Required Report - public distribution

**Date:** 10/18/2004

**GAIN Report Number:** PE4018

PE4018

**Peru**

**Dairy and Products**

**Annual**

**2004**

**Approved by:**

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

U.S. Embassy

**Prepared by:**

Gaspar E. Nolte

**Report Highlights:**

Milk production in Peru continues increasing and is estimated to reach
in 1.285 MMT in CY 2004. Milk production is forecast at 1.325 MMT in CY
2005. Whole powder milk imports are forecast to remain steady at 6,000
MT, while nonfat dry milk imports continue its downward trend and are
forecast at 6,000 MT in CY 2005.

Includes PSD Changes: Yes

Includes Trade Matrix: Yes

Annual Report

Lima \[PE1\]

\[PE\]

Executive Summary

Fluid milk production in Peru continues increasing and is estimated to
reach 1.285 Million Metric Tons in 2004, increasing 4.4 percent compared
to the previous year, and is forecast to reach 1.325 MMT in CY 2005.
Whole powder milk imports are forecast to remain steady at 6,000 MT in
CY 2005, while imports of nonfat dry milk continue its downward trend
and are forecast at 6,000 MT for 2005.

Industry's demand for raw milk continues increasing as processing
plants, which have been investing in better technology and enhancing
their processing capacity, now begin to export evaporated milk. 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**   | **Pe |      |      |      |      |      |         |
|               | ru** |      |      |      |      |      |         |
+---------------+------+------+------+------+------+------+---------+
| **Commodity** | **Da |      |      |      | (    |      |         |
|               | iry, |      |      |      | 1000 |      |         |
|               | M    |      |      |      | HE   |      |         |
|               | ilk, |      |      |      | AD)( |      |         |
|               | Flu  |      |      |      | 1000 |      |         |
|               | id** |      |      |      | 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/  | MM/YYYY |
| Begin**       |      | 2003 |      | 2004 |      | 2005 |         |
+---------------+------+------+------+------+------+------+---------+
| Cows In Milk  | 620  | 630  | 623  | 650  | 0    | 660  | (1000   |
|               |      |      |      |      |      |      | HEAD)   |
+---------------+------+------+------+------+------+------+---------+
| Cows Milk     | 1250 | 1226 | 1280 | 1280 | 0    | 1320 | (1000   |
| Production    |      |      |      |      |      |      | MT)     |
+---------------+------+------+------+------+------+------+---------+
| Other Milk    | 5    | 5    | 5    | 5    | 0    | 5    | (1000   |
| Production    |      |      |      |      |      |      | MT)     |
+---------------+------+------+------+------+------+------+---------+
| TOTAL         | 1255 | 1231 | 1285 | 1285 | 0    | 1325 | (1000   |
| Production    |      |      |      |      |      |      | MT)     |
+---------------+------+------+------+------+------+------+---------+
| Intra EC      | 0    | 0    | 0    | 0    | 0    | 0    | (1000   |
| Imports       |      |      |      |      |      |      | MT)     |
+---------------+------+------+------+------+------+------+---------+
| Total Imports | 0    | 0    | 0    | 0    | 0    | 0    | (1000   |
|               |      |      |      |      |      |      | MT)     |
+---------------+------+------+------+------+------+------+---------+
| TOTAL Imports | 0    | 0    | 0    | 0    | 0    | 0    | (1000   |
|               |      |      |      |      |      |      | MT)     |
+---------------+------+------+------+------+------+------+---------+
| TOTAL SUPPLY  | 1255 | 1231 | 1285 | 1285 | 0    | 1325 | (1000   |
|               |      |      |      |      |      |      | MT)     |
+---------------+------+------+------+------+------+------+---------+
| Intra EC      | 0    | 0    | 0    | 0    | 0    | 0    | (1000   |
| Exports       |      |      |      |      |      |      | MT)     |
+---------------+------+------+------+------+------+------+---------+
| Total Exports | 0    | 0    | 0    | 0    | 0    | 0    | (1000   |
|               |      |      |      |      |      |      | MT)     |
+---------------+------+------+------+------+------+------+---------+
| TOTAL Exports | 0    | 0    | 0    | 0    | 0    | 0    | (1000   |
|               |      |      |      |      |      |      | MT)     |
+---------------+------+------+------+------+------+------+---------+
| Fluid Use     | 715  | 715  | 705  | 650  | 0    | 675  | (1000   |
| Dom. Consum.  |      |      |      |      |      |      | MT)     |
+---------------+------+------+------+------+------+------+---------+
| Factory Use   | 535  | 511  | 575  | 630  | 0    | 645  | (1000   |
| Consum.       |      |      |      |      |      |      | MT)     |
+---------------+------+------+------+------+------+------+---------+
| Feed Use Dom. | 5    | 5    | 5    | 5    | 0    | 5    | (1000   |
| Consum.       |      |      |      |      |      |      | MT)     |
+---------------+------+------+------+------+------+------+---------+
| TOTAL Dom.    | 1255 | 1231 | 1285 | 1285 | 0    | 1325 | (1000   |
| Consumption   |      |      |      |      |      |      | MT)     |
+---------------+------+------+------+------+------+------+---------+
| TOTAL         | 1255 | 1231 | 1285 | 1285 | 0    | 1325 | (1000   |
| DISTRIBUTION  |      |      |      |      |      |      | MT)     |
+---------------+------+------+------+------+------+------+---------+
| Calendar Yr.  | 0    | 0    | 0    | 0    | 0    | 0    | (1000   |
| Imp. from     |      |      |      |      |      |      | MT)     |
| U.S.          |      |      |      |      |      |      |         |
+---------------+------+------+------+------+------+------+---------+
| Calendar Yr.  | 0    | 0    | 0    | 0    | 0    | 0    | (1000   |
| Exp. to U.S.  |      |      |      |      |      |      | MT)     |
+---------------+------+------+------+------+------+------+---------+

