Required Report - public distribution

**Date:** 3/5/2004

**GAIN Report Number:** EC4001

EC4001

**Ecuador**

**Grain and Feed**

**Annual**

**2004**

**Approved by:**

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

U.S. Embassy Lima

**Prepared by:**

Carlos M. Yugcha

**Report Highlights:**

Imports of wheat for MY2004 are forecasted at 455,000 MT, virtually
unchanged over the past market year. The U.S. market share has decreased
40 percent for the MY2003. Both rice and corn production will be
affected by adverse weather conditions, lack of rainfalls from December
2003 through February 2004 will result in delayed star of winter crop
season.

Includes PSD Changes: Yes

Includes Trade Matrix: Yes

Annual Report

Quito \[EC1\]

\[EC\]

Table of Contents

[Executive Summary 3](#executive-summary)

[Wheat 4](#wheat)

[Production 4](#production)

[Consumption 4](#consumption)

[Trade 5](#trade)

[Policy 6](#policy)

[Corn 6](#corn)

[Production 7](#production-1)

[Consumption 7](#consumption-1)

[Trade 7](#trade-1)

[Policy 8](#policy-1)

[Rice 9](#rice)

[Production 9](#production-2)

[Consumption 9](#consumption-2)

[Trade 10](#trade-2)

[Policy 10](#policy-2)

# Executive Summary

Wheat imports for MY2004 (July 2004/June 2005) are forecast at 455,000
MT slightly higher than last marketing year's imports of 450,000 MT.
Ecuadorian imports originated in the US have decreased in the last two
years to an average of 40 percent of market share**.** Canada and
Argentina are the two other main suppliers with Mexico making inroads
into the market. The expected increase in consumption for the MY2004
will not be result of the improvement in domestic economy but rather of
repatriated money from Ecuadorian emigrants. Production of tilapia will
determine the increased demand for wheat products in the near future.

Corn production for MY2003 (October 2003/September 2004) is expected to
decrease due to the current drought, which began in December 2003
through February 2004. Corn production is placed at 250,000 MT. However,
corn consumption has increased as poultry and shrimp industry demands
additional corn and soybean meal, main ingredients for feed meal
compound. Corn imports will reach 360,000 MT to meet local demand. For
MY2004 (October 2004/December 2005) post forecasts an increased demand
of corn to 550,000 MT and corn imports placed at 340,000 MT in turn to
meet increased demand.

Production of rice for the upcoming MY2004 (January 2004/December 2004)
will trend downwards to 390,000 MT as at least 30,000 hectares have been
affected by the current drought. Imports are expected to occur shortly
to fill the gap in stocks for April this year. In spite of that, the
Minister of Agriculture of Ecuador has stated that Ecuador will not
import rice, but if imports are needed, at least 65,000 MT of paddy rice
will be imported. No official statistics exist regarding exports of rice
from Peru into Ecuador, however, it seems that some rice was smuggled
from Peru totaling 120,000 MT milled basis. For MY2004, post forecasts
40,000 MT of rice will be smuggled from Peru into Ecuador.

# Wheat

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

  **Country**       **Ecuador**                                                          

  **Commodity**     **Wheat**                                      (1000                 
                                                                   HA)(1000              
                                                                   MT)                   

                    2002          Revised    2003       Estimate   2004       Forecast   UOM

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

  **Market Year                   07/2002               07/2003               07/2004    MM/YYYY
  Begin**                                                                                

  Area Harvested    19            20         18         19         0          18         (1000 HA)

  Beginning Stocks  75            49         75         68         76         75         (1000 MT)

  Production        12            13         11         12         0          12         (1000 MT)

  TOTAL Mkt. Yr.    450           456        450        450        0          455        (1000 MT)
  Imports                                                                                

  Jul-Jun Imports   450           456        450        450        0          455        (1000 MT)

  Jul-Jun Import    193           210        0          180        0          250        (1000 MT)
  U.S.                                                                                   

  TOTAL SUPPLY      537           518        536        530        76         542        (1000 MT)

  TOTAL Mkt. Yr.    20            0          20         0          0          0          (1000 MT)
  Exports                                                                                

  Jul-Jun Exports   20            0          20         0          0          0          (1000 MT)

  Feed Dom.         40            15         40         15         0          15         (1000 MT)
  Consumption                                                                            

  TOTAL Dom.        442           450        440        455        0          460        (1000 MT)
  Consumption                                                                            

