US embassy cable - 04PANAMA798

UNCLAS SECTION 01 OF 06 PANAMA 000798 
 
SIPDIS 
 
 
USTR FOR RVARGO, JWOLFE 
STATE/EB FOR RMANOGUE 
SAN JOSE FOR AHRAPSKY 
USDOC4332/ITA/MAC/WH/OLAC/MGAISFORD/VDEES 
USDA FOR BRIAN GRUNENFELDER, CHARLES MARSTON, BRENDA 
FREEMAN, ROGER MIRELES 
 
 
E.O. 12958: N/A 
TAGS: ETRD, EAGR, PM, ECONOMIC AFFAIRS 
SUBJECT: PANAMA: KEY AGRICULTURAL ISSUES FOR THE UPCOMING 
U.S.-PANAMA FTA NEGOTIATIONS, APRIL 26-30, PANAMA CITY 
 
 
1. This message is sensitive but unclassified.  Please treat 
accordingly. 
 
 
2. Summary: This cable provides an overview of Panama's 
agricultural sector and Post's assessment of key issues in 
preparation for the upcoming bilateral negotiations (Round 
One will be held April 26-30, 2004 in Panama City). Paras 1-4 
provide an overview of the sector; paras 5-9 provide a 
summary of key barriers to increased U.S. market access; 
paras 10-11 provide a summary of Panama's agricultural 
incentives; and paras 12-22 provide background and basic 
trade and production data for sub-sectors (e.g. beef, dairy, 
rice, etc) identified as sensitive by local agricultural 
groups.  Like elsewhere, Agriculture represents a largely 
defensive interest for Panama (with the clear exception of 
improved sugar access under the US-administered TRQ).  (Note: 
While the Ag sector represents only 6 percent of Panama's 
GDP, it represents 53.3 percent of the rural labor force and 
14.6 percent of the total force.  End note.)  The GOP has 
reviewed the CAFTA Ag chapter and understands US 
expectations.  End Summary. 
 
 
3. According to 2003 official statistics from the GOP 
Comptroller General's office, the ag sectors contribution to 
Panama's total GDP (approximately USD 12 billion) fell 0.1 
percent to USD 557.4 million.  Total agricultural imports for 
2002 were USD 417 million while agricultural exports were USD 
603 million.  (Note: Detailed GOP agricultural statistics for 
2003 are still pending.  End note.)  According to USDA 
statistics, Panama imported a total of USD 191 million from 
the US in agricultural products in 2003 and exported USD 151 
million to the United States.  (Note: This figure includes 
both raw and processed ag products.  End note.)  This 
represented a 3.1 percent increase in imports from 2002 and 
continued a traditional upward trend, interrupted only by 
greater increases in 1998 and 1999 when El Nino forced Panama 
to increase food imports from the US.  In 2002, 46 percent of 
Panama's total imports of food products came from the United 
States and 23 percent of Panama's total food exports went to 
the US. 
 
 
4. Following Panama's accession to the WTO in 1997, Panama 
lowered all duties to 15 percent or less, becoming the most 
open market in the area.  However, at the end of 1999, the 
incoming Moscoso Administration reversed this and raised 
duties for sensitive products.  Sensitive products include 
beef, dairy, rice, poultry, pork, corn, tomatoes, potatoes, 
onions, and cooking oil.  In addition to increased duties and 
Tariff Rate Quotas (TRQs), Panama does not/not recognize the 
US sanitary meat inspection system and has never accepted 
fresh or chilled US chicken, citing high phytosanitary risk. 
Nevertheless, Panama imports frozen turkeys and turkey meat 
for the meat processing industry.  Particularly troublesome 
has been the lack of transparency by the Ministry of 
Agricultural Development (MIDA) when deciding whether to 
issue or deny phytosanitary permits -- in effect, at times, 
seemingly using this authority to administer a de facto quota 
system.  Like elsewhere, many agricultural groups complain 
that their U.S. counterparts enjoy an unfair advantage 
through subsidies/domestic support.  To date, three sectors 
-- beef, dairy, rice -- have expressed a strong desire to be 
excluded from the agreement.  Aside from the above-mentioned 
sensitive products, market access is generally good for US ag 
products.  The average tariff for non-sensitive ag products 
is 15 percent. 
 
