Would you finance mangoes from Peru?

Would you finance mangoes from Peru?

June 25, 2014 - by Leonard Sprik - 1 comment

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During the Annual General Meeting in Piura, Peru I was able to visit one of our potential partners in the region: the ‘Asociacion de Productores Agropecuarios de la Zona de Hualtaco del Valle de San Lorenzo’, APAGRO in short.

This small farmers’ organization is involved in the production of organic and fair trade mangoes. It is located in a small town called Tambogrande in northern Peru. Getting there is something of a challenge, especially when you have to take a big bus, as I had to. Our bus got stuck in overhanging electricity cables in the middle of a village …for a moment I was afraid I would be electrocuted, but after witnessing the driver courageously removing the cables from the roof, I felt at ease again.

Releasing cables from the roof of the bus

After talking to the association’s general manager I concluded that the challenges he faces are common to many value chains, and only unique on the specifics. In many value chains I have come across similar issues:

  • prices too low, often dictated by export markets because competition in western markets pushes prices down; finding the right business partners is difficult
  • local farmers, farmers’ groups and organizations have low levels of management and commercial skills to address the demanding and complicated export market
  • a risky product that needs a good growing season (sufficient sun and rain), climate changes influence the yields, and even in a good mango season the export product needs to be cooled within 24 hours.
  • local markets are unregulated and products are frequently offered at very low prices; farmers are driven to more lucrative export markets but these demand very high levels of quality and constant substantial quantities, including fair trade and organic production certification.

How does Oikocredit support APAGRO in tackling these issues?

  • At present only 4% of the total mango production is exported from Peru. This is because many countries produce mangoes, including India, Indonesia and Thailand. Oikocredit uses its international network to find more reliable international buyers in Europe, the US and Canada. Globally, the mango market is developing favourably; each year it is seeing solid growth. 
  • The association’s management and farmers (now numbering more than 60), receive various types of training from Oikocredit. They are trained in sustainable and organic production, by way of example, how to work with sustainable fertilization. Their training also extends to commercial skills and organizing the finances.

Explaining organic fertilization techniques for mango trees

Another aspect of the association’s capacity building is product diversification, for example the addition of limes and other fruits which can be produced on farms which enjoy more stable seasons and production patterns. However, mango too has other interesting markets such as local and regional markets or mango pulp production.

Product diversification in the form of limes, a cash crop produced throughout the yearMore investment/financing is essential if there is to be more control over the value chain. Local traders and intermediaries are often seen as a problem in the value chain, but of course they have added value in the mango value chain (or any other value chain for that matter). They often carry out a financing role, and in the case of mangoes, capital-intensive processing capacity is required in order to get control over export markets. Oikocredit ensures that sufficient working capital is available to producers to produce in quantities sufficient to meet the demands of international importers. The risks borne by Oikocredit are discussed and international sales contracts can be used as collateral. To my mind, this does not constitute the greatest challenge to Oikocredit, given that the association last year managed to substantially increase its production of mangoes for export to Europe (certified for Fair Trade and organic production).

The land on which the factory needs to be built. Here, we see the CEO of APAGROHowever, moving up in the value chain and reducing the association’s dependence on local processing facilities and intermediaries is another matter. Long-term investment is required in APAGRO’s own local factory in order to grow profitability and gain more control over deliveries, create more jobs in the factory, and enable more local farmers to join the association.

Now…what would you do if you were Oikocredit?

Imagine that you had the €500,000 needed for the investment in your hands, given to you by many investors that trust you.  Would you invest this amount in the local processing factory in order to help this association?  I am very much looking forward to any reactions, suggestions and/or questions you may have to help take this difficult decision!

Comments

  1. Paul EckersonPaul Eckerson Wrote on October 6, 2017 at 4:22:58 PM

    Developing a market is a complex problem. Farm crops need many things to function efficiently and consistently.It's so easy to overlook one critical element. Harvesting and handling of the product is so critical. Getting the product to a processing facility and or customer has to be reliable and capable. Delays and breakdowns can be catastrophic for the producers. A financially stable system is needed to cooperate with the investment needed from start-up to the end of the production cycle as payment is so far down the line. Investment can be years when it comes to growing trees.

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