Panama: Panama’s government steps up support for agriculture amid falling exports

As the sector braves dual headwinds from volatile climate conditions and tighter competition from cheap imports, state support for agriculture is increasing in Panama.

Falling exports

Official figures released in February show agricultural exports continued to decline in 2016, though a few commodities performed well.

Contractions were recorded for a variety of key food products, including bananas (-7.4%), melons (-20.1%), pineapples (-34.9%), beef cattle (-24.4%), shrimp (-2.2%) and oil products (-12%), according to a report from the Comptroller General. Notable gains were meanwhile recorded for unrefined sugar (54.6%), coffee (49.7%), other sea products (39.4%), and fishmeal and fish oil (10.3%).

The downturn is part of an economy-wide trend: in 2016 the value of foreign sales slumped for the third straight year, by 8.5% to $636.1m.

The economic contribution from agriculture has been on the decline for years in Panama – sinking from 7.1% to 2.9% of GDP in the dozen years to 2015, as per World Bank data – weighing on export revenues.

Importing competition

The sector is finding it a challenge to compete with imported agro-foods, which are exerting downward pressure on domestic demand and challenging the market share of local producers.

Local media reported in mid-February that some 60% of the 2017 tomato harvest had been lost to date due to lack of demand, bringing losses to an estimated $18.5m.

Heavy rainfall last year ruined many tomato crops and led to a national shortage, spurring the country to deepen its free trade deals with countries such as Mexico and the US. As imports continue to make their way into the local market, around 600 tomato producers have resorted to throwing away produce. Similar losses were experienced among onion and rice producers.

Some key producers and agricultural associations, such as the Producers Association of Renacimiento, have argued the crisis stems from free trade agreements, which they say open the door to unequal competition.

Competition has indeed stepped up since a free trade deal was struck in 2012 with Panama’s main trade partner, the US, triggering a 32% increase in imports from that country over the next three years, to $653m in 2015, according to the US Department of Agriculture.

State support

In a bid to reverse the more than decade-long sector downturn, agricultural subsidies have nearly doubled since 2014 to reach $4.5m last year, according to the Institute of Agricultural Security (Instituto de Seguridad Agropecuario, ISA).

This figure, released by the ISA last July, came as part of a two-year progress report on the multi-million-dollar National Pact for Agriculture, a state-led initiative launched in 2014 to shore up the sector. The scheme aims to incentivise local production and consolidate food security through technical training programmes, preferential interest rates on loans and tax deductions worth up to 30% of new investments.

To further diversify and strengthen Panama’s exports, government officials also met with Costa Rica’s investment agency, Procomer, late last year as part of a technical cooperation agreement to boost trade in agricultural goods.

Measures are also being taken at home. In response to criticism that Panama’s Agricultural Development Bank (Banco de Desarrollo Agropecuario, BDA) had too many bureaucratic obstacles to access its programmes, especially agricultural loans, in January of last year the ISA and the BDA signed a cooperation agreement to pool resources and streamline services that both entities provide to agricultural producers.

Reinvigorating banana production

Amid the general decline, however, the banana segment – Panama’s leading food export – is set to receive a timely boost.

Last December the government approved a deal that would allow a subsidiary of multinational Del Monte to invest some $100m to revitalise banana production in the Chiriqui and Bocas del Toro regions bordering Costa Rica in the west.

The contract stipulates that the subsidiary, Banapiña de Panamá, will be responsible for a range of improvements essential to growing the segment: from leasing land and preparing plantations, to installing irrigation systems, building infrastructure for packaging and export, and various other activities.

The project is expected to raise production by 2725 boxes of bananas per ha annually and will be implemented in stages, at a rate of 800 ha per year. At the same time, the company will construct necessary buildings and facilities.

Banapiña de Panamá plans to disperse this investment over the course of seven years, which should generate roughly 3100 direct jobs and 12,000 indirect positions, according to a statement issued by the president’s office at the time of the agreement.