The Growth of the Fruit and Vegetable Export Industry in Peru (SpringerBriefs in Economics) 9811696284, 9789811696282

Table of contents :
Preface
Contents
About the Author
Acronyms
Notes
1 Introduction
1 Optimism in FFV Export
2 Studies on the FFV Export Industry
3 Analytical Frameworks
3.1 Contracts and Integration in Agriculture
3.2 Upgrading in Value Chains
3.3 Resource Management for Agriculture
3.4 Industrial Clusters
4 Organization of This Book
References
2 Expansion of FFV Exports
1 Introduction
2 FFV Export from Latin America and Peru
3 Contribution to the National Economy
4 Economic Reforms
4.1 Land Market Reform
4.2 Agriculture Promotion Policy
4.3 Trade Liberalization
5 Conclusion
References
3 From Preserved to Fresh Export
1 Introduction
2 Rise and Stagnation of Preserved Export
2.1 Factors for Growth
2.2 Competition with China
3 Start of Fresh Export
3.1 Niche Market
3.2 New Production Regions
4 Growth of Fresh Export
4.1 Entry of Agribusiness in Production
4.2 Introduction of New Technologies
4.3 Integration in the Value Chain
5 Conclusion
References
4 Diversification of Export Crops
1 Introduction
2 Overcoming Seasonality and Uncertainty
2.1 Cases of Crops Diversification
2.2 Strategy for Crop Diversification
3 Seeking Gaps in Niche Markets
3.1 Geographical Gaps
3.2 Temporal Gaps
4 Conclusion
References
5 Collective Actions
1 Introduction
2 Organizing Actors
2.1 Export Promotion
2.2 Cold Storage Service
2.3 Joint Marketing
2.4 Representing the Industry
3 Building Phytosanitary Capacity for Exports
3.1 Phytosanitary Protocol
3.2 Opening Up the U.S. Market
3.3 Mobilization of Resources
4 Conclusion
References
6 Conclusion
1 Factors for the FFV Export Industry Development
2 Challenges for Peruvian FFV Export Industry
3 Evolution of Value Chains
References
Index

Citation preview

SPRINGER BRIEFS IN ECONOMICS

Tatsuya Shimizu

The Growth of the Fruit and Vegetable Export Industry in Peru

SpringerBriefs in Economics

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More information about this series at https://link.springer.com/bookseries/8876

Tatsuya Shimizu

The Growth of the Fruit and Vegetable Export Industry in Peru

Tatsuya Shimizu Latin American Studies Group Area Studies Center IDE-JETRO Chiba, Japan

ISSN 2191-5504 ISSN 2191-5512 (electronic) SpringerBriefs in Economics ISBN 978-981-16-9628-2 ISBN 978-981-16-9629-9 (eBook) https://doi.org/10.1007/978-981-16-9629-9 © IDE-JETRO 2022 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Springer imprint is published by the registered company Springer Nature Singapore Pte Ltd. The registered company address is: 152 Beach Road, #21-01/04 Gateway East, Singapore 189721, Singapore

Preface

When I visited a white asparagus field in Peru for the first time in 1999, I did not recognize which crop was cultivated in the field. The only thing I saw was a series of furrows in a sandy field without any green plants on the surface. I did not know anything about asparagus; how they grow, how producers harvest them, and how they are processed to final products. Since then, I have been studying the development of the Peruvian fresh fruit and vegetable export industry for over 20 years. In cities, I have interviewed the owners and managers of agribusiness companies, government officials, and managers of industry associations. In fields, I have interviewed agronomists and engineers of large-scale corporate farms and processing plants, as well as small-scale farmers and the intermediaries who buy their harvests. Many of them taught me the basics, from production to business strategies in international marketing and intellectual property. They were very enthusiastic and proud of what they were doing. I was fascinated by their stories and continued studying the evolution of the industry. I am fortunate to be able to observe the development of Peru’s fresh fruit and vegetable export industry, which has grown to become one of the most dynamic economic sectors in the country. After publishing some studies about this Peruvian experience, I had some opportunities to talk about it in the lectures for government officials from developing countries in Asia and Africa. I explained that fresh fruits and vegetables do not have much value at the moment of harvest, but if they can be delivered to the right customers at the right time, with good quality and at a reasonable price, they can be more valuable than many processed agricultural products. Their value is created in the whole value chain that supplies consumers what they want when they want. The officials were very interested in the Peruvian experience because it was a case of successful industrial development based on agricultural resources. They understood that industrialization based on a manufacturing sector was difficult in today’s state of globalization. Meanwhile, many Asian and African countries have an agricultural sector that feeds their people and exports some agricultural commodities; however, these existing agricultural sectors do not produce much value-added in the country. They were looking for new ideas to create new industries based on agriculture. Their

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Preface

strong interest in learning from the Peruvian experience urged me to produce this book in English. I received much help preparing this book. I want to thank the Peruvian people in the industry who helped me to understand and analyze the sector. I would also like to thank my colleagues in IDE-JETRO, who supported me throughout my career as a researcher on Latin American issues. IDE-JETRO sent me to Peru in two periods, 2000–2003 and 2011–2013. The Institute also financed my field research in Peru each year. In addition, I thank the Research Center at Universidad del Pacífico (Centro de Investigación de la Universidad del Pacífico: CIUP) and the Peruvian Center for Social Studies (Centro Peruano de Estudios Sociales: CEPES) in Lima. These institutions accepted me as a visiting researcher while I stayed in Peru. The studies in this book also received some financial help from the Japan Society for the Promotion of Science: JSPS KAKENHI Grant Number 15K01906 and 20K12390. Finally, I would like to thank my family for supporting me in conducting my research and writing this book. Their patience and encouragement helped me to complete it. Chiba, Japan November 2021

Tatsuya Shimizu [email protected]

Contents

1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Optimism in FFV Export . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Studies on the FFV Export Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Analytical Frameworks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1 Contracts and Integration in Agriculture . . . . . . . . . . . . . . . . . . . . . 3.2 Upgrading in Value Chains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3 Resource Management for Agriculture . . . . . . . . . . . . . . . . . . . . . . 3.4 Industrial Clusters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Organization of This Book . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1 2 4 5 5 6 7 8 8 9

2 Expansion of FFV Exports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 FFV Export from Latin America and Peru . . . . . . . . . . . . . . . . . . . . . . . . 3 Contribution to the National Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Economic Reforms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.1 Land Market Reform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2 Agriculture Promotion Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3 Trade Liberalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

11 11 12 13 15 16 19 20 20 21

3 From Preserved to Fresh Export . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Rise and Stagnation of Preserved Export . . . . . . . . . . . . . . . . . . . . . . . . . 2.1 Factors for Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2 Competition with China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Start of Fresh Export . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1 Niche Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2 New Production Regions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Growth of Fresh Export . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.1 Entry of Agribusiness in Production . . . . . . . . . . . . . . . . . . . . . . . . .