 
------------------------------------------ 
Key Barriers to Increased US Market Access 
------------------------------------------ 
 
 
5. The GOP has increased protection for sensitive sub-sectors 
primarily by raising duties and creating Tariff Rate Quotas 
(TRQs).  The GOP has limited its protection for potatoes, 
onions, cooking oil, beef, and sugar to duty increases.  It 
maintains TRQs for poultry, pork, corn, rice, dairy, and 
tomato products.  (Note: Para 6 contains detailed TRQ data. 
End note.)  TRQs are entirely filled every year for pork, 
corn, rice, dairy, and tomato products.  The yearly quota for 
poultry products has never been filled because of 
phytosanitary concerns about US poultry, which have led to 
delays in the issuance or denial of phytosanitary import 
permits.  This lack of procedural transparency in the 
issuance of these permits and the lack of recognition of US 
plant inspection are the two key barriers to increased US 
market access. 
 
 
6. TRQ detailed information: (Note: Out-of-quota tariff rates 
are as of 01/01/04. End note.) 
 
 
Poultry TRQ: 626 MT 
In-quota tariff: 15 percent 
Out-of-quota tariff: 273 percent 
 
 
Pork TRQ: 772 MT 
In-quota tariff: 3 percent 
Out-of-quota tariff: varies 
Hams, picnics, parts: 74 percent 
Deboned, other buts with bone: 30 percent 
 
 
Corn TRQ: 141,450 MT 
In-quota tariff: 3 percent 
Out-of-quota tariff: Not Available 
 
 
Rice TRQ: 8,297 MT 
In-quota tariff: 15 percent 
Out-of-quota tariff: 50 percent 
 
 
Dairy TRQ: 11,018 MT 
In-quota tariff: 3 percent 
Out-of-quota tariff: varies 
Skim, whole, other milk: 66 percent 
Powder milk: 63 percent 
Evaporated milk: 159 percent (including goat evaporated milk) 
 
 
Tomato TRQ: 1,439.5 MT 
In-quota tariff: 3 percent 
Out-of-quota tariff: varies 
Tomato puree: 83 percent 
Tomato pulp crude: 83 percent 
Remaining: 83 percent 
Ketchup: 50 percent 
Tomato paste: 50 percent 
Remaining: 50 percent 
 
 
7. Panama's application of standards and certification 
requirements generally conforms to WTO standards.  However, 
restrictions have been applied from time to time in response 
to pressure to protect local producers.  Particularly of 
concern has been the lack of procedural transparency by 
relevant Panamanian authorities when deciding whether to 
issue or deny phytosanitary import permits.  The Ministry of 
Agricultural Development (MIDA) has, most recently, failed to 
act upon the issuance of import permits for frozen french 
fries but has also stalled issuance of imports for onions, 
corn, and dairy products.  The permits were partially issued 
after the Embassy intervened. 
 
 
8. Panama also requires certification by Panamanian health 
and agricultural officials of individual US processing plants 
as a condition for the import of poultry, pork, and beef 
products.  US exporters have assisted Panamanian officials in 
making inspection visits to US plants.  There have been no 
instances of a US plant failing to be certified, but 
inspections have been delayed many times for various reasons, 
including lack of personnel and budgetary constraints in the 
responsible Panamanian ministries. 
 
 
9. In September 2003, Executive Decree No. 352 was signed by 
President Moscoso requiring Panamanian officials certify 
international plants as a condition for the import of 
consumer-ready products.  While this decree has not been 
implemented fully, the Ministry of Health is requiring this 
certification for sanitary registrations.  Sanitary 
registration certificates allow products to be marketed and 
sold within Panama and must be renewed every 5 years.  This 
decree does not/not comply with the requirements of Chapter 
III of Law 23 of 1997 that requires Panamanian acceptance of 
free sale certificates from exporting countries.  This law 
was implemented as a result of Panama's WTO accession. 
 