+----------------+------+------+------+------+------+------+--------+
| ##             |      |      |      |      |      |      |        |
| #### PSD Table |      |      |      |      |      |      |        |
+----------------+------+------+------+------+------+------+--------+
| **Country**    | **Pe |      |      |      |      |      |        |
|                | ru** |      |      |      |      |      |        |
+----------------+------+------+------+------+------+------+--------+
| ###            | **Da |      |      |      | (    |      |        |
| #### Commodity | iry, |      |      |      | 1000 |      |        |
|                | M    |      |      |      | MT)  |      |        |
|                | ilk, |      |      |      |      |      |        |
|                | No   |      |      |      |      |      |        |
|                | nfat |      |      |      |      |      |        |
|                | D    |      |      |      |      |      |        |
|                | ry** |      |      |      |      |      |        |
+----------------+------+------+------+------+------+------+--------+
|                | 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**        |      | 2003 |      | 2004 |      | 2005 | M/YYYY |
+----------------+------+------+------+------+------+------+--------+
| Beginning      | 1    | 1    | 1    | 1    | 1    | 1    | (1000  |
| Stocks         |      |      |      |      |      |      | MT)    |
+----------------+------+------+------+------+------+------+--------+
| Production     | 0    | 0    | 0    | 0    | 0    | 0    | (1000  |
|                |      |      |      |      |      |      | MT)    |
+----------------+------+------+------+------+------+------+--------+
| Intra EC       | 0    | 0    | 0    | 0    | 0    | 0    | (1000  |
| Imports        |      |      |      |      |      |      | MT)    |
+----------------+------+------+------+------+------+------+--------+
| Total Imports  | 9    | 9    | 8    | 8    | 0    | 6    | (1000  |
|                |      |      |      |      |      |      | MT)    |
+----------------+------+------+------+------+------+------+--------+
| TOTAL Imports  | 9    | 9    | 8    | 8    | 0    | 6    | (1000  |
|                |      |      |      |      |      |      | MT)    |
+----------------+------+------+------+------+------+------+--------+
| TOTAL SUPPLY   | 10   | 10   | 9    | 9    | 1    | 7    | (1000  |
|                |      |      |      |      |      |      | MT)    |
+----------------+------+------+------+------+------+------+--------+
| Intra EC       | 0    | 0    | 0    | 0    | 0    | 0    | (1000  |
| Exports        |      |      |      |      |      |      | MT)    |
+----------------+------+------+------+------+------+------+--------+
| Total Exports  | 0    | 0    | 0    | 0    | 0    | 0    | (1000  |
|                |      |      |      |      |      |      | MT)    |
+----------------+------+------+------+------+------+------+--------+
| TOTAL Exports  | 0    | 0    | 0    | 0    | 0    | 0    | (1000  |
|                |      |      |      |      |      |      | MT)    |
+----------------+------+------+------+------+------+------+--------+
| Human Dom.     | 9    | 9    | 8    | 8    | 0    | 6    | (1000  |
| Consumption    |      |      |      |      |      |      | MT)    |
+----------------+------+------+------+------+------+------+--------+
| Other Use,     | 0    | 0    | 0    | 0    | 0    | 0    | (1000  |
| Losses         |      |      |      |      |      |      | MT)    |
+----------------+------+------+------+------+------+------+--------+
| Total Dom.     | 9    | 9    | 8    | 8    | 0    | 6    | (1000  |
| Consumption    |      |      |      |      |      |      | MT)    |
+----------------+------+------+------+------+------+------+--------+
| TOTAL Use      | 9    | 9    | 8    | 8    | 0    | 6    | (1000  |
|                |      |      |      |      |      |      | MT)    |
+----------------+------+------+------+------+------+------+--------+
| Ending Stocks  | 1    | 1    | 1    | 1    | 0    | 1    | (1000  |
|                |      |      |      |      |      |      | MT)    |
+----------------+------+------+------+------+------+------+--------+
| TOTAL          | 10   | 10   | 9    | 9    | 0    | 7    | (1000  |
| DISTRIBUTION   |      |      |      |      |      |      | MT)    |
+----------------+------+------+------+------+------+------+--------+
| Calendar Yr.   | 0    | 0    | 0    | 0    | 0    | 0    | (1000  |
| Imp. from U.S. |      |      |      |      |      |      | MT)    |
+----------------+------+------+------+------+------+------+--------+
| Calendar Yr.   | 0    | 0    | 0    | 0    | 0    | 0    | (1000  |
| Exp. to U.S.   |      |      |      |      |      |      | MT)    |
+----------------+------+------+------+------+------+------+--------+

