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Transcript of PKP3__ Strategic role of the private sector in ARD: Peru
Global Donor Platformfor Rural Development
WORKING PAPER
– PERU ––––––––––––
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The Global Donor Platform for Rural Development commissioned three comprehensive studies to capture Plat-form members’ knowledge on key issues affecting the delivery and impact of aid in ARD:
PKP 1 Policy coherence for agriculture and rural developmentPKP 2 Aid to agriculture, rural development and food security – Unpacking aid flows for enhanced
effectivenessPKP 3 The strategic role of the private sector in agriculture and rural development
The PKPs are the products of extensive surveys of Platform member head office and field staff, visits to countryoffices, workshops dedicated to sharing findings and refining messages, and successive rounds of comments ondrafts.
On the basis of each PKP, separate policy briefs will be published.
For more information on the PKPs visit donorplatform.org
This working paper is only available electronically and can be downloaded from the website of the Global Donor Platform for Rural Development at:www.donorplatform.org/resources/publications
Secretariat of the Global Donor Platform for Rural Development,Dahlmannstrasse 4, 53113 Bonn, GermanyEmail: [email protected]
The views expressed herein are those of the authors and do not necessarily represent those of individual Platform members.
All rights reserved. Reproduction and dissemination of material in this information product for educational or other non-commercial purposes isauthorised, without any prior written permission from the copyright holders, provided the source is fully acknowledged. Reproduction of material inthis information product for resale or other commercial purposes is prohibited without written permission of the copyright holders. Applications forsuch permission should be addressed to: Coordinator, Secretariat of the Global Donor Platform for Rural Development, Dahlmannstrasse 4, 53113Bonn, Germany, or via email to: [email protected].
© Global Donor Platform for Rural Development 2011
About thePlatform Knowledge Piece series
Prepared by:Platform Secretariat
Published by:Global Donor Platform for Rural Developmentc/o Federal Ministry for Economic Cooperation and Development (BMZ)Dahlmannstraße 4, 53113 Bonn, Germany
Study conducted by:Overseas Development Institute, London
Authors:Lídia CabralJohn HowellGeraldine Baudienville
Photo credits:www.istock.com/Günter Guni/skyhouse; www.fotolia.com/africa/Ivan Gulei/lulú;www,pixelio.de/hjördis Kozel/Rauner Sturm
August 2011
PKP2-COVER-RZ-INNEN-U2-U3_140911_PRINT:Layout 1 12.10.2011 10:54 Uhr Seite 1
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural
development: Peru working paper 1
Contents
Contents ........................................................................................................................................ 1
Executive summary ....................................................................................................................... 4
Introduction .................................................................................................................................... 8
Rice ............................................................................................................................................ 8
Milk ............................................................................................................................................. 8
Coffee ........................................................................................................................................ 9
Context ........................................................................................................................................ 10
Brief description of Peru .......................................................................................................... 10
Overview of economic and agricultural policy ......................................................................... 12
First period: The Governments of Fernando Belaunde (1963 – 1968) and of Juan Velasco
Alvarado (1968 –1975) ......................................................................................................... 12
Second Period: The government of Alberto Fujimori (1990-2000) ...................................... 13
Third Period: The governments of Valentín Paniagua (2000 – 2001), Alejandro Toledo
(2002 – 2005) and Alan García (2006 – 2011) .................................................................... 15
Development assistance and its support to the agricultural sector ......................................... 16
An overview of the last two decades let us to identify some different criteria in the bilateral
cooperation .......................................................................................................................... 17
Case studies ................................................................................................................................ 18
Coffee ...................................................................................................................................... 18
a) Context and value chain description ................................................................................ 18
Inputs (fertilizers and seeds) ................................................................................................ 20
Machinery ............................................................................................................................. 20
Services (credit, technical assistance, and others) .............................................................. 20
Investors ............................................................................................................................... 20
Research .............................................................................................................................. 20
Wholesalers ......................................................................................................................... 20
Regional cases ..................................................................................................................... 21
b) Changing role of the State ............................................................................................... 23
c) Private sector responses.................................................................................................. 24
d) Donor support for private sector activities. ...................................................................... 26
e) Key finding and lessons ................................................................................................... 28
Milk ........................................................................................................................................... 29
a) Context and value chain description ................................................................................ 29
Inputs (fertilizers and seeds) ................................................................................................ 30
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural
development: Peru working paper 2
Machinery and equipment .................................................................................................... 30
Credit .................................................................................................................................... 31
Technical assistance ............................................................................................................ 31
Investment ............................................................................................................................ 31
Consumers ........................................................................................................................... 31
Research .............................................................................................................................. 31
Wholesalers ......................................................................................................................... 31
Industry ................................................................................................................................. 32
b) Changing role of the State ............................................................................................... 33
c) Private sector response ................................................................................................... 34
d) Donor support for private sector activity .......................................................................... 35
e) Key findings and lessons ................................................................................................. 36
Rice .......................................................................................................................................... 37
a) Context and value chain description ................................................................................ 37
Investors ............................................................................................................................... 41
Research .............................................................................................................................. 41
b) Changing role of the State ............................................................................................... 41
Private sector response ....................................................................................................... 42
d) Donor support for private sector activities ....................................................................... 45
e) Key findings and lessons ................................................................................................. 46
Conclusions ................................................................................................................................. 47
Comments on governance requirements ................................................................................ 48
Annex 1: Description of main donors´ activities in Peru .............................................................. 50
Inter-American Development Bank (IADB) .............................................................................. 50
World Bank .............................................................................................................................. 51
European Union ....................................................................................................................... 53
US Agency for International Development (USAID) ................................................................ 54
SNV .......................................................................................................................................... 55
Organic cocoa .......................................................................................................................... 56
Organic bananas ..................................................................................................................... 57
Hard yellow maize ................................................................................................................... 58
Organic coffee.......................................................................................................................... 58
German Development Cooperation GIZ (formerly GTZ) ......................................................... 58
Swiss Development Cooperation (SDC) ................................................................................. 60
Belgian Development Agency (CTB) ....................................................................................... 61
Spanish development agency (AECID) ................................................................................... 61
Oxfam Intermon ....................................................................................................................... 62
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural
development: Peru working paper 3
IFAD ......................................................................................................................................... 62
IICA .......................................................................................................................................... 63
Antamina .................................................................................................................................. 63
Buenaventura........................................................................................................................... 64
Annex 2. List of people interviewed............................................................................................. 65
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural
development: Peru working paper 4
Executive summary
The aim of this study is to improve the understanding of the role of the private sector in
agricultural and rural development and to propose practical and operational measures for
donors to engage effectively with the private sector to encourage more developmental
outcomes. The key questions to be answered are:
1) How has the private sector responded to the changing role of the State in agriculture?
2) What impact private sector activity has had on poverty and competitiveness of the agriculture
sector?
3) What has determined success of donors, government, NGOs, and other initiatives to
stimulate private sector development?
Policies to liberalize the Peruvian economy began to be implemented in the 1990s. After peace
had been brought to the country, Government reforms were redesigned with a liberal orientation
to reduce the size of the State and limit its functions relating to rules and regulations, leaving to
one side direct interventions in productive activities. In the first decade of the new century, the
Government promoted increased productivity and better quality agricultural products as a
means to prepare the country for participation on world markets at a larger scale than ever
before. During these years, various bilateral trade agreements were signed under the generic
name “Free Trade Agreements”, with the United States, the European Union and several Asian
countries.
Over the last few years, higher prices for coffee and various mining products have improved
incomes and generated employment opportunities in urban and rural areas. This has created
favourable social conditions that have lessened the negative impacts that could have occurred
as a result of certain economic measures, such as the reduction of taxes on important
agricultural products and inputs. However, the benefits of higher incomes and increased
employment opportunities are not sustainable without parallel efforts to build business
capabilities amongst the rural population and improve public services, both with the objective of
increasing private investment by reducing risks and costs. The majority of international
development agencies working in rural development have channeled funding into these two
areas, working in partnership with the Peruvian government or through Non-Governmental
Organizations (NGOs). Examples of these activities include: increasing access to energy for
productive activities; large-scale irrigation systems; creation of forms of credit accessible by
producers with few resources; agricultural land registration programmes; control of pests that
seriously affect crops and livestock, development of farmers‟ capacities to adopt new
technologies, increase productivity and greater access to markets, amongst others.
However, given the complexity of Peruvian society, which, to some extent, is a result of the high
variability of access to natural resources and cultural differences between the regions, the
perception that producers have about the positive and/or negative effects of policy reforms, the
functions of the State and the liberalization of the economy, are also extremely diverse. In this
study, special attention is given to the impacts of these policies on the different stakeholders
that make up three agricultural chains: coffee, milk and rice.
Coffee is an extremely important crop for generating rural income and reducing poverty in Peru.
The liberalization and opening-up of markets has not generated negative effects on coffee
production because this crop was never given a high degree protection through customs tariffs
and also because demand for coffee on the national market is less than 10 per cent. Donor
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural
development: Peru working paper 5
support for the promotion of coffee has been particularly significant in northern Peru where the
United Stated Agency for International Development (USAID) has channeled large amounts of
funding into the Poverty Reduction and Alleviation Programme (PRA) with the aim of eradicating
coca leaf production. Support from Germany agency GIZ has also played an important role in
marketing coffee for export.
The milk sector assumes an important role in the Peruvian economy because it involves several
million people and generates income for peasant families in rural zones, as well as for medium
and small-scale companies located in intermediary cities that make dairy products. At large-
scale three industrial companies generate wealth, employment and income from the production
and exportation of evaporated milk and other products. Notwithstanding, competition on
international markets is high and it would be unwise to pitch national milk producers against
foreign competitors too quickly. An analysis of the likely positive and negative effects of market
liberalization can only be carried based on an understanding of the interests of different types
producers and the complex production and market structures in every region in the country and
how these link up to the national level. International development agencies have provided
considerable support to improve natural resource management, most notably water and land,
which are used to grow pasture for cattle feed. They have also promoted the use of sprinkler
irrigation to improve the quality of pasture. In addition, they have promoted producer association
with a focus on strengthening the milk value chain. Finally, donors have targeted their support to
build the capacity of peasant families to produce higher quality cheeses.
Rice is a highly strategic crop for the Peruvian economy, not only because it helps to maintain a
low cost of living in the big cities, but also as it represents a significant opportunity to generate
income in rural households in regions classified as poor and extremely poor. Production levels
and the quality of Peruvian rice are high and therefore the sector should not fear external
competition too much. However, there is potential for strengthening the development of this
crop by improving public services, including a mechanism to check the quality of rice on the
retail and wholesale markets, provision of timely information about the price of rice and inputs
on the main markets, provision of credit to facilitate purchase of agricultural equipment,
construction of stores and provision of resources for operation costs assumed directly by the
producers. International development donors could support the development of this crop by
providing assistance to the State for the aforementioned services. Support could also be
provided to conduct research into rice varieties and agricultural practices that use less irrigation
water per hectare. It is likely that it is not considered suitable, from an environmental point of
view, to support the development of rice in coastal zones but the same should not be concluded
for jungle regions.
Over the last decade, donor support has been specifically oriented towards strengthening
private sector activities in Peru and it appears as though the financial and technical assistance
has been a catalyzing force. Effectiveness is difficult to ascertain other than the indicators
provided in impact evaluations. However, these do point towards increased household incomes,
improved productivity, better access to credit, stronger and more equitable commercial relations
within agricultural chains and improved national and international market linkages. Several
donors, such as GIZ and the Dutch agency SNV have facilitated business relations between
producers' associations and export companies to supply US, European and Asian markets.
Main conclusions are the following:
Related to key question 1:
Production increased. The private sector responded in a positive manner to the changing role of
the State by increasing national production of agricultural products, nevertheless this response
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural
development: Peru working paper 6
was gradual and occurred at different rates depending on the type of agricultural enterprise.
Policies to liberalize the Peruvian economy and open up the country‟s markets were initiated in
Peru in 1991, yet their impacts became evident only during the first decade of the twentieth
century.
Related to key question 2:
Reduction of rural poverty and inequality. Increased activity and production in the agricultural
sector has been one of the causes for reductions in levels of rural inequality in Peru. The
introduction and promotion of rice and coffee crops in high jungle zones have provided a
particularly valuable opportunity for income generation to thousands of rural families living in
conditions of extreme poverty in these zones.
Greater competitiveness. In terms of increases in competitiveness and productivity, Peruvian
coffee has significantly increased its competitiveness on world markets. This is due to the
ability of producers and exporters to identify new market niches and produce high quality
products in response. In contrast, increases in the production of fresh milk and rice have
resulted from greater land use for crops and animals, rather than from improvements in
productivity.
Better public services. Public service provision (education, health, electrical energy, security)
has increased significantly over the last two decades due to the State obtaining higher income
from taxes. Nevertheless, economic studies show that high levels of inequality still exist
between public service provision in rural and urban zones and that significant gaps in social and
cultural inclusion require much more attention.
Related to key question 3:
New approaches to rural development that take greater account of the demands of small-scale
rural producers have made it possible for various initiatives by banks and international
development agencies to successfully stimulate private sector activity in relation to agriculture.
The most noteworthy of these initiatives are: construction of road transport infrastructure;
irrigation systems; capacity building of rural communities for contracting agricultural extension
services; disease and pest eradication campaigns; promotion of alternative crops for the
eradication of coca leaf production; recognition of the land and property rights of small-scale
rural producers.
A greater recognition of the existing potential for development in mountain and jungle regions
and improved efforts by the State to analyze poverty in rural zones has enabled Government
funds and finance from international development agencies to be channeled more effectively
and precisely.
In certain regions of Peru, non-governmental organizations (NGOs) have been applying more
complex and inclusive approaches to development than those adopted by State entities. This
has enabled NGOs to reach sections of the rural population that do not receive assistance from
the Peruvian Government. Another important impact achieved by NGOs is the development of
local capacities (productive, organizational and access to markets). This has supported rural
communities to create favorable conditions for sustainable investment of resources into
economic and social development.
Comments on governance requirements:
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural
development: Peru working paper 7
To improve the effectiveness of the resources that international development agencies are
investing in development, actions related to governance are required. The model for economic
growth based on extractive industries has resulted in social conflicts caused by water source
contamination and leading to inequitable development and poor levels of social inclusion.
The richness and diversity of its natural resources, as well as the history of its native culture,
provide an opportunity for Peru to explore new sources of development including goods and
services such as tourism, exportation of agricultural products and gastronomy. In order to
achieve this, it is necessary to facilitate the formalization of micro-enterprises, and promote their
development via appropriate tax policies and provision of credit, technical assistance services
and information about markets that are able to incorporate producers in remote rural areas.
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural
development: Peru working paper 8
Introduction
This study is part of a larger research project on the strategic role of private sector
development, commissioned by the Global Donor Platform for Rural Development. The study,
being carried out by the Overseas Development Institute, aims to improve the understanding of
the role of the private sector in agriculture and rural development and to propose practical
measures for donors to engage effectively with the private sector to encourage more
developmental outcomes. Key questions to be answered are:
1) How has the private sector responded to the changing role of the State in agriculture?
2) What impact private sector activity has had on poverty and competitiveness of the agriculture
sector?
3) What has determined success of donors, government, NGOs, and other initiatives to
stimulate private sector development?
The study focused its agricultural value chain analysis on the three products set out below. As
well as meeting the criteria of particular interest to this study (participation in value chain by low-
income households, interesting policy and regulatory frameworks/developments, significant
private sector involvement, donor interest and previous initiatives), the three agricultural value
chains have been selected because they represent agricultural production from Peru's coastal,
mountain and jungle regions.
Rice
Rice is a key food staple in Peru with national demand currently out-weighing domestic supply.
Rice production is concentrated along the northern jungle and coast with smaller units operating
in the southern coast. Rice production is largely undertaken by medium-sized enterprises at the
coast and thousands of rural families at the jungle, the majority of the labour force coming from
low-income households. Government policies in the seventies promoted rice agro-businesses
offering stable prices and buying up domestic supplies via a state entity. Since the nineties,
market liberalization policies have led to a reduction in government support. Nevertheless, rice
production is still strategically important for the Peruvian government because of it provides
food for large populations living in the big cities along the coast. The research team travelled to
the cities of Moyobamba and Tarapoto in the jungle region of San Martin to collect primary data
from managers of producers‟ associations, professionals working in state entities and private
businesses selling inputs and equipment.
Milk
Dairy farming for milk is big business in Peru's domestic market. Milk production is concentrated
around the Cajamarca valley, located in the northern Andes mountain range, the central region
at the coast of Peru and the Arequipa valley in the south. Milk production is mainly undertaken
by medium and small scale producers (campesinos) who sell their product to large firms of dairy
industry as Grupo Gloria, Nestlé and Laive, but also to small firms to make cheese and other
dairy products. Because several thousand small- scale farmers obtain a large proportion of their
income from this business, international development agencies have financed cattle and dairy
chain projects across the Peruvian highlands with the aim of improving productivity and
supporting poverty reduction. The study team travelled to Cajamarca where Practical Action
Latin America has been working since 2004 to develop the dairy value chain in the region.
Interviews were held with managers of producers‟ associations, cheese and other dairy
producing companies, representatives from Gloria Group and also State representatives.
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural
development: Peru working paper 9
Coffee
Peru is famous for its coffee exports, and particularly for its organic and fair-trade varieties.
Production has increased considerably over recent years and is dominated by medium size
enterprises, cooperatives and producer associations operating in the upper jungle areas of the
San Martin, Cusco, Puno and other regions. International development agencies and a state
programme INCAGRO (financed partially by the World Bank) have supported the development
of the coffee value chain because it has high potential to increase the income of small-scale
farmers. Another key reason that the coffee sector receives international development support
is that coffee cultivation can be organized into agroforestry systems with no need to cut trees
from the Amazon forest, thereby reducing negative environmental impacts. The study team
travelled to the following cities: Quillabamba in the region of Cusco, Moyobamba and Tarapoto
in San Martin region. Interviews were held with managers of producers‟ associations,
professionals working in state entities and private businesses selling inputs and equipment.
The methodology included the following activities to obtain information:
A number of interviews with key informants at Lima and main cities of three regions: Cusco,
Cajamarca, San Martín.
A review of books, articles, and agrarian issues magazines.
A discussion with other members of the research team, by sending them a draft of each paper
before writing the final versions.
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural
development: Peru working paper 10
Context
Brief description of Peru
Peru is a democratic republic located in western South America, divided into 25 administrative
departaments (or regions) and the province of Lima, the country's capital city. Other major cities
in Peru, according to size and economic importance, are Callao, Arequipa, Trujillo, and
Chiclayo. Peru covers just under 500 square miles and is split into three geographic regions: i)
the arid coastal region (costa) to the west, ii) the Andean highlands (sierra) running roughly
through the middle of the country, and iii) the Amazon jungle basin (selva) to the east which
accounts for almost 60% of the country's area. A high diversity of climates exists within the
country, largely due to its diverse topography and the Humboldt Current - a cold ocean flow that
travels up from the south meeting with warmer waters along the Peruvian coastline.
Periodically, the upswelling that drives the Humboldt Current's highly productive ecosystem is
disrupted by the El Niño-Southern Oscillation (ENSO) event. In the past this has led to extreme
weather events in Peru, such as floods and droughts.
Peru has an estimated population of around 29.8 million multi-ethnic inhabitants including:
Largely Quechua-speaking Amerindians (45%); mixed background (“mestizo”) (37%);
Europeans (15%); Africans, Asians and others (3%). Annual population growth slowed from
2.6% in the 1970s to around 1.6% during the 1990s and early 2000s. In 2007, just over half of
the population lived along the coast, a third in the highlands and just under 15% in the Amazon
region. Since the 1940s, rural migration has increased the urban population from 35.4% to over
75% today (INEI, 2011).
The "middle class", or the middle strata of Peruvian society, has increased its income levels and
has also increased its demand for foods. In 2006, it was estimated that the middle class
represented 46.9% of the total population in Peru (OCDE, 2010)1. This percentage along with
the rise in average income is similar to other Latin American countries. The average income of
the middle classes in Latin America rose by 27% between 2000 and 2006 (A. Solimano.
CEPAL, 2008)2. These middle sectors of society represent some 75 million households with an
average annual income of around US$20,000. Nevertheless, income levels and purchasing
power are rather different between the countries in Latin America.
