PeruvianPeruvian Brazil Nuts: An Brazil Nuts: An Exploration of Value Chains Exploration of Value Chains

and Opportunities for MSMEsand Opportunities for MSMEs

Emily ArdellEmily Ardell

Alejandra KempffAlejandra Kempff

Marco SaladiniMarco Saladini

Micro- and Small-Enterprise growthMicro- and Small-Enterprise growth course course

taught by Prof. Jeanne Downing taught by Prof. Jeanne Downing

Jonh’s Hopkins University - School of Advanced International StudiesJonh’s Hopkins University - School of Advanced International Studies

Washington, DC – USA Washington, DC – USA

Spring Semester 2005Spring Semester 2005

Presentation given on March 22, 2005Presentation given on March 22, 2005

Peruvian Brazil Nut IndustryPeruvian Brazil Nut Industry Peruvian economic reforms: improved efficiency in international trade of Peruvian economic reforms: improved efficiency in international trade of

goods, and internal economic structuregoods, and internal economic structure

Peru’s primary exports: gold, copper, fishmeal and zinc, with nut production Peru’s primary exports: gold, copper, fishmeal and zinc, with nut production playing a tiny role in Peruvian economy; however, this production is primary playing a tiny role in Peruvian economy; however, this production is primary income-generating activity in its specific regionincome-generating activity in its specific region

Completely localized industry as nuts harvested exclusively in the Amazon Completely localized industry as nuts harvested exclusively in the Amazon Rainforest. Major competitors are Bolivia and Brazil (primarily Bolivia). Rainforest. Major competitors are Bolivia and Brazil (primarily Bolivia).

International belief that Peru’s Brazil nuts are lower quality than those of its International belief that Peru’s Brazil nuts are lower quality than those of its South American neighbors.South American neighbors.

Despite fierce international competition, the Brazil nut industry in Peru has Despite fierce international competition, the Brazil nut industry in Peru has been growing each year.been growing each year.

Major market is US, with EU states following but far behind.Major market is US, with EU states following but far behind.

Where are “our” nuts from?Where are “our” nuts from?

Why this value chain, you ask?Why this value chain, you ask? Value chain chosen because Peruvian Brazil nuts have great potential to Value chain chosen because Peruvian Brazil nuts have great potential to

compete on the world market by utilizing correct toolscompete on the world market by utilizing correct tools

The Brazil nut industry in Peru has been growing substantially, reflecting The Brazil nut industry in Peru has been growing substantially, reflecting positive trends in production and potential for future growthpositive trends in production and potential for future growth

This industry employs 38% of the local population in Madre de Dios, and is 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 the principal factor that prevents the poorer members of the population from falling deeper into povertyfalling deeper into poverty

Brazil nuts contribute to the continued preservation of the Amazon Brazil nuts contribute to the continued preservation of the Amazon Rainforest, a factor which affects both regional and international Rainforest, a factor which affects both regional and international populations and landscapespopulations and landscapes

Nut consumption is increasingly supported by international health experts, Nut consumption is increasingly supported by international health experts, especially for women’s preventive health, and this is a chance to capitalizeespecially for women’s preventive health, and this is a chance to capitalize

Value chain mapValue chain mapPeru USA

Gathering ProcessingIntermediation Exporting ImportingProcessing & packaging

Retailing

Functions in the value chain

Actors in the value chain

Castañeros

Processing companies

Traders or acopiadores

Exporting companies (La Selva, El Bosque, Rovalex)

Importing companies (Bedemco)

Supermarkets (Giant, Whole foods)

Integrated processing and exporting company (Candela Peru)

Fair trade & organic stores (Global Organic, Yes Natural store)

Processing & packaging companies (Sanfilippo)

Consumers

Manufacturing companies (cakes and confectionery products)

Fair trade importer (Fair Trade Organisatie)

Brazil USA

Gathering ProcessingIntermediation Exporting ImportingProcessing & packaging

Retailing

Functions in the value chain

Allocation of valueAllocation of value

Allocation of value (percentage of final

price per pound of nuts)

