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Connecting Small Holders to Market Channels
Ismael A. Benavides Ferreyros Chairman of Innova Rural
June 20th, 2013
Table of Contents
1. Background information on Peru
2. Features of Peru
3. Peru in the 70´s and 80´s
4. Starting a New Era: New Approach
5. An important change for small producers
6. Results from improvements
7. Final thoughts
Background information on Peru
GDP structure (2011)
Agriculture & fishing 8%
Mining & fuel 5%
Manufacturing 15%
Construction 7%
Commerce 15%
Electricity & water 2%
Other services 48%
Main traditional exports World Ranking
(2011)
Gold 6
Copper 2
Fishmeal 1
Zinc 3
Silver 2
Tin 3
Lead 4
* Forecast
G D P (2012)* US $ 197 billion
P opulation (2011) 29.8 million
Average growth G D P (2002-2012) 6.4%
Average inflation (2002-2012) 2.8%
Average growth P rivate Investment (2002-2012) 11.6%
P ublic debt to G D P ( 2012) 19.8%
Net international reserves (May 30, 2013) US $ 66 billion
D ollarization ratio (2012) 44%
Openness [(X +M)/G D P ] (2011) 47%
Features of Peru
Peru is an extremely fragmented country as well as limited by the barriers of the desert, mountains and jungle.
• The Coast: concentrates 60% of the population on 12% of the territory, highest incomes, better infrastructure, activities such as manufacturing, fisheries, trade, modern agriculture.
• The Mountains: 30% of the population, 28% of the territory between 1000 - 6800 m.a.s.l., highly dispersed population, activities: traditional agriculture and mining.
• Jungle: 10% of the population, 60% of the territory (basically rainforests), headwater of the Amazon river, activities: forestry.
Rural areas and poverty concentrate in the Mountains and the Jungle.
Features of Peru
• Greater dispersion of the population in rural areas: 60,000 small towns with less than 100 inhabitants.
• High level of poverty in rural areas: 53.3% of the country´s total.
• Only 3% of the country, about 3 million Ha is arable land (In the US: 16.5% - 162 000 000 Ha)
• Smallholdings: 2.3 million agricultural units (85% mountains and jungle)
Total Poverty 2004 - 2012
(% of population)
Peru in the 70´s and 80´s
• Statist approach dragged from the early 70's with the military government (interventionist state).
• Deep economic crisis, hyperinflation, fiscal collapse.
• Low investment levels.
• High debt.
• High poverty levels.
• Welfare approach to support rural areas (indiscriminated subsidies).
• Aftermath of the Agrarian Reform in rural areas.
• Isolation from international markets.
• Terrorism: Abandonment of the fields.
Peru in the 70´s and 80´s
• Lack of road, productive and communications infrastructure.
• Lack of basic services: education, health.
• Lack of access to information and communications.
• Lack of access to technology.
• Lack of access to finance.
• Lack of capacity building. The lack of investment had a greater effect on small farmers who
lived in the most remote areas, the farthest away from the cities.
Geography
• The rugged geography of Peru and the dispersion of its population increase the costs of, reduce and hinder the provision of basic services and infrastructure.
• The geography of Peru has been an obstacle to the development of small producers and entrepreneurs.
• Geography represents an obstacle that limits the capacity of producers, making access to markets difficult and expensive.
Crisis
Welfare approach
Geography
Small producers
Real effects in small producers
Real effects in small producers
• Weak links to markets, small producers are constrained to poor local for subsistence markets, with high transaction and transportation costs.
• Insecurity and deterioration of the merchandise by travel conditions reduces the income of producers.
• Less bargaining power -especially with brokers- due to lack of access to information relevant to decision-making: prices, climate.
• Lack of modern means of communication has a dramatic effect on the information exchange (cost, volume and speed), which is essential for any productive activity.
Real effects in small producers
• Unprofitable agricultural activity embeds poverty.
• Lack of working capital and resources to invest no chance of growing.
• Use of outdated techniques and technologies reduce productivity.
• Lack of quality health and education services reduces people’s capacities.
Challenge
The challenge is:
• How to save millions dwelling in remote areas from poverty
• How to change from a welfare model to one that promotes investments and access to markets.
What is needed to achieve the development of small producers?
• Road infrastructure
• Telecommunications and electric power infrastructure
• Productive infrastructure (channels, reservoirs, etc.)
• More sources of funding
• Access to training programs (support mining companies)
• Access to information for decision-making
Starting a new era: New Approach
Structural Reforms in the 90´s – 00´s
• Sound economic policies
• Promote private investments: infrastructure and productive activities
• Openness and integration with the World
• Defeat terrorism
• Social programs
• Fiscal descentralization
Peru’s macroeconomic performance over the past decade has been exceptional
LATAM: Real GDP Growth and Inflation (2002-2012)
17
Source: MEF, IMF.
