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Non-traditional exports triple to $11.6bn over past decade

Article - November 24, 2015

Efforts by Peru to promote non-traditional goods, coupled with the effects of a Free Trade Agreement, or FTA, with the United States have seen the country diversify its exports


American shoppers browsing the produce departments at their supermarkets have been surprised this year with the appearance of football-sized Peruvian mangoes and papayas, the “fruit” of new efforts by Peru to promote non-traditional exports, coupled with the effects of a Free Trade Agreement, or FTA, with the United States.

“The FTA with the United States has meant two things,” explains Peruvian Minister of Foreign Trade and Tourism Magali Silva. “On the one hand, it had a very positive impact by helping diversify our products and we have almost quadrupled the number of product lines we were exporting.

“On the other hand, the agreement led to cheaper U.S. technology products which we import and these have helped small and medium enterprises undergo a real revolution by boosting their knowledge, productivity, and competiveness so they too can export.”

According to the latest trade figures, the Peru-U.S. Trade Promotion Agreement signed in 2009 increased Peruvian exports to the United States by 26 % during the first six years of the accord.

And while the United States had long been a customer for Peru’s traditional products such as copper, gold, zinc, and fish meal, trade pacts with the United States and other partners have opened the way for new exports like textiles, seafood, jewelry, metal and wood-based products, along with those giant mangoes.

According to the latest available trade figures from 2014, exports of non-traditional, value-added goods tripled over the past decade to $11.6 billion.

Indeed, thanks to the agreement, non-traditional industries in Peru grew by 80% and the country exported more than 900 products worth nearly $1 billion to the U.S. market.

“Peru was the first Latin American country to sign a 21st-century free trade agreement with the United States,” the minister boasts, but it wasn’t easy.

“We signed agreements which were unthinkable before, such as intellectual property rights, the environment, public purchasing and mutual cooperation. Plus, we had to adapt a new legal framework with 200 decrees,” Mrs. Silva recalls.

“And to make sure all this works, we must empower the private sector because a strong and confident private sector won’t need to rely on public policies and will continue to grow on its own accord.”

“The greatest achievement here is the participation of a growing number of SMEs in the process...small companies that usually were not able to enter that market because of the high tariffs”

Magali Silva, Minister of Foreign Trade and Tourism

In its bid to make sure sales of Peruvian goods abroad remain buoyant and take the sector to the next level, the government is to soon publish its National Strategic Exports Plan for the next 10 years.

“We’re calling it ‘Towards the Internationalization of Peruvian Companies’ because we  are no longer focusing just on exports of goods and services but also penetrating international markets through global value chains, investment funds, joint ventures, strategic partnerships, and participation in big international conglomerates,” the minister says.

“We believe that the country must be ready to be an important international player within the next 10 years.”

Cheering on the government from the sidelines is the Peruvian Exporters Association, or ADEX, with President Eduardo Amorrortu praising efforts so far but who cautions that much still remains to be done.

“Peru’s exports have been growing thanks to the vision that a group of people had in the 1990’s and among those measures was the first FTA with the United States which was controversial at first but has proved to be very important,” he says.

“And now, multilateral FTA’s have begun to proliferate taking these kinds of accords to a new level.”

ADEX would like to take the concept of such agreements between countries a  step further and in the case of the United States, sign similar pacts with individual states.

“We’re thinking about each U.S. state as the equivalent of the economy of a country so we will focus our efforts on every state, designing custom export strategies for each,” the president explains.

A plan of this magnitude and reach would require the cooperation of the national government through working with Peruvian commercial attachés in the United States.

“Despite the economic rivalry between the United States and China with many claiming the latter is getting the upper hand, the United States still has huge potential due to the entire population’s spending and purchasing capacity and we should take advantage of that,” he says.

“Our number one requirement is that all our raw material, must be 100% Peruvian... In terms of organic insecticides, 70% or 80% of products are exported to the US. Depending on the client, the final destination may be Texas, New York or Miami”

Manuel Pardo D’ornellas, General Manager of SOMEREX

One Peruvian company enjoying great success in the export market is Sociedad Mercantil Exportación S.A., or SOMEREX, that taps into Peru’s biodiversity to develop, manufacture, and market natural ingredients for agriculture, food, cosmetics, textiles, pharmaceuticals, and other industries.

“The trend we have seen over the last five years is that the world is looking to adopt healthier behavior so our goal is an organic, natural product,” explains General Manager Manuel Pardo D’Ornellas.

“Our number one requirement is that all our major inputs, our raw material, must be 100% Peruvian and we are most proud of our derivatives from tara, a crop that grows in Peru, and is a world-renowned leather softener and its gum is a food binder or thickener.”

SOMEREX is also the only Latin American producer of propyl gallate used as a food grade antioxidant in fats, oils, and food essences, and in cosmetics, emulsions, waxes, packing materials, and other products.

“In terms of quality, we are the only ones to produce this with 99.9% purity and our customers are so impressed that they ask us how we were able to achieve this,” the general manager says.

The company’s main overseas markets are the United States, France, China, Italy, and Argentina and for its organic pesticides around 75% are exported to the United States competing directly with synthetic pesticides, with full Food and Drug Administration approval.

SOMEREX was founded in 1945 as a coffee and cotton exporter but 10 years ago executives decided to invest in value-added products.

“We no longer export anything that is not processed as the added value generates more income and allows us to develop a specialty product that sets us apart from the rest, domestically and internationally,” Mr. Pardo says.

“Our production costs are much lower than those in a developed country as labor here is cheaper, and given this perspective we are slowly making a name for ourselves.”

When Mr. Pardo joined the company five years ago, he took a long look at companies in Chile, Colombia, and Argentina which produced agribusiness products for direct consumption and wondered why no Peruvian companies were doing the same.

“So we started approaching commodities customers and asked them if they were interested in something more elaborate. Realizing that costs were much lower here, they started buying,” he recalls.

“Other Peruvian companies can do this, they just have to take the risk, invest and think in the long term.”