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TechnoServe works with enterprising people in the developing world to build competitive farms, businesses and industries. Working in more than 40 countries across Africa, Latin America and Asia, TechnoServe assists thousands of businesses and improves the incomes of millions of people.
Chosen after a competitive global application process, these four PIMCO colleagues will serve as volunteer consultants in Nicaragua and Peru. From field visits to cost analysis, each PIMCO volunteer works alongside local farmers, helping create small businesses that are sustainable and transformative in their communities.
Position: Executive Vice President, Product Manager
Assignment: Develop an industry strategic plan for the coffee sector in order to design a large scale project to benefit El Salvador´s 20,000+ farmers to improve their short, medium, and long term income growth potential.
“The EEP represents a truly unique opportunity to help improve the quality of life for so many people in a significant and sustainable way, while also giving me invaluable experiences that will advance my professional and personal growth. I am incredibly excited for my project in Central America to begin!”
Position: Associate, FBG-Fund Statistics
Assignment: Develop a coffee sector industry strategic plan, which should include an analysis of the current situation, main problems affecting coffee sector growth, alternatives for positively impacting the sector and its farmers, and a cost-benefit analysis of each.
“I am looking forward to focusing my efforts on improving the lives of Central American coffee farmers. This is a once in a lifetime opportunity to face new challenges and promote sustainable change via economic empowerment.”
Position: Associate, Client Facing - Institutional Corporate
Assignment: Assess the viability and cost-effectiveness of implementing wet-milling in a region of Peru. Build operational and economic models for central wet mill processing for the coffee sector in Peru, that are sensitive to relevant assumptions.
“I am excited to represent PIMCO in helping to develop and grow sustainable businesses to improve communities in rural Peru. This transformative experience will help to shape my perspective as a global citizen.”
Position: Senior Associate, Client Facing - Germany/Austria
Assignment: Build a model based on how the economics of farmers would change with the presence of a central wet mill. Identify revenue and cost drivers for central wet mills, assess the viability of a central wet mill in a given location and propose a strategy for intervention.
“This is a unique opportunity to support communities in Peru through innovative and sustainable solutions that make family businesses grow. I look forward to collaborating with colleagues from PIMCO and TechnoServe as well as local farmers and entrepreneurs.”
Follow John, Scott, Jordan and Kai as they report from the field on their experiences and individual projects over the next two months.
- Executive Director, The PIMCO Foundation
I am so impressed and so awed. We just welcomed back four extremely special PIMCO employees – the four volunteer consultants who have been on loan to
TechnoServe through our Emerging Enterprise Program (EEP). Two volunteers, Jordan and Kai, spent five weeks in Peru working on an analysis of implementing
central wet mills; and two more volunteers, Scott and John, spent nine weeks in Nicaragua and El Salvador developing a coffee sector industry strategic
EEP would not be what it is – no way, no how! – without TechnoServe, our amazing non-profit partner in this endeavor. TechnoServe is one of the most
innovative and inspiring NGOs I have ever come across. The organization fields a highly talented and gung-ho team – one that is on a mission to fight
poverty with business solutions. I love talking to TechnoServe, designing EEP hand-in-hand, and learning from this brilliant organization.
While in Latin America, our volunteers lent their business skills and expertise to TechnoServe, and to the hardworking men and women TechnoServe aims to
lift out of poverty. PIMCO volunteers approached their purposeful engagement work with one goal: to solve critical problems in a developing economy. Yet,
this international stretch assignment also provided our volunteers with exciting leadership development opportunities, new competencies, and global and
cultural awareness. The Emerging Enterprise Program is a true shared value initiative, and promotes business at its best – used to solve the world’s social
Regional Director, Latin America & Caribbean, TechnoServe
The Emerging Enterprise program in partnership with TechnoServe has just completed its fourth year. This partnership has been a huge success, of which we
are immensely proud.
Since 2011, thirteen PIMCO volunteers have worked on assignments that focused on TechnoServe’s two priority sectors – coffee and cocoa – in two regions:
Peru and Central America. Their work has helped us better understand the sectors’ complex challenges and market gaps, identify opportunities and build
roadmaps for solutions to improve the economic situation of thousands of farming communities in these countries. We use these studies to advance our
mission of promoting business solutions to poverty.
We also seek to ensure that PIMCO volunteers have unique personal experiences of discovery in working and living in a developing country in Latin America,
as these assignments often take place in remote locations among small farming communities. We look forward to continuing this strategic partnership with
the PIMCO Foundation and welcoming a new group of volunteers in 2015.
After living in Nicaragua and El Salvador for almost 10 weeks, our project has finally come to a conclusion. The Emerging Enterprise Program (EEP) was a once-in-a-lifetime experience that helped me develop from both a personal and professional standpoint.
Having the opportunity to interview over 30 organizations taught me invaluable lessons about meetings, interviews, and time management. I was also able to strengthen my Spanish language skills. Becoming more conversationally fluent allowed me to meet many locals and create friendships that will last beyond my time in El Salvador.
To finish our trip to Central America, we had the chance to visit a few PIMCO Foundation-funded cacao plantations in Nicaragua. The success of the project couldn’t be more apparent; the cacao trees are already yielding a significant amount of fruit, and the farmers had overwhelmingly positive feedback about both TechnoServe and the PIMCO Foundation.
When I applied to EEP at the beginning of this year, I was seeking to participate in a program that would allow me to learn about new cultures, challenge myself in new ways, and most importantly, give back to others. I’m happy to say EEP exceeded my expectations in every way, and provided me with a new perspective that I will carry with me for the rest of my life. It’s rewarding to know that our project will continue to live on with the help of TechnoServe, and that our analysis may help coffee producers in El Salvador for years to come.
I’m very appreciative of all of the work done by the PIMCO Foundation, and am honored to have seen first-hand the material impact it is making on the lives of many across the globe.
Following our final presentations to leading players in El Salvador’s coffee sector, Scott and I returned to TechnoServe’s office in Managua. We did a project debrief with regional director Ryan Bathrick, then finished our trip by visiting some farmers participating in the Nicaragua cacao project funded by the PIMCO Foundation.
