Required Report - public distribution

**Date:** 10/10/2003

**GAIN Report Number:** PE3019

PE2003

**Peru**

**Dairy and Products**

**Annual**

**2003**

**Approved by:**

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

U.S. Embassy

**Prepared by:**

Gaspar E. Nolte

**Report Highlights:**

Fluid milk production continues increasing and is forecast to reach
1.285 MMT in 2004. This increase is driven by import substitution and
will probably continue as Peru begins exporting evaporated milk.

Includes PSD Changes: Yes

Includes Trade Matrix: Yes

Annual Report

Lima \[PE1\]

\[PE\]

Executive Summary

Fluid milk production in Peru continues increasing and is forecast to
reach 1.285 Million Metric Tons in 2004, increasing 2.4 percent compared
to the previous year. On the other hand, whole powder milk and nonfat
dry milk imports continue their downward trend and are forecast at 6,000
MT and 8,000 MT respectively, for 2004.

Demand for raw milk continues to increase as processing plants, which
have been investing in better technology and enhancing their processing
capacity, now begin to export. The government also plays an important
role purchasing milk directly from producers for its social assistance
programs, in fact the GOP pays the higher price in the market.

# 

  ---------------- ---------- ---------- ---------- ---------- ------------ ---------- ---------
  **PSD Table**                                                                        

  **Country**      **Peru**                                                            

  **Commodity**    **Dairy,                                    (1000                   
                   Milk,                                       HEAD)(1000              
                   Fluid**                                     MT)                     

                   2002       Revised    2003       Estimate   2004         Forecast   UOM

                   USDA       Post       USDA       Post       USDA         Post       
                   Official   Estimate   Official   Estimate   Official     Estimate   
                   \[Old\]    \[New\]    \[Old\]    \[New\]    \[Old\]      \[New\]    

  **Market Year               01/2002               01/2003                 01/2004    MM/YYYY
  Begin**                                                                              

  Cows In Milk     620        620        620        620        0            623        (1000
                                                                                       HEAD)

  Cows Milk        1150       1194       1200       1250       0            1280       (1000 MT)
  Production                                                                           

  Other Milk       5          5          5          5          0            5          (1000 MT)
  Production                                                                           

  TOTAL Production 1155       1199       1205       1255       0            1285       (1000 MT)

  Intra EC Imports 0          0          0          0          0            0          (1000 MT)

  Other Imports    0          0          0          0          0            0          (1000 MT)

  TOTAL Imports    0          0          0          0          0            0          (1000 MT)

  TOTAL SUPPLY     1155       1199       1205       1255       0            1285       (1000 MT)

  Intra EC Exports 0          0          0          0          0            0          (1000 MT)

  Other Exports    0          0          0          0          0            0          (1000 MT)

  TOTAL Exports    0          0          0          0          0            0          (1000 MT)

  Fluid Use Dom.   785        745        805        715        0            705        (1000 MT)
  Consum.                                                                              

  Factory Use      365        449        395        535        0            575        (1000 MT)
  Consum.                                                                              

  Feed Use Dom.    5          5          5          5          0            5          (1000 MT)
  Consum.                                                                              

  TOTAL Dom.       1155       1199       1205       1255       0            1285       (1000 MT)
  Consumption                                                                          

  TOTAL            1155       1199       1205       1255       0            1285       (1000 MT)
  DISTRIBUTION                                                                         

  Calendar Yr.     0          0          0          0          0            0          (1000 MT)
  Imp. from U.S.                                                                       

  Calendar Yr.     0          0          0          0          0            0          (1000 MT)
  Exp. to U.S.                                                                         
  ---------------- ---------- ---------- ---------- ---------- ------------ ---------- ---------

# 

  --------------- ---------- ---------- ---------- ---------- ---------- ---------- ------------
  **PSD Table**                                                                     

  **Country**     **Peru**                                                          

  **Commodity**   **Dairy,                                    (1000 MT)             
                  Milk,                                                             
                  Nonfat                                                            
                  Dry**                                                             

