February 21, 2018
The U.S. Department of Agriculture's Foreign Agricultural Service recently reported that the Central American-Dominican Republic Free Trade Agreement (CAFTA‐DR) – the U.S. trade agreement with Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras and Nicaragua – has strengthened U.S. ties with Central America and helped spur economic growth, trade, employment and expansion of the region’s middle class.
USDA reported that since implementation of the agreement began in 2006, U.S. farm and food exports to the CAFTA‐DR countries have doubled, reaching $4.3 billion in 2016. However, exports to the three Northern Triangle countries actually have seen the fastest growth, doubling from $1.1 billion in 2006 to $2.2 billion in 2016.
Central America’s Northern Triangle – which includes El Salvador, Guatemala and Honduras – offers significant market opportunities for exporters of U.S. farm and food products, USDA said, especially since the region continues to experience both population and economic growth as well as rising demand for imported goods – particularly high‐value, consumer‐oriented food products.
USDA reported that the Northern Triangle countries have a collective real gross domestic product (GDP) of nearly $225 billion. Guatemala, the most populous, has the largest GDP, at $135.9 billion, followed by El Salvador with $49.7 billion and Honduras with $39.2 billion.
“Agricultural exports play a significant role in the economic stability of the Northern Triangle, with much of the agricultural production there focused on export-oriented commodities -- mainly coffee, sugar, bananas and other tropical fruits. Consequently, bilateral trade with the United States under CAFTA-DR continues to be an important factor in the economic development of El Salvador, Guatemala and Honduras alike,” USDA reported.
Jobs, economic growth
According to USDA, the Northern Triangle has a relatively young and work-eligible population, as 62% of the 32 million inhabitants are between the working ages of 15 and 64. Of the total inhabitants (excluding students and unpaid caregivers), 42% are in the labor force, compared to 49% in the U.S.
“As local economies expand and more people move into the formal labor sector, the labor force is expected to increase from 13.5 million people in 2016 to more than 15 million in 2021, providing additional purchasing power and increasing the demand for imported goods.”
USDA pointed out that the majority of people in Northern Triangle countries earn less than $20,000 per year but explained that their buying power may be higher than indicated due to unrecorded income from sources such as remittances from family members (primarily in the U.S.) and work in the informal sector.
“Participation in CAFTA-DR has created jobs and spurred economic growth across the Northern Triangle," USDA reported. "Since 2006, the number of households in the region earning more than $20,000 per year has increased 40% to nearly 3 million.”
Within the next five years, USDA said this number is expected to grow another 20% -- to more than 3.5 million households.
“This is significant for U.S. exporters, since families with household incomes above the $20,000 threshold are likely to make their food purchases at modern retail centers and have more discretionary income to spend on imported foods,” USDA noted.
In 2016, data showed that the Northern Triangle region imported $5.9 billion of agricultural products total. The U.S. was the top supplier, providing approximately 40% of those imports. Major U.S. competitors in the region are Mexico, the European Union, Chile and Uruguay.
“Consumer demand for high-value products has increased in the Northern Triangle due to the population’s growing exposure to hypermarkets and modern retail chains," USDA reported. "Another contributing factor has been awareness generated by marketing efforts such as SaborUSA, a U.S. industry effort supported by the U.S. Department of Agriculture to promote American food products in Central and South America.”
Further, USDA pointed out that retail food and beverages sales in the Northern Triangle countries since 2006 have increased 33% -- from $18.6 billion to $24.8 billion -- and are expected to grow an additional 37% over the next decade.
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