Central America Trade Mission

December 2012 Report Submitted to USDA FAS By Randy Duckworth, US Dry Bean Council Trip Participants: Alan Juliuson, Northarvest Bean Growers (North Dakota)

Randy Duckworth, DR-CAFTA and MERCOSUR Regions Representative

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NAMES OF THE TRAVELERS Alan Juliuson, Grower, Northarvest Bean Growers Association (North Dakota) Randy Duckworth, US Dry Bean Council Representative for DR-CAFTA and MERCOSUR Regions and Food Aid Representative PURPOSE OF THE TRIP It is extraordinarily important to monitor developments in Central America for several reasons. First, the countries of Central America are (with the exception of Panama) are all parties to DR-CAFTA trade agreement and as such present expanding opportunities for trade of U.S. agriculture products – including U.S. dry beans. Collectively, the countries of Central America produce, import, export and consume approximately 500,000 MT of dry beans. Central America is one of the highest per capita bean consuming regions in the world. Second, the nature and dynamics of Central America regional bean trade can change dramatically from year to year depending upon crop cycle conditions (mother nature), political and economic developments under DR-CAFTA and ALBA, etc. By way of example, in 2010 virtually all of the Central American countries, including major bean producer Nicaragua, were importing dry beans due to the devastating effects of La Niña that year. The dynamics of trade in Central America changed dramatically in 2010 as the governments of Nicaragua and Honduras restricted bean exports while non-traditional players such as Ethiopia made headway in the region. The only thing certain about Central America is that some parts of it will every year or two go through some unique cycle of drought, floods, earthquakes, political upheaval or economic swing that impact national and/or regional dry bean markets. For this reason, and because of the inextricable connectivity of the Central American countries it is vital to have a good picture of what is happening in each market on an annual basis. And because these are all (with the exception of Costa Rica) developing countries it is particularly important to personally establish contact with local dry bean industry members as it is often the only practical way to monitor developments in the region while promoting the U.S. dry bean industry.

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GOALS Our goals for this mission were to:

1) Obtain information about regional developments in the Central America region by visiting with dry bean industry members in those countries (local bean harvest, consumption trends, food processing developments, political developments, economic developments, etc.);

2) Monitor food security developments in the region; 3) Obtain information about developments outside the Central America region

(e.g., developments in competitor markets such as Argentina, China & Canada);

4) Share information about the U.S. dry beans and U.S. dry bean industry members (suppliers, products, product attributes, product availability, etc.);

5) Encourage members of the dry bean trade in Central America to request quotes for purchase of U.S. dry beans (with ultimate goal being new sales to the region);

FUNDING This trade mission was funded by the U.S. Dry Bean Council and USDA FAS MAP program under activity numbers M12GXWWA01 and M12GXDRCF1. DATES OF TRAVEL December 6 – December 15, 2012 ITINERARY December 6 Travel from U.S. to Nicaragua December 7 Meetings with Nicaragua trade members December 8 Retail sector visits December 9 Free day (Sunday) December 10 Meetings with Nicaragua trade members Travel to Guatemala December 11 Meetings with Guatemala trade December 12 Meetings with Guatemala trade members Travel to El Salvador December 13 Meetings with El Salvadaor trade members Juliuson – Return to U.S. Duckworth – Travel to Belize December 14 Meetings with Belize trade members December 15 Duckworth – Return to U.S.

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EXECUTIVE SUMMARY / CONCLUSIONS Nicaragua continues to be the most important player in the Central America bean market. But it is playing a less important role than it did just a few years ago. Nicaragua produces about 40% of the demand for beans consumed in Central America but its instable year-to-year production and political volatility have made it less than reliable as a supplier. Despite agreements to the contrary Nicaragua has at times banned exports to other Central American countries as a result of poor harvests. And it has manipulated its own policies and rules to make exports difficult in order to keep domestic prices low. Nicaragua should be in a better position in 2013 with what was expected to be a good harvest of small red beans. However, countries such as China and Ethiopia have gained increased access to the Central American market over the past couple years, which may make it more difficult for Nicaragua to regain its footing with its neighbors. In addition, Nicaragua committed to supplying Venezuela with 20,000 MT of black beans in exchange for oil – black beans that it reportedly did not produce (as intended) but instead purchased from China for re-export. While the United States has exported some small red beans and kidney beans to Central America its main export variety has been and continues to be black beans (splits and whole black beans). The main market in Central America for U.S. black bean exports continues to be the food processors that make refried beans (Alimentos Kerns, Unilever, Mahler, Eco Foods). Central American food processors are likely to remain a strong export market for U.S. exporters in 2013 but it’s not going to be easy. The U.S. has substantial inventories of low moisture black beans that would ordinarily put the U.S. in a strong position to supply Central American food processors. However, China has reportedly been selling very large quantities of processed black beans in Brazil and elsewhere over past several months and China is likely to have significant inventories of split black beans as a result of processing old inventories. In addition, Guatemala has had an unusually black bean crop, which will create an even more competitive situation than usual. Conclusions Central America continues to serve as a vital outlet for whole black beans, split black beans, #2 kidney beans and occasionally some U.S. small red beans (particularly for food processors). It is also a region with its tremendous food security issues. Given both factors it is important that the U.S. dry bean industry continue to monitor developments in the region at least 1-2 times each year.

