POTATO CHAIN STUDY
FAO.ESAE-CIP Project
With contributions from producers participating in 3 experiences in the Central Ecuadorian Sierra Region
Synthesis done by Lorena Mancero
February 2007
INDEX
INDEX 2
ABBREVIATIONS 4
EXECUTIVE SUMMARY 5
I. THE POTATO IN ECUADOR 6
II. MAP OF THE PRODUCTIVE CHAIN 12
III. ANALYSIS OF THE POTATO CHAIN THROUGH THE EXPERIENCES OF THREE SMALL PRODUCER BUSINESSES 16
IV. EXPERIENCE OF CONPAPA IN TUNGURAHUA 18
V. THE EXPERIENCE OF THE EPAL IN CHIMBORAZO 28
VI. EXPERIENCE OF THE COMMERCIALIZATION OF FARMERS´ PRODUCTS COMPANY OF MULALILLO - COTOPAXI 36
VII. CONCLUSIONS 45
7.1 The barriers that make it difficult for farmers to enter into the market 45
7.2 Elements that facilitate the process of entering into the market 45
7.3 Environmental impacts of these processes 46
Analysis of the Potato Productive Chain in Ecuador, 3 case studies. 2
Index of Illustrations ILUSTRATION NO. 1: YIELD BY PRODUCTION AREAS AND VARIETIES PLANTED ...... 8 ILLUSTRATION NO. 2: POTATO CHAIN IN ECUADOR ...... 13 ILLUSTRATION NO. 3: LOCATIONS OF THE THREE EXPERIENCES TO BE ANALYZED ...... 17 ILLUSTRATION NO. 4: CONPAPA OF TUNGURAHUA POTATO CHAIN ...... 21 ILLUSTRATION NO. 5: FLOWCHART OF THE CONPAPA COMMERCIALIZATION ...... 25 ILLUSTRATION NO. 6: FLOWCHART OF THE PRODUCTION OF CERTIFIED SEED IN CHIMBORAZO ...... 30 ILLUSTRATION NO. 7: EPAL – CHIMBORAZO POTATO CHAIN ...... 31 ILLUSTRATION NO. 8: MAP OF THE POTATO CHAIN OF THE NEW HOPE ASSOCIATION IN MULALILLO ...... 38
Index of Tables TABLE NO. 1: CONPAPA ASSOCIATES PER PLATFORM ...... 18 TABLE NO. 2: CHARACTERISTICS OF THE CONPAPA ZONE ...... 19 TABLE NO. 3: DESCRIPTION OF THE TRADITIONAL AND INDUSTRIAL CULTIVATION SYSTEMS ...... 22 TABLE NO. 4: CONPAPA PRODUCTION PLANNING IN 2006 ...... 23 TABLE NO. 5: CONPAPA MARKET DATA IN 2006...... 24 TABLE NO. 6: COMMERCIALIZATION CHANNELS FOR POTATOES IN TUNGURAHUA ...... 26 TABLE NO. 7: BOTTLENECKS PER LINK OF CONPAPA TUNGURAHUA ...... 27 TABLE NO. 8: DESCRIPTION OF THE ZONE OF INFLUENCE OF EPAL...... 29 TABLE NO. 9: PRODUCTIVE SYSTEM BEFORE AND AFTER THE IRRIGATION SYSTEM (1997) IN THE LICTO ZONE ...... 30 TABLE NO. 10: DESCRIPTION OF THE POTATO CULTIVATION SYSTEM BEFORE AND AFTER THE CONSTITUTION OF EPAL (2002)...... 32 TABLE NO. 11: COMMERCIALIZATION SERVICE COSTS OF EPAL PAID BY THE PRODUCERS ...... 34 TABLE NO. 12: POTATO COMMERCIALIZATION CHANNELS IN CHIMBORAZO ...... 35 TABLE NO. 13: BOTTLENECKS PER LINK OF THE EPAL CHIMBORAZO POTATO CHAIN ...... 35 TABLE NO. 14: DESCRIPTION OF THE MULALILLO ZONE ...... 37 TABLE NO. 15: PRODUCTIVE SYSTEM IN MULALILLO ...... 38 TABLE NO. 16: CHARACTERISTICS OF THE CULTIVATION SYSTEM BEFORE AND AFTER ...... 41 TABLE NO. 17: SALES VOLUME OF THE NEW HOPE COMPANY ...... 42 TABLE NO. 18: INDUSTRY QUALITY STANDARDS ...... 43 TABLE NO. 19: BOTTLENECKS PER LINK IN THE MULALILLO POTATO CHAIN ...... 43
Index of Graphics GRAPHIC NO. 1: ECUADOR – POTATO PRODUCTION , AREA HARVESTED AND YIELD ...... 6 GRAPHIC NO. 2: RELATIONSHIP BETWEEN THE NUMBER OF PRODUCERS AND THE AREA PLANTED ...... 7 GRAPHIC NO. 3: THE COUNTRY ’S MAIN PRODUCTION ZONES ...... 7 GRAPHIC NO. 4: SEASONAL NATURE OF THE HARVESTS (H AS )...... 8 GRAPHIC NO. 5: POTATO EXPORTS IN MT ...... 9 GRAPHIC NO. 6: IMPORTS IN MT...... 9 GRAPHIC NO. 7: NATIONAL DEMAND FOR POTATOES BY SECTOR (MT)...... 10 GRAPHIC NO. 8: AVERAGE YEARLY POTATO PRICE IN WHOLESALE MARKETS (USD/ QQ )...... 10 GRAPHIC NO. 9: 2005 WHOLESALE PRICE BY POTATO VARIETY (USD/ QQ )...... 11 GRAPHIC NO. 10: 2006 MONTHLY CONPAPA SALES VOLUME AND SALE PRICES ...... 24 GRAPHIC NO. 11: PRICE BY VARIETY OF POTATO IN THE AMBATO WHOLESALE MARKET ...... 25 GRAPHIC NO. 12: MONTHLY CONSUMER PRICE OF CHOLA VARIETY IN AMBATO , 2006...... 26 GRAPHIC NO. 13: 2006 MONTHLY EPAL SALES VOLUME AND PRICES ...... 33 GRAPHIC NO. 14: PRICES BY POTATO VARIETY IN THE RIOBAMBA WHOLESALE MARKET ...... 34 GRAPHIC NO. 15: POTATO COMMERCIALIZATION STATISTICS . COMMUNITY COMPANY OF MULALILLO ....42
Analysis of the Potato Productive Chain in Ecuador, 3 case studies. 3
ABBREVIATIONS
APUs Agricultural Production Units
BNF Banco Nacional de Fomento / National Bank for Progress
CESA Central Ecuatoriana de Servicios Agrícolas / Ecuadorian Center for Agricultural Services
CIP Centro Internacional de la Papa / International Potato Center
CONPAPA Consorcio de Productores de Papa / Consortium of Potato Producers
CORPOAMBATO Corporación Ambato / Ambato Corporation
COSUDE Agencia Suiza para el Desarrollo y la Cooperación / Swiss Cooperation for Development
EPAL Empresa de Productores Agrícolas de Licto / Agricultural Producers Business of Licto Chimborazo
FORTIPAPA Proyecto de fortalecimiento del rubro papa / Potato Strengthening Project
FAO Organización de las Naciones Unidas para la Agricultura y la Alimentación / United Nations Food and Agriculture Organization
Ha Hectares
IEDECA Instituto de Ecología y Desarrollo de las Comunidades Andinas / Institute of Ecology and Development of Andean Communities
IMP Integrated Pest Management
INIAP Instituto Nacional Autónomo de Investigaciones Agropecuarias / National Institute for Agricultural and Livestock Research (INIAP)
MAG Ministerio de Agricultura y Ganadería del Ecuador / Ministry of agricultura and Livestock of Ecuador
MCCH Maquita Cushunchi: Commercializing as Brothers. Foundation for the support of the commercialization of small-scale producers
MT Metric Tons
NGOs Non Governmental Organizations
PODER Productores Organizados por el Desarrollo Empresarial Rural / Producers Organized for Rural Business Development
QQ Quintal – Hundredweight or one hundred pounds
SICA Servicio de Información y Censo Agropecuario / Agricultural Information Service and Census
Analysis of the Potato Productive Chain in Ecuador, 3 case studies. 4
Executive Summary
he present study is the first stage of the project titled “Facilitating small producers access to the new agricultural economy” , which is being executed by the United Nations Food and Agriculture Organization (FAO) and the International Potato Center (CIP).
TTheT study is being conducted on the potato sector in Bolivia and Ecuador and it contemplates three main phases and specific analysis in each of the two countries. The first phase is the mapping of the potato value chain in three case studies; the second phase begins with the design of surveys which will be applied to a sample of producers and in the market; and the third and conclusive phase will define the parameters of public policies in different aspects.
The specific objective of the first phase is to conduct an analysis of the value chain of the potato sector; the study focuses on three specific experiences where small producers have been linked to productive chains. The study emphasizes the role of platforms and client relationships with restaurants, chicken restaurants, industries and supermarkets; the barriers which farmers encounter when they attempt to link up to markets or become part of or gain access to the chain; and the process of integrating into the chain.
The analysis has a general description of the potato its the productive chain in Ecuador, reiterating its importance due to the fact that it consists of more than eighty thousand producers, of which 50% are considered small-scale (with landholdings of less than 2 hectares) to the productive chain.
Historically small producers have worked according to an inefficient and individualist model, however, thanks to associativity and support from NGOs and projects some of these farmers have been able to associate and coordinate their actions in line with an alternative model that optimizes the chain.
Subsequently a detailed analysis of the various links in the chain of this new model is presented. This analysis contemplates three experiences of associative businesses created by small-scale producers from Chimborazo, Cotopaxi and Tungurahua Provinces. These experiences directly link 1.4% of all the producers across the country.
The new model differs from the traditional one in that its structure generates advantages which facilitate the insertion of small producers in more efficient chains that have the direct effect of increasing negotiation power, increasing profit margins, improving productive capacities and access to services, etc.
Analysis of the Potato Productive Chain in Ecuador, 3 case studies. 5
I. THE POTATO IN ECUADOR
he area used for potato cultivation has tended to decrease over the past 17 years. In the early 1990s The volume of potato more than 65,000 hectares of potato were in production production has butTT by 2006 the area in production had decreased to 45,000 hectares. However the reduction in area has not led to a decrease in the remained the same production volume. On the contrary, the incorporation of seeds dedicated despite the fact that to satisfying the growing industrial demand together with the adaptation the production area of new technological packets caused yields to rise to more than 10 tons has been reduced. per hectare. This allowed production to continue at volumes averaging 405 tons a year, which is enough to satisfy the demand of the local market.
Graphic No. 1: Ecuador – Potato production, area harvested and yield
SurfaceSuperficie area Cosechada harvested (Has) (Has) ProductionProducción (MT) (TM) 70.000 600.000
60.000 500.000 50.000 400.000 40.000 300.000 30.000 200.000 20.000
10.000 100.000
- -
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
RendimientoYield (MT/Ha) (TM/Ha) 12,00
10,00
8,00
6,00
4,00
2,00
0,00
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Source: SICA – MAG Author: Lorena Mancero
According to the National Agricultural Census 1 there are 82,759 production units growing potato. The majority of them are located in the Provinces of Carchi, Chimborazo, Cotopaxi, Tungurahua and Pichincha, which account for 76% of the land dedicated to potato production and 81% of the production volume.