In Peru, consumption amongst the middle class shot up between 2004 and 2008 (Ipsos Apoyo,
2008)3. As well as a considerable rise in food consumption rates, purchases of industrial
products also rose significantly (gas cookers from 77 to 88%; mobile telephones from 21 to
59%; computers from 13 to 24%). However, the income levels of the Peruvian middle class are
modest in comparison with the regional average. In Lima, the country's capital, within the middle
class (group C according to statistical studies by Ipsos Apoyo), no household earns a monthly
income higher than 4,000 Soles (US$1,455). This figure is only 40% of the average for Latin
1 OCDE. “Perspectivas económicas de América Latina. 2011”. Dic. 2010.
2 Eduardo Aquevedo. “Ciencias sociales en Chile y América Latna, según estudio de la CEPAL”. Ciencias
Sociales Hoy. Weblog. Mayo 2008. IPSOS APOYO. “Niveles socio-económicos, Perú 2007”. 2008.
3 IPSOS APOYO. “Niveles socio-económicos, Perú 2007”. 2008.
4 Humberto Campodónico “Los ingresos desiguales de Lima Metropolitana” . La República.pe. February
2011.
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural
development: Peru working paper 11
America, which is estimated at US$3,800 (A. Solimano, Op cit). Lima is home to the population
with the highest incomes in Peru, yet in 2010 75% of households earned less than 2,000 Soles
per month (US$728) (Ipsos Apoyo cited in H. Campodónico, 2011)4
Peru is a mega diverse country, with high quantities of natural resources, including copper,
gold, silver, zinc, lead, iron ore, fish, petroleum, natural gas, and forestry. In 2009, the country's
GDP reached $127.22 billion with an annual growth rate of 9.8%. Average per capita income
was $4,365.
Representing 14.33% of total GDP in 2009, food and beverages, textiles and apparel, non-
ferrous and precious metals, non-metallic minerals, petroleum refining, paper, chemicals, iron
and steel, fishmeal are the principal activities that make up Peru's manufacturing industry. In the
same year, agriculture represented 7.8% of GDP from the following main products: coffee,
cotton, asparagus, paprika, artichokes, sugarcane, potatoes, rice, banana, maize, poultry, and
milk. Other important sectors included services (54%), mining (5.7%), construction (6.2%) and
fisheries (0.44%). Key trade partners were the US, China, Switzerland, Canada and Japan.
Agriculture is carried out across Peru, a diverse range of entities related to agriculture exist,
such as international corporations, national companies, resource user boards, cooperatives,
peasant farming communities, and small and medium-sized producers. Agriculture plays a key
role in poverty reduction because it provides livelihoods for the poor sections of the population
living in rural areas. It is estimated that 75% of poor people living on one US dollar a day work
and live in rural areas. Projections indicate that more than 65% will remain living in these
conditions until 2025 (Oxfam, 2010).
In terms of employment, small-scale agricultural activities play a very important role given that
they provide jobs to 36% of the economically active population (EAP). The size of this
population group was estimated at 2.8 million people in 2006 (Cavassa, cited in Oxfam, op cit).
Small-scale agriculture represents 92% of all agricultural production units in Peru. 1.5 million
small-scale productive units occupy 5.3 million hectares of land, 38% of the total land surface
area of the country (Oxfam, 2010, op.cit)5
The Peruvian Government recognizes that agriculture plays a leading role in the country‟s
development, in economic growth and in poverty reduction. In 2008, it was estimated that a third
of the population lived in rural zones and 50% of this group‟s income came from agricultural
activities (MINAG, 2008)6.
5 Oxfam America. “Informe Perú 2009 – 2010: Pobreza, desigualdad y desarrollo en el Perú”. Lima, julio
2010.
6 Peruvian Ministry for Agriculture (MINAG). “Plan estratégico sectorial multianual de agricultura 2007-
2011”. Lima, July 2008.
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural
development: Peru working paper 12
Overview of economic and agricultural policy
Since the late 1960s, economic and agricultural policy in Peru has gone through three distinct
periods:
First period: The Governments of Fernando Belaunde (1963 – 1968) and of Juan
Velasco Alvarado (1968 –1975)
These two governments implemented measures to open up regional markets and improve the
ability of the labour force to move from rural to urban areas. The government of Fernando
Belaunde attempted to bring in agrarian reform but was unsuccessful as the new measures
were unable to respond to the conflicts occurring between peasant farmers and hacienda
owners about access to prime arable land and water sources. It was the government of Juan
Velasco that was able to achieve agrarian reform from 1969 to 1975. Despite having negative
impacts on agricultural productivity, agricultural production rates and on private sector
investments, during at least a decade Velasco's agrarian reform successfully brought an end to
inefficient productive resource management practices oriented towards self-sufficiency. These
were the kinds of farming practices found on the so-called Haciendas7 in the Andean mountain
region. Here, the objective was not to maximize production and profits by accessing markets.
On the contrary, the haciendas were “closed” units of production where the labour force was
paid in kind (usually foodstuffs) and therefore had limited ability to buy non- agrarian goods from
Peruvian urban business or imported products. The agricultural policy introduced by the
Velasco government was aimed at modernizing productive units and driving forward the
mandatory formation of business associations/businesses run on an associate management
model, known in the highlands as SAIS (Agricultural Society with a Social Interest) or, on the
coast, as CAP (Agricultural Production Cooperatives).
Critics of this policy argue that large sugarcane production units on the northern Peruvian coast
were already efficient and highly productive units operating within national and international
markets. This being the case, it appears as though the objective of the Velasco government in
expropriating the large sugarcane producers of their land was to reduce the power of one of the
most economically influential groups in the country, at that time was known as “the oligarchy”.
This was carried out based on the argument that this social class had no interest in promoting
capitalist development in highland and jungle regions, that is to say, anywhere in the country.
According to political analysis undertaken by the Velasco government, neither the so-called
“oligarchy” nor the peasant farmers grouped into peasant communities (in the highlands) and
indigenous communities (in the jungle) had the capacities with which to drive the country's
progress in accordance with international levels of technology development and democracy.
The alternative strategy selected by the government was to use national reserves to promote
7 “Hacienda” is a generic name attributed large agricultural units managed by a single owner (Hacendado)
who may or may not have paid employees. Hacienda employees undertook agricultural activities and
usually lived on lands owned by the Hacendado where they were allowed to raise livestock, cultivate
parcels of land and access water for irrigation. The Hacendado or his administrator would draw up
agreements with neighbouring farming communities in order to secure a source of labour during times of
shortage (sowing and harvesting periods, animal shearing for example) and in exchange for a few hours'
access to water for irrigation, which was the property of the Hacienda. The size of Haciendas in the
highlands was variable and could range between 300 and 3,000 hectares or more. The major proportion of
these lands were made up of natural pasture on steep hillsides with poor soil quality. In many instances,
only a small section of the Hacienda land was irrigated for food crops or livestock fodder.
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural
development: Peru working paper 13
the formation of new industrial and agro-industrial businesses. In addition, a state subsidy was
established to provide support for traditional and “non-traditional” exports and a special dollar
exchange rate was also set up for the exporters of new “non traditional” products.
The Agrarian Reform Law of 1969 also granted ownership of water sources over to the state
with the aim of ensuring more equitable access by the entire range of water users and
protecting against preferential access previously enjoyed by the haciendas that owned the land
on which these water sources (springs, streams and highland lakes) could be found. Access to
water was, and still is, one of the main causes of social conflict in Peru. The fact that the 1969
Water Law was not revised until 2010, despite over 10 proposals for a new law having been
debated in congress over that period, is evidence to this.
The agricultural policy of the Velasco government and of the government that followed (Morales
Bermudez: 1975 – 1980) placed a strong emphasis on strengthening and expanding the state,
which was to intervene in productive activities and control areas deemed strategic for national
development (oil, communications). In addition to the existing ministries, the Ministry for Food
and the National Planning Institute (INP) were created. The main reason for this was to enable
the state to intervene in areas that were less profitable for the private sector. A policy imposing
high tax rates on agricultural imports (customs policy) was implemented with the aim of
protecting national markets from overseas competition. A price control policy was also
established on basic products considered essential for urban Peruvian households. One of the
products to receive State protection was rice. A state entity (named ECASA) bought rice crops
at a stable price which ensured a certain degree of profitability for the producers. At the same
time, the state created a development bank to promote investments in commercial-scale
production. The Agrarian Bank (Banco Agrario) was one of the best examples of this. It
promoted Andean livestock and crop production, such as the potato, in the three regions of
Peru (coast, mountains and jungle) via a system of supervised credit provision that included
technical assistance services.
During this period, a national system for agricultural extension services was also created. At its
largest, this system was made up of 37 experimental stations and more than 3,000
professionals working as rural extentionists paid by the State. Investment of public money into
road infrastructure and irrigation was high priority. Various regions of the country benefited from
these public works, in particular the desert region of Arequipa, via the Majes project, and the
high jungle zones in central and northern Peru. This packet of measures can be called
“protectionist” and therefore non-liberal, to the extent that customs barriers and state
intervention existed in urban markets. Inside Peru, however, these measures sought to open up
national markets and stimulate private investment by creating conditions preferential for national
capital.
Second Period: The government of Alberto Fujimori (1990-2000)
The 1980s, which correspond to the second term of Fernando Belaúnde (1980 – 1985), and the
first term of Alan Garcia (1985 – 1990), are considered a “decade of loss” during which time a
range of factors negatively affected agricultural development. Attacks from the Shining Path
political party set alight and destroyed some of the main SAIS in the central highlands and led to
the abandonment of thousands of hectares of crops by peasant farmers as they fled from the
armed conflict zones and took refuge in Peru's cities. At the same time, the agricultural policy
implemented by the Garcia Government was intended to promote the development of peasant
farming via the setting of extremely low interest rates. However, the policy also created
favourable conditions for food product imports in order to mitigate against the inflation
anticipated in the country's bigger cities. Serious mis-management of public funds by the Garcia
Government unleashed the worst hyper-inflation seen in Peru during the 20th Century. One of
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural
development: Peru working paper 14
the consequences was that the Agrarian Bank went into liquidation due to capital losses. Also
during this decade, the majority of business associations (SAIS and CAP) demonstrated grave
management problems and a good number went bankrupt. At the same time, illegal cocaine
production in the high jungle regions began to cause serious problems for the State, particularly
given the violence and corruption it brought about. Cocaine production was generating income
for a large number of peasant coca leaf producers, and also provided an important source of
finance for the armed groups of the Shining Path and the Túpac Amaru Revolutionary
Movement (MRTA) which were fighting against the government.
Following the downfall of the Shining Path in 1992 via the capture of its leading figures, with
support from the IMF-World Bank the government of Alberto Fujimori initiated economic and
agricultural liberalization of Peruvian markets and encouraged foreign investment. During this
period, a key component of the liberalization strategy was a change in the role of the State. This
approach was in accordance with the new economic paradigm being implemented in numerous
countries across the world and consisted of a reduction in the size of the State in order to
address financial deficits, an increase the efficiency of national production by exposing the
country to a high degree of competition from foreign production, and promoting private
investment in areas that were previously considered strategic for Peru, such as
telecommunications and fossil fuel resources (oil, gas). The agricultural extension system was
closed down, with the intention that these activities be taken up by the private sector. The
agrarian bank was also closed down due the losses of capital during hyper inflation period in the
Garcia´s first government.
Given that zones at distances from urban centres in the mountain and jungle regions generally
present poor profit prospects for the private sector, a large proportion of small scale producers
in these areas consequently suffered from a lack of technical assistance and market
information. A shortage of credit for agricultural producers also emerged in this period and has
continued into the present day. Also during this time the policy for state intervention in basic
foodstuff prices was also scrapped.
With the aim of compensating farmers in remote highland and jungle zones for the lack of
private investment, the Fujimori Government created state institutions aimed at promoting
agricultural development, conservation of water and soil resources and investment in local
works such as drinking water, rural schools, and road and production infrastructure. The main
state institutions were The National Programme for Water Basin and Soil Management
(PRONAMACHS) and the National Fund for Social Development (FONCODES). At the same
time, restrictions on land holdings were eliminated in order to bring in a system of land rights on
the basis that peasant producers would be able to provide the necessary guarantees to obtain
commercial bank credits which would enable them to increase household consumption, buy
equipment and animals, and make investments to improve agricultural productivity levels.
However, the government did not go as far as to annul the laws which protect land ownership
rights of highland peasant communities and indigenous jungle communities.
As a result of the government's liberal direction and of the creation of attractive conditions for
private foreign investment in oil and gas, the government considered it necessary to close down
the National Planning Institute without replacing it with another entity responsible for
undertaking the same functions. Inflation was controlled with the implementation of fiscal and
monetary policies which strengthened state institutions such as the Ministry for the Economy
and Finance (MEF) and the Central Reserve Bank. These two institutions carried out a key role
in obtaining and maintaining economic stability. Another success of this government was
bringing peace to Peru by bringing down the leftist armed groups. However, in the year 2000,
President Fujimori fled the country and resigned his role from Japan, accused of corruption of
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural
development: Peru working paper 15
civil servants and the press, crimes against humanity, collaboration with drug traffickers and
embezzlement of funds obtained from the sale of state entities.
Third Period: The governments of Valentín Paniagua (2000 – 2001), Alejandro
Toledo (2002 – 2005) and Alan García (2006 – 2011)
During the transition to democracy, the governments of Valentín Paniagua and Alejandro
Toledo set the country once again on the path to liberal modernization. One of the new policies
implemented in this period was the decentralization of the state which handed over greater
powers and budgetary resources to regional and municipal governments. Others were the
promotion of the National Board to fight against Poverty (MCLCP)8, and the National Agreement
(Acuerdo Nacional) 9 which is a set of 32 state policies for sustainable development and
democracy. The state policy numbered 23 is devoted to rural and agrarian development. The
Toledo Government continued to promote development in highland and jungle regions via the
state institutions created by the previous government, such as PRONAMACHS and
FONCODES. Fiscal and monetary policies aimed at stabilizing the exchange rate were
maintained. Top on this government's agenda was export promotion, opening up the country to
external markets, privatization of public companies and attracting foreign company investment
in mining, oil and gas. Various private companies located along the Peruvian coast were able to
enter into external markets with agricultural products such as lemon and asparagus. Control of
coca leaf cultivation and cocaine production increased at a time when the government was
receiving resources from USAID for the promotion of alternative crops in high jungle zones,
such as coffee, cocoa, palm oil and tropical fruits.
The second Garcia government expanded State reform by providing greater impetus to the
process of decentralization and enabling various regional and municipal governments to access
considerable amounts of money, generated by taxes (called “levy” and “additional levy”) paid to
the State for oil and natural gas extraction. Income from these taxes increased at a fast rate due
to sustained rises in international mineral, oil and natural gas prices, largely resulting from a
growing demand from the emerging Asian economies. With these new financial resources, the
regional and municipal governments have the possibility to invest in irrigation, rural
infrastructure, basic services (drinking water, sanitation) and projects aimed at increasing
productivity and access to markets, in a way that had never been seen before. Nevertheless,
municipal authorities still lack sufficient capacity to design projects and spend resources in an
efficient and opportune manner. On the other side of the coin, social conflicts have increased in
various regions across Peru between mining companies and farmers over contamination of
water sources with mining residues. In the jungle, armed clashes have occurred between the
police and the indigenous population which opposes the presence of oil companies.
Under Garcia, the Peruvian government signed the Free Trade Agreement (FTA) with the
United States which was negotiated for several months when Toledo was still in term. In order
to meet the institutional conditions, a requirement of this trade agreement, the government
created the Ministry of the Environment (MINAM) in 2008, restructured the Ministry of
Agriculture (MINAG) and amalgamated the majority of state agricultural entities under one so-
called “Agrorural”. A programme for building the capacities of agricultural producers was
established in order to meet competition from foreign products and facilitate insertion into
8 See web page: www.mesadeconcertacion.org.pe
9 See web page: www.acuerdonacional.pe
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural
development: Peru working paper 16
international markets, the Compensation Programme for Competitivity (PCC). The Garcias
Government also passed a new water law and created a state authority, the National water
Authority (ANA) with the specific role of managing water and its different uses. At the same
time, and international campaign promoting Peruvian food has been implemented in
collaboration with various national business peoples. Likewise, promotion of agro-exports such
as lemon, asparagus, avocado, Pisco, and Peruvian cuisine, has also continued. Amongst the
most recent government regulations to promote market liberalization, two worth mentioning are
a reduction of customs tariffs (import taxes) relating to agricultural products to zero and the
introduction of a law regulation to promote and regulate the sale of Genetically Modified (GM)
products on the national market
In the first decade of the twentieth century, the Peruvian economy has sustained positive
economic growth rates. This has been highlighted as an indicator of success of macroeconomic
management by Government representatives. Nevertheless, some analysts are less optimistic
and point to the following aspects that characterize the last two decades: accelerated
expansion of private ownership at the expense of public ownership (i.e. the sale of Government
companies) and community ownership in rural areas; restructuring of economic power in favour
of natural resource extraction and financial activities; concentration of market activities amongst
only a few companies; increased foreign investment (in 2008 244 of the top 500 companies
operating in Peru were foreign and were responsible for generating 54.4% of total sales);
increased turnover of international corporations operating in territories belonging to indigenous
communities. These are the main economic trends that have had a significant social impact
and which have occurred with permission from and in collaboration with the Peruvian
government (F. Durand, 2010)10.
An assessment of the impacts of macroeconomic policies on Peruvian agriculture over the last
decade shows that poverty was reduced by 13.8% between 2004 and 2009 as a result of
average annual economic growth of 6.4%. At the same time, Peru has improved its position on
the Human Development Index (HDI), moving up from 89th to 78th position between 2000 and
2009. Nevertheless, Peru continues to experience high levels of poverty and large
concentrations of poverty amongst particular social groups in specific geographic regions. In the
capital, Lima, 14% of people live in poverty whereas in the rural mountain region this figure
reaches 66%, that is to say poverty affects 7 out of 10 people. Poverty rates are more acute
amongst indigenous populations in the mountain and jungle regions. In rural areas, women earn
on average half of what men do, due to social discrimination (C. Trivelli, 2010)11.
Development assistance and its support to the agricultural sector
A broad range of bilateral, multilateral and private donors are providing financial and technical
support to agriculture and rural development in Peru. Whereas up until the end of the 90s a
large proportion of this support was channeled into programmes aimed at securing household
food security, economic growth over the last decade coupled with the signing of various
international trade agreements have led to the re-orientation of donor support. With its new
middle-income status, Peru is now attracting financial and technical assistance for a range of
10 Francisco Durand. “Un Estado en retirada”. En “Informe Perú 2009 – 2010: Pobreza, desigualdad y
desarrollo en el Perú”. Oxfam America, Lima, July 2010.
11 Carolina Trivelli. “Las caras de la pobreza”. En “Informe Perú 2009 – 2010: Pobreza, desigualdad y
desarrollo en el Perú”. Oxfam America, Lima, July 2010.
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural
development: Peru working paper 17
activities intended to build the competitiveness of the agricultural sector and facilitate integration
into the world economy. Support for private sector actors – ranging from small producers to
large agro-industries- is primarily being delivered in the form of business support services,
market network strengthening initiatives, credit provision and some innovative alliance-building.
From the 1980s onwards, international development agencies from diverse countries have
increasingly supported agricultural development in Peru, channeling resources directly to state
institutions or via Non-Governmental Organizations (NGOs). Worthy of mention are the projects
financed by the International Fund for Agricultural Development (IFAD) via an agreement with
the state entity FONCODES. These projects typically focussed on building management
capacity amongst peasant farmers to provide technical assistance and insert themselves into
markets with more favourable conditions; another example is the German Government which,
via its development bank KFW, finances irrigation works in the highland and jungle regions of
Peru through the state programme in Cusco called Plan MERIS.
