Peruvian Brazil Nuts: An Exploration of Value Chains and Opportunities for MSMEs

1. PeruvianBrazil Nuts: An Exploration of Value Chains and Opportunities for MSMEs Emily Ardell Alejandra Kempff Marco Saladini Micro- and Small-Enterprise growth course taught by Prof. Jeanne Downing Jonh’s Hopkins University - School of Advanced International Studies Washington, DC – USA Spring Semester 2005 Presentation given on March 22, 2005

2. Peruvian Brazil Nut Industry • Peruvian economic reforms: improved efficiency in international trade of goods, and internal economic structure • Peru’s primary exports: gold, copper, fishmeal and zinc, with nut production playing a tiny role in Peruvian economy; however, this production is primary income-generating activity in its specific region • Completely localized industry as nuts harvested exclusively in the Amazon Rainforest. Major competitors are Bolivia and Brazil (primarily Bolivia). • International belief that Peru’s Brazil nuts are lower quality than those of its South American neighbors. • Despite fierce international competition, the Brazil nut industry in Peru has been growing each year. • Major market is US, with EU states following but far behind.

3. Where are “our” nuts from?

4. Why this value chain, you ask? • Value chain chosen because Peruvian Brazil nuts have great potential to compete on the world market by utilizing correct tools • The Brazil nut industry in Peru has been growing substantially, reflecting positive trends in production and potential for future growth • This industry employs 38% of the local population in Madre de Dios, and is the principal factor that prevents the poorer members of the population from falling deeper into poverty • Brazil nuts contribute to the continued preservation of the Amazon Rainforest, a factor which affects both regional and international populations and landscapes • Nut consumption is increasingly supported by international health experts, especially for women’s preventive health, and this is a chance to capitalize

5. Value chain map USA Peru Functions in the value chain Processing & packaging Gathering Intermediation Processing Exporting Importing Retailing Actors in the value chain Exporting companies (La Selva, El Bosque, Rovalex) Processing & packaging companies (Sanfilippo) Supermarkets (Giant, Whole foods) Importing companies (Bedemco) Traders or acopiadores Processing companies Castañeros Manufacturing companies (cakes and confectionery products) Consumers Integrated processing and exporting company (Candela Peru) Fair trade & organic stores (Global Organic, Yes Natural store) Fair trade importer (Fair Trade Organisatie)

6. Allocation of value USA Brazil Functions in the value chain Processing & packaging Gathering Intermediation Processing Exporting Importing Retailing Allocation of value (percentage of final price per pound of nuts) Gathering 0.9 Intermediation 5.7 Processing 13.7 Exporting 5.7 Importing 22.9 Processing, packaging and retailing 42.9 International shipping fees, taxes and duties 8.6

7. Outsourcing of services Functions in the value chain (Peru side) Gathering Intermediation Processing Exporting Finance Habilitadores,processing and exporting cos. Candela Peru Mapping and concession Government Transport to the USA Shipping companies Shelling Processing companies, Candela Peru Transport to Lima Processing companies Transport to Madre De Dios Hauliers, Candela Peru Training Candela Peru Quality certification Government facilities, exporting and processing companies, Candela Peru

8. Who Buys? • International buyers are varied and include: Bedemco, SanFilippo & Sons, Amber wood, Fair Trade UK • In-country buyers of Peruvian Brazil nuts include: Candela Peru (alternative trade organization), La Selva, El Bosque and Rovalex • Buyers of Brazil nuts need and want: • Nuts of good/excellent quality • Safe nuts for distribution to retailers (compliance with standards, especially in terms of aflatoxins levels) • Consistent and reliable service in the provision of nuts • MSMEs in the Brazil nuts value chain in Peru have basic resources, and can meet most of buyers’ demands, but not all

9. Historical wholesale prices

10. Recent trends in wholesale prices • Prices decreased between 1999 and 2001 because of greater supply and of stricter regulations being introduced in the European Union, as a debate on health concerns unraveled • After the new regulations have settled in, European demand has gone up, by 20% in 2004 • Demand of mixed nuts, pushed by news reports about their health benefits, has gone up by 14% in the US • World supply, possibly as a consequence of scarce demand, has decreased by 10% in the same year • The scarcity of Brazil nuts on the market has caused defaults, delays and renegotiations and has resulted in severe tensions on prices • The outlook on 2005 seems less extreme, with demand stabilizing at lower levels and production catching up

11. Candela • Candela is a trade organization whose activities within the Brazil nut industry are based on Fair Trade principles • Candela buys the nuts from harvesters for national and international distribution • Its product lines focus on Brazil nut oil, handmade candles and Pecan Nuts • Candela has worked on creating alliances and trust-based relationships with the castañeros • It provides services to the castañeros, including credit, training and advanced processing services

