Monday 6 February 2023

Costa Rica food industry survives a 2022 complicated by major crises

Average production growth barely exceeded 2% per year, supported by a significant increase in exports, which rose at a rate of 20%, according to projections.

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QCOSTARICA – 2022 can be described as a tough year, mixing several crises at the same time that hit the food industry and consumers, which still generate uncertainty and do not allow a strongly optimistic outlook for 2023.

Juan Ignacio Pérez, president of the Cámara Costarricense de la Industria Alimentaria (CACIA) – Costa Rican Chamber of the Food Industry – presented the analysis of the economic results of the year 2022, the expectations of businessmen about what the next year 2023 holds, and the country environment for making investments.

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The Food Industry managed to consolidate itself as one of the most dynamic sectors of the national economy. With participation close to 5% of the Gross Domestic Product (GDP) and with more than 102,000 direct jobs, this sector had a timid, slight growth, above 2%, indicated by its average indicator of economic activity with a cut-off to October. Among the main concerns that marked this result, the conjunction of several crises that converged in this year 2022 stands out.

On the international stage: The COVID-19 crisis generated significant effects on the costs of international food transport logistics and the availability of its raw materials, as well as profound impacts on unemployment in Costa Rica; the start of the Ukraine/Russia war, both world producers of raw materials and energy inputs; the beginning of a price escalation in a large number of raw materials, packaging material and all the inputs that are part of the cost structures of the companies.

For its part, internally, we have a high percentage of the population still affected by unemployment that is recovering, which causes a consumer who seeks cheaper products with the consequent growth of informal economic activity, which is aggravated by uncertainty and instability in important macroeconomic indicators of the country, such as the exchange rate, inflation and interest rates.

Exports: One factor that allowed us to emerge during 2022 was the external sector. According to CACIA estimates, export growth could exceed 20% this year, which would allow for record figures of more than US$2.4 billion dollars in sales abroad. This behavior was what made it possible to keep the economy of the Food Industry afloat, which, likewise, in recent weeks has seen its competitiveness impacted by the high variability of the exchange rate.

Government performance in the balance of businessmen

In any type of economy, economic recovery depends mainly on the expectations of businessmen, which can be negative or positive.

According to Juan Ignacio Pérez, the confidence projected by the government and the coherence of its actions are key characteristics to reactivating the economy and reducing poverty and unemployment.

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“In the current administration we have perceived a clear and renewed leadership, which ends up being the main success of the first months of the Chaves Robles administration, projecting transcendental messages for the generation of trust and a good business climate for investment,” said the businessman.

Examples

  • Recovery of legal certainty in international trade, through the liberalization of trade without ideological biases, as happened in the case of the avocado or the steps towards tariff liberalization of other raw materials for industrial use.
  • Launch of the “Le dejamos trabajar” (We let you work) program, which identified a large number of bottlenecks and regulatory excesses, which are in the process of being reviewed and eliminated. In the case of the Food Industry, we have had improvements in the processes of sanitary registrations, operating permits or the stoppage of excessive regulatory initiatives that destroy the industrial value of the products.
  • The Frontal war against historical abuses and mismanagement of the public apparatus: luxury pensions, spending and efficiency of the judiciary, in state universities and in the Costa Rican Social Security Fund (CCSS).
  • Guidelines to eliminate, close or unify unnecessary administrative structures in state institutions.
  • Reduction of the unnecessary payment of rents or the promotion of the “City State” project, whose impact will bring about a more efficient administration of the State.

Pending

Despite these advances and the support received from the Chaves Administration, CACIA continues to insist on a series of structural reforms that help improve the country’s competitiveness, particularly in three areas that are strategic for the largest industrial sector in the world. country:

  1. Give efficiency and fluidity to the logistics of the loads that transit through the ports of Caldera and Puerto Limón. During 2022, food industrialists have presented reforms such as:
  • Streamline the administrative procedures for health management by the National Animal Health Service and the State Phytosanitary Service.
  • Recognition of certifications issued by recognized international bodies.
  • Allow destocking and verification in production plants.
  • Investment in port laboratory infrastructure.
  1. Advance in the recovery of national highways through which national production transits, through greater investment in expansions of route 27, route 32 and the Circunvalacion.

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    Aggressively promote structural changes in the State to reduce public spending in a sustained manner, in a long-term horizon. It must begin immediately with the opening of the alcohol monopoly in Costa Rica, which by the year 2022, despite the large existence of national alcohol production inventories, the Fábrica Nacional de Licores (FANAL) – National Liquor Factory – announced the cessation of delivery to important national industries.

  3. Continue fighting the factors that encourage the growth of informal business activity and the spiral of insecurity that accompanies it, through the development of programs that tend to reduce the costs of being an entrepreneur in Costa Rica by eliminating and/or a reduction of procedures, requirements, unnecessary costs and the very high social charges in this country, which keep almost half of the country’s workers developing in the informal sector of the economy.

Business expectations for 2023: Entrepreneurs in the food industry look very cautiously at the next year 2023.

“Signs that cause a lot of uncertainty persist, the war in Ukraine, the behavior of the U.S. economy, the markets for food and fuel raw materials, inflation, the exchange rate and interest rates, represent variables that will determine 2023, and, at this time, we do not see signs that tend to stabilize their respective markets, so 2023 remains unknown.

“It is for this reason, that from the Food Industry we call on legilsators, ministers and the Presidency, so that we advance in the solution of structural problems and bottlenecks, whose decisions are in national hands, and whose neglect further aggravates plus the international situation that has sustained the country, with several simultaneous crises in recent years,” said businessman Juan Ignacio Pérez.

From Revista Summa. Read the original in Spanish here.

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