | Esti | 2005 | Fore | UOM     |
|               |      | ised |      | mate |      | cast |         |
+---------------+------+------+------+------+------+------+---------+
|               | USDA | Post | USDA | Post | USDA | Post |         |
|               | Offi | Esti | Offi | Esti | Offi | Esti |         |
|               | cial | mate | cial | mate | cial | mate |         |
|               | \[O  | \[N  | \[O  | \[N  | \[O  | \[N  |         |
|               | ld\] | ew\] | ld\] | ew\] | ld\] | ew\] |         |
+---------------+------+------+------+------+------+------+---------+
| **Market Year |      | 07/  |      | 07/  |      | 07/  | MM/YYYY |
| Begin**       |      | 2003 |      | 2004 |      | 2005 |         |
+---------------+------+------+------+------+------+------+---------+
| Area          | 140  | 140  | 140  | 128  | 0    | 135  | (1000   |
| Harvested     |      |      |      |      |      |      | HA)     |
+---------------+------+------+------+------+------+------+---------+
| Beginning     | 200  | 265  | 200  | 253  | 200  | 177  | (1000   |
| Stocks        |      |      |      |      |      |      | MT)     |
+---------------+------+------+------+------+------+------+---------+
| Production    | 189  | 189  | 190  | 151  | 0    | 162  | (1000   |
|               |      |      |      |      |      |      | MT)     |
+---------------+------+------+------+------+------+------+---------+
| TOTAL Mkt.    | 1488 | 1357 | 1400 | 1400 | 0    | 1450 | (1000   |
| Yr. Imports   |      |      |      |      |      |      | MT)     |
+---------------+------+------+------+------+------+------+---------+
| Jul-Jun       | 1488 | 1357 | 1400 | 1400 | 0    | 1450 | (1000   |
| Imports       |      |      |      |      |      |      | MT)     |
+---------------+------+------+------+------+------+------+---------+
| Jul-Jun       | 984  | 908  | 0    | 900  | 0    | 900  | (1000   |
| Import U.S.   |      |      |      |      |      |      | MT)     |
+---------------+------+------+------+------+------+------+---------+
| TOTAL SUPPLY  | 1877 | 1811 | 1790 | 1804 | 200  | 1789 | (1000   |
|               |      |      |      |      |      |      | MT)     |
+---------------+------+------+------+------+------+------+---------+
| TOTAL Mkt.    | 36   | 36   | 35   | 37   | 0    | 40   | (1000   |
| Yr. Exports   |      |      |      |      |      |      | MT)     |
+---------------+------+------+------+------+------+------+---------+
| Jul-Jun       | 36   | 36   | 35   | 37   | 0    | 40   | (1000   |
| Exports       |      |      |      |      |      |      | MT)     |
+---------------+------+------+------+------+------+------+---------+
| Feed Dom.     | 125  | 55   | 125  | 30   | 0    | 25   | (1000   |
| Consumption   |      |      |      |      |      |      | MT)     |
+---------------+------+------+------+------+------+------+---------+
| TOTAL Dom.    | 1641 | 1522 | 1555 | 1590 | 0    | 1600 | (1000   |
| Consumption   |      |      |      |      |      |      | MT)     |
+---------------+------+------+------+------+------+------+---------+
| Ending Stocks | 200  | 253  | 200  | 177  | 0    | 149  | (1000   |
|               |      |      |      |      |      |      | MT)     |
+---------------+------+------+------+------+------+------+---------+
| TOTAL         | 1877 | 1811 | 1790 | 1804 | 0    | 1789 | (1000   |
| DISTRIBUTION  |      |      |      |      |      |      | MT)     |
+---------------+------+------+------+------+------+------+---------+

  ----------------------------------------- -----------------------------
  **Import Trade Matrix**                   

  **Country**                               Peru

  **Commodity**                             Wheat

  Time Period                               CY 2004

  Imports for:                              

  U.S.                                      885,325

  Others                                    

  Argentina                                 182,312

  Canada                                    318,447

  France                                    5,966

  Total for Others                          506,725

  Others not Listed                         3,999

  Grand Total                               1,396,049
  ----------------------------------------- -----------------------------

Units: Metric Tons

**WHEAT**

# Production

Wheat is a minor crop in Peru. Production in MY2005 (July/June) is
forecast at 162,000 MT. Most wheat produced in Peru, grown in the
southern highlands of the Andes under very rudimentary cultural
practices, is soft, not suitable for milling and consumed directly in
soups and purees.