It was a very touching experience.
About two hours out of Managua, on a rainy day in the jungle, we met with three different families. Each family relies on the productivity of their farms for their income.
But growing productive plants is not easy. In addition to hard work, it also requires science and technical expertise – two critical inputs that most uneducated farming families lack.
To address this, TechnoServe’s cacao project is designed to pair motivated families with agronomy training and seeds of higher quality genetic material so that they can sustainably improve their livelihoods.
Here is a picture of one of the TNS agronomists (in yellow) teaching the family how to prune a young cacao tree.
Touring their farms, it was easy to see they were now very well-constructed. The families were taught how to properly space and inter-mix their plants to balance nutritional needs, support insect biodiversity for pollination and create proper shade levels.
And the results have been measurable. Most cacao trees start producing in year four. Here we see one already yielding pods in year two.
It’s hard to convey just how grateful the families were. As representatives of the PIMCO Foundation, they thanked us repeatedly for enabling them to improve their lives. They were also appreciative that we cared enough to visit them in person.
Through the Emerging Enterprise Program, I’ve been able to see firsthand how the TechnoServe-PIMCO Foundation partnership is making a tremendously positive impact for the poor in developing countries. I am humbled to have been a part of it over the last two months and proud to have represented PIMCO abroad in this capacity.
After nine weeks of meetings, travel, and research, we finally completed our analysis of El Salvador’s coffee sector. I’m very happy with our final diagnostic of the sector, and am hopeful that our use of financial models and scenario analysis will help quantify the severity of the situation for many important organizations in the industry.
Not only did our presentation provide a detailed analysis of the current situation, but it also proposed several actionable ideas to help create a positive impact on the sector. The strategy was based on four key pillars: access to genetic material, technical assistance for producers, increased coordination between industry participants, and increased access to capital for renovation.
Today we met with four key stakeholders and presented our findings. It was an incredible opportunity to challenge my knowledge of Spanish and of the coffee industry, but I’m happy to report that the presentation was well received by all four organizations.
As our project comes to a conclusion, I’m very proud of what we’ve accomplished. Though it’s not realistic to think that nine weeks of work can solve all of the problems that have been plaguing the industry for decades, I’m optimistic that our recommendations will serve as a guide to help focus future efforts in the country.
During our final week, Scott and I have worked extremely hard to finalize our analysis of the Salvadoreño coffee sector and our recommendations for it. At the same time we’ve had to deal with heightened demands from our roles back at PIMCO following the surprise resignation of Bill Gross. The combination has led to many long days and nights over the past two weeks.
Nevertheless, we finalized our views and developed a detailed 30 page presentation detailing them. It also included a financial analysis estimating the time and costs needed to do a national renovation of the country’s outdated coffee farms. Lastly, we translated the presentation to Spanish and developed our talking notes, as meetings here are not in English.
Fortunately, our presentation was very well received. On our last day in San Salvador, Scott and I presented to four key players in the sector – the leading public/private oversight entity and three of the largest processing and exporting firms. The picture below is just before our meeting at UNEX, one of the major processors/exporters.
I was certainly pleased (and a bit relieved!) that each firm wholeheartedly agreed with our views and fairly specific recommendations. But what struck me more was how appreciative the people were for us having worked so hard to try and help their industry and country, both of which mean a great deal to them.
At the outset, naturally I wondered how much of an impact two gringos with no coffee background could really make in nine weeks. To hear these senior executives tell us how much it meant to have our views and the weight they carried, since they came from an outside, objective perspective, was extremely rewarding.
An Eye-Opening Analysis of the El Salvadoran Coffee Industry
By Ryan Bathrick, Mesoamerica Program Manager, TechnoServe
As John Cavalieri and Scott Argyres came to quickly find out, El Salvador´s coffee sector is in crisis. Yields are at an all-time low – the country´s 20,000+ farmers harvested one million fewer bags last year than the year prior. There are few quick fixes, as the country´s farms are very old, and require replanting, in an environment where there is little access to capital for investment in the sector. John’s and Scott’s assignment, to develop an industry strategic plan that can help point the sector to greater competitiveness in the medium term, is very ambitious, but two weeks into their assignment in El Salvador, they have been able to process a great deal of information collected from meetings with industry leaders, exporters, cooperatives, farmers, and lenders, as well as secondary research, and have developed several ideas they will be analyzing over the next few weeks.
Ideas they will be analyzing include: the need to help farmers diversify in order to lower their risk; the need for scalable, low-cost technical assistance; how to unlock capital for small and large farmers; and how to make high-quality genetic material from leaf rust-tolerant varieties widely available to farmers. From our initial conversations on through to this day, I´ve been impressed by how seriously John and Scott are taking this assignment, their focus, and their ability to ask the right questions to get the information they will need to complete the ISP, and am confident that the sector strategy they deliver, backed by quantitative analysis, will be a tool TechnoServe can use to help develop El Salvador´s coffee sector.
After almost two months in Central America, our strategy for the industry is finally coming together. Our first objective was to define the challenges. To name a few, the industry lacks qualified labor, affordable inputs, farm security, skilled producers, coordination, and capital.
Recent estimates suggest that the average age of a coffee tree in El Salvador is 34 years old, more than twice the optimal age.
At first glance, the strategy is very clear; producers need to renovate their farms (ideally with high-yielding, high quality, leaf rust-resistant varieties) to lower the average age of the plants. Younger plants would lead to higher yields, more valuable farms, and eventually, more profits for producers. As coffee farms are often used as collateral for loans, higher valuations of farmland would help banks increase the amount banks lend to the sector.
With the end-goal defined, the next question that needs answering is, “How can the renovation of farms be facilitated?” Unfortunately, no industry-wide changes can occur without investment. Renovating farms requires new plants, fertilizers, fungicides, and labor – all of which require money.
This brings us to the fundamental issue holding the sector back: producers require investment, but don’t have the qualifications to access loans. This is a difficult situation for an industry, and any possible outcome has its own drawbacks. Allowing a consolidation of the industry to occur would have dire social consequences. Alternatively, forgiving existing debt through a government initiative would likely encourage moral hazard, and would be detrimental to the long-run sustainability of the sector.
