CacaoinSanMartin,Peru

Jessica Yearwood People 4 Earth

August, 2011

Table of contents

Research planning ...................................................................................................................... 3

Aim of the research .................................................................................................................3

Objectives ...............................................................................................................................3

Methodology ............................................................................................................................3

Introduction ................................................................................................................................. 4

Cacao in Peru ..........................................................................................................................4

Organic cacao and high quality beans .....................................................................................5

Chain Analysis ............................................................................................................................ 7

Non-organized farmers ............................................................................................................8

Farmers’ organizations ............................................................................................................8

Processing industry .................................................................................................................9

Hotspot Analysis ......................................................................................................................... 9

Deforestation and biodiversity loss ..........................................................................................9

Access to drinking and/or irrigation water ..............................................................................10

Animal hunting .......................................................................................................................10

Presence of heavy metals .....................................................................................................10

Lack of associativity...............................................................................................................10

Lack of articulation among actors ..........................................................................................10

Child labor .............................................................................................................................10

Energy consumption due to transport ....................................................................................10

Feedback on SAMS .................................................................................................................. 11

References ............................................................................................................................... 12

Annex 1 .................................................................................................................................... 13

Annex 2: Agenda – Lima & San Martin ..................................................................................... 15

Annex 3: Pictures ...................................................................................................................... 16

Research planning Aim of the research Through this research, People 4 Earth will have valuable information regarding the cocoa supply chain in Peru and will be able to compare it with the Ghanaian reality. Additional insight will be gained as to what to ask and how to phrase the questionnaires for smallholder farmers. Information regarding the cacao supply chain will be gathered to provide transparency for the European consumers. Objectives

Provide a basic overview of the product and supply chain for cacao in Peru, including relevant information regarding the cacao farmers.

Provide insight on what to ask and how to phrase the questions and analyze the level of understanding of the different actors regarding the P4E questionnaire.

Identify the main hotspots related to cocoa farming in San Martin.

Methodology The information will be gathered by interviewing and visiting key stakeholders. With the acquired information, the supply chain will be depicted in a flowchart and the main sustainability hotspots will be assessed, considering social and environmental impacts. Interviews were carried out with the following organizations:

Agriculture Ministry Cooperative: ACOPAGRO Cooperative: Nuevo Amanecer DEVIDA Exporters Association (ADEX) Gobierno Regional de San Martín – GORESAM Information and Education Center to Prevent Drug Abuse (CEDRO) Inter-American Institute for Cooperation in Agriculture (IICA) La Orquidea – Industrias Mayo S.A. Peruvian Association of Cacao Producers (APPCACAO) Peruvian Chamber of Coffee and Cacao Technological Innovation Center for Cacao (CITE Cacao) Tropical Crop Institute (ICT) USAID PERU – Alternative Development Program (PDA)

See Annex 1 for a description of the institutions visited and Annex 2 for the detailed agenda.

Introduction Cacao in Peru Peru produces over 40 000 tons of cacao beans per year, grown all over the eastern slope of the Andes (See Table 1 and *PEN = Peruvian Nuevo Sol, 1 EUR = 3.9 PEN (08/2011)

Table 2) . The average yield is around 550 kg/ha (ICT, 2008). Most of the farmers have under 5 hectares, and use densities of 1111 plants/ha or 625 plants/ha. However, yield can vary from 250 to 2 500kg/ha (See *PEN = Peruvian Nuevo Sol, 1 EUR = 3.9 PEN (08/2011)

Table 2) depending on the cacao variety, the age of the plantation, diseases and environmental conditions. Indicators Unit 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Harvested area Thousand Has 41.2 45.8 49.1 49.7 50.8 50.3 56.7 59.8 63.2 66.8 77.1

Production Thousand tons 24.7 23.6 24.3 24.2 25.9 25.2 29.9 31.3 34.0 36.1 46.5 Yield Kg/ha 601 517 495 486 510 502 558 525 534 548 603 Price (farmer) USD/ton 573 570 946 1172 1002 1138 1115 1626 1993 1555 2208

Cacao exports

Thousand tons 8 6.3 8.1 9.1 12.3 12.9 17.4 13.4 17.1 24.3 24.2 Millions USD FOB 16.7 11.8 17.1 23.5 33.6 35.5 41.3 46.7 78.2 78.5 90.0