23 23 25 25 26 26 27 29 30 30 vii

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Contents

4.2 Introduction of New Technologies . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3 Integration in the Value Chain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

33 35 39 40

4 Diversification of Export Crops . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Overcoming Seasonality and Uncertainty . . . . . . . . . . . . . . . . . . . . . . . . . 2.1 Cases of Crops Diversification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2 Strategy for Crop Diversification . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Seeking Gaps in Niche Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1 Geographical Gaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2 Temporal Gaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

41 41 42 43 45 48 48 49 54 54

5 Collective Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Organizing Actors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1 Export Promotion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2 Cold Storage Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3 Joint Marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4 Representing the Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Building Phytosanitary Capacity for Exports . . . . . . . . . . . . . . . . . . . . . . 3.1 Phytosanitary Protocol . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2 Opening Up the U.S. Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3 Mobilization of Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

57 57 58 60 61 61 62 62 63 66 67 68 69

6 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Factors for the FFV Export Industry Development . . . . . . . . . . . . . . . . . 2 Challenges for Peruvian FFV Export Industry . . . . . . . . . . . . . . . . . . . . . 3 Evolution of Value Chains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

71 72 73 75 76

Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77

About the Author

Tatsuya Shimizu is the Director of Latin American Studies Group at the Institute of Developing Economies, Japan External Trade Organization (IDE-JETRO). He is a specialist in economic development in Latin America with a focus on the agricultural sector. Besides the fresh fruit and vegetable export industry in Peru, he has studied the formation of potato value chains in Peru, the development of the broiler industry in Latin America, the expansion of grain production in Argentina and Brazil. Since 2017, he has been one of the editors of Latin America Ronshu, an academic journal published by the Japan Society of Social Science on Latin America. Since 2018, he is the editor-in-chief of Latin America Report, a magazine on political, economic, and social issues in Latin America published by IDE-JETRO. In 2019, he received Research Encouragement Award by the Food System Research Association of Japan for his book Development of Agriculture and Food Sector in Latin America: Integration of Value Chains (in Japanese), published by IDE-JETRO in 2017.

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Acronyms

AGAP APHIS ATPA ATPDEA CHAVIMOCHIC CPF EUREPGAP FAO FAOSTAT FFV FTA GAP GLOBALGAP GMP GVC HACCP HS INEI IPEH MIDAGRI MINAGRI NPPO NTAX

Asociación de Gremios Productores Agrarios del Perú (Association of Agricultural Producers Guild of Peru) Animal and Plant Health Inspection Service, United States Department of Agriculture Andean Trade Preference Act Andean Trade Preference and Drug Eradication Act Chao, Virú, Moche, and Chicama River Irrigation Project Consorcio de Productores de Frutas S.A. (Fruit Producers Consortium) Euro-Retailer Produce Working Group Good Agricultural Practice. Changed its name to GLOBALGAP Food and Agriculture Organization of the United Nations Statistical Database of FAO Fresh Fruit and Vegetable Free Trade Agreement Good Agricultural Practice Global Good Agricultural Practice Good Manufacturing Practice Global Value Chain Hazard Analysis and Critical Control Point Harmonized System Instituto Nacional de Estadística e Informática (National Institute of Statistics and Informatics) Instituto Peruano del Espárrago y Hortalizas (Peruvian Institute of Asparagus and Vegetables) Ministerio de Desarrollo Agrario y Riego (Ministry of Agriculture Development and Irrigation) Ministerio de Agricultura (Ministry of Agriculture). Reorganized into MIDAGRI National Plant Protection Organization Non-Traditional Agricultural Export xi

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PAIA PROMPERU PROMPEX SENASA UN Comtrade USDA USITC

Acronyms

Peruvian Asparagus Importers Association Comisión de Promoción del Perú para la Exportación y el Turismo (Peruvian Export and Tourism Promotion Committee) Comisión para la Promoción de Exportaciones (Peruvian Export Promotion Committee). Reorganized into PROMPERU Servicio Nacional de Sanidad Agraria (National Agricultural Health Service) United Nations International Trade Statistics Database United States Department of Agriculture United States International Trade Commission

Notes

Chapters 3, 4, and 5 are based on the following published works: Chapter 3 Shimizu T (2009) Structural Changes in Asparagus Production and Exports from Peru. IDE Discussion Paper. IDE-JETRO, Chiba. Shimizu T (2017) Expansion of Fresh Asparagus Exports (in Japanese). In: Shimizu T, Development of Agriculture and Food Sector in Latin America: Integration of Value Chains. IDE-JETRO, Chiba, pp 33–60 Chapter 4 Shimizu T (2016) Integration and export strategy of fresh fruit and vegetable exports from Latin America: A case of Peruvian avocados (in Japanese). In: Sato K (ed) New wave of innovations in food system. Nihon Keizai Hyoronsha, Tokyo, pp 179–194 Shimizu T (2017) Growth of Fresh Fruit and Vegetable Exports (in Japanese). In: Shimizu T, Development of Agriculture and Food Sector in Latin America: Integration of Value Chains. IDE-JETRO, Chiba, pp 61–85 Chapter 5 Shimizu T (2013) Overcoming Phytosanitary Issues to Increase Fresh Produce Exports in Peru (in Japanese). Raten Amerika Ronshu (Japan Society of Social Science on Latin America) 47:25–42 Shimizu T (2017) Growth of Fresh Fruit and Vegetable Exports (in Japanese). In: Shimizu T, Development of Agriculture and Food Sector in Latin America: Integration of Value Chains. IDE-JETRO, Chiba, pp 61–85

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Chapter 1

Introduction

In the second half of the 2000s, Latin American countries recorded outstanding economic growth due to a commodity boom in the international market. Some countries in the region increased exports of natural resources, such as petroleum, natural gas, and minerals. This increase in exports pushed economies’ growth rates. Entering the 2010s, the deceleration of economic growth in emerging countries put an end to the commodity boom. Consequently, natural resource exports from Latin American countries, as well as economic growth, slowed down. Peru is one of those countries. According to the statistics of the Central Reserve Bank of Peru, the export of mining, oil, and gas declined in the second half of the 2010s. Its annual GDP growth rate dropped from 6 to 9% during the boom period to 2–3% after the boom. Despite the downtrend of the overall economy and traditional exports in Peru, the export of FFVs has been steadily increasing for two decades. Today, the FFV export industry is one of the most promising sectors in the Peruvian economy. There are both demand and supply factors for the development of the FFV export industry in Peru. On the demand side, as the purchasing power of consumers in developed and emerging economies increases, demand for high-value agricultural products increases. Consumers want fresh, nutritious, safe, and delicious products, and they want to access them all year round, not just in harvest seasons. More consumers are willing to pay a higher price for FFVs. In Latin America, Mexico and Chile took advantage of the rising demand for FFVs. The nations have the advantage of early harvests and counter-season production due to low latitude or southern hemisphere locations. They began to increase the exports of FFVs, and have become the leading exporters in the world. Peru is following the path of these two pioneers. Although its FFV exports are still much smaller than these countries, they are expanding rapidly. Peru has become the world’s largest exporter of some FFV crops, such as asparagus and blueberries. In addition to traditional markets in Europe and North America, the country is actively

© Institute of Developing Economies, Japan External Trade Organization (IDE-JETRO) 2022 T. Shimizu, The Growth of the Fruit and Vegetable Export Industry in Peru, SpringerBriefs in Economics, https://doi.org/10.1007/978-981-16-9629-9_1

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1 Introduction

expanding its market to emerging countries in Asia, where demand will continue to rise. The FFV export industry in Peru differs from the traditional agricultural sector in the country. For example, agribusiness companies1 are the main actors in production. They produce crops and engage in other activities, such as processing and packing, export, and marketing. They are diversifying export crops from asparagus to other FFVs, such as grapes, avocados, and blueberries. They are organized into industry associations that execute collective actions to increase exports. This book aims to analyze why and how the FFV export industry has developed in Peru. The next section explains the industry’s unique characteristics compared with traditional agricultural export from Latin America. The section after the next provides an overview of some existing studies on the FFV export industry in developing countries. The following section will introduce analytical frameworks on industrial development. The final section summarizes the upcoming chapters of this book.

