Required Report - public distribution

**Date:** 2/6/2006

**GAIN Report Number:** PE6001

PE6001

**Peru**

**Grain and Feed**

**Annual**

**2006**

**Approved by:**

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

U.S. Embassy

**Prepared by:**

Gaspar E. Nolte

**Report Highlights:**

Wheat production in My 2006 (July/June) is forecast at 170,000 MT. Wheat
imports for CY 2005 reached 1.47 MMT, the U.S. was the largest supplier
with 564,670 MT. Corn production is estimated at 1.42 MMT for MY 2006
(October/September). Rice production for CY 2006 is estimated at 1.55
MMT. The U.S.-Peru free trade agreement will grant important trade
preferences for U.S. grains.

Includes PSD Changes: Yes

Includes Trade Matrix: Yes

Annual Report

Lima \[PE1\]

\[PE\]

**Executive Summary**

**Wheat** Production in MY 2006 (July/June) is forecast at 170,000 MT.
Crop area for MY 2006 is forecast at 128,000 hectares, a two percent
reduction compared to the previous year. Peru's wheat imports in CY
2005, reached 1.47 MMT, the U.S. led the market with 564,670 MT. Peru
exports of crackers and cookies increased 61 percent in 2005 reaching
23,649 MT.

Corn production in Peru is expected at 1.42 MMT for MY
(October/September) 2005/2006, an increase of almost 14 percent compared
to the previous year. Harvested area in CY 2005 was 277,000 hectares and
201,000 hectares for yellow and starchy corn respectively. Peru's 26
million chicken-per-month poultry market is the major user of yellow
corn. Peru imported 1.334 MMT of yellow corn in CY 2005, of which 1.11
MMT came from Argentina. U.S. corn imports increased 12 percent to
215,237 MT.

Rice production for CY 2006 is forecast at 1.55 MMT (milled basis). Peru
imported 125,233 MT of rice in CY 2005, a significant increase from the
52,217 MT imported the previous year. Rice exports from the U.S.
increased by a ten fold to 31,721 MT.

The U.S. and Peru have recently agreed on the text of the Peru Trade
Preference Authority (TPA), a free trade agreement that is expected to
be signed this spring and approved by both Congresses later this year.
U.S. exports of wheat will be granted duty free status immediately and
corn and rice will receive significant duty free import quotas.