I have arrived at the conclusion that a series of bottom-up initiatives can help alleviate some of the pain the industry is facing in the short-term, but that a long-term financing strategy is critical to the sector’s future. Encouraging capital to enter a high-risk market with a history of default and high debt ratios, however, will likely require the support of a development bank or government.
With two weeks to go, Scott and I are working hard to organize our information, clarify our conclusions and pull our final presentation together.
Yesterday we had one of our final meetings, in this case with PROCAFE. PROCAFE serves a vital function in El Salvador’s coffee sector. It is chiefly responsible for leading genetic research on new plant varietals that can better balance quality coffee production, high yields per plant and resistance to key maladies, like leaf rust.
Unfortunately, PROCAFE’s funding and staffing have been materially cut in recent years. This is yet another example of how domestic politics continues to negatively interfere with the sector…which ultimately only hurts its own people.
El Salvador’s coffee sector now finds itself in a vicious cycle. Decades of poor political decisions and persistent lack of investment have resulted in a highly fragmented industry with plants that are on average simply too old and weak – roughly double their ideal productive age. So the sector needs several hundred million dollars of investment both to erase existing (and long overdue) debts and fund large scale replanting.
But banks are reluctant to enter the sector, even with government guarantees backing the credit since the government has eroded its own credibility. The sector is truly at an impasse.
Bottom-line, we see no easy fixes. While a “grand reform” of the sector would be ideal, it is highly improbable given heterogeneous interests and political involvement. As such, we are likely to emphasize targeted bottom-up strategies that can simultaneously help the nation’s production levels while also helping to alleviate poverty-like conditions for many thousands of farmers.
Similar to the past few weeks, we continued refining our presentation and collecting data to confirm our hypotheses. Today we met with a financial consultant to learn about a recent study conducted to analyze existing debt in the coffee sector. An important recommendation in our strategic plan is that the availability of credit will need to be expanded to help the industry recover from chronic underinvestment and severe leaf rust outbreaks.
The quantity of loans provided to the coffee sector, especially from private banks, has been steadily decreasing. After leaf rust decimated the coffee harvest (an estimated 74% rate of incidence in 2013), many farmers couldn’t meet short-term debt obligations and were subsequently forced to default on their loans.
Government initiatives have attempted to increase the availability of capital, but many producers are unable to participate in new programs due to their post-crisis credit ratings. While a lack of investment from banks is an issue, it’s important to recognize that a lack of qualified borrowers is equally as detrimental to the sector’s recovery.
The additional insight gained from this week’s meetings will help guide our schedule for the next few weeks, which will include meetings with USAID, a local think-tank, and follow-up visits with the financial consultant.
Six weeks down, three to go.
At this point Scott and I are working hard to pull our project deliverable together. It's a real challenge to develop a strategic plan for an entire industry, in a foreign country, with companies, people and politics that are still relatively new to us. But we now have our views, so our focus is on data collection and knowledge clarification so that the final product is substantiated and well-received.
Since TechnoServe does not have an office in El Salvador, we have used various coffee shops as our daily home base (how appropriate). There are two malls relatively close to our hotel; both are as nice as any in the U.S. The pictures below are from La Gran Via, an indoor/outdoor mall that has similarities to Fashion Island in Newport Beach, CA.
But just when you start feeling like you're back at home, something inevitably reminds you that you're still working in a developing country. In this case it was a sudden power outage from a passing lightning storm. It just comes with the territory...
On a lighter note, we've also tried to be active on weekends by exploring the surrounding areas. One recent weekend we visited the mountainous Apaneca region of El Salvador for a local religious festival plus a jungle hike to the stunning Don Juan Waterfalls. What better place to take on another challenge for a good cause -- the ALS Ice Bucket Challenge!
Over the past week, we continued coordinating with key organizations in an attempt to obtain more data and schedule additional meetings. As most private banks have ceased lending to coffee farmers, we felt that it was important to meet with governmental agencies to see what options for financing are available to aid the recovery of the sector.
We had the chance to visit the US Embassy to meet with the USDA. It was very beneficial to hear an external perspective, and learn more about their presence in El Salvador. The USDA strives to help the country using both humanitarian and economic approaches. Since the arrival of leaf rust, coffee has become an important part of their agricultural programs in the region.
My key takeaway from meeting with the USDA is that although resources are limited, the real issue stems from the lack of coordination between NGO’s, governments (domestic and foreign), and coffee organizations. Without industry-wide goals and a well-defined strategy, aid and assistance in the sector will continue to be used ineffectively.
El Salvador’s high level of fragmentation has inhibited the coffee sector’s growth, and has made the country’s response to leaf rust untimely and insufficient. Neighboring countries such as Honduras and Guatemala have been more nimble in their response to issues, likely due to the highly centralized and consolidated structure of their industries. Case studies such as Colombia’s response to leaf rust have demonstrated that coordinated approaches involving many different types of organizations can have a lasting impact on the industry, and can help overcome significant barriers to productivity.
This past week Scott and I continued to focus on developing our thesis and presentation regarding ways to help the Salvadorian coffee sector.
As such, the number of meetings has declined. Instead we’ve focused on organizing our thoughts, data and doing continued outreach to clarify points and fill in data holes to the extent possible.
As I mentioned in last week’s blog, our conclusions are centered on 3 actionable items:
1. Securing appropriate genetic material – coffee seeds of varietals with desirable yield, flavor and fungus resistance characteristics
2. Delivering technical assistance – instruction on best practices for managing a coffee farm
3. Obtaining access to capital – the funds needed to pay for the above
Admittedly these are more “bottom-up” solutions; they can be delivered directly to farmers by TechnoServe and others. However, after some thought and additional meetings, Scott and I think it is also important to include “top-down” recommendations. These are more structural and relate to the overall organization of the industry.