1 The III Agricultural Census was undertaken between October 1, 1999 and September 30, 2000. It gathered information from a sample of 162,818 production units selected from among all of the country’s provinces.
Analysis of the Potato Productive Chain in Ecuador, 3 case studies. 6
Graphic No. 2: Relationship between the number of producers and the area planted
17.886 HectáreasHectares
Más de 10 ha More than 10 ha 10.509 UPAsAPUs
20.509 BetweenEntre 2 and2 y 1010 ha 31.072 Small-scale farmers comprise the 9.100 majority of potato LessMenos than de two 2 ha producers … but 41.178 they possess only a fraction of the land in production.
Source: III CNA – MAG Author: Lorena Mancero
Among potato producers there are many small-scale farmers with less than 2 hectares of land. And though small-scale producers represent 50% of the total number of Agriculture Production Units (APUs) they possess just 19% of the land planted with potatoes. Therefore, it may be deduced that the majority of production land belongs to medium and large producers. As seen in the graphic above, there are 20,509 hectares belonging to 31,072 medium producers who own between 2 and 10 hectares, and 17,886 hectares are in the hands of large producers who on average own more than 10 hectares.
Graphic No. 3: The country’s main production zones
Otras Carchi 19% 26%
Producers in Carchi Chimbor Pichinch cultivate more 15% Tungurah 11% Cotopaxi potatoes than any 14% 15% where else in the country. Source: III CNA – MAG Author: Lorena Mancero
During the Agricultural Census the Province of Carchi registered 6,179 hectares of potato crops which belonged to 4,166 APUs; and by 2005 this number rose to 7,761 hectares. The cantons in northeastern Carchi – Tulcán (2,873 ha) and Montúfar (2,026 ha) – registered the greatest area dedicated to potato production.
The data shows that the climatic conditions, mainly rainfall (December in Chimborazo and June in Carchi and Cotopaxi), strongly influence farmers’ decision about whether or not to plant potatoes. Therefore production is markedly seasonal which leads to over supply in December and June.
The situation is most severe in the Chimborazo Province, where the production zones are located at high elevations and there is an almost total lack of irrigation. In Carchi and Cotopaxi the productive zones are lower and more likely to have access to irrigation, which means production is less seasonal than in Chimborazo.
Analysis of the Potato Productive Chain in Ecuador, 3 case studies. 7
Ilustration No. 1: Yield by production areas and varieties planted
Source: SICA – MAG
As shown in the previous map, the Northern Sierra (Carchi Province) boasts the highest yields. The varieties grown in this area are Superchola, Gabriela, Esperanza, Roja, Frypapa and María .
In the Central Sierra (mainly in Cotopaxi, Chimborazo and Tungurahua Provinces) farmers mostly grow Gabriela, Esperanza, María, Frypapa and the native Uvilla and Leona Blanca varieties. In the Southern Sierra (in Azuay, Cañar and other less important potato-producing provinces) they plant the Bolona, Esperanza, Gabriela and Jubaleña varieties.
Graphic No. 4: Seasonal nature of the harvests (Has)
1800 1687 1600 CARCHI 1507 1400 1268 COTOPAXI 1200 CHIMBORAZO 1239 1000 972 906 800 770 618 654 600 501 400 S 308 200 76 The harvest is 0 seasonal and JanEne Feb Mar Apr Abr May May Jun Jul Aug Ago Sep Oct Nov De Dicc depends on climatic ource: SICA – MAG Author: Lorena Mancero factors.
Over the last five years potato exports have practically disappeared. Between 1995 and 2000 there was evidence of clear growth in exports, however the economic crisis of 1999 and the dollarization of the economy in 2000 precluded the possibility of penetrating foreign markets. In 2006 potatoes were exported to the following destinations: USA (19 tons); Cuba (10 tons); and Spain (8 tons). Frozen potatoes (patatas) made up the majority (70%) of the exports.
Analysis of the Potato Productive Chain in Ecuador, 3 case studies. 8
Graphic No. 5: Potato exports in MT
20000 18000 19.243 16000 14000 12000 Exports are minimal. 10000 TM 8000 6.148 6000
4000 3.158 1.270 1.298 2000 1.010 2 541 96 101 159 36 107 38 34 0 1992 1994 1996 1998 2000 2002 2004 2006
Source: BCE Author: Lorena Mancero
On the other hand potato imports increased six-fold between 2000 and 2006 in response to the dynamic of the fast food restaurants (international franchises).
Last years some of the main importers were: Cendival; Diarjo; Importadora El Rosado; Supermercados La Favorita; Induash; Int Food Services Corp; Keystone Distribution; Kypross; Logalisa; Seaboard Food; Food Solutions; and Veconsa.
In 2004 “prepared or preserved (except in vinegar o in acetic acid) or frozen potatoes” made up 96% of potato imports). This product was identified by the customs code Nandina 2004100000 and it as charged a tariff of 20% advalorem . In 2006 there were also imports of “prepared potatoes or preserved without freezing” (2005200000) and “frozen potatoes” (0710100000) despite the fact that this last product requires an import permit from the Ministry of Agriculture.
Graphic No. 6: Imports in MT
6000 5.341 5000 4.882 4.461 4.230
4000 3.656
TM 3000 Imports are on the 1.883 2000 rise. 1.223 1.068 865 757 687 630
1000 489 46 5 16 2 0 1990 1992 1994 1996 1998 2000 2002 2004 2006
Source: BCE Author: Lorena Mancero
The graph below shows the distribution of potato demand in Ecuador. In 2006 the majority (74%) of potatoes were destined for household consumption while 17% were used for seed production and 9% were used by industry (this includes imports).
Analysis of the Potato Productive Chain in Ecuador, 3 case studies. 9
Graphic No. 7: National demand for potatoes by sector (MT)
500.000
450.000
400.000
350.000
300.000
250.000
200.000
150.000
100.000
50.000
0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
FINCA * INDUSTRIAL ** DOMESTICA *** EXPORTACIONES
Source: SICA - MAG Author: Lorena Mancero
In recent years The evolution of prices is inversely and proportionally related with the potato prices have volume of domestic potato production. The highest prices during the past not shown a clear 16 years were recorded between 1996 and 1997, which was a period when pattern or tendency. production levels had fallen significantly (by 35%) compared with 1995. Production decreased due to climatic factors.
Graphic No. 8: Average yearly potato price in wholesale markets (USD/qq)
14,00 12,75 12,16 11,70 12,00 10,34 10,34 10,02 10,00 9,21 9,03 8,57 7,58 7,67 8,00 6,67 6,85 5,72 6,03 6,00 5,40 USD / qq USD /
4,00
2,00
- 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Source: SICA – MAG Author: Lorena Mancero
In 1999 there was a significant reduction in prices precipitated by the drastic devaluation of the exchange rate that occurred at that time. This situation made the internal prices highly competitive in dollars (6 USD/qq), and since then the price has risen.
The graph below compares the prices of the different potato varieties during the last year when official statistics were available. Chaucha, Uvilla, Gabriela and Superchola received the best prices.
Analysis of the Potato Productive Chain in Ecuador, 3 case studies. 10
Graphic No. 9: 2005 wholesale price by potato variety (USD/qq) 23,00
21,00
19,00
17,00 15,00
13,00
USD USD / qq 11,00 9,00
7,00 5,00 ENE FEB MAR ABR MAY JUN JUL AGO SEP OCT NOV DIC MARIA ROSITA FRIPAPA PAN SEMIBOLONA GABRIELA SUPERCHOLA ESPERANZA UVILLA STA CATALINA
CECILIA CHAUCHA RUBIROJA
Source: Price and Market Information Service - MAG Author: Lorena Mancero
VARIETY JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC AVG GABRIELA 7,30 8,89 9,71 12,70 12,34 10,21 10,07 12,29 14,29 15,56 16,56 16,56 11,66 SUPERCHOLA 8,62 10,70 12,52 14,97 15,01 12,07 12,34 13,34 15,38 17,83 18,23 18,69 13,83 ESPERANZA 6,76 8,71 10,21 11,93 10,89 9,34 9,84 10,80 13,29 14,29 14,65 14,74 10,93 MARIA 5,22 7,12 8,39 11,16 9,80 8,26 8,21 9,75 11,43 13,02 13,61 13,97 8,89 UVILLA 8,80 10,12 12,02 17,10 17,15 12,70 11,88 13,97 16,87 18,60 19,41 20,23 14,29
STA CATALINA 7,17 9,21 10,30 12,84 11,98 9,80 10,07 11,93 14,02 15,65 16,56 17,33 11,98
RUBIROJA 6,85 9,34 11,25 14,83 13,61 11,20 11,88 12,52 14,88 17,33 17,06 17,60 10,89
CECILIA 8,75 10,80 14,38 15,60 15,42 13,47 11,20 12,11 14,52 16,78 18,60 18,60 14,20
ROSITA 5,44 8,07 9,34 10,61 9,80 7,94 8,71 10,07 12,25 14,29 14,29 14,61 10,61
FRYPAPA 5,81 7,62 8,71 10,89 10,89 9,07 9,53 11,57 12,25 13,52 14,97 15,88 10,21
PAN 4,99 7,48 9,53 9,98 8,16 6,58 7,94 9,30 10,43 12,25 12,25 12,70 8,85
SEMIBOLONA 7,03 8,85 10,66 11,79 10,30 8,48 8,16 10,89 13,15 13,15 13,38 13,38 10,12
CHAUCHA 10,89 14,97 15,42 21,32 20,87 13,47 14,38 18,60 20,19 19,19 18,92 18,14 15,88 Source: Price and Market Information Service - MAG Author: Lorena Mancero
Analysis of the Potato Productive Chain in Ecuador, 3 case studies. 11
II. MAP OF THE PRODUCTIVE CHAIN
he potato is one of the main traditional crops cultivated in Ecuador; there are more than 82,000 producers in 90 cantons.
Production is oriented principally towards internal consumption. Potato planting and harvesting are done year round, which means that Ecuador produces TenoughT to satisfy its domestic demand. Nevertheless it is important to note that there are seasons when climatic factors cause the supply to rise or fall.
Potatoes are produced at between 2,700 and 3,400 meters above sea level; however the best yields – between 12 and 14 MTs per hectare – are typically found at elevations between 2,900 and 3,300 meters.
Below there is a general analysis of the potato chain in Ecuador, and a more detailed analysis of the 3 experiences follows later (light blue portion of the graphic).
From the point of view of small farmers there is a “traditional” production chain (depicted in brown) which is inefficient due mainly to the long intermediary chain, the lack of organization among the producers, inability to manage market information, etc.
The following may be observed in the chain links:
With respect to seed provision , it has been shown that there are three types of seed: common seed, certified seed and improved seed: Common seed represents 89% of the area planted and farmers supply their own, exchange with other farmers and buy it in local markets. Certified seed makes up just 2% of the seed market and it is provided by INIAP. Improved seed is used on 9% of the crop and it is supplied by seed growers.