                  2002       Revised    2003       Estimate   2004       Forecast   UOM

                  USDA       Post       USDA       Post       USDA       Post       
                  Official   Estimate   Official   Estimate   Official   Estimate   
                  \[Old\]    \[New\]    \[Old\]    \[New\]    \[Old\]    \[New\]    

  **Market Year              01/2002               01/2003               01/2004    MM/YYYY
  Begin**                                                                           

  Beginning       1          1          1          1          1          1          (1000 MT)
  Stocks                                                                            

  Production      0          0          0          0          0          0          (1000 MT)

  Intra EC        0          0          0          0          0          0          (1000 MT)
  Imports                                                                           

  Other Imports   9          9          10         9          0          8          (1000 MT)

  TOTAL Imports   9          9          10         9          0          8          (1000 MT)

  TOTAL SUPPLY    10         10         11         10         1          9          (1000 MT)

  Intra EC        0          0          0          0          0          0          (1000 MT)
  Exports                                                                           

  Other Exports   0          0          0          0          0          0          (1000 MT)

  TOTAL Exports   0          0          0          0          0          0          (1000 MT)

  Human Dom.      9          9          10         9          0          8          (1000 MT)
  Consumption                                                                       

  Other Use,      0          0          0          0          0          0          (1000 MT)
  Losses                                                                            

  Total Dom.      9          9          10         9          0          8          (1000 MT)
  Consumption                                                                       

  TOTAL Use       9          9          10         9          0          8          (1000 MT)

  Ending Stocks   1          1          1          1          0          1          (1000 MT)

  TOTAL           10         10         11         10         0          9          (1000 MT)
  DISTRIBUTION                                                                      

  Calendar Yr.    0          0          0          0          0          0          (1000 MT)
  Imp. from U.S.                                                                    

  Calendar Yr.    0          0          0          0          0          0          (1000 MT)
  Exp. to U.S.                                                                      
  --------------- ---------- ---------- ---------- ---------- ---------- ---------- ------------

+-----------------------------------+----------------------------------+
| **Import Trade Matrix**           |                                  |
+-----------------------------------+----------------------------------+
| **Country**                       | ###### Peru                      |
+-----------------------------------+----------------------------------+
| **Commodity**                     | Dairy, Milk, Nonfat Dry          |
+-----------------------------------+----------------------------------+
| Time Period                       | 2002                             |
+-----------------------------------+----------------------------------+
| Imports for:                      |                                  |
+-----------------------------------+----------------------------------+
| U.S.                              | 12                               |
+-----------------------------------+----------------------------------+
| Others                            |                                  |
+-----------------------------------+----------------------------------+
| Australia                         | 6937                             |
+-----------------------------------+----------------------------------+
| New Zealand                       | 1213                             |
+-----------------------------------+----------------------------------+
|                                   |                                  |
+-----------------------------------+----------------------------------+
| Total for Others                  | 8150                             |
+-----------------------------------+----------------------------------+
| Others not Listed                 | 778                              |
+-----------------------------------+----------------------------------+
| Grand Total                       | 8940                             |
+-----------------------------------+----------------------------------+

Units: Metric Tons

  --------------- ---------- ---------- ---------- ---------- ---------- ---------- -----------
  **PSD Table**                                                                     

  **Country**     **Peru**                                                          

  **Commodity**   **Dairy,                                    (1000 MT)             
                  Dry Whole                                                         
                  Milk                                                              
                  Powder**                                                          

                  2002       Revised    2003       Estimate   2004       Forecast   UOM

                  USDA       Post       USDA       Post       USDA       Post       
                  Official   Estimate   Official   Estimate   Official   Estimate   
                  \[Old\]    \[New\]    \[Old\]    \[New\]    \[Old\]    \[New\]    

  **Market Year              01/2002               01/2003               01/2004    MM/YYYY
  Begin**                                                                           

  Beginning       2          2          2          2          0          1          (1000 MT)
  Stocks                                                                            

  Production      4          4          2          0          0          0          (1000 MT)

