Required Report - public distribution

**Date:** 4/23/2004

**GAIN Report Number:** PE4007

PE4007

**Peru**

**Coffee**

**Annual**

**2004**

**Approved by:**

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

U.S. Embassy

**Prepared by:**

Gaspar E. Nolte

**Report Highlights:**

Coffee production for Marketing Year 2004/2005 (April/March) is forecast
to reach 2.98 million 60-kilogram bags, a four percent increase compared
to the previous year. Exports are forecast at 2.75 million 60-kilogram
bags.

Includes PSD Changes: Yes

Includes Trade Matrix: Yes

Annual Report

Lima \[PE1\]

\[PE\]

#  

[Executive Summary 3](#executive-summary)

[Production 6](#production)

[Consumption 6](#consumption)

[Trade 7](#trade)

[Policy 7](#policy)

#   {#section-1 .unnumbered}

# Executive Summary

Coffee production for Marketing Year 2004/2005 (April/March) is expected
to reach 2.98 million 60-kilogram bags, a slight increase compared to
the previous year. This four percent increase in mainly due to higher
yields due to better prices. Exports are forecast at 2.75 million
60-kilogram bags for MY 2004/2005, about 65,000 bags more than the
previous year. Gourmet coffee exports continued increasing in 2003,
reaching \$35 million.