1 Optimism in FFV Export During most of the twentieth century, the primary export economy was a source of pessimism in economic development in Latin America. This pessimism claimed that dependency on primary exports would keep the countries in the region underdeveloped. Since their independence, Latin American countries have been developing their economies by exporting primary products, such as minerals, petroleum, and agricultural products, and importing industrial products from Europe and North America; however, this primary export economy did not support the sustainable economic development of Latin American countries. Their economies were extremely vulnerable to price fluctuations of primary export products. Consequently, export earnings fluctuated. Influential economists, such as Raúl Prebisch and Hans Singer (Singer 1950; ECLA 1950), argued that Latin American countries would remain trapped in underdevelopment unless they abandoned the economic model of primary export, recommending the introduction of an import substitute industrialization policy. According to the Prebisch–Singer hypothesis, the terms of trade of Latin American countries would deteriorate over the long term as long as they were dependent on primary exports. This hypothesis assumes that the income elasticity of demand for manufactured goods is greater than that for primary products, such as agricultural products. When an economy grows and consumers’ income level improves, their demand for food will not grow as much as their demand for manufactured goods; therefore, the terms of trade of food export countries against manufactured goods export countries will deteriorate over the long run. As a result, food-exporting 1

In general, agribusiness refers to an industry and companies that provide farms products. In this book, agribusiness is used as a translation of “agronegocios” in Spanish. In Peru, “agronegocios” includes large-scale companies that produce, pack, and export FFVs.

1 Optimism in FFV Export

3

countries in Latin America would remain trapped in underdevelopment. Based on this hypothesis, many countries in the region adopted the import substitution industrialization policy by the middle of the twentieth century. Although FFV export is a food export, it differs from the food export that Prebisch and Singer assumed in their hypothesis. When this hypothesis was developed, basic foodstuffs, like grains, were the consideration. Once people had enough basic foodstuffs, they would not want them anymore, even when their income level rose. The income elasticity of demand for basic foodstuffs is low. There are some studies that criticize Prebisch–Singer hypothesis. A World Bank study points out that the hypothesis has not verified with empirical data (de Ferranti et al. 2002). Others argue that the hypothesis is no longer valid in the contest of twenty-first century where emerging countries like China are increasing natural resource imports (Machinea and Vera 2006; Hoshino 2007b). FFVs are different types of food, and are not basic foodstuffs. Consumers in developed countries with higher income, higher education, and older age are more interested in healthy foods, such as FFVs (Friedland et al. 1994). The income elasticity of demand for FFVs is greater than that of basic foodstuffs. Therefore, pessimism regarding primary export does not apply to FFVs. The growth of supermarket chains in developed countries also contributed to increasing demand for FFV export. In North America and Europe, retail food sales were concentrated into large-scale supermarket chains by the 1990s, selling many varieties of FFVs throughout the year by sourcing them from around the world (Thrupp et al. 1995; Dolan and Humphrey 2000). The spread of supermarkets in emerging countries further increased the demand for FFV export from Latin American countries (Reardon et al. 2003). In addition to rising demand, the progress of free trade in the region and the standardization of trade rules advanced the expansion of FFV export from Latin American countries. The North American Free Trade Agreement, which is a free trade agreement (FTA) between the United States, Canada, and Mexico, went into effect in 1994. Chile’s FTAs went into effect with the European Union in 2003, with the United States and South Korea in 2004, with China in 2006, and with Japan in 2007. Finally, Peru’s FTAs went into effect with the United States in 2009, with China in 2010, with South Korea in 2011, and with Japan in 2012. With respect to the standardization of trade rules, the World Trade Organization (WTO), which was founded in 1995, included the application of sanitary and phytosanitary measures in its agreement. By established clear rules for sanitary and phytosanitary measures, the WTO aimed to remove technical barriers for international FFV trade (Roberts and Krissoff 2004). These changes of supply and demand of primary exports, together with the growth in international trade of FFVs, have brought some optimism in FFV exports. Some studies argue that Latin American countries can develop their economies based on the primary exports (Hoshino 2007a; Machinea and Vera 2006).

4

1 Introduction

2 Studies on the FFV Export Industry The FFV export industry in Latin America has attracted researchers’ attention in the past few decades. Researchers have analyzed the region in the context of nontraditional agricultural exports (NTAXs), the global value chain, and the new primary export economic development. The first category of studies analyzed FFV export as NTAXs. One of the problems for the primary export economy in Latin American countries was heavy dependence on a few export commodities. Price fluctuations in the international market made economies vulnerable. By promoting new export products as NTAXs, these countries endeavored to diversify their exports for many years. FFV exports to the U.S. market from Chile and Central American countries in the second half of the twentieth century are typical examples of the NTAXs from Latin American countries. Barham and others reviewed early studies on NTAXs in Latin America (Barham et al. 1992). They summarized the conceptual and empirical studies on NTAX promotion strategies, also examining three leading cases of NTAXs in Chile, Costa Rica, and Guatemala. They discussed the sustainability of the exports and their distributional impact. After the initial expansion of NTAXs from Latin America, a series of studies focused on various issues, such as the distribution of profit, labor force working conditions, environmental impact, and food safety (Thrupp et al. 1995; Murray 1994; Conroy et al. 1996). One of the main contentions of these studies was the overuse of pesticides, which had negative impacts on the workers’ health and the environment. Other studies analyzed NTAXs in the context of industrial development strategy. Fairbanks and Lindsay (Fairbanks and Lindsay 1997) focused on NTAXs from Andean nations, such as cut-flowers from Colombia, asparagus from Peru, and soybeans from Bolivia. Using Michael Porter’s framework of industrial clusters and competitive advantage (Porter 1998), the authors explained what public and private sectors should do to further grow these industries. Another study on the development of dairy and fruit industries in Argentina and Chile focused on public policies for the development of agro-industrial clusters (Casaburi 1999). It points out that public policies on land tenure, the promotion of research and innovation, and collaboration between public and private sectors are essential for the development of dynamic agro-industrial clusters. Some studies on global value chains (GVCs) focused on FFV exports from developing countries. A value chain is a set of activities to deliver a product for the market (Porter 1985). It includes activities such as planning and designing, production, distribution, sales, and customer support. When a value chain’s activities take place in more than one country, it is referred to as a global value chain (GVC). GVC studies have analyzed the FFV trade between African suppliers and European buyers, and Latin American suppliers and North American buyers (Dolan and Humphrey 2004; Humphrey and Memedovic 2006; Gereffi and Fernandez-Stark 2016). They analyzed how retailers in developed countries, such as Tesco in the

3 Analytical Frameworks

5

United Kingdom and Walmart in the United States, controlled suppliers in developing countries through contractual relationships. This book aims to contribute to existing studies on the development of NTAXs and agro-industrial clusters in Latin American countries through case studies on the FFV export industry in Peru. Because this industry in Peru has a relatively short history, mainly after the 2000s, there are only a few reports on this subject (see Chap. 2). Unlike some GVC studies on FFV exports, which mainly focused on the lead firms in developed countries, this study focuses on actors in the developing country as protagonists of industrial development.

3 Analytical Frameworks To research the development of the FFV export industry in Peru, this book adopts analytical frameworks used to study contracts and integration in agriculture, upgrade in value chains, resource management for agriculture, and industrial clusters.