It is also worth mentioning the notable support provided by the USAID to promote coffee, rice
and other profitable crops at the jungle; the Swiss Development Cooperation (SDC), through
various NGOs, to promote productive market chains, agro-businesses and rural municipal
governance; the Dutch Government which, via the SNV has created stakeholder platforms for
irrigation water use, value chains and, more recently, inclusive business; the Spanish
development agency which has supported initiatives in rural education and promotion of rural
enterprises; and the UK Department For International Development (DFID) for food security and
governance programmes. Likewise, significant financial support for agricultural development
has also been channeled into Peru from the European Union (EU) and the World Bank, which,
between 2003 and 2009, financed a state programme called INCAGRO which introduced a new
model for promoting rural agro-businesses with equal focus on demand and risk. Other North
American development agencies providing important support are CARE, OXFAM, World Vision
and Plan International.
According the annual report of APCI (State organization to monitor external funding and
cooperation for development) the main donors to Peru at 2009 came from the following
countries: Spain, USA, European Union, Germany.
An overview of the last two decades let us to identify some different criteria in
the bilateral cooperation
Northern countries (Netherlands, Finland, England) are more interested in support extreme
poverty projects. Some countries of this group as Netherlands and England have decided to
end activities in Peru since last decade, because the World Bank has classified Peru as a
country with sustainable annual grow rates and a medium level rent per capita.
German cooperation is devoted to improve irrigation infraestructure in poverty areas and also to
improve state‟ officers capacities, giving a high priority to Ministry of Environment.
USAID cooperation has political (to eradicate cocaine production) and commercial criteria.
Spain cooperation has a set of cultural and history reasons to support Peruvian social
development. Main priorities were to improve democracy, education, gender approach,
environment, native cultures.
Japan, China, and Korea support infrastructure building (electrical energy, roads, water
sanitation systems) and commercial activities.
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural
development: Peru working paper 18
Case studies
Coffee
a) Context and value chain description
In Peru, about 160,000 rural families cultivate coffee on an average area of 315,000 hectares.
It is estimated that coffee production as an agro-business involves around two million people
nationwide in cultivation, processing and commercialization activities. Cultivation zones can be
found in various regions along the eastern slopes of the Andean mountain range, an area which
is known as the high jungle. In total, coffee is cultivated in 210 rural districts within 47 provinces
in the regions of San Martin, Cusco, Cajamarca, Junin, Puno, Amazonas, Ayacucho and
Huánuco.12 This study looked specifically at coffee production in Cusco and San Martin.
Over the last two decades, cultivated land, production and exports of coffee have increased
significantly. In 1990, 150,000 hectares of land were being cultivated, producing 1,479,000
pounds of coffee and an export value of 98 million dollars. In 2008, 350,000 hectares of land
were cultivated, producing 4,901,313 pounds of coffee and an export value of 643 million
dollars. In 2010, the value of exports reached 881 million dollars.13 Between 1990 and 2009,
coffee production has experienced an annual growth rate of 7%.14 As result, Peru is now the
number one „speciality coffee‟ producer in the world, and is the fifth largest producer of
conventional coffee. The term “speciality cofffee” is applied to a range of coffees (organic, fair
trade, sustainably produced, gourmet etc) that are differentiated from regular coffee and which
generate a higher market price. Production of speciality coffee began in Peru in the 90s.
According to the National Coffee Board (Junta Nacional del Café), Peru produces most organic
coffee in the world, with a total 75,000 hectares producing 1.2 million quintales15 per annum. In
terms of certified fair trade coffee, annual export volume is above 450,000 quintales.
Most coffee production is directed to external markets. The main destination for Peruvian coffee
exports is the European market, primarily Germany, Belgium and Holland. A considerable
quantity is also exported to the United States where Peru is the main supplier of coffee. Only
6% of Peruvian coffee is consumed within Peru.
Due to high international prices, internal demand for this product (by intermediaries, processors
and exporters) has grown and, as a consequence, coffee provides an attractive opportunity to
12 “El café peruano a la conquista del mundo. Panorama del sector cafetalero. Cámara Peruana de café y
cacao (Camcafé). At magazine Tecnología y Sociedad. No. 10. Practical Action (Soluciones Prácticas).
2011. p.40
13 National board of coffee producers named “Junta Nacional de Café”. Data from the income taxes
national state organization named SUNAT (Superintendencia Nacional de Administración Tributaria)
14 “El café peruano a la conquista del mundo. Panorama del sector cafetalero. Cámara Peruana de café y
cacao (Camcafé). At magazine Tecnología y Sociedad. No. 10. Practical Actions (Soluciones Prácticas).
2011. p.36
15 One quintal is equivalent to 46 Kg.
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural
development: Peru working paper 19
increase rural incomes for peasant farmers and a business opportunity for other actors in the
value chain.16
Coffee is cultivated by a large number of peasant families that migrated from diverse zones in
the highlands into warm valleys in the high jungle. Their farming techniques are basic and
cultivated areas are very small. It is estimated that 85% of coffee-farming families produce the
crop on units of land between 0.5 and 5 hectares and achieve an approximate yield rate of 15
quintales per hectare, which is considered to be quite low. In Colombia, Costa Rica and Brazil
average yield rates are 25 – 40 quintales per hectare. Coffee farming is carried out alongside
other tropical species such as cocoa, fruits, coca and trees for timber, as a livelihood
diversification strategy. In various zones, these small-scale producers sell their produce on an
individual basis to “storers” (acopiadores), that is, traders who buy coffee off the farm and sell it
to other agents along the market chain, namely companies that process the bean for sale to
exporters. However, not all producers interact on an individual basis with the market. A good
number have formed producers' associations or cooperatives. These cooperatives are often
service providers and their main service is to sell the coffee collected from individual members
in international markets. They make a down payment on harvested crops and, after selling the
coffee to national exporters or directly to companies in other countries, make an additional
payment to members of the cooperative based on the profit generated by the sale. Often, they
also provide a variety of other services, such as technical assistance and links to credit
agencies, in addition to selling fertilizer and other agricultural inputs to farmers. These services
are often insufficient to meet the requirements of small farmers, as discussed below.
In Peru there are 75 companies exporting coffee grain, 28 of which are organizations of
producers who sell speciality coffee. Market concentration is high with only 20 companies
responsible for 90% of coffee exports. For instance a single exporter, PERHUSA, accounts for
24% of total coffee sold abroad17. Some of these companies not only export the product but also
add value to it through processing (drying, pealing, roasting) and packaging. Based on a study
into coffee production in the San Martin region, it was possible to estimate the following profit
margins for the different actors involved: farmer producer (not a member of a cooperative) 10%:
farmer producer (member of a cooperative) 25%; regional intermediary 7%; national export
company 15%; export cooperative 18%. Due to a lack of sufficient data, it was not possible to
estimate profit margins for companies acting as international traders or brokers.18
There are two main private sector national level organizations acting in the coffee sector: one is
the Peruvian Chamber for Coffee and the other the National Coffee Board. They were created
during the liberalization period of the nineties. The former is constituted mainly by large traders
and processers, whereas the latter represents the producers. The most important role of the
National Coffee Board is to influence policy making, it also mobilizes credit to member
organizations for the rehabilitation of coffee producing areas and for the purchase of fertilizers.
16 Box 1 provides an example of the coffee value chain in S. Martin.
17 De Althaus, Jaime. 2007. “La Revolucion Capitalista en el Peru”. Fondo de Cultura Económica del
Perú. Lima
18 Figures estimated by the author based on data from “Identificación y caracterización del mapa
demercado del café en la zona del proyecto Cafés Especiales”. José Tirabanti Linares. Practical Action.
February, 2011.
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural
development: Peru working paper 20
Inputs (fertilizers and seeds)
About 90% of fertilizers are imported from other countries: Chile, Venezuela, USA, Chile, China
and Canada. Only one type of ecological Peruvian fertilizer is similar to chemical products, it is
named “Guano Island” and comes from dry coast of Peru, but production amount is limited.
There are many cooperatives and local producers associations which provide chemical
imported fertilizers to small farmers. Fertilizers are very important at upper jungle areas because
soils are poor of nutrients.
Most seeds are provided by the same small producers. Only large scale cooperatives are able
to provide seeds to their farmers associated. There is not a certification system for coffee seeds.
Machinery
Some large and medium sized machinery are manufactured in Peru, as the northern enterprise
IMSA (www.imsacafe.com), or imported from Brazil (Penagos).
Services (credit, technical assistance, and others)
There is not enough credit for cooperatives and producers associations to support the payments
in advance to farmers. It is one of the main constraints of coffee production business. There are
some international financial institutions which lend money to cooperatives and producers
associations only for external marketing purposes, such as Rabobank from Holland, Rootcapital
from the US, Alterfin from Belgium and Rainforest Trading SAC; and some local financial
institutions, including medium-sized private companies called “Rural Cash Desks” (Cajas
Rurales), commercial banks and a state-run named Agrobanc.
Technical assistance is provided mainly by the cooperatives and produces associations to their
members, and by some Peruvian enterprises that export coffee (as Perales Huancaruna), but
they do not have enough staff to visit the total number of small farmers living at distant places.
In addition to providing regulation and technical assistance, the public sector provides sanitation
services through SENASA,and financing for productive development projects through regional
governments and municipalities. In the north of the country, donors finance technical assistance
and inputs provided by state organizations, NGOs and large cooperatives.
Investors
There are not many large scale private properties cultivating coffee in Peru, most of the
investors in coffee production are thousands of small scale farmers, associated to cooperatives
and producers associations or individually selling the product harvested to the private
enterprises which offer a higher prize. A number or 75 enterprises, being the origin of the
capital, local and foreign, buy coffee from these farmers to export activities, but only 20 of them
control the 90% of total exports.
Research
Research activities on coffee production financed by private enterprises are not significant. A
group of cooperatives named Café Perú is investing funds on research on the following aspects:
organic fertilizers, post harvesting techniques, seed banks. This program is conducted in
agreement with some public universities.
Wholesalers
No more than 4% of Peruvian production of coffee is consumed internally, most of production is
exported, so wholesale activities are not relevant.
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural
development: Peru working paper 21
Regional cases
The province of La Convención in the region of Cusco is one of the oldest coffee producing
zones in Peru. In this province, 25 coffee cooperatives are grouped together under a large
umbrella organization called COCLA19 , which provides the following services to its members:
Financing for cooperatives to pay peasant farmers an initial sum of money for their harvests.
This sum is calculated based on the average market price which is estimated according to
current international prices.
On-farm technical assistance to member producers.
Soil quality analysis to identify the specific requirements in every zone and make
recommendations on fertilizer use.
Coffee bean processing to a “parchment” (pergamino) state, which means de-husked and dried.
Marketing, including transportation to Lima and export procedures.
In addition to these services, COCLA also provides support to its members for honey and cocoa
production, both of which are activities that can be undertaken on the same productive units of
land where coffee is cultivated. COCLA has 8,000 producer members, representing 32% of all
coffee farmers (25,000) in the La Convención province. These are poor small farmers which
produce coffee alongside other commercial and food crops. Their productivity levels are low (11
– 15 quintales per hectare).
COCLA was established in the 1960s, before the agrarian reform of the Velasco government
and, consequently, also before the business associations (SAIS and CAP) were set up. COCLA
is a type of business with unique characteristics owing to its close relations with peasant
producers in La Convención Valley. However, some people and institutions that are not from the
zone confuse COCLA for a union or they consider that it is not the type of modern business that
the state should be providing support to under the liberal development model, which promotes
innovation and competition.
The manager of COCLA 20, mentioned the following constraints:
A lack of understanding by the State with regards to cooperative businesses.
Lack of credit. Neither the cooperatives or the umbrella organization COCLA have access to
preferential tax rates despite having led the way in coffee agro-business. COCLA and its
associate cooperatives are the largest producer of organic coffee in Peru 21 . They have to pay
high interest rates to commercial banks which sometimes delay in handing over money when it
is actually required.
19 Cooperativa Central de Cooperativas Agrarias Cafetaleras (COCLA). See web page:
www.coclaperu.com
20 Raúl del Aguila Hidalgo. He has been the general manager of COCLA since 17 years ago, also he is
the leader of a fair trade organization of Latin American and Caribbean coffee producers named
“Coordinadora Latinoamericana y del Caribe de Pequeños Productores de Comercio Justo (CLAC) .
21 Statement made by the general manager of COCLA.
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural
development: Peru working paper 22
Low soil fertility. The internal structure of the soils in the high jungle is characterized by thin
cover and poor nutrient supply. It is not possible to obtain loans from the State to buy fertilizers.
Insufficient research about organic controls for pests that affect coffee crops. Some of these
pests have increased with the occurrence of heavier rains that have been registered in the last
few years, and which seem to be an impact of climate change.
High labour costs. In recent years, the daily wages that are paid for agricultural work relating to
coffee harvesting have increased because day labourers prefer to work on municipal projects
that are being carried out with the “levy” and “additional levy”. This is an unexpected indirect
consequence of the additional resources available to rural municipal authorities for
infrastructure construction projects (roads, irrigation systems and others.)
In northern Peru, San Martin is one the largest coffee producing zones. Box 1 provides an
overview of the coffee value chain. In this region 24,788 rural families are producing coffee over
a total area of 49,370 hectares covering three main geographies: the Alto Mayo Valley, Lower
Mayo and Central Huallaga, and Alto Huallaga. In these three zones coca leaves are cultivated
for cocaine production, despite coca cultivation being illegal in the San Martin region.
Box 1: Coffee value chain in San Martin
The map of actors that interact in the coffee value chain is complex. A study undertaken in
2010 by the department of San Martin identifies the following actors:
Small-scale producers, not members of a cooperative or an association;
Cooperatives and Producers' Associations (Example: APAVAM);
Local intermediaries collecting coffee in rural zones;
Regional intermediaries that have warehouses in the cities;
National export companies (15);
International import companies buying speciality coffee from Peru;
International corporations selling coffee as a commodity;
International financial institutions lending money only for marketing purposes;
Local financial institutions including medium-sized private companies;
Fertilizer and pesticide suppliers, such as the National Coffee Board, the USAID PRD
programmes and local businesses;
Certification companies for speciality coffee;
Technical assistance providers, such as PRA (USAID), PEAM (state entity) and GIZ;
Provider of technical assessment of unions: the National Coffee Boar;
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural
development: Peru working paper 23
Regional Governments and municipalities as sources of financing for productive development
projects ;
Agricultural sanitation services: SENASA (state entity);
Government regulation: DRAMSA (state entity within regional government); and
Consumers.
Source: (Tirabanti, 2010)22
The rural families that cultivate coffee in San Martin come from the highland region, mainly from
the department of Cajamarca, one of the poorest and most highly populated departments of
Peru. These families possess little knowledge of how to farm within a tropical rainforest
ecosystem and the agricultural techniques they adopt are basic and based on slash-and-burn
practices. About 80% of the parcels of land used for coffee production have between 1 and 3
hectares. Productivity levels are very low due to poor soil fertilization and lack of knowledge
about alternative coffee production methods. The quality of coffee produced here is extremely
varied due to poor post-harvest practices (DRASAM, 2008).23
In San Martin there are a series of constraints that compromise improvements in production
volumes, quality and productivity. The manager of one of the main associations in the region,
the Alto Mayo Valley Producers' Association (APAVAM)24, mentioned the following bottle-necks
in coffee business:
In relation to production: soil fertilization in order to avoid a drop in yields; equipment for drying
coffee in-situ by the farmers; a sufficient number of rural extension agents with adequate
training; agricultural research into soils and pests; sprinkler irrigation for critical periods.
In relation to marketing: timely access to credit so that the association is able buy a larger
volume of coffee, in the event that farmers harvest above anticipated amounts.
b) Changing role of the State
The role of the State has not been important for the promotion of coffee and, as a consequence,
the dismantling of the public extension system and the closure of the Agrarian Bank did not
affect the value chain in any significant way because coffee production areas were largely
beyond reach of these services due to remoteness and poor accessibility to the high jungle.
These farmers were not given priority by governments trying to secure election votes.
In general producers think that support from the Peruvian State (regardless of which
governments) is needed. Public investment in the coffee sector remains very low. Comparing
figures with neighbouring countries, it is noteworthy that Colombia has invested 725 million
dollars in coffee production and Brazil 600 million dollars, while in Peru only 10 million dollars
22 “Identificación y caracterización del mapa de mercado del café en la zona del proyecto Cafés
Especiales”. José Tirabanti Linares. Practical Action. Febrero, 2011.
23 DRASAM is the Regional Department for Agriculture in San Martin, part of the Regional Government.
24 Interview with Mario Rivero, APAVAM manager, based at Moyobamba, San Martín.
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural
development: Peru working paper 24
has been provided in State support over recent decades (Lorenzo Castillo, President of the
Peruvian National Coffee Board, 2011). However the nature of state support to the sector is
changing with an increase of focus in improving the enabling environment through tarred roads
connecting the high jungle to large urban areas, and land registration as a mechanism to allow
small farmer access to formal credit systems.
With the aim of improving the competitiveness of coffee in international markets the Peruvian
government put forward several policy measures. On the one hand the elimination of import
tariffs and in the other hand sanitary regulation for coffee imports. (The General Sanitation Law
(DL 1059) and its corollary regulation (DS018 – 2008 – AG) set out regulations for coffee
imports).
In addition to the above Peru is signing free trade agreements (FTA) with several countries. It is
not yet clear whether the opening of the markets via FTA will have positive impacts on the
coffee sector. The FTA with the United States was signed in 2006 and came into effect in
February 2009. However, according to records of the Peruvian Export Association (ADEX), the
international financial crisis caused demand for Peruvian products from the US market to drop
by 23% that year. In 2010, prices improved and export volumes rose to previous levels. It is
likely that US demand for Peruvian coffee will rise in coming years, similar to the increase in
demand already coming from European and Asian countries. However, even at present there is
not a lack in demand for Peruvian coffee. It is also likely that the price of certain imported inputs,
such as pesticides, will also drop. Interviewees indicated that they do not anticipate negative
impacts arising from FTAs because coffee consumption in Peru is extremely low and therefore
the sector would not lose out if coffee were imported from other countries. In upcoming months,
the FTAs with Europe and China will come into effect.
c) Private sector responses
The relative success of the coffee sector is attributed to international market conditions (growing
demand and favorable prices), the ability of peasant farmers to respond to this demand by
moving from the highlands to the upper jungle, and the management capacity of some local
farmers associations and private trading companies to connect with external buyers. 25
However, international demand for Peruvian coffee is greater than current supply and is not
being met, not only because of low productivity levels but also because of the lack of financial
capital to cover harvesting costs, and, in some zones, insufficiency of labour for harvesting and
poor road infrastructure.
Coffee producers, the bulk of which are small farmers (having less than 4 hectares), have
responded differently to the favourable market opportunities, selling either directly to local
traders or via their association or cooperative. The first group, estimated to be about 70%,
obtains quicker returns from production but is more vulnerable to price fluctuations. These
farmers tend to be the poorest, who can not afford to wait to be paid, and they do not benefit
from the services provided to members of associations and cooperatives. In contrast, farmers
who are members of a cooperative receive a higher price for their product along with other
benefits such as technical assistance services and credit for the purchase of inputs and
machinery (although these benefits cannot reach every member due to a lack of resources).
The growing number of cooperatives and coffee producer associations in Peru, and the
activities of these organizations at a national level (such as The National Coffee Board), are
25 It is worth noting coffee production in Peru has still relatively low technology requirements and therefore
it is not difficult for farmers coming from the highlands to start cultivating it.
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural
development: Peru working paper 25
attracting higher levels of attention from the Peruvian State. For example, in June 2011 the
National Tax Administration Bureau (SUNAT) agreed that transactions occurring between
cooperative members would not be subject to taxation. Until then, this had been an obstacle
limiting the development of cooperative organizations (C. Torres Morales, 2011)26
The number of coffee producer associations and cooperatives has increased and other regions
of Peru has initiated cultivation of coffee. Between 2002 and 2010, the number of coffee
producer organizations grew from 15 to 36. However, their contribution to total production
volumes and to exports has been irregular with successive rises and falls, despite a constant
rise in the price they charge for coffee (W. Ita, 2011)27. The total area used for cultivating
Arabica coffee has increased over the last decade and has now reached new regions of the
country. This territorial expansion has without doubt had a positive effect on rural poverty. This
is due in large part to the simplicity of the techniques required, which has made it possible for
rural families with modest resources to engage in coffee production. According to data from the
Peruvian Chamber of Commerce for Coffee and Cocoa (CAMCAFE, 2011)28, of the 160,000
rural families producing coffee, 5% use advanced technology, 20% use medium range
technology and the majority (70%) use basic technology.
