A Research on the Peruvian Fresh Fruits Exports to the United States

Erika Cristina Porto Viana

September – December 2015

A little about Peru…

The Republic of Peru is a country located in western South America. It is bordered in the north by Ecuador and Colombia, in the east by Brazil, in the southeast by Bolivia, in the south by Chile, and in the west by the Pacific Ocean as shown in the map below. Peru is one of the countries with the biggest biodiversity, ranging from the plains of the Pacific coastal region to the tropical Amazon Basin rainforest.

The multiethnic population of Peru - which includes Amerindians, Europeans, Africans and Asians- is close to 30.4 million. The main spoken language is Spanish but some Peruvians still speak Quechua and other ancient native languages. The mixture of cultural traditions resulted in an interesting and beautiful diversity expressions in arts, cuisine, literature and music.

The Peruvian territory is known for being home to ancient cultures such as the Norte Chico civilization in Caral to the Inca Empire in Pre-Columbian America. In modern era, the country has undergone changes in government from oligarchic to democratic systems. Peru has gone through periods of political unrest and internal conflict as well as periods of stability and economic upswing.

Peru is a representative democratic republic, divided into 25 regions. It is a developing country with a substantially high Human Development Index score of 25.8%. Its main economic activities include mining, manufacturing, agriculture and fishing.

With a total area of 1,285,216 sq km and 18.8% of agricultural land, Peru exports fresh fruits nearly all over the year, every year to the world. This is all possible due to its perfect climate for agriculture which varies from tropical in east to dry desert in west; temperate to frigid in the Andes. With a GDP per capita of U$ 11,900 in 2014 and a purchase power parity of $372.7 billion in the same year, Peru is a developing country (especially in the agricultural sector) worth watching out for.

A Study of the exports of Fresh Peruvian fruits to the United States:

Fruits and vegetables are good for you. Many studies have acknowledged this fact. As a result, Americans have been increasing their fruit and vegetable consumption over the years, which of course include grapes, avocado, bananas, ginger and blueberry. These are the new products that are booming in the export charts, some have even experienced an export growth rate of 92.2%. These numbers are not surprising taking into account all the benefits that these products provide it is hard to expect anything different. Peru exports both fruits and vegetables to different countries across the globe all year round as it can be clearly observed in Figure 1 below. Export production of modern agriculture product has grown nearly 18.8% yearly. The average yearly growth rate1 of agriculture is 4.36% while the GDP growth is around 6%.

Figure 1

One of the Peruvian top exporting products are grapes. Grapes are berries that come from the woody vines of the genus Vitis. Grapes can be eaten raw or can be used for making wine, jam, juice, jelly, raisings, vinegar or grape seed oil. Grapes are non-climacteric type of fruit, occurring in clusters. The fruit is great in providing health benefits due to its large amount of antioxidants. For example, anti-inflammatory cognitive, anti aging and cardiovascular benefits. There are many varieties of grapes grown in Peru: Flame seedless grapes, Thompson seedless, Red globe, white seedless, sugraone and crimson grapes.

1 Average yearly growth rate computed from 2005-2014

The Flame seedless grapes are popular due to their long shelf life, they are the second most consumed grapes in the US – the #1 is the Red Globe grape. Thompson seedless (also called sultanina) are the most widely produced grapes in California and can also be used to make raisins, wine and the popular Thompson grape juice. Red Globe grapes are the most demanded grapes in the United States and Japan, they are usually consumed as table grapes. The White seedless grapes are popular in the production of wine and as table grapes with their unique sweet and tart flavor. Sugraone seedless grapes on the other hand are popular due to their sweet taste and it is rated the #1 grape in United States for children. Crimson grapes are mostly available in the United States during fall, they differ from other grapes in size, “crispiness” and its unique taste which is sweet and tart.

