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9B08M047
CULTIVATING SOCIAL ENTERPRISE IN PERU: A PORTFOLIO
APPROACH
Jan Piotr Dutkiewicz wrote this case under the supervision of Professor Oana Branzei solely to provide material for class discussion.
The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have
disguised certain names and other identifying information to protect confidentiality.
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Version: (A) 2008-05-28
On June 15, 2007, Jan Piotr Dutkiewicz was heading from CARE Peru’s office in Lima into the Andes to
the city of Huaraz (see Exhibit 1). A month earlier, Dutkiewicz had completed his MBA at the Sprott
School of Business at Carleton University, in Ottawa, Canada, with a specialization in change
management. He had extensive work experience in communications and in the media, having worked for
Canadian Geographic, the Globe and Mail, the Ottawa Sun and, most recently, on assignment in
Colombia and India with a London-based press agency. Poland-born Dutkiewicz held a bachelor’s degree
in international business with a minor in French from Carleton University, was fluent in Spanish and had
studied abroad in England, France and Mexico. He was committed to making a difference.
It was Dutkiewicz’s first time in Peru, and he was excited by the variety of cultural expressions, personal
experiences and work-related tasks ahead of him. His field assignment as an MBA associate1 with CARE
Enterprise Partners (CEP), an extension of CARE Canada,2 was to provide consulting for three social
enterprises in different stages of development, each benefiting from CEP investment and support.3 First, he
would be assisting CONASE, an oatmeal manufacturer selling to the government’s vaso de leche free
breakfast program,4 by providing strategic analysis and creative approaches to customer relations. Second,
he would be supporting Serviagro, a company that worked with smallholder artichoke farmers, buying
their product and selling it to a large processing and export company. There, Dutkiewicz would provide
accounting and cost analysis. Last, he would be helping Corporacion Solar, a spinach producer, which was
currently diversifying its product line and production facilities. His task there would be to generate a
growth strategy focused on major buyers in Lima.
Dutkiewicz had carefully studied the business plans of CONASE, Serviagro and Corporacion Solar. The
orientation and training program organized by CEP and CARE in Toronto also provided him with a
1
For an overview of the CARE Enterprise Partners (CEP) MBA Associate Program, see CEP MBA Associates Program
News, June 2007, available at http://care.ca/CEP/documents/MBAnewsletter-May07.pdf, accessed on March 29, 2008.
2
“CARE Enterprise Partners,” available at http://care.ca/CEP/, accessed on March 30, 2008.
3
CARE Enterprise Partners Annual Report, 2006, available at http://care.ca/CEP/ documents/AnnualReport.pdf, accessed
on March 30, 2008.
4
El Programa del Vaso de Leche en el Perú, available at http://www.predes.org.pe/ayudatematica
_pdf/programa_vaso_%20leche.pdf, accessed on March 30, 2008.
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comprehensive grounding on market-based approaches to poverty alleviation, small and medium enterprise
development, social research, and business tools and methodologies. But as the 420-kilometer (260-mile),
seven-hour, bumpy bus ride from Lima to Huaraz brought him face-to-face with the harsh economic and
social realities of the Andean communities, Dutkiewicz felt the pressure rising. What advice would he have
for these three ventures when he met the entrepreneurs on Monday morning?
The three for-profit models were bold experiments with a new breed of locally reliant, market-driven social
enterprises, modeling a new approach to further Peru’s rural development in mountainous regions, such as
the Ancash province. But the survival and growth of these businesses were at stake. As each enterprise
confronted unexpected challenges in customer relations, cost management, sourcing and distribution, their
ability to simultaneously meet their social goals and remain economically viable was in jeopardy.
Dutkiewicz knew that successful role models could be tremendously influential in charting the approach to
development in the Ancash province. Success here could also endorse CEP’s pioneering approach to
development around the world. Would he be able to troubleshoot the businesses’ challenges and reposition
them for sustainable growth?
AGRI-BUSINESSES IN PERU
With a real gross domestic product (GDP) growth rate of 9 per cent in 20075 and an average growth of 5.7
per cent between 2002 and 2006,6 Peru embodied the economic resurgence in Latin America. Peru’s GDP
of $93 billion (196.6 at purchasing power parity) was the seventh largest GDP in Latin America, but its
GDP per capita of $3,543 ($7,485 at purchasing power parity) ranked 23rd. Alan Garcia, a former
president (1985–1990) and the leader of the center-left Partido Aprista Peruano (Apra), took office in July
2006 for his second five-year term.7 His changes in the taxation system8 and pro-trade policy had
accelerated foreign investment.
However, although the outward trappings of economic progress were increasingly visible in Peru’s cities,
26.1 per cent of Peru’s population of 26.3 million (or nearly seven million people) lived in rural areas.9 Of
these nearly seven million people living in rural communities, approximately 4.6 million lived in poverty;
in 1997, 64.7 per cent of the rural population were living below the poverty line, compared with 49 per
cent of Peru’s total population that lived below the poverty line. In 2000, 18.1 per cent of Peruvians lived
on less than US$1 a day; another 37.7 per cent lived on less than US$2 a day.10
5
Economist Intelligence Unit, “Economic Data: Peru” April 10, 2008, available at http://www.economist .com/
countries/Peru/profile.cfm?folder=Profile%2DEconomic%20Data, accessed on March 29, 2008.
6
Economist Intelligence Unit, “Fact Sheet: Peru,” April 10, 2008, available at http://www.economist
.com/countries/Peru/profile.cfm?folder=Profile-FactSheet, accessed on March 29, 2008.
7
Economist Intelligence Unit, “Economic Data: Peru” April 10, 2008, available at http://www.economist
.com/countries/Peru/profile.cfm?folder=Profile%2DEconomic%20Data, accessed on March 29, 2008.
8
“The corporate income tax rate is 30% for distributed earnings and 27% for reinvested earnings. Branch profit tax is levied
at 30% and remittance tax at 10%. Royalties are taxed at 30% and interest is paid abroad at 5%. Value-added tax (VAT) is
19%. A tax on financial transactions, which was introduced in 2004 at a rate of 0.08%, was cut to 0.05% in March 2007; it
will stay in place until at least the end of 2011.” Source: Economist Intelligence Unit, “Fact Sheet: Peru,” April 10, 2008,
available at http://www.economist.com/countries/Peru/profile.cfm?folder=Profile-FactSheet, accessed on March 29, 2008.
9
Rural
Poverty
Portal,
“Peru
Statistics,”
available
at
http://www.ruralpovertyportal.org/english/regions/
americas/per/statistics.htm, accessed on March 29, 2008.
10
Rural
Poverty
Portal,
“Peru
Statistics,” available
at
http://www.ruralpovertyportal.org/english/regions/
americas/per/statistics.htm,, accessed on March 29, 2008.
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According to the United Nations Human Development Index,11 a social-welfare index that measured
human development and well-being, Peru ranked 87 out of 177 countries (Canada was 4th, and the United
States ranked at number 12).12 In 2004, Peru’s life expectancy at birth was 70.7 years, with a 9.7 per cent
probability of not surviving beyond age 40. The adult illiteracy rate above age 15 was 12.1 per cent in
2004. Seventeen percent of the population did not have access to an improved water source, and 8 per cent
of children younger than age 5 were underweight.
