ROOM TO SHOOT AHEAD

Colombia 2013 | AGRICULTURE | REVIEW: AGRICULTURE

The agriculture sector is set to grow rapidly in the short term, becoming a locomotive of the economy and increasing the global recognition of Colombian products, such as coffee and cocoa.

Given Colombia's vast land area, abundant water resources, and good soil conditions, the agriculture sector has traditionally been one of the engines of economic development. Currently, agriculture represents 9% of GDP, contributes 21% of the country's exports, and generates 19% of total employment. Colombia offers huge potential sustained by competitive and comparative advantages. With a potential total surface of 21.5 million hectares for agriculture, only 4.7 million are being used in agriculture and 459,000 hectares in commercial forestry, giving the sector huge room for growth. According to the Minister of Agriculture & Rural Development, Juan Camilo Restrepo, the agriculture sector grew 2.6% in 2012. “We are still not cruising as fast as the hydrocarbons and mining sectors, but taking into consideration all of the difficulties we have gone through with the wintry wave and the revaluation, the fact that agriculture is growing positively is something satisfactory," he explained. Expectations are high for the coming year, he added. “Naturally, we expect that, as with all locomotives, when they get started, our speed will increase."

COCOA & COFFEE

Colombia is the world's fourth largest producer of coffee—after Brazil, Vietnam, and Indonesia—and the largest producer of premium-quality, semi-washed Arabica beans. Although during 4Q2012 the country reported an increased supply of coffee, production in 2012 totaled 9.5 million bags, down 2.55% compared to the previous year. In 2012, Colombia renovated and planted nearly 61,419 hectares of coffee, compared to 56,316 hectares in 2011, which represents an increase of 9%. Furthermore, between 2010 and 2011, the government awarded more than $495 million in grants to finance coffee activity, with technical assistance, research, and care programs for the rainy season. Despite the cultivation renovation and improved weather conditions, coffee production has experienced problems, largely because farmers have decreased fertilizer use, while commodity prices and currency appreciation pressures remain. Colombia aims to achieve 14 million bags in 2014 and 18 million by 2020. For 2013, the National Coffee Growers Federation targets the production of around 10 million bags.

Meanwhile, Colombia has fine, scented cocoa, which makes up 5% of world cocoa production according to the International Cocoa Organization (ICCO). Colombia has 2 million suitable hectares for the potential development of cacao cultivation, which could make it one of the leading cocoa growers in the world. With a strategic geographical position, the country benefits from plenty of sunlight and the availability of water resources throughout the year. Additionally, Colombia has established the ideal genetic materials to use in accordance with each agro-ecological zone in the country, and between 2004 and 2014, new cacao farms are exempt from the net tax income for a period of 10 years from the start of production. Furthermore, Colombia expanded its cacao acreage by 56% between 2002 and 2011, reaching 145,000 hectares, and the current government is targeting the establishment of 28,000 new hectares and the renewal of 36,000 more as part of the Decennial Cacao Plan.

FLOWERS & OTHER PRODUCTS

According to the Asociación Colombiana de Exportadores de Flores (Asocol Flores), there are approximately 562 crops in the Sabana of Bogotá and Cundinamarca, and from the total 7,000 hectares in Colombian territory, 70% are concentrated in this department. Flower exports in 4Q2012 grew 8% in volume compared to the previous year, reaching 45,000 tons, and were exported to 88 destinations, of which the US, Russia, Japan, and Canada were the main markets.

In cattle, the country ranks fourth in Latin America, with 29.2 million head in 2012. The formalization of the industrial link and the improvement of distribution and marketing practices present opportunities for private investment.

In terms of biofuels, the country has been increasing its production capacity in biodiesel and ethanol. Nearly 439,000 tons of domestic crude palm oil is used for biodiesel and more than 374,000 tons of raw sugar is used in the production of ethanol on an annual basis.

TRADE

Colombia's main trade partners for the commercialization of agriculture products are Belgium, the UK, Germany, the US, Brazil, Ecuador, and Venezuela. The main traditional exports include bananas, coffee, flowers, sugar, and tobacco, which altogether represent around 77% of the total exported volume, registering an annual average growth of 8%. The Ministry's objective is to increase the exportable offer in products for which the country has a huge potential, such as beef, fruit, palm oil, cocoa, rubber, forest products, and biofuels. Colombia's external market has been steadily expanding over the years, with commercial agreements with Argentina, Brazil, Paraguay and Uruguay through the MERCOSUR, Bolivia, Peru, and Ecuador through the Andean Community of Nations (CAN), Chile, Mexico, and Canada among others. However, with the recent free trade agreement (FTA) with the US, Colombia has increased its export volume to the US by more than 20%, going from 460,000 tons in 2011 to 553,000 tons in 2012. This growth was sourced mainly from the increase in sugar and confectionery (154%), bananas (17%), and coffee (30%).

INVESTMENT

Although FDI in the agriculture sector remains low—representing only 1% of the total FDI inflow in 2011—it is a very attractive destination for global investment. According to the FAO, in the next 40 years, 70% more food has to be produced in the country, opening up many opportunities for investment. The Ministry of Agriculture & Rural Development has strengthened the amount of investment in the sector with greater resources from the national budget, which has promoted investment in modernization and the improvement of productivity. The investment budget increased 20% in 2012 compared to 2010. Colombia has great expansion potential in agriculture, particularly in the sectors that are attractive to foreign investors. There are a number of advantages associated with investment in agriculture, including the availability of land for major projects in cacao, forestry, palm, or corn; tax benefits; incentives for forest plantations, VAT and income tax exemption; solid institutions; and an improvement in the country's ratings act as magnets for FDI. The Colombian Altillanura, considered the country's last agricultural frontier, has an area of more than 3.5 million hectares for the development of agricultural projects and activities in the rubber, forestry, sugar cane, palm oil, corn, soybean, sorghum, rice, and sustainable livestock segments. In addition, the country has some 17 million hectares suitable for reforestation, and its expansion is attractive to foreign investors. Finally, the government has submitted a draft law to congress on foreign investment in the agricultural sector. The project regulates the acquisition of rural land for the development of agricultural production involving foreign investment. It also proposes the creation of the National Registry of Foreign Investment in the agricultural sector, which would be regulated by the Ministry of Agriculture.

These strengths, together with the security improvement the country has experienced, will all favor FDI in the agriculture sector, which will in turn be favorable for Colombia. The development of innovative processes and technology transfer, the modernization of production, and the acquisition of capital goods, machinery, and imported equipment at lower costs are aspects to look forward to.