+----------------+------+------+------+------+------+------+------+
| ##             |      |      |      |      |      |      |      |
| #### PSD Table |      |      |      |      |      |      |      |
+----------------+------+------+------+------+------+------+------+
| **Country**    | **Pe |      |      |      |      |      |      |
|                | ru** |      |      |      |      |      |      |
+----------------+------+------+------+------+------+------+------+
| **Commodity**  | *    |      |      |      | (    |      |      |
|                | *Whe |      |      |      | 1000 |      |      |
|                | at** |      |      |      | HA)( |      |      |
|                |      |      |      |      | 1000 |      |      |
|                |      |      |      |      | MT)  |      |      |
+----------------+------+------+------+------+------+------+------+
|                | 2004 | Rev  | 2005 | Esti | 2006 | Fore | UOM  |
|                |      | ised |      | mate |      | cast |      |
+----------------+------+------+------+------+------+------+------+
|                | USDA | Post | USDA | Post | USDA | Post |      |
|                | Offi | Est  | Offi | Est  | Offi | Est  |      |
|                | cial | imat | cial | imat | cial | imat |      |
|                | \[O  | e\[N | \[O  | e\[N | \[O  | e\[N |      |
|                | ld\] | ew\] | ld\] | ew\] | ld\] | ew\] |      |
+----------------+------+------+------+------+------+------+------+
| # Mar          |      | 07/  |      | 07/  |      | 07/  | MM/  |
| ket Year Begin |      | 2004 |      | 2005 |      | 2006 | YYYY |
+----------------+------+------+------+------+------+------+------+
| Area Harvested | 128  | 128  | 135  | 131  | 0    | 128  | (    |
|                |      |      |      |      |      |      | 1000 |
|                |      |      |      |      |      |      | HA)  |
+----------------+------+------+------+------+------+------+------+
| Beginning      | 200  | 253  | 200  | 184  | 200  | 169  | (    |
| Stocks         |      |      |      |      |      |      | 1000 |
|                |      |      |      |      |      |      | MT)  |
+----------------+------+------+------+------+------+------+------+
| Production     | 151  | 159  | 160  | 174  | 0    | 170  | (    |
|                |      |      |      |      |      |      | 1000 |
|                |      |      |      |      |      |      | MT)  |
+----------------+------+------+------+------+------+------+------+
| TOTAL Mkt. Yr. | 1449 | 1421 | 1500 | 1480 | 0    | 1520 | (    |
| Imports        |      |      |      |      |      |      | 1000 |
|                |      |      |      |      |      |      | MT)  |
+----------------+------+------+------+------+------+------+------+
| Jul-Jun        | 1449 | 1421 | 1500 | 1480 | 0    | 1520 | (    |
| Imports        |      |      |      |      |      |      | 1000 |
|                |      |      |      |      |      |      | MT)  |
+----------------+------+------+------+------+------+------+------+
| Jul-Jun Import | 627  | 643  | 0    | 700  | 0    | 800  | (    |
| U.S.           |      |      |      |      |      |      | 1000 |
|                |      |      |      |      |      |      | MT)  |
+----------------+------+------+------+------+------+------+------+
| TOTAL SUPPLY   | 1800 | 1833 | 1860 | 1838 | 200  | 1859 | (    |
|                |      |      |      |      |      |      | 1000 |
|                |      |      |      |      |      |      | MT)  |
+----------------+------+------+------+------+------+------+------+
| TOTAL Mkt. Yr. | 27   | 27   | 25   | 28   | 0    | 30   | (    |
| Exports        |      |      |      |      |      |      | 1000 |
|                |      |      |      |      |      |      | MT)  |
+----------------+------+------+------+------+------+------+------+
| Jul-Jun        | 27   | 27   | 25   | 28   | 0    | 30   | (    |
| Exports        |      |      |      |      |      |      | 1000 |
|                |      |      |      |      |      |      | MT)  |
+----------------+------+------+------+------+------+------+------+
| Feed Dom.      | 125  | 35   | 125  | 32   | 0    | 32   | (    |
| Consumption    |      |      |      |      |      |      | 1000 |
|                |      |      |      |      |      |      | MT)  |
+----------------+------+------+------+------+------+------+------+
| TOTAL Dom.     | 1573 | 1622 | 1635 | 1641 | 0    | 1679 | (    |
| Consumption    |      |      |      |      |      |      | 1000 |
|                |      |      |      |      |      |      | MT)  |
+----------------+------+------+------+------+------+------+------+
| Ending Stocks  | 200  | 184  | 200  | 169  | 0    | 150  | (    |
|                |      |      |      |      |      |      | 1000 |
|                |      |      |      |      |      |      | MT)  |
+----------------+------+------+------+------+------+------+------+
| TOTAL          | 1800 | 1833 | 1860 | 1838 | 0    | 1859 | (    |
| DISTRIBUTION   |      |      |      |      |      |      | 1000 |
|                |      |      |      |      |      |      | MT)  |
+----------------+------+------+------+------+------+------+------+

+-------------------------------+--------------------------------------+
| **Import Trade Matrix**       |                                      |
+-------------------------------+--------------------------------------+
| **Country**                   | ####### Peru                         |
+-------------------------------+--------------------------------------+
| **Commodity**                 | Wheat                                |
+-------------------------------+--------------------------------------+
| Time Period                   | CY 2005                              |
+-------------------------------+--------------------------------------+
| Imports from:                 |                                      |
+-------------------------------+--------------------------------------+
| U.S.                          | 564,670                              |
+-------------------------------+--------------------------------------+
| Others                        |                                      |
+-------------------------------+--------------------------------------+
| Argentina                     | 537,751                              |
+-------------------------------+--------------------------------------+
| Canada                        | 333,646                              |
+-------------------------------+--------------------------------------+
| Total for Others              | 871,397                              |
+-------------------------------+--------------------------------------+
| Others not Listed             | 36,541                               |
+-------------------------------+--------------------------------------+
| Grand Total                   | 1,472,608                            |
+-------------------------------+--------------------------------------+

