Peru: a new model of fair trade
A new social entrepreneurship model bringing together students and indigenous communities in Peru: « Inclusive Trade »
Summary:
-In Peru, a new alliance between academics and indigenous Amazonian communities is rethinking fair trade in terms of « Inclusive Trade »;
– This new social entrepreneurial model aims to create sustainable production alternatives that improve the living conditions of native communities while preserving their habitats and ancestral customs;
– Today, this experimental project has led to the creation of a joint venture between academics and indigenous communities. In this model, the interests of native communities guide and determine decisions regarding trade management;
– This experimental project has raised awareness among indigenous communities about the sustainable management of their natural resources and given them a full role in the enterprise, thus reversing the logic of assistance.
The experimental Inclusive Trade project, » negocio inclusivo, » was born out of a desire to respond to the livelihood crisis facing the Awajún indigenous communities in the northeast of the Peruvian Amazon. Created in 2010 as part of the Awajún Buen Vivir project following the establishment of a cooperation agreement between the Awajún Regional Indigenous Federation of Alto Mayo (FERIAAM) and the Faculty of Management and Senior Management of the Pontifical Catholic University of Peru (PUCP), it has now given rise to the creation of a joint venture led by students and the Awajún indigenous communities [1]. It is defined around the theme of entrepreneurial development of emerging markets (« Desarrollo Empresarial de mercados emergentes »). The aim is to create sustainable production alternatives that improve the living conditions of native communities through the production and marketing of coffee, and to train a new generation of social entrepreneurs in a management model that is adapted and oriented primarily towards the interests of indigenous native communities.
1 – The context for the implementation of the project
The Awajún Buen Vivirproject, « Soluciones Prácticas para enfrentar la crisis de los medios de vida de las comunidades indigenas e inmigrantes, MoyobambaPerú, » created in 2008 by Soluciones Prácticas, an international technical cooperation organization [2], has the initial objective of promoting the economic, social, and political empowerment of the Awajún indigenous people by defining practical solutions that respond to the crisis of livelihoods in indigenous and immigrant communities. Located in the northeast of the Peruvian Amazon in the department of San Martin, the province of Moyobamba is situated in the Alto Mayo basin and is the region of Latin America that has recorded the highest rate of deforestation since 1970. With an area of 770,000 hectares, 75% of which is protected forest and woodland, 215,000 hectares of the territory has now been deforested, representing an average increase in deforestation of 8% per year.
Source: Final Report of the Awajún Buen Vivir Project 2008-2012
Of the three indigenous communities (Awajún, Kechwa Lamas, and Shawi) living in the Alto Mayo region,the Awajún people own approximately 140,000 hectares of the territory, equivalent to 4% of the Peruvian Amazon rainforest. There are 14 Awajún native communities, separated on either side by the Mayo River. Structured into family clans following a patriarchal hierarchy, they have maintained their traditional ways of life, with their diet depending mainly on fishing, hunting, and forest fruits. Each of these communities has territorial, political, and administrative autonomy. The Awajún people thus have an autonomous government that integrates 13 of these communities,known as the Regional Indigenous Federation of Alto Mayo (Federacion Regional Indigena del Alto Mayo- FERIAAM).
Source: Final Report of the Awajún Buen Vivir Project 2008-2012
Following the construction of the first road opening up access to the Peruvian Amazon jungle in 1973, the state led a major mobilization campaign to promote the migration of settlers to the region by facilitating the establishment of shifting cultivation. This form of agriculture, based on self-consumption, consists of leaving cultivated plots fallow once they are no longer fertile in favor of other, still virgin land. Thirty years after the increased migration of settlers and the spread of shifting cultivation in the region, 80% of the woods used for agricultural purposes have been destroyed and/or abandoned.
The consequences are serious: in environmental terms, soil erosion and loss of land fertility have led to a drastic decline in agricultural production. The deterioration of natural resources has compromised the food security of nearly 4,600 people from the Awajún native communities. These populations have become increasingly vulnerable to the contamination of drinking water sources linked to the intensive and excessive use of agrochemicals and to natural disasters (landslides and floods). Women and children are the first to suffer from poor food and health conditions: in 2012, the rate of chronic malnutrition among children aged 3 and under was 43%, the prevalence of anemia among women of childbearing age was 60%, and the infant mortality rate was estimated at 153 deaths per thousand births [3].
2 – Description of the « Inclusive Trade » model
2.1 – Organization
In this context, the « Inclusive Trade » project aims to create sustainable production alternatives that improve the living conditions of the Awajún indigenous communities while allowing them to preserve their ancestral customs, recover their habitats, and promote reforestation.
Israel Tenteis Daichap, a young indigenous leader of the Awajún people, is the originator of the Inclusive Trade proposal. This new management model is the result of collaboration with Dr. Marcel Sigmund Tamayo Maticorena, an expert in business affairs at the Faculty of Management of the Pontifical University of Peru, who developed the technical design of the project with the help of sociologist Luis Javier Angulo Talavera, director of the Awajún Buen Vivir Project.