# 

+-------------+--------+------+------+------+------+------+---------+
| #####       |        |      |      |      |      |      |         |
| # PSD Table |        |      |      |      |      |      |         |
+-------------+--------+------+------+------+------+------+---------+
| **Country** | **     |      |      |      |      |      |         |
|             | Peru** |      |      |      |      |      |         |
+-------------+--------+------+------+------+------+------+---------+
| **          | **C    |      |      |      | (    |      |         |
| Commodity** | offee, |      |      |      | 1000 |      |         |
|             | G      |      |      |      | HA)  |      |         |
|             | reen** |      |      |      | (MIL |      |         |
|             |        |      |      |      | LION |      |         |
|             |        |      |      |      | TRE  |      |         |
|             |        |      |      |      | ES)( |      |         |
|             |        |      |      |      | 1000 |      |         |
|             |        |      |      |      | 60   |      |         |
|             |        |      |      |      | KG   |      |         |
|             |        |      |      |      | B    |      |         |
|             |        |      |      |      | AGS) |      |         |
+-------------+--------+------+------+------+------+------+---------+
|             | 2003   | Rev  | 2004 | Esti | 2005 | Fore | UOM     |
|             |        | ised |      | mate |      | cast |         |
+-------------+--------+------+------+------+------+------+---------+
|             | USDA   | Post | USDA | Post | USDA | Post |         |
|             | Of     | Esti | Offi | Esti | Offi | Esti |         |
|             | ficial | mate | cial | mate | cial | mate |         |
|             | \      | \[N  | \[O  | \[N  | \[O  | \[N  |         |
|             | [Old\] | ew\] | ld\] | ew\] | ld\] | ew\] |         |
+-------------+--------+------+------+------+------+------+---------+
| **Market    |        | 04/  |      | 04/  |      | 04/  | MM/YYYY |
| Year        |        | 2002 |      | 2003 |      | 2004 |         |
| Begin**     |        |      |      |      |      |      |         |
+-------------+--------+------+------+------+------+------+---------+
| Area        | 270    | 280  | 270  | 282  | 0    | 285  | (1000   |
| Planted     |        |      |      |      |      |      | HA)     |
+-------------+--------+------+------+------+------+------+---------+
| Area        | 230    | 239  | 230  | 247  | 0    | 250  | (1000   |
| Harvested   |        |      |      |      |      |      | HA)     |
+-------------+--------+------+------+------+------+------+---------+
| Bearing     | 430    | 450  | 430  | 455  | 0    | 460  | (       |
| Trees       |        |      |      |      |      |      | MILLION |
|             |        |      |      |      |      |      | TREES)  |
+-------------+--------+------+------+------+------+------+---------+
| Non-Bearing | 20     | 20   | 20   | 20   | 0    | 25   | (       |
| Trees       |        |      |      |      |      |      | MILLION |
|             |        |      |      |      |      |      | TREES)  |
+-------------+--------+------+------+------+------+------+---------+
| TOTAL Tree  | 450    | 470  | 450  | 475  | 0    | 485  | (       |
| Population  |        |      |      |      |      |      | MILLION |
|             |        |      |      |      |      |      | TREES)  |
+-------------+--------+------+------+------+------+------+---------+
| Beginning   | 20     | 20   | 10   | 20   | 10   | 5    | (1000   |
| Stocks      |        |      |      |      |      |      | 60 KG   |
|             |        |      |      |      |      |      | BAGS)   |
+-------------+--------+------+------+------+------+------+---------+
| Arabica     | 2750   | 2760 | 2850 | 2870 | 0    | 2980 | (1000   |
| Production  |        |      |      |      |      |      | 60 KG   |
|             |        |      |      |      |      |      | BAGS)   |
+-------------+--------+------+------+------+------+------+---------+
| Robusta     | 0      | 0    | 0    | 0    | 0    | 0    | (1000   |
| Production  |        |      |      |      |      |      | 60 KG   |
|             |        |      |      |      |      |      | BAGS)   |
+-------------+--------+------+------+------+------+------+---------+
| Other       | 0      | 0    | 0    | 0    | 0    | 0    | (1000   |
| Production  |        |      |      |      |      |      | 60 KG   |
|             |        |      |      |      |      |      | BAGS)   |
+-------------+--------+------+------+------+------+------+---------+
| TOTAL       | 2750   | 2760 | 2850 | 2870 | 0    | 2980 | (1000   |
| Production  |        |      |      |      |      |      | 60 KG   |
|             |        |      |      |      |      |      | BAGS)   |
+-------------+--------+------+------+------+------+------+---------+
| Bean        | 0      | 0    | 0    | 0    | 0    | 0    | (1000   |
| Imports     |        |      |      |      |      |      | 60 KG   |
|             |        |      |      |      |      |      | BAGS)   |
+-------------+--------+------+------+------+------+------+---------+
| Roast &     | 0      | 0    | 0    | 0    | 0    | 0    | (1000   |
| Ground      |        |      |      |      |      |      | 60 KG   |
| Imports     |        |      |      |      |      |      | BAGS)   |
+-------------+--------+------+------+------+------+------+---------+
| Soluble     | 0      | 0    | 0    | 0    | 0    | 0    | (1000   |
| Imports     |        |      |      |      |      |      | 60 KG   |
|             |        |      |      |      |      |      | BAGS)   |
+-------------+--------+------+------+------+------+------+---------+
| TOTAL       | 0      | 0    | 0    | 0    | 0    | 0    | (1000   |
| Imports     |        |      |      |      |      |      | 60 KG   |
|             |        |      |      |      |      |      | BAGS)   |
+-------------+--------+------+------+------+------+------+---------+
| TOTAL       | 2770   | 2780 | 2860 | 2890 | 10   | 2985 | (1000   |
| SUPPLY      |        |      |      |      |      |      | 60 KG   |
|             |        |      |      |      |      |      | BAGS)   |
+-------------+--------+------+------+------+------+------+---------+
| Bean        | 2575   | 2575 | 2665 | 2685 | 0    | 2750 | (1000   |
| Exports     |        |      |      |      |      |      | 60 KG   |
|             |        |      |      |      |      |      | BAGS)   |
+-------------+--------+------+------+------+------+------+---------+
| Roast &     | 0      | 0    | 0    | 0    | 0    | 0    | (1000   |
| Ground      |        |      |      |      |      |      | 60 KG   |
| Exports     |        |      |      |      |      |      | BAGS)   |
+-------------+--------+------+------+------+------+------+---------+
| Soluble     | 0      | 0    | 0    | 0    | 0    | 0    | (1000   |
| Exports     |        |      |      |      |      |      | 60 KG   |
|             |        |      |      |      |      |      | BAGS)   |
+-------------+--------+------+------+------+------+------+---------+
| TOTAL       | 2575   | 2575 | 2665 | 2685 | 0    | 2750 | (1000   |
| Exports     |        |      |      |      |      |      | 60 KG   |
|             |        |      |      |      |      |      | BAGS)   |
+-------------+--------+------+------+------+------+------+---------+
| Rst,Ground  | 60     | 60   | 60   | 70   | 0    | 70   | (1000   |
| Dom. Consum |        |      |      |      |      |      | 60 KG   |
|             |        |      |      |      |      |      | BAGS)   |
+-------------+--------+------+------+------+------+------+---------+
| Soluble     | 125    | 125  | 125  | 130  | 0    | 140  | (1000   |
| Dom.        |        |      |      |      |      |      | 60 KG   |
| Consum.     |        |      |      |      |      |      | BAGS)   |
+-------------+--------+------+------+------+------+------+---------+
| TOTAL Dom.  | 185    | 185  | 185  | 200  | 0    | 210  | (1000   |
| Consumption |        |      |      |      |      |      | 60 KG   |
|             |        |      |      |      |      |      | BAGS)   |
+-------------+--------+------+------+------+------+------+---------+
| Ending      | 10     | 20   | 10   | 5    | 0    | 25   | (1000   |
| Stocks      |        |      |      |      |      |      | 60 KG   |
|             |        |      |      |      |      |      | BAGS)   |
+-------------+--------+------+------+------+------+------+---------+
| TOTAL       | 2770   | 2780 | 2860 | 2890 | 0    | 2985 | (1000   |
| D           |        |      |      |      |      |      | 60 KG   |
| ISTRIBUTION |        |      |      |      |      |      | BAGS)   |
+-------------+--------+------+------+------+------+------+---------+