Units: Metric Tons

**WHEAT**

# Production

Wheat is a minor crop in Peru. Production in MY 2006 (July/June) is
forecast at 170,000 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 2006 is forecast at 128,000 hectares, a two percent
reduction compared to the previous year. 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 CY 2005 were 1.38 MT per hectare, compared to 1.33 MT per
hectare in the previous year.

Though Peru is not an important wheat producer, Alicorp, Peru's largest
wheat miller, has established a program to encourage producers to grow
durum wheat for their pasta plant 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

Bread consumption in Peru continues to be very small, according to
industry officials Peruvian per capita consumption is around 26
kilograms per annum. Most bread is purchased fresh in bakeries, and only
250 grams of bread per annum are consumed in loafs, which is a double
fold increase in the last seven years. 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 \$95 million.

There are 22 wheat mills in Peru, which operate at about 62 percent of
their milling capacity. Flour production in CY 2005 is estimated at
about one million tons, of which 65 percent was used for bread flour and
the rest for pasta and crackers.

Post estimates that wheat consumption will gradually increase
accompanying population and economic growth.

# Trade

Peru's wheat imports in CY 2005, reached 1.47 MMT, increasing 5.3
percent compared to the previous year. With 564,670 MT, the U.S. was the
largest wheat exporter to Peru followed closely by Argentina with
537,751 and Canada with 333,646 MT. Though the U.S. continued to led the
wheat market in Peru in CY 2005, it lost a significant market share due
to strong competition from Argentina. Average price of U.S. wheat in CY
2005 was \$156/MT, (f.o.b. basis) considerably higher than the \$118 per
MT of Argentine wheat. Freight was another important factor that granted
some advantage to Argentina in CY 2005, average freight from Argentina
was \$38 per MT compared to \$65 per MT from the U.S.

![](media/image2.wmf)

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 2005, Peru exported 2,944 MT of wheat flour, of which 55 percent
went to Bolivia and 34 percent to Brazil; 16,954 MT of pasta, mostly to
Chile and Haiti; and 23,649 MT of cookies and crackers increasing 61
percent compared to CY 2004, major markets were Ecuador with 34 percent
and Colombia with 22 percent.

# 

# 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.

Peru is taking advantage of the tariff preferences granted by other
countries in the region and is increasing exports of wheat products,
especially cookies and crackers.

The U.S. and Peru have recently agreed on the text of a free trade
agreement, should this text be approved by both Congresses imports of
U.S. wheat into Peru will be granted duty free entrance as soon as the
agreement becomes effective. Since the U.S. will also grant duty free
status to Peruvian wheat products, some millers are beginning to think
about exporting pasta and cookies to the U.S.

