Required Report - Public distribution

**Date:** 4/25/2008

**GAIN Report Number:** PE8013

PE8013

**Peru**

**Coffee**

**Annual**

**2008**

**Approved by:**

![](media/image1.wmf)Eugene Philhower

U.S. Embassy

**Prepared by:**

Gaspar E. Nolte

**Report Highlights:**

Coffee production for MY 2009 is forecast at 4.3 million 60-kilogram
bags. Coffee is Peru\'s largest agricultural export. Its main markets
are Germany and the U.S. Coffee exports for MY 2009 are forecast at 4.18
million bags.

Includes PSD Changes: Yes

Includes Trade Matrix: Yes

Annual Report

Lima \[PE1\]

\[PE\]

# 

# Summary {#summary-1}

# Coffee production for Marketing Year 2009 (April/March) is forecast to increase 9 percent to 4.3 million 60-kilogram bags. Average yields are around 750 kilograms per hectare but can reach 2,300 kilograms per hectare among the most efficient producers. Annual coffee consumption in Peru has increased somewhat in the last five years but remains very low, per capita consumption is 500 grams, one of the lowest in the region. Coffee is Peru's lead agricultural export. The main markets for Peruvian coffee in CY 2007 were Germany and the U.S. with 32 percent and 30 percent, respectively, of total exports in terms of value. 

# 

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

  **Country**     **Peru**                                                                                                                      

  **Commodity**   **Coffee,                                           (1000                                                                     
                  Green**                                             HA)(MILLION                                                               
                                                                      TREES)(1000                                                               
                                                                      60 KG BAGS)                                                               

                  2007        Revised                      2008       Estimate                       2009           Forecast                    

                  USDA\       Post\      Post\             USDA\      Post\         Post\            USDA\          Post\           Post\       
                  Official    Estimate   Estimate\         Official   Estimate      Estimate\        Official       Estimate        Estimate\   
                                         New                                        New                                             New         

  **Market Year               04/2006    04/2006                      04/2007       04/2007                         04/2008         04/2008     
  Begin**                                                                                                                                       

  Area Planted    285         285        285               285        285           287              0              0               287         

  Area Harvested  262         262        262               260        260           264              0              0               264         

  Bearing Trees   455         455        455               460        460           462              0              0               462         

  Non-Bearing     22          22         22                20         20            20               0              0               20          
  Trees                                                                                                                                         

  Total Tree      477         477        477               480        480           482              0              0               482         
  Population                                                                                                                                    

  Beginning       24          24         24                24         24            24               10             10              16          
  Stocks                                                                                                                                        

  Arabica         3996        3996       4550              3190       3190          3950             0              0               4300        
  Production                                                                                                                                    

  Robusta         0           0          0                 0          0             0                0              0               0           
  Production                                                                                                                                    

  Other           0           0          0                 0          0             0                0              0               0           
  Production                                                                                                                                    

  Total           3996        3996       4550              3190       3190          3950             0              0               4300        
  Production                                                                                                                                    

  Bean Imports    0           0          0                 0          0             0                0              0               0           

  Roast & Ground  0           0          0                 0          0             0                0              0               0           
  Imports                                                                                                                                       

  Soluble Imports 0           0          0                 0          0             0                0              0               0           

  Total Imports   0           0          0                 0          0             0                0              0               0           

  Total Supply    4020        4020       4574              3214       3214          3974             10             10              4316        

  Bean Exports    3876        3876       4430              3094       3094          3840             0              0               4180        

  Rst-Grnd Exp.   0           0          0                 0          0             0                0              0               0           

  Soluble Exports 0           0          0                 0          0             0                0              0               0           

  Total Exports   3876        3876       4430              3094       3094          3840             0              0               4180        

  Rst,Ground Dom. 12          12         11                10         10            10               0              0               10          
  Consum                                                                                                                                        

  Soluble Dom.    108         108        109               100        100           108              0              0               108         
  Cons.                                                                                                                                         

  Domestic Use    120         120        120               110        110           118              0              0               118         

  Ending Stocks   24          24         24                10         10            16               0              0               18          

  Total           4020        4020       4574              3214       3214          3974             0              0               4316        
  Distribution                                                                                                                                  

  Exportable      3876        3876       4430              3080       3080          3832             0              0               4182        
  Production                                                                                                                                    
  --------------- ----------- ---------- ----------- ----- ---------- ------------- ----------- ---- ---------- --- ---------- ---- ----------- -----

#  

# 

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

  **Country**                      Peru

  **Commodity**                    Coffee, Green

  Time Period                      CY 2007

  Exports for:                      

  U.S.                             52,688

  Others                           

  Germany                          54,868

  Belgium                          15,504

  Netherlands                      7,886

  Sweden                           7,869

  Korea                            5,609

  Canada                           5,321

  U.K.                             4,382

  France                           2,606

                                    

                                    

  Total for Others                 104,045

  Others not Listed                16,881

  Grand Total                      173,614
  -------------------------------- --------------------------------------

# Units: Metric Tons 

# Production

Coffee production for Marketing Year 2009 (April/March) is forecast to
increase 9 percent to 4.3 million 60-kilogram bags. Improved
agricultural practices and solid international prices will drive this
increase and will most likely continue in upcoming years.

