Boston, MA -- (SBWIRE) -- 01/08/2013 -- The outlook for Peru's agricultural sector remains positive. During the first five months of 2012, agricultural production grew 3.4% year-on-year (y-o-y), according to data from the Office of Economic and Statistical Studies of the Ministry of Agriculture. The increase was primarily owing to a 4.6% y-o-y increase in the livestock sector. Coffee, cocoa and sugar crops are also forecast to post strong growth in 2012. However, falling prices for key cash crops such as coffee and cocoa pose downside risks. The signing of a free trade agreement with the EU in June will open new opportunities for Peruvian exporters. However, it means that modernising production techniques and improving efficiency in areas such as dairy production will be more important than ever if producers are to remain competitive. The agreement is set to enter into force by the end of 2012.

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Key Forecasts

BMI believes that Peruvian growth will be among the strongest in Latin America over the medium term on the back of a growing consumer base and robust mining and infrastructure projects in the pipeline. Domestic demand will be a further driver of growth. Following the release of strong economic data, we have revised up our growth forecasts and now see GDP coming in at 5.6% in 2012 and 5.2% in 2013.

We estimate that coffee consumption increased by 6.3% year-on-year (y-o-y) in 2010/11 to reach 170,000 bags amid strong economic growth. We see demand stabilising in 2011/12 and have pencilled in a y-o-y increase of 1.0% to take consumption to 171,700 tonnes. We forecast a similar scenario in 2012/13 to take demand to 173,400 tonnes. Out to 2016, we forecast demand to grow by 8.6% on the 2011 level to 184,600 bags.

We have revised down our 2011/12 forecast for corn production, as yields have been lower than expected. We now expect output to increase by 9.0% y-o-y to 1.58mn tonnes. We see output growing by 3.2% y-oy to 1.63mn tonnes in 2012/13. To 2016, we forecast production to rise by 30.3% on the 2011 level to 1.89mn tonnes.

We now believe that demand for wheat grew by an estimated 1.4% y-o-y to 1.80mn tonnes in 2011. We forecast continued slow growth of 1.0% in 2012 to take consumption to 1.81mn tonnes. Out to 2016, we forecast wheat consumption to grow 9.0% on the 2011 level to 1.96mn tonnes as growth in the Peruvian economy fuels demand for bread and bakery goods.

Domestic beef production is forecast to grow by 2.1% y-o-y in 2011/12 to reach 170,500 tonnes. In 2012/13, we see continued moderate growth of 1.5% y-o-y to take output to 173,000 tonnes. Out to 2016, we see production growing by 9.0% on the 2011 level to 182,000 tonnes.

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