In short, El Salvador also needs a centralized body that can coordinate essential services and research on behalf of the entire industry. Today, the industry is highly fragmented and lacks effective coordination and strategic leadership. We understand that implementing such top-down structural reforms is very difficult and likely involves significant government involvement. However, we also believe that without it, the industry will be challenged to realize its potential for increasing output, employment and income.
Jordan and I spent our last week in Peru back in Lima. We put together our findings in a presentation on the economic viability of central wet mills for coffee processing in Peru. Basically, we concluded that the installation of central wet mills will improve farmer economics in regions that meet certain conditions. Among others, geography, road access and farmer density are major drivers that have to be analyzed and ultimately also determine optimal mill size. We also worked on a case study of a readily installed central wet mill, near Tingo María, that has never been used. We estimated that the regional demand is too low with respect to mill size and that the electricity contract does not allow for enough flexibility to break-even at low capacity.
On our last weekend in Lima we visited Huaca Pucllana, a historic site in the middle of the city. The earthquake resistant construction of the brick pyramid outlasted not only many centuries, but also its usage for motocross before being discovered in the 1980s.
Looking back, the last five weeks were an amazing experience. Professionally, I developed my interviewing skills and learned how to assess ambiguous, more subjective data sets. Personally, this trip connected coffee, an everyday commodity, to the hard work and elaborate process that are both needed for coffee to be consumed.
Huaca Pucllana site
Our time in Peru with the Emerging Enterprise Program has come to a conclusion. We spent the last week in Lima conducting our analysis and preparing a presentation on the viability of wet mills. We were able to present our study, along with a proposal for key considerations for the future implementation of these mills. The hope is that this analysis will be used to generate conversations in Peru and ultimately result in implementation of wet mills in Peru.
It was sad to leave Lima, a city that came to feel like a home over the course of this trip. We were able to explore several neighborhoods in the city including Miraflores, San Isidro and Barranco. The people of Peru were warm and open and welcomed us into their culture. I am so thankful to have been granted this opportunity to experience this culture and way of life.
While this experience was at times challenging, I believe it also provided an opportunity for self-reflection and growth. Now that I am back in the United States, I am able to see even more clearly how different their work environment and overall culture is from my typical environment. I also have a new appreciation for the work that goes into my morning coffee! I hope to present our findings to colleagues at PIMCO in order to share some of the experiences and lessons learned.
After several weeks of meetings, we finally had some time to compile our thoughts and develop a rough draft for our strategic plan. Creating an initial outline helped us realize which statistics will be required to test our hypotheses, and helped guide our meeting agenda for the coming weeks.
The next few weeks will be focused on obtaining more statistics, analyzing data, and meeting with more organizations (mostly financial institutions) to finalize our recommendations. A meeting with a local development bank revealed that a previous initiative to increase lines of credit to farmers was very unsuccessful. While some programs do exist to promote loans to the coffee sector, their adoption has been scarce due to a lack of qualified farmers (most are already heavily indebted and can’t open new lines of credit). This is a unique aspect of El Salvador’s coffee industry that will need to be incorporated into any financing schemes.
After studying coffee for many weeks, we finally found a coffee shop that carries farm/variety specific beans from El Salvador. Reading about coffee and seeing it grow is one thing, but tasting the fruits of the labor has helped me develop an even stronger appreciation for the high quality beans that El Salvador produces. In addition to having great coffee, the baristas at the coffee shop were no strangers to making latté art, such as the dragon shown below.
We’ve now hit the midpoint of our EEP, so our focus has shifted from gathering information to distilling our views.
It’s hard to create a strategic plan for an entire industry, and in a foreign country, but that’s what we’re attempting to do. While still evolving, our current recommendations are coalescing around the following three actionable items:
1) Genetic material – The coffee trees in El Salvador are very old. This means they are well past their peak producing years and more susceptible to sicknesses, like the dangerous “leaf rust” fungus called La Roya (pictured below). To properly replant their fields, coffee farmers here need access to seeds of new coffee varieties that are resistant to La Roya, deliver a good yield (coffee per tree) and produce a high quality cup (flavor).
2) Access to capital – This has been a major challenge in El Salvador. Banks are largely unwilling to lend to the sector given high volatility in coffee prices. However, farms can’t be replanted and worked effectively without new capital. It’s a real “chicken and egg” problem, so we will look to be creative in identifying potential sources and structures of funding in the weeks ahead.
3) Technical assistance – The majority of coffee farms in El Salvador are small and owner-operated. Simply giving them new seeds and capital is not enough. They need to be taught best practices for planting, fertilizing, pruning, etc.
I’m excited to share some news from Peru. Four weeks ago, PIMCO volunteers Jordan Dudeck and Kai Friemel arrived at TechnoServe’s Peru office to work with us on a project that could transform the country’s coffee value chain. Their time here is part of a strategic partnership where PIMCO volunteers are transferring their business skills to entrepreneurs, farmers, and ultimately communities across Latin America, while also supporting TechnoServe in its mission to promote business solutions to poverty.
Our momentum on this project has been possible, to a great extent, because of a thoughtful and thorough industry diagnostic carried out last year by three PIMCO volunteers – Gino Gabbianelli, Marissa Garcia and Victor Cabral. Their report allowed us to clearly define high-value opportunities in the Peruvian coffee sector, and thus align partners around two top priorities: agronomy training and quality improvement. According to the volunteers’ findings, if these priorities were addressed through several identified and realistic changes, 200,000 Peruvian coffee farmers could increase their combined incomes by nearly $200 million a year.
This year, Jordan and Kai are taking a deep dive into one of these opportunities: coffee quality improvement. Specifically, they are analyzing the economic viability of implementing central wet mills in a region of Peru. To provide some context, wet milling is the process where coffee is washed and the bean is separated from the “cherry.” In Peru, most wet milling is done individually by each farmer using hand-operated coffee pulpers. We believe that by centralizing the process – as TechnoServe has helped many farmer groups to do across our global coffee work – farmers could save time and significantly improve the quality of their product. However, there are multiple logistic, infrastructural and cultural challenges to centralizing the process in Peru.