3.1 Contracts and Integration in Agriculture Many actors are involved in agricultural value chains. Following the harvest, crops change hands from producers to other actors through transactions. The relationships among actors determine the characteristics of the value chain and the industry. Understanding these relationships requires the analyses of transactions among actors in the value chain. There are three forms of transactions in agricultural value chains: spot (or cash) markets, contracts, and vertical integration (MacDonald and Korb 2011). In spot markets, sellers (or producers) and buyers determine the price through methods such as auctions. Sellers then transfer crops to buyers in exchange for money; this is a cashand-carry transaction. The relationships between the buyers and the sellers are only for the moment of exchange. There is no interaction before or after the transaction. Spot markets remain the prevalent form of transactions in agriculture. There are two types of contracts in agricultural value chains. One is a marketing contract in which, before the harvest, sellers and buyers sign marketing contracts to specify the quality, quantity, price of crops, and delivery date. Sellers produce the crops with their resources, and sell the crops to buyers with conditions specified in the contracts. The other form is production contracts; service contracts in which producers offer services to produce crops for the “buyers.”2 Before the production, both parties sign a contract to specify the quality, quantity, and delivery date of the crops, and production 2

To be precise, there is no selling and buying transactions between both parties because the crops are always the property of “buyers.”

6

1 Introduction

fees. On many occasions, buyers provide resources (seeds, fertilizers, agrochemicals, etc.) and specify the details of cultivation. The sellers produce the crops combining the resource from the buyers with their farmland and labor. After the harvest, sellers transfer the crops to the buyers in exchange for the production fee. In this case, sellers and buyers exchange more information than the transaction through spot markets. Prior to signing a contract, sellers and buyers negotiate the terms. Buyers inform sellers about the types of crops preferred by consumers. Sellers inform buyers of the availability, quality, and quantity of crops they can offer. In addition, within the contracts, sellers and buyers share the financial burdens of procuring inputs, as well as risks from production and price fluctuations. They also share the profits. Furthermore, they arrange for logistics to smoothly transfer the crops from sellers to buyers so that crop quality does not deteriorate. In general, the relationships between the two parties are closer with production contracts than with marketing contracts. In vertical integration, either buyers or sellers integrate the activities of the other actors. For example, processors buy farms to produce the crops that they process, or the producers build a packing house to process and export crops themselves. They also invest in logistics for refrigeration and transportation. The actors that integrate the value chain must bear all the financial burdens and risks associated with the activities they integrate; therefore, only large-scale actors, like agribusiness companies, can integrate vertically. When an agribusiness company integrates different activities in a value chain, it can easily obtain information from other stages. The information allows a company to optimize the activities of the value chain.

3.2 Upgrading in Value Chains Among the studies on the global value chain (GVC) analysis, the concepts of the smile curve and upgrading help to understand the development of the FFV industry in Peru. The smile curve is a concept that demonstrates a relationship between activities in a value chain of a product and the amount of value that each activity adds to the product (Fig. 1). In the smile curve diagram, the horizontal axis presents a series of value-adding activities from upstream on the left to downstream on the right. The vertical axis shows the value-added of each activity (Gereffi and Fernandez-Stark 2016). The series of activities in a certain product’s value chain are lined up on a smile-shaped curve. The upstream activities are research and development and design. The downstream activities are marketing and services. The activity at the center is production. The study shows that both ends of the curve have higher valueadded than the center. In many GVCs, companies in developed countries manage highly value-added activities while outsourcing activities with low value-added to companies in developing countries. Some GVC studies show that companies in developing countries can upgrade their activities and increase their value-added. There are four kinds to upgrade: process

3 Analytical Frameworks

7

Fig. 1 Smile curve for the FFV export industry (Source Elaborated by the author based on Gereffi and Fernandez-Stark [2016])

upgrade, product upgrade, functional upgrade, and inter-sectoral upgrade (Giuliani et al. 2005). Process upgrade is to facilitate higher efficiency production. Product upgrade is to produce a better-quality product. Functional upgrade is to expand the scope of activities upstream and downstream in the value chain. Inter-sectoral upgrade is building a new value chain or participating in another value chain, applying knowledge acquired from participating to existing GVCs (Gereffi and FernandezStark 2016). This study focuses on these types of upgrades because some agribusiness companies in the Peruvian FFV export industry are attempting to upgrade within the value chains.

3.3 Resource Management for Agriculture Because of the intrinsic characteristics of agriculture, such as seasonality and uncertainty, relatively small-scale family farms have been dominant players in the world for many years. According to agricultural census data in the 1990s and 2000s, around 97% of farms worldwide are less than 10 hectares (Lowder et al. 2016). Another study shows that 98% of farms in the world are family farms (Graeub et al. 2016). As noted previously, the key actors in the development of the Peruvian FFV export industry are agribusiness companies. They operate on a larger scale than traditional agricultural producers, and have diversified export crops, from asparagus to other FFVs. To understand the companies’ growth, this book focused on agribusiness’ resource management. Compared with small-scale family farms, large-scale agribusiness companies seem to be more competitive in agriculture because they can take advantage of economies of scale. By introducing agricultural machinery and producing crops on a large scale, the companies can lower production costs for each unit of crops. However, the intrinsic characteristics of agriculture can be obstacles for large-scale companies to continue operating (Allen and Lueck 2003). These characteristics include the

8

1 Introduction

seasonality of demand for labor, equipment, and facilities, and the uncertainty of production and markets. Analyzing agribusinesses’ resource management in crop diversification will aid the understanding of how they overcome the obstacles for large-scale companies to operate in agriculture.

3.4 Industrial Clusters Some studies on the NTAXs from Latin American countries focused on the development of industrial clusters. This book also focuses on clusters, particularly collective actions by agribusiness companies. Industrial clusters are “geographic concentrations of interconnected companies and institutions in a particular field” (Porter 1998). For example, an industrial cluster of the manufacturing sector includes manufacturing companies, suppliers of inputs and capital goods, and suppliers of services in marketing, distribution, and logistics. In addition to private companies, a cluster includes industrial organizations, public offices in charge of industrial promotion, educational institutions for vocational training, research institutes, and universities. Existing studies on industrial development argue that industrial clusters produce “collective efficiency,” which improves the efficiency of individual companies within a cluster (Schmitz 1999). This collective efficiency originates from two factors: local external economies and collective actions. In local external economies, individual companies can enjoy the benefit by being inside a cluster. The concentration of companies in the same industry attracts production factors, such as inputs, labor, capital, and information specific to that industry. These benefits become easily available to all companies in a cluster; therefore, the companies in the cluster can reduce search costs for production factors. In collective actions, individual companies take actions together with other actors in the cluster. Examples of collective actions are becoming a member of an association and acting to pursue common interests in the cluster. Through being organized in industry associations, they can obtain semipublic status. Acting together as industry associations, they are able to achieve what an individual private company could not achieve alone.

4 Organization of This Book The objective of this book is to analyze the development of the FFV export industry in Peru. Chapter 2 overviews the expansion of FFV export from Latin America. Peru is an emerging FFV exporter in the region. The chapter also reveals the contribution of the industry to the national economy, with an emphasis on its performance in recent years. In addition, the chapter explains the economic reforms that enabled agribusiness companies to enter the industry.