Gathering

0.9

Processing

13.7

Intermediation

5.7

International shipping fees, taxes

and duties

8.6

Exporting

5.7

Importing

22.9

Processing, packaging and retailing

42.9

Gathering ProcessingIntermediation Exporting

Functions in the value chain (Peru side)

Outsourcing of servicesOutsourcing of services

Mapping and concession Government

Transport to Madre De Dios Hauliers, Candela Peru

Shelling Processing companies, Candela Peru

Finance Habilitadores,processing and exporting cos. Candela Peru

Quality certification Government facilities, exporting and processing companies, Candela Peru

Transport to Lima Processing companies

Transport to the USA Shipping companies

Training Candela Peru

Who Buys?Who Buys? International buyers are varied and include: Bedemco, SanFilippo & International buyers are varied and include: Bedemco, SanFilippo &

Sons, Amber wood, Fair Trade UKSons, Amber wood, Fair Trade UK

In-country buyers of Peruvian Brazil nuts include: Candela Peru In-country buyers of Peruvian Brazil nuts include: Candela Peru (alternative trade organization), La Selva, El Bosque and Rovalex(alternative trade organization), La Selva, El Bosque and Rovalex

Buyers of Brazil nuts need and want:Buyers of Brazil nuts need and want: Nuts of good/excellent qualityNuts of good/excellent quality Safe nuts for distribution to retailers (compliance with Safe nuts for distribution to retailers (compliance with

standards, especially in terms of aflatoxins levels)standards, especially in terms of aflatoxins levels) Consistent and reliable service in the provision of nutsConsistent and reliable service in the provision of nuts

MSMEs in the Brazil nuts value chain in Peru have basic resources, MSMEs in the Brazil nuts value chain in Peru have basic resources, and can meet most of buyers’ demands, but not alland can meet most of buyers’ demands, but not all

Historical wholesale pricesHistorical wholesale prices

0,50

1,00

1,50

2,00

2,50

3,00

US

dol

lars

per

pou

nd

Recent trends in wholesale pricesRecent trends in wholesale prices

Prices decreased between 1999 and 2001 because of Prices decreased between 1999 and 2001 because of greater supply and of stricter regulations being introduced greater supply and of stricter regulations being introduced in the European Union, as a debate on health concerns in the European Union, as a debate on health concerns unraveledunraveled

After the new regulations have settled in, European After the new regulations have settled in, European demand has gone up, by 20% in 2004demand has gone up, by 20% in 2004

Demand of mixed nuts, pushed by news reports about their Demand of mixed nuts, pushed by news reports about their health benefits, has gone up by 14% in the UShealth benefits, has gone up by 14% in the US

World supply, possibly as a consequence of scarce demand, World supply, possibly as a consequence of scarce demand, has decreased by 10% in the same yearhas decreased by 10% in the same year

The scarcity of Brazil nuts on the market has caused The scarcity of Brazil nuts on the market has caused defaults, delays and renegotiations and has resulted in defaults, delays and renegotiations and has resulted in severe tensions on pricessevere tensions on prices

The outlook on 2005 seems less extreme, with demand The outlook on 2005 seems less extreme, with demand stabilizing at lower levels and production catching upstabilizing at lower levels and production catching up

CandelaCandela

Candela is a trade organization whose activities within Candela is a trade organization whose activities within the Brazil nut industry are based on Fair Trade principlesthe Brazil nut industry are based on Fair Trade principles

Candela buys the nuts from harvesters for national and Candela buys the nuts from harvesters for national and international distributioninternational distribution

Its product lines focus on Brazil nut oil, handmade Its product lines focus on Brazil nut oil, handmade candles and Pecan Nutscandles and Pecan Nuts

Candela has worked on creating alliances and trust-Candela has worked on creating alliances and trust-based relationships with the castañerosbased relationships with the castañeros

It provides services to the castañeros, including credit, It provides services to the castañeros, including credit, training and advanced processing servicestraining and advanced processing services