 
----------------- 
GOP Ag Incentives 
----------------- 
 
 
10. While total domestic supports to the ag sector are low 
(less than USD 9 million annually prior to WTO accession), 
aid consists of preferential tariffs, income tax deductions, 
and tax deductions.  Preferential tariffs (30 percent 
reduction from the market rate) are given for the 
installation and consumption of electricity used in farming 
activities.  A 30 percent income tax deduction is allowed for 
investments in livestock, fisheries, and agro-industrial 
activities (a maximum deduction of 40 percent of taxable 
income in the tax period prior to the investment is 
required).  The following tax exemptions are permitted: (1) 
profits derived from timber plantations planted within the 
last 7 years, (2) income of less than USD 100,000 per annum 
derived from ag or livestock production, and (3) property tax 
on farming estates with a land registry value of less than 
USD 100,000.  A deduction of a percentage of capital invested 
in farming activities (where farm incomes exceed USD 100,000 
annually) is also available; the deduction is limited to the 
average rate of interest for fixed term deposits plus 3 
percent of that average. 
 
 
11. The GOP has also granted special contracts to certain 
investors whose activities required the use of large areas of 
land; the land areas had ordinarily been granted under a 
concession system.  Mineral resources exploration has 
benefited from such contracts.  Agricultural exports of 
Panama are also exempted from income tax on the income 
derived from the exported goods, and Tax Credit Certificates 
(Spanish acronym: CAT or certificado de ahorro tributario) 
have been granted for non-traditional ag products.  CATs are 
administered by MICI and pay 15 percent of value added to 
exports of non-traditional ag products.  CATs will be 
eliminated in 2005.  Panama recently enacted an Industrial 
Law that is WTO consistent and will replace CAT-lost income 
through various incentives and subsidies.  Panama also 
maintains Laws 24 and 25 which provide support money to 
farmers and are administered by MIDA.  Law 24 provides money 
to farmers that suffer losses due to natural disasters 
whereas Law 25 provides money to farmers that convert from 
traditional to non-traditional crops for export. 
 
 
--------------------------------------------- ----------------- 
Beef, Dairy, and Rice: "We don't want to be a part of the FTA" 
--------------------------------------------- ----------------- 
 
 
12. Panama's leading industry groups for beef, dairy, and 
rice have publicly spoken against inclusion of their sectors 
in the FTA.  However, while they prefer their industries be 
excluded from the discussions, they have also begun to lobby 
the Moscoso Administration to change current laws to ensure a 
more protected agricultural sector.  This lobbying has not 
yet produced tangible results but the GOP has also not shut 
the door on their requests.  (Note: Panama has FTAs with 
Taiwan and El Salvador.  Only rice was excluded from both 
agreements whereas beef products are tariff and quota free 
and some dairy products are tariff free while others have 
quotas.  End note.)  A common argument used by these 
organizations against an FTA is that U.S. subsidies create an 
uneven playing field. 
 
 
---------------- 
Sub-sector: Beef 
---------------- 
 
 
13. Panama's livestock industry is traditionally operated as 
family-owned with extensive low-tech ranches.  These depend 
primarily upon low quality grassland and rain water.  The 
growth of the industry is small.  Between 1991 and 2001, when 
the agricultural census was taken, cattle production grew 
only 9.1 percent (less than 1 percent a year).  The GOP has 
set a duty of 27.5 percent for beef and 10 to 15 percent for 
offal.  There is no/no TRQ for beef.  The consumption per 
capita of beef and offal in 2002 was 91.3 pounds.  The 
following statistics refer to 2002. 
 
 
Overall beef imports: 160 tons for a total value of USD 
573,000 
 
 
Countries of origin: USD 573,000 from US (Note: Panama did 
not/not import beef from any other country. End note.) 
 
 
Overall offal imports: 451 tons for a total value of USD 
333,000 
 
 
Countries of origin: 
USD 91,000 from US 
USD 186,000 from Canada 
USD 46,000 from Nicaragua 
USD 10,000 from other countries 
 
 
Exports: 3,997 tons for a total value of USD 14,607 million 
 
 
Countries of destination: 
USD 5,883 million to Mexico 
USD 2,065 million to Guatemala 
USD 1,481 million to Venezuela 
USD 1,368 million to Taiwan 
USD 3,810 million to other countries 
(Note: There were no/no beef exports from Panama to the US. 
End note.) 
 
