CAFTA-DR EARLY SUCCESS STORIES: FOOD & BEVERAGE AND

UNCLAS SECTION 01 OF 03 SAN SALVADOR 001913

SIPDIS

STATE PASS USAID/LAC
STATE ALSO PASS USTR
USDOC FOR 4332/ITA/MAC/WH/MSIEGELMAN
3134/ITA/USFCS/OIO/WH/PKESHISHIAN/BARTHUR
SIPDIS

E.O. 12958: N/A
TAGS: ECON ETRD EINV ES
SUBJECT: CAFTA-DR EARLY SUCCESS STORIES: FOOD & BEVERAGE AND
ARTISANAL CRAFTS

REF: A. SAN SALVADOR 1844 B. SAN SALVADOR 1779

Summary
--------------

1. CAFTA-DR has shown early successes in El Salvador, especially in
the local food and beverage industry and in artisan crafts.
Agricultural exports are up 32 percent in the first half of 2007,
especially exports of "ethnic foods," including cheese, loroco, and
seafood, and producers are preparing for further expansion.
Likewise, many local artisans, supported by USAID programs, are
exporting crafts to the U.S. for the first time. Successes in the
textile, manufacturing, and services sector have been reported in
reftels. End Summary.


2. According to the Ministry of Agriculture, sales of agriculture
and agro industrial food and beverage products to the U.S. increased
by 32% in the first half of 2007 to $258.8 million. Ricardo Esmahan,
the President of the Salvadoran Agricultural Chamber, stated that
they are greatly expanding due to CAFTA-DR, and that firms have been
encouraged by the clear rules that now exist to export to the United
States. Similarly, Minister of Economy Yolanda de Gavidia stated
that the Salvadoran firms are taking advantage of the fact that we
are complementary economies by selling products in the U.S. that are
not produced there.


CHEESE (PETACONES)
--------------


3. Cheese exports, aimed primarily at Salvadoran nostalgic market,
increased by 58% during the first seven months of 2007. One major
CAFTA-DR success is the cheese producer Petacones. During the first
year of CAFTA-DR, Petacones exported $750,000 to the U.S., and in
2007 they plan to increase their U.S. exports to $1.3 million.
Their main export is the Salvadoran classic Petacones cheese. While
their sales have focused on the Salvadoran community so far, they
will next go after the Mexican community market in the U.S. and,
afterwards target non-Hispanic U.S. consumers.


4. Before CAFTA-DR, Petacones exported $40,000 per year to the
U.S., but they experienced many problems with U.S. customs. Cheese
was on Customs' Detention List, so their product would be stopped
for around 45-60 days, after which it could not be sold in the U.S.
(it was ruined). USDA worked with the Ministry of Health and the
Ministry of Agriculture to improve Petacones' production processes,
Petacones received technical assistance with USAID funds, and a Food
and Drug Administration delegation inspected Petacones production
plant, making several recommendations for improvement. After
Petacones implemented the changes, they were taken off the Detention
list and could export without restrictions. Secretary of Agriculture
Johanns visited the Petacones plant on a recent trip to El Salvador.



ETHNIC PRODUCTS
--------------

5. "Ethnic" or "nostalgic" product exports have also expanded,
including exports of sweet corn tamales, pickled pacaya, frozen
chipilin, morro seeds, sweet bread, horchata beverage, spices,
pupusas, beans, frozen jocote, and sesame seeds. The Government of
El Salvador opened a new line of credit to ethnic product producers
and exporters through the Investments Multisectorial Bank (BMI),the
Central American Bank for Economic Integration (BCIE),and the
Agricultural Promotion Bank (BFA). The interest rate will vary
between 9% and 11%, and some products will enjoy of a grace period
of one year.

6. The large Salvadoran snacks firm Diana plans to increase its
presence in the U.S. market through large supermarket chains such as
Publix and Pantry Pride. Currently, Diana exports only 3 percent of
its production to the U.S., mostly through medium supermarket chains
and small businesses. Likewise, Pasteles de El Salvador produces
ethnic sweet bread, a nostalgic product highly appreciated by the
Salvadoran diaspora. They are selling products such as margarita
cocada, pineapple pie, and rice salpor in the U.S.