The authors of the project started from the observation that previous commercial models had been a failure. Community incomes remained low, which in turn forced them to exploit their natural resources through environmentally unsound practices (leasing their land to settlers for shifting cultivation) in order to obtain additional income. Ultimately, this mismanagement of natural resources led to the degradation of the environment and the habitat of the native communities and jeopardized their food security.
The primary goal of this initiative is to strengthen the productive capacities of coffee producers from two Awajún native communities, the Shimpiyacu and the Shampuyacu, from a fair trade perspective. The idea is to establish a new, people-centered business model that integrates and respects the customs and values of the Awajún people. New generations of indigenous people are being trained in sustainable coffee production techniques, working closely with students from the PUCP.
Two years later, the proposal led to the creation of a joint venture between academics and indigenous communities. Currently, this pilot project, which is still in development, has set itself the goal of marketing coffee nationally. The primary need put forward in the inclusive trade plan was to improve the incomes of coffee-producing community members by eliminating intermediaries in the distribution chain.
For Israel, spokesperson for the Awajún people, it is the asymmetrical relationship between small producers and distributors in setting the purchase price of coffee production that makes the market a space in which farmers are expropriated of the wealth they produce. The Awajún communities thus remain in a situation of poverty. The second priority was to improve the management capacity of native producers in terms of both the production techniques used and their knowledge and participation in the marketing of the product.
2.2 – How the model works
By building a strategic alliance between the native enterprise (coffee producers in the Shimpiyacu and Shampuyacu communities) and the private enterprise (PUCP students), the inclusive trade project works as follows:
– It defines the market value of coffee production by taking as a reference the prices established in areas with the same production characteristics.
– Once the production has passed quality control, the private company pays the native producers a sum corresponding to the average market value of the agricultural coffee production. This market value is always higher than that paid by large national distributors.
– The raw product (unprocessed) goes through various stages of refinement before being handed over to the private company, which is responsible for preparing it for sale on the market and selling it at a profit.
The joint venture estimates that the cost of producing one kilo of coffee, including pulping, roasting, grinding, and bagging, averages between 17 and 20 Peruvian soles (the national currency), or the equivalent of €4.50 to €5.50. The local retail price, set in supermarkets in the capital Lima, is around 80 soles (€20). By way of comparison, the retail price of a kilo of coffee from the prestigious Colombian brand Juan Valdez is around 108 soles (€28). The sales margin could therefore potentially reach 470%.
By reducing the number of intermediaries in the distribution chain, the margins achieved would then be distributed as follows:
– 10% of the total gross profit would go to a common investment fund, the « Common Fund for Community Development and Good Living » (Fondo Comunal de Desarrollo Comunal para el Buen Vivir), intended to promote the development of native producer communities and strengthen the environmental sustainability of production techniques.
– The remaining 90% is divided 50/50 between the native enterprise and the private enterprise.
The producer communities thus receive two separate incomes: one before the sale, corresponding to the purchase price of the coffee harvest, and the second from the margin realized on the proceeds of the sale. The inclusive trade proposal aims to achieve a long-term increase in the income of the Awajún indigenous communities of around 300% compared to their initial income.
The common investment fund, initially held by the private company,is intended to finance concrete projects that improve the quality of life of the indigenous people,both in terms of basic services and infrastructure,and to provide technical assistance in coffee production. All decisions regarding the allocation of the common fund will be discussed and voted on by representatives of the native communities and the private company.
2.3 – An original project reversing relations between mestizos and indigenous peoples
The originality of the project lies in the establishment of a model in which the interests of the native communities guide and determine decisions regarding trade management. Through the creation of a joint venture bringing together native communities and students, this experimental project aims to promote the development of social awareness among new generations of entrepreneurs. All decisions relating to production, pricing, and marketing of products are discussed and voted on by representatives of the Native American enterprise and the private company, establishing a relationship of equality.
Indigenous communities are therefore no longer considered mere suppliers of raw materials, but as partners who are involved at all levels of the business. The attribution of this new status helps to strengthen their self-esteem and establish a horizontal relationship in their working relationship with mestizos [6]. Working relationships are no longer exclusively commercial in nature, but above all involve a relationship of trust.
The students made several trips to the province of Moyobamba to understand the living conditions of these indigenous communities and gain their trust by learning to live together for a few weeks in their environment. Thanks to this relationship of trust, the creation of a space for consultation and intercultural exchange enabled the mutual transfer of knowledge between the indigenous people and the students on a wide range of issues, including technical and productive matters as well as the culture and ancestral practices of the Awajún people. In doing so, the empowerment of the indigenous people was achieved mainly through a system of learning by doing in their native environment.