In regard to production , during the 1990s Ecuador had an average annual production of approximately 419,000 MT and 82,759 producers were involved in the chain. According to the Agricultural Census the majority are small producers with little land. The typologies of the producers participating in this link of the chain are: Large and medium producers located in the Northern Sierra. These producers generally have better access to technology, water and production resources, which enables them to generate yields of between 12 and 14 hectares. Small disorganized producers located throughout the country who do not manage market information and who generally do not have appropriate conditions for production or sufficient resources to invest in crop. Furthermore these small producers typically plan their planting according to the climate (rainfall). Associations of small producers located mainly in the Central Sierra. They play an important role in improving commercialization, organization and production and 1.4% of all potato producers in Ecuador directly participate in them .
Collection and commercialization : in general it is the fresh, unprocessed potato that is commercialized. Approximately 81% of national potato production is commercialized fresh for household consumption and potato processing industries use the rest to make chips and potato sticks for French fries.
Thanks to the associative commercialization initiatives of small producers there are now organizations and businesses that have established alternative channels to improve their market linkages. The experiences that will be analyzed in this report are examples of organizations that have established commercialization networks mainly to supply industry and local chicken restaurants.
Analysis of the Potato Productive Chain in Ecuador, 3 case studies. 12 Illustration No. 2: Potato chain in Ecuador
MAG: FTA Local government agricultural involvement credit policy Environment Imported seed PRODUCTION COLLECTION TRANSFORMATION COMMERCIALIZATION CONSUMPTION COMMERCIALIZATION 82,759 potato producers Large INDUSTRY - Direct sales force: FritoLay: 98%; To supermarkets, stores Large producers PropalSnacks and vending machines. Import Potato chips Carlisnacks Nutrinsa - Distributors Ecomsa
INIAP Artisan industry MCCH
Chicken restaurants Associations of small and CONPAPA Seed growers French fries medium producers Import EPAL Fast food restaurants Other Auto-supply, supply initiatives Informal Restaurants Potatoes in other through trade presentations exchange/trade, supply through sales to wholesale markets Unorganized producers Intermediaries and Wholesale markets Retail markets wholesalers and Fresh potatoes traditional collection Warehouses centers
Business Research Organization Storage Transport Credit Packaging Universities Extension services INIAP Coordinated harvests Market information NGOs
Source: Workshops, interviews and secondary information. January 2007. Author: L.Mancero Across the country wholesale markets are an important channel for the commercialization of fresh potatoes. Nevertheless it is important to emphasize the existence of informal potato trade originating in neighboring countries.
In the traditional chain producers harvest and sell their production in wholesale markets where the price depends on the supply and demand for the product on the day of the transaction. The price is set by businessmen and wholesalers who have greater negotiation power because of the volumes they purchase. They generally have access to collection, transport and distribution systems to move fresh potatoes in local and regional markets.
Large as well as artisan manufacturers have mainly focused their industrialization of potatoes on the production of potato chips. The large companies – Fritolay, Nutrinsa, and Ecomsa are among the best known – operate with international capital to offer the market brand name products. However these products compete with the informal production of potato chips which are inherently less expensive.
The varieties most in demand for this type of value added process are: Frypapa, Capiro, Superchola, María, and Santa Catalina.
The companies that engage in large-scale potato processing have systems that supply them directly with potatoes. Though they mostly work with large potato producers out of concern for consistent quality, the large companies represent a sales channel for the majority of businesses comprised of small producers.
Restaurants, which are categorized by the volumes they purchase, mostly buy from wholesale markets, retailers and warehouses.
Another segment of the potato market consists of chicken restaurants which require quality potatoes – but not as high quality as the large companies – for frying. These restaurants represent an interesting market for associations of small producers because their potatoes are good enough for this segment but not for the industrial sectors.
In Ecuador potatoes are mainly used for cooking, however recently the consumption of chips and French fries has grown.
Universities and INIAP provide the research services necessary for the development of the chain.
Technical assistance and commercialization support for small producers are provided by NGOs through cooperative projects.
Technical assistance for large producers is provided by the food industry or by independent professionals based on the producers’ needs.
Financial services are the main bottleneck in the potato chain because of the guarantees and requirements imposed by financial institutions before they will grant a loan. Local savings and loan cooperatives are the main providers of financial services to potato producers.
The National Bank for Progress (BNF), as part of the state owned bank, also provides production loans. In the Central Sierra potato is one of the principal crops for which loans are made.
In the context of agriculture policy recent governments have neglected the potato sector, which have used only two policy tools: 1) advisory councils that generate policy recommendations based on consensus reached by the various actors in the potato chain; and 2) customs policy that sets tariff rates and import permits.
The potato advisory council exists but it has achieved little with respect to direct advocacy on matters important to the potato chain.
With respect to foreign policy, in recent years Ecuador negotiated but did not sign the FTA with the U.S. As a result it is impossible to clearly foresee what the foreign policy repercussions will be specifically for the potato sector.
In the past few years local governments (as well as provincial and municipal governments) have increasingly supported associative initiatives by small potato producers. This may be seen in the potato platforms in Tungurahua, Chimborazo and Cotopaxi, which received public investment in training and technical assistance for the potato sector.
Despite the fact that the national agriculture policy has historically not pursued an agenda for the sector, it seems that the new government will set agricultural policies more favorable to small producers. Presently there is a sub secretary of economic solidarity who has proposed working matters of interest, such as associativity and microfinance, to small-scale producers.
Analysis of the Potato Productive Chain in Ecuador, 3 case studies. 15
III. ANALYSIS OF THE POTATO CHAIN THROUGH THE EXPERIENCES OF THREE SMALL PRODUCER BUSINESSES
n analysis of the main variables in the context of the chain enables us to appreciate the importance of the potato and the potato chain to small producers in Ecuador.
The potato chain is comprised mostly of small producers (50% of all the producers),AA who historically have faced a number of obstacles that have impeded their development. Some of the main obstacles are: the long chain of intermediaries between the producer and the consumer which reduces the profit margin and subsequently the producers’ incomes; the lack of certified seed negatively affects yields and production in general; frequent outbreaks of plagues and diseases; lack of resources for production; disorganization; lack of technical know-how; etc.
Associations of small producers have undertaken initiatives to address these problems and improve the production and commercialization processes in order to increase their incomes.
Below there is an analysis of the potato chain based on three case studies. These three experiences allow us to learn how an “alternative” and “parallel” chain operates along side the traditional supply chain in which many other small producers participate.
It is an “alternative” chain because it represents a channel that improves the conditions for negotiation and improves the price paid to small producers.
It is a “parallel” chain because its operation does not eliminate the traditional chain but rather it enables the producers to commercialize a higher percentage of their production.
The three case studies which will be analyzed are:
Case 1: The experience of the Consortium of Potato Producers of Tungurahua (Conpapa of Tungurahua), which is supported by Swiss Cooperation for Development (Cosude) and implemented by the National Institute for Agricultural and Livestock Research (INIAP).
Case 2: The experience of Agricultural Producers Company of Licto Chimborazo (EPAL) which is supported by Consude project Producers Organized for Rural Business Development (PODER) and executed by the Ecuadorian NGO CESA.
Case 3: The experience of the Farmers’ Products Commercialization Company of the New Hope Association of Mulalillo Cotopaxi (New Hope Association) , which is supported by Maquita Cushunchi (MCCH), a Foundation with a track record of working with small producers and markets.
Analysis of the Potato Productive Chain in Ecuador, 3 case studies. 16
Illustration No. 3: Locations of the three experiences to be analyzed
New Hope Mulalillo, Cotopaxi
Conpapa Píllaro and Pilahuin, Tungurahua
EPAL Licto, Chimborazo
Analysis of the Potato Productive Chain in Ecuador, 3 case studies. 17
IV. EXPERIENCE OF CONPAPA IN TUNGURAHUA
he Conpapa in Tungurahua originated as part of a strategic support of the potato projects of the National Program of Roots and Tubers of INIAP and of the Swiss Cooperation for Development (Cosude). After working for 11 years, and in the fourth phase of the Fortipapa Project, a strategic plan was included to join together institutions interested in the same subject (the potato crop), producers,TT supply and service providers, and consumers (agro industrial, restaurants, consumer families and intermediaries), support institutions and local governments.
To achieve this involvement and integration between these different actors provincial potato platforms were created, as of the second semester of 2003. Through these platforms the formulation and execution of shared projects brought together a conjunction of actors that had the purpose to contribute to the organizational and commercial improvement of small-scale potato producers and provide them with services to link them directly with the market.
In the Tungurahua platform there has been participation from producer groups from two zones of the province and institutions such as: IEDECA, INIAP, CESA- Tungurahua, Ambato Technical University, CORPOAMBATO, and the Provincial Council of Tungurahua among the most important.
The platforms have been an interesting development strategy for the potato sector; however it has been an area lead and driven by institutions with the participation, but weak empowerment, of the producers.
To overcome this weakness more emphasis has been placed on strengthening the organization of the producers through a national potato producer’s consortium – CONPAPA – which consists of provincial organizations.
CONPAPA is the union of small-scale potato grower’s organizations linked to platforms, the same which are distributed in the following manner:
Table No. 1: Conpapa associates per platform Total no. of Associate Platform Associations producers in the Producers province Tungurahua 30 associations 366 producers 19,414 Quero 15 associations 286 producers (located in Tungurahua) Chimborazo 17 associations 350 producers 18,376 Bolívar 6 associations 51 producers 3,403 Cotopaxi In process Total 1,053 producers 41,193 % in relation to the 3% total no. of producers in 3 provinces Source: Conpapa Author: Lorena Mancero
Beginning of the The Conpapa of Tungurahua currently works with legal representation and has 366 associated potato producers from two zones in the involvement of province, Píllaro and Pilahuin, representing 17 different communities. producers
Analysis of the Potato Productive Chain in Ecuador, 3 case studies. 18
Based on results from workshops and interviews with a group of Conpapa of Tungurahua members it has been determined that the involvement of the producers with this initiative originated when the IEDECA promoted the project in a meeting in Mocha. After this meeting the producers participated in a farmer field school and began a training process promising to spread what they learned to others and create groups to cultivate the Frypapa variety in their respective zones.
This process began with the participation of a few producers from the communities of Tamboloma and Yatzaputzan which brought Frypapa variety seeds to their zones. They initially experienced adaptation problems due to the seeds being raw and the growth of the plant was uneven.
The requirements to participate in Conpapa are: ⇒ The participation depends on the interest of the organization which must be organized and legally constituted ⇒ Participation in a farmer field school during one crop cycle ⇒ A contribution of $5 USD to the National Conpapa, plus a contribution to the provincial platform which is decided by an assembly, in the case of Conpapa of Tungurahua the contribution is $5 USD ⇒ Additionally there is a contribution to the capitalization fund of a 6% commission per quintal sold
According to the opinion of the associated producers those that don’t participate do not want to work in an organized manner.