+----------------+------+------+------+------+------+------+------+
| **PSD Table**  |      |      |      |      |      |      |      |
+----------------+------+------+------+------+------+------+------+
| **Country**    | **Pe |      |      |      |      |      |      |
|                | ru** |      |      |      |      |      |      |
+----------------+------+------+------+------+------+------+------+
| **Commodity**  | **Co |      |      |      | (    |      |      |
|                | rn** |      |      |      | 1000 |      |      |
|                |      |      |      |      | HA)( |      |      |
|                |      |      |      |      | 1000 |      |      |
|                |      |      |      |      | MT)  |      |      |
+----------------+------+------+------+------+------+------+------+
|                | 2004 | Rev  | 2005 | Esti | 2006 | Fore | UOM  |
|                |      | ised |      | mate |      | cast |      |
+----------------+------+------+------+------+------+------+------+
|                | USDA | Post | USDA | Post | USDA | Post |      |
|                | Offi | Est  | Offi | Est  | Offi | Est  |      |
|                | cial | imat | cial | imat | cial | imat |      |
|                | \[O  | e\[N | \[O  | e\[N | \[O  | e\[N |      |
|                | ld\] | ew\] | ld\] | ew\] | ld\] | ew\] |      |
+----------------+------+------+------+------+------+------+------+
| ######## Mar   |      | 10/  |      | 10/  |      | 10/  | MM/  |
| ket Year Begin |      | 2004 |      | 2005 |      | 2006 | YYYY |
+----------------+------+------+------+------+------+------+------+
| Area Harvested | 580  | 478  | 590  | 510  | 0    | 525  | (    |
|                |      |      |      |      |      |      | 1000 |
|                |      |      |      |      |      |      | HA)  |
+----------------+------+------+------+------+------+------+------+
| Beginning      | 78   | 110  | 178  | 90   | 248  | 42   | (    |
| Stocks         |      |      |      |      |      |      | 1000 |
|                |      |      |      |      |      |      | MT)  |
+----------------+------+------+------+------+------+------+------+
| Production     | 1600 | 1248 | 1770 | 1420 | 0    | 1550 | (    |
|                |      |      |      |      |      |      | 1000 |
|                |      |      |      |      |      |      | MT)  |
+----------------+------+------+------+------+------+------+------+
| TOTAL Mkt. Yr. | 1200 | 1291 | 1000 | 1120 | 0    | 1050 | (    |
| Imports        |      |      |      |      |      |      | 1000 |
|                |      |      |      |      |      |      | MT)  |
+----------------+------+------+------+------+------+------+------+
| Oct-Sep        | 1200 | 1291 | 1000 | 1120 | 0    | 1050 | (    |
| Imports        |      |      |      |      |      |      | 1000 |
|                |      |      |      |      |      |      | MT)  |
+----------------+------+------+------+------+------+------+------+
| Oct-Sep Import | 251  | 240  | 0    | 250  | 0    | 250  | (    |
| U.S.           |      |      |      |      |      |      | 1000 |
|                |      |      |      |      |      |      | MT)  |
+----------------+------+------+------+------+------+------+------+
| TOTAL SUPPLY   | 2878 | 2649 | 2948 | 2630 | 248  | 2642 | (    |
|                |      |      |      |      |      |      | 1000 |
|                |      |      |      |      |      |      | MT)  |
+----------------+------+------+------+------+------+------+------+
| TOTAL Mkt. Yr. | 0    | 7    | 0    | 8    | 0    | 8    | (    |
| Exports        |      |      |      |      |      |      | 1000 |
|                |      |      |      |      |      |      | MT)  |
+----------------+------+------+------+------+------+------+------+
| Oct-Sep        | 0    | 7    | 0    | 8    | 0    | 8    | (    |
| Exports        |      |      |      |      |      |      | 1000 |
|                |      |      |      |      |      |      | MT)  |
+----------------+------+------+------+------+------+------+------+
| Feed Dom.      | 2500 | 2300 | 2500 | 2350 | 0    | 2350 | (    |
| Consumption    |      |      |      |      |      |      | 1000 |
|                |      |      |      |      |      |      | MT)  |
+----------------+------+------+------+------+------+------+------+
| TOTAL Dom.     | 2700 | 2552 | 2700 | 2580 | 0    | 2600 | (    |
| Consumption    |      |      |      |      |      |      | 1000 |
|                |      |      |      |      |      |      | MT)  |
+----------------+------+------+------+------+------+------+------+
| Ending Stocks  | 178  | 90   | 248  | 42   | 0    | 34   | (    |
|                |      |      |      |      |      |      | 1000 |
|                |      |      |      |      |      |      | MT)  |
+----------------+------+------+------+------+------+------+------+
| TOTAL          | 2878 | 2649 | 2948 | 2630 | 0    | 2642 | (    |
| DISTRIBUTION   |      |      |      |      |      |      | 1000 |
|                |      |      |      |      |      |      | MT)  |
+----------------+------+------+------+------+------+------+------+