Table 1: National indicators for cacao Source: Peruvian Agriculture Ministry (2011)

Region Harvested Area Production Yield Price at farm (has) (t) (kg/ha) (PEN/kg) Tumbes 259 311 1202 5.23 Piura 348 189 543 5.87 Cajamarca 1212 994 820 5.94 Amazonas 6298 2704 429 5.81 San Martin 24543 21000 856 6.43 Huanuco 3837 1840 480 6.83 Junin 8555 4440 519 6.38 Ucayali 1134 1032 910 5.19 Ayacucho 8851 6263 708 6.04 Cusco 21449 7192 335 6.28 Others 661 564 853 3.41 Total/Average 77147 46530 603 6.24

*PEN = Peruvian Nuevo Sol, 1 EUR = 3.9 PEN (08/2011)

Table 2: Indicators for cacao per region - 2010 Source: Peruvian Agriculture Ministry (2011)

Cacao is a shade crop that can be grown in forests and agroforestry systems, helping to enrich soils and protect them against erosion. Peru has a wide genetic variety of the crop in different regions of the country. The main varieties used in Peru are international genetic material such as CCN-51, ICS-95, ICS-39, SCA-6, SCA-12, UF-613, TSH-1188, TSH-565, IMC-67, or hybrid material: Criollo, Trinitario, Forastero Amazonico or a mix of these (See Table 3). However, there is a need for improved seeds with high productivity, fine quality and resistant to the main diseases: Moniliophthora roreri (Moniliasis) and Moniliophthora perniciosa (Escoba de bruja).

Region Criollo CCN-51 Others Tumbes 90% 9% 1% Piura 95% 1% 4% Cajamarca 90% 9% 1% Amazonas 75% 20% 5% San Martin 15% 84% 1% Huanuco 65% 34% 1% Junin 70% 25% 5% Ucayali 35% 60% 5% Ayacucho 65% 30% 5% Cusco 80% 5% 15% Others 65% 34% 1%

68% 28% 4% Table 3: Distribution of cacao varieties

Source: Peruvian Agriculture Ministry (2011)

Organic cacao and high quality beans Small producers have grouped themselves into associations which have played an important role in the industry’s transition to organic production. Cacao exporters (who typically buy from several associations) encouraged the transition to organics by supporting association-wide certification and emphasizing price differentials. Therefore, even if Peru is a relatively minor conventional cacao producer, it is a major player in organic cacao production. It was the second larger exporter of organic cacao in 2007, only after Dominican Republic (Olsen, 2008). It is important to note that nearly half of Peru’s organic cacao exports are in the form of higher value, processed derivatives such as butter, powder, and liquor, while the remainder is in the form of unprocessed cacao beans (Olsen, 2008). The main markets for Peruvian cacao are United States, Netherlands, France, Venezuela, England and Colombia (Peruvian Ministry of Agriculture, 2011); while for organic cacao they are Switzerland, United States, Netherlands, Germany and Italy (Olsen, 2008). During the last few years, Peruvian cacao has been recognized worldwide for its quality. Four samples were among the top ten in the Salon du Chocolat – Paris 2009, and Peruvian cacao ranked third worldwide in COE 2010, France. Therefore, the government has decided, as a national strategy, to focus in a quality product to reach special value markets. This implies increasing the product’s quality and productivity, as well as strengthening the farmers’ associations with a business attitude that allows them to integrate technical assistance, financing and commercial bargaining. At the same time, the world consumption demands higher quality, aromatic, organic beans and there is an increasing trend for the chocolate industry to buy directly from producer countries with fair trade practices. These has increased the efforts of different stakeholders, including the farmer organizations, the international cooperation and the Peruvian government, to promote and position Peruvian cacao as a high quality product. These efforts include capacity building, increasing the farmers’ associativity, standardizing the post-harvest processes, increasing the amount of certified farmers, among others. Besides this, cacao producers have benefited from rising world prices and organic producers are benefiting further from the significant international price differentials between conventional and organic production.