The benefits received by the producers associated with Conpapa are: ⇒ They have achieved a better understanding of diseases, white worm, production cost reduction, and implementation of IPM in their crops ⇒ Improved seeds that are more resistant to disease 2 ⇒ Direct sales of their potatoes, instead of selling to intermediaries ⇒ Improved sales price and earnings ($2-3 USD over market price) ⇒ Advances on payment of 50% the moment they deliver the potatoes to the commercialization center and complete payment 8 days after the total sale
The table below presents the characteristics of the zone in which Conpapa of Tungurahua is working.
Table No. 2: Characteristics of the Conpapa zone CONPAPA Characteristics of Geographic Tungurahua Province the area where this location of this experience is experience developed Productive zones Communities of the Píllaro Zone Guapante grande, Guapante chico, La lindera, Yatchil, La Victoria,
Communities of the Pilahuin Zone Mulanleo, Yluscapamba, Tamboloma, Campo Alegre, Los Arbolitos, 12 de Diciembre, Nueva Esperanza, El Lindero, Llangahua, San Luis, Chibuleo. Altitude 1,900 – 2,900 meters above sea level Primary source Livestock and agricultural activities of family income Pri nciple non - Migration
2 Even though the producers mention improved resistance to disease, they don’t specify with clarity which ones.
Analysis of the Potato Productive Chain in Ecuador, 3 case studies. 19
CONPAPA agricultural activity Size of lots Mini-lot zone (potato production between one and two subplots) Sources of credit Local savings and loans cooperatives: - Mushuc Runa 12% - San Francisco 12% + commission 15-18% - Sacaiet National Bank - BNF 8% Average no. of 5-6 members per family Land possession For the most part land-holding are owned. There are also shared and rented lands. Soil quality Black soil, slight slope Irrigation source Irrigation channel: Cunucyacu – Chimborazo and system Y San Alfonso
Flood irrigation Source: Interviews and focus groups Author: Lorena Mancero
The principle crops in the Pilahuin zone are: habas, melloco, oca, mashua , barley, hay, pasture, garlic, carrots, potatoes, and white The potato chain of onion. Conpapa of Tungurahua The area livestock production consists of dairy cows, sheep, pigs, cattle and guinea pigs.
Non-agricultural income comes from migration; however agriculture is the principle source of family income.
The chain involves the links of production, collection and commercialization of fresh potato, the transformation and commercialization of finished products and consumption. (see illustration no. 3)
The chain also consists of a system of seed, supplies and service providers.
On the level of SEED it has been observed that certified as well as common seed is used. The flow of seed is through the following chain:
Certified seed from INIAP → passed to the seed growers of the Tamboloma, Yatzaputzan, Pillaro, Quero zones → the Conpapa then distributes the seed according to the planting calendar of the different zones.
With respect to common seed, it is exchanged and the producers also stock up with reserves from their own harvests.
The selling price of certified seed from INIAP starts at $22.5 per quintal and the seed growers sell at $12 per quintal to Conpapa, then Conpapa sells to the producers at $13 per quintal, keeping a margin of $1 per quintal which goes towards the seed fund.
The varieties currently harvested in the zone are Uvilla, Chaucha, and Cacho which are, for the most part, dedicated to auto-consumption. The Gabriela variety was also produced in the zone in the past and was mostly commercialized. The main demand for this variety was for family consumption and restaurants which are the principle flow of commercialization of the wholesale markets which is the traditional sales channel.
Analysis of the Potato Productive Chain in Ecuador, 3 case studies. 20 Illustration No. 4: Conpapa of Tungurahua Potato Chain
MAP OF THE CONPAPA OF TUNGURAHUA POTATO CHAIN SERVICE AND PRODUCTION COLLECTION TRANSFORMATION COMMERCIALIZATION CONSUMPTION SUPPLY COMMERCIALIZATION PROVIDERS
Industry Tiendas y markets National - Directsupermercados sales force: To supermarkets, Potato producers PRODUCTOS stores and vending
SEEDS (366 associates) ALEXANDER machinesCentros Naturistas y Certified seed Médicos Naturistas INIAP → group of - Distributor Potato chips seed growers PROPAL SNACK Tamboloma, Yatzaputzan, Pillaro, Conpapa commer- Quero zones → cializer in Ambato Conpapa 1,600 quintal/mo. avg. Common seed Exchange and auto- Artisanal industry supply Píllaro Zone (3 clients) 5 communities: Guapante grande, Guapante chico, La Restaurants OTHER SUPPLIES lindera, Yatchil, La Victoria,
Fertilizers and RICO POLLO markets Local French fries agrochemicals: Pilahuin Zone FAST CHICKEN - Agros of Ambato 12 communities: Mulanleo, KING POLLO Yluscapamba, Tamboloma, PAPAS DE MARIA Campo Alegre, Los Arbolitos, 12 OTHERS TECHNICAL de Diciembre, Nueva Esperanza, ASSISTANCE El Lindero, Llangahua, San Luis, Wholesale market Farmer promoters Chibuleo, intermediaries in Warehouses and Conpapa Ambato technicians Local markets (direct sales and to merchants) FINANCING - Own resources Fresh potatoes - Cooperatives and local banks: Mushuc runa, San Francisco, Regional Regional Sacaiet, markets Latacunga Quito BNF Pelileo Machala TRANSPORTATION Patate - Local carriers
Source: Workshop and interviews. January 2007 Author: L.Mancero
Currently the Frypapa-Iniap variety is most popular in the market and was adopted due to demands of the new market segments, mainly local chicken restaurants that the Conpapa associates work with. At the beginning there were inconveniences with the adoption of the variety due to the price of the seed and the fact that the seed was raw (not ready for sowing).
A diagnostic of the seeds was carried out by support technicians and they identified that: ⇒ Less than 3% of the seeds used were certified, ⇒ The seed comes from, in the most part, harvests and the renovation is every 6 to 7 years, although evidence shows that in the last years the renovation is every 2 years. ⇒ The seed selection process is of poor quality, the size is small (normally the rejects), which causes low yields en the subsequent crops.
Currently Conpapa uses a system of seed growers with the intention of creating less dependency on seed on the part of the small-scale producers and to generate an auto-supply of quality seed.
The fertilizer and agrochemical providers are the agricultural and livestock supply stores in the city of Ambato.
In the PRODUCTIVE link 366 producers from two zones are involved; their cultivation system uses integrated plague management (IPM).
Starting from their involvement with the platform and due to the fact that the producers have to participate in training in the farmer field schools, the cultivation system has experienced positive changes; there is better knowledge of the requirements for cultivation, plague management, and the use of chemicals. The following is a detail of the principle differences between the traditional cultivation system and the industrial cultivation system that is currently in use with the frypapa variety.
In terms of yield, in the Pillaro zone they obtain 17x1, which is to say that for every quintal planted 17 quintals are harvested. In the Pilahuin zone the yield is from 10 to 15x1.
It is estimated that 80% of the production per associated grower is sold through Conpapa, 10% in the traditional market and the remaining 10% is used for animal feed and rations which are given, as a form of payment, to the workers that have harvested the potatoes.
The percentage commercialized through Conpapa is the production that fulfills the quality criteria demanded by its clients, while the rest is commercialized through other channels.
Table No. 3: Description of the traditional and industrial cultivation systems Cultivation system Characteristics of the system Traditional cultivation ⇒ 4-5 treatments with packets from commercial houses system ⇒ Use of chemical fertilizer ⇒ Use of red seal products ⇒ Varieties cultivated destined for sale: Gabriela, Catalina ⇒ Several native varieties cultivated for auto-consumption
Industrial cultivation ⇒ Use of traps for white worm, reduced use of pesticides system ⇒ Better knowledge of the requirements of cultivation ⇒ Maximum of 3 applications ⇒ Use of chemical fertilizers with improved knowledge ⇒ Use of green seal products ⇒ Frypapa variety cultivated Source: Interviews and focus groups Author: Lorena Mancero
The diseases seen in the frypapa variety in these zones are lancha, seed rot and white worm. The pesticides used are: orthene (green), curacron (yellow), cymoxanil (blue).
For the application of pesticides an analysis of the crop is carried out and the requirements are revised. Currently no precautions are taken during the application of pesticides and this is believed to be due to negligence of the dangers and a lack of promotion of the use of protective gear.
In the next link, which is COLLECTION and COMMERCIALIZATION of fresh potato, there are two principle flows of the product from the associates of Conpapa of Tungurahua.
The alternative sales channel offers advantages to the producers through Conpapa’s commercialization system 3 which exists to: ⇒ Attend the commercialization of potato in its different levels and market segments, local and national (chicken restaurants, restaurants, agro industry, supermarkets) ⇒ Bring together the potato production of the small-scale producers to commercialize in different market segments, generating income to cover production costs and create profits, through the establishment of competitive regulations for the market.
At this time Conpapa of Tungurahua has 30 clients, 25 of which are chicken restaurants and restaurants in Ambato, Latacunga, Pelileo and Patate. Among this list of clients is: Rico Pollo, Fast Chicken, King pollo, Papas de María and others.
In the agro industrial segment in Quito exist the clients Productos Alexander and Propal Snacks, the other three clients are artisanal agro industries in Ambato.
The data from 2006 demonstrates a growth and positioning of Conpapa in the market and in its work areas. Table number 4 shows data on the level of planning of production and the market.
A total of 295 hectares have been planted in the different platform sectors. Tunguahua, being the principle productive zone, participates with 32% of the total. It is followed in importance by Quero which has 27% of the total. Conpapa has trained 138 producers in the farmer field schools in Tungurahua.
Table No. 4: Conpapa production planning in 2006 No. of producers % completion Hectares planted by trained in farmer Planned hectares of the Province associated groups field schools production plan Bolívar 302 50 70 71 Chimborazo 219 64 130 49 Cotopaxi 108 5 8 66 Tungurahua 138 95 100 95 Quero 155 81 90 90 Total 922 295 398 Average 184 59 80 74 Source: Potato platforms Author: Lorena Mancero
On a market level the volume sold by the commercialization system grew to 18,419 quintals in 2006, of which Tunguahua provided 44%. The average annual price was $12.01 while the average wholesale market price was $8.94, representing an additional margin paid by Conpapa of $3.07 per quintal in 2006. With respect to seasonality, 13% of the years harvest was sold in April.
3 Information provided by the manager of the potato commercializer. Santiago Lana. Tungurahua, interviewed in January of 2007.
Analysis of the Potato Productive Chain in Ecuador, 3 case studies. 23
Table No. 5: Conpapa market data in 2006 Contribution to Income No. of Avg. Income the Conpapa No. of No. of received quintals Price generated by commercialization potential clients directly by the Province sold per per sales (in fund for the clients attended producers (in platform quintal USD) commercialization USD) service (in USD) Bolívar 739 8 8 7,534 7,070 464 Chimborazo 2,772 30 12 29,058 27,287 1,771 Cotopaxi 91 15 2 1,229 1,155 74 Tungurahua 8,089 65 25 91,514 86,024 5,490 Quero 6,728 5 10 95,134 91,710 3,424 Total 18,419 118 47 224,469 213,247 11,222 Average 3,684 24 9 12 44,894 42,649 2,244 Source: Potato platforms Author: Lorena Mancero
There were a total of 47 clients attended to in 2006, which for the most part are permanent clients. As part of the commercialization service offered by Conpapa to its associates it is permanently on the task of looking for and opening new markets. The 2006 sales have contributed $11,222 USD to the capitalization fund.