The PIMCO volunteers’ main task this year is to model the economic benefits and costs of centralizing wet milling. Although this might sound like a lot of deskwork, the task actually requires significant fieldwork in order to gather the needed data. For the past few weeks, the volunteers have interviewed dozens of farmers, met with several cooperative employees, and walked long distances on the outskirts of Tingo María to better understand the logistic challenges farmers would face if the milling process was moved to a relatively distant location.
Jordan and Kai have already come up with a first version of their economic models, and we will refine these and prepare a short presentation to share the findings with our partners. As straightforward as it might seem, I am confident that this analysis will be an eye-opener for many stakeholders, stirring up new conversations in an industry that is abundant in problems and ideas, but lacking in data and analysis. And we have the PIMCO volunteer program to thank for it.
During our last field visit to the San Martín region, we concluded our interviews on central wet milling in the coffee industry in Peru. We visited three functioning wet mills of different sizes and also different organizational models ranging from community management to a small association of farmers and a privately-owned agricultural enterprise.
Nearby Tarapoto, we also had the opportunity to look at the cacao industry and its value chain. TNS supports farmers who harvest the fruits of improved agricultural practices which have the potential to more than triple their output. To get to the farm, we used the most important transport vehicle in ‘la selva,’ the tropical rain forest – a small boat that took us further down the Huallaga River. The San Martín region has also developed a competitive chocolate industry with small artisanal shops as well as horizontally integrated chocolate plants that cover the entire process from cacao bean fermentation to selling the pralines in their store.
Cacao fruit and the inside of a cacao fruit; the pulp is eatable and very sweet.
We have finished our field visits to collect data to model the economic viability of the wet mills. We were in Tarapoto and Moyobamba this past week (both in the San Martín region of Peru). We met several new colleagues based in Tarapoto and learned more about the current work focused on the cacao industry. We had several colleagues from the Tingo María office in Tarapoto and Moyobamba, as well, which was an added treat!
In Moyobambo, we saw more examples of established and functioning central wet mills - this helped to round out our understanding of what factors increase economic viability of the mills. These farmers typically had either a more centralized organization or easier accessibility, which helped make their implementation successful. While in Moyobambo, we also had the opportunity to taste test the specialty coffee. This “cupping process,” or tasting, is done for all the coffee that is labeled specialty by coffee farmers and is performed to ensure that the quality is of a certain level.
In Tarapoto, we were able to visit a cacao farm where the farmer shared that his farm has seen production increase three times over from improving agronomic processes. We also visited several chocolate processing plants – ranging from a small organization of 13 women to a plant where we were outfitted in full scrubs so as to not contaminate the factory.
With one week left in our assignment, we are back in Lima compiling and analyzing data for our final presentation!
This week consisted of traveling around the country to meet with different farmers, processors, banks, and cooperatives. Coffee cooperatives are farmer-owned organizations tasked with paying competitive prices to members for their coffee beans. This can be achieved by forming relationships with buyers, benefiting from economies of scale in the milling process, and by using futures to hedge price risk. Large cooperatives also offer services such as medical clinics, schools, and technical assistance.
We started the week by meeting with some of the country’s most successful cooperatives, and ended with a few examples of cooperatives that are struggling to overcome the current challenges facing the industry. The first few meetings were highly educational, and gave us concrete examples of procedures that can be implemented to streamline the milling process.
While a few cooperatives have managed to overcome the issues troubling the sector, the vast majority of producers are struggling to stay in business. After our meetings on Thursday and Friday, it couldn’t be clearer that small producers have been significantly impacted by the crisis. The need for assistance was evident when roughly 30 farmers showed up to our last meeting on Thursday. For over two hours, we asked questions, and listened to the farmers voice their concerns.
Anecdotal evidence brought to light the severity of the leaf rust outbreak, but also suggested that the application of fungicides won’t be sufficient to help production levels recover. Less visible issues such as a lack of access to capital, qualified labor, certified seeds, and a general insecurity in some regions will need to be addressed to ensure farmers can regain their competitiveness in the global coffee market.
Our second full week in San Salvador saw a continuation of meetings with key industry participants. By this point the focus of our meetings had shifted. Instead of just learning about the industry and each player’s role in it, we were now validating information we had previously received from others, seeking either reinforcement, clarification, or occasionally differing perspectives.
Here we are meeting with the president of a state-supported bank, who walked us through his views regarding lending to the coffee sector.
We also met with a range of coffee farmers and cooperatives. The “co-ops” are collections of farmers designed to achieve some economies of scale and diversify individual production risk.
Some co-ops are large and fairly successful.
However some are small and struggling to stay solvent.
In this context, maintaining solvency isn’t just a matter of preserving financial strength. It also means preserving an ability for the coffee farmers to buy food, buy fertilizer (critical for the coffee trees), hire labor and still make debt repayments…or risk losing their farms to the banks.
During the week ahead, Scott and I plan to outline our key findings thus far and arrange follow-up meetings to help answer additional questions and validate our views.
On a lighter note, we were able to get out of San Salvador on Saturday to enjoy some sun and surf at a popular nearby beach town, El Tunco. It was a nice contrast to our urban home away from home, San Salvador.
Last week was spent conducting further interviews with coffee farmers around Tingo Maria as well as applying the data and information we have collected so far. The major cost driver arising for farmers, which use central wet mills, are additional transportation costs for the freshly picked coffee cherry, which are about five times heavier than the processed and dried coffee beans. The gains for the farmer are time savings which can be considerable during high season as the individual home processing and drying is time intensive.
Friday marked our last day in Tingo Maria and we had to say good-bye to the very welcoming and hospitable TNS staff in Tingo. Our second field travel, where we will get to know the San Martin region, has just started with a visit to the Asum community. This community of native Peruvians is preserving their cultural roots and language, but also has a progressive approach towards business opportunities. Its coffee association runs a central wet mill for coffee producers in the area. My impression was that this is mainly possible because of the organizational strengths of the community supported by relatively easy access for transportation.
This week we finished our field visits in Tingo Maria, worked from the office on our economic models and caught a flight to Tarapoto to continue our study of the feasibility of the wet mills.