Even though there is a large grape production in the United States (mainly in California but also in New York), there is still a shortage when comparing supply and demand. The population in the United States as in 2013 was approximately 315,427 million people and it is expected to grow to 359,402,000 in 2030. The total production of grapes in the country on the same year was 2,236.2 millions of pounds and the total import was 1,147.4 millions of pounds. The total supply was 3,383.6, a difference of 206 millions of pounds when compared to the previous year (Refer to Table 1.1 below). Studies have found that Americans have been increasing their fruit consumption since acknowledging the benefits for their health like weight loss and the increase in the amount of vitamin intake. This of course, includes the consumption of grapes that has been increasing over the past years followed with the high increase in price as shown in Table 1.2

Table 1.1: Population, Production, Imports & Total Supply in the U.S:Year: Population (measured in millions): Production : Imports: Total Supply:2011 310,952 1889.5 1,175.30 3,064.802012 313,182 1,927.90 1,250.60 3,177.602013 315,427 2,236.20 1,147.40 3,383.60

Table 1.2: Total production, Market year average price per ton and Total Value in the U.S.:

The United States gets most of its grapes from California – the California market share of grapes in 2014 was approximately 88%- but it also imports a lot of the fruit from other countries (especially during winter when the California vineyards go through a process called dormancy). The three main importers are Mexico, Chile and Peru. The exports from Peru have been growing more and more since 2012 (when the drought in California started). As soon as the drought started, Peru started penetrating more deeply into the market in order to fill the supply gaps created due to the adverse weather/ drought in California. According to the USDA (United States Department of Agriculture) website, the drought still remains a major concern among growers and farms. They state that the drought in addition to the hail in the spring that affected the blooms in some vineyards are the main reason for the decrease in the production grapes as shown in Table 1.3.

Table 1.3: U.S. Total Grape Volume & California Total Grape Volume

Year:Total production in tons:

Market year average price per ton in the U.S. (dollars):

Total value in $1,000:

2011 7,408,740 U$ 576.00 4,262,9452012 7,530,883 U$ 752.00 5,661,0982013 8,631,790 U$ 712.00 6,135,613

Years: US Volume: California Volume:2011-2013 7857,000 tons 7079,000 tons2014 7770,000 tons 6819,000 tonsChange: -1.10% -3.70%

Peru exports during the months of January, February, March, October, November and December – exactly when the vineyards in California are “put to rest” in the process called dormancy. The grapes are usually grown in areas such as Piura, Lambayeque, La Libertad, Áncash, Lima, Ica and Arequipa. Exporting grapes is not an easy and unexpensive process as many might think, different certificates and procedures are required in order to perform the transaction legally such as: El Cerificado Fitosanitario, tratamientos cuarentenarios, limites maximos de residuos de paguicidas (LMR) and emabalajes de madera usados en el comercio internacional. After making sure that the grapes are suitable to be exported, companies need to make sure that the fruit will not perish during the transportation process.

The biggest Peruvian grapes exporters are El Pedregal S.A., Sociedad Agricola Rapel and Complejo Agroindustrial Beta S.A. as shown in Table 1.4. The positive variations on Table 1.4 show how well the exporting companies are doing and give them good future perspectives for the growing grape demanding market.

Table 1.4: Top Peruvian companies that export GrapesCompany: % Var 14 - 13: % Part. 14El Pedregal S.A 39% 10%Sociedad Agricola Rapel 34% 7%Complejo Agroindustrial Beta S.A. 24% 5%Agricola Don Ricardo S.A.C. 26% 5%Sociedad Agricola Drokasa S.A. 10% 5%Ecosac Agricola S.A.C. n/a 4%Camposol S.A. 3% 4%Sociedad Agricola Saturno S.A. 77% 4%Agro Victoria S.A.C. 71% 3%*Other companies n/a 45%

Table 1.5 clearly shows the increase in the Peruvian grapes export. It is worth noting that the information in the table shows the amount of grapes exported before and during the California drought (2011/2012) and that the statistics measured by the USDA uses tons as the primary form of measurement. It is misleading to say that the increase in the amount of grapes exported to the United States from 2012 to 2013 was primarily due to the drought, however, as Table 1.3 shows it might be a possibility. It is known for a fact that the increase in grape exports was not due to a decrease in price since Table 1.2 clearly portrays that the price of grapes rose significantly from 2012 to 2013.2 Figure 2 shows the Peruvian exports of fresh table grapes in values of US$ FOB million dollars from 2006 to June 2015. The growth throughout the years is almost of 13% a surprisingly huge percentage for a widely known fruit with a rather stable consumption as shown in Table 1.6 later in this research.

