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Peru Leads Region in Putting New Faith in Global TradeFriday, February 10, 2017 > 11:14:42
The Wall Street Journal
OLMOS, Peru—This sun-baked valley of northern Peru, where foxes roamed a few years ago, is now a busy agricultural testament to globalization, powered with investments from as far away as Sweden and Israel. And here as elsewhere in the region, Europe and Asia—particularly China—are seen as key markets for securing future growth.
In Peru, which has emerged as South America’s strongest free trade proponent, thousands of workers are planting asparagus, mangos and peppers for export as part of a diversification effort to lessen reliance on mining. China is a key consumer.
Meanwhile, Argentina’s President Mauricio Macri is undoing his predecessor’s protectionist policies while participating with Brazil in talks to seal a free trade deal between the European Union and Mercosur, the South American customs union. Chilean officials said they are open to joining negotiations for a 16-nation trade accord led by Beijing.
And even as Mexico tries to salvage a trade agreement with the U.S., it is proposing using the Pacific Alliance trade bloc, a four-nation Latin American trade group, to increase ties across the Pacific. “We need to reach for a branch to Asia,” Mexico’s Economy Minister Ildefonso Guajardo said in an interview. “The Pacific Alliance can be a very efficient mechanism.”
The developments point to a broadening embrace of the global economy in much of Latin America as the U.S. veers toward protectionism.
After U.S. President Donald Trump withdrew the U.S. from the 12-nation Trans-Pacific Partnership, Peruvian President Pedro Pablo Kuczynski eagerly called for creating a broader Asia-Pacific accord with China and India. As Mr. Trump railed against the North American Free Trade Agreement for gutting U.S. manufacturing jobs, Mr. Kuczynski defended trade as vital to job creation.
“Our objective is to have good relations with the entire world, to have commercial integration with every country,” said Mr. Kuczynski, a former Wall Street banker.
Increased trade and foreign investments have been central to Peru’s economic growth, allowing 9 million Peruvians, about a third of the population, to escape poverty since 2004. In recent years, Peru implemented free trade accords with the U.S., China and the EU.
Farming exports topped $5 billion in 2015, up from $1.8 billion in 2006, with the U.S. as the leading market. Over the next five years, exports are expected to double, but now Asia will be driving growth, according to the Agriculture Ministry.
“The twin forces of agribusiness and trade will certainly continue to be an important source of growth,” said Alberto Rodríguez, the World Bank’s country director for Peru. “Just think of how many blueberries and avocados Peru can sell in China.”
In November, shortly after Mr. Trump was elected, Peru sent its first batch of blueberries to China, the first country Mr. Kuczynski visited after taking office in July. The shipment left days after Chinese President Xi Jinping told Pacific Rim leaders meeting in Lima that his country would embrace global trade amid uncertainty over U.S. policies.
“Our big bet is on Asia,” said Luis Torres, the head of exports at government agency, PromPeru. “Blueberries are going to be the next star export, along with asparagus, avocados, citrus fruits and grapes.”
Juan José Gal’Lino, the executive director of Delaware-based Agro Vision Corp., said his workers at Olmos will ship the larger blueberries to China, where he says consumers pay a 30% premium for the bigger fruit. Smaller berries will continue to be exported to North America, where consumers don’t care so much about the size.
“China is going to definitely be part of our portfolio,” he said while inspecting long rows of blueberries and grapes.
To attract agriculture investors, Peru has undertaken some of its biggest water projects ever to irrigate dry coastal land. At Olmos, a 12-mile-long tunnel was drilled some 6,500 feet below an Andes mountain peak, in order to divert a river.
Twenty companies have bought a total of about 100,000 acres of farmland in the valley, or an area about 120 times bigger than New York’s Central Park. The project will create some 40,000 jobs once at full capacity, requiring the construction of a new city to house workers. A contemplated expansion would involve diverting two more Andean rivers to irrigate another 120,000 acres and potentially increase employment to 100,000.
“For us, the agro-exports are fundamental,” said Humberto Acuña, the governor of Lambayeque state, where Olmos is located. “It is going to improve the region’s GDP and the national GDP at the same time.”
Beyond being a major engineering feat, the project has challenges. Fruits and vegetables are damaged in transport on an unpaved road. A severe drought late last year caused concerns about rationing water as the river reached its lowest level in 50 years. Brazil’s Odebrecht, the company that built and operates the irrigation system, has agreed to sell the project amid a major corruption probe, but this week a government council sought to block the deal.
Still, investors say there are advantages here, such as a warm, stable climate that allows farmers to produce crops year-round to supply international markets during the Northern Hemisphere’s off-season.
“The opportunity and the potential is huge,” said Steve Barnard, chief executive of California-based Mission Produce, the world’s biggest Hass avocado producer. “It is modern agriculture with technology at its best.”