On Thursday, we visited a farm near Rio Barranco that was probably the most beautiful coffee farm we have seen thus far. The river creates small streams of clear water running through the hillside of the family farm. The coffee farmers were also some of the most innovative and entrepreneurial that we had met in the Tingo Maria area. They installed tubes to carry their coffee cherry from the top of their farm to the bottom of the hill where they would complete the de-pulping and fermenting process - this innovation saved 30 minutes per trip down the hill! They used the waterpower from the streams to run the de-pulping machine and also to generate excess electricity for the family to use in the house. It was incredibly exciting to see the innovation of these farmers and I really appreciated the beauty of the landscape in this area.
On a homemade raft in the Rio Barranco region
Tarapoto is our second “home base” for our field interviews. Although we have only spent an afternoon there thus far, already, we are feeling at home. Although the city is hot and humid, it is more developed and has several appealing food and entertainment options. We will finish more field visits this week and then back to Lima for work on our final analysis and presentation.
Our first full week in El Salvador has concluded, and we have already interviewed 10 large organizations in the country’s coffee industry. To better understand the complexities associated with the sector, we met with the following types of organizations:
1. Coffee Associations/Organizations (public and private)
It’s becoming apparent that most parties agree on the issues facing the country. While a general passion for making improvements exists, there is little consensus as to which corrective actions should be taken to resolve the crisis.
After being in Central America for two weeks, I’ve started to realize that an effective strategy will need to be based on a foundation of both quantitative and qualitative analysis. Coming from a statistics related role at PIMCO, my initial thesis was that small farmers should diversify to other crops, such as cacao, to help mitigate volatility. From a quantitative perspective, diversification would help mitigate unsystematic risk, and could reduce the impact of unexpected leaf-rust outbreaks.
When analyzing the same strategy from a qualitative lens, other factors such as family tradition and market perception might suggest a different outcome. Although diversification makes sense in theory, farmers may be hesitant switch to cacao production if their family has farmed coffee for generations. Diversifying away from coffee may also cause El Salvador to lose its reputation as a high quality coffee-producing region, and would reduce the quality premium currently received by many farmers.
From the food to the volcanoes to the coffee farms (picture below), to the overwhelming kindness of the locals, I couldn’t be happier to be living in El Salvador. That being said, we have our work cut out for us over the coming weeks; the problems facing the coffee industry are extremely complicated, and will require a comprehensive solution that includes both qualitative and statistical analysis.
Week 2 represented our first week in San Salvador. It was a week full of meetings as we work to deepen our understanding of the domestic coffee sector. As you might imagine, it’s a complex industry. There are a lot of different players, each having different roles, incentives and perspectives.
This week we met with some of the leading coffee associations, cooperatives, exporters, banks and farmers.
Here we are learning about the different regions of coffee production in El Salvador. This is at the Consejo Salvadoreño del Cafe, an association that represents coffee farmers nationally.
Here we are visiting one of the larger cooperatives (a collection of farms, intended to create some economies of scale). You have to go into the mountains to visit coffee farms because the Arabica trees grow best at higher altitudes; in this case, about 1,200 meters, or 4,000 feet.
This picture was taken following meeting with a farmer (in green) who also runs a large export firm, Abecafe.
I continue to be amazed at how welcoming the people of El Salvador have been both in and out of work. And with respect to coffee, while each party has their own perspective, they all want to see the industry succeed. They have tremendous national pride and a keen awareness of the humanitarian impact the recent coffee crisis has had.
During this week our focus was on data gathering. We spoke to representatives of three cooperatives in the region. Two of them own central wet mills, but only one cooperative is actually operating central mills, and the third one considers central mills not to be attractive given the dispersed location of their farmers. This gave us insight into the local sentiment of important stakeholders regarding central mills and the operational and logistical issues of central wet mills. We also interviewed about 20 coffee farmers. We visited most of them at their (sometimes remote) fields.
To experience the broad diversity of farmers was a very interesting part of this data gathering process, from people just getting started in coffee production to entrepreneurs deepening their value chain by selling toasted and grinded coffee directly to clients as well as their own café latte ice-cream creations.
On Friday we are flying back to Lima and from there to our next field visit in Tarapoto.
This week we completed most of our interviews with farmers and co-operatives. We collected the majority of the information that we need to model the feasibility of implementing a central wet mill. It is difficult, though, to create one single model since the locations of farms are so varied depending on the region and the impact of the roya is dependent on altitude and variety of coffee plant.
We spoke with several co-operatives this past week and they had differing views of the benefits of central mills. The Naranjillo co-operative already has several functioning wet mills and is looking to implement more as they believe it increases efficiency and quality. The Divisoria co-operative is less keen on the centralized milling process and prefers the farmers to complete the milling individually.
This will be our last week in Tingo Maria as we venture to Tarapoto next week to see the work done by previous PIMCO volunteer consultants and to interview farmers and co-operatives working with currently functioning central wet mills. While I am excited to return to Lima and venture to Tarapoto, I will be sad to leave behind the kind and generous TechnoServe colleagues based in Tingo Maria.
Our first week was spent in TechnoServe’s Managua office, and was focused on reading existing strategic plans and meeting with various industry experts. Our initial thoughts are focused around access to capital as a means to increasing farm productivity, and volatility mitigation techniques via crop and varietal diversification. Another area of focus will include analyzing the characteristics of existing debt in the industry; any strategic plan will require capital, and identifying opportunities to restructure debt or access new lines of credit will be critical in an effective recommendation.
On Monday we flew to our new home, San Salvador, to begin collecting data and furthering our analysis of the sector. The coffee industry was once the biggest driver of El Salvador’s GDP, and was heavily intertwined with politics. While seated around the same table that was once used to hold meetings to decide El Salvador’s next president, we gained valuable insight from employees of the Coffee Association of El Salvador.
Similar to Managua, San Salvador welcomed us with an incredible amount of thunder and lightning. Though the rain can be a bit unpredictable, it’s the key ingredient that permits coffee plants to grow, and promotes a unique biodiversity in the region (such as the leaf-cutter ants in our hotel lobby seen below).