 
14. The National Association of Cattle Raisers (ANAGAN) has 
solicited the GOP to approve two changes in Panamanian law 
that would diversify and strengthen the domestic beef 
industry.  ANAGAN has requested a law that would include a 
meat grading system on par with other leading beef-producing 
countries; this law has been returned to its drafters for 
corrections and may go before the Assembly in September 2004. 
(Note: Reportedly, a motivation for this measure is to keep 
out Nicaraguan beef.  End Note.)  The second law proposed by 
ANAGAN requests that a percentage of profits from the cattle 
quota go to ANAGAN to strengthen its commercial structure. 
 
 
----------------- 
Sub-sector: Dairy 
----------------- 
 
 
15. Panama's dairy farmers produced 150 million liters of raw 
milk in 2002.  Of this, 4 million liters were utilized as ice 
cream, 47 million liters as evaporated/powdered milk, 56 
million liters as pasteurized milk, and 43 million liters as 
cheese and other dairy products.  The following statistics 
refer to CY 2002. 
 
 
Overall dairy imports: 9,819 metric tons (MT) with a total 
value of USD 18.8 million 
 
 
The most important imported products and country of origin 
were: 
Powder Skim Milk: 1,081 MT (97 percent from New Zealand) 
Powder Whole Milk: 2,069 MT (100 percent from New Zealand) 
Butter oil: 1,031 MT (93 percent from New Zealand) 
Cheddar cheese/industrial: 2,934 MT (99 percent from New 
Zealand) 
Consumer ready cheese: 437 MT (55 percent from the US) 
 
 
Overall dairy exports: 7,634 MT with a total value of USD 
10.9 million 
 
 
The most important exported products and countries of 
destination were: 
Condensed milk: 4,205 MT (94 percent to Central America) 
Evaporated milk: 2,404 MT (83 percent to Central America) 
 
 
16. The Association of Dairy Producers (APROGALPA) claim that 
the importation of milk has negatively affected domestic 
production.  The cost of production in Panama and elsewhere 
in Central America is higher than more developed countries 
because of the slow transfer of technology.  APROGALPA 
advocates the creation of a national plan developed by the 
GOP and milk producers to improve quality and efficiency. 
While the Panamanian dairy industry is competitive in Central 
America, the industry claims it cannot compete with subsidies 
provided to US dairy farmers. 
 
 
---------------- 
Sub-sector: Rice 
---------------- 
 
 
17. Panama had a total of 51,040 rice farms in 2002; of 
these, 1,767 were mechanized and 49,273 were non-mechanized. 
(Note: Non-mechanized farms include poor farmers and Indians 
that plant rice for self-consumption.  End note.)  Mechanized 
farmers were paid between USD 9.50 and USD 11.00/qq paddy. 
Consumers paid USD 0.36/lb for a 5-lb bag of white rice 95/5. 
 (Note: "qq paddy" refers to 100 lbs of paddy rice and 95/5 
signifies for every 100 grains of rice, 95 grains are perfect 
and 5 grains may be defective.  End Note.)  Panama has the 
highest consumption of rice in the region at 179.7 lbs/year. 
The following statistics refer to 2002. 
 
 
Overall rice imports: 30,108 MT (27,432 MT of paddy rice and 
2,676 MT of white rice) 
 
 
Countries of origin: 100 percent from the US 
 
 
(Note: Panama did not/not export rice in 2002.  MIDA 
constantly monitors stocks, which are traditionally kept at 
the minimum level of a two-months supply.  If stocks fall 
below this point, MIDA either approves the TRQ product or an 
"extraordinary" TRQ, if needed.  Typically, during and 
immediately after local harvests, the market is closed to 
imports. End note.) 
 
 
18. The Federation of Farmers' organization (UNPAP), the main 
organization for rice farmers, asserts subsidies of developed 
countries must be eliminated before their products are 
discussed within FTA negotiations.  Following the abolition 
of subsidies, UNPAP wants a 60-year protectionist period of 
declining tariffs on sensitive products.  UNPAP presented its 
proposal to then Vice Minister of Trade Meliton Arrocha in 
December 2003. 
 