Disparities between the rich and the poor were large, and growing. The World Bank reported that in 2001
approximately 26 per cent of household consumption was spent on food, 17 per cent on fuel, 13 per cent on
health care and 5 per cent on education. The richest 10 per cent of the population accounted for
approximately 35.4 per cent of household consumption and the poorest 10 per cent accounted for
approximately 1.6 per cent of consumption.13
Agriculture contributed approximately 10 per cent of Peru’s GDP14 and employed approximately 29 per
cent of the total labor force. Compared with January 1999, food production has decreased (90.4 per cent in
2004), as had crop production (94.9 per cent). Of the agricultural exports of Peru, green coffee ranked first
at 21 per cent, followed by preserved vegetables (13.7 per cent) and asparagus (12.6 per cent). Other crops
exported were cotton, sugarcane, rice, potatoes, corn and plantains. Smallholder farmers also grew coca,
either for traditional uses or for illicit sale to cocaine traffickers. Peru imported wheat, maize and cakes of
soybeans.
DOING BUSINESS IN PERU
Starting a business in Peru had its challenges. According to a World Bank Report,15 “it requires 10
procedures, takes 72 days, and costs 29.86 per cent GNI [gross national income] per capita to start a
business in Peru.” Compared with new ventures in the Latin America & Caribbean region, it took 50 per
cent longer for Peruvian start-ups to obtain an operating license or a construction-related permit.
11
United Nations Development Programme, “Peru: The Human Development Index: Going Beyond Income,” available at
http://hdrstats.undp.org/countries/country_fact_sheets/cty_fs_PER.html, accessed on March 29, 2008.
12
United Nations Development Programme, “Statistics of the Human Development Report,” available at
http://hdr.undp.org/en/statistics/, accessed on March 29, 2008.
13
Encyclopedia of the Nations, “Peru: Income,” available at http://www.nationsencyclopedia.com/ Americas/PeruINCOME.html, accessed on March 29, 2008.
14
Peru’s
GDP
was
10.3%
in
2003,
Rural
Poverty
Portal,
“Peru
Statistics,”
available
at
http://www.ruralpovertyportal.org/english/regions/americas/per/statistics.htm, accessed on March 29, 2008.
15
The World Bank Group, Doing Business: Peru, p. 10, available at http://www.doingbusiness.org/
ExploreEconomies/?economyid=152, accessed on March 29, 2008.
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Peruvian firms faced particular challenges accessing credit. Although nearly 70 per cent of firms had bank
loans or lines of credit, the value of collateral needed for a loan was high. On average, 103.2 per cent of the
loan amount was needed as collateral, and 14.3 per cent of firms identified access to finance as a
significant constraint. Approximately 60 per cent of firms relied on bank loans to finance expenses, but
only a little more than 30 per cent had access to loans for investment.
Peru’s commercial guide for 2002 had identified the agriculture sector as a promising arena for growth. It
also identified important constraints:
The agricultural sector is plagued with uncertainty stemming from poor progress on land
titling, lack of credit, and inefficiencies that make competition on a world scale difficult.
Legislation on land and water rights has been pending for a number of years.16
APPROACHES TO SOCIAL ENTERPRISE
Several models of social enterprise had been tested in Latin America, including the market lineage model,
the market intermediary model and the entrepreneur support model.17
The Market Lineage Model
The market linkage model brokered trade relationships between small producers, local firms and cooperatives, and the external market. For its task of connecting buyers and sellers, the social enterprise
charged small brokerage fees, which generated income and became a self-financing mechanism for social
16
U.S. Commercial Service, “Peru Country Commercial Guide,” available at http://www.buyusainfo.net/
info.cfm?id=72003&keyx=AC0CAADFA811585B85E9B810C564E3DD&dbf=ccg1&loadnav=, accessed on March 29, 2008.
17
For a typology of social enterprise basic models and hybrid and enhanced models, see Virtue Ventures, “Operational
Models,” available at http://www.virtueventures.com/setypology/index. php?id=MODELS&lm=1, accessed on March 29,
2008.
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programs. This category of social enterprise included several programs involving CARE Peru, including
the REDESA project described in the next section.
The Market Intermediary Model
The market intermediary model provided services to a target population of small producers (typically,
individuals, firms or co-operatives) to help them access markets:
Its mission centers on strengthening markets and facilitating clients’ financial security by
helping them develop and sell their products. The social enterprise achieves financial selfsufficiency through the sale of its client-made products. Income is used to pay the
business’ operating expenses and to cover program costs of rendering product
development, marketing and credit services to clients.18
Cepicafé, an association of small coffee-producing organizations in the Piura Mountains of Peru, deployed
market-based tools and business practices to help marginal Latin American rural communities improve
their living standards. Cepicafé adopted a fair trade approach and attempted to secure higher prices for
growers’ coffee by helping them establish more direct and equitable links with wholesalers, retailers and
consumers.
The Entrepreneur Support Model
The entrepreneur support model of social enterprise sold financial and business support services to a target
population of self-employed individuals. For example, the organization Pro Mujer (Spanish for “Pro
Woman”), empowered low-income women to improve their social and economic status by providing small
working-capital loans (typically $50 to $300) for investment in productive activities, such as retail trade or
small-scale production. Women were then able to sell their products and services in the open marketplace.
Pro Mujer operated like a bank for underserved women entrepreneurs: it charged interest on each loan and
leveraged savings deposits for lending. Along with financial services, Pro Mujer provided training in
business development, business management and health education. As of June 2002, after three years of
operation, Pro Mujer had serviced 66,000 low-income women, whose income had doubled two years into
the program. Its loan portfolio totaled $5.3 million.
REDESA
The REDESA project (an acronym for Redes Sostenibles Para La Seguridad Alimentaria, Spanish for
“Sustainable Supply Chains for Food Security Program”) was an initiative to help the many poor farmers
who engaged solely in subsistence farming or sold their products only in the informal sector of the
economy. A joint project between CARE Peru and the United States Agency for International
Development (USAID), REDESA aimed to improve the economic conditions of poor farmers in the
Ancash region. It promoted three products that could be cultivated in the region and for which a major
demand existed in the formal economy, specifically in the export market: artichoke, beans and choclo, a
sweet corn.
18
Virtue Ventures, “Market Intermediary Model,”
index.php?id=MIM&lm=1, accessed on March 29, 2008.
available
at
http://www.virtueventures.com/setypology/
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The project first identified potential producers, buyers/exporters/resellers, providers of technical
agricultural assistance, and the relevant politicians at the local and national levels. After this framework
was in place, representatives of REDESA contacted local farmers and convinced them to enter into
contracts with buyers, receiving in exchange technical assistance (and often tools and seeds) and, if they
followed through, a cash income.
The project had a dual goal: to involve rural producers in the formal economy and to provide them with
cash to purchase their necessities. The program’s aim was to directly or indirectly increase the livelihood
of 3,000 families by involving them in the commercialization of their products. The program was a
resounding success. For example, 54 families, representing 90 per cent of all growers, became involved in
the cultivation of artichokes, which was a completely new crop to the area.
As a result of the success of CARE Peru’s REDESA project, chronic malnutrition among 60,000 rural
families was reduced by 9.9 percentage points between 2001 and 2006. Based on a recommendation from
CARE Peru and its partners in the REDESA project, the Peruvian government had adopted a malnutrition
reduction target — five per cent over the next five years — a target CARE Peru was committed to help
achieve.19
Not only had the REDESA program introduced the concept of commercialization of agricultural products
as a form of poverty alleviation, it had also led to the education and training of university students and
business people in technical agricultural skills and in the concepts of social enterprise. The success of
REDESA was watched closely by staff at CARE and CEP, who saw the threefold benefits of the program:
in rural farmers whose eyes had been opened to the benefits of engaging in the open market, in nongovernmental organizations (NGOs) and civil society members who had seen positive results, and in
enterprising young graduates and business people who would now be amenable to similar models.