2 For a more in-depth analysis of how the price and production of grapes differ from state to state in the United States, refer to Figure 3

Table 1.5: Amount of Grapes exported measured in tonsYears: Amount of Grapes exported measured in tons:2011 4,2802012 4,0792013 7,471

Figure 2

Figure 3

It is also important to take into account that factors such as fruit consumption, availability and eating habits all influence on the price of the product in the different states of the U.S. Figure 3 by Centers for disease control and prevention shows the fruit and vegetable intake of different states in the United States and may help to understand one of the reasons why price and consumption varies from state to state in America when taken into consideration the map in Figure 4. The map in Figure 5 shows that even though fruit consumption is increasing overall, not all Americans are consuming a medium-high amount of fruits and vegetables as recommended by federal food agencies.

Figure 4 : Measure in a scale of 100%

The graph found in Statisca showing the per capita consumption of fresh grapes in the United States from 2000 to 2013 measured in pounds is shown below in Table 1.6. As shown, the per capita consumption of fresh grapes in the United States is more or less stable. One of the probable reasons that the consumption is stable while the exports are growing (Refer to Figure 2 shown previously) maybe external factors such as price, diet trends and studies that shows the benefits and harms of the product consumption which has a major impact on consumer demand and sales. It is also important to take into account that different from other fruits such as avocados and mangoes, grapes are also not exotic and new to the market and that may be one of the reasons why its consumption has been already matured over the years.

Table 1.6: Per capita consumption of Grapes in the United States measured in pounds (2000-2013)

:

Peru grows many other fruits other than grapes. One example is avocados. Avocado is a fruit, considered a large berry with one single seed. Avocados are best cultivated in areas with tropical and Mediterranean climates throughout the world. Peru’s ideal climate, water from the Andes, and desert like conditions gives it one of the best growing conditions for avocados in the world according to the company ProHass from Peru. ProHass also states that the production window is large – stretching from February to September – opposite to other big avocado exporters around the globe. (Refer to Figure 1 shown previously)

Avocados have a green skin and can be found in different shapes such as pear shape, egg shape or spherical shape. Since the avocado trees are only partially self – pollinating, they are usually manipulated through the process of grafting to maintain a predictable quality and quantity of the fruit.

Avocados are considered to be very nutritious with high nutrient values. Considered by many as one of the healthiest food in the world, avocados are cholesterol and sodium free. The fruit also contains a large of vitamins such as the A, C and E and minerals such as potassium, folate and monounsaturated fat. One interesting fact is that, avocados are the only fruit that contain good monounsaturated fat. The fruit is also the main ingredient of guacamole dip widely consumed in America by both the Hispanic and American population. Recently, avocados started being considered super foods due to their various health benefits that range from decreasing the risk of having stroke and kidney failures to weight loss in certain cases.

Peru exports avocados to different countries, the top five ones being displayed below in Table 2.1, which shows not only the total export value in millions of dollars, but also the percentage variation from 2011 to 2012. The three main exporting companies are Camposol S.A., Sociedad Agricola Drokasa S.A and Consorcio de Productores de Fruta S.A. , all from Lima, Peru. The positive percentage variation. from 2013 to 2014 and the % of participation are shown in Table 2.2. As shown, all the percentage variations are positive, meaning

that the amount of avocados exported is growing every year. The Sociedad Agricola Drokasa S.A. company nearly tripled the amount of exports in a year, while Camposol S.A. almost doubled.

