Our second week in Tarapoto was a very productive one. Aside from collecting more data from meetings with cooperatives and fertilizer distributors, we spent a lot of time brainstorming about what characteristics our model should have. As of right now, we see three key components: the credit itself, due diligence/farmer selection, and farmer education.
The credit component is looking like it could take many shapes. Cooperatives have a reasonably long history of extending credit to their members, and each has its own model. These models typically involve an outside financing entity and a deal with an exporter. Distributors are newer to the space and are still in the "pilot program" stage. They have little track record or ability to judge what works in the long run, but their models are very simple and only involve themselves and the farmers who buy from them. We were interested to see that many of these existing models do not charge explicit interest, but rather use price discrimination to compensate for risk. For example, a distributor will charge less for a bag of fertilizer for a cash client than a credit client, and a cooperative will give a loan "pro bono" but pay a price slightly below market for the farmer's harvest.
The due diligence component is straightforward but important. It is impossible to eliminate all farmer credit risk, but by taking a few simple steps a fertilizer distributor could dramatically reduce it. Aside from checking that the farmer owns his land and has a history of paying utility or other bills, it is also important to visit the parcel to see the quality of the land and health of the trees. These initial and follow up visits are not only helpful to judge credit-worthiness; they also help to ensure farmer loyalty and diligence. Contracts are not very effective here, so the best way to ensure someone will follow through is to build loyalty through personal contact.
The education component involves teaching the farmer how to use fertilizer at the time of fertilizer sale. This involves determining what the farmer needs and giving instruction on how to best apply it. For example, some farmers apply fertilizer around the trunk of the tree, when actually it should be applied a few feet away from the trunk. Simple instruction can make a large difference in the return the farmer receives on his or her fertilizer investment. We can see NGOs like TechnoServe playing a role in this technical assistance stage.
Aside from work, Alain and I learned how to make ceviche this week! Dolly, the wife of Marco, an employee with TechnoServe, is an excellent cook and she walked us through all the steps and even shared her recipe with us. I am looking forward to trying to make it on my own back home!