Milk production in Peru has been steadily increasing at a rate of 7% per year over recent years, and the same rate of growth is expected for 2000. Nevertheless, this recent expansion disguises underlying weaknesses in the nation's dairy industry. Peru remains heavily dependent on imported dairy products. New Zealand is one of the leading sources of milk and cheese, although substantial amounts of both also come from the US.

The lack of investment in Peru's dairy industry has resulted in a declining cattle population. According to FAO statistics, the number of producing dairy cattle dropped from 553,017 in 1996 to 520,235 in 1999. Until profit margins improve, it is unlikely that dairy herds will increase. Recovery of the dairy industry is also hampered by the nation's ongoing recession, which has resulted in a 4 to 6 percent drop in overall consumption over the past 18 months.

Even though the number of cattle in production has decreased in recent years however, total milk production has actually increased. In 1995, production stood at 857,718 metric tonnes, whereas in 1999 it reached 1,013,260 metric tonnes. Increased production can be traced to improved production techniques and technology on the medium to large dairy farms. Milk yields rose from 15,210 hectograms per animal in 1995 to 19,477 in 1999.

The demand for milk in Peru stands at about 2.5m litres per year and the nation's dairy industry produces only half that amount at present. Guillermo Tomatis, head of Peru's Holstein Raisers Association, maintains that industry growth has been stunted by the importation into the domestic market of dairy products from nations which subsidise their dairy industries. The Peruvian economy is only beginning to emerge from recession and the government simply does not have the resources to offer significant subsidies. Tomatis maintains that, without subsidies or some form of protective tariff, Peruvian dairy farmers simply cannot achieve an attractive level of profit.

Dairy farmers in remote areas of Peru are limited to selling cheese and butter because they are unable to transport and sell their fresh milk. These small producers generally lack the production technology needed to compete with imported products. Cheese production declined slightly from a level of 6,141 metric tonnes in 1996 to 6,020 metric tonnes in 1999. Tomatis and his association are therefore pressing the federal government to raise tariffs on imported cheese and butter.

Protective tariffs and government subsidies alone are not likely to stimulate investment in the dairy sector, however. The government needs to establish an incentive program which underwrites the technological advances that have already proven effective in improving yields. Unfortunately though, the ongoing political turmoil in Peru makes it unlikely that the government will be abe to implement any new dairy support programs until well into 2001.

Statistical Source: FAO