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


Inputs (fertilizers and seeds) ................................................................................................ 30



Machinery and equipment .................................................................................................... 30

Credit .................................................................................................................................... 31

Technical assistance ............................................................................................................ 31

Investment ............................................................................................................................ 31

Consumers ........................................................................................................................... 31

Research .............................................................................................................................. 31

Wholesalers ......................................................................................................................... 31

Industry ................................................................................................................................. 32


c) Private sector response ................................................................................................... 34

d) Donor support for private sector activity .......................................................................... 35

e) Key findings and lessons ................................................................................................. 36

Rice .......................................................................................................................................... 37


Investors ............................................................................................................................... 41

Research .............................................................................................................................. 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



IFAD ......................................................................................................................................... 62

IICA .......................................................................................................................................... 63

Antamina .................................................................................................................................. 63

Buenaventura........................................................................................................................... 64

Annex 2. List of people interviewed............................................................................................. 65



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



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



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.


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.


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:



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.



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.



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.



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.



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.



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.



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



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



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



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.



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.



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)


cacao (Camcafé). At magazine Tecnología y Sociedad. No. 10. Practical Actions (Soluciones Prácticas).

2011. p.36

15 One quintal is equivalent to 46 Kg.



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.



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.



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.



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;



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.



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.



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


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



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.



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).



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.



Milk


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.



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.



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.



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.




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.



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



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.



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.



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


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.



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.


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.



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.



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



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).


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.



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.



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.



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).


comercialización”. David Gonzáles. CEPES. December 2010.



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.



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.



Conclusions

From the assessment of agricultural policy in Peru and analysis of the three agricultural chains

the following conclusions can be drawn:


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.


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.


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



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.



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.



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.



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



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



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).



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



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



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



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.



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



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 %.”



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



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.



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



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



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).



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:

[email protected]

Raul Claveri Jarandilla. President of Administration Committee of COCLA. E mail:

[email protected]

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)



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



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

Documents

PKP3__ Strategic role of the private sector in ARD: Peru