At the national level the end of ENCI (a monopsony established by the government to buy
agrarian products and inputs) in the 80s and market liberalization in the 90s, allowed
PERHUSA, a Peruvian coffee trader, to enter the export market. Currently this company is the
largest coffee exporter accounting for 21% of the total volume exported in 200929, and competes
with multinational traders that buy from local producers for export, as well as the farmers
associations and cooperatives. PERHUSA buys coffee from 30,000 rural families and provides
extension services to many of them. It also has helped a number of associations to obtain fair
trade certification.
The head of this company, Ricardo Huancaruna, maintains that it provides employment to a
group of 20 professionals who train farmers in good agricultural practices for coffee production.
This has lead to an increase in productivity from between 5 and 8 quintales to between 10 and
15 quintales per hectare. Nevertheless, the objective is to reach between 60 and 70 quintales
per hectare. Mr Huancaruna mentioned that current levels of productivity do not enable a farmer
to move out of poverty. If a farmer has 3 hectares of land and only produces 30 quintales, he
will only receive US$2,100 annually, which is equivalent to 560 Soles per month, the same as
26 Carlos Torres Morales y Miguel Angel Torres Morales. “Cooperativismo real o utopía?. Reflexiones
sobre el marco legal de la asociatividad en el Perú” a de café y cacao (Camcafé). From the journal
Tecnología y Sociedad. No. 10. Practical Actions (Soluciones Prácticas). 2011.
27 “Recetas de alto valor para un café gourmet”. Walter Ita Espinoza. At magazine Tecnología y Sociedad.
No. 10.
Practical Actions (Soluciones Prácticas). 2011. p. 80
28 “El café peruano a la conquista del mundo. Panorama del sector cafetalero. Cámara Peruana de café y
cacao (Camcafé). From the journal Tecnología y Sociedad. No. 10. Practical Actions (Soluciones
Prácticas). 2011. p.40
29 “Recetas de alto valor para un café gourmet”. Walter Ita Espinoza. At magazine Tecnología y
Sociedad. No. 10. Practical Actions (Soluciones Práctica s). 2011. p.79
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural
development: Peru working paper 26
the minimum monthly wage in Peru30. According to this businessman, a key problem is the
isolation of producers who live in areas where there are no roads connecting them to urban
centres. Consequently, technical assistance and collection are costly. The construction of roads
is not easily provided by private companies.
It is also necessary to mention that the development of coffee in Peru is closely linked to the
production of coca leaf. It is well known that on many parcels of land within the Amazon forest,
called the high jungle region, coffee grows alongside coca leaf because both plants require
similar conditions relating to soils, humidity and altitude. In the Cusco region, the production of
coca leaves is legal because its consumption is an important part of the native Quechua culture
where it is used daily for ceremonial and medicinal purposes. The product must be sold to a
state entity called ENACO (Empresa Nacional de la Coca). The price that this company pays to
producers is around 20% less than can be earned by selling the leaves to illegal cocaine
producers. Despite this, coca leaf production still provides a good economic return, when
compared to coffee, due to basic production techniques that involve low sanitation and
operation costs. In contrast, the cultivation of coca leaf is illegal in the San Martin region
because it was introduced by drugs traffickers. In this and other areas within the central and
northern jungle, the Peruvian government, with support from USAID, has been investing
resources to promote alternative crops, such as coffee, cocoa and palm oil, amongst small-
scale farmers with the aim of substituting the coca leaf.
It can therefore be stated that coffee producers have received little support from the State in the
south of Peru. In contrast, in northern areas producers have received free benefits including
technical assistance, inputs and equipment, thanks to policies aimed at eradicating coca leaf
production. These benefits have been received by thousands of poor rural producers who, for a
number of decades, have been migrating from northern mountain areas to the high jungle.
d) Donor support for private sector activities.
In the coffee value chain, support is being provided by a number of donors. Given the export-
oriented nature of Peruvian coffee production, these interventions have focused on provision of
technical assistance for increasing productivity, credit to support diversification and input
purchases, as well as strengthening links between producer associations and private
exportation companies. The northern region of Peru received relatively more support from
donors because it is where illegal coca production is more significant and the government policy
to promote alternative crops has a high priority.
The United States International Development Agency (USAID), jointly with the Peruvian
Government, has invested large amounts of money to promote alternative crops with the aim of
combating the drugs trade at its source. One of these alternative crops is coffee, the profitability
of which has risen significantly over the last ten years as a result of high prices on the
international market.
Furthermore, as part of the Poverty Reduction and Alleviation programme (PRA) of USAID in
partnership with ADEX, various cooperatives and producer associations have been formed and
are operating good management practices oriented towards export sales, generating benefits
for a significant number of rural farmers. According to PRA programme documents, 14
companies have been formed and, in 2010, were producing alternative crops to coca leaf, such
as coffee, cocoa and palm oil, benefiting 23,749 families in the department of San Martin. As a
30 De Althaus, Jaime. 2007. “La revolución capitalista en el Perú”. Fondo de Cultura Económica del Perú.
Lima. P.190.
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural
development: Peru working paper 27
result, annual family incomes rose from average USD$3,058 in 2009 to USD$4,247 in 2010.
This can be attributed to a price increase of 26% from USD$3.3 per Kg in 2009 to USD$4.1/Kg
in 201031. Such rapid increases in price can also have negative effects on cooperatives and
producers' associations because coffee buyers offer higher prices directly to the producer and
by-pass the cooperative or association. As a result, some producers fail to deliver coffee crops
to the cooperative or association.
Between 2003 and 2009, the IADB and EU supported a USD$758,000 project to increase and
diversify the income of small-sale coffee growers in the highlands of Piura. Executed by
CEPICAFE (Piurana Federation of Coffee Growers), the project provided credit to small coffee
growers to support diversification into organic sugar production. CEPICAFE‟s commercial and
business management capacity was also strengthened. The financing provided was intended to
benefit approximately 2,500 growers, of whom 850 will be joining CEPICAFE for the first time.
Also, over 300 additional hectares of organic coffee and 120 hectares of organic sugar cane will
be planted. The IADB initiated a second project in 2009 with a budget of USD$388,326 to
increase productivity of coffee cultivated by coffee-growers from Jaen-San Ignacio (jungle
region).In addition, the project will develop optimal agricultural practice on coffee trough
incentive mechanism to capacitation and technical assistance services.
Under the USAID Alternative Development Programme, former coca producers have been
given 2-3 hectares of land and basic tools to initiate coffee production. Once they enter into
production, farmers are given an additional hectare of land and linked to producers' associations
for making sales. To date, 8,000 hectares of organic coffee production have been set up.
USAID has also trained cooperatives to provide technical assistance to their members. At
present USAID is also operating a GDA in the coffee value chain with private companies
including ACDI VOCA, Technoserve, Rainforest Alliance, and NGO Solidarity International. The
GDA is providing technical assistance and technology to associations in the Moyobamba
region. Piloting RITS software (Relation Information Tracking System) track progress of coffee
along the value chain and ensure coordination among all partners.
In 2008, the IICA signed an agreement with the Ministry for the Economy and Finance to
strengthen the capacities of public and private actors in the agricultural sector in support of
decentralization processes. Based on this agreement, a small project was implemented in the
regions of Pasco, Junin and San Martin to working with producers' associations to provide
capacity building in crop and land management was delivered via Farmer Schools (a
methodology developed by the FAO) (IICA, 2010). The GIZ and IICA have also provided
technical assistance to coffee producers in the form of crop management and business skills
training.
En la discusión sobre las experiencias de promoción del desarrollo rural tiene una importancia
principal el análisis de los aspectos de sostenibilidad de los impactos logrados. Por ejemplo, se
afirma que el desarrollo de mercados rurales de asistencia técnica permite que los productores
rurales identifiquen y demanden los servicios requeridos pagando las tarifas correspondientes
que sean atractivas para los oferentes de estos servicios, de esta manera se hace sostenible la
provisión de estos servicios. Sin embargo una estrategia de entregar de manera gratuita
servicios de asistencia técnica, equipos e insumos, puede alcanzar metas de alta prioridad
como es la erradicación de la hoja de coca pero a la vez puede retardar o inhibir el desarrollo
de un mercado local de servicios de asistencia técnica. Es deseable por lo tanto, combinar la
31 “Desempeño comercial de las empresas promovidas por el desarrollo alternativo/2010”. UNODC
(United Nations) and DE VIDA (Peruvian government).
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural
development: Peru working paper 28
búsqueda de metas de alta prioridad gubernamental con estrategias de desarrollo de
capacidades locales para la provisión de asistencia técnica y otros servicios agrarios. En esta
perspectiva se enmarca el programa de reducción de riesgo de las empresas que ofrecen
crédito en zonas rurales que está promoviendo la USAID, y también los fondos concursables
para el co-financiamiento de agronegocios rurales que organizó el programa INCAGRO
mediante un convenio entre el Banco Mundial y el Estado Peruano.
e) Key finding and lessons
Coffee is an extremely important crop for generating rural income and reducing poverty in Peru,
because it is produced by poor small holders and generates jobs for seasonal farming activities
as well as processing.
Strong growth in the sector over the last decade can be attributed to a growing demand from
international markets, rises in prices, and to the ability of thousands of peasant families to
respond to this demand, and the management capacity of some local farmers associations and
private trading companies to connect with external buyers.
Management of coffee production through associations and cooperatives has increased
significantly over the last decade, which probably indicates that this form of production is best
suited to social and cultural conditions. Notwithstanding, a considerable number of producers
prefer to sell directly to intermediaries. This is usually due to conditions of poverty which mean
that farmers require immediate cash payment for their goods.
Productivity remains low due to market failures: remoteness and poverty of certain coffee
producing regions have prevented production support services (credit, fertilizer and extension)
from developing.
In the San Martin region, the impacts achieved via programs aimed at eradicating coca leaf
production may not be sustainable unless a strategy is developed to build local capacities for
the provision of technical assistance services. These should be paid for by the farmers and via
schemes for co-financing new agro-businesses.
The liberalization and opening-up of markets has not generated negative effects on coffee
production because the crop was never given a high degree protection through customs tariffs
and also because demand for coffee on the national market is low compared to national supply.
Increases in international coffee prices have led to higher profit margins, which in turn have
attracted a large number of collection and exportation companies. However, due to price
fluctuations, Peruvian farmers have begun producing for niche markets which provide higher
and more stable profit margins, such as those generated by speciality coffees.
The distribution of benefits between the range of actors that participate in the value chains in
each region is not transparent. This lack of transparency and the struggle between collection
agents has meant that rural coffee farmers are not so loyal towards their associations and
cooperatives. This has affected the quality of coffee and has led to breaches of sales contracts.
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural
development: Peru working paper 29
Milk
a) Context and value chain description
It is estimated that in Peru there are 850,000 agricultural units that include cattle, and at least 4
million Peruvians are involved in milk production32. One of the main sources of rural income,
milk production is carried out across the three main zones in the country: coast, highlands and
jungle.
In terms of its contribution to gross domestic product (GDP), livestock production is the second
largest sub-sector within agriculture. Including meat and milk production, livestock contributed to
approximately 12% of total GDP from agricultural production in 2005.33 More recent figures
confirm milk as the third most important product, after poultry and beef.
Milk is produced for various purposes, such as:
Milk processing plants,
Government-run social programs,
Artisan cheese and other dairy products,
Direct retail sale to the public,
Household subsistence, and
Exports of evaporated milk.
It is estimated that at least 40% of fresh milk is used in artisan cheese production, the most
popular type of which is called “fresh cheese” (“queso fresco”), a product which, in many cases,
is made using basic methods and without pasteurization. At the same time, an increasing
proportion of fresh milk is being bought up by the industrial sector. In the 1980s, this sector
collected 23% of total fresh milk, whereas in the current decade this figure stands at over 40%.34
There are three groups of milk producers defined by their scale: large, medium, and small
producers. They vary greatly in terms of the amount of resources available, productivity levels
and access to markets. Large and medium size producers are linked to the milk industry by
selling fresh milk as a main input; small producers sell part of their production to the industry
milk and the other to artisanal cheese producers. Large-scale milk producers include private
companies characterized by intensive livestock production, with access to credit and information
about opportunities relating to technology and markets. These companies are members of a
union. Medium-scale producers are rural producers that use basic technology and sell mainly to
regional markets and collection centers owned by the industrial companies.
Small producers can be further divided into two categories. For a large majority, milk production
complements other agricultural activities and is undertaken to generate additional capital to
32 “Análisis de la cadena productiva de lácteos en Cajamarca”. Victor Santa Cruz, Marita Sánchez y Sonia
Pezo. CODELAC. Cajamarca. Noviembre 2006. p.81. Cifras tomadas del Ministerio de Agricultura
(MINAG).
33 DGIA. MINAG, 2005
34 “Cadena productiva de lácteos y el mercado internacional”. José Ordonez Chavez. Asociación de
Exportadores (ADEX). 2009.
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural
development: Peru working paper 30
cover basic household needs. A smaller proportion of producers aims to make a profit from milk
production through business activities, in either the formal or informal markets. Mostly they are
peasant families with a basic level of education and possessing, on average, between 2 and 4
cows.
Geographically, 70% of milk producers are situated in three main watershed areas: Cajamarca,
Arequipa and Lima. About 78% of cattle are found along the coast where it competes with
intensive agricultural practices. The remainder of the sector is located in the highland and jungle
regions where greater areas of natural forage are available, although frequently this is of low
nutritional value.
Other actors in the productive milk chain are the following:
Informal collectors. Working independently, they collect milk from peasant farmers and sell it to
urban homes or to artisan cheese-makers.
Collectors with cooling plants. This type of collector is generally an association of producers that
has managed to install a collection point with cooling facilities. Milk is collected from association
members and rural families and is sold to other intermediaries or industrial companies.
Artisan processors (formal and informal). Small-scale plants located in rural villages. Main
products are fresh cheese and cottage cheese.
Industrial companies. The milk industry is made up of three companies: Gloria Group, Nestlé
and Laive. These companies have access to an extensive network of lorries and collection
centres and collect from rural households. As part of its “loyalty scheme” he company Gloria
provides technical assistance services, veterinary medicines and pays fresh milk producers
punctually.
National unions for milk producers. AGALEP (The Association of Peruvian Milk Producers) and
ADIL (The Association for the Peruvian Milk Industry). The first represents the interests of milk
producers, primarily large-scale livestock farmers and some medium-scale, and the second
union represents the interests of companies that produce dairy products.
Consumers. They have the possibility to choose from a growing range of dairy products, or
products that contain a mixture of milk with other ingredients.
Inputs (fertilizers and seeds)
Fertilizers for irrigated pastures have the same situation as fertilizers for coffee and rice crops,
most of them are imported. Private enterprises also import seeds for irrigated pastures to be
sold by many detail business at cities and small towns.
Machinery and equipment
Medium and small sized machinery and equipment for milk processing are manufactured at
cities of Lima (main companies are Inoxtrom and Vulcanotec) and also at other cities as
Huancayo and Arequipa.
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural
development: Peru working paper 31
Credit
There is not enough credit for small cheese producers. The state bank, named Agrobanc is
organizing new services to assist these producers.
Technical assistance
For cheese and other dairy products technical assistance is provided by NGOs, and state
organizations. Large industrial enterprises as Gloria and Nestlé, provide this service to the milk
producers, who sell the product to them.
Investment
The industry enterprises (Gloria, Nestle, Laive) provide a big amount of private investment to
support large and medium sized farmers to produce milk, but it means no more than 40% of
total milk production. The rest of investment is provided by thousands of small scale producers
that use milk for making cheese and other dairy products. Besides Nestle there is no foreign
investment in the milk production business.
Consumers
Evaporated milk sold in metal cans is a popular product consumed by thousands of families in
most urban places of Peru. Central government of Peru buys a big amount of evaporated and
powdered milk for charity and poverty programs from the industry (Gloria sells about 145 US
millions annually to these state social programs). Other part of processed milk products
(evaporated and powdered milk) are exported from Gloria to 40 countries at the Caribbean
area, Africa and Asia.
Research
Gloria finance internal research activities to develop products related to fresh milk, at present
Gloria sells 14 products from the dairy industry. The National Agrarian University of La Molina,
Lima (UNALM) did some research activities on milk production at central highlands of Peru,
financed by the Swiss international cooperation during 2006 to 2009.
Wholesalers
Gloria, the biggest industry on dairy products in Peru has organized an enterprise to wholesale
activities named Deprodeca. Also there are enterprises from Chile, as CENCOSUD, who are
very active in the supermarkets chains in the most important cities of Peru. Local names of
these chains are: Santa Isabel, Plaza VEA, Wong, Metro, and others.
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural
development: Peru working paper 32
Industry
The milk industry employs 2,000 industrial workers, 1,500 transport workers and 500 whole sale
traders, and there are also 3,500 private services providers35 The largest milk company, Gloria
Group, collects milk from the departments of Arequipa, Lima, La Libertad and Cajamarca and
owns a number of brands on the market, including Pura Vida, Bonlé, Bella Holandesa and La
Mesa. Laive produces evaporated whole and semi-skimmed milk and fresh milk under a single
brand with the same name as the company. The main product of Nestlé is evaporated milk with
the brand name “Ideal”. The company also has other products such as “Anchor” powdered milk.
The following map shows the location of milk processing plants owned by the 3 companies36
35 De Althaus, Jaime. 2007. “La revolución capitalista en el Perú”. Fondo de Cultura Económica
del Perú. Lima. P. 216.
36 “Análisis de la cadena productiva de lácteos en Cajamarca”. Victor Santa Cruz, Marita
Sánchez y Sonia Pezo. CODELAC. Cajamarca. Noviembre 2006. pp. 87 - 88.
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural
development: Peru working paper 33
b) Changing role of the State
Over the last three decades, government policy has had as its main priority ensuring low prices
for growing urban consumers. In the 80s, agricultural policy facilitated cheap powdered milk
imports to use in government-run social programs, and this negatively affected national milk
production. In the 90s, the closure of the state monopoly company ENCI 37, the gradual removal
of tariffs, and other forms of protection created favorable conditions for increased national milk
production. By December 2010, mechanisms designed to protect national milk production from
imported products and sharp changes in the costs of input and market prices – such as
surcharges, customs and price bands38 - had been completely removed. In addition to this, free
trade agreements (FTA) now being signed with several countries will also have an impact in the
milk sector.
In addition, state-run local agricultural research stations and agricultural extension services
were closed down in the 90s (José Ordonez, ADEX).39 This has affected producers, especially
those of small size located in the remote highlands. Access to technical assistance (such as
semen supply for genetic improvement of livestock, quality seeds for forage and the supply of
veterinary medicines) is extremely varied between the different types of producers mentioned
previously. These services are sometimes expensive, of poor quality and/or nonexistent.
One of the most important services related to the productive milk chain is credit to cover
operation costs, buy equipment and new animals, and, in the case of cheese producers, store
fresh milk. As noted above, in 1992, the Government closed down the Agrarian Bank, a public
development-oriented institution, leaving the market to the existing financial service providers,
which included medium-sized credit providers called “cajas rurales” and producers associations
called “Fondeagros”. The latter, who were promoted by the Government, abandoned financial
service provision after only a short time due to lack of experience in the sector. Furthermore,
commercial banks and “cajas rurales” had only managed to reach limited areas in rural highland
and jungle regions due to high operation costs and low profitability of productive units. Rural
producers were therefore having increasing difficulties in access financial services, not only
because declining supply of financial services but also due to insufficient assets to provide the
necessary loan guarantee.
In recent years, a state-run credit agency has been set up under the name “Agrobanc”. It is
intended that this institution fills the gap left by the original Agrarian Bank, and provide some
innovative options based on a productive chain approach. However, its services do not reach
small to medium size producers as the commercial interest rates practiced are too high for
37 ENCI (National Input Commercialization Enterprise) was a state company that bought milk from
producers assuring prices and providing inputs and equipment under favourable conditions for them.
38 The price band system was applied to reduce customs rates when the international market price of milk
rose above a certain level with the aim of protecting consumers. Likewise, when international prices
dropped, the mechanism raised custom rates in order to protect the producers.
39 “Cadena productiva de lácteos y el mercado internacional”. José Ordonez Chavez. Asociación de
Exportadores (ADEX). 2009.
