The agricultural sector has a high participation in Costa Rican exports, in 2019 alone, it reached 24% of the total (that is, $ 2,764 million, + 3% average variation 2015-2019), making it the second most important sector in the country, behind precision and medical equipment.
The main exported products were pineapple, bananas, and coffee (which together accounted for 80% of shipments). Among the main destinations in the sector, the following stood out: United States (42%), Netherlands (6%), Belgium (6%) and Panama (5%).
As a country with a high agricultural export vocation, it is necessary to reflect on the challenges of making the decision for sending our products to external markets. The Directorate of Commercial Intelligence of the Costa Rican Foreign Trade Promoter (PROCOMER) has identified 10 main challenges:
1. QUALITY: It is associated with the development of Good Agricultural and Manufacturing Practices. Each market prioritizes in different areas the characteristics in terms of textures, flavor or shapes, meeting customer expectations is essential. This is an issue that is especially important in products with less exporting experience, since in others with a longer tradition such as bananas, pineapple or cassava, our quality is already recognized worldwide. A good international benchmark for emerging agricultural products are the CODEX Alimentarius standards that establish minimum requirements and categorization of qualities.
2. EXPORTABLE VOLUME: The exporter must have constant volumes that meet international standards to meet customer demand, so as to facilitate the repurchase of products. It should not commit to a greater volume than the company is capable of fulfilling.
3. CERTIFICATIONS: The destination countries request certifications that are part of the so-called “corporate” export requirements, since it is the customers who request it. They vary depending on the region of the world to which the export is directed, for example: in the case of the European Union, the Global Gap is widely required, which has a focus on the adoption of Good Agricultural Practices, and others of social responsibility such as FairTrade that promote a voluntary and fair commercial relationship between producers and consumers, or others such as the Rainforest Alliance that guarantees compliance with environmental, social and economic sustainability standards, among others.
4. COMPLIANCE WITH PHYTOSANITARY REQUIREMENTS FOR ENTRY: Prior to export, the existence of the Pest Risk Analysis (PRA) must be verified with the State Phytosanitary Service (EFE), which empowers the producer to make shipments to the destination country, complying with the established requirements. There must be an integrated pest management, as well as compliance with maximum residue limits for agrochemicals that allow obtaining the phytosanitary export certificate that demonstrates that the fresh product is in accordance with existing regulations. If you do not have the ARP for the target market, you must coordinate with the SFE’s Pest Risk Analysis Unit to start with the procedures to manage it, which can take time.
5. IMPORT TARIFFS: This is a challenge associated with those countries where Costa Rica does not have a Free Trade Agreement (FTA), which allows it to enter with a preferential tariff. If the ordinary tariff (officially denominated as the Most Favored Nation) is extremely high, it usually implies rethinking exports to that market or assessing very well whether the consumer would be willing to assume the higher cost that it would imply.
6. PACKAGING AND PACKAGING INNOVATIONS: It is essential to guarantee an adequate shelf life of products to maintain quality and freshness upon arrival in the destination country, developing innovations in this area can increase competitiveness against other countries. Costa Rica has developed, through a public-private alliance, innovations regarding the improvement of export packaging, as in the case of papaya, where a box was recently developed that improves the aeration of the fruit in the container in order to increase the shelf life of the product and reduce the likelihood of post-harvest diseases.
7. SHIPPING LOGISTICS: We must consider the available logistics offer and what is the best route to enter the market, since agricultural products have a shorter shelf life than processed ones. It should be verified if the competing countries have logistics that allow them to offer a product at a lower price. This is a very relevant issue in the current context of COVID-19 and its impact on the reduction of some transportation options, therefore the options must be analyzed in time / price terms carefully. Also to verify the condition (quantity, quality, packaging, pallets) of the products prior to shipment and transport, as well as upon arrival at the destination, it is possible to use the services of surveyor companies, which provide details of the loaded goods. and its current state, which can be supported by photographs and videos.
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8. MEANS OF PAYMENT, CONTRACTS AND INSURANCE: For the negotiation of the means of payment, the honesty and integrity of the parties are taken into consideration, so that the most appropriate form of payment must be negotiated and that it allows the merchandise to be delivered without problems. In the agricultural sector, direct transfer of funds is the most widely used. This is a risky option for exporters, because it is based on trust between the buyer and the seller.
Unlike what happens with the letter of credit, which is considered a safer option, but which is sometimes not taken into account since brokerage commissions must be paid between banks. It is vitally important that when carrying out international negotiations they have an international sales contract that establishes the payment conditions, quality and quantity of merchandise, INCOTERMS, existence of an arbitration clause (if possible), distribution of charges shipping, among other aspects. In addition, according to the negotiated INCOTERMS, it is recommended to use an export credit insurance, which guarantees the reimbursement of a percentage of the eventual losses that exporters may suffer, as a consequence of the lack of total or partial payment of a buyer abroad.
9. ADVERSE CLIMATE FACTORS: Costa Rica is exposed to the influence of climatic phenomena that can affect production. One of the most important is the ENSO (El Niño-Southern Oscillation) with cycles ranging from 2 to 7 years and which influences the patterns of rain, temperature and winds. This has been presented in at least 3 occasions during the period 2009-2019, specifically in 2009, it caused a contraction of -13% of exports from the agricultural sector, in 2015 with -4% and 2019 with -5%.
Despite the fact that its effect has been diminished by the diversification of products and destination countries, it is essential that producers have risk mitigation plans to face the times of affectation, taking into account systems such as precision agriculture for improvement in the yields, precise use of water and agricultural health, among others, based on the use of information technologies, with which the adverse climatic effects can be faced.
10. CONSUMPTION PATTERNS: The COVID-19 Pandemic has been a clear example of how consumption patterns can change in times of crisis. In the case of pineapple, for example, there was a contraction in demand (-5% in terms of value, in the first four months of 2020 compared to the same period of the previous year) due to the measures of confinement and closure of establishments that affected sales channels such as HORECA (Hotels, Restaurants and Catering), which has broad participation in Costa Rican exports in the European market.
However, sales have had less reduction in other countries such as the US, as demand has remained in the retail channel. It is essential to know what types of products consumers request in international markets in terms of quality, flavor and price characteristics, as well as the economic and social situation that may eventually affect demand.
It is necessary to consider these challenges, before making the decision to export. Agricultural producers should focus on strategic planning and training to build business decisions aimed at satisfying customers and international demand, promoting differentiation with competitors, stimulation for innovation of products, channels and organizational structure or other essential aspects, specially for the post-COVID-19 era.