  Ending Stocks     75            68         76         75         0          82         (1000 MT)

  TOTAL             537           518        536        530        0          542        (1000 MT)
  DISTRIBUTION                                                                           
  ----------------- ------------- ---------- ---------- ---------- ---------- ---------- ---------

# Production

Ecuador produces very little wheat and it is not commercially
significant, about 12,000 MT or less a year, 4 percent of Ecuador's
annual consumption. According to Ecuador's industry, subsistence farmers
use most of the domestic production and it is not sold to millers. A
small amount of domestic production is sold for the local feed compound
industry. Wheat production in Ecuador is a-non-profitable business due
to the adverse geographic and weather conditions, lack of improved
seeds, lack of technology, with yields averaging 700 Kg. per hectare.
For the upcoming year it is forecasted a planted area of 18,000 hectares
with a production of 12,000 MT, and there are no possibilities to
increase either the area cultivated or the yields.

# Consumption

Wheat for human consumption has been increasing steadily, in spite of
increase prices on the international markets for wheat. However, wheat
for animal consumption has been decreasing slowly in last years, but we
expect consumption for feed uses at 15,000 MT. Various wheat millers
sources have indicated that consumption for upcoming marketing year will
slightly increase given the increase of revenues to Ecuador from
emigration of Ecuadorians to the United States and Europe, which is
roughly calculated in \$1.5 billion. It is forecasted that for the
upcoming marketing year 2004/2005 (July 2004/June 2005) total domestic
consumption to increase to 460,000 MT, a slightly increase compared with
MY 2003 of 455,000 MT. The increase in consumption for MY 2004 will not
be the result of an improvement in domestic economy, but rather of
repatriated money from Ecuadorian emigrants. Production of tilapia will
determine the increased demand for wheat products in the near future.

## 

# Trade

Imports originating from the US have decreased for the last two years
post estimates imports of wheat of 180,000 MT for MY 2003, a reduction
compared to 210,000 MT for MY2002. Canada is the main U.S. competitor in
the Ecuadorian market. Ecuadorian wheat millers perceive Canadian wheat
of better milling quality. Sometimes for same price, Canadians provide
wheat with higher protein content of 14 percent, higher gluten content
averaging 40 percent, and less foreign materials. In addition, Canada
has developed an aggressive marketing such as providing Ecuadorian
importers from the Canadian Commercial Corporation (CCC) to finance
wheat imports with 14 million dollars. The CCC has contracted with one
of the Ecuadorian miller to provide nearly all of their wheat. Post has
forecasted an increment of importation of wheat from the US, assuming a
donation of 21,000 MT of wheat and a recovery of the market share for US
wheat. USWheat Associates is planning to develop activities with
Ecuadorian millers by providing technical assistance on how to obtain
the same product with less cost, such as bread by using wheat of less
protein content. This may encourage Ecuadorian millers to prefer US
wheat. Surprisingly, Mexico made some inroad in the Ecuadorian market
with 6,100 MT. Ecuadorian wheat millers buy Argentinean wheat, which is
of lower quality than American wheat, to blend or mix with Canadian or
American wheat. Imports from the US under donations or concessional
sales in CY2002 accounted for 81,000 MT. For FY2004, wheat donations of
21,000 MT are planned to enter in Ecuador under Food for Peace Program,
this quantity is included in MY2004 imports of 250,000 MT from the
United States.

Ecuador has a small export market for wheat flour and finish products to
Ecuador neighbors equivalent to 5,000 MT of wheat.

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

  **Country**            Ecuador                            

  **Commodity**          Wheat                              

  Time Period            Jan-Dec         Units:             Metric Tons

  Imports for:           2002                               **2003**

  U.S.                   222237          U.S.               170000

  Others                                 Others             

  Canada                 198236          Canada             247000

  Argentina              33110           Argentina          17490

  Pakistan               8800            Mexico             6100

                                                             

                                                             

                                                             

                                                             

  Total for Others       240146                             270590

  Others not Listed                                          

  Grand Total            462383                             440590
  ---------------------- --------------- ------------------ --------------

# Policy

Bread, noodles and pasta continue to be popular foodstuffs in Ecuador,
thus the government monitors these prices very closely in order to
control inflation. In CY2003 wholesale prices for wheat flour averaged
\$20 to \$22 per 50 Kg. bag and retail prices at \$22 to \$23.50 per 50
Kg. bags. However, prices of wheat flour are controversial, since some
wheat millers have reduced prices to \$19 per 50 kg. Bag, which
according to some wheat millers is less than cost of production, which
has been constantly increasing due to increased price of transportation,
averaging \$35 per MT, at Guayaquil Sea Port.