Week 1 was spent in TechnoServe's office in Managua, Nicaragua. Scott and I had a few meetings with local coffee professionals to help us get up to speed, and we did a lot of research on our own. The first meeting gave us an overview of coffee production in Central America overall. The second focused on agronomical microfinance. The third was with an exporter who also helps run the "Cup of Excellence," an international coffee tasting competition used to assess quality and final pricing.
All in all, it was a good way to lay a foundation for Week 2.
On Sunday evening, Scott, Ryan and I flew to El Salvador, which is the focus country of our project, to begin the next phase of data gathering, analysis and testing our hypotheses.
Our time in the capital city San Salvador will be split between meeting with local coffee experts and doing additional research on our own. For example, on our first day we met with the President of the Coffee Farmers Association of El Salvador to preliminarily discuss ways of mitigating the country's production challenges. We also had a presentation on challenges faced by domestic coffee farmers and (very high level) potential solutions, delivered by a local consultant at the El Salvador Chamber of Coffee.
Bottom line, we have our work cut out for us. The problems are severe and affect tens of thousands of people, but getting our hands on good data is challenging. However, the people in both countries have been absolutely friendly, inviting, helpful and hopeful that we can help, after so many years (and in the case of El Salvador, decades) of production declines in their coffee sector.
The EEP in Nicaragua/El Salvador has finally begun! PIMCO colleague Scott Argyres and I arrived to Managua on Saturday night (my bags made it one day later), which gave us a full day on Sunday to get settled in. The regional director at TechnoServe, Ryan Bathrick, was nice enough to personally pick us up, and he returned to our hotel Sunday morning to show us some of the local sights before staring work on Monday. So admittedly, this first blog entry (written on Monday) will be more cultural than project-focused, but that balance will soon reverse as we get deep into researching the daunting issues faced by El Salvador’s coffee farmers and other industry participants.
The first stop on our Sunday excursion was Laguna Apoyo, a geographically stunning crater lake. Laguna Apoyo reflects Nicaragua’s volcanic history – it was formed by an imploding volcano cone some 20,000 years ago. Today it is popular among both locals and tourists, just 40 minutes outside of Managua.
We then went to meet some of Ryan’s friends in Granada. One of them, Francisco (Frank) was very cordial and explained some key points of Granada’s history. Granada was the first European-founded city in the mainland Americas, by Spain in 1598. In the mid-1800s, the city (and country) was actually taken over by an American from Nashville – William Walker – who eventually proclaimed himself President of Nicaragua. Not surprisingly, this wasn’t well received in the region, and a Central American coalition forcibly removed Walker roughly a year later, but not until Walker had ordered the burning of much of the city, leaving a sign that read “Here was Managua.” After periods of restoration, Granada is now a very popular destination, offering some of the finest colonial-era architecture in the country.
From there, Ryan and Frank took our group for a little boat cruise of Lake Nicaragua, which is adjacent to Granada. It’s a massive lake, 19th largest in the world, and has hundreds of little islands that were created from volcanic eruptions. This picture, with nearby Volcano Mombacho in the background, looks calm. But 30 minutes later an absolutely torrential thunder storm blew in from across the lake. Yes, August is still the rainy season in Nicaragua!
Monday morning saw our first day in TechnoServe’s Managua office, pictured below. Between Ryan’s introductions and a morning staff meeting, we’ve now met everyone. All the people have been absolutely welcoming and helpful. The day for me and Scott consisted of continuing our research into El Salvador’s coffee industry and a 90 minute meeting with a coffee industry expert who laid out key challenges faced by the coffee farmers and his vision for the future. All signs point to this being a very multi-faceted problem with no apparent “low hanging fruit” solutions, but we’re eager to continue our research and bring a fresh perspective to the mix.
The coming week entails a lot more “get up to speed” research by me and Scott before we head to El Salvador on Sunday afternoon. I’m expecting continued advancement in our coffee knowledge and Spanish skills by this time next week!
Our first two days in Nicaragua have been incredible. I’ve been overwhelmed by the generosity and hospitality of both TechnoServe staff and locals alike. The landscape of the country is spectacular with volcanoes and green hillsides around every corner.
We spent our first weekend visiting the city of Granada, an old colonial city situated near Lake Nicaragua. The lake is known for 365 small islands (“Las Isletas”) that were formed during a volcanic eruption. Our trip was cut short by an unexpected thunderstorm, but we made sure to try some of the local cuisine before heading back to Managua.
Monday was our first day of work, and after meeting with a coffee industry expert, I couldn’t be more excited to start working on our project. The problems facing El Salvador’s coffee industry are severe, and the need for a timely solution is evident. Next week we will leave Managua for El Salvador, where we will begin conducting interviews with participants from all parts of the value chain (from the farmer to the exporter). I’m really looking forward to seeing firsthand how a small red fruit on a tree makes its way from the farm, to the futures market, and eventually to the cups of millions of people around the world.
Last week we discussed in more detail our project, which is to evaluate drivers of the economic viability of a centralized wet mill for coffee. Wet-milling consists of the first of several processing steps in coffee production that happens right after harvesting the coffee cherries; this includes de-pulping, fermentation, washing and drying the coffee beans. Jordan and I have prepared questionnaires for coffee farmers and operators running existing wet-mills. Many farmers in the region around Tingo Maria do not have access or do not use a central wet-mill, but process the coffee cherries at home or close to their fields.
On Thursday, we visited a fair just outside Lima, where we had the chance to taste locally manufactured food. TNS also had set-up a stand promoting chocolate producers from the San Martin region. We were told that the increasing local chocolate manufacturing has also increased local demand (despite the hot weather), which was no surprise to us as they taste great.