As the REDESA project ended in 2004, the CEP staff was experimenting with a new model of gateway
agencies. They believed that Peru was the perfect launch pad for cultivating innovative models of
agricultural social enterprises. CEP approached CARE Peru and together they launched a contest in
Huaraz, the capital of Ancash province, soliciting business plans that would meet specific criteria. Of the
many proposals received, they chose three innovative approaches, all presented by young graduates of
agriculture programs who had worked as technical specialists with CARE and had been involved in the
REDESA program.
CARE ENTERPRISE PARTNERS (CEP)
As an extension of CARE Canada, “CEP twins the tools of business with the community development
acumen of one of the world’s largest humanitarian organizations to create commercially competitive and
socially positive enterprise.”20 CEP’s mission was to promote market inclusion solutions to poverty by
cultivating entrepreneurship in the world’s poorest communities, through three pillars of intervention:
1. Capital (loans, equity and trade finance to spur economic growth and seed businesses in developing
countries)
2. Solutions (to nurture the commercial capacity of local entrepreneurs and forge cross-sector
partnerships to enhance market access and generate economic opportunity)
19
20
“CARE in Peru,” available at http://www.careinternational.org.uk/?lid=10651, accessed on March 30, 2008.
“CARE Enterprise Partners,” available at http://care.ca/CEP/, accessed on March 30, 2008, emphasis in original, p 3.
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3. Knowledge (to broaden capacity, competency and support for social enterprises and overall marketbased development)
Masood Shariff, CARE Canada’s vice-president, and CEP’s executive director, eloquently described the
intended impact of CEP on poverty alleviation in CEP’s 2006 Annual Report:
Using a blend of targeted investments, business-management assistance, trade-facilitation
services, and research and training in nurturing social enterprises, CARE Enterprise
Partners harnesses the power of markets to unlock latent entrepreneurship, support
development of social enterprises, and spur sustainable economic growth in developing
countries. Through the CARE Venture Fund, which incubates, supports, and promotes
pro-poor businesses, CARE Enterprise Partners currently assists a number of social
enterprises throughout the developing world. We also provide technical assistance to help
emerging businesses — in a number of developing regions of the world — mature to the
point where they can eventually receive financial assistance either from the CARE
Venture Fund or traditional funding sources.
The CEP Investment Trust Fund operated as a social venture capital fund capitalized by donations from
Canadians. The trust fund provided investment capital in the form of early stage loans and equity to
enterprises that had the potential to grow commercially and to provide increased incomes and social value
to communities in developing countries. To be eligible for financing through the CEP Investment Trust
Fund, enterprises in developing countries were required to be socially and financially promising and to
adhere to a set of clear investment principles and performance standards:21
•
•
•
•
•
Financial viability and sustainability: The ventures have undergone a comprehensive risk assessment
to assess their long-term viability; have a clear operational framework and set of managerial
competencies; have established a strong supply chain and proven product marketability and have the
potential to show real returns.
Entrepreneurship and local ownership: Funded projects are locally sponsored and encourage local
participation in economic activities; and the entrepreneurs show a strong entrepreneurial spirit, a
proven ability to foster business partnerships and an ability to raise capital contributions and to fund
further investment.
Effective governance: To be considered by CEP Investment Trust Fund, new ventures need to establish
appropriate, efficient and transparent governance models and practices; report their standards and
processes responsibly and in a timely manner and operate in ways that enhance stakeholders’ interests.
Positive social returns: Each venture offers a sustainable and fair mechanism to foster economic
opportunities and market access for poor local communities and stakeholders; creates employment
opportunities that increase income levels for the poor; provides a positive impact on local growth and
poverty alleviation and is potentially replicable and scalable to other communities.
Proactive corporate conduct: All enterprises must comply with all local laws, operate ethically; protect
individual rights and safety; promote fair child and health standards and sound practices related to the
environment, local heritage and natural resources.
In 2006, CEP extended loans to three agribusinesses located in the Peruvian Andean mountains. The three
enterprises — CONASE, Serviagro and Corporacion Solar — provided technical assistance to farmers,
21
CARE Enterprise Partners, CARE Enterprise Partners Annual Report 2006, p. 10, available at http://care.ca/CEP/,
accessed on March 30, 2008.
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aggregated their production and connected farmers with larger markets to ensure better prices for their
vegetables and cereals (see Exhibit 2).22
CONASE Cereal.
Photo Credits: CARE/Paula Pelaez 2007
(used with permission)
CONASE links Andean smallholder farmers with
industrial buyers of cereals, restructuring the supply
chain to help redistribute a greater share of the value
created to the farmer. It collaborates with small-holder
oat farmers to improve their agricultural practices. Its
careful selection of specific cereals (the Blanco Mantaro
oats, for example) offers a more viable alternative to
traditional and less profitable crops, such as wheat. The
enterprise also processes the oatmeal to supply highquality, nutritious cereal to children participating in the
Peruvian government’s School Breakfast Program.
Serviagro is an agribusiness that supports smallholder
artichoke production. Serviagro works with more than 50
families who live in poverty and have less than 0.5
hectares (1.2 acres) of land and therefore are unable to
sell their production directly to export companies. By
early 2007, Serviagro’s activities had provided daily
labor for more than 250 farmers in the region.
Harvesting artichokes.
Photo credits: CARE/Jesse Moore 2006
(used with permission)
Corporacion Solar is working with more than 20 small
organic spinach and greens farmers (most of them
women) who each own about 400 m2 (478 square yards)
of land. Corporacion Solar taps into the high demand for
gourmet vegetables at regional and national markets.
Linking Andean farmers with urban markets helps
increase the farmers’ income level by offering them a
premium price for the great quality of spinach produced.
A
delicate
baby
spinach
Photo credits: Amanda Alves 2007
(used with permission)
plant.
Source: Adapted from CARE Enterprise Partners website, http://care.ca/CEP/services/capital_e.shtm, with input from
CONASE, Serviagro, and Corporacion Solar.
Exhibit 2 summarizes the differences and similarities among the business models and the anticipated
social, environmental and economic impact from each venture.
22
CARE Enterprise Partners, CEP Capital, available at http://care.ca/CEP/services/capital_e.shtm, accessed on March 30,
2008.
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MODEL #1: CONASE
CONASE (El Consorcio Agrícola de Servicios S.R.L., Spanish for The Agricultural Association of
Services) was championed by a team of four entrepreneurs: Fran Manuel Maguiña Maza, Herbert Flavio
Velverde Balabarca, Marcel Aniceto Mendez and David Reyes Yanac (see Exhibit 3 for a summary of
their background and expertise.) The entrepreneurial team, which had worked with CARE Peru on the
REDESA program, had two years of experience in commercializing grains and connecting smallholder
farmers from the Ancash region with regional cereal buyers. The entrepreneurs had also worked closely
with the Ancash farmers from 2003 to 2006, providing technical assistance and supporting the
commercialization of their produce.
CONASE was created to source and aggregate grains and cereals (such as oats, quinoa and kiwicha) from
local smallholder farmers, and to then use the volume of the aggregated produce to bargain for fair prices
with local oatmeal and baking companies. Its first client was Rio Santa, a company that produced oatmeal
and other breakfast cereals for the Peruvian government’s Vaso de Leche (Spanish for “a glass of milk”), a
free breakfast program for underprivileged families.23
The Vaso de Leche program worked on a bid-for-contract basis, with private companies bidding on
contracts to provide cereal tailored to the demands of individual cities and municipalities. The terms of
reference included not just quantity but also the serving size per package (e.g. some contracts required
single-serving packets, others needed 1-kilo bags), content (e.g. oatmeal, half oats/half quinoa,
unsweetened, sweetened with cane sugar, sweetened with white sugar) and style (e.g. instant or slowcooking). This lack of standardization was criticized by some; others argued that the customization was
necessary to meet local dietary traditions and to encourage the use of local produce. For small, local firms,
such as CONASE, the sourcing practices of the program offered a great opportunity for smaller farmers to
be involved. Cities such as Lima or Cusco secured large contracts with major producers. Small cities, on
the other hand, due to their much smaller demand, fell below the radars of the big companies, which risked
compromising their economies of scale by creating custom products to meet the small orders required by
less populated communities. Small companies, however, thrived on their ability to flexibly adapt to the
customization, which was precisely CONASE’s entry strategy.
