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DOING BUSINESS IN
AND WITH) PERU

If back in 2001, any candidate for Peru’s presidency would have promised during the election campaign to turn Peru into an ethanol exporter – biofuel derived from sugar cane-, it is most possible that at least one reasonable voter would have called the candidate a “demagogue”.
If that promise would have been made in the recent presidential elections in April 2006, probably that same voter would have enthusiastically joined the wave of ovation at the massive rallies for such a candidate.

What was unthinkable five years ago, is one of today's economic and ecologic headlines in the media: more than one company in Peru has plans to invest in the export of biofuel. Brazil is ahead of us in this task, it has already become one of the leading producers of ethanol worldwide; 50% of its sugar cane production is used.

Despite the different sizes of both countries, both have virtually the same productivity, which is around 90 tonnes (t) per hectare. However, one ethanol project in the Peruvian jungle produced 324 t, but the lack of adecquate infrastructure complicated its transportation to the coast.

Not only the land's fertility is a strong reason to attract investment flows to this crop, but also ethanol prices are on the rise; during the first semester of 2006 it surpassed the barrier of US$ 0.50 per liter.

However, in order to invest, some other points should be taken into consideration such as the high tax burden, the fluctuation in fuel prices, the imports of alcohol with different tariffs, the implementation of technological improvements and production infrastructure, among others.

As a counterpart, it should be clear that opportunities are currently at its best. External effects such as the Kyoto Protocol (- an agreement made under the United Nations Framework Convention on Climate Change (UNFCCC) in which 164 countries committed itself to reduce CO2 emissions and five other greenhouse gases -), support the use of alternative and clean sources of energy. Another interesting opportunity can be found through the U.S.-Peru Trade Promotion Agreement (PTPA). In fact, given that Brasil does not have trade preferences with the U.S, brazilian producers must export ethyl alcohol to Central America, where it is processed into ethanol and then exported to the U.S.

Hence, if Peru obtains the trade preferences through the PTPA, it could have an additional competitive advantage regarding Brazil. Besides, Peru is a natural hub for the Asian market and thus, to Japan, one of the main ethanol consumers in the world.

(Adapted from a column published in Correo newspaper, by Aldo Defilippi, AmCham’s Peru executive director)

tags : Peru economy business USA AmCham ethanol investment ecology sugarcane biofuel energy transportation

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1 Comments

# richie rosengarten says :
29 July, 2007 [ 07:24 ]

on 90 tons per hectare how much does that mean in us dollars net return per hectare. i am interested in investing in a growing combine if the numbers make sence.please let me know.

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