  Intra EC        0          0          0          0          0          0          (1000 MT)
  Imports                                                                           

  Other Imports   12         8          15         8          0          6          (1000 MT)

  TOTAL Imports   12         8          15         8          0          6          (1000 MT)

  TOTAL SUPPLY    18         14         19         10         0          7          (1000 MT)

  Intra EC        0          0          0          0          0          0          (1000 MT)
  Exports                                                                           

  Other Exports   0          0          0          0          0          0          (1000 MT)

  TOTAL Exports   0          0          0          0          0          0          (1000 MT)

  Human Dom.      16         12         19         9          0          6          (1000 MT)
  Consumption                                                                       

  Other Use,      0          0          0          0          0          0          (1000 MT)
  Losses                                                                            

  Total Dom.      16         12         19         9          0          6          (1000 MT)
  Consumption                                                                       

  TOTAL Use       16         12         19         9          0          6          (1000 MT)

  Ending Stocks   2          2          0          1          0          1          (1000 MT)

  TOTAL           18         14         19         10         0          7          (1000 MT)
  DISTRIBUTION                                                                      

  Calendar Yr.    0          0          0          0          0          0          (1000 MT)
  Imp. from U.S.                                                                    

  Calendar Yr.    0          0          0          0          0          0          (1000 MT)
  Exp. to U.S.                                                                      
  --------------- ---------- ---------- ---------- ---------- ---------- ---------- -----------

+------------------------------+---------------------------------------+
| **Import Trade Matrix**      |                                       |
+------------------------------+---------------------------------------+
| **Country**                  | ###### Peru                           |
+------------------------------+---------------------------------------+
| **Commodity**                | Dairy, Dry Whole Milk Powder          |
+------------------------------+---------------------------------------+
| Time Period                  | 2002                                  |
+------------------------------+---------------------------------------+
| Imports for:                 |                                       |
+------------------------------+---------------------------------------+
| U.S.                         | 25                                    |
+------------------------------+---------------------------------------+
| Others                       |                                       |
+------------------------------+---------------------------------------+
| New Zealand                  | 3640                                  |
+------------------------------+---------------------------------------+
| Bolivia                      | 3215                                  |
+------------------------------+---------------------------------------+
| Argentina                    | 631                                   |
+------------------------------+---------------------------------------+
| Australia                    | 201                                   |
+------------------------------+---------------------------------------+
|                              |                                       |
+------------------------------+---------------------------------------+
| Total for Others             | 7687                                  |
+------------------------------+---------------------------------------+
| Others not Listed            | 613                                   |
+------------------------------+---------------------------------------+
| Grand Total                  | 8325                                  |
+------------------------------+---------------------------------------+

Units: Metric Tons

**Production**

Fluid milk production is forecast to increase 2.4 percent to 1.285
Milllion Metric Tons in 2004. Processing plants have invested in
technology increasing capacity and efficiency. Demand for raw milk
continues to rise, making milk production one of the few profit-making
business in the agricultural sector. In the past three years, serveral
rather large dairy farms have been founded, many of them are owned by
investors that do not have a farming background but consider this sector
a promising business.

Peru has three major dairy producing areas. Arequipa in the southern
region, Cajamarca in the north-east areas and Lima on the coast.
Arequipa is 1,000 kilometers south of Lima, and has very good quality
forage, mainly alfalfa. Most of the production is bought by Gloria, the
largest milk processing plant in Peru. Cajamarca in the northern
highlands is an excellent dairy area due to the availability plant in
this area. Lima is important due to its proximity to eight million
consumers, but the lack of forage is the limiting factor for milk
production in this area. Dairy cows in Lima are feed fed which is rather
expensive.![](media/image3.wmf){width="3.4555555555555557in"
height="2.6222222222222222in"}

Some milk processing plants have technical support programs. Most of
them work with farmers on feeding, forage management, breeding and
quality control to increase the amount of milk produced by their
suppliers. Moreover, some processors are now giving price bonuses to
producers for tubercullosis and brucellosis control, for belonging to
the national dairy control program (dairy control system supervised by
the Ministry of Agriculture), for each tenth of a percent of fat over
3.2 percent, and for the volume of milk delivered.

