Until now, Peru has not been on the radar for many Australian exporters.
And most Peruvians only know Australia for its mining and mining services, with a longstanding collaboration between the two countries.
All that changed on February 12 this year when the Australian and Peruvian Governments signed an FTA (The Peru-Australia FTA -PAFTA).
Following PAFTA’s entry into force, the costs of exporting Australian goods and services to Peru will drop overnight as Peru eliminates tariffs on 93.5 per cent of its tariff lines, climbing to 99 per cent in five years.
All tariffs will be eliminated for Australian wine, sheep meat, most horticulture, kangaroo meat, wheat, pharmaceuticals, medical devices, machinery, paper products (within 5 years) and beef (within 5 years).
The agreement creates opportunities for Australian companies in areas where Australia has real expertise and a strong international reputation for quality, such as food and agriculture, and water management.
Anyone who has visited Peru will know that it has one of the most exciting culinary scenes in the world. Two of the world’s top 10 restaurants are based in Lima, and the country has become a fixture of global food tourism thanks to the work of renowned chefs such as Virgilio Martinez and Pia Leon of Central, Mitsuharu Tsumara of Maido, and Gaston Acurio of Astrid Y Gaston.
This has created a discerning food consumer base that places a high value on quality goods and produce.
Growing middle class
The country’s growing middle class is also starting to look for healthier and “greener” foods on their supermarket shelves as their disposable income improves. Previously, only those who could afford to travel could access organic, allergy-friendly and dietary products
Food consumption in Peru is growing at nine per cent per annum. Most food – 70 per cent of food retail sales – is still sold in traditional small stores and markets, leaving supermarkets with 30 per cent of sales.
Three major supermarket groups account for 90 per cent of supermarket sales – Cencosud, of Chile, which owns Wong and Metro; Supermercados Peruanos, which owns Plaza Vea and Vivanda; and Saga Falabella (also Chilean-owned), which operates Tottus supermarkets.
Austrade has relationships with the import buyers at each of these supermarket chains. Depending on quantities, the supermarkets may opt to import directly or work through an importer-distributor.
Opportunities for dairy producers
Australian food producers should also look to areas where local demand is exceeding supply – in particular, dairy products and baked goods.
Thanks to PAFTA, Australian producers will soon have the opportunity to enter the Peruvian market with tariff-free quota access for 7,000 tonnes of dairy into Peru (growing to 10,000 tonnes in 10 years) and there are import protocols in place for dairy via Peru’s AQIS equivalent, SENASA.
Peru’s demand for dairy products outstrips supply and the industry faces some significant geographical and logistical challenges – not least having to cross the Amazon jungle and the Andes mountain range to reach consumers. Local milk also tends to be high in bacteria, so evaporated milk has become the most commonly consumed dairy product in Peru.
Given supply constraints, manufacturers import powder milk and use it to produce evaporated milk, UHT milk, flavoured milk, yoghurt and cheese. However, in 2017 the Peruvian government announced legislation designed to guarantee the quality of all dairy products and to highlight their nutritional value.
Strong local demand
This regulation establishes the minimum requirements that each dairy product and milk must contain, both for domestic and imported production, from packaging, transport to commercialisation. This is expected to push unit prices up significantly and also create opportunities for final product importers to satisfy the demand.
In terms of finished products, there are very few locally-produced cheeses. A range of cheeses are imported from Europe (France, Italy, Spain and the Netherlands) and the US, and Mainland (New Zealand) cheese is available.
The major producers of milk and dairy products in Peru are Grupo Gloria, which has about 75 per cent of the market and is a major regional player. The second and only other significant manufacturer is Laive.
According to Euromonitor, low-and-middle-income households have traditionally not consumed cheese on a daily basis because it was considered expensive compared to other products such as sausages, ham or jam.
However, in the past decade, more consumers are including this product in their breakfast or at lonche, which is a small meal around 6pm. Cheese is expected to increase at a value CAGR of 4 per cent at constant 2017 prices over the forecast period to reach PEN1.0 billion in 2022.
Good news for Australian grain exports
Lonche consists primarily of hot milk with coffee or tea, and bread and so it is not surprising that sales of baked goods in Peru are strong.