LATAM: GDP Growth and Inflation (Average % change)
During 2002-2012, Real GDP grew at an average annual rate of 6.4 percent (the highest in Latin America), and the annual inflation rate fell to 2.8 percent on average (the lowest in Latin America).
GDP Inflation
Peru 6.4 2.8
Chile 4.4 3.3Mexico 2.3 4.4Colombia 4.5 4.8Brazil 3.6 6.4Argentina 5.6 11.5
0
2
4
6
8
10
12
14
0 1 2 3 4 5 6 7
Ave
rage
Infla
tion
rate
(%)
Average Real GDP Growth (%)
Peru
Argentina
Chile
Colombia
Brazil
Mexico
Investment has been a fundamental factor to explain economic growth in the last two decades
Total Investment: 1990 (% GDP)
Total Investment: 2012 (% GDP)
GDP (Average % change )
Private Investment (Average % change )
18
Source: BCRP, MEF, IMF.
-1.6
6.2
11.6
-4
-2
0
2
4
6
8
10
12
1982-1991 1992-2001 2002-2012
-1.0
3.9
6.4
-2
-1
0
1
2
3
4
5
6
7
1982-1991 1992-2001 2002-2012
16.518.4
19.921.1
27.4
0
5
10
15
20
25
30
Peru Brazil Colombia Mexico Chile
21.2
24.4 24.6 25.026.7
0
5
10
15
20
25
30
Brazil Chile Colombia Mexico Peru
0
2,000
4,000
6,000
8,000
10,000
12,000
2000 2012
OthersBasic metal industries and JewelryChemicalTextileAgriculture and livestock
Export growth due to market and product diversification
1/ Data 2012 up to November. Source: BCRP, SUNAT, World Bank.
Export Volume (Index 2000 = 100)
Non-traditional Exports (US$ Million)
5 times
Number of non-traditional exports with a value of
over US$ 10 million
0
4
6
1
16
6
35
10
18
21
27
43
45
185
0 50 100 150 200
Fabricated metal products and machinery
Fishing
Basic metal industries and jewelry
Chemical
Textile
Agriculture and livestock
Non-traditional products
2012
2000
Exports by Destination 20121
(% of total)
0
50
100
150
200
250
300
350
400
2000 2003 2006 2009 2012*
Traditional productsNon-traditional products
347
170100
China, 16.6%
U.S., 13.0%
Switzerland, 11.2%
Canada, 7.6%
Japan, 5.4%
Chile, 4.5%
Germany, 4.0%
Spain, 3.7%South Korea,
3.2%Others, 30.7%
Dramatic increase of Public Investment in the Regions and Local Governments
800 1,063 1,493
2,145 2,773
3,968 4,956 4,710
6,685
1,638 2,167
3,007 3,338
7,015
9,199 10,002
8,515
12,268
2,438 3,230
4,500 5,483
9,788
13,167
14,958
13,225
18,953
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
2004 2005 2006 2007 2008 2009 2010 2011 2012
Public Investment of Regions and Municipalities (millions S/.)
Regions
Municipalities
Total
An important change
for small producers
New Approach
• Promote access to markets
• Investments in road, electric power and telecommunications infrastructure
• Promote access to better technologies
• Promote access to finance
• Partnerships with the private sector (mining) in order to improve capacities
Greater access to information
10.3 13.9
17.0 20.0
23.1 26.0
29.8 31.9
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
% of homes with cable service
16.4 20.7 29.8
45.0
59.7 67.0
73.1 75.3 79.7
0.0
20.0
40.0
60.0
80.0
100.0
% of homes with mobile phones
• Agro mensajes: state Program which provides information about prices to small farmers on their mobile phones.