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural
development: Peru working paper 34
them. Another project that could benefit milk producers considerably is the Sub-Sectorial
Irrigation Project for the Mountain Zones (PSI-Sierra), which was started in 2011 and will extend
irrigation infrastructure in various mountainous regions in Peru in which milk production is an
important source of employment and income generation. This project is financed by the World
Bank and is being executed in coordination with the Ministry for Agriculture and water users‟
organizations.
c) Private sector response
Milk production has increased significantly over the last two decades. Between 1995 and 2006
fresh milk production grew 66% and the volume of milk collected by the industry grew even
more, by 282%. The industry‟s expansion was mainly driven by the closure of ENCI and trade
liberalization, alongside the end of social conflicts in rural areas and the improvement of roads.
The latter allowed the industry to invest in infrastructure to expand milk collection into new areas
in the country. More recently the industry is also benefitting from the complete removal of tariffs,
as it can now buy cheaper inputs from international markets.
Grupo Gloria is the company that showed more dynamism and now controls 65% of national
pasteurized milk production and 75% of evaporated milk production. The company's production
capacity amounts to 11.6 million boxes of evaporated milk per year. Gloria exports to over 25
countries, the main ones being Haiti, Nigeria, Bolivia, Gambia, Chile and the Ivory Coast. One
of the reasons for Gloria Group‟s expansion is its diverse portfolio of investments (cement
factories and sugar cane plantations in the coast) which has allowed it to transfer profits from
these activities into the milk business. According to AGALEP manager, Grupo Gloria‟s dominant
position in the market allows it to obtain high margins.
Large and medium size fresh milk producers benefitted for the industry‟s expansion not only
because of increasing demand but also for the advantages provided such as timely and
predictable payments, technical assistance, milk transport services, and credit to buy inputs.
The recent rise in international fuel and food prices has increased the prices of fodder as well as
labour costs affecting the cost structure of these milk producers. According to AGALEP the cost
of producing a liter of milk has risen to 1.26 Soles (USD$0.46). In Cajamarca, for example,
competition for labour has emerged from the municipal authorities that are contracting labourers
to carry out public works financed by taxes collected from mining companies. Some tension has
arisen between these producers and industry representatives, with AGALEP criticizing market
concentration in the industry and arguing for a higher price, and ADIL denying the existence of
monopoly power in the milk sector40 and claiming that the price paid for fresh milk corresponds
to international levels.
The industry expansion has also led to an increase in small fresh milk producers, with farmers
from highlands entering into the milk production business supported by government and NGOs
programs as explained below. One third of this production is sold to the industry whereas the
rest goes to local cheese producers. Evidence suggests that profit margins obtained by small
producers are very low as their bargaining power is weak. However they are still interested in
this business as it is a source of cash money. In the highlands small producers‟ productivity
levels are low (3–5 liters per cow a day) and this is one of the main constraints being addressed
by donor and government funded projects.
40 See statements made by Rolando Piskulich, president of ADIL in the web page: www.perulactea.com
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural
development: Peru working paper 35
Some tensions have arisen recently between the formal and informal cheese producers. The
formal companies claim that informal producers are able to sell at much lower prices because
they sell while travelling around and therefore do not have to cover fixed overhead and labour
costs, nor do they pay operation and sanitation licenses or taxes. According to the formal
producers41, informal producers sell products of extremely low-quality but are not subject to
check by the municipal authorities because they pay a fee for selling in the street.
To respond to a growing market, and in the absence of sufficient financial institutions, informal
credit services have emerged in rural areas, provided by traders, milk collectors and
moneylenders who operate outside state regulation. Interest rates charged by these informal
providers are higher than commercial banks however the latter do not reach most rural
producers.
The impact of the FTAs is expected o be negative in the short-term for large and medium-scale
milk producers in Peru. This is because they sell their product to industrial companies who are
in a position to reduce the proportion of fresh Peruvian milk they use in making evaporated milk
by substituting it for cheaper foreign ingredients that arrive on the national market due to the
removal of customs tariffs.
d) Donor support for private sector activity
International development agencies have provided considerable support to improve natural
resource management, most notably water and land, which are used to grow pasture for cattle
feed to improve small producers productivity. They have also promoted the use of sprinkler
irrigation to improve the quality of pasture. In addition, they have promoted producer association
with a focus on strengthening the milk value chain. Finally, donors have targeted their support to
build the capacity of peasant families to produce higher quality cheeses. Most interventions
have not involved the large milk companies, except for the work of Practical Action Latin
America in association with the Gloria Group to certify technical assistance services provided by
local extension agents.
The following are some of the most important development projects supporting the milk sector:
The European Commission funded a one-year project in the northern highlands to develop the
dairy value chain with 80 small-scale producers between 2006 and 2007. In promoting milk
production, the project specifically at improving productivity levels thereby achieving increased
incomes for producer families. Activities were focused on improving the supply of fodder and
building the capacity of producers to grow their own fodder. In addition, sanitation standards
and management practices were improved via: the implementation of a sanitation management
calendar in the zone; capacity building producers in animal sanitation provided by the National
Authority for Agricultural Sanitation (SENASA), the University of Cajamarca and CARE; and the
training and certification of Livestock Sanitation Workers to provide outreach technical
assistance services. The genetic quality of dairy livestock was improved via: training producers
in the implementation of a genetic improvement plan, which stimulated demand for artificial
insemination services; in turn, training Livestock Sanitation Workers to provide these services;
creation of producers' associations with artificial insemination centres. After the project came to
an end, the operation and maintenance costs of these centres was covered by charging for
41 Interviews with Roger Orrillo, president of the Association of Producers of Dairy Products in Cajamarca
(APDC) and owner of the McKay company; and with Evelyn Davila, administrator of the Huacariz
company.
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural
development: Peru working paper 36
artificial insemination services. Key results included an increase in milk production by 25% in
only 7 months, producers trained in dairy livestock sanitation management, a reduction in the
incidence of principal dairy livestock diseases by 20%, 120 artificial insemination carried out, of
which 80% were successful and 80 producers were trained in organization and business
management (CARE website).
The IFAD-funded Market Strengthening and Livelihoods Diversification in the Southern
Highlands Project (“Sierra Sur”) also supported development in the dairy chain by providing
technical assistance and training to producers. The Mid-Term Evaluation reported that dairy
farmers had experienced a 45% increase in their incomes and that the average value of milk
sales by producers associations had risen from USD$2,320 to USD$11,709 in three years
(IFAD, 2010).
SNV Country Director, Manuel Fernandini Puga, indicated that the organization had been in
preliminary discussions with Nestlé and Gloria about potential milk value chain projects in
Cajamarca and Puno, but that these were yet to progress to concrete project concepts.
“Prodelica” project implemented in the department of Cajamarca between 2003 and 2005 by the
NGO Cedepas with funds from the European Union; and the organization of an inter-institutional
stakeholder platform called CODELAC. CODELAC is promoted by the German agency GIZ and
NGOs such as Cedepas and Practical Action.42 In the Bambamarca province, a milk and cheese
production project led by ADRA.43 In the department if Junin, the Swiss agency SDC has
financed a research project into new species of forage that can be grown without irrigation to
feed cattle. In southern Peru, in the departments of Cusco and Apurimac, the Dutch
Government has invested resources into irrigation systems for pastureland via the PRODERM
project. There are also the FEAS, MARENAS and Puno-Cusco Economic Corridor projects
financed by the International Fund for Agricultural Development (IFAD). These projects have
provided training to farming communities in contracting technical assistance services for
business improvement, including for milk production. Further south, in the department of Puno,
the NGO CARE has implemented some important projects to develop milk production.
e) Key findings and lessons
The milk sector assumes an important role in the Peruvian economy because it involves several
million people and generates income for peasant families in rural zones, as well as for medium
and small-scale companies located in intermediary cities that make dairy products.
Public policies changed significantly since the 90s with a policy favoring domestic production.
The industry benefited from liberalization and led to an expansion of milk producing business. It
also generated wealth, employment and income from the production and exportation of
evaporated milk and other products.
Large and medium size producers benefitted initially but their future profitability is compromised
by competition from cheaper imported milk. Small producers have benefitted from the industry
expansion but obtained low margins.
42 Interview with Ana Angulo. CEDEPAS – Cajamarca, director.
43 Interview with Santos Guerrero. ADRA. Social Studies Area Manager.
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural
development: Peru working paper 37
Donors have concentrated mainly on improving small producers‟ productivity and quality of
production with sustainable practices. Projects that focus on developing small-scale milk
production are reported to be conducive to linking the productive chain approach with a broader
framework for sustainable natural resource management, which is becoming ever more
important in the face of climate change.44 In these types of projects, it is possible to combine
measures to protect watershed resources (water, forests etc.) with productive technologies.
These include micro-reservoirs for rainwater harvesting, sprinkler irrigation systems to protect
against hillside soil erosion, the introduction of fenced forage production for improved livestock
feed during dry periods, and promoting forms of producer association for improved market
access. An example of this is the Yachan Project45, implemented between 2002 and 2008 in the
Llaucano River watershed in the department of Cajamarca by Practical Action with funding from
the European Union.
An analysis of the likely positive and negative effects of market liberalization can only be
carried based on an understanding of the interests of different types producers and the complex
production and market structures in every region in the country and how these link up to the
national level.
Rice
a) Context and value chain description
Rice is one of the most controversial crops in discussions about agricultural policy and rural
development in Peru. The majority of international development agencies are reluctant to
support the crop for environmental reasons. Given the quantity of water rice requires in relation
to other crops, it seems an irrational and unsustainable choice in regions such as the coast of
Peru where water resources are scarce.
Rice is cultivated on more land than any other crop (403,787 hectares)46, including potato(282,
130 Ha) and soft corn am(213,600 Ha); in terms of national production and consumption
volumes, rice takes up second place after potato. Each Peruvian consumes on average 56KG
per year. In macroeconomic figures, the contribution of rice to the national economy was 9.4%
of total agricultural production in 2009, representing 18% of all cultivated areas47. The annual
growth rate for rice production has been 5.6% over the last decade and, in 2007, production
levels were able to meet national demand (1,650 metric tons) and do away with the need for
imports which during previous years had been required to cover 30% of national demand48
The majority of rice crops are grown in northern Peru, along the coast in the Piura and
Lambayeque regions as well as in the Jungle regions of San Martin and the Amazonas. In total,
44 Interview with Roberto Montero. Practical Action Production and Market Access programme manager.
45 See Practical Action Latin America webpage: www.solucionespracticas.org.pe
46 Figures from the 2009 agricultural season.
47 “Política agraria? o exclusión rural”. Victor Vásquez Villanueva. 2011. President of the Peruvian Rice
Producers Association (APEAR). p. 33
48 “Informe de la cadena de arroz – molinos. Metodología y estimación de canales y márgenes de
comercialización”. David Gonzáles. CEPES. Study carried out by the Ministry of Agriculture. December,
2010.
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural
development: Peru working paper 38
rice production is carried out in 9 regions but 52% is concentrated in only three: San Martín
(19%), Piura (17%), and Lambayeque (16%). The inter-regional commercial routes link this
production to the city of Chiclayo on the northern coast, via roads and motorways that have
been constructed or substantially improved over the last decade.
Rice increases rural employment opportunities due to the fact that its production requires
intensive labour. One hectare of rice can require up to 130 work days per agricultural season.
Given that the cost of a work day49 varies between 20 and 25 Soles (7 a 9 US dollars). These
labour costs are paid by the medium and large companies, as well as by the cooperatives and
producers‟ associations. Small-scale farmers rely on family members to provide labour.
It can be estimated that a total of 964 million Soles (344 million US dollars) is required for labour
to cover a typical agricultural season50. In total, approximately 100,000 rural families work in rice
production51. The majority live in the so-called “high-jungle” zone which is located on the eastern
slopes of the Andes mountain range, where the Amazon plain begins. In the region of San
Martin, 48% of the economically active population works in rice production. In the Amazonas
region, this figure is 60%. In contrast, in the coastal regions percentages are lower, but
nevertheless still important in Piura 31% of the economically active population works in rice
production and in Lambayeque 29%.
The jungle region (San Martín and Amazonas) has a big advantage over the coast in that there
is a greater amount of water for irrigation. This has allowed for the introduction of varieties that
achieve up to three harvests per year 52. Rice production is an important part of the development
strategy for the country as it generates rural household income in areas with high levels of
poverty. In the region of San Martin, the percentage of poor rural households is 57% and
extremely poor 21%. In Amazonas these figures are 66% and 30% respectively. On the coast
the situation is not very different: in Piura 61% of rural households live in poverty and 20% in
extreme poverty. In the region of Lambayeque, which neighbours Piura, these figures are 46%
and 14% 53
The rice value chain has the following actors:
Rural producers. The National Household Survey estimates 100,000 families, mostly located in
the high jungle, of which 47% are classified as poor and 14% extremely poor. 67% of producers
have no more than 10 hectares of productive land, as demonstrated in the following diagram (V.
Vásquez, 2010)54
49 Cantidad de dinero que se paga a una persona por un día de trabajo agrícola.
50 Figure estimated for 2009. David Gonzáles. Powerpoint document entitled “Arrocito SM”. CEPES. 2010.
51 ENAHO (National Household Survey) 2009.
52 “Informe de la cadena de arroz – molinos. Metodología y estimación de canales y márgenes de
comercialización”. David Gonzáles. CEPES. December 2010.
53 INEI (National Institute of Statistics and Data)
54 Victor Vásquez Villanueva. “Presente y futuro del arroz: una mirada desde el productor”. December,
2010.
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural
development: Peru working paper 39
Producers’association. Several tens of associations group members according to the valleys in
which they work. Services include collecting rice crops after harvest and identifying buyers.
National level producers´association This is a relatively new organization (established in 2010)
that is trying to bring together regional producers‟ associations around a common agenda. One
of its main objectives is that State purchases of rice should be carried out directly with APEAR
with the aim of generating benefits for the majority of national producers rather than merely a
few collection agents.
Mills for processing rice. Approximately 620 are located in various cities along the coast and in
the jungle. Their role is to process post-harvest grain by drying and de-husking, as well as
classifying and packaging the rice. The mills also finance rural producers' operation costs,
including seeds, fertilizers and labour. Their function is extremely important in the chain as they
buy rice from producers and sell rice to wholesale businesses.
Wholesale businesses. There is a strong organization for wholesale marketing at the wholesale
central market of Lima, which have been able to coordinate with producers in order to have
stocks during all the months of the year, improve quality control for delivery and therefore
competing with supermarkets chains. Most benefits of rice business are obtained at the end of
the value chain.
Retail businesses. Several thousand exist and their size and the scale of their operations are
varied. This category includes supermarket chains in the big cities.
Import companies. There are only a few of these companies, some of which are also mills. Rice
imports have not amounted to more than 7% since 2007, but they have started to increase
since January 2011 after customs tariffs were reduced to zero.
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural
development: Peru working paper 40
Export companies. Some companies were exporting to Colombia, but this country has now
closed its borders to Peruvian rice due to vegetable sanitation control measures. Despite this, it
is known that an undetermined amount of rice continues to be exported illegally into Ecuador
and Colombia.
Input suppliers (fertilizers and seeds). Various companies that provide seeds, fertilizers, and
other agro-chemicals, to the mills and producers' associations. Almost 90% of fertilizers are
imported from other countries. Some enterprises as Corporación Misti SA (Peru) and SQM –
Nitratos SA (Chile) have installed local factories for blending products imported, in four places of
Peru. Other important enterprise is the Molicom Group (Peru) importing products from
Venezuela, USA, Chile, China and Canada. Most seeds are provided by the owners of the mills
to small farmers. There are some Peruvian enterprises devoted to rice seeds production as
Hacienda El Potrero SAC (belongs to Molicom Group). Also there are several small scale
farmers that obtain the seeds from a state agrarian research organization (INIA) and multiply
them to sell to other farmers. There is not a certification system for rice seeds.
Service providers. Large and medium sized equipment for mills is coming from China. There is
not enough credit for small producers; according to new agrarian policy, Agrobanc, a state
institution, is opening new services to assist these producers. Technical assistance to farmers is
provided by the rice proccesing mills, and some estate organizations (PEAM project at San
Martin Region) and NGOs, but it is not enough in the upper jungle areas.
Consumers. Several million urban and rural households.
Rice value chain in Peru
Rice producers face a number of risks, amongst which some of the greatest are the climate
(changes in temperature and irregular rains), and the presence of pests. Environmental
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural
development: Peru working paper 41
problems affect the jungle region more than the coast. In a survey carried out by the NGO
CEPES55, 80% of producers in San Martin had been affected by environmental problems. On
the coast, 58% of producers were affected and 40% in Lambayeque. Phytosanitary problems
occur less often, in San Martin only 22% of producers declared having experienced this kind of
problem, and 20% in Piura. These figures are consistent with the popular assertion that the
main barrier to rice production is access to water, since the costs of seeds, inputs and operation
costs can be covered by the mills and financial service providers.
The mills, for the considerable amount of money that they manage, face high security risks. The
owners and workers often fall victim to bribes and robberies at the hands of local criminals. For
this reason, installations of productive infrastructure is often protected by high walls, watch
towers and armed guards. This defensive attitude includes a lack of trust towards any request
for information that comes from people outside of the business. Other risks faced by the mills
are the swift variations in rice prices, failure to purchase by the buyers and irregular rains. In
terms of the barriers for development, the main ones include high infrastructure prices and the
capital required for operations. The infrastructure requires vast areas of land which allow
sufficient space for drying and storage. It is estimated that these costs vary between 2.5 and 10
million Soles (between 0.89 and 3.6 million US dollars). In the case of Piura, operation costs of
a mill for one agricultural season during which at least 300 hectares of rice is harvested, will add
up to 5,500 Soles (1,964 US dollars) per hectare. The main risks faces by wholesale
businesses are thefts and deceptions which can lead to loss of capital. For retail businesses
these risks are reduced.
Investors
Main investors in rice production are the owners of rice processing mills, which are more than
600 in number. Also there are large Peruvian trading enterprises as Romero Trading (market
brands are Paisana and Tropical), and Comolsa (brand Valle Alto). It is a business to satisfy
internal markets and benefit margins are higher in the distribution activities rather than in
production, so foreign capitals are located more in supermarkets chains at large cities.
Research
The most important research center for rice development in Peru, is named Vista Florida and
located in Chiclayo in the north of Peru. This center belongs to INIA (National Institute for
Agrarian Research), a state organization. There are some private organizations as Hacienda El
Potrero (belongs to Molicom Group).
b) Changing role of the State
The role played by the State has been extremely important in the development of the rice value
chain in various aspects: construction of roads into jungle zones, construction of irrigation
systems, vegetable sanitation services, and demand for rice for Government social
programmes. For over two decades, the Government protected rice from external competition.
In the 90s the liberal government of Alberto Fujimori pulled the State out of agricultural
extension service provision and instead set up a price band system along with a range of import
55 Marketing survey. CEPES. 2010.
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural
development: Peru working paper 42
customs which still maintained a certain level of protection for rice and other food crops56.
Another important policy was the phytosanitary measures which the Government put into place
on rice supplies coming from Vietnam and Thailand during the 90s.
In Alejandro Toledo's government the price band system was dismantled but the customs
system was maintained. It was only recently during the last few months of the Alan Garcia
government that the decision was taken to completely do away with the customs tariffs, 16
years earlier than is anticipated in the FTA with the United States.
These liberalization policies aimed at reducing the cost of basic family food supplies in large
cities, thereby controlling inflation and limiting social unrest, and increasing the efficiency and
competitiveness of the crop. However, according to representatives of rice producer unions, the
production of this crop requires intervention from the State for the implementation of
mechanisms that ensure that producers receive a greater proportion of the profits generated by
this agro-business. Looking beyond differences in opinion about agricultural policy, it is certain
that rice has become one of the most important national crops.
Other customs-type measures that the Peruvian Government has organized with support from
the Inter-American Development Bank (IDB) in the last decade have included a land registration
service for rural producers via the State entity PET which has helped producers to gain access
to formal credit. Also, the vegetable sanitation service provided by the State entity SENASA,
which has achieved extremely positive results in combating the fruit fly in coastal zones57. Both
services have been extremely relevant for the development of regional markets and for
attracting private investment for rural agro-business.