CONASE was launched with 30 smallholder farming families. Its projections called for a gradual scaling
up of production to 60 hectares (approximately 150 acres) and 120 families by the end of the first year in
operations, 90 hectares (approximately 225 acres) and 180 families by the end of the second year and 120
hectares (approximately 300 acres) and 240 families by the end of the third year. To get started, CONASE
needed several pieces of harvesting and production equipment costing about US$9,000, two motorcycles to
stay in touch with the farmers (estimated at US$2,000), office equipment estimated at US$12,000
(computer, printer, telephone and camera), plus US$500 for uniforms, small tools and basic office
furnishings. To finance the venture, CONASE applied for a CEP loan of US$26,269, to be repaid over a
three-year term at an annual interest rate of 10 per cent.24
23
The program timeline, targets and achievements are available in a Spanish document, El Program del Vaso de Leche en
el Perú, available at http://www.predes.org.pe/ayudatematica_pdf/ programa_vaso_%20leche.pdf, accessed on March 30,
2007. For additional discussion of the implications of Vaso de Leche as a women’s movement, and its consequences in
terms of poverty alleviation and political empowerment of Peruvian women, see Erica Baca, “The Element of Cross-Class
Participation in Peruvian and Brazilian Women’s Movements During Times of Political Change,” Hinckley Journal of Politics,
Autumn 1998, pp. 7–12, available at http://www.lib.utah.edu/epubs/hinckley/v1/baca.html, accessed on March 30, 2008.
24
The repayment schedule provided for a repaid balance of $7936.40 in year 1 (with US$2,626.90 in interest charges),
US$8,730 in year 2 (with US$1833.30 in interest charges) and US$960.30 in year 3 (with US$960.30 in interest charges).
Source: CONASE Business Plan, personal communication with Jan Dutkiewicz.
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The projected income statement estimated revenues of US$83,273.70 in year 1, increasing to
US$125,232.20 in year 2 and US$170,087.40 in year 3 (see Exhibit 4). Based on anticipated fixed and
variable costs,25 CONASE could break even at 74 per cent of the projected revenues in year 1, at 56 per
cent of projected revenues in year 2 and at 40 per cent of the projected revenues in year 3.
CONASE’s business model was ambitious: to encourage the local production and sourcing of more
nutritious grains and to allow farmers to capture a greater portion of the value they created by shortening
the commercialization chain (see Exhibit 2 for the anticipated social, environmental and economic
impacts). Nutrition was a top-of-mind issue in Peru. At its last survey in 2001–2003, the Food and
Agriculture Organization (FAO) of the United Nations had classified 3.3 million people in Peru as
undernourished (12 per cent of Peru’s population). Although the statistics were showing improvement (on
a downtrend from 42 per cent in 1990–1992 and 19 per cent in 1995–1997), significant room existed for
improvement. Of the Peruvian daily consumption, 54 per cent of the dietary energy consumption (now
about 2,570 kcal/day) was accounted for by starchy foods. Child nutrition was still an important issue: 25.4
per cent of Peruvian children were undernourished, and 0.9 per cent were considered wasting (falling more
than two standard deviations below the FAO’s healthy diet requirements).26
CONASE had a great social cause and a sound business model. But you know what they say about bestlaid plans. . . . First, scaling up the farming from 30 families to the planned 120 families proved
challenging. Most smallholder farmers warmed up quickly to the concept of receiving a fair price for their
produce at regular intervals; however, most either cultivated grains of too low quality or did not grow
sufficient quantities to make collection financially feasible for CONASE. Many of the farmers had been
receiving training and some economic support under the REDESA program. David Reyes Yanac (Reyes),
now CONASE’s manager, focused his team’s attention on building up the farming communities to meet
the supply challenges.
Meanwhile, CONASE’s first and only purchaser, Rio Santa, was shutting down its cereal-processing plant.
For many others, the loss of their only customer would have been a major setback, but the members of the
new venture team had seen their share of challenges (see Exhibit 3), and they quickly moved to expand
their business model downstream, into processing.
Strategically, this move was risky, because the entrepreneurial team was stepping away from familiar
ground (i.e. agriculture) into uncharted waters (i.e. producing and marketing oatmeal). Financially,
acquiring a plant was expensive. CONASE would need to borrow to cover the cost of the building, the
machinery and working capital; revenues would have to increase quickly enough to allow CONASE to
bear the additional debt. The new venture team was hoping for a bargain, but Rio Santa’s problems proved
to be short term; its managers were already reapplying for their business license for the following year.
Now stuck between a rock and a hard place, the CONASE entrepreneurs had little choice: either they could
quit the project altogether or they needed to find a way to execute on the new strategy. Undaunted, they
chose to expand their services to include the processing and the marketing of the locally sourced oats.
Getting into the processing business was bumpy at first. The four entrepreneurs knew everything about
cereals, growing conditions and nutrition, but nothing about zoning, building permits or hiring employees.
“We didn’t know how to get workers. We didn’t know how much to pay them. Should we offer them
25
Fixed costs included depreciation, administrative expenses and financial charges. Variable costs included
commercialization costs for seeds, oats and derived products; cereal collection; transportation and processing costs; and
costs of managing the plant and generating new seeds for the following planting season.
26
The Food and Agriculture Association (FAO) of the United Nations statistics on child nutrition are available at
http://www.fao.org/faostat/foodsecurity/MDG/EN/Peru_e.pdf, accessed on March 30, 2008. For additional insights, see
FAO’s Nutrition Country Profile for Peru at http://www.fao.org/ag/agn/nutrition/per-e.stm, accessed on March 30, 2008.
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contracts? How did contracts work? We had no idea,” Reyes recalled. But with some mentoring from the
field manager of CARE’s Huaraz office, Esteban Vera, CONASE found a promising location in a nearby
municipality, La Florida.
La Florida’s mayor liked CONASE’s social enterprise model, and Reyes wanted CONASE to be a
contributing member of the community. They quickly agreed that the processing plant would recruit all
production staff from within the community (with the exception of a former Rio Santa plant engineer,
whom they had already hired). CONASE would retain local contractors for the initial establishment of the
plant and its subsequent upkeep. As its operations grew, CONASE would also attempt to enter into
contracts with local grain farmers. These steps promised a boon for the poor municipality, and CONASE
was embraced by the locals. With the site secure, the company had to act quickly to set up operations. The
four entrepreneurs found new and used machinery, upgraded the plant to national health and safety
standards and gained Department of Health approval for their product.
The team also transformed the marketing challenge into an opportunity. Although the team lacked the
experience or capacity to compete in larger markets, their socially focused model gave them an edge in the
small municipalities surrounding Huaraz. Through a combination of persistence and luck, they quickly
signed one-year contracts with eight municipalities.
Reyes Yanac recalled that, due to a combination of old-fashioned rural hospitality and business naïveté, he
and his partners had welcomed the visiting health officials with a large prepared meal. The bureaucrats
were at first taken aback by their hospitality, which they interpreted as an attempt to sway their judgment.