Cacao as an alternative crop Cacao was only prioritized as an alternative to illegal crops (coca leaves) in recent years. The San Martin region suffered in different ways during the 70s-90s due to the coca leave growing and drug trafficking. Not only were the soils degraded, biodiversity lost and water channels contaminated with the chemicals needed to process the coca leaves, but the people were living in an environment filled with insecurity, violence and threats. And even now, there are still social consequences: the farmers have lost their trust and they have a different attitude towards life. Through different programs, funded by the government and the international cooperation, coca farmers have replaced their crops with cacao, coffee and oil palm. Despite the insecurity and violence, it has been a hard task because coca leaves provided farmers with financial security. Therefore, in order to be effective in their undertaking, these programs often had to be of a paternalist nature, providing certain benefits besides the alternative crop and peace of mind for the farmers involved, such as subsidies, infrastructure and employment as working force. Farmers got used to being provided with anything they needed and started taking these benefits for granted, losing their business attitude and being highly dependent on technical assistance and sporadic donations from the national and international cooperation and NGOs. Cacao farming in San Martin – Peru San Martin is currently the first cacao producer in the country, mainly due to the successful coca leave replacement programs which have largely increased the harvested area in the last years (See Figure 1). The region produces 45% of the national production, and owns 32% of the total cacao harvested area, with a yield well above the national average. Given this area increase, together with a constant yield increase, the total production from the San Martin region has grown from less than 5 000 ton/year in 2005 to more than 20 000 ton/year in 2010 (Peruvian Agriculture Ministry, 2011). The local government, through the Ecologic Economic Zonification (ZEE) determined that there is a potential of 93 200 hectares to install new cacao plantations in agroforestry systems.

Figure 1: Harvested area (hectares) and average yield (kg) per region Source: Peruvian Agriculture Ministry (2011)

San Martin

Cusco

Ayacucho Junin Amazonas

Most of Peru’s cacao is grown by small holders who rely on cacao’s weekly or biweekly harvest as their main source of regular revenue. San Martin has over 21 000 cacao farmers, who own over 32 000 hectares of which 70% is currently been harvested and the rest has been recently installed or is in its growing period. Only 20% of these farmers are organized (Mesa Tecnica Cacao, 2011).

The main variety grown in the region is the CCN-51, given its very high yield, of up to 4ton/ha. Its productivity encouraged the farmers to switch from coca leaves to cacao as a part of the Alternative Development Program (PDA). However, this could be considered to go against the national strategy to promote high quality varieties, which are usually less productive. Nowadays though, the CCN-51 beans are exported worldwide as high quality beans. Farmers are recommended, however, to have at least 3 different varieties in their parcels to avoid certain sanitary issues that could arise from having mainly one variety. The average farmer rarely uses chemical pesticides to control the existing plagues; these are mainly fought by pruning adequately the trees. Fertilizing is considered more important every day, in both organic and conventional plantations, however some farmers still lack access to credit to be able to acquire them, while others expect the government or international cooperation to provide it. Some farmers process their own organic fertilizers such as compost, biol and humus from organic waste. Chain Analysis The key actors in the chain and stakeholders are: Key actors in the chain:

Non-organized farmers Farmers’ organizations

o Established cooperatives o Emerging organizations

Processing industry Traders

o Small-scale traders o Brokers

Other stakeholders:

International cooperation

Amazonas

San Martin

Amazonas

Cusco

Junin

Ayacucho

Local, regional and national government Research institutes Promotion agencies Financial entities Agricultural service providers

The chain is depicted in Figure 2.

Figure 2: Cacao chain

A brief description for the different actors in the supply chain is provided below: Non-organized farmers These farmers do not have an adequate agricultural management for the crop or the post-harvest processes, therefore their beans have a poor quality. Due to the poor quality of their beans and their lack of association capacity, they do not have any bargain power in front of the trader. These farmers are not bound to their buyers, but usually there is a longer list of intermediaries between them and the exporting company or final buyer. Farmers’ organizations Organized farmers usually diversify their crops by mixing good quality varieties with highly productive ones. They produce high quality cacao beans (both conventional and organic) and are obliged to sell (all or part of) their production to their organization, which does the post-harvest processing and commercialization, usually to external markets. The organization is usually a cooperative, and it provides additional services to its members, such as technical assistance regarding the agricultural management, the gathering and transporting of the beans, the post-harvest process and financial assistance. Cooperatives also sell the fertilizers they recommend with certain facilities to members. However, payment is always at the moment of delivery of the beans.