References

9

Chapters 3–5 are case studies on the development of the Peruvian FFV export industry, applying the analytical frameworks presented in the previous section. Chapter 3 focuses on asparagus export, one of the star products among Peruvian NTAXs. The expansion of fresh asparagus export laid the foundation for the development of the industry in Peru. This chapter compares preserved asparagus export with fresh asparagus export. The integration of the value chain enabled agribusiness companies to adapt to the demand for FFVs and to increase fresh export. During the development, some companies upgraded their functions in the value chain. Chapter 4 focuses on agribusiness companies’ diversification of export crops. Although these companies successfully increased fresh asparagus export, their business is vulnerable if they depend on a single crop export. Agriculture is an industry that is characterized by fluctuations that originate from seasonality and uncertainty. These fluctuations can be obstacles to further growth. By diversifying export crops, agribusiness companies can overcome these obstacles. Furthermore, to identify markets for diversified crops, agribusiness companies searched for and found them in the gaps among the niche markets, and adjusted their production to fill these gaps. Chapter 5 focuses on collective actions in the industrial cluster for FFV exports. With help from the public sector, agribusiness companies organized themselves into industry associations. Through the collective actions of these associations, they achieved collective efficiency. One of the most important achievements is helping build a phytosanitary capacity for FFV exports. Their collective actions mobilized resources in the private sector to build public goods of sound phytosanitary capacity. With this capacity, agribusiness companies gained access to new foreign markets. After summarizing each chapter’s findings, Chap. 6 discusses the challenges that the Peruvian FFV export industry faces today, and the future research agenda regarding the value chain evolution in agriculture.

References Allen DW, Lueck D (2003) The nature of the farm: contracts, risk, and organization in Agricultures MIT Press Cambridge, MA https://doi.org/10.7551/mitpress/4883.001.0001 Barham B, Clark M, Katz E, Schurman R (1992) Nontraditional agricultural exports in Latin America. Lat Am Res Rev 27(2):43–82 Casaburi GG (1999) Dynamic agroindustrial clusters: the political economy of competitive sectors in Argentina and Chile. St. Martin’s Press, New York Conroy ME, Murray DL, Rosset P (1996) A cautionary tale: failed U.S. development policy in Central America. Lynne Rienner Publishers, Boulder, CO de Ferranti D, Perry EG, Lederman D, Maloney WF (2002) From natural resources to the knowledge economy: trade and job quality. World Bank, Washington, DC Dolan C, Humphrey J (2000) Governance and trade in fresh vegetables: the impact of UK supermarkets on the African horticulture industry. J Dev Stud 37(2):147–176. https://doi.org/10.1080/ 713600072 Dolan C, Humphrey J (2004) Changing governance patterns in the trade in fresh vegetables between Africa and the United Kingdom. Environ Plan A 36:491–509

10

1 Introduction

ECLA (1950) The economic development of Latin America and its principal problems. Economic Commission for Latin America, Lake Success, New York Fairbanks M, Lindsay S (1997) Plowing the sea: nurturing the hidden sources of growth in the developing world. Harvard Business School Press, Boston Friedland W, Bonanno A, Busch L, Gouveia L, Mingione E (eds) (1994) From Columbus to ConAgra: the globalization of agriculture and food. University Press of Kansas, Lawrence, KS Gereffi G, Fernandez-Stark K (2016) Global value chain analysis: a primer, 2nd edn. Center on Globalization, Governance & Competitiveness (CGGC) Duke University, Durham, NC Giuliani E, Pietrobelli C, Rabellotti R (2005) Upgrading in global value chains: lessons from Latin America. World Dev 33(4):549–573 Graeub BE, Chappell MJ, Wittman H, Ledermann S, Bezner Kerr R, Gemmill-Herren B (2016) The state of family farms in the world. World Dev 87:1–15. https://doi.org/10.1016/j.worlddev. 2015.05.012 Hoshino T (2007a) New primary export economy: an alternative for development (in Japanese). In: Hoshino T (ed) The rise of new primary export economies in Latin America: structure and strategy. IDE-JETRO, Chiba, pp 3–30 Hoshino T (2007b) Resurgence of primary export industries in Latin America (in Japanese). Lat Am Rep 24(2):2–9 Humphrey J, Memedovic O (2006) Global value chains in the agrifood sector. United Nations Industrial Development Organization, Vienna Lowder SK, Skoet J, Raney T (2016) The number, size, and distribution of farms, smallholder farms, and family farms worldwide. World Dev 87:16–29. https://doi.org/10.1016/j.worlddev. 2015.10.041 MacDonald JM, Korb P (2011) Agricultural contracting update: contracts in 2008. Economic Information Bulletin, vol 72. United States Department of Agriculture, Washington, DC Machinea JL, Vera C (2006) Trade, direct investment and production policies. informes y estudios especiales. CEPAL, Santiago, Chile Murray DL (1994) Cultivating crisis: the human cost of pesticides in Latin America. University of Texas Press, Austin, TX Porter ME (1985) Competitive advantage: creating and sustaining superior performance. Free Press, New York Porter ME (1998) Clusters and the new economics of competition. Harvard Bus Rev (November– December 1998):77–90 Reardon T, Timmer CP, Barrett CB, Berdegué J (2003) The rise of supermarkets in Africa, Asia, and Latin America. Am J Agr Econ 85(5):1140–1146. https://doi.org/10.2307/1244885 Roberts D, Krissoff B (2004) Regulatory barriers in international horticultural markets. Electronic Outlook Report. Economic Research Service, United States Department of Agriculture, Washington, DC Schmitz H (1999) Global competition and local cooperations: success and failure in the Sinos Valley, Brazil. World Dev 27(9):1627–1650 Singer HW (1950) The distribution of gains between investing and borrowing countries. In: Papers and Proceedings of the Sixty-second Annual Meeting of the American Economic Association, pp 473–485 Thrupp LA, Bergeron G, Waters WF (1995) Bittersweet harvests for global supermarkets: challenges in Latin America’s agricultural export boom. World Resources Institute, Washington, DC

Data Sources Central Reserve Bank of Peru, Statistics Series. https://www.bcrp.gob.pe/en/statistics.html

Chapter 2

Expansion of FFV Exports

1 Introduction FFVs are some of the most important agricultural products in international trade. Among its exporters, the presence of Latin American countries is increasing in the 2000s. Mexico and Chile are the leading exporters in the region. Taking advantage of their geographical locations in the sub-tropical and southern hemisphere, they have been exporting FFVs to developed countries in the off-season in the northern hemisphere when domestic supply is scarce in these markets. Since the economic growth of the commodity boom in the 2000s, the demand for high-quality FFVs in emerging countries has been rising. In addition to existing FFV exporting countries, other countries have increased exports. One of these countries is Peru. During the first decade of the 2000s, it became the world’s largest exporter of fresh asparagus. Following this, the country has diversified its FFV exports to other crops. In Peru, the FFV export industry has become the most dynamic sector in the national economy. Despite a downturn in the country’s total exports after the commodity boom ended, FFV export has continued to steadily grow. The sector has contributed to the diversification of export products, creation of employment, and development of the related industries. Many factors supported the development of the FFV export industry. Some of the critical factors are land market reform, agriculture promotion policies, and trade liberalization. With these reforms, private sector entities began to invest in the FFV export industry. This chapter first overviews the growth of FFV exports from Latin American countries, including Peru. Second, it reviews the contribution of the industry to the Peruvian economy, especially regarding exports. Finally, the chapter explains the economic reforms that made the development of the industry possible.