The government of Ecuador abandoned the price band system for wheat in
July 2001, and the tariff rate for this product was set at 10 percent.
However, in August 2003, in order to comply with commitments under the
Andean region, Ecuador was forced to go back to Price Band system with
10 percent tariff rate plus and additional variable levy, depending on
the reference price, i.e., the variable levy increases as the reference
price goes down the floor price or the variable levy decreases as the
reference price goes up the ceiling price. Due to high prices for wheat
in the international market, the reference price for wheat is set at
\$186 per MT, being the floor price \$147.0 and the ceiling price at
\$164.0. As a consequence of that, ad-valorem CIF tariff rate has been
reduced to zero percent for wheat.

# 

# Corn

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

  **Country**      **Ecuador**                                                          

  **Commodity**    **Corn**                                       (1000                 
                                                                  HA)(1000              
                                                                  MT)                   

                   2002          Revised    2003       Estimate   2004       Forecast   UOM

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

  **Market Year                  10/2002               10/2003               10/2004    MM/YYYY
  Begin**                                                                               

  Area Harvested   170           120        170        110        0          150        (1000 HA)

  Beginning Stocks 37            80         26         107        41         107        (1000 MT)

  Production       280           280        300        250        0          300        (1000 MT)

  TOTAL Mkt. Yr.   304           337        350        360        0          340        (1000 MT)
  Imports                                                                               

  Oct-Sep Imports  304           337        350        360        0          340        (1000 MT)

  Oct-Sep Import   176           204        0          250        0          270        (1000 MT)
  U.S.                                                                                  

  TOTAL SUPPLY     621           697        676        717        41         747        (1000 MT)

  TOTAL Mkt. Yr.   70            80         60         70         0          90         (1000 MT)
  Exports                                                                               

  Oct-Sep Exports  70            80         60         70         0          90         (1000 MT)

  Feed Dom.        450           490        500        530        0          550        (1000 MT)
  Consumption                                                                           

  TOTAL Dom.       525           510        575        540        0          560        (1000 MT)
  Consumption                                                                           

  Ending Stocks    26            107        41         107        0          97         (1000 MT)

  TOTAL            621           697        676        717        0          747        (1000 MT)
  DISTRIBUTION                                                                          
  ---------------- ------------- ---------- ---------- ---------- ---------- ---------- ---------

# Production

Corn production in Ecuador will be estimated to be 250,000 MT in MY2003
on 110,000 hectares, which includes the southern hemisphere summer crop
(October-December 2003) and the upcoming winter crop (April- July 2004).
Adverse weather conditions, during the current seasons, drought during
December 2003 to February this year will affect and delay the planted
and harvested area mainly in the Los Rios province, where at least 35
percent of total corn is produced. FAS office has revised harvested area
figures both for MY2002 and MY2003 from 170,000 hectares to 120,000
hectares and 110,000 hectares, respectively; however, production figures
for MY2002 will remain the same in light of available updated
information of yields (about 2.2-2.3 MT/hectare) for these marketing
years, explained by the fact of use of better seeds. For the upcoming
market year, production is forecasted at 300,000 MT on 150,000 hectares,
assuming that next summer crop (October-December 2004) will be affected
by the current drought i.e., less moisture of the soil to planting corn,
and also assuming a normal rainfalls (December 2004 to February 2005)
for winter crop season (April-July 2005). If that occurs farmers will be
encouraged to plant corn in winter season, when 90 percent of the total
production is harvested. Yellow corn production, which is totally used
for feed compound industry, has been consistently decreasing since 1997
when it reached a 638,000 MT. The decreased production in last years is
a result of adverse weather conditions, lack of incentives in financing
crops, lack of technical assistance, low yields, and an inefficient
marketing system.