In 2017, sales were forecast at $2.1 billion, up one per cent compared to 2016. Artisanal breads make up 75 per cent of the market and drive the sector. Peru also has the largest consumption of panettone per capita outside of Italy, thanks to Panettone’s presence on every Christmas dinner table, and the widespread custom of giving panettones as gifts.
This is good news for Australian grain and dairy exports looking to capitalise on tariff reductions.
There is also an opportunity for Australian meat producers to enter the Peruvian market given its reliance on imports, especially at the high-quality end of the market. Beef imports rose sharply in 2017, to just under US$23 million (CIF), up from US$11.5 million in 2009, according to Peruvian import data.
Taste Australia promotion
The US Free Trade Agreement has already driven an expansion in imports of premium beef, which rose from US$6.79 million in 2015 to US$7.8 million last year.
Austrade has received preliminary expressions of interest in the purchase of beef from two of the country’s leading supermarket chains along with interest from some members of the local refrigerated goods association (ASIPAR) whose members account for around 70 per cent of beef imports.
Austrade Peru and Chile are running a Taste Australia promotion at the end of next month to coincide with the visit of Assistant Trade Minister, Mark Coulton to both countries.
To learn more, contact Rafael.Rodriguez@austrade.gov.au
Smart water solutions
There is also a real opportunity for Australian smart water solutions to help the country as it works to transform its water resources management.
Peru’s semi-arid Pacific basin has little more than 2 per cent of the country’s water resources, yet it is home to about two-thirds of its 31.7 million population and generates some 80 percent of Peru’s local GDP.
The Peruvian Government has set a goal of delivering potable water to all urban households and proper sewage treatment for the entire population. This includes investing about $6.4 billion in water and sewage networks, mainly through public-private partnerships.
This is good news for Australian businesses, which have significant expertise in irrigation, drought management, storage, storm water harvesting, urban and rural water supply, sewerage and water use in agriculture and mining.
Memorandum of Understanding
In April last year, the Australian Government signed a Memorandum of Understanding to cooperate in sustainable water management with Peru’s National Water Authority (ANA).
This will help Australian companies win business in Peru from the ANA and other entities, public and private. Our Austrade office also works with Australian businesses in Peru.
In 2016, Austrade brokered a $500,000 deal between CSIRO, mining company Southern Copper and the ANA to develop a water management plan in southern Peru.
CSIRO is contributing its expertise to the development of Peru’s first Drought Management Plan, providing an evidence-based framework for managing water-related risks in the semi-arid region around Tacna in the country’s south, and supporting more sustainable water sharing practices.
The project has two-way benefits: it will improve outcomes for business, communities and the natural systems in the Tacna region; and also provide key insights to improve practices in Australia.
Industry’s water usage efficiency is generally poor, and Australia’s water technologies and services capabilities and experience are well matched to Peruvian needs – for their agriculture sector in particular.
More opportunities for mining sector
Established trading relationships will also receive a boost from PAFTA.
Peru’s mining sector already knows and respects Australia’s mining expertise – much of the Australian presence is in this sector, particularly mining equipment, technology and services (METS).
Australian METS products are seen as the benchmark in terms of safety, performance, lifespan and quality.
When the PAFTA comes in to force, providing duty free access for Australian mining machinery, equipment and parts, it will help make premium-quality Australian products an even more accessible and cost-effective proposition.
Australian Export Award winner, Hedweld Group of Companies, is a great example.
Hedweld has been exporting mining and earthmoving products to Peru for the past six years.
With the PAFTA signing, the company now has its sights on expanding its business even further within the market.
Peru is already the largest importer of Hedweld’s Trilift products globally, and when PAFTA comes into force, Hedweld’s costs will be reduced, as will those of their Peruvian customers.
Austrade can help with insights, market visits and/or introductions to supermarkets, producers, manufacturers and importers.
Marie Hill is Trade Commissioner, Australian Trade & Investment Commission
PERU: FACTS AT A GLANCE
- The fastest-growing major economy in Latin America over the past decade.
- GDP (US$189bn) comparable to Vietnam ($193bn).
- Population of 31.7 million
- Highly centralised. Twelve million Peruvians live in the capital, Lima, making the market relatively easy to service.
- Australia’s commercial presence in Peru has begun to grow with about 90 companies and an estimated $5 billion invested there.
- Australia is the fifth-largest foreign investor in Peru's mining sector.