© Institute of Developing Economies, Japan External Trade Organization (IDE-JETRO) 2022 T. Shimizu, The Growth of the Fruit and Vegetable Export Industry in Peru, SpringerBriefs in Economics, https://doi.org/10.1007/978-981-16-9629-9_2

11

12

2 Expansion of FFV Exports

2 FFV Export from Latin America and Peru Latin American countries are the leading exporters of fruits and vegetables. Table 1 presents the principal net exporters of the produce. Because some countries import and re-export produce, the table shows only principal net exporters. In vegetable export, Mexico is the second largest exporter after China. In fruit export, Chile is the second largest exporter after Spain, followed by Mexico. Ecuador and Peru are the sixth and seventh exporters, respectively. Mexico has been the most important fruit and vegetable supplier for the U.S. market. Because the country is located in the south of the United States, the producers in Mexico can harvest earlier than counterparts in the United States. Additionally, labor costs in Mexico are much lower than in the United States. Because FFVs are labor-intensive crops, Mexican producers can supply them cheaper than U.S. producers. Also, the two countries are next to each other. Because refrigerated trucks can travel directly from Mexico to the United States, the freight cost is relatively low. Principal exports include vegetables such as tomatoes, bell peppers, squash, asparagus, cucumber, and fruits such as mangoes and strawberries. In the last decades, avocado exports have significantly increased, becoming the most important produce among the FFV exports from Mexico. Chile is a pioneer of fresh fruit exports for the counter-season markets. The country is located in the southern hemisphere and has opposite seasons from its market countries in the northern hemisphere. The primary harvest season for fruits in Chile is between January and March when local fresh fruit supply is scarce in the market countries. The country began to export table grapes for the U.S. market in the 1960s. Now, it is the largest table grape exporter in the world. The country is also a principal exporter of cherries, apples, and blueberries, and is also one of the principal exporters of wine. Table 1 Principal net exporters of fruits and vegetables

China

Vegetables (in million USD)

Fruit (in million USD)

Export

Import

Net Export

Export

Import

Net Export 6,574

10,518

2,038

8,480

Spain

10,098

3,524

Mexico

7,024

507

6,517

Chile

6,341

238

6,103

Spain

7,207

1,605

5,603

Mexico

6,491

1,186

5,305

Netherlands

7,843

2,781

5,062

South Africa

3,677

177

3,500

Morocco

1,288

166

1,122

Turkey

3,961

563

3,398

Canada

4,087

3,135

953

Ecuador

3,370

124

3,246

Iran

1,075

238

837

Peru

3,061

122

2,939

Note The trade values of vegetables and fruits correspond to 07 and 08 of the Harmonized System (HS), respectively Source UN Comtrade

3 Contribution to the National Economy

13

Ecuador is the world’s biggest banana exporter. The fruit is a traditional export crop for the country, and accounts for more than 80% of its fruit and vegetable exports. Although exports are gradually increasing, the growth rate is not as high as the FFV exports of the other three countries. Compared with these three countries, Peru is new to FFV exports. FFV exports were insignificant until the 1990s, but started to pick up in the first decade of the 2000s. Peruvian FFV export began at the end of the 1980s with asparagus for the U.S. market. Following a gradual increase during the 1990s, exports rapidly increased at the beginning of the 2000s (Chap. 3). At the end of the 2000s, FFV export began to diversify to other crops, such as grapes, avocados, blueberries, mangoes, and citrus fruits (Chap. 4).

3 Contribution to the National Economy The Peruvian economy heavily depends on traditional exports, such as mining and oil and natural gas exports. However, after the commodity boom ended in the middle of the 2010s, traditional exports have stagnated, and the country now needs alternative exports to sustain its economic growth. The FFV export industry is one of the promising sectors with the potential to support its economic growth. Throughout history, primary exports have supported economic development in Peru. Figure 1 presents the structure of Peruvian exports from 1950 to the present. There are two categories in the exports: traditional and non-traditional. The traditional 100% 90% 80% 70% 60% 50% 40% 30% 20%

tradional mining

tradional agriculture

tradional fishery

tradional oil & gas

non-tradional agriculture

non-tradional fishery

non-tradional texle

non-tradional others

Fig. 1 Structure of Peruvian exports (Source Central Reserve Bank of Peru)

2016

2018

2014

2012

2008

2010

2006

2002

2004

2000

1998

1994

1996

1992

1988

1990

1984

1986

1982

1980

1978

1974

1976

1970

1972

1966

1968

1962

1964

1960

1956

1958

1954

1950

0%

1952

10%

14

2 Expansion of FFV Exports

exports include mining, agriculture,1 fishery, and oil and gas sectors. The principal exports from these sectors are copper and gold in mining, sugar, cotton, and coffee in agriculture, fishmeal in fisheries, and crude oil and natural gas in oil and gas. Nontraditional exports are exports other than the traditional exports. The figure details four sectors in the non-traditional exports: agriculture, fisheries, textiles, and others. The main export products in these sectors are FFVs in agriculture, fish for human consumption in fisheries, and apparel products in textiles. Until the middle of the 1970s, traditional exports accounted for more than 80% of the total exports. To stabilize its export earnings, the country tried to diversify its exports from traditional to non-traditional exports. The first non-traditional export that increased its participation was textiles. It was the most important non-traditional export until the beginning of the 2000s. Although the participation of traditional exports was gradually declining until the 1990s, the commodity boom of the 2000s reversed this trend. Because of the expansion of commodity exports, especially mining and oil and gas exports, traditional exports increased from 63% in 1998 to 77% in 2010. Under these circumstances, non-traditional agricultural exports (NTAXs) have continued steadily growing since the end of the 1990s. The most important NTAX until the 1990s was preserved asparagus. At thes end of the 1990, the export of fresh asparagus began to increase. Fresh asparagus export recorded a significant increase during the 2000s, becoming a star product among Peru’s NTAXs. By the end of the 2000s, fresh fruits exports also began to increase. The export value of grapes, avocados, and blueberries surpassed that of fresh asparagus in the 2010s. Exports of fruits and vegetables, including fresh, frozen, and preserved, are still relatively small compared with mining exports. In 2018, their share among the total exports was 9%; however, their growth is consistent. Figure 2 shows the increase of export values of the principal Peruvian exports by product groups. The indices are based on the export value in 2000 as 100. Traditional exports, such as mining and oil and gas, increased rapidly at the end of the 2000s, reaching their peak in the first half of the 2010s. The export values increased 8–13 times; however, after the commodity boom ended, those exports dropped by the middle of the 2010s. In contrast, NTAX exports steadily increased throughout the 2000s and 2010s. Its export value reached 16 times that of 2000. Because of this stable growth, the FFV export industry is expected to support Peru’s future economic growth. Apart from the FFV export industry’s participation in total exports, it is difficult to show the industry’s contribution to the Peruvian economy due to the lack of available data, such as the sub-sectoral GDP of the FFV export industry. A study compiled by the industry association shows the following data (Apoyo c2015). The average annual growth rate of “modern agriculture,” referring to the FFV export industry, from 1990 to 2010 was 6.65%, whereas that of traditional agriculture was 2.20%. Among the top 1

The traditional agricultural exports from Peru were sugar, cotton, and coffee; however, after the agrarian reform of the 1960s and 1970s, and the economic crisis in the 1980s, the production of sugarcane and cotton shrunk significantly. The country ceased exporting sugar and cotton. Coffee is the only traditional crop that Peru continues to export.

