UNDERSTANDING GARCIA'S EXPORT PROMOTION PLAN

UNCLAS LIMA 002507 SIPDIS SENSITIVE SIPDIS DEPT FOR WHA/AND, EB/TPP/BTA/ANA USTR FOR B. HARMAN COMMERCE FOR 4331/MAC/WH/MCAMERON USDA/FAS/ITP/BERTSCH E.O. 12958: N/A TAGS: ETRD EAID ECON EAGR PE SUBJECT: UNDERSTANDING GARCIA'S EXPORT PROMOTION PLAN ¶1. (SBU) Summary. In an effort to promote economic growth in southern Peru and the highlands, President-elect Alan Garcia has made his Sierra Exportadora program a key priority of his incoming administration. The five-year project will encourage farmers in the highlands to shift from the production of traditional agricultural products - corn and potatoes - to higher value export products, including artichokes, snow peas and peppers. Garcia's plan includes the strengthening of the Agrarian Bank and building of infrastructure to connect the highlands with the rest of Peru. APRA predicts the program, which should create 300,000 new jobs, will cost the GOP approximately $150 million over five years, with a heavy emphasis on attracting additional private investment. End Summary. Promoting Exportable Agricultural Products -------------- ¶2. (SBU) The Peruvian highlands are home to more than eight million Peruvians, of which 70 percent live in poverty. The majority of Peruvians in this area are dependent upon agriculture for their livelihood, producing corn, potatoes and quinoa. Small farmers produce food for their own consumption, and sell any extra in local markets. Farmers in the highlands produce 54 percent of Peru's agricultural products, although less than 4 percent of them are exported. Many farmers are unable to get their products to the major national markets on the coast. ¶3. (SBU) President-elect Garcia's Sierra Exportadora plan, a top government priority, will encourage farmers in the highlands to shift their production away from traditional agricultural products to export-oriented products, including artichokes, peppers, snow peas and trout. Citing coastal Peru as a model, Garcia's APRA party notes that farmers in the highlands need to adapt to market conditions in order to become more prosperous. (Note: the coast produces 40 percent of Peru's agricultural products, accounting for more than 85 percent of Peru's agricultural exports, which have increased dramatically under ATPDEA. End Note.) ¶4. (U) Garcia's plan is based on the belief that the highlands have the land, people and capacity to increase production of exportable products. Under the Sierra Exportadora program, the next Government plans, over a five- year period, to convert 150,000 hectares (30,000 hectares annually) of farmland for the production of new products. Garcia's program will strengthen the stat-owned Agrarian Bank, which will provide revolving credit of $102 million to small farmers to help establish improved chains of production. (Note: Under President Toledo, the role of the Agrarian Bank greatly diminished. The Agrarian Bank currently provides loans to either small local banks and credit unions or to members of a production chain rather than to individual farmers. The Agrarian Bank, which is under funded, lacks the staff necessary to conduct risk assessments for loans. End Note.) Only farmers and members of production chains that seek to produce export- oriented crops will be eligible for these loans. ¶5. (U) The program also calls for the improvement of interconnectivity between the highlands and coast. The Garcia Administration plans to build 28 roads over a five- year period, financed in part by the state and private concessionaires. These roads, which will be smaller than the existing major highways, will better connect ten Andean departments to the coast, providing an improve access way for the export of products. And the Result Will Be... -------------- ¶6. (SBU) The Sierra Exportadora program, as depicted by APRA, will cost $150 million over five years: $102 million will be provided to the Agrarian Bank for loans with the remaining money used for infrastructure improvements. Garcia will also promote increased private investment in the highlands, encouraging enhanced public-private partnerships. APRA officials predict that the Sierra Exportadora program will create 300,000 direct and indirect jobs in five years while reducing poverty levels. With the production of export-oriented, high value crops, officials also believe that Peru's exports could increase by up to $1 billion. Farmers that participate in the program could see a tripling in their revenues and small farmers may be able to expand their production capacity as profits increase, according to APRA officials. Comment -------------- ¶7. (SBU) One of the Garcia Administration's economic goals is to create 350,000 new jobs annually. The Sierra Exportadora program, which will encourage farmers to take advantage of the benefits created by the U.S.-Peru free trade agreement, will improve the capacity of farmers to produce high value products for export while creating new jobs. Garcia will want to announce concrete short-term measures in his July 28 inauguration speech, with some tangible results by the November 30 regional elections. We expect the incoming government to move quickly on this project, which will target the southern (and pro Humala) highlands in an effort to capture APRA votes. There are several issues that the Garcia Administration should address, including the need to hire and train Agrarian Bank officials on risk assessment, the road concession process, and how to ensure the competitiveness of small farms, for the program to be a success. STRUBLE