However, when they saw the quality of the plant and the product, they gladly certified it, and then willingly
joined the company members for lunch. “They said no one had ever done that before and that now they
were going to expect this from other companies,” recalled Reyes. “Obviously they were joking, but it felt
good that we were able to establish a personal rather than purely professional relationship.”
Growing Pains or Growth Trap?
With eight municipalites’ orders to fill, and the heavier debt load caused by the purchase of the new plant
and machinery, CONASE ran into another bottleneck on the supply side. Try as they might, the
entrepreneurs were unable to get enough quality local grains to keep pace with demand. They talked to
their existing suppliers, they talked to CARE, they contacted university-supported and governmentsponsored programs, but all to no avail. The smallholder farmers couldn’t come close to filling their
outstanding orders. Paradoxically, word of mouth was spreading faster and faster. CONASE was rapidly
gaining traction in the market and, unwilling to lose momentum, Reyes and his partners continued to make
application for further contracts.
But the additional contracts overstretched the company financially. As new orders came in, they needed to
borrow more funds just to buy the raw product and the packaging material and to pay the production staff.
The financial crunch was exacerbated by slow payment on the part of the various municipalities. Although
a few paid on time, others paid after a lag of two to three months; one municipality, citing an income
shortfall, refused to pay at all. Each additional contract forced CONASE further into debt just to fill the
orders.
CONASE had planned well, but was ill prepared for this level of success. Now, facing grievous supply and
cash flow shortages, success became its biggest threat. The company found itself in a Catch-22 situation.
CONASE could stay true to its social mandate and make a concerted effort to source all its grains locally
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— operating as a market linkage according to CEP’s gateway agency model. However, this strategy would
mean foregoing some of the current orders, perhaps stunting any future growth. Curtailing revenues would
also jeopardize the ability to repay the CARE loans. Alternatively, the company could move away from its
initial plan (and some of the terms on which the CARE loan was contingent) to find alternative sources of
supply to satisfy the current and growing client commitments. For example, the company could import oats
from Chile to fill in the supply shortages, at least in the short term. This call had to be made, and Reyes
relied on Dutkiewicz for advice.
As if the growth trap was not enough of a challenge in itself, CONASE was facing two related decisions.
First, demand was shifting toward pre-cooked, instant oatmeal. More and more municipalities were already
asking for it, and were willing to pay a small premium. Manufacturing this oatmeal would require
CONASE to invest an additional US$10,000 in a “stabilizing machine” that would steam-cook the oats.
This equipment would be the company’s most expensive piece of machinery, and attaining it would plunge
the entrepreneurs further into debt.
Second, the four entrepreneurs had been talking about launching a nutritional product into the local retail
market — selling the oatmeal at the numerous corner stores in and around Huaraz and competing on price
and adaptability with major national and international brands (such as Quaker). The local market was
moving quickly, and their Nutri-Andes brand name was gaining traction through the Vaso de Leche
distribution. CONASE had the chance to make history: it would be the first time that a local producer had
engaged established, market-savvy competitors for a share of the local consumption. But a retail-focused
strategy would be capital-intensive and posed a new set of strategic, operational and marketing risks.
MODEL #2: SERVIAGRO
Serviagro’s plan was deemed “most likely to succeed” in the initial CEP assessment. Artichokes, an
upmarket food in North America and Europe, grew very well in the climate and soil of the Peruvian Andes
and could grow in abundance in rural mountain villages in Ancash province. Artichoke production was
heavily promoted by CARE Peru through the REDESA program. Gianluca Nardi, from CARE’s Latin
America team, described the design and impact of the program, which provided seeds, tools and training in
artichoke cultivation:
We’re acting like a broker between the exporters and local producers. The companies get a
good price and a good quality product throughout the year while the local farmers are
earning good money. Many are able to rent more land to increase the size of their crop and
make more money.27
Building on its earlier success, Serviagro was created as a gateway company to source artichokes from
smallholder farmers from the Huaraz and Chavin areas and sell them to larger companies, which, in turn,
would process and package them for export. The company, which had offices in both Huaraz and Chavin,
provided technical assistance to farmers; sold fertilizer, pesticides and tools to farmers at no markup;
delivered these products to their door and purchased artichokes from farmers at a fair market price.
Serviagro picked up the artichokes at a set time (sparing the farmers having to lug their produce to village
squares or to other central collection areas that, for some, meant a five-kilometer hike carrying the heavy,
unwieldy sacks of artichokes) and paid on pickup (as opposed to the two- to four-week delay of other
companies). The model earned instant appeal, and farmers were eager to work with the young company.
27
“Business
Boost
to
Beat
Poverty
in
Peru,”
http://www.careinternational.org.uk/Business%20boost
%20to%20beat%20poverty%20in%20Peru+8178.twl, accessed on March 30, 2008.
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The company’s financial model was simple: pay farmers X number of nuevos soles (the local currency) per
dozen, then sell the dozen to a producer for X + 0.25. Although Serviagro’s margin was smaller than their
competitors’, its model to pay more and charge less appealed to both suppliers and buyers. Two factors
made this model work: volume — Serviagro needed sufficient supply to make its runs to the city
profitable; and logistics — any unexpected shortage or spoilage could threaten Serviagro’s thin margins
and thus endanger its viability.
Serviagro’s new venture team — Cesar Lazarte Lezama, Guillermo Hilarión Vegas Ruiz, Rómulo Percy
Sifuentes Maguiña and Rafael Carlos Osorio Díaz — represented strong capabilities in agriculture and
management (see Exhibit 5). The four entrepreneurs applied for a CEP loan of US$35,000 for a three-year
term, with a three-month grace period and a monthly interest rate of 1 per cent. The loan repayment
schedule would be amortized to require constant monthly outlay of S/3,703.1328, or US$1,105.41, for 33
months. The CEP loan would finance 95 per cent of the start-up expenses, including two motorcycles, raw
material inputs and supplies for the first three weeks, labor force costs for the first months, operating and
maintenance costs and other indirect costs for the first months. The venture team would contribute the
remaining 5 per cent, including a computer, printer, telephone, basic office furniture and the startup license
fees. The financial projections are shown in Exhibit 6.
As Serviagro was getting started, unexpected shortages in supply were the first issue to catch Cezar Lazarte
off guard. Many farmers had been keen to work with Serviagro but their yield was often far below
Serviagro’s expectations. When the artichokes were harvested, they were placed in thick sacks, seven
dozen to a sack. The business plan anticipated selling an average of 325 sacks per day, at S/27 (US$8.30)
per dozen. Some days, however, Serviagro collected only one or two sacks from each farmer, which, in
some cases, was not even enough to cover the cost of gas needed to reach the farmers’ fields for the
collection. Several reasons were responsible for the sluggish supply, from lack of agricultural education
and poor irrigation practices to complacency.
Many of the artichoke farmers had received aid from the REDESA program and had therefore developed a
sense of reliance on CARE and USAID, which spilled over to their relationship with Serviagro. The
farmers expected Serviagro to absorb both fluctuations in supply and delayed payments for inputs. But
given Serviago’s social mission, its business model had little slack. If several farmers failed to harvest one
week or neglected to pay for the fertilizer, the new venture was immediately under financial strain.
To make matters worse, Serviagro’s model relied on quality produce: only large, ripe, healthy artichokes
fetched the premiums Serviagro had promised to share with the farmers. Artichokes too small, too young
or otherwise unfit for resale incurred straight losses for the company. Because the product, when collected,
had already been bagged by the farmers in giant burlap sacks, these imperfections were only discovered by
corporate buyers (who promptly discarded them). Some weeks were better than others, but Lazarte
complained that on bad weeks corporate buyers were rejecting as much as 5 to 6 per cent of the company’s
product. Because Serviagro could not trace back the subpar artichokes to individual farmers and
retroactively educate or discipline them, the company took the financial hit. As the losses accumulated,
Serviagro’s financial health deteriorated, and the venture was on the brink of falling apart.
