Transforming Peruvian Cocoa for Producers and Buyers

The farmers are not philanthropic beneficiaries but rather full-fledged business partners, investing in their own plots and associations and making commitments to intermediate Supply Chain Managers and end-buyers. At the same time, input and technology companies finally see small-scale cacao farmers as a promising market. End buyers are positioned to work with Supply Chain Managers (both farmer associations and commercial firms) in developing long-term supply relationships, creating a virtuous circle of value creation.

Two business models are particularly significant. The first consists of five technology and input companies working collaboratively in disseminating an integrated technology package while increasing sales in a cost-effective distribution system. With support from the Alliance, these companies—Yara, Husqvarna, Naandanjain, San Fernando and TABSAC—integrate their efforts in common demonstration plots and field schools while training and certifying lead farmers as “technological agents” who then acts as sales representatives for these companies. Post-sale activities for these agents include follow-up technical assistance to keep producers within their technological network. An interesting result has been the emergence of entrepreneurs offering technical services to the now expanding and modernizing farms, showing how the model independently builds upon itself.

The second innovation has been to focus on Supply Chain Managers that build direct relationships between groups of producers and end-buyers through a centralized post-harvest facility. This allows buyers to tailor the fermentation and drying protocols with these centralized facilities to fit their exact needs while also facilitating transparency and traceability in the supply chain. Some of these are business-oriented farmer organizations such as ACOPAGRO, Alto Huallaga, Allima Cacao, while others are privately-owned firms such as Romex, Ucayali River Cacao and AMT Agroindustria.

Facilitate Across the Board Financing

For input companies to sell to producers or Supply Chain Managers to invest in facilities and purchase product requires unlocking finance. The Alliance facilitates across-the-board financing by working with a variety of financial institutions including several commercial banks as well as impact investors such as Root Capital and Incofin. The new organizational models de-risk opportunities for financing post-harvest centers, aggregators and cooperatives, all of which now have a reliable source of cacao beans and a growing directory of enthusiastic off-takers. Likewise, the embedded extension model run by input providers and technology firms features on-the-spot financing tailored to the seasonal nature of cacao cultivation. Long-term buyers also invest down their supply chain, to better control production specifications and ensure reliability of supply and quality. Mobilized financing has allowed large-scale grafting of quality genetics, including over 25,000 hectares of new cacao, the majority of which are fine-flavor.

Peru’s Transformation

With $62 million in private and public-sector investment to date, PCA has dramatically modernized the underlying market system. The Alliance manages a growing production network of 18,000 farming families and over 50,000 hectares, most just coming into full production. The economic and social success of participating farmers is encouraging further investment, including larger farms of up to 100 hectares. In the view of PCA and its members, sustainable cacao starts with viable farmers utilizing an environmentally sound agroforestry model, linked on a long-term basis to buyers, technology and finance.