Coffee in Peru is mostly grown by very small producers; an average
producer has 2-3 hectares under production. Most producers are grouped
in associations or cooperatives that allow them to negotiate better
prices and improve post harvest handling of production. The larger
associations can have up to 2,000 members and over 7,000 hectares and
the most sophisticated ones can even have a financial branch that
provides funds to producers to increase or improve their crop. Almost
two million people depend directly or indirectly on coffee production,
out of total farm population of 9 million people.

Average yields are around 750 kilograms per hectare but can reach 2,300
kilograms per hectare among the most efficient producers. Low yields are
due to poor cultivation practices. Due to relatively high costs, plant
replacement and fertilization are rare among coffee growers. Average
cost of production is about \$62 per hectare of which about 80 percent
is labor. Harvesting season begins in April and reaches its peak in
June-September.

Coffee is grown throughout the eastern slopes of the Andes but is
concentrated in three principal growing areas. The most important area
for both volume and quality is the central eastern slopes of the Andes
in Chanchamayo with 30 percent of total production. The other two areas
are the northern Andes and Cusco region, with 21 and 18 percent,
respectively.

Peru grows Arabica coffee almost exclusively, of which 70 percent is
*typica* variety, about 20 percent *caturra,* and 10 percent other*.*
About 85 percent of the crop is harvested between April and July.

About 75 percent of the coffee grown in Peru is produced between 1,000
and 1,800 meters above sea level. Coffee grows under shade with an
average plant density of 2,000 plants per hectare. It is hand picked and
sun dried, giving it great potential for targeting high quality markets.
Currently, producers are in search of a profitable shade tree variety to
plant with coffee to increase revenues. Some varieties of pine have been
tested commercially with excellent results. For example, after a
twelve-year period, producers can obtain as much as \$80,000 per hectare
from lumber, which is equivalent to an extra yield of 34 60-kilogram
bags per harvest each year.

Coffee producers face two main constraints. The first is lack of credit,
as private banks still do not accept the farmers' often-untitled land as
loan collateral. Most farmers obtain their loans from coffee buyers or
informal lenders, with high interest rates (around 14-20 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.

# Consumption

Annual coffee consumption in Peru has increased somewhat in the last
five years but remains very low, per capita consumption is 500 grams,
one of the lowest in the region (per capita consumption in Colombia and
Brazil are 2 and 4.6 kilograms per annum respectively). Peruvians
consume mostly instant coffee, comprising about 75 percent of total
consumption.

With more cafes and restaurants opening almost every day, coffee
consumption habits in Peru are slowly beginning to change. However, this
sector only accounts for 10 percent of the demand. Small corner stores
and supermarkets are still the main source of coffee, accounting for 60
and 30 percent of total demand, respectively.

# Trade

Coffee is Peru's lead agricultural export. The main markets for Peruvian
coffee in CY 2007 were Germany with 32 percent and the U.S. with 30
percent of the total exports in terms of value. Coffee exports in MY
2008/2009 are expected at 4.18 million 60-kilogram bags, a 9 percent
increase from the previous year. Around 70 percent of the coffee
production is traded on spot prices, 30 percent is sold in the futures
market. Average price for CY2008 is estimated at \$132 per MT a
significant increase from the \$105 per MT paid in 2007.

With exports of \$91.3 million in 2007, Peru has become the largest
organic coffee exporter. Peruvian exports of specialty coffees have
grown consistently over the years, from \$7.9 million in CY 1998 to
\$120 million in CY 2007. Even small producers are beginning to learn
about premiums for specialty coffees and are accessing different
certifications:

-   Fair Trade: price is set at \$161 per MT, certified by Fairtrade
    Labelling Organizations International (FLO)

-   Sustainable Coffee: \$7 per MT premium, cerfied by Rainforest
    Alliance

-   Café Practice: \$10-14 per MT premium, certified by Starbucks

-   Organic: \$9 per MT premium, certified by several agencies such as
    the USDA's National Organic Program (NOP), Japanese Agricultural
    Standards (JAS), Natureland and the Organic Crop Improvement
    Association (OCIA).

# Policy

The coffee industry in Peru generates 855,000 jobs in very poor and
remote areas where transportation can be extremely difficult. The
Government of Peru, through DEVIDA, the umbrella agency for counter
narcotic affairs, has encouraged coffee production as an alternative
crop to coca leaf production. The U.S. Agency for International
Development (USAID) has been assisting approximately 10 percent of
Peru's coffee farmers in increasing their 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, USAID -- through the Poverty
Alleviation and Reduction (PRA) project -- is involved in developing
business opportunities for exporting coffee. They are switching their
focus from production to developing markets overseas. Another important
contribution of the USG is assisting producers in complying with
Peruvian procedures for land titling.

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