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

  **Country**                            Peru

  **Commodity**                          Dairy, Milk, Nonfat Dry

  Time Period                            CY 2003

  Imports for:                           

  U.S.                                   29

  Others                                 

  New Zealand                            2816

  Australia                              1787

  UK                                     720

  Argentina                              434

                                         

  Total for Others                       5757

  Others not Listed                      500

  Grand Total                            6286
  -------------------------------------- --------------------------------

Units: Metric Tons

+---------------+-------+-----+------+------+------+------+--------+
| ###           |       |     |      |      |      |      |        |
| ### PSD Table |       |     |      |      |      |      |        |
+---------------+-------+-----+------+------+------+------+--------+
| **Country**   | **P   |     |      |      |      |      |        |
|               | eru** |     |      |      |      |      |        |
+---------------+-------+-----+------+------+------+------+--------+
| **Commodity** | **D   |     |      |      | (    |      |        |
|               | airy, |     |      |      | 1000 |      |        |
|               | Dry   |     |      |      | MT)  |      |        |
|               | Whole |     |      |      |      |      |        |
|               | Milk  |     |      |      |      |      |        |
|               | Pow   |     |      |      |      |      |        |
|               | der** |     |      |      |      |      |        |
+---------------+-------+-----+------+------+------+------+--------+
|               | 2003  | R   | 2004 | Esti | 2005 | Fore | UOM    |
|               |       | evi |      | mate |      | cast |        |
|               |       | sed |      |      |      |      |        |
+---------------+-------+-----+------+------+------+------+--------+
|               | USDA  | P   | USDA | Post | USDA | Post |        |
|               | Off   | ost | Offi | Esti | Offi | Esti |        |
|               | icial | Es  | cial | mate | cial | mate |        |
|               | \[    | tim | \[O  | \[N  | \[O  | \[N  |        |
|               | Old\] | ate | ld\] | ew\] | ld\] | ew\] |        |
|               |       | \   |      |      |      |      |        |
|               |       | [Ne |      |      |      |      |        |
|               |       | w\] |      |      |      |      |        |
+---------------+-------+-----+------+------+------+------+--------+
| **Market Year |       | 0   |      | 01/  |      | 01/  | M      |
| Begin**       |       | 1/2 |      | 2004 |      | 2005 | M/YYYY |
|               |       | 003 |      |      |      |      |        |
+---------------+-------+-----+------+------+------+------+--------+
| Beginning     | 2     | 2   | 1    | 1    | 1    | 1    | (1000  |
| Stocks        |       |     |      |      |      |      | MT)    |
+---------------+-------+-----+------+------+------+------+--------+
| Production    | 0     | 0   | 0    | 0    | 0    | 0    | (1000  |