4 Economic Reforms

15

1800 T agriculture

1600

T mining 1400

T oil & gas

1200

NT agriculture NT manufacture

1000

NT non-metalic mineral

800 600 400 200

2019

2018

2016

2017

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2003

2004

2002

2001

2000

0

Fig. 2 Peru’s export value index by product groups (Note The index is set at 100 based on the export value in 2000. T is traditional and NT is non-traditional exports. Source Central Reserve Bank of Peru)

20 largest employers in 2013, five companies were in the FFV export industry. The income of formal agricultural workers, mainly in the FFV export industry, increased by 3.6% per year from 2004 to 2013. During the same period, the income increase in other sectors was 1.57% for construction and 0.96% for manufacturing. Between 2004 and 2014, the number of workers in modern agriculture who gained access to medical insurance and a pension system increased 5–6 times. Female employment in the industry increased by six times in the same period.

4 Economic Reforms Agribusiness companies played a central role in the development of the FFV export industry in Peru. They produce crops in large-scale corporate farms, process, and pack them in packing plants, and export to foreign markets. The participation of agribusiness companies in the industry became possible thanks to economic reforms in Peru after the 1990s. To overcome the economic crisis in the 1980s, the Peruvian government implemented neo-liberal economic reforms. The government promoted deregulation in economic activities and provided incentives to the private sector. Some of these reforms aimed at the FFV export industry were land market reform, agriculture promotion, and trade liberalization. Taking advantage of these reforms, local economic groups in other sectors began to invest in the FFV export industry.

16

2 Expansion of FFV Exports

4.1 Land Market Reform Land market reform and irrigation projects after the 1990s allowed agribusiness companies to acquire farmland and establish large-scale farms to produce FFVs for export. The agrarian reform under the military government in the 1960s and 1970s redistributed agricultural land from large-scale farms to small-scale and landless farmers. Under this reform, companies were not allowed to own large-scale farmland. The economic reforms in the 1990s reversed this agrarian reform and liberalized the land market. First, the Investment Promotion in Agricultural Sector Law (Decreto Legislativo 653) in 1991 allowed individuals and companies to acquire large-scale farmland.2 Furthermore, the 1995 Private Investment Law (Ley 26,505), known as “the Land Law,” removed the limits in size for land holding, promoting private investment in agriculture. This law prompted companies to acquire large-scale agricultural land and invest in agricultural production (MINAGRI s/f). Taking advantage of these reforms, agribusiness companies acquired farmland in mainly two ways. The first was the acquisition of uncultivated farmland. When the Peruvian economy went into a crisis at the end of the 1980s, many producers went bankrupt with a large amount of debt. Some of these producers in the Ica region, on the southern coast, were agricultural cooperatives. They owned largescale farmland and used it to produce cotton. After they went bankrupt, the farmland was left uncultivated for years. The banks collected the farmland as collateral. After the land market reform, companies in other sectors interested in the FFV export industry acquired this farmland. They invested in irrigation facilities and reactivated the production of FFVs for export (Shimizu 2017). The second is the acquisition of farmland in irrigation projects. By the mid1990s, the government completed the first and second of three phases of an irrigation project called the CHAVIMOCHIC in the La Libertad region on the northern coast (Figure 3 and Chapter 3). The project built a canal that diverted water from Santa River, the highest-flowing river in the coastal region. It delivered water to four basins of the Chao, Virú, Moche, and Chicama rivers, converting deserts to irrigated agricultural land. In 1997, the government held the first international auction, selling 6,900 hectares of land to the private sector. Both individuals and companies acquired land in sizes between 50 to 1,500 hectares. By 2004, the project had created 47,000 hectares of irrigated farmland and sold 40,000 hectares to the private sector (Landeras Rodríguez 2004). Another irrigation project that established farmland for FFV production was the Olmos project in the Lambayeque region on the northern coast (Figure 3 and Chapter 6). The first phase of the project was completed in 2014. A large agribusiness company purchased more than 13,500 hectares to cultivate sugarcane for sugar production, and other agribusiness companies purchased several hundred hectares to cultivate FFVs for export. By August 2018, around 20,000 hectares are producing 2

Individuals and companies can acquire farmland up to 250 hectares in the coastal region and up to 60 hectares in the highland region. Both hectarages are equivalents in irrigated farmland.

4 Economic Reforms

17

Fig. 3 Principal production regions of FFVs for export (Source Elaborated by the author)

various crops, including 11,600 hectares of sugarcane, 4,000 hectares of avocados, and 1,500 hectares of blueberries.3 The land market reform and public irrigation projects made the coastal regions the center of the FFV export industry in Peru. Figure 3 presents principal production regions, and Table 2 shows production of major FFVs for export by regions in 1988 and 2018. The principal crops for FFV export are grapes, avocados, mangoes, asparagus, and blueberries. Traditionally, the Ica region has been the primary grape producer in the country. Its main harvest season is in March, and grapes are destined for the national market as table grapes. The grapes are also processed into wine and spirits called pisco. The region started to produce grapes for export and maintained its position as the principal grape producer in the country in 2018. The Piura region is an emerging grape producer in the country (Chapter 4). Most of its production is for

3

Based on information provided by Proyect Especial Olmos Tinajones in October 2018.

47,352

48,971

2,938

Cusco

2,449

15,742

7,680

2,409

Junín

Cajamarca

Moquegua

2,528

Note Data for blueberries only is available after 2015 Source MIDAGRI

Total

Highland

21,339

Ica

Arequipa

12,915

Lima

8,325

75,783

7,891

La Libertad

Lambayeque

Asparagus

26,646

25,047

645,545

37,407

265,005

74,511

57,217

167,160

Grapes

Mangoes 50,298

Avocados

Grapes

Piura

Coastal

2018 (t)

1988 (t)

Region

Zone

Table 2 Production of major FFVs for export by regions

504,517

41,450

66,332

83,607

204,526

Avocados

378,887

62,079

267,363

Mangoes

360,630

189,941

19,695

134,200

Asparagus

94,805

75,114

16,350

Blueberries

18 2 Expansion of FFV Exports

4 Economic Reforms

19

export markets. By 2018, the region became the second largest grape producer after the Ica region. Avocados were previously a crop mostly for the national market. In 1988, the leading producers were the highland regions, such as the Junín region and a higher part of the Lima region. Avocado exports began to increase in the second half of the 2010s. By 2018, the La Libertad region on the northern coast became the center of avocado production. Most of the production from this region is the Hass variety, which is the only variety that Peru can export to the U.S. market. Today, avocados are the largest among Peruvian FFV exports in value. Mangoes were also a crop for the national market. Because it is a tropical fruit and the Piura region is in a tropical climate, the region has been the principal producer. The fruit had been produced by small and medium-scale farmers. As exports increased after the 2000s, agribusiness companies began to produce on large-scale farms. Asparagus was introduced in Peru as an export crop (Chapter 3). In 1988, most of the asparagus produced in the La Libertad region was for preserved export. After fresh export began to increase in the 1990s, the Ica region became the most important producer in the country. White asparagus is mainly produced for preserved products and green asparagus is produced for fresh export. Blueberries are the newest export crop in Peru. They were introduced in the country as an export crop at the beginning of the 2010s. The La Libertad region produces most of the fruit. Its export has increased rapidly in the last five years, and it is the second FFV export in value.