Graphic No. 10: 2006 monthly Conpapa sales volume and sale prices 3000 18,00 16,00 2500 14,00 2000 12,00 10,00 1500 qq 8,00 usd/qq 1000 6,00 4,00 500 2,00 0 0,00 ene feb mar abr may jun jul ago sep oct nov dic Volumen de venta del Conpapa Precio Conpapa Precio M.M.A
Source: Conpapa Comercializer Author: Consultant
In regards to the criteria used for the selection of potato commercialized by Conpapa the size must be more than 6 cm, it should be free of plagues and diseases, and without pores, cuts, slices or worms.
The associates of Conpapa cite several advantages of the sale of their potatoes through this commercialization channel: “we have a secure market and a stable price”, and they are no longer mistreated by merchants. However, there are three disadvantages: they can only sell large potatoes, there is no market for medium potatoes and the payment is not immediate.
To establish the sale price Conpapa carries out market surveys Monday through Friday, and from the wholesale market price calculates the price to the end consumer (+$1 USD) and over this base price establishes a premium of $2 - 3. This premium is meant to recognize the onsite delivery of the product by the producer, the 8 days of credit and the quality of the potato.
The Conpapa sales procedure involves various steps and responsibilities. The commercialization margin is 6% which includes transportation cost from the commercialization center to the client, handling, and a capitalization margin for Conpapa. This process is detailed below:
Analysis of the Potato Productive Chain in Ecuador, 3 case studies. 24
Illustration No. 5: Flowchart of the Conpapa Commercialization
Harvest program Harvest and Delivery to the Storage selection commercializer max 2 days
Delivery to client Orders and payment collection
are orders On Mondays received and planned from Support commercialization promoters by out carried Activity accordance in producers criteria selection with the the transport Producers product samples control Quality on taken Transportation commercializer the by Accounts receivable 4,000 USD/month
Source: Interview with commercialization manager Author: Consultant
The variety currently commercialized is Frypapa. Attempts have been made with the Brenda and Juliana varieties but there are inconveniences with storage. Market surveys have been made to determine the market for potato sticks, however the demand is not significant and the market is only willing to pay $1 more for this product.
The commercializer counts on the support of commercialization promoters, which carry out support procedures by following up with the harvest planning and the opening of markets.
The business has some potentials, which are: the present demand for the product; good positioning in the market segments which they serve – the same which value the quality of the product and the service of Conpapa; with the established pricing mechanism there is a high fulfillment of the deliveries on the part of the associates, the producers have improved in the selection and are more aware of the quality of the product they deliver.
The traditional sales channel for potato, for producers associated with Conpapa as well as other producers that are not involved in the initiative, is the wholesale market in Ambato. In this market the product is sold to merchants and intermediaries who in turn sell the product to local markets, warehouses, end consumers, or they transport the potato to the cities of Quito and Machala.
The pricing analysis by variety in the wholesale market shows the Cecilia variety shows the highest price, followed by the Chola and Gabriela varieties. The price to the consumer of Chola potato is $0.45 USD per kilo.
Graphic No. 11: Price by variety of potato in the Ambato wholesale market 0,60 0,50 0,40 0,30
USD/Kg 0,20 0,10 0,00 ENE FEB MAR ABR MAY JUN JUL AGO SEP OCT NOV DIC María Rosita Rubi roja Santa catalina Ubilla/bolona Chola Esperanza Gabriela Leona Blanca/Cecilia
Source: Agricultural and livestock information system. MAG.
Analysis of the Potato Productive Chain in Ecuador, 3 case studies. 25
Graphic No. 12: Monthly consumer price of Chola variety in Ambato, 2006
0,60
0,50
0,40
0,30
usd/ kg 0,20
0,10
0,00 ENEJAN FEB MAR ABRAPR MAYMAY JUN JUN JUL AGOAUG SEP OCT NOV DEC DIC
Source: Agricultural and livestock information system. MAG. Author: Lorena Mancero
The next link is TRANSFORMATION in which the principle destination of the sales of the Conpapa commercializer, on an industrial level, is characterized by a demand for potato for processing into potato chips, as in the case of Productos Alexander and Propal Snacks and the local artisanal industry.
The local chicken restaurant segment has presented a growing demand for the frypapa variety over the last three years. It is worth mentioning that in the first market surveys performed the main varieties demanded were Cecilia, Esperanza and Superchola and to a lesser extent the Frypapa variety. However, according to information delivered by the commercialization manager of Conpapa, nowadays the advantages of the Frypapa variety for frying are valued higher.
The final consumption of the product is through potato chips, fresh potato and French fries, following different channels of commercialization which are detailed below.
Table No. 6: Commercialization channels for potatoes in Tungurahua Markets Market / client Commercialization channels Product segments consumed National Industry Conpapa Industry direct sales force and Brand name markets Productos Alexander distributors network of stores and supermarkets potato chips Propal Snack end consumer
Local Artisanal industry Conpapa Industry direct distribution stores, Generic potato Markets schools, vendors end consumer chips Chicken restaurants: Conpapa Chicken restaurants end consumer French fries Rico Pollo Fast Chicken King pollo Papas de María others Ambato wholesale Producers Intermediaries local markets end Fresh potato market consumer Producers merchants warehouses end consumer Producers Intermediaries markets in other cities end consumer Regional Chicken Restaurants Conpapa Chicken restaurants end consumer French fries Markets Source: Interviews January 2007 Author: Lorena Mancero
In reference to the main bottlenecks of the chain an analysis was performed for each link of the chain and is summarized in the following table:
Analysis of the Potato Productive Chain in Ecuador, 3 case studies. 26
Table No. 7: Bottlenecks per link of Conpapa Tungurahua
Link Bottlenecks
Supplies – Seed − Variety degenerates rapidly Production − Poor soil quality − Cold climates, winds, rain, drought − No control of production costs − Planting periods are limited to expand the crop − Non-optimized irrigation systems − More AT capacity for promoters, it is necessary to have a system to update their knowledge Collection and commercialization − Product quality through Conpapa − Variation of prices − Producers not complying with quality norms − Recuperation of accounts receivable Source: Workshop with focus group, January 2007
Analysis of the Potato Productive Chain in Ecuador, 3 case studies. 27
V. THE EXPERIENCE OF THE EPAL IN CHIMBORAZO
he Agricultural Producers Company of Licto, Chimbrazo originated as part of the strategic support to the production and productive diversification after the irrigation channel in Licto Guargualla began to function in 1997. This irrigation channel was construction with the support of the Swiss Cooperation for Development (Cosude) through the Licto project executed by the Ecuadorian NGOTT CESA.
With the water from the irrigation system they began to produce crops Involvement of the for the market and it changed the productive mindset of the zone. Instead of producing crops for auto-consumption and food security they producers begins began production diversification with more links and potential accesses to the market and commercialization.
The initial idea was to produce quality products to improve economic incomes, for which the creation of the company was a valid strategy to compete and access better prices in the market.
Once the necessity of a clear strategy of support for the productive sector was made clear, the Agricultural Producers Company of Licto – EPAL- was created in the year 2002. It began with potato but today there is interest in commercializing other products.
The mission of EPAL is: “Strengthen the organization through alliances and agreements with institutions with the purpose of coordinating efforts and providing the services required by the producers so that they can produce quality products, using a technological package friendly to the environment, acting with gender equality, and facilitating the access to formal markets to satisfy in quantity, quality and stability, promoting a change in attitude of our associates so that they work in function with a common interest and in coordination with the management team.”
The requirements to participate in EPAL are: ⇒ Willingness to work ⇒ Inscription payment of $25 dollars per associate (before the quota was $5 and then $15) ⇒ Copy of identification document ⇒ Completion of the affiliation application ⇒ Supply a minimum harvest per year ⇒ Participation is open in the Licto zone
According to information collected at a workshop with the associated producers, those farmers that don’t participate have few economic resources to invest in the crop. Additionally, a large part of the population of Licto is elderly and are hesitant of initiating new activities that require labor and resources to produce, for this reason they prefer crops like corn, barley, and wheat which are destined principally for the food security and do not require much investment of resources to produce. Migration in this zone is high, especially among young people and there is not much availability of farm labor.
The benefits and improvements received by the associates that participate in EPAL are: ⇒ They receive support in training and coordination (technical assistance and seeds) ⇒ A higher price than the one paid in the traditional market, and therefore improved income, is received by the associates. The premium is between $1 and $5 USD depending on the time of year ⇒ Transportation service from the farm and to the final market ⇒ Improved knowledge of selection techniques, including the product that is sold in the traditional market.
Analysis of the Potato Productive Chain in Ecuador, 3 case studies. 28
⇒ They avoid being “exploited” by the market and mistreated by merchants
However, they believe it would be better if they also received support for: ⇒ Management of loans to support crop resources or in-kind support ⇒ And another disadvantage is that the payment from the harvest and the sale of the product takes one month
Characteristics of Table No. 8: Description of the zone of influence of EPAL the zone where this EPAL experience is Geographic Chimborazo Province developed location of this experience Productive zones Medium production zones: Sul sul, Chumug, Cuello Loma, Cachig
Low production zones: Molobag, Licto,
Other zones: Punin, Cebadas, San Luis, Pungalá Altitude 2,800 meters above sea level Primary source Agricultural and livestock activities of family income Principle non- Migration agricultural activity Size of lots from 200 m2 to 15,000 meters Sources of credit Local savings and loans cooperatives: - Acción rural - Codesarrollo - Acción y desarrollo Average no. of 4-5 members per family Land possession By saying they are owned it is to say that they are inherited properties, some of which have not yet been legalized. In the last year there was an allocation of 1,200 lots in the zone. They also work with shared and rented lots.
Soil quality Initially poor, with irrigation and fertilization there is improvement
Low zone has a 20% grade incline, Medium and high zones have up to a 60% slope Irrigation source Irrigation channel: Licto Guarguallá and system Flood irrigation Source: Interviews and focus groups Author: Lorena Mancero
The principle milestone of change in the zone is the availability of irrigation water, which has marked the change in the productive structure.
The primary crops in order of importance are: alfalfa, pasture, potato, peas, garlic, beans, and broccoli. Beforehand the crops were more destined towards food security.
The non-agricultural income comes from migration; however the principle source of income is agriculture and livestock.
Analysis of the Potato Productive Chain in Ecuador, 3 case studies. 29
Table No. 9: Productive system before and after the irrigation system (1997) in the Licto zone Before After Principle crops Corn Alfalfa and pasture Wheat Potato Barley Peas Beans Garlic Lentils Beans Quinoa Broccoli White corn Carrots Dry pasture Lettuce Potato in small quantities and Red onions cultivated primarily for auto-consumption Tomatoes due to a lack of irrigation Tree tomatoes Livestock Cattle Cattle Non agricultural Migration to Guayaquil, Quito, Lessened migration activities Ambato, Riobamba, Machala Work as day laborers Source: Interviews and focus groups Author: Lorena Mancero
The chain involves the links of production, collection and commercialization The potato chain of of fresh potato, transformation, commercialization of finished products and consumption. (see illustration no. 3) EPAL in Chimborazo The chain also includes a system of seed, supplies and service providers.