 
------------------------------ 
Other Sensitive Ag Sub-sectors 
------------------------------ 
 
 
19. Turkey.  The following information refers to CY 2002. 
 
 
Production: -0- 
 
 
Imports: 3,773 MT with a total value of USD 5,552,136 
(Note: Of this, 2,780 MT was turkey meat used by the meat 
processing industry.  End note.) 
 
 
(Note: Panama exported no/no turkey or turkey products in 
2002.  End note.) 
 
 
20. Pork.  In 2003, Panama slaughtered 302,641 heads of pork, 
an increase of approximately 10 percent from 2002.  The 
following figures refer to 2003. 
 
 
Chilled/Frozen Pork Imports: 2,041 MT with a total value of 
USD 3,229,421 
(Note: Of this, 1.095 MT were shoulder imports.  End note.) 
 
 
Countries of Origin: 1,581 MT from the US 
460 MT from Canada 
 
 
Pork Offal Imports: 3,791 MT with a total value of USD 
2,015,392 
(Note: Of this, 3,171 MT were pig feet and pig tails.  End 
note.) 
 
 
Countries of Origin: 
1,469 MT from the US 
2,298 MT from Canada 
24 MT from China 
 
 
Processed Pork Imports: 2,919 MT with a total value of USD 
6,719,000 
(Note: Of these, luncheon meat comprised 2,022 MT for a value 
of USD 4.9 million.  End note.) 
 
 
Countries of origin: 
1,456 MT from Denmark 
662 MT from US 
68 MT from Canada 
733 MT from other countries 
 
 
(Note: Panama did not/not export any pork products in 2003. 
End note.) 
 
 
21. Corn.  Panama had a total of 50,248 corn farmers in 2003; 
of these, 540 were mechanized and 49,708 were non-mechanized. 
 Mechanized farmers planted 10,000 hectares whereas 
non-mechanized farmers planted 58,230 hectares for a total of 
68,230 hectares of corn planted in CY 2003.  The following 
statistics refer to CY 2002. 
 
 
Yellow corn imports: 286,291 MT with a total value of USD 
35.6 million 
Popcorn imports: 209 MT with a total value of USD 0.15 million 
(Note: All imports (286,291 MT) went toward animal feed.  End 
note.) 
 
 
Consumption from local, mechanized farmers: 10,000 MT for 
human consumption 
21,818 MT for animal feeds 
 
 
Consumption from local, non-mechanized farmers: 454,627 MT 
for human consumption 
 
 
(Note: All figures are for yellow corn.  Consumption of white 
corn in not/not significant in Panama.  End note.) 
 
 
22. Potatoes.  The following information refers to fresh 
potatoes for CY 2002. 
 
 
Production: 16,719 MT 
 
 
Imports: 1,064 MT with a total value of USD 355,281 
 
 
Countries of origin: 
388 MT from the US 
271 MT from Holland 
243 MT from Belgium 
78 MT from Chile 
77 MT from Canada 
7 MT from Colombia 
 
 
The following information refers to processed potato products 
for CY 2002. 
 
 
Production: -0- 
 
 
Imports: 5,805 MT with a total value of USD 4,360,364 
(Note: Of this, 5,254 MT were french fries.  End note.) 
 
 
Countries of origin: 
2,343 MT from the US 
2,381 MT from Holland 
1,056 MT from Canada 
25 MT from other countries 
 
 
(Note: While small, the potato industry continues to be 
protected by MIDA.  Since December 2003, MIDA initially 
refused to grant import licenses for frozen french fries on 
two separate occasions.  After Embassy intervention, the 
permits were issued.  The Embassy also notes that the 
issuance of such permits for franchises serving frozen french 
fries has never been disrupted.  The last Embassy 
intervention, negative press, and discussions between US and 
Panama at the WTO negotiating session on Food Aid in Geneva 
have prompted GOP officials and interested parties to seek a 
resolution to the problem. End note.) 
MCMULLEN