Private sector response Rice production has increased significantly; the annual growth rate for rice production has been 5.6% over the last decade. In 2007, production levels were able to meet national demand (1,650 metric tons). The total land area cultivated for rice grew annually by 3.8% but yields only grew by a rate of 1.2%. This means that production grew due to an increase in the total area of land cultivated rather than because of improved productivity. The following diagrams show figures for planting and production of rice for the period between 2000 and 2010 (V. Vásquez, 2010)58
56 Interview with Jorge Tello Coello, manager of the programme for food security, rural development and
border development at the Andean Community (CAN)
57 Interview with Alfredo Tolmos, IADB officer for rural development based at Lima.
58 Victor Vásquez Villanueva. “Presente y futuro del arroz: una mirada desde el productor”. Diciembre,
2010.
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural
development: Peru working paper 43
One of the incentives for the growth in production was phytosanitary measures mentioned
above introduced by Fujimori. From this time on, private investments in rice production
increased, improving the quality of seeds and productive yields. At the present time, Peru is fifth
in the world in terms of productivity, and in the Camaná Valley in the south of the country, a
world record has been achieved for productivity (14.5 metric tons per hectare).
The region of San Martin is one of the largest producing regions. The considerable growth of
rice production in this region is a result of large-scale irrigation systems implemented by the
State. In the 2009-2010 agricultural season, 70,000 hectares of rice were cultivated with
irrigation59. The development of the sector has been strengthened with technical assistance
provided by the State via the Special Alto Mayo Project (PEAM)60 and with support from
international development agencies that have been channelling funds to promote alternative
crops to coca leaf61.
59 Interviews carried out in the city of Moyobamba (capital of San Martin) with Jorge Calle Seminario,
officer of the Regional Agricultural Department,and with Luis Prado Asenjo, ex-director of the Technical
Irrigation Authority (ATDR).
60 The PEAM project focuses its support on four value chains: coffee, cattle, cocoa and rice.
61 The largest support of this type is provided by USAID via an agreement with the state entity DEVIDA.
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural
development: Peru working paper 44
On of the main objectives on the current agenda of the Peruvian Association of Rice Producers
(APEAR) is that the government should provide support to producers' associations in each
region to develop a network of storage facilities. This would afford them a grater ability to
negotiate the price of rice during different months of the year based on price fluctuations
according to the harvest seasons.62 Yet the study carried out by CEPES indicated that the price
of rice is determined by at least 34% in the large cities, depending on transactions with the
wholesale market and the network of retail businesses which includes the large supermarkets.
Therefore it is likely that the mills do not play much of a role in determining the price of rice.
On the other hand, the conflict between the national producers and the rice importers came
about when the custom tariffs were reduced to zero in December 2011. In previous years, only
high quality rice was imported from Uruguay for sale to higher-income households in Lima. But
in the first quarter of 2011, rice imports have risen by 38%, largely due to a fall in the value of
the Dollar against the Sol and the customs tariff reduction. The fear of the rice union managers
is that the import companies will buy cheaper, lower-quality rice and sell this mixed with
Peruvian rice as there are inadequate State controls pertaining to the quality of agricultural
products that are sold in Lima and other urban centres.
The general opinion of union managers and producers is that the mills retain the majority of the
wealth generated by rice production, that is, at the point where retail business trade in large
cities.63 Retail businesses retain at least 15% of the final price charged per kilo paid by the
urban consumer, the mills receive between 4 and 7%, and the producers 12%, if the rice comes
from Lambayeque, 5% from Piura or only 0.5% from San Martin. The further away the
production zones from the country's capita, the less the producers receive because of transport
costs.
Notwithstanding, conflicts in the value chain occur between the peasant producers and the
mills, and between the national producers and the rice importers. The peasant producers claim
that their negotiating power with the mill owners is minimal because the majority of rice is sold to
the mills before harvest. The producers do not have the capacity to store rice and they also rely
on the mills as a source of finance for operation costs. For these reasons, and also due to a
reduction in sales and a lack of information about rice prices in other zones, the producers
accept the price that they are offered by the mills. Another factor is that the producers are
dependent on the mills in order to access technology. High productivity technical equipment is
closely related to higher costs in seeds and inputs. Without financial support, the producers
probably wouldn't be able to sustain productive yields.
The opening-up of the markets via the signing of free trade agreements could provide
opportunities for growth in Peruvian rice exports due its good quality and high yields. In the
medium term, this could generate benefits in terms of increased rural employment opportunities.
For the short term, national producers fear an increase in rice imports which until 2007 were
lower tan 10% due to high levels of national production.
62 Interview with Victor Vásquez Villanueva. President of the Peruvian Association for Rice Producers
(APEAR).
63 “Informe de la cadena de arroz – molinos. Metodología y estimación de canales y márgenes de
comercialización”. David Gonzáles. CEPES. December 2010.
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural
development: Peru working paper 45
A survey carried out by APEAR amongst rice producers reveals their main needs for which they
require State support. The following diagram shows that their main demands consist of price
regulation, financial support for the harvesting seasons and technical assistance services (V.
Vásquez, 2010)64
d) Donor support for private sector activities
Donor support to the rice sector focused mainly in the production in the northern upper jungle
regions. They criticize rice production in coastal regions due to environmental reasons as rice
requires high quantities of water which is a scarce resource in these areas. As such its
production in these regions is not sustainable and should be moved into other areas, such as
the upper jungle.
In addition to supporting the government with land registration and fruit fly control (mentioned
above), between 2004 and 2007, the IADB funded a project to increase the competitiveness of
the rice crop in the Alta Mayo zone. The aim of the project was to verify if by applying an
innovative crop technology (SRI) and other varieties of rice (NIR), there is better business
performance. The specific objectives of the project were: (i) introduce a pilot project based on
the proposed model; and (ii) create local capacity through research, training and dissemination.
No information on the impact of this project is publicly available.
64 Victor Vásquez Villanueva. “Presente y futuro del arroz: una mirada desde el productor”. Diciembre,
2010.
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural
development: Peru working paper 46
e) Key findings and lessons
Rice is a highly strategic crop for the Peruvian economy, not only because it helps to maintain a
low cost of living in the big cities, but also as it represents a significant opportunity to generate
income in rural households in regions classified as poor and extremely poor.
Production levels and the quality of Peruvian rice are high and therefore the sector shouldn't
fear external competition too much. However, there is potential for strengthening the
development of this crop by improving productivity levels and public services, including a
mechanism to check the quality of rice on the retail and wholesale markets, provision of timely
information about the price of rice and inputs on the main markets, provision of credit to
facilitate purchase of agricultural equipment, construction of stores and provision of resources
for operation costs assumed directly by the producers.
International development donors could support the development of this crop by providing
assistance to the State for the aforementioned services. Support could also be provided to
conduct research into rice varieties and agricultural practices that use less irrigation water per
hectare.
It is likely that it is not considered suitable, from an environmental point of view, to support the
development of rice in coastal zones but the same should not be concluded for jungle regions.
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural
development: Peru working paper 47
Conclusions
From the assessment of agricultural policy in Peru and analysis of the three agricultural chains
the following conclusions can be drawn:
Related to key question 1:
Production increased. The private sector responded in a positive manner to the changing role of
the State by increasing national production of agricultural products, nevertheless this response
was gradual and occurred at different rates depending on the type of agricultural enterprise.
Policies to liberalize the Peruvian economy and open up the country‟s markets were initiated in
Peru in 1991, yet their impacts became evident only during the first decade of the twentieth
century. The main causes for economic growth in the last decade are attributed to favourable
international prices, improvements on State expenses control, and macroeconomic
management. In the cases of milk and rice, national demand was met entirely by national
production by the end of the 90s. Consequently, imports of these products from other countries
were also reduced. As for coffee, production and exportation levels have grown exponentially.
Related to key question 2:
Reduction of rural poverty and inequality. Increased activity and production in the agricultural
sector has been one of the causes for reductions in levels of rural inequality in Peru. Economic
studies have shown a reduction in the Gini coefficient. Likewise, figures taken from the national
census indicate that levels of rural poverty and extreme rural poverty have reduced. The
introduction and promotion of rice and coffee crops in high jungle zones have provided a
particularly valuable opportunity for income generation to thousands of rural families living in
conditions of extreme poverty in these zones.
Greater competitiveness. In terms of increases in competitiveness and productivity, Peruvian
coffee has significantly increased its competitiveness on world markets. This is due to the ability
of producers and exporters to identify new market niches and produce high quality products in
response. In contrast, increases in the production of fresh milk and rice have resulted from
greater land use for crops and animals, rather than from improvements in productivity.
Better public services. Public service provision (education, health, electrical energy, security)
has increased significantly over the last two decades due to the State obtaining higher income
from taxes. This can be attributed to financial management policies that were introduced
alongside economic liberalization policies, as well as to favorable international prices for
Peruvian export products. Nevertheless, economic studies show that high levels of inequality
still exist between public service provision in rural and urban zones and that significant gaps in
social and cultural inclusion require much more attention.
Related to key question 3:
New approaches to rural development that take greater account of the demands of small-scale
rural producers have made it possible for various initiatives by banks and international
development agencies to successfully stimulate private sector activity in relation to agriculture.
The most noteworthy of these initiatives, due to high investment levels and wide territorial
coverage, are: construction of road transport infrastructure; irrigation systems; capacity building
of rural communities for contracting agricultural extension services; disease and pest
eradication campaigns; promotion of alternative crops for the eradication of coca leaf
production; recognition of the land and property rights of small-scale rural producers. Projects
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural
development: Peru working paper 48
financed by the following agencies are particularly noteworthy: IFAD, GIZ, USAID, and the
Peruvian development bank; IADB, Word Bank, KFW from Germany.
A greater recognition of the existing potential for development in mountain and jungle regions
and improved efforts by the State to analyze poverty in rural zones has enabled Government
funds and finance from international development agencies to be channeled more effectively
and precisely. Studies called "Poverty Maps", produced by State entities, show a more realistic
picture of poverty and levels of inequality in relation to income. The Peruvian Government has
created since the 90‟s, national level institutions to support development of rural producers in
mountain and jungle zones (PRONAMACHCS, FONCODES).
In certain regions of Peru, non-governmental organizations (NGOs) have been applying more
complex and inclusive approaches to development than those adopted by State entities. This
has enabled NGOs to reach sections of the rural population that do not receive assistance from
the Peruvian Government. Another important impact achieved by NGOs is the development of
local capacities (productive, organizational and access to markets). This has supported rural
communities to create favorable conditions for sustainable investment of resources into
economic and social development. NGOs mainly implement activities at the local-level, although
they do interact with and carry out advocacy aimed at regional (sub-national) and municipal
governments. International development agencies supporting work at this scale include: The
European Union, AECID, SNVm SCD-COSUDE, and Oxfam, amongst others.
Comments on governance requirements
To improve the effectiveness of the resources that international development agencies are
investing in development, actions related to governance are required. The model for economic
growth based on extractive industries has resulted in social conflicts caused by water source
contamination and leading to inequitable development and poor levels of social inclusion. The
new Government led by Ollanta Humala, which came to power in July 2011, led its electoral
campaign with criticisms of this model and proposed to strengthen the regulating role of the
State and promote export diversification in order to reduce exclusion and poverty.
Some actions related to governance needed are the following:
Strengthen the capacity of government (central, regional and municipal) to supervise the quality
of agricultural products, both national and imports, that come onto the markets in large cities.
Promote national campaigns against corruption, understood as the lack of respect for laws and
regulations that facilitate the development of productive activities.
Provide increased resources for strengthening governance, including civil society organizations
such as the National Board against Poverty (MCLCP) and the set of 32 state policies of the
National Agreement. Civil society institutions are weak in Peru and strengthening their capacity
would have direct impacts on the creation of a more favourable climate for private investments.
Peru is becoming a medium income country (it means to obtain over 5,000 US dollars annually
per person) but it still have deep social inequities and high rural poverty levels.65
65 “Agenda nacional de desarrollo de un país de renta media”. Koen van Acoleyen. Belgium cooperation
for development.
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural
development: Peru working paper 49
Strengthen the planning capacity of the State. At a macroeconomic level, the CEPLAN (National
Center for Strategic Planning) should receive more resources in order to become a state
planning agency that facilitates long-term vision for private sector and the population in general
for sustainable economic development. Growing conflicts between distinct users of the country's
natural resources (sources of water, agricultural soils, pastures, Amazonian forest etc.) can only
be managed if government agencies formulate plans for ecological zoning for optimal land use
of productive spaces and resources, and create regulations for incentives and sanctions in
order that this be carried out.
The richness and diversity of its natural resources, as well as the history of its native culture,
provide an opportunity for Peru to explore new sources of development including goods and
services such as tourism, exportation of agricultural products and gastronomy. In order to
achieve this, it is necessary to facilitate the formalization of micro-enterprises, and promote their
development via appropriate tax policies and provision of credit, technical assistance services
and information about markets that are able to incorporate producers in remote rural areas.
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural
development: Peru working paper 50
Annex 1: Description of main
donors´ activities in Peru
Inter-American Development Bank (IADB)
The Inter-American Development Bank (IADB) develops its country strategy to coincide with the
Bank's development strategies for the region and in negotiation with the Peruvian Government.
The key objectives of the Bank‟s activities in Peru during the 2002-2011 period are poverty
reduction and promotion of equity, in the context of economic-growth (IADB, 2007). To achieve
this, the Bank is supporting the Peruvian Government in: raising the economy‟s productivity,
diversification and competitiveness in particular in order to access international markets;
improving the efficiency of social policy; and creating a modern, decentralized and efficient
State.
In relation to the agricultural sector, the IADB is supporting Government efforts to link small
producers in the Sierra with regional and international markets with the aim of developing
competitive export activities, in particular (i) promotion and strengthening of production chains;
(ii) formulation and implementation of rural business plans for selected production chains; and
(iii) decentralized planning of regional development, to help generate an appropriate climate for
rural businesses to flourish. In addition, the Bank is supporting land ownership registration
processes and strengthening public institutions to provide rural finance services in particular to
rural banking cooperatives, small business and micro-enterprise development agencies. Bank
activities with the private sector mainly relates to infrastructure and financial services, although
support will be provided to agricultural agents as described above. The largest agricultural
projects implemented since 2000 involving the private sector are:
a) Programme of Support Services to Rural Markets (2005 to 2009, budget USD$ 25,000,000,
60% IADB and 40% Peruvian Government)
The objective of the program was to improve rural producers' access to dynamic markets for
goods and services, both within and outside Peru, by providing services such as business
information and training. For the Business Advisory Services component (21% of the budget),
the IADB financed the provision of business advisory services to organized groups of rural
producers (240,000 in total), for the purpose of establishing and consolidating new rural
businesses in six economic corridors in Peru‟s coastal region. Services included (i) coordination
of requests for production-related technical assistance needed to open businesses; (ii) support
to producers to obtain credit, including drafting of business plans to be presented to financial
institutions; and (iii) organizational advisory services for groups of producers. The business
services culminated in purchase contracts and productive partnerships between producers and
buyers (agroindustrial companies, exporters, supermarkets, wholesalers). The rural businesses
that were supported benefited an organized group of at least 20 small and/or medium producers
with fewer than 25 hectares of land each. As a result of the program, the percentage of
producers who participate in the marketplace is expected to increase from 57% to 67%, and
rural businesses are expected to generate approximately US$120 million in sales. Two years
after program completion, approximately 300,000 rural families will experience an average
increase of 7% in income, compared to when they did not have access to the information
provided under the program.
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural
development: Peru working paper 51
Agricultural Competitiveness Program (Initiated in 2009, budget USD $20 million).
This operation constitutes the first of three programatic loans to support policy reforms that will
accompany the implementation of policies and capacity building activities in the Ministry of
Agriculture (MINAG) in four strategic areas: (i) implementation of an incentive program to
promote technological adoption and management capacities to organized associations of small
and medium size producers; (ii) strengthening of the agricultural innovation system; (iii)
strengthening of the agricultural information system; and (iv) promotion of agricultural clusters.
A public policy project, the Agricultural Competitiveness project is implementing numerous sub-
projects to provide direct support to strengthen value chains.
b) Strengthening and promoting cocoa production. (2004-2009, budget USD$755,000).
To help boost the income and solidify the employment of small-scale cocoa producers in the
Cusco region, the purpose of the project is to develop and strengthen the cocoa production,
processing and marketing chain by implementing appropriate production, organizational and
business technologies that add value and promote the efficient integration of small-scale
producers into domestic and international markets.
Smaller projects implemented during this period have budgets of up to around USD$300,000
and have focused on strengthening the role of small and medium enterprises in different market
chains (asparagus, wood, trout, for example) by building technical and business management
capacities and improving producer networks.
World Bank
The World Bank Peru Partnership Strategy 2007 to 2011 sets out support under three
development programmes: i) Economic Growth: Deepening of local capital markets,
Infrastructure financing, Rural Development, Improving the Business Environment, and
Development in the Sierras; ii) Social Development: Improving access to water and sanitation,
Improving access to housing, Support to Higher Education; iii) Modernization of the State:
Municipal Governance, Corporate Governance of state-owned enterprises, Decentralization &
capacity building.
Support to the agricultural sector falls under the first pillar, specifically in relation to a cluster of
activities entitled “accelerating growth and widening the base of growth”. The main outcome to
be achieved by 2011 is recovery of Peruvian agriculture with a market approach, to include: i)
Increase in non-traditional exports from 25 to 40 percent of total exports, ii) Increase in the
number of new exporting firms located in developing regions (highlands and jungle) from 24 to
39, and iii) Increase in the proportion of the population in the rural highlands with access to
credit from 13.8 to 19 per cent. Financial support to achieve these objectives is channeled
through projects and programmes implemented by the Ministry for Agriculture and Agrorural
(the programme for Productive Rural Development in Agriculture). Since 2000, support to the
private sector and agricultural development has been delivered through four main projects:
Between 2001 and 2010 the Project PIEA – INCAGRO was implemented by the Ministry of
Agriculture to establish a decentralized system of science, technology and innovation led by the
private sector with the aim of stimulating agricultural and livestock competitiveness. After eight
years of operation, INCAGRO had mobilized and disbursed USD$43.7 million of co-financing
(USD $23.1million from INCAGRO) for over 500 projects throughout the 24 regions of Peru.
Main promoted products were asparagus, mango, avocado, grape, banana, chirimoya, coffee,
cacao, rice, native potato and tubers such as sweet potato, milk derivative products such as
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural
development: Peru working paper 52
from ranch vicuña and sheep, fiber derivatives from alpaca and vicuña, guinea pigs, and forest
products. INCAGRO has intervened centrally through three competitive funds: The Fund for the
Development of Strategic Services (FDSE); The Agrarian Technology Fund (FTA); and The
Fund for Awards for Quality in Innovative Projects (Moray). INCAGRO has engaged with the
private sector by supporting linkages with producers, universities, NGOs and research institutes.
According to a 2008 evaluation report, 38,347 producers have become involved as clients of the
services of projects which INCAGRO financed. In addition, 222 associations or producers
committees, 48 producers and service cooperatives, 10 peasant communities and 51 business
organizations have participated actively in strengthening strategic services in the agricultural
sector with INCAGRO funding. The average investment was $516.42 for extension services per
producer, investment in technology adaption rose to $995.41 per producer and investment in
the formation of extension agents was $1576.17 per agent (INCAGRO, 2008). Phase III of the
INCAGRO project is expected to begin in 2011 (World Bank, 2009 Strategy for 2007-2009
Period).
The Agricultural Research and Extension Project (2005-2010) engaged with the private sector
by developing a decentralized market for professional services for agricultural innovation to
strengthen producer organizations and improve entrepreneurial capacity of private service
provider. According to a World Bank evaluation report (World Bank, 2006), “the Project greatly
contributed to diversifying the range of service suppliers, with over 1,500 entities involved in
agricultural research and technology and innovation sub-projects, including producers’
organizations, universities and research organizations, commercial firms, public institutions,
NGOs, and independent brokers; and more than 1,160 entities involved in agricultural extension
sub-projects. Special measures for reaching out to the poorest groups have been efficient in
benefiting indigenous peoples and women’s groups.”