On the level of SEED they use certified and common seed, and the following flowchart depicts how it arrives to the producer.
Illustration No. 6: Flowchart of the production of certified seed in Chimborazo
INIAP EPAL Seed growers from EPAL Producers Pungalá and Cebadas
Source: Interviews and focus groups Author: Lorena Mancero
The common seed comes from producers in the area, merchants and auto-supply from harvest reserves.
The sale price of the INIAP certified seed is $22.50 per quintal and the seed growers sell between $12 and $15 per quintal while the price of common seed for a producer is $10 per quintal.
Analysis of the Potato Productive Chain in Ecuador, 3 case studies. 30
Illustration No. 7: EPAL – Chimborazo Potato Chain
MAP OF THE EPAL – CHIMBORAZO POTATO CHAIN SUPPLY AND PRODUCTION COLLECTION TRANSFORMATION COMMERCIALIAT ION CONSUMPTION SERVICE COMMERCIALIATION PROVIDERS
Industry Tiendas y Markets National SEEDS - Directsupermercados sales force: Certified seed Supermarkets, stores INIAP → EPAL → Potato producers FRITOLAY and vending seed growers (103) machines Centros Naturistas y Potato chips Pungalá-Cebadas Médicos Naturistas 35% Common seed - Distributors Producers from the PROPA SNACK zone, merchants and auto supply 40% EPAL 600 quintals/mo.
OTHER SUPPLIES 60% Chicken Restaurants 5% Fertilizers and Ass ociates EPAL 63 agrochemicals: 35% correspond to the CORCEL NEGRO French fries - Agricultural stores medium production zone: Sul and from Riobamba sul, Chumug, Cuello Loma, BELLAVISTA Cachig - Gallinaza from 75% correspond to the low markets Local Guaslán yield zone: Molobag, Licto PATO JUAN
EJECUTIVOS Providers 40 TECHNICAL 60% from the Punin zone 60% OTHERS ASSISTANCE 20% from the Cebadas zone Intermediaries from CESA- Project 20% from the San Luis zone the wholesale market PODER-COSUDE 10% from the Pungalá zone in Riobamba Warehouses
Local markets FINANCE (direct sales and to
- Own resources merchants) - Local cooperatives: Acción rural, Fresh potatoes Codesarrollo, Acción Regional Regional y desarrollo markets TRANSPORT Ambato - Local carriers Cuenca Mancero Guayaquil
Source: Workshop and interviews, Jan 2007 Author: L. Mancero
Analysis of the Potato Productive Chain in Ecuador, 3 case studies. 31
The main varieties that are cultivated in the zone are Frypapa and Superchola. However, on a smaller scale, other varieties that are not commercialized with EPAL are cultivated as well.
In regards to the seeds, evidence suggests that there are inconveniences with quality, the seeds are mixed and rotten and the renovation period of three years is too long.
The EPAL is implementing a seed growers system, just like the one that Conpapa uses, with the intention of generating an auto-supply of quality seed. The seed growers will be provided training and technical follow-up for their new activity.
The fertilizer and agrochemical providers are agricultural supply stores in Licto and Riobamba.
In the PRODUCTIVE link there are 103 producers from medium and low productive zones of Licto. Sixty-three participate as associates and live in Licto; the other 40 are providers from other zones in the Chimborazo province. (In relation to the total number of producers in the province of Chimborazo, which are 18,376 producers, this project benefits 0.6%)
The sowing of seeds in carried out all year with a planning system, however because of seasonality the months of May and June are most important for this work. The average yield is from 10 to 12 x 1. (12 quintals harvested for each one planted)
It has been calculated that 60% of the production is destined for sale in the market, 15% is reserved for seed, 20% is earmarked for the payment of rations to harvest laborers and 5% is waste.
Of the 60% that is allotted for sale 40% is commercialized through EPAL and the rest is sold in the wholesale market in the city of Riobamba.
By comparing the characteristics of the current cultivation system for industries and restaurants with the prior system used for the potato crop, the following results were found:
Table No. 10: Description of the potato cultivation system before and after the constitution of EPAL (2002) Cultivation system Characteristics of the system Cultivation system ⇒ More organic cultivation before ⇒ Use of cattle pulled plows ⇒ Low yields ⇒ Potato varieties cultivated: C ecilia, Uvilla, Rosita, Gabriela, Papa pan . ⇒ The community system of workgroups (mingas) were used Cultivation system now ⇒ Moderate use of agrochemicals ⇒ Use of tractors and machinery ⇒ Increase in fumigations ⇒ Inadequate disposal of containers and bags used for agrochemicals and pesticides ⇒ Increased yields ⇒ Cultivation of improved potato varieties: Frypapa and Superchola ⇒ Employment of day laborers Source: interviews and focus groups Author: Lorena Mancero
The plagues and diseases that attack the zone are listed below and those that occur more often are market with ++: ⇒ Moths, trips , bulges ⇒ Black lancha (++) ⇒ Cenicilla (++)
Construction of the experience and analysis of networks 32
⇒ Roya ⇒ Flies ⇒ Zorro ⇒ Frost (++)
Sufficient precautions are not taken for the application of pesticides; gloves, masks and boots are not used nor are the fumigation schedules adequate.
Lack of knowledge of the color coding of products and their misuse occur unnoticed without much consciousness regarding the effects. Yellow coded products are used most frequently; and the criteria that carries the most weight when choosing a product is the cost. There is little management of criteria when it comes to the application of products.
In the following link of COLLECTION and COMMERCIALIZATION of fresh potatoes there are two principle flows of products from the associates and providers to EPAL.
To manage sales EPAL has an office in Licto and a warehouse for commercialization in Riobamba. EPAL’s client portfolio consists of two market segments: chicken restaurants (73%) and industry (27%). Additionally there is a small amount of sales to intermediaries from the wholesale market.
The sales of EPAL in 2006 were 6,857. In relation to the 2005 sales, there was a 16% decrease. It can be observed in the following graphic that the sales peaks were in the months of March and May.
The average sale price in 2006 was $13.08 USD per quintal.
Graphic No. 13: 2006 monthly EPAL sales volume and prices 18,00 16,80 1400 16,00 16,00 1151 1160 1200 14,00 888 1000 12,00 848 10,00 800 qq 8,00 484 499 600 420 424 USD/qq 6,00 7,1 347 299 400 4,00 196 141 200 2,00 0,00 0 1 2 3 4 5 6 7 8 9 101112
qq vendidos 2006 Precio prom 2006
Source: EPAL Author: Lorena Mancero
Among the principle achievements in 2006 is the growth in trustworthy relationships with clients that require large volumes of potatoes like: Propal Snacks, Corcel Negro, Bellavista and Pollos Ejecutivos.
In regards to the selection criteria for potato commercialized through EPAL the size is between 5 and 9 cm; for chicken restaurants it is larger than 7 cm. The potato must not be rotten, deformed, cut, soft, mixed with other varieties, with worms, or un-ripe.
With respect to altitude requirements, Fritolay requires a low altitude potato – up to 2,600 meters above sea level 4, and for chicken restaurants there are no altitude requirements.
4 Linked to the content of solids necessary for frying.
Construction of the experience and analysis of networks 33
The EPAL sales process is approved by the producers, through which they carry out the following discounts (see table no. 11) for the service prior to the liquidation of the payment from the sale. The payments are made every 15 days (before it was every 2 months which was inconvenient for the producers) and advances are also given to the associates.
Table No. 11: Commercialization service costs of EPAL paid by the producers
Concept USD Transport cost from the 0 farm Transport cost to the client $1.15 to $0.25 USD/quintal depending on the market Cost of sack $0.20 per sack Commercialization $0.60 per sack Sauce: Workshop focus group of EPAL associates. January 07 Author: Consultant
The wholesale market in Riobamba is the traditional market to sell products for producers from Licto and the rest of the province. In this market product is sold to merchants and intermediaries who offer the product in local markets, to warehouses, directly to the final consumer or transport the product to the cities of Guayaquil, Ambato and Cuenca.
In the price analysis by variety in the wholesale market it can be seen that the Cecilia or Leona blanca variety has the highest price followed by the Frypapa and the Gabriela varieties. The market price for the Frypapa variety was $11.79 USD per quintal.
Graphic No. 14: Prices by potato variety in the Riobamba wholesale market 0,40 0,35 0,30 0,25 0,20
USD /USD kg 0,15 0,10 0,05 0,00 ene feb mar abr may jun jul ago sep oct nov dic
Pan Rosita Semi bolona Fripapa Gabriela Leona Blanca Rubi roja Santa Catalina Uvilla o bolona
Source: Agricultural and livestock information system. MAG. Author: Lorena Mancero
In the next link of TRANSFORMATION in the potato chain the primary destination of EPAL’s sales on an industrial level is characterized by having a demand for potato to process into potato chips. These industries are located in Quito and are Fritolay and Propal Snacks.
In the chicken restaurant segment supplied by EPAL the principle clients are Corcel Negro, Bellavista, Pato Juan, Pollos Ejecutivos and other business in Riobamba.
The final consumption of the potatoes is through potato chips, fresh potatoes and French fries; following different commercialization channels which are detailed below.
Construction of the experience and analysis of networks 34
Table No. 12: Potato commercialization channels in Chimborazo
Markets Market / client Commercialization channels Product segments consumed National Industry EPAL Industry direct sales force and distributors Brand name markets Fritolay network of stores and supermarkets end potato chips Propal Snacks consumer
Local Chicken Restaurants: EPAL Chicken Restaurants end consumer French fries Markets Corcel Negro Bellavista Pato Juan Ejecutivos Intermediaries EPAL Intermediaries end consumer Fresh potatoes Riobamba wholesale Producers Intermediaries local markets end Fresh potatoes market consumers Producers merchants warehouses end consumers
Regional Riobamba wholesale Producers intermediaries markets in other cities Fresh potatoes markets market end consumer Source: Interviews January 2007 Author: Lorena Mancero
In reference to the main bottlenecks of the chain an analysis was performed for each link and is summarized in the following table:
Table No. 13: Bottlenecks per link of the EPAL Chimborazo potato chain
Link Bottleneck
Supplies - Seed − Poor quality seed, mixed, rotten − Seeds are not renewed (3 years) Production − No control of production costs − Soil low in nutrients and does not retain humidity − Little knowledge of cultivation techniques (for new producers) − Inconsistent water supply − Lack of resources for production − Insufficient technical assistance services Collection and commercialization − Lack of working capital for EPAL through EPAL − Lack of spreading market information and market requirements − Payment is not immediate − Low and variable market price − Advantage: they sell and comply with the delivery program Source: Workshop with focus group, Jan 2007 Author: Lorena Mancero
Construction of the experience and analysis of networks 35
VI. EXPERIENCE OF THE FARMERS´ PRODUCTS COMMERCIALIZATION COMPANY OF MULALILLO - COTOPAXI
he Farmers’ Products Commercialization Company of the “New Hope” Association in Mulalillo was created with the support of the Maquita Cushunchi Foundation (MCCH) as part of their work to consolidate community companies for associative commercialization. The formation of the organizational base TbeganT in October of 2004 and later, in December of 2005, the company was legally constituted.
