Panama Food Hub Initiative |
RATIONALE FOR THE PROPOSAL
Establishing Agrifood Trade Hub in Panama
The Panama Canal facilitates several key trading routes between the Americas and the rest of the world. It is of particular importance for global agrifood trade, with soybeans, grains and bananas as major commodity groups traded. The Canal is expected to gain prominence in the coming decade as Latin America — already the largest net exporting region for agricultural products — is projected to increase its agricultural trade surplus further.
Future investments in expansion of port or storage infrastructure needs to be assessed carefully, in a dialogue with traders and processors. Most of the growing import demand at the global level will come from sub-Saharan Africa and Near East and North Africa, which are large importers of agricultural commodities, in particular cereals. These regions are projected to increase agrifood imports further. Food exports from Latin America — considering that most export growth will be generated by Brazil — to these two regions will not pass through the Panama Canal as shipments originating from Argentina, Brazil and other Southern Cone countries will continue relying on Atlantic Ocean routes.
Likewise, the ocean freight for grain and oilseeds cargo from Argentina and Brazil is slightly lower for the route via the Cape of Good Hope than via the Panama Canal, giving South American exporters a competitive advantage vis-à-vis exports from the United States.
At the same time, continuing income growth and urbanisation in China, India, and Southeast Asia will also drive food demand growth for several commodities. The Panama Canal will therefore continue to play an important role in connecting Latin American exporters who rely on eastern ports with Asian importers, in particular for oilseed exports. For example, soybean exports from northern regions of Brazil are likely to expand the use of this route.
In international trade, exporters manage trade logistics and storage. They do this, for example, by investing in an operating grain silos to collect crop from farmers, store it and eventually ship to a processor or to an export port. Silos are typically owned and managed by major trading companies in ports of origin and destination, allowing goods to be loaded in the port of export and unloaded in the port of import. The demand for a specialized food storage facility at the Panama Canal is therefore not yet apparent. Loading and unloading is costly, and would only be done by traders if additional value can be created by such an activity.
FEASIBILITY ASSESSMENT REQUIRED
The following points need to be analyzed to assess the feasibility of operating new storage or processing facilities in Panama:
- Considering the high costs of loading, unloading and storing food, a new facility would probably be utilized by market participants if it were used to connect seaports in Panama with inland distribution by road routes in Panama and Central America. The volume of such trade and the need of additional port and other facilities need to be analyzed.
- Ownership and responsibilities for management of the new facilities would need to be established – a crucial decision to make is whether the project would be envisaged as a publicly funded and ran project or a public-private partnership.
- It is essential to engage in discussions with the private sector, in particular major agrifood traders and processors, to assess the demand for additional storage facilities and the need for related infrastructure investments.
- In the feasibility study stage, an important point to analyze would be which side of the Panama Canal the storage facilities should be located at. This would be of importance in case of any disruptions in the functioning of the Canal as if would provide a buffer to avoid delays in shipments.
- It is necessary to engage international financial institutions, in particular the Inter-America Development Bank and the Central American Bank for Economic Integration, in order to undertake economic and financial analysis of possible investments in infrastructure, including storage facilities, additional loading docks, and ground infrastructure.
- See the investment note slide deck presentation.
- For further analysis, see "Country Profile: Trade and Investment Relations With Panama."