|               |       |     |      |      |      |      | MT)    |
+---------------+-------+-----+------+------+------+------+--------+
| Intra EC      | 0     | 0   | 0    | 0    | 0    | 0    | (1000  |
| Imports       |       |     |      |      |      |      | MT)    |
+---------------+-------+-----+------+------+------+------+--------+
| Total Imports | 8     | 8   | 6    | 6    | 0    | 6    | (1000  |
|               |       |     |      |      |      |      | MT)    |
+---------------+-------+-----+------+------+------+------+--------+
| TOTAL Imports | 8     | 8   | 6    | 6    | 0    | 6    | (1000  |
|               |       |     |      |      |      |      | MT)    |
+---------------+-------+-----+------+------+------+------+--------+
| TOTAL SUPPLY  | 10    | 10  | 7    | 7    | 1    | 7    | (1000  |
|               |       |     |      |      |      |      | MT)    |
+---------------+-------+-----+------+------+------+------+--------+
| Intra EC      | 0     | 0   | 0    | 0    | 0    | 0    | (1000  |
| Exports       |       |     |      |      |      |      | MT)    |
+---------------+-------+-----+------+------+------+------+--------+
| Total Exports | 0     | 0   | 0    | 0    | 0    | 0    | (1000  |
|               |       |     |      |      |      |      | MT)    |
+---------------+-------+-----+------+------+------+------+--------+
| TOTAL Exports | 0     | 0   | 0    | 0    | 0    | 0    | (1000  |
|               |       |     |      |      |      |      | MT)    |
+---------------+-------+-----+------+------+------+------+--------+
| Human Dom.    | 9     | 9   | 6    | 6    | 0    | 6    | (1000  |
| Consumption   |       |     |      |      |      |      | MT)    |
+---------------+-------+-----+------+------+------+------+--------+
| Other Use,    | 0     | 0   | 0    | 0    | 0    | 0    | (1000  |
| Losses        |       |     |      |      |      |      | MT)    |
+---------------+-------+-----+------+------+------+------+--------+
| Total Dom.    | 9     | 9   | 6    | 6    | 0    | 6    | (1000  |
| Consumption   |       |     |      |      |      |      | MT)    |
+---------------+-------+-----+------+------+------+------+--------+
| TOTAL Use     | 9     | 9   | 6    | 6    | 0    | 6    | (1000  |
|               |       |     |      |      |      |      | MT)    |
+---------------+-------+-----+------+------+------+------+--------+
| Ending Stocks | 1     | 1   | 1    | 1    | 0    | 1    | (1000  |
|               |       |     |      |      |      |      | MT)    |
+---------------+-------+-----+------+------+------+------+--------+
| TOTAL         | 10    | 10  | 7    | 7    | 0    | 7    | (1000  |
| DISTRIBUTION  |       |     |      |      |      |      | MT)    |
+---------------+-------+-----+------+------+------+------+--------+
| Calendar Yr.  | 0     | 0   | 0    | 0    | 0    | 0    | (1000  |
| Imp. from     |       |     |      |      |      |      | MT)    |
| U.S.          |       |     |      |      |      |      |        |
+---------------+-------+-----+------+------+------+------+--------+
| Calendar Yr.  | 0     | 0   | 0    | 0    | 0    | 0    | (1000  |
| Exp. to U.S.  |       |     |      |      |      |      | MT)    |
+---------------+-------+-----+------+------+------+------+--------+