Crop area for MY 2005 is forecast at 135,000 hectares. Wheat area in
Peru may vary significantly from year to year depending on prices and
producers profit expectations and alternative crops such as barley and
oats. Average yields in 2004 were 1.12 MT per hectare, somewhat lower
than the previous year due to the lack of rain.

Though Peru is not an important wheat producer, Alicorp, Peru's largest
wheat miller, has started a program to produce durum wheat in Arequipa
(about a thousand kilometers south of Lima). Currently they are
producing around 8,000 MT but expect to reach 25,000 in the upcoming
years. Alicorp provides improved seed and technical assistance to local
producers and contracts production in advance.

## 

# Consumption

With about 39 kilograms per annum, bread consumption remains at very low
levels compared with consumption in other countries in the area. Most
bread is purchased fresh in bakeries, and only 250 grams of bread per
annum are consumed in loafs. With 10 kilograms per capita, Peru
continues to be the second largest pasta consumer in South America. The
Peruvian cracker and cookie consumption is still very low, around 65,000
MT per year worth almost \$90 million.

There are 22 wheat mills in Peru, which operate at about 62 percent of
their milling capacity. Flour production in CY 2004 is estimated at
980,000 MT, of which 65 percent was used for bread flour and the rest
for pasta and crackers. Pasta production in CY 2004 was around 290,000
MT.

Post estimates that wheat consumption will gradually increase
accompanying population growth. Another source of increased wheat
consumption will be an increase of bread consumption due to economic
recovery.

# Trade

Peru's wheat imports in CY 2004, reached 1.4 MMT, a slight increase
compared to the previous year. With 885,325 MT, the U.S. was, for the
second year in a row, the largest wheat exporter to Peru followed by
Canada with 318,447 and Argentina with 182,312 MT. The average price of
U.S. wheat in CY 2004 was \$185.07 (c.i.f. basis), about 4.2 percent
over the price of Argentine wheat and 4.4 percent below the price of
Canadian wheat. Until a few years ago, Peru imported mostly hard red
winter wheat, but due to the industry's development they have become a
sophisticated customer and are now purchasing soft, spring, white and
DNS wheat for blending.

In CY 2004, Peru exported 9,500 MT of wheat flour, of which 44 percent
went to Argentina, 32 percent was exported to Bolivia and 24 percent to
Brazil; 19,400 MT of pasta, mostly to Chile and Haiti; and 14,700 MT of
cookies and crackers.

# Policy

Wheat is assessed 17 percent import duty, one the highest in the region.
Wheat is also assessed 19 percent value-added tax (VAT). Import duties
for wheat is a highly political issue in Peru. Agricultural producers
are constantly urging the government to maintain high levels of
protection alleging that wheat and wheat products are substitutes of
potato, which is Peru's staple product. Nevertheless producers have not
been able to support their point with sound and reliable studies.

MERCOSUR officially accepted Peru's request to become an associated
member in December 2003. Though the annexes specifying the tariff
reduction schedule is still under negotiations, grains will probably be
one of the most important agricultural trade issues, especially for
Argentina. Under the MERCOSUR agreement Peru could grant tariff
preferences to Argentine wheat, making U.S. wheat less competitive in
this market.