Transportation posed a separate challenge, which aggravated the issues with the quantities and quality of
artichoke supplied by the farmers. Transportation costs were increasing. The farmers the company worked
with were scattered throughout remote, hard-to-access, mountainous terrain. Getting to them was costly,
time-consuming and damaging to trucks and motorcycles. All the produce then had to be transported to
28
The currency symbol S/ indicates the Peruvian currency, nuevos soles. At the time, the currency exchange with the U.S.
dollar was S/3.35 = US$1.
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Huaraz. In the case of the produce from the Chavin region, the seemingly short 110-kilometer (68-mile)
trip proved to be anything but. The road between the two cities wound through steep mountain passes and
was in a perpetual state of disrepair. On a good day, the trip took four hours. On a bad day, as the company
soon found out, mudslides or accidents blocked the road for hours if not days. Twice, drivers saw a
truckload of artichokes spoil as they waited for repair crews to clear the road.
Transportation challenges aggravated both the supply shortages and quality problems, increasing the
financial pressure on the new venture and driving a wedge among the four founding entrepreneurs.
Lezama, Ruiz, Maguiña, and Díaz were working 10-hour days but their working longer did not stop the
produce losses. They struggled to find a way to compensate for the unpredictable shortages in artichokes
by farming themselves. They purchased a 10-hectare plot of land in Chavin, and their farm was off to a
great start. The land was fertile and quickly yielded a nice crop of high-quality artichokes. Serviagro was
seeing the light at the end of the tunnel.
When the four founders advertised for daily laborers to help with the harvest, they encountered another
stroke of bad luck. Few workers were interested in the rate they were able to offer (S/20 per day, or about
US$6). A major government public works project that had recently started in Chavin and was slated to run
for the next two years was paying much higher rates, between S/30 and S/35 per day; and most able-bodied
workers had already signed up with that project. Serviagro’s thin margin model could not afford to match
the government ’s rate. So the partners had little choice by to roll up their sleeves and get to work. Their
work days turned into excruciating 18-hour slogs. Although returns did increase slightly, the additional
revenues were not enough to put their books in the black. Because their days were longer and the going
was getting tougher, the founders’ arguments increased in vitriol and frequency.
Serviagro’s model had a few silver linings: first, the produce was lucrative, in demand and added solid
social and economic value to many of the smallholder famers who were slowly but surely harvesting
greater volumes of high-quality artichoke crops; secondly, REDESA’s success had focused attention on
CARE Peru. As the word spread, more new programs were started, offering farming capacity-building and
opportunities for contracts in agricultural consulting. In particular, Antamina, a major Peruvian mining
company, was preparing to invest, as part of a larger government program, in agricultural capacity-building
programs targeting Chavin and Huaraz. Given the prior expertise of the founding team, and its successes in
improving the production capacity and the revenues of the smallholder farmers to date, Serviagro was in a
perfect position to take advantage of this serendipitously timed program. But could the four alreadyoverstretched partners reach out for this new opportunity?
Strategic Adjacency or Distraction?
Dutkiewicz wondered whether the Antamina program offered a strategic adjacency to Serviagro, or
whether the program would become a strategic distraction, taking the young company farther off course
from its original market linkage approach. He had many questions for Lazarte. Were the yield and quality
from farmers up to the plan’s requirements? Had Serviagro met with success in recruiting additional
farmers and increasing the revenues of participating farmers? Was word of mouth creating the snowball
effect necessary to create synergies in collection and transport? Had the partners experimented with quality
tracking mechanisms to weed out the farmers that cut corners on quality? How was Serviagro perceived by
the farmers — and more importantly, what had Serviagro’s founders learned from these harsh lessons as
they tried to recruit and manage new growers? Were cheaper or more effective transportation alternatives
available to relieve some of the financial pressure on Serviagro? Could some of the added-value services
be redistributed to other partners (perhaps CARE Peru or Antamina) to relieve some of the squeeze on
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Serviagro’s current margins? And last, but not least, was the fully owned growing operation adding value
commensurate with the cost (regardless of the time and attention from the entrepreneurial team and their
arguments about it)? Should the founders scale up the farm, find locations closer to Huaraz or perhaps even
develop a separate or hybrid business model that would better take into account the differences between
market linkage and stand-alone production? Dutkiewicz knew that the partners were desperate for answers,
but he felt these questions needed immediate attention.
MODEL #3: CORPORACION SOLAR
The third model of gateway agency that CEP supported was a market linkage approach focused on gender
empowerment. Two women entrepreneurs, Soledad Miluska Huanca León and Liz Jenny Huanca León,
targeted the gourmet urban markets of Lima, seeking to craft a reliable, differentiated, higher-premium
niche for rural women who produced quality vegetables. Liz León had more than a decade of experience in
environmental protection and sustainable agriculture. Miluska León had been involved in the REDESA
program, acting as a consultant in the areas of cultivation development, technical assistance, monitoring,
quality control and evaluation. She took over the management of the new venture. Exhibit 7 summarizes
their professional background.
The social mission of Corporacion Solar was to help transform informal street market entrepreneurs into
small communities of specialized producers supplying the urban supermarkets. Every morning, the streets
of Huaraz fill with local women who spread out alpaca wool blankets to sell whatever produce their land
had yielded: typically, corn, onions and yucca. These goods were so ubiquitous in Peru, however, that they
competed fiercely on costs with one another and with offerings of established retailers. Corporacion
Solar’s plan promised a differentiated model: the production of spinach.
Corporacion Solar applied for a four-year term CEP loan of S/56,950 (US$17,000), with a monthly interest
rate of 1 per cent, and a three-month grace period, with fixed monthly payments of S/1,251.80. The CEP
investment represented 97 per cent of the initial capital required to launch the venture. The founders
contributed 3 per cent (S/1,708.5 or US$510).
Despite its clear social and environmental mandate (see Exhibit 2), Corporacion Solar struggled to fully
engage women producers in the business model. The women who usually sold at the market did not
usually sell there with much regularity — they sold what they had when they had it — and found
themselves unable to fulfill Corporacion Solar’s steady demand. Miluska León soon learned that notions of
contractual obligation or business relationships did not resonate with her rural providers. The women she
worked with often missed meetings or deliveries, offering explanations such as “I had no time this week”
or simply “Something came up.” Some returned to selling their products at the local street markets either
because they believed they could earn more or because, as one woman put it, “The other women from the
village were taking their produce, so I went along.”
Miluska León was unwilling to sacrifice her commitment to the rural producers. She knocked on the doors
of community leaders in the many small villages surrounding Huaraz and explained her company’s goals
and made offers of start-up loans and assistance with proper seeding and pruning technique. To her
surprise, the response remained unenthusiastic. Local farmers did not know what to make of Miluska León:
she championed a for-profit venture, and they had grown increasingly wary of business in general, having
been previously cheated by private enterprises; but she also had strong ties with CARE, an NGO strongly
embedded in the communities that had provided them with tools, seed and education, without any
expectations in return. The new venture persevered, gradually pooling enough produce to continue to
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supply its own clients. A few months in, Vermi, a Lima-based supermarket provider, gave Corporacion
Solar its first break by offering an informal supply contract.
Several issues interfered with the fulfillment of the company’s contractual obligations. The principal
difficulty stemmed from the very nature of the product. Spinach is a relatively sensitive crop (heavily
dependent on good weather and abundant water) and has a very short shelf life (even when stored properly,
spinach wilts and loses both taste and buyer appeal within a few days). The business model relied on the
smallholder farmers to deliver the spinach, which Corporacion Solar would then purchase, sort and
package for transportation to Lima. The spinach was shipped in wood boxes in transport trucks and
handled by workers who treated the boxes in the same manner they might treat boxes of potatoes or wool.
