Global Markets: Corn – U.S.’s Advantage in Peru Recedes in the Short Term

Peru corn imports from the world have more than doubled over the past decade, supported by growing demand primarily for poultry feed.

For the past several years, U.S. corn has maintained the lion’s share supported by the U.S. and Peru Trade Promotion Agreement (TPA), which established a tariff-rate quota and exempted U.S. corn from Peru’s price band system.

U.S. corn within the quota is duty-free, and over-quota imports are subject to a lower levy, which is reduced over the 12-year implementation period.

Corn imports into Peru from all other origins are also duty-free. However, non-U.S. corn is subject to Peru’s price band system, which uses the average of the past 60-month prices in selected international markets. In addition, a reference price is determined based on observed prices in international markets during the preceding month.

When imports enter below the reference price, a variable levy is assessed to ensure that imports meet the floor price. In 2018, prices in the global market have moved up on concerns over tighter exportable supplies in Argentina and Brazil.

Likewise, Peru’s reference price has steadily inched up to the floor price. Starting in March, there is no variable levy on non-U.S. corn.

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Typically, the variable levy on non-U.S. corn has been greater than the tariff reduction applied to U.S. corn. Over-quota U.S. corn is assessed a 4.17 percent duty in 2018, and would face competition in the short term, primarily from Argentina.

Without this price advantage, quality preferences and logistics — including transportation — could play a bigger role in purchasing decisions. When the TPA is fully implemented at the start of 2020, all U.S. imports will be dutyfree, potentially enhancing the competitiveness of U.S. corn.

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