Established cooperatives

Among the many cooperatives and associations, a small group of cooperatives is well established in the region. These cooperatives have had the support of the government and the international cooperation since their beginning, in some cases more than 15 years ago. It is relevant to mention that these are successful organizations, that export directly high quality beans (fermented and dried in a standard way in the centers provided by the organization for this purpose – centros de beneficio –), that can have as much as 6 certifications (Organic, Fair Trade, RFA, UTZ, Carbon neutral, Kosher). These cooperatives can even link the client with a specific zone according to the client’s demands and the region’s cacao characteristics. Also, members of these organizations feel they have the opportunity to grow in the cooperative (from representative to directive).

Emerging organizations

One of the main issues for emerging cooperatives is the lack of loyalty from their members, who will sell their beans to any trader if the price is better. Another problem is the lack of leadership and managerial capacities. Some associations have begun to focus on association and region specific branding as well as developing their own exporting capabilities and markets. However, their marketing and commercialization capacity is still poor, and they still depend on traders (brokers).

Processing industry Industry takes part in the chain to collect and process the beans from non-organized farmers when they are ‘en baba’ by fermenting and drying them, or by manufacturing products such as butter, powder and chocolates.

National manufacturing companies

The internal market is used to sweet, milk chocolates that use a low percentage of cacao or that only use cacao powder and/or cacao butter; therefore manufacturing companies use low quality cacao for the internal market. These companies deal with intermediaries to obtain their cacao beans. They invest in machinery and equipment for added value and are subject to credit.

The additional stakeholders are very important in the cacao chain. The international cooperation along with the different governmental entities have encouraged cacao plantations to replace illegal crops, providing the farmers with subsidies, technical assistance, capacity building, among many other services. An interesting example of capacity building implemented by both the international cooperation and the government are the farmers’ field schools, where farmers shared experiences and learned from each other. On the other hand research institutes are developing high quality, high productivity, resistant seeds to increase the profitability of the crop, and promotion agencies are positioning Peruvian cacao as a rising star in the international markets. Finally, some businesses are emerging as agricultural service providers, some farmers who have received adequate training are providing pruning services for example. Hotspot Analysis The main issues during the agricultural stage are the following: Deforestation and biodiversity loss Cacao plantations have been installed in existing agricultural lands, replacing other crops like rice, corn and coca. In this sense, the agroforestry system is good to restore some biodiversity and avoid soil erosion. However, the expansion of the plantations carry the risk of deforestation. New plantations are being installed in secondary forest or even primary forests, following the traditional method of shifting cultivation (roce, tumba and quema) where they cut down the trees and burn the land. An alternative proposed by a research institute is forest farming, where there is a selective cutting in order to plant the cacao trees, but most of the indigenous trees are kept.

Access to drinking and/or irrigation water There is a lack of infrastructure in the region, therefore, some of the families do not have access to drinking water or only have access during a limited period of time. Also, due to climate change and variability, summers are dryer and there is a need for irrigation during this season to increase the productivity. Animal hunting Most of the farmers are used to subsistence hunting. However, hunting with commercialization purposes also occurs among farmers, mainly among those who do not belong to the established cooperatives.

Presence of heavy metals Currently a study is being carried out to determine the specific causes. The main hypotheses are that this is due to the soil, due to the presence of batteries in the plantation or due to the drying of the beans on the highway. Lack of associativity Only 20% of the farmers are organized. The rest has no bargaining power, poor management skills, no access to market information or to capacity building and technical assistance. They have less or no access to credit, and their products go through a much longer chain of intermediaries, with not even an opportunity for long term contracts. The non-organized farmers also need to improve quality by standardizing the post-harvest processes. An important aspect to improve is the lack of leadership qualities to encourage business producer organizations. Another issue related to the lack of associativity is the loss of trust among the farmers due to their past dealing with coca. Lack of articulation among actors There is a space designed specially to coordinate among the key stakeholders, Mesa Técnica del Cacao, where the different actors can exchange information, dialogue among them, coordinate actions, reach agreements and share responsibilities and resources. Nonetheless, there frequently is a duplicity of efforts due to poor coordination between government actors, international cooperation and private institutions. Corruption is also an issue, funds can be spend in an inefficient way for example paying inexperienced advisors and without follow up of the results. Child labor Cacao is considered a family crop. Most of the small farmers do not have any workers, as they along with their families work the land. Tasks and responsibilities for kids are not supposed to interfere with school, however it is hard to determine up to what extent this actually happens. Energy consumption due to transport Energy consumption and transport costs due to the long distances are an important issue to be considered. The first stage is a local transport, from the farmer to the ‘centro de beneficio’ – where the post-harvest processes take place –, and the farmer is usually responsible for the transport, which is done using mules or small vehicles (motocarros or furgonetas). The second stage entails the transport of the fermented beans to the middlemen or the cooperative and is usually done by trucks, but it is still a regional transport. The last stage however, is the transport to the processing industry or to the port for exporting, also done by truck. This is the longest distance, over 1 000 km. As an example, the transport from Juanjui, San Martin to the Callao seaport is more expensive than transporting the beans from Callao to New York, USA.

