Linking up: Strengthening infrastructure and logistics can help reduce waste and boost competitiveness

As Panama’s agricultural sector is faced with direct competition from modern farms in the US and Europe, it is in need of an upgrade to its storage and transportation infrastructure. To this end, various initiatives have been proposed to bring production and handling in line with international levels. Besides emergency stop-gaps to accelerate the recovery of national output, more permanent resolutions to structural problems are also being considered.

New Choices

One such issue is the large amount of agricultural losses – 30% to 60% of the national output, according to government estimates – due to bad post-harvesting techniques and a deficit in handling, storage and transportation infrastructure.

In an effort to increase the quantities and qualities available for domestic consumption and exports, the government launched the Cold Chain initiative (“Cadena de Frío”) in 2010. This programme, overseen by the Secretariat of the Cold Chain, comprises investments of up to $300m, which will be geared at both soft and physical infrastructure meant to improve handling, distribution and transportation of agricultural produce from the points of production until the points of sale.

“The Cold Chain project represents a unique opportunity for Panama’s agricultural sector to meet international standards in terms of food security and to stimulate agricultural exports,” Fernando Duque, executive secretary of the Cold Chain initiative, told OBG. “This initiative will allow the creation of new niches and business models, from innovation in agroprocessing options to the development of new industries,” Duque added.

Project Goals

In the definition of its masterplan, the secretariat has selected 24 crops, based on relevance to the national diet and annual loss rates, around which it has designed strategically placed storage and distribution centres. According to its own findings, up to 80% of agricultural production is concentrated in the eastern province of Chiriquí where volcanic highlands and year-round precipitation make for fertile farming grounds. The main centre of consumption is Panama City Metropolitan Area, which accounts for 60% of national produce and lies 450 km to the west at sea level.

It currently takes six hours to transport goods from Chiriquí to Panama City, and the difference in climate between the two destinations is a key contributor to the high percentage of post-harvest losses. For this reason, the master plan includes the establishment of three distribution centres in Chiriquí Province (Volcán, Cerro Punta and Dolega), while another one (El Ejido) is being built in the southern province of Los Santos, where most of the remaining agricultural production takes place.

In these centres, products are categorised, washed, cooled, packaged and stored in accordance with market requirements. Construction of these centres was completed at the end of 2013, and operations are scheduled to begin in March 2014. The programme also oversees the construction of six new markets. The main project relates to the Panama wholesale market, which is being overhauled at a value of $125m. Other smaller-scale markets are being developed in David, Colón, Chorre Público, Chorrera Abastos, La Chorrera, Santiago, Chitré and Las Tablas, and are due to be completed in 2014-15.

In addition to investment in infrastructure, the secretariat is also setting up transportation links by means of refrigerated trucks throughout the value chain. Furthermore, farmers will be assisted by programmes aiming to improve harvesting techniques, which will consequently lower the losses at the start of the value chain.

Green Light

In June 2013 an agreement was signed for the implementation of the agricultural loan policy for the development of the Cold Chain between the secretariat and the National Bank of Panama (Banco Nacional de Panamá, BNP). It seeks to give producers who currently transport food products the opportunity to adapt their vehicles to the logistics requirements of the Cold Chain system via soft interest loans provided by BNP.

Through this agreement, the government, via the secretariat, seeks to incorporate enhanced transport and production activity into the logistics system. This will involve adapting Panama’s fleet of vehicles in order to boost business activity and meet the needs of the sector.

Looking Ahead

According to the secretariat’s own projections, the initiative’s long-term impact will include a significant reduction in the loss of leaf crops and products that incorporate the entire Cold Chain logistical system. This is set to raise the income of Panama’s farmers, improve quality and hygienic standards of agricultural products and reduce consumer prices, all the while maintaining intermediaries’ profit margins at sustainable levels.

Besides assistance to local small-scale producers, the programme also envisages a commercial role towards retailers, hotels and restaurants, as well as importers of agricultural products. “Although it concerns a public initiative, it answers to a need that is shared by the private sector,” Duque told OBG.

Besides domestic demand, the secretariat also aims to provision ships passing through the Panama Canal – a market that Duque currently values at approximately $800m per year – and increase its exports to the Caribbean region. Higher sanitation standards and traceability, meanwhile, will help to make products more competitive on North American and European markets.

Support From The Top

On November 8, 2013, President Ricardo Martinelli passed Law 90 to create Cold Chain National Markets (Mercados Nacionales de la Cadena de Frío, MNCF), 100%-owned by the state and responsible for the management, operation and maintenance of the Cold Chain.

Despite public concerns that the new body’s operations would eventually be privatised, the minister of the presidency, Roberto Henríquez, reiterated the public announcement of the president’s partial veto of the privatisation of shares of MNCF. “The Cold Chain will be always 100% public owned and we hope that all the confusion is now eliminated,” he said.

Law No. 658 had initially stated that 100% of the capital of the company would be in the hands of the state for the first five years, then 49% would be available to be sold to private owners. However, President Martinelli has since vetoed this aspect of the law, rendering moot any consideration of possible future participation of the private sector.

Duque told local media that the spirit of Law No. 658 is to ensure that producers are integrated into the logistics system of the Cold Chain. “The Cold Chain is a national project made for producers and we expect them to have equity participation,” he said. To this end, producers will be organised through the cooperative association of farmers to enhance participation, with this set up likely to continue beyond the first five years of the project’s launch.