12. Tahuamanu Tahuamanu’s main strengths: • First stage of value chain- logistics engineering & alliance with community • Advanced Industrial Processes • Marketing

13. Value chain governance • The governance in this chain is in between balanced and market-based. Candela Peru’s segment is directed. • The distribution of benefits and the chain’s efficiency are heavily influenced by the extreme fragmentation of functions • The “links” which seem to have more power are: - Traders in Peru, who carry out a whole range of functions from helping with concessions and credit to finding the right combination of services and dealing with buyers - Processing firms in the destination markets can decide whether to use Brazil nuts in mixes and how to interprete demand’s trends. • Castañeros and most of the “links” in the destination market are confronted by exogenously determined prices and supply or demand, therefore they seem to have less market power

14. Constraints • Toxins (systemic) • Marketing (systemic/specific) • Mapping/Timing (specific) • Tenure and Concessions (specific) • Credit/Microfinance (specific) • Lack of Management skills (specific)

15. Peru’s Advantages • Access to seaports • Peru is one of the few world’s producers of this crop • Brazilian production is declining • New forest laws provide incentives to longer tenure and reforestation • Improving economic environment

16. Possible strategies for intervention A. B. Transform the value chain into a completely directed one Value chain focus Vertical linkages Supporting markets Inputs Finance Improve castañeros’ cohesion Value chain focus Strengthening of horizontal linkages Upgrading Supporting markets Finance Provide services to individual castañeros and/or firms Value chain focus Vertical linkage Upgrading Supporting markets Business services Finance C.

17. Action plan • Aim at increasing quality and productivity while minimizing environmental impact • Facilitate the creation of a cooperative among castañeros • Stimulate alliances and/or acquisitions between castañeros and other economic agents downstream in the chain • Work on key constraints through financial aid and technical assistance • Encourage the new economic entities to deal directly with buyers in-country and abroad and to collectively source inputs • Diversify the local economy (eco-tourism, crafts) • Involve women in microfinance and productive activities

18. Solutions to Constraints Finance • Options for dealing with the financial constraints: • Customize existing microfinance networks (as CREDISMAD) to better conform to the real needs of the MSME’s • Assist in the formation of new credit unions in the local area • Incorporate micro-small business training (accounting, financial management, etc.) into microfinance services, in addition to just credit provision. • Further incorporate women (wives of harvesters) into local economic structure via micro-credit opportunities and small business training

19. Solutions to ConstraintsToxins • Storage- Appropriate storing facilities protect the nuts from extreme temperatures typical of the amazon. • Drying- Proper drying techniques are necessary in order to preserve the quality of the nuts. • Transportation-Timely transportation methods are critical in order to avoid toxin formation.

20. Solutions to ConstraintsManagement • Management skills are key for growth. Castañeros and other entrepreneurs in the area lack them • Main areas to work on include financial management, logistics, marketing for export, cost reduction, handling of natural resources and customized technical training • Castañeros, small entrepreneurs and women are the target groups • The association of castañeros (FEDECAMD) and the local authorities can be involved as organizers and/or providers • Some of the courses would be bundled with micro-finance products, others taken for a fee, gradually increasing over time

21. Sources of information • Interviews: • Edward Millard, Conservation International USA • Edgardo Maravi, World Bank Group (Agricultural and Rural Development) • Damian Osorovich, Bedemco Inc. USA • Michael Valentine, John B. Sanfilippo and Sons USA • Sergio Pereira, IFC World Bank Group Bolivia • Narda Maria de la Barra Aguirre, World Wildlife Fund Peru • Papers and articles • “Case Study: Economic Viability of Brazil Nut Trading in Peru” by: Chris Collinson, Duncan Burnett and Victor Agreda • “Documento Preliminar: Sistemizacion de Informacion Sobre Castana (Bertholletia Excelsa) y Su Situacion Actual en la Region Madre de Dios” by: Natalia Quinteros Casaverde, Bastianne Louman, Narda Maria de la Barra Aguirre (WWF Peru) • “Business and Biodiversity – Rainforest Marketing and Beyond” by: Jason W. Clay • “The Brazil Nut Industry – Past, Present and Future” by: Scott A. Mori • “Castana y Derivados, Perfil y Sectoral” by: Ceprobol, Bolivia • Websites • Proyecto conservando castañales • Conservation International • World Wildlife Fund • Chris Kirby’s Personal Website (regional expert) • Smithsonian Magazne • BBC News