+---------------------------------+------------------------------------+
| **Import Trade Matrix**         |                                    |
+---------------------------------+------------------------------------+
| **Country**                     | ####### Peru                       |
+---------------------------------+------------------------------------+
| **Commodity**                   | Corn                               |
+---------------------------------+------------------------------------+
| Time Period                     | CY 2005                            |
+---------------------------------+------------------------------------+
| Imports for:                    |                                    |
+---------------------------------+------------------------------------+
| U.S.                            | 215,237                            |
+---------------------------------+------------------------------------+
| Others                          |                                    |
+---------------------------------+------------------------------------+
| Argentina                       | 1,112,676                          |
+---------------------------------+------------------------------------+
| Total for Others                | 1,112,676                          |
+---------------------------------+------------------------------------+
| Others not Listed               | 6,297                              |
+---------------------------------+------------------------------------+
| Grand Total                     | 1,334,210                          |
+---------------------------------+------------------------------------+

Units: Metric Tons

**CORN**

**Production**

Corn production in Peru is expected at 1.42 MMT for MY
(October/September) 2005/2006, an increase of almost 14 percent compared
to the previous year. This significant increase is due to a drought
warning during the planting season which made producers plant corn
instead of rice and stronger demand for yellow corn from the poultry
industry. Among the several types of corn produced in Peru, the most
important varieties are starchy corn, with production estimated at
244,000 MT in CY 2005, which is used directly in human consumption, and
yellow corn with production estimated at 1.0 MMT which is primarily used
in the animal feed industry.

Harvested area in CY 2005 was 277,000 hectares and 201,000 hectares for
yellow and starchy corn respectively. 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 2.6 MMT in CY 2006. With a consumption of
about 680,000 MT in CY 2005, poultry meat continues to be one the
cheapest source of protein in the Peruvian diet.

Poultry prices fell significantly during the first semester of CY 2005
due to excess demand. Since a large poultry operation began exporting
chicken meat to Asia, some producers expected a shortage in the local
market and increased its bird population up to 40 percent, which brought
total bird population to about 30 million birds per month. As a result
prices fell to around 36 percent under the cost of production. Poultry
production went back to normal during the second semester of 2005 and
prices recovered but not without an important financial set back in the
sector.

Another 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 1.334 MMT of yellow corn in CY 2005, of which 1.11 MMT
came from Argentina. U.S. corn imports increased 12 percent to 215,237
MT. Average price of Argentine corn in 2005 was \$92 per MT (f.o.b.
basis), an average of 10 percent cheaper than U.S. corn. Freight was not
a decisive factor in 2005, average freight cost from both the U.S. and
Argentina was around \$35 per MT.

Post forecasts corn imports to fall six percent to 1.05 MT in MY 2005,
this reduction is explained by higher local production. However, we
expect U.S. corn exports to remain at 250,000 MT. Post believes that
alternative corn products such as DDG or HOC have an interesting
potential and should be promoted in this market.

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. Average price of
locally produced corn was around \$149 in CY 2005.

**Policy**

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 a variable levy 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 zero due to high
international prices. Under the TPA, the price band system will be
eliminated for products from the United States.

Under the TPA, which is expected to be implemented on January 1, 2007,
the U.S. will have a duty free TRQ of 500,000 MT for corn.

The GOP does not have any direct subsidy or assistance program to
encourage corn production. However, 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 begun producing part of the corn it demands.