TahuamanuTahuamanu

First stage of value chain- First stage of value chain- logistics engineering & logistics engineering & alliance with communityalliance with community

Advanced Industrial Advanced Industrial ProcessesProcesses

MarketingMarketing

Tahuamanu’s main strengths:Tahuamanu’s main strengths:

Value chain governanceValue chain governance The governance in this chain is in between balanced and The governance in this chain is in between balanced and

market-based. Candela Peru’s segment is directed.market-based. Candela Peru’s segment is directed. The distribution of benefits and the chain’s efficiency are The distribution of benefits and the chain’s efficiency are

heavily influenced by the extreme fragmentation of heavily influenced by the extreme fragmentation of functionsfunctions

The “links” which seem to have more power are: The “links” which seem to have more power are: - Traders in Peru, who carry out a whole range of functions - Traders in Peru, who carry out a whole range of functions from helping with concessions and credit to finding the right from helping with concessions and credit to finding the right combination of services and dealing with buyerscombination of services and dealing with buyers- Processing firms in the destination markets can decide - Processing firms in the destination markets can decide whether to use Brazil nuts in mixes and how to interprete whether to use Brazil nuts in mixes and how to interprete demand’s trends. demand’s trends.

Castañeros and most of the “links” in the destination Castañeros and most of the “links” in the destination market are confronted by exogenously determined prices market are confronted by exogenously determined prices and supply or demand, therefore they seem to have less and supply or demand, therefore they seem to have less market powermarket power

ConstraintsConstraints

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

(specific)(specific)

Peru’s AdvantagesPeru’s Advantages

New forest laws provide New forest laws provide incentives to longer tenure incentives to longer tenure and reforestationand reforestation

Improving economic Improving economic environmentenvironment

Access to seaportsAccess to seaports Peru is one of the few world’s producers of Peru is one of the few world’s producers of

this cropthis crop Brazilian production is decliningBrazilian production is declining

Possible strategies for intervention

Improve castañeros’ cohesion

Value chain focusStrengthening of horizontal linkagesUpgrading

Supporting marketsFinance

Transform the value chain into a completely directed one

Value chain focus Vertical linkages

Supporting marketsInputsFinanceProvide services to

individual castañeros and/or firms

Value chain focusVertical linkageUpgrading

Supporting marketsBusiness servicesFinance

A. B.

C.

Action planAction plan Aim at increasing quality and productivity while minimizing Aim at increasing quality and productivity while minimizing

environmental impactenvironmental impact Facilitate the creation of a cooperative among castañerosFacilitate the creation of a cooperative among castañeros Stimulate alliances and/or acquisitions between castañeros and Stimulate alliances and/or acquisitions between castañeros and

other economic agents downstream in the chainother economic agents downstream in the chain Work on key constraints through Work on key constraints through

financial aid and technical assistancefinancial aid and technical assistance Encourage the new economic entities to Encourage the new economic entities to

deal directly with buyers in-country and deal directly with buyers in-country and abroad and to collectively source inputsabroad and to collectively source inputs

Diversify the local economy (eco-Diversify the local economy (eco-tourism, crafts)tourism, crafts)

Involve women in microfinance and Involve women in microfinance and productive activitiesproductive activities

Solutions to ConstraintsSolutions to Constraints Finance Finance

Options for dealing with the financial constraints:Options for dealing with the financial constraints:

– Customize existing microfinance networks (as CREDISMAD) to Customize existing microfinance networks (as CREDISMAD) to better conform to the real needs of the MSME’sbetter conform to the real needs of the MSME’s

– Assist in the formation of new credit unions in the local areaAssist in the formation of new credit unions in the local area

– Incorporate micro-small business training (accounting, financial Incorporate micro-small business training (accounting, financial management, etc.) into microfinance services, in addition to management, etc.) into microfinance services, in addition to just credit provision.just credit provision.