+----------------+------+------+------+------+------+------+--------+
| ###            |      |      |      |      |      |      |        |
| #### PSD Table |      |      |      |      |      |      |        |
+----------------+------+------+------+------+------+------+--------+
| **Country**    | **Pe |      |      |      |      |      |        |
|                | ru** |      |      |      |      |      |        |
+----------------+------+------+------+------+------+------+--------+
| **Commodity**  | **Co |      |      |      | (    |      |        |
|                | rn** |      |      |      | 1000 |      |        |
|                |      |      |      |      | HA)( |      |        |
|                |      |      |      |      | 1000 |      |        |
|                |      |      |      |      | MT)  |      |        |
+----------------+------+------+------+------+------+------+--------+
|                | 2003 | Rev  | 2004 | Esti | 2005 | Fore | UOM    |
|                |      | ised |      | mate |      | cast |        |
+----------------+------+------+------+------+------+------+--------+
|                | USDA | Post | USDA | Post | USDA | Post |        |
|                | Offi | Esti | Offi | Esti | Offi | Esti |        |
|                | cial | mate | cial | mate | cial | mate |        |
|                | \[O  | \[N  | \[O  | \[N  | \[O  | \[N  |        |
|                | ld\] | ew\] | ld\] | ew\] | ld\] | ew\] |        |
+----------------+------+------+------+------+------+------+--------+
| **Market Year  |      | 10/  |      | 10/  |      | 10/  | M      |
| Begin**        |      | 2003 |      | 2004 |      | 2005 | M/YYYY |
+----------------+------+------+------+------+------+------+--------+
| Area Harvested | 545  | 525  | 590  | 580  | 0    | 590  | (1000  |
|                |      |      |      |      |      |      | HA)    |
+----------------+------+------+------+------+------+------+--------+
| Beginning      | 96   | 15   | 167  | 110  | 117  | 90   | (1000  |
| Stocks         |      |      |      |      |      |      | MT)    |
+----------------+------+------+------+------+------+------+--------+
| Production     | 1471 | 1448 | 1600 | 1600 | 0    | 1630 | (1000  |
|                |      |      |      |      |      |      | MT)    |
+----------------+------+------+------+------+------+------+--------+
| TOTAL Mkt. Yr. | 1100 | 1097 | 1000 | 950  | 0    | 900  | (1000  |
| Imports        |      |      |      |      |      |      | MT)    |
+----------------+------+------+------+------+------+------+--------+
| Oct-Sep        | 1100 | 1097 | 1000 | 950  | 0    | 900  | (1000  |
| Imports        |      |      |      |      |      |      | MT)    |
+----------------+------+------+------+------+------+------+--------+
| Oct-Sep Import | 0    | 153  | 0    | 250  | 0    | 250  | (1000  |
| U.S.           |      |      |      |      |      |      | MT)    |
+----------------+------+------+------+------+------+------+--------+
| TOTAL SUPPLY   | 2667 | 2560 | 2767 | 2660 | 117  | 2620 | (1000  |
|                |      |      |      |      |      |      | MT)    |
+----------------+------+------+------+------+------+------+--------+
| TOTAL Mkt. Yr. | 0    | 0    | 0    | 0    | 0    | 0    | (1000  |
| Exports        |      |      |      |      |      |      | MT)    |
+----------------+------+------+------+------+------+------+--------+
| Oct-Sep        | 0    | 0    | 0    | 0    | 0    | 0    | (1000  |
| Exports        |      |      |      |      |      |      | MT)    |
+----------------+------+------+------+------+------+------+--------+
| Feed Dom.      | 2300 | 2210 | 2450 | 2300 | 0    | 2320 | (1000  |
| Consumption    |      |      |      |      |      |      | MT)    |
+----------------+------+------+------+------+------+------+--------+
| TOTAL Dom.     | 2500 | 2450 | 2650 | 2570 | 0    | 2540 | (1000  |
| Consumption    |      |      |      |      |      |      | MT)    |
+----------------+------+------+------+------+------+------+--------+
| Ending Stocks  | 167  | 110  | 117  | 90   | 0    | 80   | (1000  |
|                |      |      |      |      |      |      | MT)    |
+----------------+------+------+------+------+------+------+--------+
| TOTAL          | 2667 | 2560 | 2767 | 2660 | 0    | 2620 | (1000  |
| DISTRIBUTION   |      |      |      |      |      |      | MT)    |
+----------------+------+------+------+------+------+------+--------+