In 1997, the Irrigation Sub-sector Project (PSI) was established to increase the productivity of
irrigated agriculture along the Peruvian coastal zone and thereby contribute to poverty
alleviation. Activities were focused on reducing the role of the public sector in irrigation by
increasing capacities of Water Users‟ Organizations (WUO) to manage irrigation system and
improving irrigation infrastructure and land titling and registration in some areas in the coast. A
review of the first phase of the project (World Bank, 2010) concluded that, “while the project
improved significantly the performance of most WUAs, it was considered that about 50 per cent
of them still required intensive training. Also, farmers who benefited from on-farm irrigation
improvements required more training to reap the full economic benefits of infrastructure
improvements.” Therefore in 2005, phase II of the project was launched and technical
assistance was extended to all WUOs on the coast. By 2010, the project had received
USD$94.8 million in funding from the World Bank. According to the phase II evaluation, the
capacity of WUAs to achieve self-sufficiency in technical, financial and administrative aspects
had increased significantly. Increases in production, land productivity and incomes were also
classed as significant. Based on these successes, the project is now being extended to the
highlands (World Bank, 2010).
The Alliance Program (Programa Aliados) began at the end of 2007 and is financed through a
World Bank loan amounting to US$34.93 million. The objective of the Alliance Program is to
improve the assets and economic conditions of the farmer families within the project area. The
program has a five-year duration. Its project area comprises 43 provinces, in six departments
(Apurímac, Ayacucho, Huancavelica, Junín, Pasco and Huánuco). It is estimated that 875 rural
communities and 620 rural production organizations will take part in the program which will
benefit 53,600 families in total, of which most are considered “poor”. Component 1 of the project
is focused on providing financial support to rural businesses (MINAG, 2007). By February 2011,
the project had awarded demand-based financing for 427 small sub-projects proposed by
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural
development: Peru working paper 53
groups of rural producers to build strategic productive alliances and increase market access and
income representing 69% of the total target (World Bank, 2011).
The World Bank also has a Private Sector Strategy (PSS), in which the International Finance
Corporation (IFC) is set out as the key agency responsible for improving physical and social
infrastructure. By 2006, 11.3% of IFCs US$271 million portfolio was spent on increasing
competitiveness in large-scale agribusiness. Principle activities included: US$15 million loan to
help Agrokasa increase its asparagus exports and its nascent production of avocados; US$ 7.5
million partial credit guarantee to Drokasa (pharmaceutical, chemical and agricultural products)
supported a US$25 million bond issuance enabling productivity improvements within the
company and its productive and distributive networks. IFC has helped increase the domestic
production of sugar, where Peru is a net importer by providing a US$30 million loan to the
Paramonga company and a US$15 million loan to Laredo including a pending US$19 million
loan for expansion.
European Union
The European Union (EU) and Peru began diplomatic relations in 1993. EU aid between 1990
and 2001 was channeled into four main thematic areas: irrigation and rural development,
support for micro- and small enterprises, vocational training and support for the democratic
process. In 2001, a package of four projects (PRODELICA, AMARES, PROPOLI AND
PRODAPP) was approved with a budget of 61 million Euros and implementation began in 2002.
Of the four, two involved interventions in the agricultural sector:
Regional socio-economic development (PRODELICA) in La Libertad, Cajamarca aimed at
generating employment and increasing household income through the provision of training to
small and medium enterprises. With a total budget of almost USD$8 million, PRODELICA
funded 417 projects benefiting 22 million families.
The PRODAPP programme aimed to achieve the integral development of the areas of Pozuzo
and Palcazú, in the central region of the Peruvian jungle through the promotion of legal
economic activities and the improvement of social services and infrastructure, to generate the
conditions allowing its population to develop the necessary skills to no longer be dependent for
their livelihoods on the cultivation of coca.
Of the two “geographic programmes” contained within the EU-Peru aid strategy for 2007-2013,
one focuses on social development and strengthening social cohesion. Key components of this
programme include supporting productive activities such as crafts, small-scale agro-industry,
the organization and integration of farmers into markets, rural roads and productive
infrastructure, aquaculture and tourism with special emphasis on the inclusion of marginalized
groups. Strengthening micro-enterprise development is also set out as a mechanism for driving
local economic development and regional integration and for bringing the informal economy into
the formal sector. Regional work will focus on the creation of economic corridors and
associations between municipal authorities (EU, 2006). The EU also finances “thematic
programmes” for which civil society and local governments can present proposals. Projects in
the agricultural sector prioritize food security and sustainable resource management and work
with the private sector is generally limited to small-scale producers and producers' organizations
(EU, 2010).
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural
development: Peru working paper 54
US Agency for International Development (USAID)
The US Agency for International Development (USAID) is the single largest donor country to
Peru. Although funding has steadily reduced since the mid-1990s, USAID continues to provide
over USD$80 million in direct support per year (USAID website). USAID works with the
Government of Peru to implement programs in economic growth, alternative development,
health, education, democracy and governance, and environment. USAID does not have a
specific mandate to provide support to agriculture in rural areas. However, given the agency's
focus on trade-led economic growth and market access, and the eradication of coca production,
this has inevitably led to considerable interventions in the rural agricultural sector.
USAID's Economic Growth Programme aims to spread the benefits of trade-led growth -
including job creation and poverty reduction - by helping to integrate the poorer regions in the
highlands and jungle more fully into the global marketplace. Under this programme, activity
within the Poverty Reduction and Alleviation (PRA) initiative has been the principal channel for
support to agriculture and rural areas. The PRA is based on a poverty assessment conducted
by USAID in the late 1990s in which market linkages were concluded to be a critical factor in
poverty reduction efforts and had, until that time, been overlooked in state development
planning and by international donors. The PRA was initiated in 1998 to support growth in 24
economic corridors across the country. These corridors were demarcated by USAID based on
road linkages and the presence of an intermediary city with sufficient capacity (infrastructure,
processing plants etc.) to add value and link supply and demand. PRA activities during the first
phase (1998 to 2008) were executed by international consultancy firm Chemonics International
and focused on developing “high-potential” businesses through provision of market information
to generate the necessary confidence for new business start-up, technical assistance aimed at
improving product quality, post-harvesting processes and business planning and organization of
local suppliers. According to the Phase I Evaluation Report (USAID, 2008), key results include:
Indirect income impact in poor households from PRA activities ranged from 0.2 percent of Gross
Domestic Product (GDP) in Ancash and Huánuco Departments, to 2.4 percent in Ayacucho
Department and 1.9 percent of GDP in San Martin Department.
Employment generated through 2007 totaled more than 14 million work days, most of that is
provided by the poor from the economic corridors.
Investments by PRA clients in the economic corridors totaled $US 16.2 million from 2000 to
2007.
Since 2000 PRA has accepted 564 clients; by the end of 2007, 207 remained active. About
1,500 microenterprises and 37,500 individual producers have participated in PRA activities
through 2007. Thirty seven percent of beneficiaries are women
The second phase of PRA (2009 to 2014, USD$15million) is distinct from the first in that private
sector partners will be identified to match USAID funding through the Global Development
Alliance (see below). Current private sector partners include mining and infrastructure
companies. The second phase of the PRA will also have a greater emphasis on supporting the
implementation of the Free Trade Agreement signed between the two countries in 2009.
The Alternative Development Programme is aimed at promoting development in formerly coca-
growing areas and sustaining coca reduction achieved with eradication programs. Within this
programme, USAID has set up Development Credit Authorities (DCAs) to provide loan
guarantees to financial service suppliers in order to increase credit provision in rural areas. By
setting up a 50% Loan Portfolio Guarantee on non-payments, USAID effectively protects
suppliers against investment risk. At present credit suppliers are providing loans between $100
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural
development: Peru working paper 55
and $400,000 for clients ranging from small producers to large infrastructure investors.
According to USAID (USAID, 2011) through alliances with private banking institutions, 4,000
families have accessed credit amounting to $7.86 million since the program‟s inception in 2009.
In 2010 a new agreement was approved and signed with five new private banking institutions
totaling $15 million in benefit of alternative development (AD) producers and their families.
Another initiative of the program has been to donate land and inputs to farmers to switch from
coca to cocoa or coffee production (see coffee section below).
The Global Development Alliance (GDA) was established in 2000 as a means to mobilize
private sector financing for joint implementation of development programmes in USAID's
countries of operation. Currently all of USAID's programmes in Peru have a mandate to secure
financing through the GDA mechanism - the PRA has been issued with a target of $4 million.
The private sector companies influence geographic and programmatic design of the
interventions based on commercial and Corporate Social Responsibility (CSR) priorities and in
negotiation with USAID.
SNV
SNV is a non-profit international development agency established in the Netherlands. In
January 2002, SNV was separated from the Ministry of Foreign Affairs and the organization now
receives subsidies from the Ministry via a long-term agreement that will run until 2015. In
response to these funding changes, SNV developed a corporate strategy in 2007 which sets out
a significant reorientation towards working with the private sector through the provision of
technical consultancy services and the implementation of the Inclusive Business initiative. SNV
has been working in Peru for more than 40 years where it has focused its activities in areas
where the unemployment rate is above 50% and the typical income per capita is less than
USD$2 per day.
In 2006, the SNV and the World Business Council for Sustainable Development (WBCSD)
formed a strategic alliance aimed at facilitating the development of specific Inclusive Business
options that provide attractive investment opportunities to the private sector while at the same
time contributing towards poverty reduction by including low-income communities within the
value chain – as consumers, providers, or distributors. Program activities involve supporting a
wide range of actors, including private sector (micro to international enterprises), civil society,
non-governmental organizations (NGOs) and organizations providing services in the business
development, financial, and vocational education sectors by: Developing an inclusive strategy
and business model; Encouraging and establishing dialogue between companies and small
producers so that they can develop their supply chain and forge a mutually beneficial, win-win
relationship; Facilitating new market entry strategies, for instance utilizing the findings of
ethnographic Base of the Pyramid studies; Financial brokering services to guarantee the
necessary investment for the Inclusive Business, including finding sources of funding,
screening, deal generation and establishing links between social investment funds, companies,
and producers; Guarantee capacity development activities in the low-income sector, to improve
the quality of products and find sources of funding.
The Inclusive Business alliance has been particularly successful in Central and Latin America
where it is currently operating in eight countries. This is attributed by the SNV Peru Country
Manager, Manuel Fernandini Puga, to the region's reasonably mature private sector. In Peru,
the Inclusive Business initiative receives financial support from the IADB Multi-lateral Investment
Fund (IADB-FOMIN). In 2008, IADB-FOMIN and SNV signed an agreement to the value of
USD$1,527,638. These monies contribute to 60% of Inclusive Business initiative budgets, with
the remaining 40% provided by the private sector (Puig, 2010). In Peru the SNV does not have
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural
development: Peru working paper 56
a policy analysis unit to guide its work with the private sector. Consequently, the Inclusive
Business initiatives respond directly to private sector demand rather than to an assessment of
government policy. In fact, although at an international level the Inclusive Business initiative
prioritizes the agriculture, renewable energy and water sectors, no separate assessment has
been carried out to develop a country strategy for Peru. This is reflected in the fact that although
SNV also operates an Inclusive Public Policy program (through which it aims to create the
conditions for economic inclusion of low-income households), the level of engagement with
policy-makers and potential for advocacy is extremely limited as it depends entirely on the
client's own value chain development strategy. To date, SNV has worked with in the following
agricultural value chains:
Organic cocoa
The largest cooperative for organic cocoa growers in the region of San Martin (high jungle),
ACOPAGRO signed an agreement with SNV in 2009 to implement a 2-year Inclusive Business
program with a total budget of US$221.537. The main aim of the program was to increase the
income of 2,000 small-scale producers by 30%. This was to be achieved by increasing cocoa
bean yield from 500 to 1,000 Kg per hectare. It was also envisaged that the number of
cooperative members producing organic cocoa would increase from 1,000 to 2,000. By 2010,
ACOPAGRO had diversified its client base from one initial client, to five in total including
companies in the US, Netherlands, Italy and Switzerland. The cooperative had also initiated a
project to provide financing for compost with members being charged a monthly interest of
1.2%. 800 producers had graduated from training in organic cocoa production and some had
also participated in a field trip to learn about the export experiences of cocoa cooperatives in
Ecuador. Fair trade and organic certification was facilitated for over 2,400 producers and
another 1,080 producers were trained in understanding and accessing international markets. A
mid-term evaluation of the program shows that by October 2010, cooperative members had
increased their profits by an average of 24% from 2007 (Table 2). Increases in production costs
reflect the incorporation of new techniques as a result of the training. The overall profit
increases are attributed to both the training and certification processes which have led to new
market opportunities and better prices.
Table 2: Yield, price, cost and profit per year (SNV, 2010)
Year Yield (Kg/Ha) Average
annual price
(S/./Kg)
Production
Cost (S/./Ha)
Average
Income (S/.)
Average
Profit (S/.)
Variation
(%)
2007 715 4.5 800 5574 4188
2008 792 5,5 900 9014 7151
2009 847 7.3 1700 12371 8969 25
2010 900 7.3 1700 14923 11165 24
According to the mid-term evaluation, the technical training was well executed and cooperative
members understand and appreciate the production and marketing benefits provided by
ACOPAGRO. To improve productivity in the final year of the project, the report suggests
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural
development: Peru working paper 57
investments in infrastructure and training for irrigation, which could increase productivity up to
2000 Kg/Hectare and help to sustain production in times of drought. Further technical support
could also be provided to build the capacity of the cooperative to provide microfinance and
credit services. Support for market studies and product diversification could also help to
strengthen the cooperative.
Organic bananas
DOLE Peru (also known as COPDEBAN) is the largest exporter of organic bananas in Peru,
accounting for 45% of the total market share. The company has more than 70 clients in the US,
Europe and Japan and generates USD$20.49million in annual sales (SNV, & WBCSD, 2010). In
2009, the company signed an agreement with SNV to develop a 2-year Inclusive Business
program with a total budget of US$424.887, financed between IADB-FOMIN (28%) and DOLE
(72%). The program was established to work with small-scale banana producers in Sullana,
Piura (northern coast), where average land holding is 0.74 hectares and average annual income
$6,000. The three principal objectives of the program were to: i) improve organization capacities
of the producers ii) provide training in organic production (fertilizers and compost), packaging
and processing iii) obtain organic certification for the bananas.
Initially, it was envisaged that the project would involve 750 banana producers, but in fact 1,575
(60% of all producers in the area) benefited from the project. DOLE transferred responsibility for
packaging processes to ten Producers' Associations and provided training in harvesting and
post-harvesting techniques and in business management to approximately 500 producers. In
addition, DOLE transferred packaging infrastructure to a value of USD$158,976. The Producers'
Associations are being handed full responsibility for the operation and management of the
processing and packaging plants for exportation (previously contracted out to third parties),
primarily to the US and Japan, and for organic certification of the banana crops. This has
increased their negotiation power and brought greater independence while also guaranteeing
access to international markets, year-round sales and basic prices. Nevertheless, many
Associations still lack adequate financial management skills and are unable to report whether
they are making a profit or loss. Consequently, additional training was provided in internal
control mechanisms and seven Associations obtained the necessary certification in 2010. In
less than three years, the Inclusive Business model tripled DOLE's banana stockpile and
doubled producer sales leading to an increase in their profits of more than 50%. The Producers'
Associations have now grouped themselves together under an umbrella association called
ASOBAN with the aim of collaborating to secure additional business opportunities.
According to the project mid-term evaluation (SNV, 2010), the Inclusive Business strategy has
led to a win-win situation for both the small-scale producers and DOLE. The project has
successfully overcome two bottle-necks in the value chain, namely: i) inefficiencies in
processing and packaging, and ii) an unstable relationship between DOLE and small-scale
organic banana farmers. Although the producers are only selling to DOLE at present, their
organization into associations and the technical skills and negotiation power they have acquired
means that they now have the possibility of exploring new commercial opportunities and even
exporting direct onto the international market. Technical support from SNV on issues relating to
organization, capacity building and the administrative and productive components of the value
chain were cited as integral to this success. One of the key recommendations in the evaluation
for the remaining year of the project is that more training be provided in production management
techniques. Associations also require further business and financial management training.
Finally, additional support could be provided to ASOBAN for strategic planning with the aim of
improving efficiency and reducing costs.
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural
development: Peru working paper 58
Hard yellow maize
Working with the company Backus, SNV is conducting a pilot project to identify potential
national suppliers of hard yellow maize. Backus wants to reduce imports of this crop by
identifying national suppliers and then, potentially, support the establishment of a national value
chain. In this instance, SNV is facilitating commercial linkages rather than providing inclusive
business opportunities to low-income producers. This is because the majority of hard yellow
maize producers are middle income rather than poor.
Organic coffee
PERHUSA, a coffee producers' cooperative, and Perales Huancaruna SA, Peru's largest
organic coffee exporting company, made a strategic alliance under the Inclusive Business
initiative in 2006. More detail is given about this in the section on the coffee value chain below.
Besides the Inclusive Business initiative, SNV also operates a technical and vocational
education initiative to meet demand from different value chains or productive sectors. By
conducting analyses of the productive sector and education provision in several regions and
interviewing private companies, SNV has been able to assess current and future demand for
skilled workers and design vocational and technical courses accordingly. The aim of this
initiative is to support the private sector to meet changes in demand resulting from recession in
developing countries and the signing of international trade and bi-lateral trade agreements. SNV
has carried out this work predominantly along the Peruvian coast in the regions of Lambayeque
and Piura (SNV, 2009).
German Development Cooperation GIZ (formerly GTZ)
The German Development Cooperation has been working in Peru with bilateral funds from the
German Government since 1975. In recent years, cooperation with other international donors
has increased and the Dutch Government, the Swiss Government and the European
Commission are now co-financing some projects. The work of GIZ is guided by policy
documents produced by the Federal Ministry for Economic Cooperation and Development
(BMZ). The document ¨Rural Development and Food Security¨ sets the agenda for the agency‟s
work in the agricultural sector for the period 2001 to 2011 and prioritizes two key areas of work:
i) strengthening the rural economy to achieve food security at household level, and ii)
strengthening the public sector and good governance practices via the establishment of
inclusive political and legal frameworks. Both these goals are articulated within a wider
framework oriented towards the sustainable use of natural resources (BMZ, 2011).
The GIZ does not have a national strategy for its work in Peru nor does it analyse agricultural
policy and development. Instead, program goals are agreed in negotiation with the Peruvian
Government, primarily with the Ministries of the Environment, Agriculture, Economy and
Finance, Foreign Trade and Tourism and Regional Governments in Piura, San Martin and
Cajamarca. Likewise, these government agencies are responsible for executing the
programmatic work while GIZ focuses its efforts on the provision of technical support.
Up until 2003, the GIZ technical support in the agricultural sector was implemented in up to 12
different projects at a time. In 2004, the Sustainable Rural Development Program (Programa
Desarrollo Rural Sostenible, PDRS) was initiated, bringing together these projects into a more
cohesive body of work with the aim of achieving greater impact. It is intended that the PDRS
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural
development: Peru working paper 59
runs for 12 years in three phases with a budget of 12 million Euros from the German
Government and some additional funding from Swiss Development Agency SECO (3 million
Euros up to 2013, with a potential for further funding up until the end of the program). The
PDRS works with the Ministry of the Environment rather than the Ministry of Agriculture.
Although this is not established in any written document it clearly reflects the “green” orientation
of the GIZ agenda. The PDRS is made up of three sub-programs, namely i) rural economic
development ii) sustainable management of natural resources and biodiversity and iii) protected
areas and bio-corridors. Within the first two sub-programs, the GIZ promotes public–private
partnerships to integrate organizations of small-scale producers into local and regional export
markets.
The PDRS applies a value chain approach which focuses on generating greater value added to
increase GDP and equitable distribution of economic benefits. This is distinct from a productive
value chain approach which focuses on developing agricultural chains that involve a larger
proportion of the population. In an interview with two of the PDRS program staff, social inclusion
and equity along value chains were highlighted as key issues for supporting private sector
development in Peru. In order to create commercial links for imports to European markets, GIZ
works with the Swiss Import Promotion Program (SIPPO).
