US embassy cable - 05LIMA2553

UNCLAS SECTION 01 OF 02 LIMA 002553 
 
SIPDIS 
 
SENSITIVE 
 
USDA/FAS/ITP/BGRUNENFELDER/CBERTSCH 
USDA/FAS/CMP/GFD/REIMENSCHNEIDER 
USDA/FAS/CMP/COTS/PACKNETT 
USDA/FAS/CMP/HTP/DEATON 
USTR/MLATIMER/RVARGO 
 
E.O. 12958:  N/A 
TAGS: OTRA, EAGR, EC 
SUBJECT:  GOP RESPONSE TO AGRICULTURAL STRIKE! PROMISES, 
PROMISES, PROMISES! 
 
REF: LIMA 002335 
 
1. (SBU)  SUMMARY: In a four-day strike, that ended May 27, 
agricultural producers in ten departments put up roadblocks 
demanding import controls and price supports and 
concessions/protections for agriculture in the FTA negotiations. 
However, in some areas only a 15-day pause was agreed upon, 
hinging on GOP follow-through of some infrastructure 
improvements.  The strike was led by rice producers and joined 
mainly by potato and cotton farmers.  The Government of Peru 
(GOP) reacted quickly, promising a number of support programs, 
which do little to address the inherent oversupply problems of 
rice production.  The GOP promised to purchase small quantities 
for feeding programs, to set up a credit scheme aimed at 
regulating prices, and to raise direct subsidies to cotton 
producers. These minor concessions will do little to resolve the 
agriculture sector's difficulties or to discourage future 
protests. END SUMMARY 
 
 
2.  (SBU)  AGRICULTURAL STRIKE: 
 
On May 23, agricultural producers throughout Peru began a strike 
with road blockades.  Three groups mainly supported the strike: 
rice, cotton and potato producers, each of which faces different 
challenges and are requesting different things from the 
government. 
 
-- Rice:  Rice production was about 15 percent lower than usual 
in 2004 due to drought.  Most of this reduction was in the 
northern coast (Lambayeque production went from 500,000 MT to 
85,000 MT).  To prevent shortage, millers and the government 
encouraged production in new areas such as San Martin and 
Amazonas.  In  2005, northern coast rice production is expected 
resume normal production levels, but the new rice-producing areas 
will also continue producing resulting in an oversupply. Rice 
imports from January to May 2005(100,000 MT) nearly doubled from 
what Peru imported during the entire previous year.  Most of the 
imports were from Uruguay, but the U.S. share increased 
significantly.  Fear of lower prices due to increased supply, 
combined with the FTA negotiations, triggered the protests. 
Producers demanded import controls and support prices. 
 
-- Potato: Potato prices in Peru are on a roller coaster.  If 
there is a good year price-wise, then the next year increased 
production floods the market, causing prices to plummet.  Due to 
lack of standardization and quality control in the sector, Peru 
is not a potato exporter.  However, producers, encouraged by NGOs 
(mainly OXFAM) and CONVEAGRO (the National Agricultural Producers 
Organization) oppose an FTA fearing that wheat imports will 
replace domestic potato consumption. 
 
-- Cotton:  Peru requires about 100,000 MT of cotton per year, of 
which it imports about 40,000 MT, mostly from the U.S. Nearly a 
year ago (September 2004), the GOP announced an 8 soles (US$2.45) 
per hundredweight domestic support payment.  The GOP has had 
problems implementing the program with few cotton producers 
receiving the promised support.  Cotton producers have been 
demanding the government compensate them for U.S. subsidized 
cotton.  Cotton producers' opposition to the FTA has become 
stronger over the past year given the lack of government support 
and the result of the WTO cotton ruling against the U.S. 
 
3.  (SBU)  GOP RESPONSE: 
 
Minister of Agriculture Manuel Manrique reacted quickly to the 
producers' demands, calling for the following measures: 
 
- Purchase of 18,000 MT of rice and 4,000 MT of potatoes to be 
used in the government's feeding program.  In addition, the GOP 
announced that it plans to setup a government purchase program to 
respond to over-supply situations.  However, the program does not 
have any funding as yet. 
 
- Increased compensation to cotton producers from U.S.$2.45 to 
U.S.$4.3 per hundredweight.  In the recent past, the government 
has failed to fully fund this program and pay the promised 
support. 
 
- Authorize Agrobanco (the state agricultural development bank to 
QUOTE warrant UNQUOTE rice.  A QUOTE warrant UNQUOTE is a bank 
loan with product used as collateral.  The product is stored 
under the bank's control until the loan is paid. Theoretically, 
if prices fall, producers could ask for a loan of up to 70 
percent of the value of the product being warranted and store the 
product until prices improve.  The warrant is a mechanism of 
moving product out of the market and regulating supply.  Private 
traders and banks use the warrant system in Peru. 
 
4.  (SBU)  FIFTEEN-DAY PAUSE: 
 
The agricultural strike in San Martin (a large rice producing 
area) turned into a regional strike with one single demand: the 
construction of a road between Juan Guerra and Tocache which 
would reduce the transport distance to market from 1500 to 900 
kilometers.  The strike was temporarily lifted on May 29 for 
fifteen days.  The farmers in the area have threatened to produce 
more coca if the government does not build the road they want. 
 
5.  (SBU)  COMMENT:  KEEPING PROMISES? 
 
The promises made to the producers by the GOP are a stopgap 
measure at best.  Lack of long range-integrated planning, 
combined with the absence of financial support for the programs, 
appears to doom their efficacy, even before they begin.  There is 
no long-term benefit for farmers in buying an insignificant part 
of the crop for one time under the government-feeding program. 
The GOP needs to provide technical assistance to improve yields 
and efficiency, improve communications and infrastructure, and to 
provide timely information about planting and prices so that 
producers can make educated decisions as to what to plant and how 
much. 
 
6. (SBU)  It remains to be seen how effective the warrant program 
will be.  Lack of economies of scale, high administrative costs, 
and the lack of credit worthiness of many small producers put the 
workability of the program into question.  It is doubtful that in 
case of non-payment by the small producers, banks would actually 
take ownership of the rice as it would precipitate rural unrest 
and future strikes. 
 
7. (SBU)  Agricultural strikes are not unusual and the 
government's solution to these frequent strikes has been to make 
minor concessions and suggest longer-term assistance, which is 
unsustainable due to budget constraints, setting the stage for 
more strikes and a likely increase in opposition to the FTA from 
the traditional agriculture sector.  STRUBLE