+-----------------------------------+----------------------------------+
| **Import Trade Matrix**           |                                  |
+-----------------------------------+----------------------------------+
| **Country**                       | ###### Peru                      |
+-----------------------------------+----------------------------------+
| **Commodity**                     | Corn                             |
+-----------------------------------+----------------------------------+
| Time Period                       | CY 2004                          |
+-----------------------------------+----------------------------------+
| Imports for:                      |                                  |
+-----------------------------------+----------------------------------+
| U.S.                              | 188,900                          |
+-----------------------------------+----------------------------------+
| Others                            |                                  |
+-----------------------------------+----------------------------------+
| Argentina                         | 820,830                          |
+-----------------------------------+----------------------------------+
| Bolivia                           | 5,504                            |
+-----------------------------------+----------------------------------+
| Total for Others                  | 826,334                          |
+-----------------------------------+----------------------------------+
| Others not Listed                 | 2,300                            |
+-----------------------------------+----------------------------------+
| Grand Total                       | 1,017,534                        |
+-----------------------------------+----------------------------------+

Units: Metric Tons

**CORN**

**Production**

Corn production in Peru is estimated at 1.6 MMT for MY
(October/September) 2004/2005, an increase of ten percent compared to
the previous year. Among the several types of corn produced in Peru, the
most important varieties are starchy corn, with production estimated at
218,000 MT in CY 2004, which is used directly in human consumption, and
yellow corn with production estimated at 1.2 MMT which is primarily used
in the animal feed industry.

Harvested area in CY 2004 is estimated at 255,000 hectares and 180,000
hectares for yellow and starchy corn respectively compared with 280,000
hectares and 207,000 hectares in CY 2004. This reduction in harvested
area is the result of a dry year, especially in the northern region of
Peru. Yields are expected to be around 3.9 MT per hectare for yellow
corn and 1.2 MT per hectare for starchy corn. Corn is mainly grown along
the Peruvian coast and in the rainforest on the eastern slopes of the
Andes.

**Consumption**

Peru's 26 million chicken-per-month poultry market is the major user of
yellow corn. Corn is about 65 percent of the chicken feed. Corn
consumption is estimated at 2.45 MMT in CY 2005. With a consumption of
about 642,235 MT in CY 2004, poultry meat continues to be one the
cheapest source of protein in the Peruvian diet. Nevertheless, poultry
consumption fell 2.3 percent in CY 2004 compared to the previous year
due to a supply contraction originated by higher input prices during the
first semester. Poultry consumption is expected to recover in CY 2005 to
at least 270,000 MT.

A major problem poultry producers have to face is competition from
informal producers, who account for about 30 percent of the poultry meat
industry. Informal producers, who are not able to import corn due the
lack of appropriate registration with the tax authority, rely solely in
local corn. These producers are constantly undermining formal producers
profitability with their lower prices, which result from not paying
taxes.

**Trade**

Peru imported 1.018 MMT of yellow corn in CY 2004, of which 820,830 MT
came from Argentina. U.S. corn imports recovered almost four fold to
188,900 MT. In the recent past, Argentine corn has been around \$10 to
\$15 cheaper than U.S. corn, about a third of that price difference was
due to cheaper freight from Argentina. Since October 2003, freights from
Argentina increased sharply, almost disappearing the price difference.

Post forecasts corn imports to fall to 900,000 MT in MY 2005, this
reduction is explained by higher local production. Nevertheless we
expect U.S. corn exports to increase to 250,000 MT mainly due to
increased freight prices from Argentina.

Peru imported about 3,000 MT of dry distillers grain (DDG) in 2004 for
feed trials. According to the industry the trials were satisfactory.
Post believes that DDG could become an interesting product to recapture
some of the feed protein and energy market (soybean and corn).

Feed producers and large poultry operations prefer to use Argentine or
Peruvian corn over U.S. corn. They claim that Argentine and Peruvian
corn is harder and comes with less broken kernels. Poultry producers
often pay a \$10 per MT premium for Peruvian corn. Average price of
locally produced corn was around \$152 in the last quarter of 2004.

**Policy**

Though the GOP does not have any direct subsidy or assistance program to
encourage corn production, there has been some support through rotating
credit funds. The Ministry of

Agriculture continues to support an agreement between corn and poultry
producers to encourage corn production in the eastern region of the
country. This area is excellent for corn production, but transportation
infrastructure is poor and in some cases does not exist.