+----------------+------+------+------+------+------+------+------+
| ##             |      |      |      |      |      |      |      |
| #### PSD Table |      |      |      |      |      |      |      |
+----------------+------+------+------+------+------+------+------+
| **Country**    | **Pe |      |      |      |      |      |      |
|                | ru** |      |      |      |      |      |      |
+----------------+------+------+------+------+------+------+------+
| **Commodity**  | **R  |      |      |      | (    |      |      |
|                | ice, |      |      |      | 1000 |      |      |
|                | Mill |      |      |      | HA)( |      |      |
|                | ed** |      |      |      | 1000 |      |      |
|                |      |      |      |      | MT)  |      |      |
+----------------+------+------+------+------+------+------+------+
|                | 2004 | Rev  | 2005 | Esti | 2006 | Fore | UOM  |
|                |      | ised |      | mate |      | cast |      |
+----------------+------+------+------+------+------+------+------+
|                | USDA | Post | USDA | Post | USDA | Post |      |
|                | Offi | Est  | Offi | Est  | Offi | Est  |      |
|                | cial | imat | cial | imat | cial | imat |      |
|                | \[O  | e\[N | \[O  | e\[N | \[O  | e\[N |      |
|                | ld\] | ew\] | ld\] | ew\] | ld\] | ew\] |      |
+----------------+------+------+------+------+------+------+------+
| **Market Year  |      | 01/  |      | 01/  |      | 01/  | MM/  |
| Begin**        |      | 2005 |      | 2006 |      | 2007 | YYYY |
+----------------+------+------+------+------+------+------+------+
| Area Harvested | 310  | 362  | 315  | 350  | 0    | 360  | (    |
|                |      |      |      |      |      |      | 1000 |
|                |      |      |      |      |      |      | HA)  |
+----------------+------+------+------+------+------+------+------+
| Beginning      | 375  | 44   | 360  | 313  | 325  | 303  | (    |
| Stocks         |      |      |      |      |      |      | 1000 |
|                |      |      |      |      |      |      | MT)  |
+----------------+------+------+------+------+------+------+------+
| Milled         | 1400 | 1724 | 1450 | 1550 | 0    | 1580 | (    |
| Production     |      |      |      |      |      |      | 1000 |
|                |      |      |      |      |      |      | MT)  |
+----------------+------+------+------+------+------+------+------+
| Rough          | 2029 | 2499 | 2101 | 2246 | 0    | 2290 | (    |
| Production     |      |      |      |      |      |      | 1000 |
|                |      |      |      |      |      |      | MT)  |
+----------------+------+------+------+------+------+------+------+
| MILLING RATE   | 6900 | 6900 | 6900 | 6900 | 0    | 6900 | (    |
| (.9999)        |      |      |      |      |      |      | 1000 |
|                |      |      |      |      |      |      | MT)  |
+----------------+------+------+------+------+------+------+------+
| TOTAL Imports  | 115  | 125  | 75   | 50   | 0    | 80   | (    |
|                |      |      |      |      |      |      | 1000 |
|                |      |      |      |      |      |      | MT)  |
+----------------+------+------+------+------+------+------+------+
| Jan-Dec        | 115  | 125  | 75   | 50   | 0    | 80   | (    |
| Imports        |      |      |      |      |      |      | 1000 |
|                |      |      |      |      |      |      | MT)  |
+----------------+------+------+------+------+------+------+------+
| Jan-Dec Import | 0    | 32   | 0    | 20   | 0    | 25   | (    |
| U.S.           |      |      |      |      |      |      | 1000 |
|                |      |      |      |      |      |      | MT)  |
+----------------+------+------+------+------+------+------+------+
| TOTAL SUPPLY   | 1890 | 1893 | 1885 | 1913 | 325  | 1963 | (    |
|                |      |      |      |      |      |      | 1000 |
|                |      |      |      |      |      |      | MT)  |
+----------------+------+------+------+------+------+------+------+
| TOTAL Exports  | 5    | 0    | 10   | 10   | 0    | 10   | (    |
|                |      |      |      |      |      |      | 1000 |
|                |      |      |      |      |      |      | MT)  |
+----------------+------+------+------+------+------+------+------+
| Jan-Dec        | 5    | 0    | 10   | 10   | 0    | 10   | (    |
| Exports        |      |      |      |      |      |      | 1000 |
|                |      |      |      |      |      |      | MT)  |
+----------------+------+------+------+------+------+------+------+
| TOTAL Dom.     | 1525 | 1580 | 1550 | 1600 | 0    | 1650 | (    |
| Consumption    |      |      |      |      |      |      | 1000 |
|                |      |      |      |      |      |      | MT)  |
+----------------+------+------+------+------+------+------+------+
| Ending Stocks  | 360  | 313  | 325  | 303  | 0    | 303  | (    |
|                |      |      |      |      |      |      | 1000 |
|                |      |      |      |      |      |      | MT)  |
+----------------+------+------+------+------+------+------+------+
| TOTAL          | 1890 | 1893 | 1885 | 1913 | 0    | 1963 | (    |
| DISTRIBUTION   |      |      |      |      |      |      | 1000 |
|                |      |      |      |      |      |      | MT)  |
+----------------+------+------+------+------+------+------+------+