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NICARAGUA Nicaragua Bean Production and Exports – 2012 v. 2013 United States is the main export market for Nicaraguan products and the main generator of foreign exchange remittances. Exports to the U.S. market in 2012 generated a total of $ 769.3 million and the main products are coffee, gold, beef, lobster, beans, cheese and raw gold. With 2012 bean exports totaling $51 million, beans remain vital to Nicaragua’s economy and are a staple food in the national diet. The country typically produces 5 million quintals (about 229 thousand metric tons) a year, of mostly small red beans with black beans rounding out at 5-10% annually. On the heels of a relatively stable 2012, Nicaragua’s bean industry expected to achieve similar results in 2013, though certain environmental and economic challenges could complicate things. Nicaragua has three growing seasons: Postrera, planted in September and harvested in December and January; Apante, planted in December and harvested February through April; and Primera, planted in June and harvested in August and September. In 2012, producers were faced with quality issues during the Apante season due to heavy rains; this lead to a great deal of price speculation in the market. Although the effects of El Niño were not as disastrous as expected, the industry remains wary of the phenomenon, as well as climate change-related issues that can damage production. Fears of drought before the Postrera season lead to a 20 percent decrease in planting, though rains wound up being sufficient for quality growth. 2013 will likely see improvement in the storage capabilities of small scale producers, thanks to a cooperative effort to increase profitability at the production level. In December Nicaragua’s Minister of Agriculture emphasized the importance of improving storage conditions for these producers who are often forced to sell at bargain rates to intermediaries. Pedro Haslam, Minister of Family Economics, cited one example of Costa Rican buyers who purchase cheap “unsellable” beans only to wash, dry and package them to be sold at retail prices.

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Northarvest representative Alan Juliuson with Melvin Somarriba of Bolsagro in December 2012 Prices for Nicaraguan beans have not shifted much as of late, but many in the industry consider them high compared to prices in rival markets. The current price of Nicaraguan red beans is about $0.60 a pound, which supplier Ramses Ortega says is simply not competitive. Mr. Ortega said “The current export situation in Nicaragua is really bad. Exports have dropped 75% due to high prices compared to Africa and China. Exports were disappointing in 2012, but in 2013 we expect the Africa-Nicaragua-Venezuela triangle to continue to grow,” he said. ALBA and the Sucre The Agroindustrial Cooperative Federation of Nicaragua (FENIAGRO) recently completed its first transaction with Venezuela using its virtual currency - the Regional Clearance Unitary System or SUCRE. The sale involved 500 metric tons of red beans as well as sugar toVenezuela worth a reported 25 million sucres (or about US$31.2 million). The sale was highlighted in a ceremony in Managua, attended by the heads of the central banks of the two countries. The president of the Central Bank of Nicaragua (BCN), Alberto Guevara, was quoted as saying that the Central American country will have better opportunities for trade and business moving forward.

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The SUCRE is an alternative to the dollar used by the countries of the ALBA, a block comprising Antigua and Barbuda, Bolivia, Cuba, Dominica, Ecuador, Nicaragua, Saint Vincent and the Grenadines and Venezuela. ALBA claims that in 2012 the sucre was used in transactions worth 852 million sucres equivalent to $U.S. 1,066,000,000. This number, however, is highly supect as there is no evidence of anything other than government to government transactions. In fact, the Superior Council of Private Enterprise (COSEP), the most important business leaders of Nicaragua, followed the dog and pony show put on by the Central banks to explicitly say that they will continue their business operations in dollars and are not ready to do business with the sucre. Nicaragua Sells Nicaraguan Black Beans … Correction Chinese Black Beans It was reported by traders in both Nicaragua and Costa Rica that Nicaragua was importing Chinese black beans to fulfill its obligation to provide Nicaraguan black beans to Venezuela in exchange for petroleum. This was because the Nicaraguan government was unable to convince growers to grow black beans at same prices as small red beans. Growers do not want to grow a bean that is not consumed domestically without a substantial premium. As a result, Nicargua was reportedly importing more than 10,000 MT of Chinese black beans and rebagging them for immediate re-export to Venezuela. Without a doubt Venezuelan officials know that the beans are not from Nicaragua but are turning a blind eye so as not to undermine the allusion that ALBA is working to increase agricultural production and economic trade between ALBA members. As the instability in Venezuela continues to get worse daily Venezuelans are pouring out of the country. Crime and food shortages have both worsened over the past year. There are reportedly approximately 2,000,000 Venezuelans now living in neighboring Colombia. Venezuela or rather its large reserves of petroleum and the outsized personality of President Hugo Chavez were the glue holding ALBA together. The question is whether ALBA will be able to continue with the subterfuge of their oil for food deals – meaning Venezuela will have to return to being a regular participant in the commercial pulse markets. CAC Trading Ramses Ortega Email: rortega@cac-trading.com Address: Reparto Serrano, DGI central 1cal norte, 1/2c al este, Edificio Jorge Salazar Bolsagro Company