Corn production began increasing sharply in 1997 due to a GOP's import
substitution program. This program, which granted some tax benefits to
livestock operations outside of Lima that used only local corn, has been
successful so far. In some areas, particularly on the eastern slopes of
the Andes, the few poultry producers in the area are planting and
purchasing local corn. On the coast, the third largest poultry producer
in the country is purchasing only local corn, through an agreement
signed with corn producers in the area. The largest poultry producer in
Peru, San Fernando, with about forty percent of total poultry production
has started some trials to produce corn.

Corn imports are assessed 12 percent import duty on CIF basis, plus a
variable levy applied under the Price Band System. The Price Band System
is an import tax, that depends on international prices, which assures
that the import price of specific commodities, after payment of the
levy, will equal a predetermined minimum import price. This tax, which
is imposed on certain \"sensitive\" products, is expressed in dollars
per metric ton. Currently the variable levy for corn is \$8 per MT.

+------------+------------+-------+---------+--------------+----------+
| **Variable |            |       |         |              |          |
| Levy Under |            |       |         |              |          |
| the        |            |       |         |              |          |
| Peruvian   |            |       |         |              |          |
| Price Band |            |       |         |              |          |
| System**   |            |       |         |              |          |
|            |            |       |         |              |          |
| **(Second  |            |       |         |              |          |
| Semester   |            |       |         |              |          |
| 2004)**    |            |       |         |              |          |
+------------+------------+-------+---------+--------------+----------+
| **Date**   |            | **    |         | **Ref.       | **Levy** |
|            |            | Price |         | Price**      |          |
|            |            | B     |         |              | **(      |
|            |            | and** |         | **(c.i.f.)** | \$/MT)** |
+------------+------------+-------+---------+--------------+----------+
| **From**   | **To**     | **Fl  | **Ce    |              |          |
|            |            | oor** | iling** |              |          |
+------------+------------+-------+---------+--------------+----------+
| 12/01/04   | 12/15/04   | 120   | 138     | 113          | 8        |
+------------+------------+-------+---------+--------------+----------+
| 11/16/04   | 11/30/04   | 120   | 138     | 117          | 3        |
+------------+------------+-------+---------+--------------+----------+
| 11/01/04   | 11/15/04   | 120   | 138     | 116          | 4        |
+------------+------------+-------+---------+--------------+----------+
| 10/16/04   | 10/31/04   | 120   | 138     | 117          | 3        |
+------------+------------+-------+---------+--------------+----------+
| 10/01/04   | 10/15/04   | 120   | 138     | 115          | 5        |
+------------+------------+-------+---------+--------------+----------+
| 09/16/04   | 09/30/04   | 120   | 138     | 116          | 4        |
+------------+------------+-------+---------+--------------+----------+
| 09/01/04   | 09/15/04   | 120   | 138     | 120          | 0        |
+------------+------------+-------+---------+--------------+----------+
| 08/16/04   | 08/31/04   | 120   | 138     | 127          | 0        |
+------------+------------+-------+---------+--------------+----------+
| 08/01/04   | 08/15/04   | 120   | 138     | 124          | 0        |
+------------+------------+-------+---------+--------------+----------+
| 07/16/04   | 07/31/04   | 120   | 138     | 122          | 0        |
+------------+------------+-------+---------+--------------+----------+
| 07/01/04   | 07/15/04   | 120   | 138     | 129          | 0        |
+------------+------------+-------+---------+--------------+----------+

![](media/image2.wmf)