At each stage of the process, some produce was discarded or damaged. When the produce was delivered in
Lima, Vermi would only pay for the produce that passed its quality control. Some entire shipments were
rejected, and Corporacion Solar was forced to absorb the spoilage.
Revenues aside, Corporacion Solar had difficulty reaching its projected volumes (see Exhibit 8 for its
financial projections). Struggling to break even, the new venture was soon in search of alternative sources
of income. Miluska León pursued more consulting work through CARE and kept reinvesting her income
into the venture to make ends meet.
Synergy or Survival?
This déjà-vu trade-off raised alarm bells for Dutkiewicz. He wondered how Miluska León could balance
the increasing demands of her job and the consulting assignments. Clearly, the time spent on outside
contracts cut into the time she could spend addressing her own company’s problems. But could switching
hats also provide her the objectivity to make tough calls when needed? Did Miluska León find synergies
between the two roles?
Dutkiewicz had heard that Miluska León was looking at other produce: a crop less perishable than spinach
and less sensitive to the hardships of transportation to Lima. She had experienced some early success with
baby squash, cherry tomatoes and various berries, but scaling these experiments up required time and
attention, and for Miluska León, both were already spread too thin. She was traveling four hours a day in
cramped minibuses and relied on the beneficence of friends to help her collect the produce or, alternatively,
was forced to cart the product box by box on public transport.
The struggle was wearing on the young entrepreneur and raised questions for Vermi. Because Miluska
León had never signed a formal contract with the supermarket provider, the downstream operation was
based on trust, which could crumble easily, at any time. Vermi was becoming increasingly selective about
when it wanted her produce and the quantities it required. Some weeks when she had spinach, Vermi
would not call, which led her to sell it at a discount in the street markets, rather than see the inventory go to
waste. Other weeks, her farmers were unable to fill the large orders Vermi required. The haphazard
demands made it impossible for Corporacion Solar to keep on top of the financials; both sourcing and
delivering logistics were becoming a nightmare. Without the CARE contracts, she could hardly afford to
stay in business.
With the help of a CARE Canada consultant, she worked through a cost breakdown of the various products
she was involved in producing. As it turned out, spinach was far from the most lucrative product. Cherry
tomatoes topped the chart, by an overwhelming margin. León immediately realized that Corporacion Solar
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should diversify its offering. She refocused its strategy on high-yield, low-space requirement foods: no
more lettuce (or artichokes)!
Miluska León also worked supply buffers into her model. She signed a lease on a plot of land in the
municipality of Yungay and invested in a greenhouse. She would first use the greenhouse to test potential
new products but after a new product assortment was chosen, she could use the greenhouse to fulfill
specific demands. The versatility of her offering, and her ability to meet orders on short notice, would
entice Vermi to offer Corporacion Solar a formal contract, perhaps even a pre-set payment and delivery
schedule for consistently high-quality produce.
Dutkiewicz was not sure whether the greenhouse would complement or further detach the venture from its
social raison d’être. Would this strategic focus on quality control and formal contracting provide a more
attractive path for growth than pooling the small offering of struggling women producers? Would the
change in strategic focus offer her greater independence from CARE or would it contradict both the
original business plan and the preferential loan terms obtained from CEP?
ARRIVING IN HUARAZ
As the bus stopped in Huaraz, Dutkiewicz had less than two days to settle himself and prepare for meeting
the entrepreneurs on Monday morning. He kept pondering the specific challenges faced by each of the
three ventures and the commonalities and differences among the business models. He was particularly
intrigued by some of the shared challenges of these ventures as they were getting off the ground: achieving
farmer buy-in, securing reliable supply, catching the eye of downstream links (supermarkets, processing
plants, municipalities) and exploring alternative sources of income to stay in the black.
Did these social enterprise models leave enough breathing room for experimentation and growth? Were
their value chains too ambitious or their margins too thin? Would their strong social value-add be a
detriment or an opportunity as they tackled the bumpy road to offering new templates of economic
development?
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Exhibit 1
POLITICAL MAP OF PERU
Source: http://www.infoperu.com/pics/gifs/peru_map.jpg, accessed on March 29, 2008.
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Exhibit 2
SOCIAL AND ECONOMIC VALUE PROPOSITIONS
CONASE
Serviagro
Corporacion Solar
CONASE acts as a market liaison between smallholder
farming families in Callejón de Huaylas and cereal
purchasers (with a focus on bidding for Vaso de Leche
contracts with local municipalities). CONASE provides
agricultural expertise and technical support to farmers and
redistributes greater value upstream the supply chain.
CONASE’s business model targets farming families living
below the poverty line (typically, 4- to 5-member households,
with total household monthly incomes below S/250, or about
US$2.5 per household per day, or less than US$0.60 per
family member per day). The business plans focuses on
smallholders (85% of the total) and medium-sized holders
(15% of the total), who own their land and farm lots of
respectively 0.25 to 0.75 hectares (0.6 to 1.85 acres) and 0.75
to 3 hectares (1.85 to 7.4 acres). The model called for a
gradual scaling up of production to 120 hectares (300 acres)
and 240 families by the end of the third year. Technical and
commercialization assistance could increase household
income by 60% (S/80 from daily salaries and S/65 from
monthly profits).
Serviagro acts as a gateway agency linking rural smallholder farming
families in the Callejón de Huaylas and the Callejón de los
Conchucos regions of Ancash province with enterprises that process
artichokes for export. Serviagro provides agricultural expertise,
technical support and farming materials to the farmers (at market
cost) and redistributes greater value upstream the supply chain.
Serviagro’s business model targets farming families living below the
poverty line with a focus entirely on smallholder farmers (those
owning approximately 0.5 hectares, or 1.2 acres).
Environme
ntal Impact
Oat crops have beneficial effects on the soil (through the use
of natural fertilizers and better production methods) and
maintain the traditional scenery. Factory processes would not
have any detrimental environmental effects (no air or soil
pollution).
Artichokes do not require more water or fertilizer than other local
crops (e.g. corn and potatoes). Moreover, the harvesting process is
completely manual, meaning that no machinery will be used, and
thus no pollution will be generated during the planting and harvest.
Economic
Impact
The business model will create development opportunity and
generate direct and indirect employment. A family with a
farm lot of 0.5 hectares (1.2 acres) will earn an additional
S/540 in revenues or a net increase of S 450 per seven-month
growing season.
Compared to traditional crops, such as corn, which yields a 30%
profit margin for the farmer, artichokes yield between 60 and 100%
profit margin. Moreover, artichokes can be harvested year round, so
families harvesting at the same rate as corn farmers can expect to
double or triple their profits. Serviagro estimates that between
processing and the need for additional labor, it will indirectly
generate about 15 full-time jobs within three years.
Corporacion Solar aggregates spinach
produced in the Callejón de Huaylas and
leverages pooled volumes to place the
product on supermarket shelves in Lima. The
company also provides agricultural expertise
and technical support to its farmers.
Unlike other products produced in the region,
spinach is a low-area, high-profit-margin
product grown and sold primarily by women.
Corporacion Solar aims to work with 20
families (to start) living below the poverty
line who have at least 400 square meters (478
square yards) dedicated to spinach
production. This criterion allows the
company to work with the poorest of families
that have even a negligible area of land, with
a specific emphasis on working with women,
including single mothers. The company
estimates that it will be able to increase
household income by between 50 and 150%
per two-month growth cycle (with six cycles
per year).