Table 2.1: Top Countries that exports AvocadoRanking: Country: % Var 12-11: % Part 12: Total Exp. 2012 (million US$)1 Mexico 1% 46% 887.64

2Netherlands 16% 10% 167.09

3 Chile -22% 9% 226.354 Peru -17% 7% 164.45 Spain -19% 7% 167.61

Table 2.2: Peruvian companies that export avocadosCompany: % Var 14-13: % Part. 14:Camposol S.A. 82% 21%Sociedad Agricola Drokasa S.A. 170% 9%Consorcio de Productores de Fruta S.A. 44% 8%Agricola Cerro Pietro S.A.C. 80% 7%Corporacion Fruticola de Chinca 91% 5%Agropecuaria las Lomas de Chilca S.A. 147% 4%

The quantity of avocado exported from Peru can be analyzed in next graph, Table 2.3 containing information provided by the company ProHass from Peru. The Table shows that the quantity of avocados exported from Peru is growing exponentially since 2006, with the biggest growth being from 2013 to 2014 (nearly 59 millions of tons). The exponential growth shows that there is a big demand for avocados, meaning that Peru should take advantage of that opportunity and try to export more of the product by penetrating different markets and countries. The current destinations of the avocados exported from Peru range from the United States to Japan and shown in Table 2.4.

Table 2.3: Year & Quantity of avocados exported from Peru Year: Quantity (millions of tons):2006 27,9002007 30,0002008 38,5002009 37,8802010 48,9192011 69,6572012 74,7222013 105,1112014 164,7142015 160,500

Table 2.4: Top Countries that Peru exports avocado to

Country: Export %:United States 29.76%Netherlands 24.03%Spain 18.34%France 9.04%England 8.66%Chile 3.77%Others (Europe) 3.15%Canada 1.21%Others (America) 0.86%Germany 0.77%China 0.38%Japan 0.03%

Table 2.4 shows not only the countries to which the Peruvian avocados are destinated but also the percentage exported. Peru has now become the largest supplier of avocados imported to the European Union and more recently, has begun to export significant quantities to North America. As shown in Table 2.5 by Statisca, the per capita consumption of avocados in the United States has been growing since 2000, with its major growth being from 2010 to 2011. According to an article written by Tom Karst analyzing information from the USDA, the rise in demand has led to a rise in volume and a drop in prices of avocado. This can be clearly confirmed by comparing the prices of avocado. In December 2014, the USD per metric ton of avocado was USD 1780.00, -9.64% less than the same period the previous year when it was USD 1970.00.

Table 2.5: Per capita consumption of avocados in the United States measured in pounds (2000-2013)

However, the downfall in prices should not be discouraging for Peruvian exporters since the exports of Peruvian avocados has been growing over the years, almost totaling to a growth of 8% from 2006-2014 as shown in Figure 2.1. One reason the prices may be falling is because avocados are still considered an exotic new fruit for most Americans; due to that, many may still be adapting the fruit into their diet. With the increase of the influence of the Hispanic population, the prediction is that the consumption of avocados will grow even more and therefore, prices will stabilize once the product becomes mature and well known in the market.

Figure 2.

Another great fruit that Peru exports to the world is mangoes. Peruvian mangoes are considered an exotic fruit by the markets of United States, Asia and Europe. Even though mangoes were considered the most widely consumed fruit in the world, the United States still needs to fall in love with the exquisite taste of the delicacy. Other than containing more than twenty vitamins, some of the possible benefits of consuming mango include: decreased risk of colon cancer, improve in digestion, and even benefits for skin and hair.

According to the Asociacion Peruana de Productores y Exportadores de Mango, the production of mangoes is concentrated mainly in the valleys of San Lourenzo in Piura, Olmos and Motupe in Lambayeque, and Casma in Ancash, all specializing in Kent variety, Haden and Tommy Atkins, destined for export. These types of mangoes have a good quantity of edible pulp and lower fiber content. Peru exports mango in different forms such as: fresh, canned, dehydrated and juice. Fresh being the most exported form and the one analyzed in the following tables.