As of December of 2006 the Association included a total of 58 associates (families) 5, of which 53 are women. The associates come from five nearby sectors at the head of the parish: Cunchibamba Chico, Salatilín, Nueva Vida, Unalahua Salatilin, and Unalagua Quevedo. The climatic conditions of the five sectors mentioned above favor a high productive potential.
In August of 2005 MCCH began a strengthening process of the potato value chain, focusing on linking and adapting the existing supply in Mulalillo with concrete demands from the industrial sector. This process is supported by different services offered by MCCH, among them: agricultural technical assistance, training, commercialization, administrative and accounting strengthening, financing, etc. The organizational strengthening, in addition to the services offered, has allowed this experience to pass from being a productive-commercial association initiative to the consolidation of a community enterprise.
In January of 2006 the Association’s company, with the support of the MCCH Foundation, signed a supply agreement with Snacks America Latina (Fritolay) 6. With this agreement the Association’s company began supplying Fritolay in March and this supply has continued to this day.
With the idea of improving the quantity and quality of the production commercialized, the Company of the Mulalillo Association has now purchased its own infrastructure and equipment.
The requirements to become an associate of the Mulalillo Association are: ⇒ Have land available for production and preferably with an irrigation system. ⇒ Applicants should be enterprising people with interest and motivated in associative production and commercialization. ⇒ Present a written application which must be approved by a General Assembly. ⇒ Membership in the association begins with a contribution of $15 USD, plus a $1/month contribution to the Association (these funds go towards Association events). ⇒ The Association has acquired assets (land and infrastructure) for which the associates make monthly payments of $6.50 USD towards the payment of these assets 7. New members to the Association should catch up with the payments that they missed from when the assets were acquired. ⇒ The General Assembly has also decided that in order for a person to become a member of the Association a current balance sheet should be analyzed and the assets, liabilities and shareholders equity should be valued at that time to determine how much the new member should contribute.
5 In relation to the total number of potato producers in Cotopaxi, which reaches 14,541, this company benefits 0.4%. 6 Previously the Association had signed a supply agreement for vegetables with the agro industrial company SIPIA. 7 This contribution corresponds to the payment for the purchase of the land and the construction of the Commercialization Center.
Construction of the experience and analysis of networks 36
According to the Association’s members, lately there have been a large number of people interested in becoming members of the association; however they have not been able to join due to the high initial contributions required.
The benefits received by the associates for participating in the Company are 8: ⇒ Production support in the form of supplies and seeds given to the producers through a type of credit. ⇒ Technical training and assistance. ⇒ Access to in-kind credit and a payment period based on when the Association receives payment from the client. ⇒ Advantages of combining production volumes and commercializing collectively. ⇒ Identification of markets, security in negotiations and good negotiation conditions. ⇒ With a secure market their production has increased. Before the formation of the Company plantings were done to yield 4 quintals, now they are planting to yield 38 quintals per harvest. ⇒ Improvement in income and employment, which has been an incentive for the people to return to their communities. ⇒ Transformation of production systems: the change from traditional cultivation that was not profitable to new profitable alternatives.
Table No. 14: Description of the Mulalillo zone MULALILLO COMMUNITY COMPANY Geographic Cotopaxi Province Characteristics of location of this the zone where this experience experience is Productive zones Sectors of the Mulalillo Parish developed Cunchibamba Chico, Salatilín, Nueva Vida, Unalahua Salatilin; y, Unalagua Quevedo.
Altitude 2,600 – 3,000 meters above sea level Primary source Agricultural and livestock activities of family income Principle non- Migration (especially of construction workers) agricultural activity Size of lots Mini-lot zone Between 2,500 y 7,500 meters There is only one member that has 150.000 meters Sources of credit MCCH Foundation Resources from the Association (before but not now) San Vicente de Mulalillo Cooperative 9 de octubre Cooperative Fodemi Community Bank Average no. of 4-5 members per family Land possession For the most part the land is owned. There are also cases of shared, rented or informal inheritance. Soil quality Black soil, fertile, 2700 meters above sea level 3% slope Nutrient problems found in soil affected by erosion, also in areas of hillside production and where gravity irrigation is used
8 The benefits given to the Association’s members are manager by the MCCH Foundation.
Construction of the experience and analysis of networks 37
MULALILLO COMMUNITY COMPANY Irrigation source Irrigation channels: Martines, Márquez and system Irrigation ditches Gravity Irrigation (++) Sprinklers Source: Workshops and interviews Author: Lorena Mancero
The technical recommendations made by the MCCH Foundation in the zone provoked the incorporation of new production alternatives, linked to the current market requirements. Today agricultural activities are performed in ways that are novel to the producers; with links to the agro industries and through a “contract agriculture” model. However, the farmers have not forgotten their traditional farming methods which they often use for auto-consumption and food security.
Table No. 15: Productive System in Mulalillo Before After Crops Alfalfa Alfalfa *Corn Corn *Peas Baby corn *Potato for auto-consumption : Potatoes for industries: (Frypapa y Capiro) (Chola, Esperanza, Rosita, Catalina, Potatoes for the local market : (Blanca, Chauca, Uvilla, Leona Negra and Super Chola y Gabriela). Leona Blanca). Artichoke *Beans Blackberry Pasture Pasture Animals Black pigs Pigs Wild guinea pigs Improved guinea pigs Dairy cows Chicken Dairy cows Source: Workshops and interviews Author: Lorena Mancero
In regards to the raising of livestock, the primary animals raised are dairy cows, guinea pigs, pigs and chickens. The potato chain of the Mulalillo Non-agricultural income comes from migration; however agriculture is the principle source of family income. Community Company The potato chain involves the links of production, collection and commercialization of fresh potatoes, transformation, commercialization of the finished product and consumption. (See illustration number 6)
The potato chain also consists of a system of seed, supplies and service providers.
On the level of SEED the use of certified and common seed has been observed and the flows are as follows:
Certified seed from INIAP → group of seed growers associated with Fritolay in the zones of Cayambe (Pichincha); Saquisilí (Cotopaxi); Palama (Cotopaxi), → the Mulalillo Community Company with support from the MCCH technician distributes the seed according to who has available land and the production plan.
The common seed is distributed through exchange and it is very common for the farmers to supply themselves with common seed from their harvest reserves.
Illustration No. 8: Map of the Potato Chain of the New Hope Association in Mulalillo
Construction of the experience and analysis of networks 38
MAP OF THE POTATO CHAIN OF THE NEW HOPE ASSOCIATION IN MULALILLO
SUPPLY AND PRODUCTION COLLECTI ON TRANSFORMATION COMMERCIALIZATION CONSUMPTION SERVICE COMMERCIALIZATION PROVIDERS Industry Tiendas y markets National SEEDS - Directsupermercados sales force: Certified seed To supermarkets, Fritolay seed growers FRITOLAY stores and vending from the Palama- machines Centros Naturistas y Salcedo, Cayambe, Médicos Naturistas and Cotopaxi zones - Distributors Potato producers 100% Common seed (30) Local producers and auto-supply 60% MCCH 200 quintal/mo.
OTHER SUPPLIES Fertilizers and agrochemicals: MCCH Productive zones Ordered by quantity supplied: TECHNICAL Cunchibamba chico
ASSISTANCE Salatilin markets Local MCCH Nueva vida Warehouses Unalahua Salatilin 40% Unalagua Quevedo Intermediaries from Local and regional FINANCING the wholesale market markets - Own resources in Latacunga (direct sales and to - Local cooperatives: merchants) San Vicente de Mulalillo. 9 de octubre. Fodemi. Community Bank TRANSPORT - Local carriers
Characteristics of Small-scale rural farmers MCCH → Social Foundation that Fritolay → Transnational Mini markets and local Direct consumption through the actors in the Lot sizes: 1 subplot to 20 blocks supports small-scale farmers in industry, processor of supermarkets market leading brand name chain Yield: 10-12 x 1, in low zones up productive and commercial potatoes for production bagged snacks such as: to 2,900 meters above sea level. initiatives of snacks, with a nation Supermarket chains Lay's® y Ruffles® wide distribution network
Source: Workshop and Interviews, January 2007 Author: L. Mancero Construction of the experience and analysis of networks 39
The seed growers sell seed between $12 and $15 per quintal to the Mulalillo Company. Until the year 2006 the seed was paid for at the moment that payment from Fritolay was received, after the harvest. Today the seed is paid for in advance. In the case of the MCCH Foundation the seed is purchased and distributed to the producers in a type of loan that carries 0% interest.
The varieties cultivated in the zone are Capiro, which is provided by the Fritolay seed growers, and Frypapa which comes mostly from the harvest reserves. These are the commitments of the agreement with Fritolay.
The blanca, Superchola and Gabriela varieties are also cultivated and for the most part are used for auto-consumption or sometimes for commercialization in the market in Salcedo.
The producers adopted the frypapa and capiro varieties due to the demands of the buyer; before this commercial relationship was established in the zone these varieties were unknown. Nowadays the requirement of the buyer is centralized exclusively on the capiro variety.
Currently the Mulalillo Community Company has a high dependence on the seed growers system linked to Fritolay.
The fertilizer and agrochemical providers are agricultural supply stores in the city of Salcedo.
In the PRODUCTIVE link 30 producers are involved from the five sectors of Mulalillo. Additionally, during some determined periods, 7 producers from the Mulaló zone join the Association’s producers. These 7 producers are not members of the association but they commercialize associatively through the Company. The system used by the farmers is IPM.
As a result of the work of the MCCH Foundation in the zone, the entire group of producers is benefited by a permanent, practical and integrated system of training and technical assistance. This system permits the producers, with the support of the technical facilitator from MCCH and the denominated Community Agricultural Promoters (CAPs) 9, to periodically monitor and follow- up with the lands.
This methodology has had positive effects and has permitted that during 2006 87% of the potato lots have had no affectation or sanitary issues. Moreover, the system has allowed the creation of technical capabilities among the local producers, with which they learn now about plague management and chemical use.
In terms of yield the Mulalillo zone is deficient in nutrients in the soil, causing the yields in this area to be lower than in other zones. During 2006 the yield levels registered demonstrated an average of 236 quintals per hectare for the Frypapa and Capiro varieties.
It is estimated that 60% of the production per associate (selected potato that complies with quality standards) is sold through the Commercialization Company of the Mulalillo Association; 20% is sold in the local market in Salcedo; 8% is reserved as seed for future plantings; 8% is used as rations given, as a form of payment, to the workers that have labored in the harvest; and the remaining 5% is consumed as food among the producers and their families.
The 60% commercialized for Fripapa is that which complies with the established quality requirements.
9 The Community Agricultural Promoter (CAP) is a person selected by a group of producers in his or her sector whom, for his or her interest and motivation in training, is responsible for carrying out a more direct follow-up to the lands of the associates. He or she benefits from more outside training sessions and socializes in these same sessions with other producers from the sector. The promoter is compensated economically for his or her services.