All growing practices adhere to organic
standards. Diversity of crops is encouraged
(mixing spinach with other crops, whether
they are for subsistence or for sale) to
maintain soil health and mitigate the risk of
pests. Lack of processing and no mechanized
harvesting minimize pollution and soil
erosion.
The business model allows families to make
a profit of S/43 per 100 square meters
(approximately 200 kilograms, or 440
pounds of spinach). Thus, the average family
participating in the program will make a
profit of S/187.2 per growing cycle, or
S/1,123.2 annually.
Value
Propositio
n
Social
Impact
The company has the capacity to work with numerous families, but it
is committed to support women along the same lines as the REDESA
program, which insisted on at least 15% of work and profit going
directly to women.
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Exhibit 3
THE CONASE NEW VENTURE TEAM
From left to right: CONASE Venture Team with Jan Dutkiewicz, June 2007.
Photo credits: Paula Pelaez (used with permission).
David Reyes Yanac held a bachelor’s degree in agricultural sciences and a master’s degree in agricultural
engineering, with a focus on the cultivation of grains and cereals. Upon graduating in 2004, he
immediately began working as a consultant with the REDESA program, working on the development of
grain grower’s networks and providing smallholder farmers with technical support. He had previously
worked with Barrick Gold in the area of community relations and social investment in farming
communities.
Fran Manuel Maguiña Maza held a bachelor’s degree in agriculture and a master’s degree in political
science with a focus on public and social project management. He had worked on numerous NGO and
public sector projects aimed at producing and commercializing local products, ranging from flowers to
herbs and spices to cheese, and had experience in bridging the gap between the public and private sectors.
He had also served as technical consultant in the commercial fruit industry.
Herbert Flavio Valverde Balabarca earned a bachelor’s degree in agricultural science from the National
University of Huaraz in 2003. He had worked as a field technician and consultant for CARE in the areas of
fruit, corn and grains. Throughout his work, he had gathered data and implemented projects on pest and
fruit fly control in a rural setting.
Marcel Aniceto Mendez held a bachelor’s degree in agricultural sciences and a master’s degree in
agricultural engineering. Upon his graduation in 2002, he began working for the regional government in
various projects to introduce marketable crops to rural areas. He worked for an artichoke exporter before
being hired by CARE to handle various projects related to rural grain production.
Source: Adapted from CONASE’s Business Plan.
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Exhibit 4
CONASE’S THREE-YEAR FINANCIAL PROJECTIONS
Revenue
Cost of Goods Sold
Operating Margin
Operating Costs
Fixed Costs
Income before taxes
Taxes
Net Income
Year 2
Year 1
83,273.70 125,232.20
58,228.30 87,679.20
25,045.40 37,553.00
14,362.40 17,646.00
4,214.90
6,468.10
3,827.70
2,640.40
3,421.30
16,485.70
6,680.30
9,805.40
Year 3
170,087.40
119,074.50
51,012.90
17,645.70
2,548.30
30,818.90
14,539.20
16,279.70
Note: All amounts are shown in U.S. dollars, based on the exchange rate of US$1 = 3.35 nuevos soles.
Fiscal year ends August 31. Annual projections cover the period from September to August.
Source: CONASE Business Plan and personal correspondence with the venture team.
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Exhibit 5
THE SERVIAGRO NEW VENTURE TEAM
Rafael Carlos Osorio Díaz working with local artichoke farmer.
Source: Amanda Alves
Cesar Lazarte Lezama graduated from La Molina national agricultural university in Lima in 1998. After
graduating, he worked as a consultant on various government agricultural programs, primarily spending his
time in the field. He also has three years of experience working as a technical consultant for companies
growing and processing artichokes for export. He worked with the REDESA program for two years, first
as a program assistant and subsequently as a consultant.
Guillermo Hilarión Vegas Ruiz graduated from the national Agricultural Institute in Piura in 1970. He
had worked for CARE Peru since 2003 as a consultant on sustainable agricultural development, with much
of that work falling within the mandate of the REDESA program. Prior to that, he had worked as a
cultivation manager for a major agricultural firm that worked with, among other products, artichokes. He
also had vast experience as a consultant and labor manager for various government and NGO programs.
Rómulo Percy Sifuentes Maguiña held a bachelor’s degree in agricultural engineering from the
University of Ancash in Huaraz. He had extensive experience as a field technician, having worked for two
flower-growing and exporting companies and for the government-sponsored center for Andean ecology.
Most recently, he had been a regional administrator and quality control officer for a flower exporter.
Rafael Carlos Osorio Díaz was the youngest member of Serviagro’s management. He graduated in 2004
with a degree in agricultural science and with a minor in English. Since graduating, he had worked on
various contracts for CARE as an agricultural technician and was continued to be on CARE’s payroll as a
consultant in the area of artichoke cultivation.
Source: Adapted from Serviagro’s Business Plan
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9B08M047
Exhibit 6
SERVIAGRO’S THREE-YEAR FINANCIAL PROJECTIONS
Revenue
Cost of Goods Sold
Net Income
Operating Costs
Fixed Costs
Income before taxes
Taxes
Net Income
Year 1
Year 2
Year 3
534,411.10 1,157,477.00 1,248,980.00
511,255.00
637,109.20
570,250.60
23,156.15
520,367.80
678,729.40
28,340.83
35,129.89
33,367.78
12,504.76
12,504.76
12,504.76
–17,689.40
472,733.20
632,857.10
11,806.90
38,926.57
50,946.08
–5,882.55
433,806.60
581,911.00
Note: All amounts are shown in U.S. dollars, based on the exchange rate of US$1 = 3.35 nuevos soles.
Fiscal year ends August 31. Annual projections cover the period from September to August.
Source: Serviagro Business Plan and personal correspondence with the venture team.
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9B08M047
Exhibit 7
NEW VENTURE TEAM: CORPORACION SOLAR
Soledad Miluska Huanca León holding young spinach plants.
Source: Amanda Alves
Soledad Miluska Huanca León held a bachelor’s degree in agricultural science, a degree in primary
education and a master’s degree in political science with a focus on public and social project management.
She finished her latest degree in 2002. She was deeply involved in the REDESA program, acting as a
consultant in the areas of cultivation development, technical assistance, monitoring, quality control and
evaluation. Prior to starting Corporación Solar, she worked for the regional government on the
development and promotion of rural businesses.
Liz Jenny Huanca León held a bachelor’s degree in environmental engineering and a master’s degree in
environmental science, which she completed in 1994. She had wide experience in the public sector as an
agricultural consultant focused on environmental protection and sustainable agriculture. She had also led
numerous projects studying the environmental impact of public works projects. For the past three years,
she had been the manager of solid waste disposal for the district of Independencia.
Source: Adapted from Corporacion Solar’s Business Plan
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9B08M047
Exhibit 8
CORPORACION SOLAR’S THREE-YEAR FINANCIAL PROJECTIONS
Revenue
Cost of Goods Sold
Net Income
Operating Costs
Fixed Costs
Income before taxes
Taxes
Income
Year 1
Year 2
Year 3
100,207.80 112,987.70 112,987.70
42,335.50 46,156.40 45,850.70
57,872.20 66,831.30 67,137.00
27,869.00 30,372.90 30,372.90
43,737.80 23,973.10 23,973.10
–13,734.60 12,485.30 12,791.00
-3,015.70
3,532.70
3,624.40
–10,718.80
8,952.60
9,166.60
Note: All amounts are shown in U.S. dollars, based on the exchange rate of US$1 = 3.35 nuevos soles.
Fiscal year ends August 31. Annual projections cover the period from September to August.
Source: Corporacion Solar Business Plan and personal correspondence with the venture team.