# Consumption

Corn consumption depends on the national animal feed-poultry and shrimp
production, as main inputs for feed meal compound, 94 percent of yellow
corn consumption in Ecuador is devoted to feed meal compound industry.
However, domestic yellow corn production has not kept pace with the
increased demand of corn for feed industry. Ecuador has a 99 million
chicken-per-year poultry market and a production of 155,000 MT of
poultry meat a year. By the same token, Ecuador produces 55,000 MT of
eggs a year. The feed meal compound industry in Ecuador has increased in
the last decade from 608,000 MT in 1993 to 1,400,000 MT in 2003. Feed
meal compound is foreseen to increase for the CY2004 to 1,500,000 MT,
which in turn means an increment of corn and soybean meal consumption.
The feed meal compound industry in Ecuador currently demands 500,000 to
530,000 MT of corn annually. Post forecasts for MY2004 an increase in
demand to 560,000 MT, as a consequence of a foreseen increase of poultry
meat production to 160,000 MT. Poultry meat is a cheaper source of
protein in the Ecuadorian diet, compared to red meat. Exports of poultry
meat to Colombia have decreased due to the increased prices of poultry
meat in Ecuador compared to Colombia prices.

# Trade

In MY2003 (October 2002-September 2003) Ecuador imported 360,000 MT of
yellow corn, of which 250,000 originated from the USA, and the remaining
came from Argentina. In spite of higher prices of US corn compared to
the Argentina corn prices, Ecuador prefers to import corn from the US,
due to the better quality of the product, in terms of less foreign
material. Ecuador is a net corn importer since local production is
unable to meet local demand. However, Ecuador exports corn to Colombia
where corn is better priced. In CY2003, Ecuador exported 70,000 MT of
yellow corn, in the peak of the winter crop season (May-June), when
Colombia is not producing corn. It is forecast to export to Colombia
90,000 MT for CY2004. Farmers will take advantage of the market in
Colombia at the same time it will maintain corn prices high in the local
market.

Ecuador officially announced through a Ministerial Agreement from the
Ministry of Agriculture in September 2003 the importation of 350,000 MT
of corn, which is included in the MY2003 figure. However, due to adverse
weather conditions, drought December - January, some planted areas were
affected, as that likely the allowed importation is expected to be
short. Sources from feed meal compound industry have reported that
Ecuador will need to import corn, but there is no decision from the
government to allow additional importations of corn. For the upcoming
market year 2004 (October 2004- September 2005) post forecasts 340,000
MT of imports, of which 270,000 MT will likely be originated in the
United States. The US share market remains strong at 75 to 80 percent,
with Argentina as a main competitor.

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

  **Country**            Ecuador                            

  **Commodity**          Corn                               

  Time Period            Jan-Dec         Units:             Metric Tons

  Imports for:           2002                               **2003**

  U.S.                   286433          U.S.               231477

  Others                                 Others             

  Argentina              81002           Argentina          124804

  Colombia               11712                               

                                                             

                                                             

                                                             

                                                             

                                                             

                                                             

                                                             

                                                             

  Total for Others       92714                              124804

  Others not Listed      2031                                

  Grand Total            381178                             356281
  ---------------------- --------------- ------------------ --------------

# Policy

Corn imports are assessed 15 percent ad-valorem import duties on CIF
basis, plus a variable levy applied under the price band system.
Currently, tariff rates for corn are placed at 15 percent, with minus 9
percent variable levy, since the CIF reference price set at \$143 per
metric ton is above the ceiling price of \$132 per metric ton.

Although the government of Ecuador does not provide any formal subsidy
or assistance program to promote yellow corn production, the Ministry of
Agriculture, through the Consulting Committee, supports agreements
between corn producers and feed meal compound industry to encourage corn
production by assuring farmers both a price at the international level
and the absorption of the local corn harvest. Sometimes, the corn prices
paid to local farmers are higher than prices of imported corn, including
CIF price. As an example, as of January 2004 farmers are paid \$165.28
per metric ton, while the cost of corn imported in the country is
\$161.09 per metric tons.

# Rice

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

  **Country**                   **Ecuador**                                               

  **Commodity**                 **Rice,                             (1000                 
                                Milled**                            HA)(1000              
                                                                    MT)                   

                     Revised    2002          2003       Estimate   2004       Forecast   UOM

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

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

  Area Harvested     244        244           240        230        0          210        (1000 HA)

  Beginning Stocks   168        168           169        138        159        98         (1000 MT)

  Milled Production  450        450           440        420        0          390        (1000 MT)

  Rough Production   726        726           710        677        0          629        (1000 MT)

  MILLING RATE       6200       6200          6200       6200       0          6200       (1000 MT)
  (.9999)                                                                                 

  TOTAL Imports      15         25            10         120        0          90         (1000 MT)

  Jan-Dec Imports    10         10            5          120        0          90         (1000 MT)

  Jan-Dec Import     0          0             0          0          0          0          (1000 MT)
  U.S.                                                                                    

