Agricultural Near-Shoring and Colombia

The global agricultural industry is vastly complex and interconnected. Crops are often grown in one country, packaged in another, and sold to the consumer someplace else. Countries rely on their trade partners to supply markets, and these partnerships form the backbone of the industry. 

However, recent events have demonstrated the instabilities in the current global supply chain, and long-distance shipping has become increasingly difficult and costly. This is especially impactful for agriculture, as many goods in this sector are perishable and need to be transported efficiently.

To combat this, more and more countries are focusing on agricultural near-shoring, turning to their geographical neighbors to provide goods at a lesser cost. This phenomenon is expanding dramatically - and creating intriguing opportunities for globally-minded investors. 

Agricultural Near-Shoring: The Case Of Citrus

To understand the trend of agricultural near-shoring, let’s take a look at a particularly notable example: U.S. citrus. 

In the 1970s, the United States produced 50% of the world’s oranges. But weather-related factors, diseases, and rising costs have hammered the sector in recent decades - production dropped down to 25% in the year 2000 and has continued to fall until 2023 when the U.S. accounted for only 5% of the global citrus production. In fact, the U.S. citrus production is so low that it can no longer supply its own domestic demand. 

Severe tropical storms, which are prevalent in areas of the US where citrus is grown, have caused part of this decline. Hurricane Ian alone destroyed approximately $500 million worth of citrus crops in Florida. The Sunshine State, which used to be a huge producer of citrus fruits (especially Key limes) has also been ravaged by plant diseases that have decimated their crops to the point that Florida’s production is down 90% from 2005. 

California, which is the 5th largest economy in the world and also a main producer of citrus, is unable to support this growing demand, and the entire U.S. citrus industry saw a 13.5% drop down to $2.6 billion from 2022 to 2023. 

This decrease in U.S. production is further exacerbated by international factors. The pandemic, Ukraine-Russian conflict, inflation, political tensions, and global warming have caused significant disruptions in the supply chain, increasing operational costs and complicating logistics. On top of that, long-distance trade relationships are in decline and China’s participation in the US market has dropped an unprecedented 8% from 2018 to 2023.

 These factors have emphasized the necessity to diversify supply chains and bring food production closer to home - and the market is responding through near-shoring.

The Importance of Agricultural Near-Shoring

Near-shoring, where organizations opt to do business with geographical neighbors rather than a distant country, has seen great rise in recent years. An alternative to globalization, this structural shift in business is expected to continue with high returns anticipated in 2026 and beyond. 

Near-shoring offers countless benefits over long-distance distribution, including: 

• Reduced logistical costs
• Stronger intellectual property rights
• Less volatile free-trade agreements
• Currency stability with less fluctuations
• More effective communication due to similar time zones and reduced language barriers
• Reduced risk of military conflicts via “friend-shoring” with like-minded governments
• Ease of travel when it is necessary for business
• Greater commitment to social and environmental concerns

While near-shoring is becoming increasingly popular in all industries, partnering with countries in close geographical proximity has become increasingly important in agriculture. And, since the U.S. is one of the largest import markets for agricultural products, it makes sense that there’s one particularly attractive for agricultural near-shoring: Latin America.

Near-Shoring Opportunities in Latin America

In past decades, the U.S. has typically relied on China, India, and Europe for most of its offshore industry. Now, many governments and businesses within the United States are seeing the advantages of near-shoring, and Latin America’s close geographical proximity has made it the fastest-growing trade partner. 

In 2021, Colombia ranked first in the Offshore BPO Confidence Index, outperforming all other popular offshoring destinations with a rating of 90.9%. While the country’s technology sector is booming, Colombia’s growing conditions are ideal for the production of a variety of crops, especially citrus and other tropical fruits. 

Colombia offers many near-shore benefits for the United States, including:

• Ideal Location: Colombia’s close geographical proximity reduces transportation costs, and its climate, soil type, and other conditions are ideal for tropical crops. 
• Simplified Logistics: Colombia is the only South American country with overseas trade routes in two oceans plus land and air shipping options from major inland cities. 
• Suitable Workforce: Not only does Colombia have the 3rd largest workforce in Latin America, but an ideal demographic and social structure consisting of young and educated workers. 
• Reduced Cost: Colombia has a relatively low labor cost, helping to reduce expenses and increase profits.
• Strong Ties: There are extensive family ties between Colombia and the US, further strengthening bonds between the two countries. 
• Reduced Language Barrier: The majority of Colombians learn English from an early age, and many Americans also speak Spanish. 
• Time Zones: Similar time zones between the two countries make for easier collaboration.
• Tax Benefits: The Double Taxation Agreement and other government tax incentives make nearshoring business more attractive. 
• Free Trade: The U.S. has free trade agreements with 12 Latin American countries including Colombia.
• Growing Industry: The growing agroindustry in Colombia is a huge investment opportunity.
• Political Stability: Due to its strong government and political stability, Colombia is now considered a major non-NATO ally. 

Many investors have already seen the benefits Colombia has to offer. More than 60 U.S. businesses have transitioned their business to Colombia in the last few years with nearshoring investments exceeding $1 billion in 2022. A further 64% of U.S. manufacturers aim to transition long-distance production to Latin America in the near future, bringing an additional $78 billion in revenue each year in goods and services exports to the region. Latin America reported a 156% increase in hiring for overseas companies and some countries have seen a significant 12% increase in foreign direct investment in 2022.

Near-Shoring: The Answer For the Future

As global tensions rise, more producers and businesses are looking for safer distribution options. In more ways than one, Latin American countries like Colombia are gaining attention as near-shoring targets, producing enticing opportunities for international investors in the process. While some organizations consider near-shoring a limited window of opportunity, there’s no doubt that this phenomenon will continue to grow with time.

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