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

  **Country**                    Peru

  **Commodity**                  Dairy, Dry Whole Milk Powder

  Time Period                    CY 2003

  Imports for:                   

  U.S.                           0

  Others                         

  Bolivia                        3802

  New Zealand                    533

  Australia                      482

  Argentina                      311

                                 

  Total for Others               5128

  Others not Listed              462

  Grand Total                    5590
  ------------------------------ ----------------------------------------

Units: Metric Tons

**Production**

Fluid milk production is forecast to increase 2.8 percent to 1.325
Milllion Metric Tons in 2005. Processing plants have invested in
technology increasing capacity and efficiency. Demand for raw milk
continues to rise, making milk production one of the few profitable
business in the agricultural sector. In the past five years, several
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 south,
Cajamarca in the northeast region and Lima on the coast. Arequipa, which
accounts for about 22 percent of milk production in Peru, is 1,000
kilometers south of Lima, and has very good quality forage, mainly
alfalfa. Gloria, the largest milk processing plant in Peru, buys most of
the production. Cajamarca in the northern highlands is an excellent
dairy area due to the availability plant in this area, it accounts for
17 percent of total milk production. 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. Lima accounts for about 16 percent
of total milk production.

![](media/image2.wmf)

Some milk processing plants provide technical support programs to
producers. 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 tuberculosis 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 producer. 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. This
type of producers receives technical assistance from the processing
plants and also from the Ministry of Agricultures. Feeding programs are
based on natural pastures or, in some cases, improved grasses.

# 

# 

# ![](media/image3.wmf)

# 

# Consumption

Milk consumption in Peru is only 58 liters per capita per annum, not
even half of the minimum consumption recommended by the United Nations
Food and Agriculture Organization. Due to difficulties to keep the cold
chain, evaporated milk is the most popular way in which milk is consumed
in Peru, about 75 percent of the market. 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.

![](media/image4.wmf)

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 is mainly caused by the high price of the package, which is
sold by a monopoly (Tetrapack). Depending on a single supplier also
concerns the processors.

The industry's investment in 2004, is estimated total \$20 million. This
investment is mainly directed at implementing cooling stations and
increasing processing capacity.

## 

# Trade

With 2,816 MT, New Zealand was the largest non fat milk supplier to be
Peru in 2003. Bolivia was the largest whole milk powder supplier in
2003, with 3,802 MT. Pil, a dairy processing company owned by the
Peruvian Gloria, does Bolivia's whole milk powder exports to Peru.

Dairy products are assessed 25 percent import duty plus a value added
tax of 19 percent. Since the GOP considers dairy products as "sensitive
products" they are subject to a variable levy, which is related to
international prices. The price band effectively sets a minimum price
for imported dairy products. Since international prices have been
increasing in recent years, dairy processors have replaced imported
powder milk with local production.

Recently, Peru has began to export evaporated milk. Peru exported 20,059
MT of evaporated milk in CY 2003. The main foreign markets for Peruvian
evaporated milk are Haiti (8,430 MT), Bolivia (3,354 MT) and Chile
(1,066 MT).

Butter imports in CY 2003, totaled 353 MT. Argentina and Bolivia were
the main suppliers with 105 MT and 133 MT respectively. Cheese imports
were 1,435 MT in CY 2003. Argentina led the market with 474 MT, followed
by Bolivia with 271 MT and New Zealand with 144 MT. The U.S. exported
104 MT of cheese in CY 2003.

# 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

Peru has recently negotiated a free trade agreement with MERCOSUR, which
has not been signed yet. This agreement has found a strong opposition
from Peruvian dairy producers and processors who fear that Argentine or
Uruguayan products may flood the market. They argue that they have
invested around \$80 million since 1995 and that all that investment may
be at risk if the government signs the agreement without taking
provisions to protect the local industry.

# Marketing

The milk market in Peru is concentrated in two large firms, Gloria,
which also owns three processing plants in Bolivia and Dean Foods in
Puerto Rico, and Nestle. 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.

Traditional cheese-makers (queseros) usually pay high prices for milk
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.