+----------------+------+------+------+------+------+------+--------+
| ###            |      |      |      |      |      |      |        |
| #### PSD Table |      |      |      |      |      |      |        |
+----------------+------+------+------+------+------+------+--------+
| **Country**    | **Pe |      |      |      |      |      |        |
|                | ru** |      |      |      |      |      |        |
+----------------+------+------+------+------+------+------+--------+
| **Commodity**  | **R  |      |      |      | (    |      |        |
|                | ice, |      |      |      | 1000 |      |        |
|                | Mill |      |      |      | HA)( |      |        |
|                | ed** |      |      |      | 1000 |      |        |
|                |      |      |      |      | MT)  |      |        |
+----------------+------+------+------+------+------+------+--------+
|                | 2003 | Rev  | 2004 | Esti | 2005 | Fore | UOM    |
|                |      | ised |      | mate |      | cast |        |
+----------------+------+------+------+------+------+------+--------+
|                | USDA | Post | USDA | Post | USDA | Post |        |
|                | Offi | Esti | Offi | Esti | Offi | Esti |        |
|                | cial | mate | cial | mate | cial | mate |        |
|                | \[O  | \[N  | \[O  | \[N  | \[O  | \[N  |        |
|                | ld\] | ew\] | ld\] | ew\] | ld\] | ew\] |        |
+----------------+------+------+------+------+------+------+--------+
| **Market Year  |      | 01/  |      | 01/  |      | 01/  | M      |
| Begin**        |      | 2004 |      | 2005 |      | 2006 | M/YYYY |
+----------------+------+------+------+------+------+------+--------+
| Area Harvested | 280  | 280  | 290  | 310  | 0    | 315  | (1000  |
|                |      |      |      |      |      |      | HA)    |
+----------------+------+------+------+------+------+------+--------+
| Beginning      | 422  | 77   | 200  | 44   | 40   | 32   | (1000  |
| Stocks         |      |      |      |      |      |      | MT)    |
+----------------+------+------+------+------+------+------+--------+
| Milled         | 1200 | 1367 | 1300 | 1400 | 0    | 1450 | (1000  |
| Production     |      |      |      |      |      |      | MT)    |
+----------------+------+------+------+------+------+------+--------+
| Rough          | 1739 | 1981 | 1884 | 2029 | 0    | 2101 | (1000  |
| Production     |      |      |      |      |      |      | MT)    |
+----------------+------+------+------+------+------+------+--------+
| MILLING RATE   | 6900 | 6900 | 6900 | 6900 | 0    | 6900 | (1000  |
| (.9999)        |      |      |      |      |      |      | MT)    |
+----------------+------+------+------+------+------+------+--------+
| TOTAL Imports  | 80   | 52   | 70   | 50   | 0    | 40   | (1000  |
|                |      |      |      |      |      |      | MT)    |
+----------------+------+------+------+------+------+------+--------+
| Jan-Dec        | 80   | 52   | 70   | 50   | 0    | 40   | (1000  |
| Imports        |      |      |      |      |      |      | MT)    |
+----------------+------+------+------+------+------+------+--------+
| Jan-Dec Import | 0    | 4    | 0    | 5    | 0    | 2    | (1000  |
| U.S.           |      |      |      |      |      |      | MT)    |
+----------------+------+------+------+------+------+------+--------+
| TOTAL SUPPLY   | 1702 | 1496 | 1570 | 1494 | 40   | 1522 | (1000  |
|                |      |      |      |      |      |      | MT)    |
+----------------+------+------+------+------+------+------+--------+
| TOTAL Exports  | 2    | 2    | 5    | 2    | 0    | 10   | (1000  |
|                |      |      |      |      |      |      | MT)    |
+----------------+------+------+------+------+------+------+--------+
| Jan-Dec        | 2    | 2    | 5    | 2    | 0    | 10   | (1000  |
| Exports        |      |      |      |      |      |      | MT)    |
+----------------+------+------+------+------+------+------+--------+
| TOTAL Dom.     | 1500 | 1450 | 1525 | 1460 | 0    | 1490 | (1000  |
| Consumption    |      |      |      |      |      |      | MT)    |
+----------------+------+------+------+------+------+------+--------+
| Ending Stocks  | 200  | 44   | 40   | 32   | 0    | 22   | (1000  |
|                |      |      |      |      |      |      | MT)    |
+----------------+------+------+------+------+------+------+--------+
| TOTAL          | 1702 | 1496 | 1570 | 1494 | 0    | 1522 | (1000  |
| DISTRIBUTION   |      |      |      |      |      |      | MT)    |
+----------------+------+------+------+------+------+------+--------+