Friday morning Jordan and I flew out to Tingo Maria for our first field visits during the next two weeks. The climate here is tropical, humid and hot during the day, but it cools down during the night. The mountainous tropical forest around the town is scenic. After getting to know the office and most of the staff on Friday, we were invited to see the waterfalls close to ‘Tingo’ which are beautiful. On Saturday morning and on Monday we conducted our first interviews with farmers and plant operators. The TNS colleagues have been very helpful and supportive taking us to farms, fields and plants as well as explaining to us the details of the processes. The interaction with the farmers and operators was very interesting and insightful, as we have received a range of opinions on the topic and were able to filter out some data points for our analysis.
Coffee beans laid out for drying on the side of the road
We have completed our first week of work on the coffee project. So far, we have a draft of the condensed presentation from last year’s PIMCO volunteers and have completed nine (9) interviews with coffee producers and wet mill operators. We have also built preliminary versions of the economic models as we attempt to find data points to populate the constants in the models.
Last week, we spent our days in the Lima office where we did preparatory work and research for our interviews with producers, co-operative members and mill operators. While in the office, we were able to attend “El Feria de Hogar” which is an annual fair in the Chorillos district of Lima. The fair had some elements of an American fair (rides, lots of delicious junk food) but also some unique characteristics, like tents containing educational exhibits and Peruvian souvenirs. Also, some of the proceeds from the fair would be used for environmental protection and tree planting initiatives. We attended the fair because several of the chocolate producers that TechnoServe works with were present in a booth. They were raising awareness for and selling their chocolate product. (It is delicious!!)
On Friday, we flew into Tingo Maria on the one flight that travels between Lima and Tingo Maria each day. Tingo Maria is the small city in the Huanaco province where we will be based as we investigate the feasibility of a centralized wet mill. While Tingo Maria used to be considered the center of the “coca” drug trafficking business, in the past several years, it has become a hub of production of coffee and chocolate goods as well as a local eco-tourism destination. After getting settled into the office on Friday, we took a trip to see some beautiful waterfalls, “El velo de la novia.” These waterfalls form from the convergence of waters from the Amazonian hillside into the Amazon Basin.
Saturday, we began our work interviewing farmers in the region. We drove down a bumpy dirt road to meet with two coffee producers who work to pick the product off the coffee trees and then complete the de-pulping, cleaning and drying process at their individual farms. Coffee beans are actually found in the cherry fruit of the coffee trees and the pulpy fruit needs to be stripped away to reveal the beans, which then need to go through a fermentation process. This conversion from fruit to coffee bean is labor and time intensive, but with large distances and difficult terrain between the different coffee farms, it is difficult to establish a centralized milling facility in these areas.
We have met most of the TechnoServe employees based in Tingo Maria. Since the Tingo Maria office is new within the past year, much of the staff relocated from Tarapoto where the office was located previously. They have been incredibly kind and generous to show us around the city and some of the beautiful sites in the region. Although the town is more rustic, the scenery is absolutely beautiful and the people are incredibly open and compassionate. We have a busy week ahead, conducting interviews with producers and co-operative members in the area, as we continue to collect data from a large enough sample to create inputs for our economic models.
On Saturday night, I landed safe and sound in Lima after a long trip from Munich via Madrid.
On the first day, Sunday, Jordan and I explored the city by walking along the cliff that marks the south-western border of the city towards the Pacific. The grey cloudy sky you see on the picture has been characteristic of the weather that is surprisingly humid and fresh at the same time, but fortunately it has not been rainy.
The old city center is further inland and we took one of the newly introduced public busses there. As a marketing campaign, these buses are free on Sunday and therefore packed, which made the bus ride an experience by itself.
Today was our first day in the TechnoServe (TNS) office here in Lima. We were introduced to several consultants and staff. TNS is currently working on three main projects in Lima. In the north, TNS is working with a Swiss company on developing industries that aim to benefit from the growing international trade in the region. In central Peru, from the office in Tingo Maria, TNS operates to support the cocoa farmers as well as coffee farmers; the project is funded by USAID. We will fly to Tingo Maria for the field work part of our project on Friday and stay there for three weeks. The main task there will be to collect data by interviewing coffee farmers, managers of “cooperativas” and coffee traders. While TNS will help us get in touch with the interviewees, our challenge will be to actually connect with them and extract the data points needed for our analysis. This is a rather remote area of Peru which will have an adventurous flavor. Lastly, TNS is also running a project in cooperation with an international mining company that supports local companies and businesses to profit and take part in the economic growth through mining in southern Peru.
In the picture: The Gran Hotel Bolivar at Plaza San Martin in the city center, decorated with the Peruvian flag.
I have just finished the first day of work at the TechnoServe (TNS) office in Lima. We worked closely with Enrique, the TNS country director in Peru, to formulate a timeline for our projects while in-country. We determined that to begin, we would focus on research of the wet mill model inputs and outputs as well as create an outline of our hypothesis for the models. The assignments we are working on in Peru are quite different from those at PIMCO as we are navigating a process that has more potential paths to a conclusion and fewer pre-determined best practices.
Lima has been a great introduction to Peruvian culture. Kai and I landed late on Saturday, but on Sunday morning we headed out to explore. We have both visited Lima previously but took the opportunity to wander along the coast in Miraflores and also to visit the historic city center where the Plaza de Armas and Plaza San Martin are located. Lima has embraced the traditional cuisines of the regions of Peru and we were able to sample some food and drink from Gaston Acurio, one of the most famous Peruvian chefs. We tried some scallop crudo along with some traditional drinks made out of the celebrated Peruvian liquor, pisco.
This week at the TNS office, we will meet with a specialist who will explain some details of the differentiation between specialty coffee and commodity coffee. This will provide some background as we begin formulating our economic models. We also intend to work on finalizing a paper that distills an extensive project completed by previous PIMCO volunteers into a shortened summary version. On Friday, we depart Lima for Tingo Maria where we will conduct interviews with farmers and begin the analysis for our economic models.
This experience has certainly pushed the boundaries of my comfort level given the broader scope of the work on this project and the need to transition to speaking a foreign language. In terms of our work, Kai and I are collaborating on the different models and helping to focus each other on specific tasks that will ultimately result in a successful analysis. I am also focused on improving my Spanish skills, especially given our upcoming departure for Tingo Maria.
That is all from Lima. Next update: Tingo Maria!
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