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Melvin Somarriba Tel: 1-505-945-0909 Cel: 505-88869484 AGRICORP Edgard Cuadra Email: edgard@agricorp.com.ni Address: Rotonda Centroamerica, 300mt Oeste Edificio SYSCOM, Managua

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GUATEMALA Guatemala reportedy had a very large 2nd black bean crop (November – December) and was offering black beans to other countries in Central America. Black beans were reportedly trading at U.S. $40 per bag locally and expected to go lower. Arrocera Los Corrales (ALCSA) Jaime Abascal – General Manager Enrique Godoy – Manager New Opportunities Tel: 502) 6628-0100 Ext. 220 Email: jabascal@alcsa.com.gt Email: egodoy@alcsa.com.gt www.alcsa.com.gt ALCSA is the largest processor of rice in Guatemala. They recently decided to get into the black bean packaging. They see themselves as being at a disadvantage versus some of their competitors. They are a very large company and as such must pay 12% sales tax to the government while many of the smaller companies manage to avoid the sales tax.

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Grupo Ardoz Mario Garcia, President Tel: 502-2480-8274, 2480-8275, 2480-8454 Cel.(502) 4528-2374, 5296-6263 Email: mario.garcia@grupoardoz.com Guatemala has 3 bean crops. 1st Crop August 2nd Crop November – December (biggest crop) 3rd Crop February – March (Peten region) The normal crop cycle for Guatemalan crop was better than expected and was trading at U.S.$41 per bag at time of our visit. Mario expected market to drop because the crop was bigger than usual and farmers will want to sell. Chinese black beans are making their way into Guatemala market but Mario said he has had problems with mixing of old crop and new crop, which leads to complaints from consumers. Mario reported hearing that black beans from Cameroon in Africa were reportedly being offered in Guatemala though he did not receive an offer himself or know of prices.

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EL SALVADOR We were in San Salvador briefly and took the opportunity to meet with the largest refried bean producer in El Salvador. Luciana (Luci) Siman is the wife of President Rolando Siman. Luci has taken over buying responsibilities for the company. Eco-Foods has been buying some U.S .black and red splits. Visits to grocery stores in Central America confirm the statements of Rolando and Luci that their company has grown tremendously over past 2 years. EcoFoods is looking to add a new line of refried and whole packaged pinto beans. Pinto beans are not a major item in Central America but the category is growing – at least in part to the influence of Mexican foods in the region. U.S. bean exports under quota are 10.6% and outside the quota are taxed at 17.6%. The rate only goes to higher rate when a domestic concern requests it. In the past few years no one requested the tax be increased to protect domestic production but this year someone did. Luci suspects it was a domestic packager trying to keep local prices higher. Beans from Ethiopia are taxed at 20% and from China at 30%. According to Luci, the price differential with U.S. product is too high with the 17.6% tax to support U.S. bean imports.

Eco Foods S.A. de C.V. Lucia Gonzalez de Siman – Vice President and Buyer Email: luciadesiman@ecofoods.net Tel. (503) 2243-1143, 2243-0962 Address: Calle Circunvalación, Polígono D#1 Plan de La Laguna, Antiguo Cuscatlán, El Salvador

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El Salvador Supermarket – 90% small red beans BELIZE I took the opportunity of available return ticket routing through Belize to stop and see how things were developing in Belize. Alan Juliuson was unable to participate in this last short portion. I visited with Otto Friesen at Bel-Car Export & Import Company. Otto was interested in obtaining U.S. certified bean seed – light red kidney beans and also California varieties of black-eyes. Bel-Car Export & Import Company Otto Friesen, President Tel: 501-823-0318 / 501-823-0271 Email: otto@belcar.bz Black-Eyes The 2012 crop of black eyes had difficulties due to bad rains. The 2013 crop was expected to be better but it would still be 6-8 weeks before harvest.

Light Red Kidneys

Overall the planting trend for LRK’s in Belize has been in decline during the last 5

Above: Otto Friesen

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years but black-eyes have been challenged by fungus issues, which has reversed the trend to increase LRK’s again during the last 2 seasons. In 2012, for the first time in memory, Belize exported LRK’s beans into the USA. There was some early concern about weather.