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Table No. 16: Characteristics of the cultivation system before and after Cultivation System Characteristics of the system Before ⇒ Higher percentage use of organic fertilizer and material ⇒ Little use of chemical fertilizers due to lack of resources to acquire them ⇒ In the rascadillo and aporque chem ical fertilizers were hardly used ⇒ Per the recommendations of commercial houses fumigations were done on sunny days; and the producers did 4 to 5 treatments with chemical (Carbofurán) Now ⇒ Use of certified or improved seed ⇒ Better use of organic fertilizers and materials in conjunction with fertilizers like: 18-46-0, Potassium Muriato and Sulfomac. ⇒ In the case of plagues it is recommended to fumigate on cloudy days ⇒ The contracting of day laborers has increased ⇒ Knowledge and use of traps for white worm, with the objective of reducing the use of pesticides Source: Workshops and interviews Author: Lorena Mancero
The diseases that affect the potato crop in Mulalillo are: presence of cogollero worm, pulguilla, pulgon, black lancha, black worm and primarily butterfly-moth (++).
The pesticides used are: Relle, Metabin (green-blue). The producers say that the use of Carbofuran (red) has been reduced; however some say that they still use it despite recommendations not to.
The application of pesticides depends on the recommendations of the support technician from MCCH in function with the monitoring of the CAPs. The necessary precautions for the application are continually indicated to the farmers by the technician and support personnel. However, the producers state that because of negligence they don’t use the recommended protection.
In the COLLECTION AND COMMERCIALIZATION link the experience of the Mulalillo Company is short and relatively small-scale. Due to a lack of its own infrastructure, the Company has been carrying out its collection activities in facilities loaned by the Parish committee or in community centers. The current growth in sales has motivated the construction of their own facility, which is estimated to be entering into operation at the end of February of 2007.
The Mulalillo Company, with the support of the MCCH Foundation, offers an associative commercialization service to the associated producers of the Association and to those from other organizations that are also supported by MCCH.
The objective of the community company is to link small-scale producers with concrete market demands, under formal commercial conditions that are framed by the principles of fair trade.
According to Enrique Medina, coordinator of Community Companies of the MCCH Foundation, the results of the associative commercialization show an increase in the income of the producers who have opted for this type of commerce. For example, discounting the production costs, this activity has generated a profit over sales that reach up to 35%.
At this time the Mulalillo Company only counts on Fritolay as a client, due to the fact that the market segment they attend to is purely the agro industrial segment. For 2007, in accordance with the MCCH official, the goal is to look for new markets and amplify the impact to other beneficiaries.
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The Mulalillo Company has had an accelerated growth during its short existence. For example, while in 2005 it planted 4.99 hectares of potato; in 2006 11.21 hectares of potato were planted, representing a 125% increase.
The sales volume of potato reached by the Mulalillo Commercialization Company between March and November of 2006 was 1,286 quintals. The fixed annual price for the Company was $11.25 per quintal while the average wholesale market price fluctuated between $6 and $9 dollars. In this sense, the Mulalillo company also received a better price than the wholesale market in Salcedo.
With respect to the monthly seasonality, in November 23% of the annual supply was offered.
Table No. 17: Sales volume of the New Hope Company Volume commercialized Agreement price Total sales in Phase Dollars per Month Kilograms quintals dollars kilo 1 Mar I 9,745 214 0,248 2,417 2 Mar II 8,986 198 0,248 2,229 3 April 8,187 180 0,248 2,030 4 May 10,012 220 0,248 2,483 5 Jun-jul 8,122 179 0,248 2,014 6 Oct 12,465 274 0,248 3,091 7 Nov 13,300 293 0,248 3,299 TOTAL 57,517 1,268 0,248 17,562 Source: New Hope Company of Mulalillo Author: Lorena Mancero
Graphic No. 15: Potato commercialization statistics. Community Company of Mulalillo
Empresa Comunitaria de Mulalillo: Comercialización Asociativa
350 de Papa 3,299 3,500 3,091 300 3,000 2,417 2,229 2,483 250 2,500 2,030 2,014 200 2,000
293.22
150 274.81 1,500 Dólares
Quintales
100 220.73 1,000 214.83 214.83
198.11 180.49 180.49 50 179.05 500 - - MARZO I MARZO II ABRIL MAYO JUN-JUL OCTUBRE NOVIEMBRE QUINTALES DOLARES
Source: Coordination of community enterprises of MCCH – New Hope Company of Mulalillo Author: Lorena Mancero
In reference to the TRANSFORMATION OR INDUSTRY , Fritolay or Snacks America Latina, a company of the transnational group Pepsico, is the leading company in the manufacture of potato chips in Ecuador. Among the most recognized product brands are: Lay's®, Fritos®, Cheetos®, Ruffles®, Doritos®, Tostitos®, among others.
The Fritolay company has its production facilities in Quito and is characterized by maintaining high quality standards at the time of provider qualification. The table below demonstrates the quality parameters, as of 2006, that are required at the moment the purchased product is qualified.
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Table No. 18: Industry quality standards QUALITY STANDARDS VERY GOOD GOOD REJECT CHARACTERISTICS (GREEN) (YELLOW) (RED) Internal temperature 10 - 19 degrees C < 10 Solids 17 - 22 16 - 17 < 16
POTATO SIZE Small potato (3 - 4.9cm) < 1% 1% - 5% > 5% Large potato (>10cm) < 10% 10% - 15% > 15%
EXTERNAL APPEARANCE Green potato < 1% 1% - 5% > 5% Mechanical damage < 1% 1% - 6% > 6% Insect damage < 1% 1% - 5% > 5% Rotted 0 0 0 Dirt < 1% 1% - 2% > 2% Worm holes Absent Absent Present Deformations < 2% 2% - 7% > 7%
INTERNAL APPEARANCE Holes < 1% 1% - 4% > 4% Diseased (discoloration) < 1% 1% - 2% > 2%
% defects raw potato < 17%
FRY TEST Hunter color (L) >61 58 - 61 <58 Undesired color <2 2 - 5 >5 Fried green <1 1 - 3 >3 Internal discoloration <1 1 - 5 >5 External discoloration <2 2 - 4 >4
Source: Coordination of community enterprises of MCCH – New Hope Company of Mulalillo Author: Lorena Mancero
The Snacks America Latina company has two manners in which it obtains potato. The first consists of the subscription in supply and purchase agreements of the primary material (potato) for a determined period of time. In this case the prices agreed upon remain fixed for the period of the agreement. The other system consists of the spot purchase of the product in which the providers are subject to the current market price at that moment.
In both cases the providers are subject to the quality standards described in the table above, and depending on the quality of the primary material and its qualification with respect to the referential parameters a price discount is made for the volume purchased.
To control the quality of the primary material previous to its acceptation in the plant a sample control is performed in which the product should comply with standards of size, exterior appearance, interior appearance and a fry test.
In reference to the main bottlenecks of the chain an analysis was performed for each link and is summarized in the following table:
Table No. 19: Bottlenecks per link in the Mulalillo potato chain
Link Bottlenecks
Supplies – Seed − Poor quality seed − Transportation − Access to seed through the network of Fritolay seed growers
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Link Bottlenecks
− Cost Production − Costly transportation − High incidence of disease during rainy season − drought Collection and commercialization − Deficient selection with insufficient equipment. through the Mulalillo community − Lack of infrastructure for collection Company − Delivery logistics − Costly transportation − Fixed price negotiated yearly − Dependence on one client Source: Workshop with focus group, January 07 Author: Lorena Mancero
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VII. CONCLUSIONS
7.1 The barriers that make it difficult for farmers to enter into the market
⇒ In regards to the production of potato by small scale farmers, the introduction of new varieties which are linked to new management practices that require an investment in seed and supplies makes it so that not all farmers become involved, because they lack the resources and time necessary to invest.
⇒ For the farmers the sale of their products signifies the recuperation of the investment they have made and the availability of funds for other expenses. The time that the associative companies take to make payment is very costly to the producer, considering that it can take from 8 to 45 days until they receive payment. In some cases this delay in payment demotivates the farmer from selling their product to the association, even though they recognize the additional margin they would receive for their product in relation to the traditional market.
⇒ The productive capacity of the individual associative companies, although in a period of growth, is still limited to be able to access markets that demand larger volumes. There is little cooperation between commercialization companies due to the fact that they see each other as competition within the local markets which limits their ability to make agreements.
⇒ The external support required by the associative companies for the start up, capitalization, availability of working capital; and strengthening of the capabilities of their members in business management has to be assumed as a process.
⇒ The availability and access to services is limited for the producers; most of all financial and technical assistance services.
⇒ The market tendencies show a growth in demand for potato, but with strict requirements of quality, cleanliness and compliance with formal prerequisites.
⇒ For the farmers, the availability of resources to invest in the crop is a fundamental factor in the decision of whether or not to enter in potato production.
7.2 Elements that facilitate the process of entering into the market
⇒ The associative companies of small-scale producers have converted into an alternative for the mobilization of services that support production and the search of and direct link with the market, favoring the sale price of the product.
⇒ There are different forms in which small-scale farmers can participate in the commercialization companies. It has been observed that the best form of participation for a producer is to become an associate of the company because in this way they become an owner of the association and receive additional benefits given by the company. However, it has also been demonstrated that participating in the association as a provider also allows the producers to benefit in certain ways.
⇒ The prices that the producers receive are more attractive than those paid in the traditional markets, becoming a direct incentive to participate in the associative companies.
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⇒ The associative companies have obtained an excellent potential in the markets through direct negotiation and improved conditions with the industries and other market segments, like chicken restaurants.
⇒ Much work has been done to improve the production planning, the quality of the product, the selection processes, and the commercialization services offered.
⇒ The companies of small-scale producers have been able to promote and position themselves in a market segment with perspectives of growth and that values the service and guarantee of quality.
7.3 Environmental impacts of these processes
The use of only one variety has meant that other varieties are displaced. The results of the experiences described show the positive and negative effects: ⇒ The negative is that the inclusion of a technical support package with a type of micro- credit for production supplies encourages the producers to use chemicals. ⇒ The positive is that upon inclusion of a farmer field school, as a requirement previous to the production of the variety, the farmers develop better judgment regarding the analysis of the crop and the requirements needed for its management. This results in an integrated management of plagues and reduced use of herbicides and pesticides.
With respect to the application of pesticides it can be seen that there is not much knowledge or consciousness regarding the required precautions to control contamination of the workers as well as the ground and water.
Other crops (corn, barley, wheat, beans, etc.) have been abandoned and there is an incentive to specialize their crops and participate in monoculture.
The production in some cases is in marginal areas; highlands that could result in the deterioration and desertification of the soil.
The majority of the zones use flood irrigation, which is not an optimal use of water.
Lorena Mancero. February, 2007
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BIBLIOGRAPHY
• Jon Hellin y Madelon Meijer. Lineamientos for chain analysis. Nov 2006.
• Guide to general question for focus groups.
• Information and data provided for the experiences analyzed.
• www.bce.fin.ec
• www.sica.gov.ec
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