Boston, MA -- (SBWIRE) -- 03/08/2013 -- BMI Industry View

The Central America coffee sector is set to see strong production in 2012/13 on the back of large plantings and better investment capacity. However, we believe low global prices could discourage production in the coming years, putting downside risks to the development of the sector in the medium term. The region is generally dependent on imports for corn, and we expect the production deficit to widen over our forecast period. That said, the region is expected to remain self sufficient in sugar and even increase its potential for sugar exports, with the industry having potential to attract investment in over the medium term.

- Coffee production growth to 2016/17: 24.1% to 16.2mn bags. As the region becomes more attractive to investors, we expect the coffee sector to see increased export opportunities. That said, there are major downside risks to this view, as the region will continue to be exposed to security risks, disease outbreaks and adverse weather patterns.
- Corn consumption growth to 2016/17: 11.1% to 6.8mn tonnes. Demand growth for corn will far outpace production in Central America, affecting prices and keeping the area import-dependent for its grain needs.
- Sugar production growth to 2016/17: 11.3% to 5.0mn tonnes. Most countries in the region will continue to run a small production surplus out to 2016/17, and development of the export industry could present upside risks to our production forecasts over the long term.
- 2013 real GDP growth: 4.1% year-on-year (y-o-y). Down from 4.5% in 2012 and predicted to average 4.1% over 2012-2017.
- Consumer price inflation: 5.2% y-o-y in 2013. Up from 4.8% in 2012 and predicted to average 5.1% over 2012-2017.

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Industry Outlook

Over the long term, we could see consolidation in the coffee industry and private investment help to close the gap between Central America and the rest of South America. Indeed, yield growth in other major producers in South America will eventually reach its limit, while land constraints will restrict plantings. As a result, investors could turn towards more frontier markets with higher risk but potential for higher returns, especially as we are positive about the domestic consumer story in Central America.

Panama has agreed a free trade agreement with the US, granting the North American country free access to export high quality beef cuts. For all other beef muscle cuts, Panama's import duties fall from 30% to zero, and beef variety meat sees duties fall from 15% to zero. Pork duties have been eliminated, too, and a duty-free tariff quota begins at 1,600 tonnes. We believe this could discourage production in the Central American country, as local producers would very likely not be competitive enough to face increasing imports from the US.

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