+------------------------------+---------------------------------------+
| **Import Trade Matrix**      |                                       |
+------------------------------+---------------------------------------+
| **Country**                  | ####### Peru                          |
+------------------------------+---------------------------------------+
| **Commodity**                | Rice, Milled                          |
+------------------------------+---------------------------------------+
| Time Period                  | CY 2005                               |
+------------------------------+---------------------------------------+
| Imports for:                 |                                       |
+------------------------------+---------------------------------------+
| U.S.                         | 31,721                                |
+------------------------------+---------------------------------------+
| Others                       |                                       |
+------------------------------+---------------------------------------+
| Uruguay                      | 86,934                                |
+------------------------------+---------------------------------------+
| Brazil                       | 4,520                                 |
+------------------------------+---------------------------------------+
|                              |                                       |
+------------------------------+---------------------------------------+
| Total for Others             | 91,454                                |
+------------------------------+---------------------------------------+
| Others not Listed            | 2,058                                 |
+------------------------------+---------------------------------------+
| Grand Total                  | 125,233                               |
+------------------------------+---------------------------------------+

Units: Metric Tons

**RICE**

**Production**

Rice production for CY 2006 is forecast at 1.55 MMT (milled basis), a
ten percent decrease 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 2006 is estimated at 360,000
hectares.

The drought that affected northern Peru in the second half of CY 2005
caused a reduction in area planted which is expected to result in about
10 percent lower production in CY 2006. Rice production in eastern Peru
has increased consistently for the past three years, this trend is
expected to continue and slowly move production from the arid northern
coast to the eastern slopes of the Andes where there is plenty of water
supply.

Rice producers continue under very difficult financial situation as a
result of low prices due to over supply. 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.

Historical rice production areas in Peru are Lambayeque and Piura in the
northern region, and Arequipa in the south. Average yields in CY 2005
was 6.9 MT 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.

The International Development Bank has an ongoing project in the San
Martin Region to promote a rice intensification system (SRI). The SRI
consists in giving the plant more space to develop and obtain its
nutrients, thus instead of planting each 25 cm, the SRI proposes to
plant each 40 cm; and instead of planting five seeds it proposes to
plant one or two. This project, which started a year ago, has already
increased yields from 8 to 10 MT per hectare. There are about a thousand
hectares under this system currently; its goal is to raise yields to an
average of 14 MT per hectare. .

**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.

**Trade**

Peru imported 125,233 MT of rice in CY 2005, a significant increase from
the 52,217 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 86,934
MT. Rice exports from the U.S. increased by a ten fold to 31,721 MT. The
largest rice importer, who owns the leading brand for bagged rice, has a
long-term relationship with a Uruguayan rice exporter who 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.

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

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.

**Policy**

The U.S. has been granted a duty free tariff rate quota of 72,000 MT for
rice under the TPA. Since Uruguay will not receive the same level of
tariff preference for rice under the Peru-MERCOSUR trade agreement, this
could be an opportunity for U.S. rice exporters to recover its market
share in Peru.

Under the Agreement with MERCOSUR, Peru will grant Uruguay the following
tariff preferences for rice:

10 percent until December 31, 2008.

11 percent until December 31, 2009.

22 percent until December 31, 2010.

33 percent until December 31, 2011.

44 percent until December 31, 2012.

55 percent until December 31, 2013.

66 percent until December 31, 2014.

77 percent until December 31, 2015.

88 percent until December 31, 2016.

100 as of January 1, 2017.

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. Under
the TPA the Price Band System is eliminated for products from the United
States. It will remain in place for products from other countries,
including MERCOSUR.