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Peru: Producer-owned supply chain of organic fair trade bananas

General information
Project location: Chira Valley, Sullana province, Piura region, Northern Peru, Peru
Consortium: AgroFair Europe BV, Biorganika S.A.C., Asociacion de Productores de Banano Organico Valle del Chira, Solidaridad (Foundation)
Project Budget: Euro 1.2 million
External financing: 50% grant funding by PSOM
Project period: January 2007 - December 2008

The northern coastal area of Peru is one of the poorest areas in the country with few economic opportunities. The dry climate of the region means that bananas can be grown organically without the major banana diseases other exporting countries have to contend with. Peru has made a relatively recent entry to the international banana market with the first organic exports starting only in 2000. Peru almost exclusively exports organic bananas as it is unable to compete with conventional bananas producing countries.

AgroFair has been working in Peru since 2002 through its local subsidiary, Biorganika, sourcing bananas from Piura region, an economically disadvantaged area of Northern Peru where 60% of the population lives below the poverty line. Fair Trade Organic (FTO) bananas, which are marketed under the Eko-Oké brand, are currently sourced from the Chira Valley Association of Organic Banana Producers (VCA). AgroFair is experiencing a strong demand for FTO bananas in Europe where it wishes to further develop and expand its market share.

Peru is uniquely positioned to take advantage of this growth but its banana sector needs to come to terms with serious quality issues that today undermine profitability to the point that several banana exporters have gone out of business in the past years. The principal quality issue is related to a devastating fungal disease commonly known in the region as “black rot”, manifesting itself during shipment and ripening, and causing losses of up to 15%. Given the organic production, which prohibits the use of pesticides, its incidence can only be reduced by strict quality control throughout the supply chain in the field. In order to minimise the handling of bananas before packing, small packing stations need to be located at close distance from the banana fields. Where local packing stations already exist however, these are very inadequate.

With assistance of PSOM, a project is implemented through which existing packing stations will be upgraded to meet EurepGap standards. The project will facilitate the inclusion of two new producer associations into Biorganika’s supply chain; they are in need of new packing stations and their farmers have to be trained in FTO principles. A logistics centre for central palletising, storage and administration will be established on a central location. The project will pioneer the development of an integrated quality management system for FTO banana supplies including the electronic tracing of boxes from smallholders to supermarkets. At the same time, CIRAD (Agricultural Research Centre for International Development) in cooperation with a local university and Tropical Plant Technologies (www.tropicalplanttechnologies.com) will be engaged to determine the most appropriate organic control measures in order to minimise post harvest fungal outbreaks of ‘black rot’. The control measures identified will assist all banana producers and exporters in Peru to minimise quality claims, and thus the project will eventually benefit the banana sector as a whole.

Another unique development supported by the project is that it will assist the transformation of Biorganika’s ownership and management structure, so that smallholders, through their producers association AVC, become shareholders in the joint venture.

The main results of the project will be:

  1. transformation of Biorganika to include producer associations into its ownership and management structure,
  2. establishment of local packing stations and a Logistics Centre complying with EurepGap standards,
  3. establishment of a training centre, conversion of 100 smallholders to FTO production, training of 200 smallholders and 200 workers in EurepGap post harvest practices,
  4. development of an integrated quality management system (IQMS) from smallholder to supermarket.

The business plan forecasts some 228,800 boxes to be additionally exported in 2007 and 2008 due to the project. At least 80% of total exported boxes will be sold as FTO, which will generate a premium that will be transferred to the AVC in the two years of the project’s operation. This will be a significant figure for a very a poor area by any development standard, in addition to the income distributed to individual families. If we count the income to be transferred in the next 8 to 10 years then the project has a truly outstanding impact.

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