  TOTAL SUPPLY       633        643           619        678        159        578        (1000 MT)

  TOTAL Exports      55         74            55         130        0          40         (1000 MT)

  Jan-Dec Exports    55         55            85         130        0          40         (1000 MT)

  TOTAL Dom.         440        400           405        450        0          456        (1000 MT)
  Consumption                                                                             

  Ending Stocks      138        169           159        98         0          82         (1000 MT)

  TOTAL DISTRIBUTION 633        643           619        678        0          578        (1000 MT)
  ------------------ ---------- ------------- ---------- ---------- ---------- ---------- ---------

# Production

Weather conditions and rainfalls have followed abnormal patterns. Winter
crop season for rice is dependable from rains during December, January
and February. As of February, the drought is affecting the current rice
crop season. As a consequence, the peak of harvest season is expected to
come late this year by June-July with first harvest not beginning until
late March or April. Farmers are still waiting normal rainfalls to start
sowing and planting rice. This circumstance will determine that Ecuador
will likely be short in rice and will need of some imports of rice. Post
forecasts total milled rice production for MY2004 (January 2004/December
2004) at 390,000 MT milled basis on 210,000 hectares, which is less than
previous year's revised figure of 420,000 MT of milled rice on 230,000
hectares. Post estimates at least 30,000 hectares of rice are definitely
lost due to lack of rainfalls.

# Consumption

Rice is a staple food of all Ecuadorians for three meals a day. The per
capita consumption, as a revised figure, ranges 36.5 to 38 Kg. per month
(lower than Peruvian consumption of 52 Kg, Colombia of 41 Kg, Brazil of
53 Kg.). However, these figures are controversial depending on which is
the purpose and who handles the information. Ecuador's domestic rice
consumption is forecasted to reach 456,000 MT of milled rice per year
for the MY2004, about 38,000 MT per month (milled basis), explained by
the fact of a modest recovery of purchasing power. Rice is sold
traditionally in markets, weighed and bagged from 45.36 kilos sacks.
However, as a result of the expansion of supermarkets chains in the main
cities of Ecuador, consumption habits of marketing have started
changing. It is calculated that 10 percent of rice is sold in bags of 2
kg. or 5 kg. with brand name.

# Trade

Ecuador exported about 60,000 MT of milled rice to Colombia in CY2003
owing an agreement between rice farmers and rice industries both in
Colombia and Ecuador. Most of these exports were made by road. However,
it seems that black market of rice from Ecuador into Colombia have
occurred totaling exports 130,000 MT of milled rice. Post has been
informed by rice millers industry that exports to Colombia under the
agreement were scheduled for April-June 2003; but in reality the window
for exports were reduced to three weeks in June. For CY2004, Colombia
through a Decree 3724 has established a minimum tariff rate quota for
rice imports of 75,118 MT of paddy rice, but the minimum TRQ can be
increased depending on Colombia's needs and subject to approval by the
Ministry of Agriculture. Lately, Colombia has increased its TRQ to
180,000 MT, paddy basis. According to Ecuadorian rice industry, Ecuador
will be ready to export milled rice to Colombia, but that depends on the
availability of rice from the winter crop season (April-July), which
Ecuador will likely be short. In the PS&D table, post has forecasted
40,000 MT of milled rice exported to Colombia in CY2004, including black
market from Ecuador into Colombia.

There are no official statistics that track informal trade, post
estimates that about 120,000 MT of rice-milled basis of Peruvian rice
have been smuggled to Ecuador in 2003. Post forecast imports at 90,000
MT for CY2004, including black market from Peru. If the current winter
harvest of rice comes late, Ecuador is to import milled rice to cover
the shortage of rice for April 2004, estimated at 65,000 MT of rice
paddy basis. In spite of that, the government, through the Minister of
Agriculture, has stated that Ecuador will not import rice. This is based
on the argument that there is enough rice for these months, which are
located in the mill plants, or storage by dealers, but the price of rice
in retail market has increased in January from \$21-22 to \$24-26 per
hundredweight.

# Policy

Rice imports are very sensitive issue in Ecuador. The Government of
Ecuador is pushing a self-sufficiency program for rice by implementing a
price band system and controlling imports. A Consulting Committee on
rice, consisting of producers, millers and government officials decide
on the timing and quantity of rice imports. Tariffs for rice are at 20
percent for non-Andean Community nations and zero to CAN nations. The
variable levy is currently at zero.