+----------------------------------+-----------------------------------+
| **Import Trade Matrix**          |                                   |
+----------------------------------+-----------------------------------+
| **Country**                      | ###### Peru                       |
+----------------------------------+-----------------------------------+
| **Commodity**                    | Rice, Milled                      |
+----------------------------------+-----------------------------------+
| Time Period                      | CY 2004                           |
+----------------------------------+-----------------------------------+
| Imports for:                     |                                   |
+----------------------------------+-----------------------------------+
| U.S.                             | 3,824                             |
+----------------------------------+-----------------------------------+
| Others                           |                                   |
+----------------------------------+-----------------------------------+
| Uruguay                          | 38,777                            |
+----------------------------------+-----------------------------------+
| Bolivia                          | 3,801                             |
+----------------------------------+-----------------------------------+
| Taiwan                           | 2,195                             |
+----------------------------------+-----------------------------------+
| Total for Others                 | 44,773                            |
+----------------------------------+-----------------------------------+
| Others not Listed                | 3620                              |
+----------------------------------+-----------------------------------+
| Grand Total                      | 52,217                            |
+----------------------------------+-----------------------------------+

**RICE**

**Production**

Rice production for MY (January/December) 2005 is forecast at 1.45 MMT
(milled basis), an increase of 3.6 percent compared to the previous
year. Rice in Peru is surface irrigated and depends on the supply of
water draining from rivers in the Andes Mountains. Most of the rice in
Peru is harvested April through July. Harvested area for MY 2005 is
estimated at 315,000 hectares.

The severe drought that affected Peru in CY 2004 caused a significant
reduction in rice production (14 percent). Nevertheless, this reduction
was not as sharp as estimated at the beginning of the year due to
planting in new areas. The San Martin region, a rainforest in the
eastern slopes of the Andes, has developed as a new rice producing area.
Several new mills have been installed and new rice traders have settled
causing rice price to boost frfom \$132 to \$271 per MT, rice production
in this area grew 35 percent in CY 2004.

Historical rice production areas in Peru are Lambayeque and Piura in the
northern region, and Arequipa in the south. Average yields in CY 2004
was 6.7 metric tons of paddy rice per hectare, but some farmers have
yields as high as 14 metric tons per hectare. Since most of the
production is carried out by small producers, rice quality and yields
vary greatly depending on input levels which in turn depend on prices
and economic conditions.

**Consumption**

Per capita rice consumption is estimated at about 52 kilograms. Rice is
sold traditionally in small markets, weighed out and bagged from 50
kilos sacks. In recent years, with the expansion of supermarket chains
in Peru, several consumer habits, including the purchase of rice, has
changed. There is a growing demand for prepackaged one-kilogram bags of
rice, and recently in ¾ kilogram bags, which now total 20 percent of all
rice sales. Higher quality rice, including U.S. rice, is generally
marketed in this way.

A few years ago, a Peruvian importer began distributing Uncle's Ben
precooked rice, which he sold to the supermarket chains. But due to the
high prices and lack of product knowledge he had to halt imports.
Currently there is some aromatic rice in the market but they are very
expensive and are targeted for exclusive restaurants.

**Trade**

Peru imported 52,217 MT of rice in CY 2004, a significant increase from
the 15,000 MT imported the previous year. This import increase was the
result of less rice production due to the lack of rain. Uruguay
continued to be the leading exporter to the Peruvian market with 38,777
MT. The U.S. was a minor supplier with only 3,824 MT. The largest rice
importer, who owns the leading brand for bagged rice, has a long-term
relationship with an Uruguayan rice exporter which not only provides
good quality rice at a competitive price, but also grants them credit.
Since the GOP implemented a ban on Asian rice based on phytosanitary
issues, the imported rice market has been shared by the U.S. and
Uruguay, but now is been taken over almost entirely by Uruguay.

Some Peruvian importers are interested in purchasing paddy rice from the
U.S., which is currently banned for SPS reasons by SENASA (the Peruvian
SPS authority). Peru has banned paddy rice for many years on the ground
that the hulls could transmit pests that are not present in Peru. Khapra
Beetle is the principal pest of concern to Peru. This is more likely to
occur if the paddy rice is sold as seed rather than milled, but Peru
claims it cannot control the use of the rice, thus the total ban. Post
is working closely with the industry and SENASA to lift this ban.
Currently a pest risk assessment is being done which will hopefully
result in elimination of the ban and additional sales of U.S. rice.