An example of the value chain work being carried out by the PDRS is PeruBiodiverso, a 3-year
project initiated in 2010 with the aim of increasing the number of small-scale businesses in the
regions of Piura, Cajamarca and San Martin that meet ecological principles and standards. The
project forms part of the National Program for the Promotion of Ecological Businesses run by
the Ministry of Foreign Trade and Tourism (MINCETUR) and is focused on developing value
chains for native agricultural products, such as algarrobo, aguaymanto, sacha inchi (peanut),
cocoa, tara and medicinal plants. Project activities include: i) strengthening business and
management skills of producers, ii) support for marketing trips and participation in international
fairs, iii) promotion of native products in national markets, such as the hotel and dining
industries, iv) provision of technical assistance to improve productivity, v) strengthening
commercial relations between private sector companies and producers' associations, vi)
supporting product certification, vii) conducting research and studies into potential new
products, viii) assessment of national institutions responsible for establishing norms and
regulations for ecological business, ix) running pilot-projects.
According to the PDRS interviewees, the program does not include any projects supporting the
rice value chain due to the negative environmental impacts of rice production. The PDRS has
just started working in the Amazonas region, where it is proving technical support to local and
regional authorities with the aim of strengthening producer associations for various products
including coffee. In Piura the PDRS is has just started to work with local and regional authorities
on dairy value chain development. Given that these projects are so new, there is no available
documentation at this time.
It is not possible to assess the impact of the GIZ work as there are no publicly available
evaluations of the PDRS program. This is because these types of quantitative econometric
assessments are not required by the German or Peruvian Governments. The GIZ does report
against program indicators; however this information is not available in the public domain either.
On the PDRS website it is stated that:
“By raising their productivity and increasing the quality of their products, 1,500 small-scale
producers in the north of Peru have been able to integrate themselves better into both domestic
and export markets. At the same time, the proportion of agricultural produce brought to market
has also grown and the volume of exports of selected local biodiverse products has risen on
average by 184 %. The export value of these products has increased by an average of 234 %.”
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural
development: Peru working paper 60
Swiss Development Cooperation (SDC)
The Swiss Development Cooperation (SDC) has been working in Peru for 45 years and today
encompasses the activities of COSUDE, financed by the Swiss Ministry for Foreign Affairs and
the State Secretariat for Economic Affairs (SECO), financed by the Ministry for the Economy. As
Peru is now a middle income country, the orientation of Swiss support is in the process of
changing. From 2011, COSUDE operations will be stepped down to two programs relating to
water and climate change. At the same time, funding through SECO will be increased and be
targeted at supporting Peru's integration into the world economy (SDC, 2009). In 2010, total
bilateral commitment amounted to USD$24 million (SDC website).
Central to COSUDE activities are measures promoting good governance, equitable economic
growth, management of natural resources and humanitarian aid. Support to the agricultural
sector is aimed at improving the incomes of small-scale producers and is split into three main
programs:
a) APOMIPE – Support program to micro-enterprises in Peru which aims to improve the
competitiveness of small producers and link them to business networks in Cajamarca and
Cusco. To date, the program has linked 904 producers to 84 business networks. This has led to
the establishment of 102 pilot projects and 35 full-scale projects with USD$630,500 support
from business networks. Financial support amounting to USD$230,000 has also been attracted
from other public and private investors to support competitiveness in the value chains. Finally,
369 new business transactions have occurred between clients and suppliers.
b) INCOPA – Project for Innovation and Competitiveness of the Peruvian Potato. Executed by
the International Potato Center (IPC), this project has been implemented in Ecuador, Peru and
Bolivia. A series of technological, commercial and institutional innovations have been developed
as a result of interaction between a range of actors involved in the production and consumption
of native potatoes. These actors consist of farmers‟ associations, agro-industrial companies,
government agencies, NGOs and agricultural research institutes. One of the main components
of the project was aimed at increasing participation of the private sector in the potato market
chain. The project supported the Ministry of Agriculture to enter into collaborative relationships
with private companies and linked the supply of native potatoes from rural farming communities
with demand from a group of agro-industrial companies which invested financial resources into
the development of new products to be sold in large Peruvian cities and, in a few cases, in
export markets. This type of linkage and collaboration between state and private agencies in
agricultural activities has not been seen for many decades in Peru.
c) PAPA ANDINA, an umbrella organization aimed at developing capacity for innovation
amongst actors involved in the production and purchase of potatoes. This project is led by the
International Potato Center (IPC), with the majority of its financing from SDC and some
additional support from the UK Department for International Development (DFID) and the New
Zealand Government. The project established two platforms for collaboration; the first is based
on alliances between state institutions and private enterprises for capacity building, and the
second on alliances between farmers for the development of market opportunities. By 2006, it
was estimated that the total number of beneficiaries has reached around 4,400 potato farmers
(“Papa Andina: Innovación para el desarrollo en los Andes, 2002 – 2006”).
SECO began its first programs in Peru in 2003 with the aim of driving foreign trade and
investment. Under its Competitiveness and Sustainable Trade Program, SECO is specifically
supporting Peru to diversify goods and services exports and integrate small and medium
businesses into the value chain. Project examples include export promotion initiatives in the
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural
development: Peru working paper 61
capital Lima and regions of Arequipa (highlands) and Lambayeque (coast), support for the
national Bio Trade program (SDC, 2009).
Belgian Development Agency (CTB)
The Belgian Development Agency (CTB) has been implementing projects financed by the
Belgian Embassy since 2002. Previous to 2002, activities were carried out by Embassy staff. In
order to specialize technical assistance and distance the executing arm from the more political
embassy, the CTB was established as a separate entity. Nevertheless, the CTB strategy is
developed by the Embassy in negotiation with the Peruvian Government. Every four years, an
agreement is signed to set out objectives and lines of action. For the present phase (2010 to
2013), the CTB will be executing a budget of around 40 million Euros on health and sustainable
resource management projects.
Of the 5 current projects due to come to an end either this or next year, 3 are linked to the
agricultural sector and one in particular, the Program for Business Service Centres, has
involved providing support to small-scale producers and the private sector in Apurimac,
Huancavelica and Ayacucho, the three poorest regions in Peru. For this project, the CTB has
focused its support on building public sector capacity to promote and sustain value chains
(avocado, native potato, quinoa, kiwicha, dairy, tara, alpaca fibre, textiles, handicrafts and
ceramics) while also working with producers' association to improve the quality of their products.
This has involved developing technical norms for production oriented towards achieving the
necessary certification (organic, for example) for products that are being sold on regional,
national and international markets, including to the US, EU and Japan. CTB has also provided
technical assistance to agro-exportation companies by undertaking market studies and
providing capacity building in business management.
Spanish development agency (AECID) The Spanish development agency AECID has worked in Peru since 1986. Total financial
support amounted to 76 million Euros in 2009 (AECID, 2009), the highest donation made to a
Latin American country by the agency. The Plan for Cooperation (2007-2010) is structured
around three lines of action: i) Democratic governance, ii) Social cohesion, and iii) Economic
development. Under the pillar of economic development, one two-year project with a
USD$450,000 budget is providing support to private sector activity in agriculture and rural
development. In 2008, AECID began work with the Ministry of Agriculture to improve the
effectiveness of the Program for Agricultural Credit (PROCREA). Amongst others, PROCREA
was providing credits to small-scale farmers of native Amazon products destined for export
markets. AECID supported activities to improve productivity and train local producer
associations in the business and organizational skills necessary to obtain credit.
AECID also worked with the National Institute for Agricultural research San Ramon and the Alto
Amazonas Agricultural Agency to implement reforms and improve public services. The AECID
provides multilateral funding to the UNDP and the FAO for food security work and also funds a
number of smaller interventions through local partners. This includes technical training for
farmers to increase productivity, land and farm management, testing new species, crop
diversification, capacity building for local government in planning for economic development,
installation of small infrastructure (livestock pens, mills, canals, irrigation systems etc.), small-
scale business support (mostly in technical assistance provision) and organizing producers'
associations, building business skills.
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural
development: Peru working paper 62
Oxfam Intermon
Oxfam Intermon has been working in Peru for more than 15 years. All of it projects are
implemented by local partners, and, up until 2006, work in the agricultural sector was split
between diverse regions and lines of action. In 2007, the Sustainable Rural Livelihoods
Program was launched to provide strategic direction leading to a more cohesive body of work.
The program strategy is developed based on an analysis of agricultural policy, Oxfam
experience and expertise and workshops with partners. Principally working in the highland
regions of Cusco, Junin and Ayacucho, the program aims to improve the incomes and assets of
peasant farmers by building organizational capacity (strengthening producer platforms,
providing capacity building in business management strategic planning etc.) and promoting
sustainable production models.
The program's annual budget is approximately 400,000 Euros. Besides working with small scale
producers and associations, Oxfam engages with the private sector through its campaign and
advocacy work. Oxfam is linking small-scale native potato producers to restaurants owned by
famous Peruvian chef Gaston Acurio, with the aim of stimulating public debate about food
security and genetically modified crops. Working with the Peruvian Society for Gastronomy, the
National Association for Ecological Producers and The National Agricultural Convention, Oxfam
is promoting improved visibility and recognition of small-scale producers as important suppliers
of national food stocks.
IFAD
Since 1980, International Fund for Agricultural Development (IFAD) has made eight loans to
Peru for a total of US$124 million. With the exception of one project in the jungle region, all
projects have addressed the needs of small-scale farmers in the highlands. Peru has also
benefited from IFAD regional grants for rural development training. IFAD‟s strategy for Peru
includes four main areas: i) natural resource management, land-titling projects and funds for
conflict resolution ii) access to services, including strengthening institutional and private-sector
service providers iii) promoting rural-urban linkages, for agricultural and non-agricultural-related
enterprises,a and iv) support to institution building and decentralization.
Since 2000, the IFAD has led two main programs implemented in partnership with the Ministry
of Agriculture Program for Aproductive Agriculture in Rural Zones (AGRORURAL), both with
components to support private sector activities in agriculture:
a) The Market Strengthening and Livelihoods Diversification in the Southern Highlands Project
(“Sierra Sur”) was initiated in 2005 and culminates at the end of 2011. With a total budget of
USD$34.5 million (USD$22,3 million from IFAD), the project is working with poor families to
improve the quality of their products, preserve their traditional knowledge and improve natural
resources management to diversify their sources of income. One of the program‟s most
innovative features is the direct transfer of funds to peasant communities to enable small
farmers and micro-entrepreneurs to contract for the technical assistance they need to make
their products competitive in national, regional and international markets. The project makes
resources available specifically for women farmers to help them obtain property rights to land
and legal recognition for their small handcraft businesses, and to enable them to manage their
own savings. According to the Mid-Term Evaluation (IFAD, 2010), participating families had
almost doubled their total annual income to USD$4,500.
b) The Project for Strengthening Assets, Markets and Rural Development Policies in the
Northern Highlands (“Sierra Norte”) is also helping small-scale producers and entrepreneurs
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural
development: Peru working paper 63
contract technical assistance to improve the production, marketing and management of rural
enterprises. With total financial assistance of USD$14.4 million from IFAD, the project is
providing financial and non-financial services to help rural poor people, mainly women and
young people, develop new business initiatives and contract the services required to implement
them.
IICA
Established in 1942, the Inter-American Institute for Cooperation on Agriculture (IICA) is a
specialized agency for providing technical assistance in the agricultural sector and
strengthening cooperation between the northern and southern hemispheres. Between 1993 and
2001, IICA‟s strategic agenda emphasized participation, decentralization and flexibility, focusing
on a specific group of topics. In June 2000, the Organization of American States (OAS) made
IICA‟s governing body, the Inter-American Board of Agriculture (IABA), the primary ministerial
forum in the hemisphere for issues related to agriculture and rural life. The Peruvian arm of the
IICA operates on an average annual budget of $1 million, of which around half is provided by
the central IICA body and about 25% is provided by the Peruvian Ministry for Agriculture
(MINAG) with which the IICA works under a framework agreement.
In Peru, the National Agenda for Technical Cooperation (ANCT) is elaborated via an analysis of
the sectorial plans produced by the Ministries of Environment, Agriculture, and Social Affairs
and the Exporters Association (ADEX). A first agenda is elaborated then discussed with each of
these Ministries in order to identify areas where IICA technical assistance could support
Government programs. Further consultation is then held with producers' associations and
unions, academic research institutes such as the Group for the Analysis of Development
(GRADE) and the Peruvian Centre for Social Studies (CEPES), and international donors and
development agencies. The Peruvian National Agenda 2006-2010 sets out 6 main lines of
intervention: 1) Institution building, 2) Trade and competitiveness of agri-businesses, 3)
Agricultural sanitation, 4) Sustainable resource management, 5) Strengthening the capacity of
rural communities with territorial development tools, and 6)Technology and innovation for the
modernization of agriculture.
According to IICA's 2009 Annual Report, the key impacts achieved under the second line of
intervention related to the training of professionals, technicians and producers in production
techniques and business management (IICA, 2010). Currently the IICA is working with the Food
and Agriculture Organization (FAO) to develop guidelines for the development of the agro-
industrial sector at the request of the Ministries for Agriculture and for Production. Similar to it
strategy development, the IICA has held consultations with a wide range of public and private
actors including unions and producers associations. The guidelines prioritize strengthening
small-scale production and focus on several value chains including maize, dairy, cotton and
tara. Other work to support the private sector includes organizing trips by union members to
Mexico and El Salvador to find out about the impacts of international trade agreements and
providing capacity building in business management via Farmer Schools in value chains
including coffee.
Antamina
The mining company Antamina is currently funding a five year project to promote productive
value chains in forestry, farming and livestock in Ancash with a budget of USD $2,311,683. The
project is being implemented by the NGO CARE. 3,000 beneficiaries and 64 institutions
participated in the project which aims to strengthen and expand productive value chains in the
region. It is expected that this project will contribute to reducing extreme poverty by 8 percent
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural
development: Peru working paper 64
and chronic poverty by 4 per cent and will have benefited more than 15,000 producers in 15
provinces and 70 districts of Ancash.
To date, 3,041poor and extremely poor families have benefited from the project. 38 agreements
have been signed with local governments to provide support to productive value chains via the
establishment of guarantee funds, co-financing, installation of irrigation systems and provision
of technical assistance. 1,542 jobs have been created and 25 businesses are in the process of
being set-up. 538 producers have gained access to credit from formal providers that enjoy a
degree of protection afforded by a guarantee fund. Commercial agreements have been signed
with seven companies for buying maize (476 ha), oats (32 ha), broad beans (134 ha), artichoke
(97 ha) and fruit (690 tonnes), Tala gum (246 ha), milk (926,400 litres). In total, the project has
facilitated the generation of sales worth approximately $2,562,000. As a direct result of work
with local governments, these authorities have assigned $2,894,000 to developing the local
economy.
Buenaventura
Another mining company, Buenaventura formed an alliance with USAID in 2002 under its PRA
program in Huancavelica (highlands) to strengthen value chains in pea, broad bean, artichoke
and alpaca fibre, amongst others. By the end of 2009, this alliance had created employment
opportunities to the equivalent of 649 work days and generated sales to the value of $7.2 million
(Buenaventura, 2009). The company is continuing to support this program with a further
USD$1.4 million between 2010 and 2013 (Buenaventura, 2010).
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural
development: Peru working paper 65
Annex 2. List of people interviewed
At Quillabamba city, capital of La Convención province at Cusco region, on coffee agribusiness
issues:
Mario Jesús Huaman. Professor at public university of Cusco located at Quillabamba city. . E
mail: [email protected]
Eliazar Dávalos Paucar. Officer of COCLA laboratory of soil analysis. E mail:
Raul Claveri Jarandilla. President of Administration Committee of COCLA. E mail:
Mario Dávalos. Representative of Tiobamba Cooperative, member of COCLA.
Peter Valle. Representative of Tupac Amaru Cooperative, member of COCLA.
Ruben Atauchi. President of Monitoring Committee of COCLA. Also a representative of
Maranura Cooperative, member of COCLA.
Fredy Vivanco. Rural extension worker. Member of COCLA staff.
Raúl del Aguila Hidalgo. General manager of COCLA.
Edilberto Enriquez. President of Aguilayoq Cooperative, member of COCLA.
Javier Vivanco Palante. Manager of Chaco Huayanay Cooperative, member of COCLA.
Moisés Alegría Farfán. Productive projects officer of Santa Teresa Municipality of La
Convencion province.
At Moyobamba and Tarapoto, main cities of San Martin region, on coffee and rice agribusiness
issues:
Mario Rivero. Agronomist. APAVAM manager.
José Tirabanti. Officer on coffee development. Practical Action.
José Antonio Meléndez. Officer on coffe development. PEAM.
Jorge Calle Seminario. Officer on rice development. Ministry of Agriculture – San Martin
Regional Office.
Luis Prado Asenjo. Former director of Irrigation Water State Authority Administration.
José Rodriguez Nolorbe. Officer of Recomar (Private business for agriculture equipment
importing).
Abel Soto. Officer of Mina de Oro (Private business for agriculture equipment importing).
Fernando León. Seller of fertilizers for rice and coffee.
Vidal Peralta. Officer of La Cosecha. (Private business for agriculture inputs)
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural
development: Peru working paper 66
At Cajamarca, capital of Cajamarca region, on milk agribusiness issues:
Juan Vargas. Economist. Practical Action project manager of a milk rural development project.
José Huingo. Veterinarian, member of Practical Action staff at Cajamarca office.
Rommel Dovertin. Owner and manager of Las Quinuas, a large rural property (1,000 Héctars,
and 900 dairy cows) for breeding cattle and milk production.
Jesus Rodriguez. Veterinarian. Member of SENASA staff.
Elmer Alvarado. Veterinarian. Director of CEFOP, educational organization for training famers.
Luis Cuevas. Veterinarian. Manager of Los Sauces, a small size rural property (18 héctars, and
87 dairy cows).
Rafael Gomez Sanchez. Owner and manager for the Cristo Rey Fund, a medium size property
(100 Héctars), and president of the Holstein Association in Peru.
Evelyn Davila. Manager of the Huacariz. A private business for dairy products.
Roger Orrillo. President of the Association of Producers of Dairy Products in Cajamarca (APDC)
and owner of the McKay company.
Ana Angulo. Director of NGO CEDEPAS.
Percy Ramón Páez. Veterinarian. Member of the Grupo Gloria staff.
At Lima, the capital of Peru.
Number Organization Name of person
interviewed
1 PNUD (United Nations Programme for Development) James Leslie
2 APEAR (National board of rice producers) Victor Vásquez
3 SNV (Dutch cooperation for development) Manuel Fernandini.
4 European Union (EU delegation office at Peru) Tatiana Garcia.
Patrick Gallard.
5 ADRA (International organization of Adventist
Church)
Santos Guerrero
6 AGALEP (National board of milk producers) Héctor Guevara.
7 CEPES (Most important NGO providing technical,
social and economic information to agriculture
Fernando Eguren
Platform Knowledge Piece 3: The strategic role of the private sector in agriculture and rural
development: Peru working paper 67
producers)
8 CAN (Andean countries intergovernmental
oganization for social and economic development.
Members are Peru, Ecuador, Bolivia y Colombia)
Jorge Tello
9 GIZ (German international cooperation for
development) (GTZ was the former name)
Luis Ginnocchio
José Heredia.
10 BID (Interamerican for Development) Alfonso Tolmos
11 AGRORURAL (State programme for supporting small
scale farmers at highlands and jungle areas)
Nelson Larrea.
Cesar Castro
12 IICA (International organization for cooperation on
agriculture)
Maria Febres
13 CTB (Belgian development agency) Guillermo Maraví
14 USAID (USA agency for develoment) Juan Robles.
Carla Queirolo.
Donato Peña.
15 Intermon Oxfam (International NGO for supporting
small scale farmers)
Giovanna Vasquez
16 Junta Nacional del Café (National board of coffee
producers)
Lorenzo Castillo
17 COSUDE (Swiss development agency) Carolina Quintana
18 World Bank (Office at Peru) Elizabeth Dasso
19 JNUDRP (National board for irrigation water users) Virgilio Brenis.
20 GRADE (Economic and social research private
organization)
Javier Escobal
Total 20
International development agencies 13
Producers national boards 4
State national level organizations for agriculture 1
National level NGO for agrarian issues 2
Prepared by: Platform Secretariat Published by: Global Donor Platform for Rural Development Godesberger Allee 119, 53175, Bonn, Germany Study conducted by: Overseas Development Institute, London Authors: Carlos de la Torre and Rebecca Clements Photo credits: www.123rf.com/haak Date of publication: December 2011