Feedback on SAMS

The farmers do not have access to internet; however, the ICS officers (if available) will usually have access to internet and will be capable to answer most of the questions provided.

The farmers who are members of the older organizations are aware of the sustainability issues and understand most of the terms from the questionnaires, due to the ongoing training and support provided by international cooperation, NGOs and the government. However, there is a big difference with non-organized farmers.

The main problem will be to reach the 80% of the farmers who are not organized. And this is the same problem the government and NGOs have when providing technical assistance.

References

Olsen, P. (2008). ‘Peru Organic Products Update, 2008’. Global Agriculture Information Network - GAIN Report Number: PE8014. USDA Foreign Agricultural Service.

Instituto de Cultivos Tropicales (2008). ‘Escuelas de campo para agricultores de cacao en el Peru’. Lima.

Mesa Tecnica Cacao (2011). ‘Presentacion Marzo 2011’. Powerpoint presentation.

Peruvian Agriculture Ministry (2011). ‘Presentacion de la cadena de chocolate – Julio 2011’. Powerpoint presentation.

Annex 1 A brief description of each of the organizations is provided along with their role in the cacao industry in Peru:

Peruvian Chamber of Coffee and Cacao This organization brings together major private sector companies including producers, exporters and processing industry, promoting Peruvian coffee and cacao industry around the world.

Agriculture Ministry The Agriculture Ministry is the national government entity designated to develop policies and strategies to promote sustainable competitiveness in the agricultural sector, in line with the regional and local government agencies.

Inter-American Institute for Cooperation in Agriculture (IICA) IICA is the institution that provides technical cooperation, innovation and specialized knowledge to contribute to the competitive and sustainable development of agriculture and to improve the lives of rural dwellers. It was the implementer of the Andean Countries Cocoa Export Support Opportunity (ACCESO) program from 2005 to 2008. Andean Countries Cocoa Export Support Opportunity (ACCESO): This program aimed to improve competitiveness throughout the entire supply chain from farm to market for cacao and increase the number of farming households in those countries producing marketable quality cocoa. To achieve these goals, the network facilitates sharing of resources and best practices to enhance existing country level initiatives and foster the development of new initiatives. It was an alliance between the World Cocoa Foundation, the United States Agency for International Development (USAID), and the Inter-American Drug Abuse Control Commission of the Organization of American States (CICAD-OAS). The program promotes the participatory Farmer Field School methodology to train farmers. This is a farmer-directed approach with participants guiding the topics to be covered and engaging in hands-on activities to gain practical experience.

Peruvian Association of Cacao Producers (APPCACAO) APPCACAO is the national cacao producer association. It aims to promote the image and quality of Peruvian cacao and to strengthen the farmer basis and its representation.

Technological Innovation Center for Cacao (CITE Cacao) CITE Cacao will develop applied research and innovations to increase the competitiveness of the cacao productive chain. It will also promote and coordinate initiatives to support the sector with the national, regional and local government, as well as with national and international cooperation agencies.

Information and Education Center to Prevent Drug Abuse (CEDRO) CEDRO takes part in the Alternative Development Program (PDA) that aims at providing the adequate economic, social and political conditions to discourage farmers from growing coca for illegal uses. CEDRO promotes an attitude change based in trust and credibility through communication campaigns in relevant areas.