Due to a reduced crop in CY 2004, rice smuggling to Ecuador was reduced
significantly. Post estimates that only 5,000 MT were "exported" to
Ecuador in CY 2004.

**Policy**

Though production has grown sharply during the last years due to the
government's import substitution program, it has been an economic
disaster for producers. Having flooded the market with rice and with
large carry over stocks and no possibility of exporting, other than what
is smuggled into Ecuador through the northern border, prices have
plummeted making almost impossible the recovery of producers'
investment.

As a consequence, farmers are not able to honor their credits and in
many cases are losing their land. Banks are more reluctant than ever to
grant credits to rice producers who have to turn to millers or other
informal lenders for credits at much higher interest rates.

This situation has improved, for producers that did have water, in CY
2004. Due to the drought, rice prices at farm gate increased 82 percent
to \$286 per MT. But the excess supply situation is expected to resume
in the upcoming years.

Rice imports are assessed 25 percent import duty on CIF plus a variable
levy applied under the Peruvian Price Band System. The Price Band System
is an import tax, that depends on international prices, which assures
that the import price of specific commodities, after payment of the
levy, will equal a predetermined minimum import price. This tax, which
is imposed on certain \"sensitive\" products, is expressed in dollars
per metric ton. The current levy for milled rice is \$5 per MT.

+-----------+-----------+-------+---------+-----------+-------------+
| *         |           |       |         |           |             |
| *Variable |           |       |         |           |             |
| Levy      |           |       |         |           |             |
| Under the |           |       |         |           |             |
| Peruvian  |           |       |         |           |             |
| Price     |           |       |         |           |             |
| Band      |           |       |         |           |             |
| System**  |           |       |         |           |             |
|           |           |       |         |           |             |
| **(Second |           |       |         |           |             |
| Semester  |           |       |         |           |             |
| 2004)**   |           |       |         |           |             |
+-----------+-----------+-------+---------+-----------+-------------+
| **Date**  |           | **    |         | **Ref.    | **Levy**    |
|           |           | Price |         | Price**   |             |
|           |           | B     |         |           | **(\$/MT)** |
|           |           | and** |         | **(       |             |
|           |           |       |         | c.i.f.)** |             |
+-----------+-----------+-------+---------+-----------+-------------+
| **From**  | **To**    | **Fl  | **Ce    |           |             |
|           |           | oor** | iling** |           |             |
+-----------+-----------+-------+---------+-----------+-------------+
| 12/01/04  | 12/15/04  | 318   | 393     | 314       | 5           |
+-----------+-----------+-------+---------+-----------+-------------+
| 11/16/04  | 11/30/04  | 318   | 393     | 306       | 16          |
+-----------+-----------+-------+---------+-----------+-------------+
| 11/01/04  | 11/15/04  | 318   | 393     | 296       | 28          |
+-----------+-----------+-------+---------+-----------+-------------+
| 10/16/04  | 10/31/04  | 318   | 393     | 291       | 35          |
+-----------+-----------+-------+---------+-----------+-------------+
| 10/01/04  | 10/15/04  | 318   | 393     | 282       | 46          |
+-----------+-----------+-------+---------+-----------+-------------+
| 09/16/04  | 09/30/04  | 318   | 393     | 273       | 58          |
+-----------+-----------+-------+---------+-----------+-------------+
| 09/01/04  | 09/15/04  | 318   | 393     | 279       | 50          |
+-----------+-----------+-------+---------+-----------+-------------+
| 08/16/04  | 08/31/04  | 318   | 393     | 280       | 49          |
+-----------+-----------+-------+---------+-----------+-------------+
| 08/01/04  | 08/15/04  | 318   | 393     | 282       | 46          |
+-----------+-----------+-------+---------+-----------+-------------+
| 07/16/04  | 07/31/04  | 318   | 393     | 280       | 49          |
+-----------+-----------+-------+---------+-----------+-------------+
| 07/01/04  | 07/15/04  | 318   | 393     | 269       | 63          |
+-----------+-----------+-------+---------+-----------+-------------+

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