• Sisap: Ministry of Agriculture
s prices system (internet)
2.1 3.7
5.1 6.6
8.6 11.0
13.0
16.4
20.2
0.0
5.0
10.0
15.0
20.0
25.0
% of homes with internet access
Sources: MEF, INEI, Minedu
Better access to basic services
35.4 31.3
28.2 29.8 27.2
25.4 23.0 23.0 22.6
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
% of homes without access to drainage
24.3 22.8
19.8 18.0
15.3 13.6
11.9 10.3
8.9
0.0
5.0
10.0
15.0
20.0
25.0
30.0
% of homes without electric power
Sources: MEF, INEI, Minedu
29.9 29.7 27.9 27.6 26.9
25.3 23.2 22.8
17.5
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
% of homes without access to drinking water
Better access to education
9.6 9.2 8.5 8.2
7.6 7.4 7.1
-
2.0
4.0
6.0
8.0
10.0
12.0
2005 2006 2007 2008 2009 2010 2011
% illiteracy (population over 15 years)
73.7
76.5 77.3
79.2 79.4 80.7
82.8 83.5 83.4
68.0
70.0
72.0
74.0
76.0
78.0
80.0
82.0
84.0
86.0
2004 2005 2006 2007 2008 2009 2010 2011 2012*
% of children with primary education
Sources: MEF, INEI, Minedu
Better access to health services
29.5 28.5 27.8 23.8 23.2
19.5 18.1
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
2006 2007 2008 2009 2010 2011 2012*
% of children with malnutrition (under 5
years)
37.3 36.2 38.3 42.1
53.7
60.5 63.5 64.5 63.1
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
2004 2005 2006 2007 2008 2009 2010 2011 2012*
% access to health insurance
Sources: MEF, INEI, Minedu
Greater road infrastructure
4
19.6 22.6
41.5
55.0 60.0
80.8
129.2
0
20
40
60
80
100
120
140
1925 1929 1940 1960 1970 1976 1995 2011
Road Network (thousands of kms)
1,566.0 1,053.0
1,561.0
9,087.0
809.0 480.0 694.0
4,459.0
-
2,000.0
4,000.0
6,000.0
8,000.0
10,000.0
1999 2002 2006 2011
Central Government Investment in Road Infrastructure (millions
S/.)
Total
Highlands
Sources: MEF, INEI, WB, MTC
* Only 13% paved (2011)
Better access to finance
• Expanding access to credit through microfinance institutions, private banks, and non conventional systems.
• State development programs (Agroideas, Foncodes, etc)
Capacity building
• More Government investment through Programs: Prosaamer, Agroideas, Agrorural, Foncodes, etc.
• Support of private companies, investment in capacity building (Agroindustry, mining, hydrocarbons, energy).
• Support of international cooperation (USAID, GIZ, Swiss Contact, JICA, etc.)
Real effects in small producers
• Reduced travel times, access to new and larger
markets (even external)
• Reduced transportation costs
• Access to information for improved decision-making
better prices
• More access to modern technologies and
techniques.
• More access to funding sources, greater
investment.
• Enhanced capacities
Results from improvements
Improvement of rural incomes and productivity
• The average annual growth rate of the rural per capita income jumped from 1.4% to 7.2%.
• Productivity in the field multiplied.
• The income growth rate for rural areas was higher than the rate for urban areas.
Total Incomes of Rural Sector
Index Annual Increase Rate (%) (1900=100)
1900 1994 2011 1900-1994 1994-2011
Production 125 883 2,363 2.1 6.0
Total Income 98 1,017 2,985 2.5 6.5
Per Capita Income 98 351 1,148 1.4 7.2
Agricultural Productivity 100 198 464 0.7 5.1
Area 2004-2012
Urban 3.9
R ural 6.8
S ourc e: Enaho
Annual Increas e of P er C apita R eal Income (% )
Example of increase of rural incomes
1.9 2.4
1.8
2.5 2.3 2.1
2.8 2.7
3.3
4.1 4.1
1.0
2.0
3.0
4.0
5.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Average income of potato producer families (thousands
S/.)
• Potato is the main crop in poor rural areas.
• Household incomes have more than doubled in recent years.
• In 2008, a campaign launched by the Ministry of Agriculture to promote the consumption of potatoes made possible the transfer of US$ 300 million from the cities to the rural areas.
Poverty and unemployment reduction
Final thoughts
• Structural changes implemented since the early 90's paved the way for all the improvements achieved.
• The defeat of terrorism allowed public and private investments to reach the most distant and abandoned areas of the country.
• Private sector participation and international cooperation have been essential.
• Increased public and private investment in rural areas has contributed to a better infrastructure, connecting these areas to cities as well as other countries.
• It is a proven fact that economic growth is more efficient and effective than welfare programs in order to reduce poverty.
• Between 2001 and 2010 Peru grew 50%, reduced extreme poverty in 27% and its social expenditure was 0.5% of the GDP / Brazil grew 26.2%, reduced extreme poverty in 8% and its social expenditure was 4% of GDP.
Final thoughts
• The explosive growth of connecting means has facilitated rural take off.
• Improved connectivity and access to markets have had a significant impact on increasing productivity and incomes, as well as on poverty reduction.
Los Halcones 250, San Isidro Lima - Peru + (511) 652.7640 + (511) 652.7644 [email protected] www.innovarural.org