Kent mangoes are exported from January through March and then again in December, while the Haden mangoes are exported in January and December and the Tommy Atkins mangoes are only exported during January and February. Peru exports mangoes to different countries, and was ranked number 6 exporter in 2013 as shown in Table 3.1, changing its position to number 2 in 2015 according to the Asociacion Peruana de Productores y Exportadores de Mango.

Table 3.1: Top Countries that export MangoesRanking: Country: % Var 12-11:1 Mexico 24%2 India -17%3 Netherlands -8%4 Brazil -2%5 Thailand 33%6 Peru 4%7 Hong Kong 11%8 Pakistan -1%9 Spain 33%10 Belgium 45%

The 3 main exporting companies according to SIICEX were: Sunshine Export S.A.C. from Piura, with 10% of participation, Dominus S.A.C. from Panamericana Norte with 8% of the market and Camposol S.A. from Lima also with 8% of the market as shown in Table 3.2 below.

Table 3.2: Peruvian companies that export MangoesCompany: % Var 14-13: % Part 14:Sunshine Export S.A.C. -2% 10%Dominus S.A.C. 10% 8%Camposol S.A. 3% 8%FLP del Peru S.A.C -15% 5%Frutas Piruanas S.A.C 14% 5%Passion Fresh S.A.C 70% 4%Sobifruits S.A.C 15% 3%Tropical Fruit Trading Peru 19% 3%

The exotic Peruvian mangoes are exported throughout the world; Netherlands, being the primary country with 37% of the total exports leading to United States with 31%, United Kingdom and Spain. This 2014 data from SIICEX shows that Peru has already penetrated a huge part of the American market for Peruvian mangoes. The only thing to do now is to know how it can increase the amount of exports without having an excess supply and a price decrease. According to a research done by the website worldrichestcountries.com, Peru exported a total of $137.1 billion or 6.6% of the market for mango exports in 2014.

The Export factsheet ECOWAS in mangoes done by INTRACEN (International Trade Centre), stated that Peru has been a highly competitive in mango export; gaining market shares not only in the United States but also in the Netherlands, Germany, Spain and Canada. Comexperu announced that since 2010, mango exports have been growing at an average annual rate of 11.5%, according to Fresh Plaza.

Fresh Plaza also stated that the United States recorded one of the highest amounts of Peruvian mango imports with a total of US$ 45 million. The companies that had the biggest amount of imports were Dominus and Camposol, both shipping about US$ 11 million. Following those were Sunshine Export, with US$10 million

dollars (- 1.3%), and Frutos Tropicales del Norte and FLP del Peru, with US$7 million dollars each (+ 420.2% and – 0.1% respectively).

Table 3.3: Top countries Peru exports Mangoes toCountry: % Var 14-13: % Part:Netherlands 1% 37%United States 4% 31%United Kingdom 6% 9%Spain 6% 5%France 1% 4%Canada -9% 3%Germany -2% 3%Chile 7% 3%Switzerland 50% 1%

Table 3.3 above shows the countries Peru exports mangoes to, the percentage variation from 2013 to 2014 and the percentage participation in each country. According to Table 3.4, the mango consumption per capita has been increasing since 2000. One reason for that maybe that now, consumers can find mangoes easily, different from what might have happened in the past – and also in different forms such as pre packed or dried. Another fact maybe the advertising of the exotic fruit, people like trying new foods and with the average price of mango being relatively cheap (US$ 1.50 per pound in 2015), people might be more inclined to try the exotic fruit. 3

3 Comparison done in contrast to the price per pound of red delicious apples – a widely known fruit- in the US in the same year (US$ 1.30 per pound ).

Table 3.4: Per capita consumption of mangoes in the United States measured in pounds (2000-2013)

When comparing the per capita consumption of the two most widely consumed fruits in the United States (bananas and apples shown respectively in tables Table 3.5 and 3.6), we can see that both are stable and approximate to a normal graph. One of the reasons, may be that because apples and bananas are widely known, there are almost no new consumers entering the market for these fruits. People adapt their diets according to their needs and preferences, and once they do so, the chances of going back and incorporating new products are minimal. The same seems to happen to the widely known grapes, chances are that almost every consumer has heard or tried grapes and that only a few mature customers will enter the market in the next couple of years.