USAID PERU – Alternative Development Program (PDA) USAID Peru’s Alternative Development Program (PDA) is part of the U.S. counternarcotics strategy, to promote development in formerly coca-growing areas and to sustain coca reduction

achieved with eradication programs. Through the PDA, communities are offered the opportunity to sign “no replanting agreements” in which they commit to remaining coca-free, while USAID supports them with a package of assistance that includes planting new crops, increasing the productivity of existing cacao, coffee, and oil palm trees, increasing farmers’ access to financial services, strengthening producer associations and cooperatives to facilitate access to local and international markets, providing social infrastructure, and partnering with community members to support their own initiatives towards development. As part of this effort, women’s well-being, gender equity, and youth are prioritized. Chemonics and Technoserve are implementers of the PDA.

Exporters Association (ADEX) ADEX is a business institution that represents and provides services regarding international commerce to its members: exporters and importers. These services include advise in international commerce, identification of potential clients and markets, among others.

DEVIDA DEVIDA plans, promotes, coordinates and evaluates the alternative development programs, in order to improve the economic, social and political conditions in the intervention areas to, in this way, discourage coca farmers.

Cooperative: Nuevo Amanecer This is a small emerging cooperative in the region of San Martin, supported by the local church. It is relevant to mention that most of its members do not have access to drinking water.

Cooperative: ACOPAGRO ACOPAGRO is almost 20 years old, one of the oldest cooperatives in the region and certainly one of the most successful ones. It has over 1 800 members to whom it provides a wide variety of services including loans, technical assistance, capacity building and social services. ACOPAGRO is the first cacao bean exporter in Peru and it counts with different certifications including Fair Trade, Organic, UTZ and RFA.

Tropical Crop Institute (ICT) ICT is an NGO dedicated mainly to scientific research to increase productivity of crops such as cacao. They also provide technical assistance to more than 2 000 farmers in San Martin and Huanuco and are involved in technology transfer. ICT also provides services such as soil analysis, fertilizer analysis, water analysis and capacity building in different topics.

La Orquidea – Industrias Mayo S.A. This company, located in Tarapoto – San Martin, is dedicated to the production of handmade chocolates using regional cacao beans.

Annex 2: Agenda – Lima & San Martin Date Institution Name Email 08/08 10:00 am

CamCafe (Camara del Café y Cacao)

Eduardo Montauban emontauban@camcafeperu.com.pe

09/08 8:30 am

Ministerio de Agricultura Augusto Sayán Carmen Rosa Chávez

Asayan@minag.gob.pe cchavez@minag.gob.pe

11.00 am IICA María Febres Maria.febres@iica.int 09/08 12:30 pm

Asociación Peruana de Productores de Cacao

Rolando Herrero (Coop. Naranjillo)

Secretaria_ejecutiva@appcacao.org presidência@appcacao.org

10/08 8:30 am

Centro de Innovación y Tecnología – CITE Cacao

Eco. Blanca Sánchez blasan@speedy.com.pe

10:00 am CEDRO Percy Subauste psubauste@cedro.org.pe 11/08 09:00 am

USAID PERU Stella Coello Tommy Fairlie

scoello@usaid.gov tfairlie@usaid.gov

12/08 08:00 am

Asociación de Exportadores Beatriz Tubino btubino@adexperu.org.pe

9:00 am Ministerio de la Producción Javier Butrón jbutron@produce.gob.pe 12/08 03:00 pm

DEVIDA Fernando Hurtado Carlos González

fhurtado@devida.gob.pe cgonzalez@devida.gob.pe

15/08 12:00 m

Gobierno Regional de San Martín – GORESAM

Yzia Encomenderos yzia58@gmail.com

3:30pm Coop. Nuevo Amanecer Ana Viena 16/08 Cooperativa ACOPAGRO Diofanto Sanchez Diossanto26@gmail.com 17/08 9:00am

Instituto de Cultivos Tropicales ICT Enrique Arevalo e.arevalo.ict@terra.com.pe enriquearevaloga@gmail.com

10:30am Alternative Development Program Sergio Lopez slopez@chemonics.com.pe 12:00m La Orquidea Fábrica de chocolates www.industriasmayo.com 03:00 pm Technoserve Tito Jaime / Marco Viteri 18/08 ICT Centro experimental ict@terra.com.pe

Annex 3: Pictures Cacao farmers

Fermenting of the cacao beans

Drying of the cacao beans (Conventional)

Drying of the cacao beans 2