– Further incorporate women (wives of harvesters) into local Further incorporate women (wives of harvesters) into local economic structure via micro-credit opportunities and small economic structure via micro-credit opportunities and small business trainingbusiness training

Solutions to ConstraintsSolutions to ConstraintsToxinsToxins

Storage- Storage- Appropriate storing Appropriate storing facilities protect the nuts from facilities protect the nuts from extreme temperatures typical of extreme temperatures typical of the amazon.the amazon.

Drying- Drying- Proper drying Proper drying techniques are necessary in order techniques are necessary in order to preserve the quality of the nuts.to preserve the quality of the nuts.

Transportation-Transportation- Timely transportation methods are critical in orderTimely transportation methods are critical in order

to avoid toxin formation.to avoid toxin formation.

Solutions to ConstraintsSolutions to ConstraintsManagementManagement

•

Management skills are key for growth. Castañeros and other entrepreneurs Management skills are key for growth. Castañeros and other entrepreneurs in the area lack themin the area lack them

Main areas to work on include financial management, logistics, marketing for Main areas to work on include financial management, logistics, marketing for export, cost reduction, handling of natural resources and customized export, cost reduction, handling of natural resources and customized technical trainingtechnical training

Castañeros, small entrepreneurs and women Castañeros, small entrepreneurs and women are the target groupsare the target groups

The association of castañeros (FEDECAMD) The association of castañeros (FEDECAMD) and the local authorities can be involved as and the local authorities can be involved as organizers and/or providersorganizers and/or providers

Some of the courses would be bundled with Some of the courses would be bundled with micro-finance products, others taken for a fee, micro-finance products, others taken for a fee, gradually increasing over timegradually increasing over time

Sources of informationSources of information Interviews:Interviews:

Edward Millard, Conservation International USAEdward Millard, Conservation International USA Edgardo Maravi, World Bank Group (Agricultural and Rural Development)Edgardo Maravi, World Bank Group (Agricultural and Rural Development) Damian Osorovich, Bedemco Inc. USADamian Osorovich, Bedemco Inc. USA Michael Valentine, John B. Sanfilippo and Sons USAMichael Valentine, John B. Sanfilippo and Sons USA Sergio Pereira, IFC World Bank Group BoliviaSergio Pereira, IFC World Bank Group Bolivia Narda Maria de la Barra Aguirre, World Wildlife Fund PeruNarda Maria de la Barra Aguirre, World Wildlife Fund Peru

Papers and articlesPapers and articles ““Case Study: Economic Viability of Brazil Nut Trading in Peru” by: Chris Collinson, Duncan Case Study: Economic Viability of Brazil Nut Trading in Peru” by: Chris Collinson, Duncan

Burnett and Victor AgredaBurnett and Victor Agreda ““Documento Preliminar: Sistemizacion de Informacion Sobre Castana (Bertholletia Excelsa) Documento Preliminar: Sistemizacion de Informacion Sobre Castana (Bertholletia Excelsa)

y Su Situacion Actual en la Region Madre de Dios” by: Natalia Quinteros Casaverde, y Su Situacion Actual en la Region Madre de Dios” by: Natalia Quinteros Casaverde, Bastianne Louman, Narda Maria de la Barra Aguirre (WWF Peru)Bastianne Louman, Narda Maria de la Barra Aguirre (WWF Peru)

““Business and Biodiversity – Rainforest Marketing and Beyond” by: Jason W. ClayBusiness and Biodiversity – Rainforest Marketing and Beyond” by: Jason W. Clay ““The Brazil Nut Industry – Past, Present and Future” by: Scott A. MoriThe Brazil Nut Industry – Past, Present and Future” by: Scott A. Mori ““Castana y Derivados, Perfil y Sectoral” by: Ceprobol, BoliviaCastana y Derivados, Perfil y Sectoral” by: Ceprobol, Bolivia

WebsitesWebsites Proyecto conservando castañales Proyecto conservando castañales Conservation InternationalConservation International World Wildlife Fund World Wildlife Fund Chris Kirby’s Personal Website (regional expert)Chris Kirby’s Personal Website (regional expert) Smithsonian MagazneSmithsonian Magazne BBC NewsBBC News