7. Loroco de El Salvador (Lorocosal) exported 18,000 pounds of
loroco to the U.S during 2006. For 2007, they project to sell
130,000 pounds to nostalgic and gourmet markets with prices varying
between $5 and $20 per pound. Lorocosal took advantage of the Micro
and Small Business Promotion Program of the Salvadoran Foundation
for Social and Economic Development (FUSADES) and the Agribusiness
Restructuring Program of the Ministry of Agriculture. The firm's
industrial plant in Colon has the capacity to process 2,000 pounds
daily. Similarly, Exportadora e Importadora de Productos

SAN SALVAD 00001913 002 OF 003


Salvadorenos, exported around 3,000 pounds of Loroco per week in
2006, and they project to double their sales during 2007. They
stated that CAFTA-DR improved their exporting steps and requisites,
and they have advised other producers to take advantage of it since
demand for loroco in the U.S. is still not met.

SEAFOOD
--------------


8. The seafood sector has also expanded its sales. La Union-based
fish processing company Mar y Sol exported more than $346,000 in dry
shrimp and $279,000 in dry fish to the U.S in 2006. As a result of
the mounting demand, they have created 350 direct jobs and 600
indirect jobs during the past year. The firm also received Hazard
Analysis and Critical Control Point (HACCP) qualification in Miami.



9. Similarly, dehydrated shrimp producer Exportaciones Agricolas
increased exports to the U.S. by 25% during 2006. Hector Rivera, the
firm's legal representative, stated that CAFTA-DR has improved the
image of the firm in the U.S. market and has allowed them to obtain
more clients. During 2006, the demand was so high that the company
had to buy shrimp in Mexico in order to comply with the orders. They
plan to acquire a new property this year in order to breed shrimp
and want to expand their business into producing cooked shrimp.

OTHER FOOD AND BEVERAGE SUCCESSES
--------------


10. Approximately 384 small farms and 1,811 small producers are
growing organic products for export. According to Emilio Espin,
director of the Communal Development and Cooperation Foundation from
El Salvador (CORDES),they are currently only exporting cashew and
coffee to the U.S. under CAFTA-DR, but they hope to introduce new
products like indigo, coconut, and vegetables. Other producers are
exporting vegetables (e.g., bell pepper) and dyes.



11. Jumex plans to open the first beverage producing plant outside
of Mexico in El Salvador by December 2007. They have already
invested more than $7 million. Under CAFTA-DR, Jumex can export
their juices and nectars directly from El Salvador to the U.S.
without having to comply with a quota based on sugar content.


12. Stephanie Andersen Cacao company, a joint U.S. -Salvadoran
investment, invested $30,000 in a cacao plantation in Alegria,
Usulutan, creating 50 direct and 100 indirect jobs. They will be
ready to export chocolates to the U.S. in about a year.

ARTISANS
--------------


13. Several small and micro artisan businesses are also benefiting
from CAFTA-DR, starting exports to the U.S. for the first time.
Many of these enterprises benefited from USAID assistance programs.



14. Paax Muul started exporting guitars to the U.S. in 2006. They
expect sales of more than $50,000 in Pennsylvania during 2007. They
received support from the USAID in technical training for three
years. Now the artisans are able to produce high quality hand made
guitars which sell for between $600 and $1,600. They invested more
than $20 thousand in machinery to elaborate some of the guitar
pieces.


15. Artesanias y Fachadas (Arfa),a small crafts producer from
Ilobasco, started exporting to the U.S. encouraged by CAFTA-DR. They
produce frontages in mud, wood and wrought iron. While their
initial exports were small, they found clients in Miami and Los
Angeles, and are looking for direct distributors in several U.S.
cities. Likewise, Eco Bambu, another small crafts firm, increased
its exports by 70 percent. They produce crafts in bamboo, morro, and
a variety of seeds, as well as a variety of ceramics which they
export to several cities in California.


16. Artisans from the town of Guatajiagua have exported $30,000 of
artisan crafts to the U.S. after CAFTA-DR, selling products to
PriceSmart and Park Avenue Candles. Guatiajiagua has over 400
artisan workshops and is located in the eastern department of
Morazan. Artisans produce an attractive black pottery with local
clay. Artisans have received technical assistance and training from
the USAID Artisan Development Program implemented by Aid to Artisans
(ATA),a non governmental organization.


SAN SALVAD 00001913 003 OF 003



17. The Salvadoran firm Classic Reflections Vitrales plans to begin
exporting to the U.S. before the end of 2007. They plan to start
with 1,500 bevelings (designs in glass). They have received training
from the Small and Micro Business National Commission (CONAMYPE).
They have made business contacts in Miami, Houston and California.
Similarly, small business Las Azulinas plans to begin exporting to
Washington this year. They produce indigo textile articles for the
home and clothing. The firm employs 10 women.


Butler