Herd size and level of technology vary greatly even in the same area,
there is no such thing as the \"average\" dairy producers. There are a
few that are highly sophisticated in their management. They have complex
feeding programs and use artificial insemination. Even among these
\"modern\" dairymen, embryo transplant is not commonly used. It is still
too expensive compared to AI.

Most dairy producers though, especially in the highlands, are not that
technical. Their herd may range from two or three cows to 30 or 40. AI
is not that popular among these producers, only around 20 percent.
Feeding programs are based on natural pastures or, in some cases,
improved grasses.

# Consumption

Milk consumption in Peru is only 57 liters per capita per annum, not
even half of the minimum consumption recommended by the United Nations
Food and Agriculture Organization. With about 75 percent of the market,
evaporated milk is by far the most popular way in which milk is consumed
in Peru. This form of milk has several advantages, the most important
being durability and conservation. Since it does not need refrigeration,
it lasts longer, especially in the poor areas of the country.

Gloria, the largest processing plant, holds 78 percent of the evaporated
milk market and 60 percent of the total milk market. UHT milk is
becoming popular but, due to its higher price, only by the higher
economic consumers in the country. Dairy processors state that the high
price of UHT are mainly caused by the high price of the package which is
sold by a monopoly. Consumption of powdered milk, once very popular when
it was subsidized by the state-owned Empresa Nacional Comercializadora
de Insumos (ENCI), is decreasing, giving way to other alternatives such
as "dried soybean milk".

## 

# Trade

With 3,640 MT, New Zealand continues to be Peru's main whole milk powder
supplier. Australia is the main supplier of nonfat dry milk to Peru,
with 6,937 MT. Import tariff for dairy products is currently 25 percent.
Like most imported or domestic products, a 19 percent value added tax is
assessed on top of the tariff. Powder milk is also subject to a variable
levy that is related to international prices.

Peru has recently began exporting evaporated milk. Total exports in 2002
were 7,878 MT. Peru's main evaporated milk customers are Haiti with
3,129 MT and Bolivia with 1,987 MT in 2002. According to industry
officials there is a niche market for evaporated milk in the world and
are currently negotiating with other potential customers, including West
African countries.

# Policy

The GOP has an import substitution policy by which it encourages local
production of the agricultural products that are currently being
imported. There are no resources allocated to this program, but the
government encourages local production by two venues: high import
tariffs (surcharges and variable levy) and granting tax benefits to
producers. The GOP expects to reach self sufficiency by 2005. The
government is promoting local milk production through social assistance
programs, by purchasing milk directly from producers. Currently these
programs purchase about 50,000 MT of fresh milk per day. These programs
are also a way to create a reference price for producers

# Marketing

The milk market in Peru is concentrated in two large firms, Gloria,
which also owns three processing plants in Bolivia and has recently
bought Dean Foods in Puerto Rico, and Nestle. These companies have
historically had their area of influence and did not compete directly,
but the milk market has become more competitive and both are now
purchasing wherever milk is available.

There are a few smaller companies that are also in the market, in most
cases they help to negotiate prices with the larger companies. The
government, through the social assistance programs, is an important
customer**.** In fact the government is paying the highest price in the
market.

In the areas where there are no processing plants, farmers sell their
milk to local cheese-makers who, in most cases, are not industrialized.
Cheese-makers (queseros) usually pay high prices and, though they are
very small individually, have helped keep the dairy business a float in
poor areas.

As the Peruvian dairy industry continues growing, it will generate
business opportunities for U.S. genetics, especially semen. Livestock is
thought as a way of savings, most families in the highlands will try to
have at least two cows to provide milk for the family and sell whatever
surplus they may have and at least a calf that they can sell in case of
emergency. This type of producer purchases its cattle from larger
producers in the area who at the same time buy from larger producers,
thus creating a cattle market that \"percolate\" genetics and quality
from top to bottom.