2.4 – Constraints and weaknesses of the project
The social commitment on which this project is based has been translated into practice through the establishment of a flexible management model that is primarily adapted to native producers, where a logic of sustainable profitability prevails.
First and foremost, this entrepreneurial model must be flexible enough to ensure that the interests of the indigenous people prevail. It therefore does not follow any set pattern and adapts to the circumstances and needs of the communities. The implementation of such an inclusive business model requires the training of a new generation of entrepreneurs who are willing to partner with indigenous communities and set up a business that, initially, does not follow a purely profit-driven logic. For the project’s authors, the short-term return on investment is low, but in the long term, the benefits can be considerable. Once a relationship of trust has been established, indigenous producers will not want to negotiate with others, which could lead to a monopoly situation for certain products, to the benefit of the entrepreneur. Thus, the main weakness of inclusive trade lies in the difficulty of finding entrepreneurs willing to finance the initial capital to start a project of this nature. To address this problem, sociologist Luis Javier Angulo Talavera proposes the creation of an economic fund whose primary purpose would be to provide this initial capital and which would be financed by donations.
3 – Initial results of the pilot project
No commercial transactions have yet been undertaken with the native communities. The priority being to improve coffee production, the consortium has undertaken to enrich the quality of farmland by cultivating different types of seeds.
However, the project is already having a positive impact on the communities.
The indigenous people are confident that the inclusive trade plan will be implemented and anticipate additional income. They now see it as necessary to invest in the education of their children and older generations so that they can understand and assimilate the knowledge related to the project. The communities have also realized that they need to organize themselves both internally and externally in their relationships with others in order to improve the management of their territories. The project has raised their awareness of the sustainable management of their natural resources in order to improve coffee production, prevent soil erosion, and restore their habitats. This has led to a reforestation process with the direct participation of the communities.
By giving them equal status in the joint venture, the communities no longer follow a logic of assistance but have instead become full-fledged actors, eager to improve the profitability of the project and their living conditions. Today, Peruvian regional authorities are taking a keen interest in the experimental model of inclusive trade. Furthermore, thanks to contact between native communities, indigenous leaders, and teams of students from PUCP, the project is currently diversifying into other products derived from the region’s natural resources, such as wood and cocoa. New project proposals are being discussed with the regional government of San Martin, the Awajún Buen Vivir project, and regional environmental authorities concerning the timber trade. The compromise here focuses on the repopulation of endangered trees. Similarly, several thesis projects are currently underway with PUCP students to establish new forms of social entrepreneurship.
Conclusion
Reproducing this model in other countries with similar characteristics within indigenous communities requires long-term fieldwork bringing together actors from all spheres (public authorities, civil society, universities, entrepreneurs) with solid skills in a wide range of technical and social fields. Project manager Luis Angulo Talavera emphasizes the importance of all the groundwork that was done beforehand as part of the Awajún Buen Vivir project with the native communities in order for the inclusive trade model to come into being. Great importance was placed on understanding and appreciating the communities’ way of life, including their customs and beliefs, their normative systems, and their resource management practices.
This model therefore represents a long-term investment that requires constantmonitoring andevaluation of both quantitative and qualitative economic and social results, a step that is often overlooked. The main difficulty highlighted by the student teams and project leaders is finding the financial support to carry out the project. For more information on the inclusive trade pilot project with coffee producers in the Shimpiyacu and Shampuyacu communities, see the website www.ecorganicperu.com.pe.
Bibliography
– C.A. Santiago Villavicencio, J. Villegas, E. Soto Sierra. September 2012. Final External Evaluation Report of the Project:« Practical Solutions to Address the Livelihood Crisis of Indigenous and Immigrant Communities, Moyobamba Peru ,« Lima: Soluciones Prácticas.
– L.J Angulo Talavera. November 2012. Final Report on the Awajún Buen Vivir Project, San Martin, Moyobamba: Soluciones Prácticas.
– M. Tamayo. 2011. Final Report on the Impact of the Project “Business Development in Emerging Markets” in Awajún Communities in Alto Mayo—August 3, 2010, to July 26, 2010. Lima: Pontifical Catholic University of Peru (PUCP).
– http://mercadosemergentespucp.blogspot.fr/
Notes
[1] It is important to note that although the Inclusive Commerce project was developed under the agreement between PUCP and FERIAAM, it does not belong to either of these two institutions.
[2] Soluciones Prácticas was created in 1965 in the United Kingdom with the mission of developing and promoting the use of sustainable technologies in developing countries. It has been present in Peru since 1985.
[3] Source: L.J Angulo Talavera. November 2012. Final Report of the Awajún Buen Vivir Project, San Martin, Moyobamba: Soluciones Prácticas
[4] Grinding is the final stage of processing before brewing coffee.
[5] Average annual exchange rate between January1, 2010, and January1, 2012: 1 PEN = €0.2640 – Source: Banco Central de Reserva del Perú
[6] Mestizo is the name given by native communities to people from the capital and large cities
