Boston, MA -- (SBWIRE) -- 05/09/2013 -- Colombia's agricultural sector faces a number of challenges in the medium term. Key export crops such as coffee and cocoa have underperformed in recent years, due to a lack of investment in infrastructure and serious outbreaks of disease. Although regeneration work is underway, it will take time to bear fruit. The strength of the Colombian peso against the US dollar is also posing challenges for the agribusiness sector as the competitiveness of Colombia's exports is being eroded. Finally, there is still unrest among dairy, livestock and grain producers who fear that the entry into force of the Colombia-EU free trade agreement in Q213 will further erode their profitability. The Ministry of Agriculture has taken steps to support these sectors to adapt to the arrival of inexpensive imports; however, ongoing efforts to improve infrastructure and modernise production techniques will be required.

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Key Forecasts

- BMI universe agribusiness market value: 0.9% year-on-year (y-o-y) increase to US$15.56bn in 2012/13, forecast to grow on average 3.0% annually between 2011/12 and 2016/17.
- The consumer price index is forecast to rise to 3.2% y-o-y in 2013 and 3.1% y-o-y in 2014, up from an estimated 2.4% in 2012.
- Our forecast for the 2013 coffee harvest has been revised down by 0.6% from 8.50mn tonnes to 8.45mn tonnes, owing to ongoing challenges facing the sector, including coffee rust, the appreciation of the peso and the fall in international coffee prices. Out to 2017, we see production increasing by 18.5% on the 2012 level to 10.80mn tonnes.
- Our forecast for demand for barley in 2013 has been revised up by 5.8% to 276,400 tonnes. This is owing to increasing demand for barley as an input from the food, feed and malt industries.
- We have revised up our forecast for sugar demand in 2012/13 by 9.1% to 1.80mn tonnes. This is in part due to a revision in historical data. In addition, a rapid rise in sugar imports has boosted domestic consumption.

Industry Developments

- There are concerns that the continued strength of the Colombian peso is negatively impacting upon the country's agricultural exports. The peso continues to trade around the COP1,750/US$ mark, compared to its COP1,930/US$ five-year average. However, BMI believes that the Colombian central bank will continue its monetary easing policy to attempt to stimulate domestic demand and bolster export competitiveness. After cutting the policy rate from 5.25% in June 2012 to 4.0% in January, we forecast that the bank will introduce further cuts of 50 basis points during the first half of 2013 to bring the end-2013 rate to 3.50%.

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