  ------------------------------------ ----------------------------------
  **Export Trade Matrix**              

  **Country**                          Peru

  **Commodity**                        Coffee, Green

  Time Period                          CY 2004

  Exports for:                         

  U.S.                                 48096

  Others                               

  Germany                              48947

  Netherlands                          9142

  Belgium                              8712

  Canada                               5071

                                       

  Total for Others                     71872

  Others not Listed                    30386

  Grand Total                          150354
  ------------------------------------ ----------------------------------

Units: Metric Tons

#  Production

Coffee production in MY2005 is forecast to increase four percent to 2.98
million 60-kilogram bags. Higher yields, more beans being picked, as a
result of better prices will drive this slight increase. Peru only
accounts for about two percent of the world's coffee production.

Coffee is grown in Peru in three areas. The most important for both
volume and quality is the central eastern slopes of the Andes in
Chanchamayo. The northern Andes and Cusco are the other two areas.
Chanchamayo has been one of the most affected by drug trafficking and
terrorism in the past, which has not allowed any increases in production
or technical assistance until recently. Though terrorism has been
eliminated from most parts of the country, it continues to have a
threatening presence in this area.

The vast majority of coffee producers limit their cultural practices to
picking the beans during the harvest, provided prices are attractive.
Because of relatively high costs, plant replacement and fertilization
are rare among coffee growers. Thus average yields are quite low,
between 8 and 16 bags per hectare, compared with 75 bags that some of
the top producers are able to obtain in the same area (Chanchaymayo),
they replant and use fertilizers. If prices are not attractive, as in
the recent past, coffee producers prefer not to pick the beans to avoid
harvesting costs.

![](media/image2.wmf)

As with most Peruvian agricultural crops throughout the country, coffee
producers face two major constraints. First, a lack of credit, as
private banks still do not accept the farmers' often untitled land as
loan collateral, and there is no official government lending
institution. Most farmers obtain their loans from coffee buyers, with
the consequent high interest rate (around 14 percent), and a sale
contract on the coffee's price. Second, during the land reform of the
1970\'s, land was divided into small plots, making it extremely
difficult to efficiently manage coffee production, harvesting and
processing. The average coffee producing unit in Peru is less than 10
hectares.

Because coffee grows in the coca producing areas, there have been some
efforts by international aid agencies to provide technical assistance to
produce and market coffee as an "alternative crop" for coca. Organic
coffee production, in particular, has been targeted. There are about
19,000 hectares planted, about six percent of Peru's total coffee
production area, with a production of about 200,000 60-kilogram bags
certified as organic.

## 

# Consumption

Coffee consumption in Peru is rather low, about 300 grams per capita,
which translates into about 130,000 60-kilogram, bags a year. Per capita
consumption in some countries reach 13 kilograms. Peruvian consumers
have changed their consumption habits from roasted and ground to soluble
coffee; around 75 percent of the coffee consumed in the country is
soluble.

# Trade

With total exports estimated of \$181 million in CY 2003, coffee is
Peru's second largest agricultural export. The main importers are
Germany with 33 percent and the U.S. with 32 percent of the total
exports. Coffee exports in MY 2004/2005 are expected at 2.75 million
60-kilogram bags, increasing international prices will drive this slight
recovery.

![](media/image3.wmf)

Peruvian exports of gourmet coffee have grown consistently in the past
six years, from \$7.9 in CY 1998 million to \$35 million in CY 2003.
Aiming at promoting Peruvian gourmet coffee and increasing exports in
the future, an association of gourmet coffees has been founded
(APECAFE). This association estimates that gourmet coffee could become
one of Peru's top agricultural exports. An important accomplishment has
been selling coffee marketed as Peruvian Gourmet Coffee on Lufthansa's
flights. Apparently, Iberia would also be interested in selling this
coffee aboard.

# Policy

The GOP, through DEVIDA, the umbrella agency for counter narcotic
affairs continues encouraging coffee production as an alternative crop
to coca leaf production. The U.S. Agency for International Development
(USAID) has been assisting approximately ten percent of Peru's coffee
farmers to increase the production and quality as part of an economic
development program aimed at increasing farmers' licit incomes in coca
areas. Part of this program is to match Peruvian coffee producers with
U.S. gourmet coffee markets. Currently, AID through the PRA project is
involved in developing business opportunities for exporting coffee. They
are switching their focus from production to developing markets
overseas.

As coffee buyers develop higher quality standards, such as good
agricultural practices, good processing practices, HAACP; coffee
producers will need permanent training to be able to comply with the
international demand.