The opposite seems to occur to avocados and mangoes. Since both are considered exotic new fruits, the number of new consumers entering the market is huge. Avocados have been present in the Hispanic and Latino diet for years, but only now it has been widely incorporated to the American diet. For example, now, many American diners offer guacamole in their burgers, something that only Mexican/Hispanic restaurants did before. One other great aspect of avocados is that they can be used in both salty and sweet foods, which may have a great impact in the growth of the sales in the future..

Mangoes have been widely consumed in places like Brazil for years, but only now people from both United States and Europe started incorporating the fruit to their diet. These new customers willing to try the “new” exotic fruit are extremely important since they are the ones that will stay in the market once the fruit is 100% immersed in the “American way of life”.

Table 3.5 : Per capita consumption of apples in the United States measured in pounds (2000-2013)

Table 3.6: Per capita consumption of bananas in the United States measured in pounds (2000-2013)

Current studies such as the Nielsen Global Health and Wellness Survey made in 2015 are important issue to consider. The survey was conducted between August 13 and September 5 th, 2014 and polled more than 30,000 consumers in 60 countries throughout Asia-Pacific, Europe, Latin America, the Middle East, Africa and North America. With a +- 6% margin of error, the survey concluded that the younger generation is increasingly trying to eat healthier, something that was unheard previously. This research is important because given the high interest in getting healthier, 40% of all respondents say that they plan to buy more fruit (41%) and vegetables (39%) in the next six months. Taking that into consideration, fruits and vegetable consumption is likely to increase not only in America but worldwide. Opening the fruit export industry in Peru to a wider market.

The research also found that the American Generation Z is not only become healthier but also changing their mind set when it comes to the price of healthy products. Young Americans are willing to pay more to eat clean. Organic products are on the top the list, giving the Peruvian market a greater chance to diversify their products and increase their exports. According to the research, one of the best ways to do that is advertising food as medicine when applied and greater transparency about health/wellness claims. While the population become healthier, countries with a big agricultural presence such as Peru have the chance to grow and expand and become wealthier.

According to the US Census Bureau, the Expected Population growth in the United States from 2015 to 2030 is from 321,369 million to 359,402 million as shown in Table 3.7 below. Since the per capita consumption of fruits like grapes, avocados and mangoes depend on a variety of aspects such as price, availability, weather, advertising and culture, there is no way to know for sure how the consumption will be affected in the next following years. However, by comparing the data from the previous years and its trends, estimations can be made as shown in the inflated potential mango, grape and avocado demand for 2030.4

Table 3.7 : Expected Population Growth in the United States (2015-2030)

4 It is important to take into account that results may vary depending on the Market trends.

Year Population Numeric Change

Percent Change

NaturalIncrease

2015 321,369,000 2,621,000 0.82 1,380,0002016 323,996,000 2,627,000 0.82 1,377,0002017 326,626,000 2,630,000 0.81 1,374,0002018 329,256,000 2,631,000 0.81 1,369,0002019 331,884,000 2,628,000 0.80 1,361,0002020 334,503,000 2,619,000 0.79 1,349,0002021 337,109,000 2,606,000 0.78 1,331,0002022 339,698,000 2,589,000 0.77 1,307,0002023 342,267,000 2,569,000 0.76 1,279,0002024 344,814,000 2,547,000 0.74 1,246,0002025 347,335,000 2,521,000 0.73 1,210,0002026 349,826,000 2,491,000 0.72 1,171,0002027 352,281,000 2,456,000 0.70 1,127,0002028 354,698,000 2,417,000 0.69 1,079,0002029 357,073,000 2,374,000 0.67 1,028,0002030 359,402,000 2,329 0.65 974,000

References *** Presented on pp2.