4.2 Agriculture Promotion Policy In addition to land market reform, the Peruvian government implemented some policy measures to promote the FFV export industry. One of them was the preferential treatment of companies in the agricultural sector. In 2000, the Peruvian government enacted the Agricultural Sector Promotion Law (Ley 27,360). This law provided agribusiness companies with favorable treatment in terms of labor regulation and taxation (World Bank 2017). For example, the companies could hire temporary labor instead of permanent labor, which was not permitted in other sectors. The government also reduced the corporate income tax rate from 30 to 15%. The companies could receive a value-added tax drawback for input imports. Initially, the law was valid for 10 years. Through political lobbying, the agribusiness companies succeeded in extending it until 2021 (Chapter 6). Other measure to promote the industry were enacted to help individual producers and exporters, including agribusiness companies, organize and collaborate with the public sector (Chapter 5). PROMPEX,4 a government agency for export promotion, 4

PROMPEX, or Comisión para la Promoción de Exportaciones in Spanish, was the export promotion agency founded in 1996 under the Ministry of International Trade and Tourism. It was reorganized into PROMPERU, an export and tourism promotion agency.

20

2 Expansion of FFV Exports

assumed this role. The agency helped found industry associations, such as the Peruvian Institute of Asparagus and other associations, each organized by the export crops. It also coordinated with other public entities to establish a national quality standard for some crops. Together with the associations, the agency helped agribusiness companies adopt measures to fulfill corporate social responsibilities, including environmental protection (O’Brien and Díaz Rodriguez 2004; Díaz Rios 2007).

4.3 Trade Liberalization The progress of trade liberalization after the 1990s helped the development of the FFV export industry by expanding access to markets. First, it was the United States, the biggest market for Peruvian FFV exports. In 1991, the United States introduced the Andean Trade Preference Act (ATPA). This act was one of the efforts by the U.S. government to eliminate illegal coca production in Andean countries. To promote crop conversion from illegal crops to legal crops, the U.S. government reduced or eliminated import tariffs for some agricultural products from Andean countries. One of the crops on the list was asparagus. Its import tariff was 21.3% for fresh and 14.9% for preserved products. Because ATPA eliminated the tariffs for both products, the price competitiveness of Peruvian produce increased over those from other countries. In 2003, the U.S. government extended ATPA as the Andean Trade Preference and Drug Eradication Act (ATPDEA), continuing the preferential tariff treatment over Peruvian products. In April 2006, both countries signed the free trade agreement (FTA), which went into effect in February 2009. The Peruvian government continued to negotiate FTAs with other countries. Among the FTAs, the ones that benefited the FFV export industry were those with Asian and European countries. Among the Asian countries, Peru signed FTAs with Singapore (in effect in November 2009), China (March 2010), the Republic of Korea (August 2011), and Japan (March 2012). Among the European countries, Peru signed FTAs with the European Free Trade Association (July 2012) and the European Union (March 2012). In March 2018, the Peruvian government also signed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership to extend its market access to other countries, such as Australia, New Zealand, Malaysia, and Vietnam. Peru also signed a separate FTA with Australia that went into effect in February 2020. These FTAs expanded the markets for Peruvian FFV exports.

5 Conclusion International trade of FFVs has been expanding in recent years. With the expansion of modern retail outlets in developed and emerging countries, the demand for high-quality FFVs has increased throughout the years. Latin American countries are responding to this demand and increasing FFV exports. Chile and Mexico are the

References

21

leading exporters in the region. Located in the southern hemisphere or semitropical region, they export FFVs when produce are scarce in market countries. Peru is an emerging FFV exporter in the region, following the path of the pioneers. The country began to export fresh asparagus at the end of the 1980s. Following a gradual increase in the 1990s, fresh export increased sharply at the beginning of the 2000s, becoming the largest asparagus exporter in the world. At the end of the 2000s, the country began to diversify its export crops. The FFV export industry is the most dynamic sector in the Peruvian economy. After the end of the commodity boom, natural resource exports decreased in the 2010s. However, FFV exports recorded a steady increase throughout the decade. The sector has created a multitude of formal employment opportunities. FFV can be one of the motors of the sustainable economic growth of Peru. The growth of the FFV export industry resulted from the increase in investment by the private sector. Economic reforms in the country after the 1990s facilitated this investment. Following the initial stabilization of the economy, local economic groups in other sectors sought investment opportunities. Land market reform and the completion of government irrigation projects gave these economic groups opportunities to enter into agriculture. They established agribusiness companies, acquired large-scale irrigated land, and invested in the production and processing of FFV crops. Trade liberalization helped open up markets for FFV crops. The country’s coastal region has become the center of the FFV export industry. The following chapters focus on the activities of agribusiness companies. Because of their efforts to integrate value chains, diversify export crops, and collaborate with other companies and the public sector, the FFV export industry has grown significantly in recent years.

References Apoyo (c2015) Contribución e impactos de la agricultura moderna al desarrollo del Perú. Lima Díaz Rios L (2007) Agro-industries characterization and appraisal: Asparagus in Peru. Agricultural Management, Marketing and Finance Working Document, vol 23. FAO, Rome Landeras Rodríguez HM (2004) Asi se hizo CHAVIMOCHIC. Ediciones Carolina, Trujillo MINAGRI (s/f) Diagnóstico de la titulación agraria en el Perú. Ministerio de Agricultura y Riego (MINAGRI). http://minagri.gob.pe/portal/objetivos/69-marco-legal/titulacion-y-creditos/409-tit ulacion-agraria-en-el-peru. Accessed 26 Jan 2020 O’Brien TM, Díaz Rodriguez A (2004) Mejorando la competitividad y el acceso a los mercados de exportaciones agrícolas por medio del desarrollo y aplicación de normas de inocuidad y calidad: El ejemplo del espárrago Peruano. IICA (Instituto Interamericano de Cooperación para la Agricultura), Lima Shimizu T (2017) Development of agriculture and food sector in Latin America: Integration of value chains (in Japanese). IDE-JETRO, Chiba, Japan World Bank (2017) Gaining momentum in Peruvian agriculture: Opportunities to increase productivity and enhance competitiveness. World Bank, Washington, DC

22

2 Expansion of FFV Exports

Data Sources Central Reserve Bank of Peru, Statistics Series. https://www.bcrp.gob.pe/en/statistics.html MIDAGRI (Ministerio de Desarrollo Agrario y Riego) Sistema integrado de estadísticas agrarias. https://siea.midagri.gob.pe/portal/ https://siea.midagri.gob.pe/portal/index.php/sistemas-inform acion UN Comtrade (United Nations International Trade Statistics Database) https://comtrade.un.org/

Chapter 3

From Preserved to Fresh Export

1 Introduction Peru’s fresh fruit and vegetable (FFV) exports started with fresh asparagus. The expansions of fresh asparagus exports laid a foundation for the development of the FFV export industry. Exports increased significantly during the 2000, and Peru became the largest exporter of fresh asparagus in the world. Today, the country is one of two leading exporters together with Mexico. Asparagus export presents an interesting case for learning about the evolution of the FFV export industry in Peru. The country exports both preserved and fresh asparagus. White asparagus is mainly used for preserved export and green asparagus mainly for fresh export. Although white and green asparagus are different in color, they are from the same plant. However, their exports had different trends (Figure 1). While preserved export stagnated in the mid-1990s, fresh export rapidly increased in the 2000s. By 2002, fresh export outstripped preserved export in value and continued to grow in the following decade. The objective of this chapter is to explain why and how fresh asparagus export expanded. The favorable context for asparagus production, such as climate, soil, and labor force, are the same for both crops; therefore, they cannot explain the difference in the export trends. This chapter compares the value chain structures for each product. Structures can be analyzed by identifying the actors in the value chain, their functions, and their transactions. As described in Chapter 1, transactions in an agricultural value chain have three forms: spot (or cash) markets, contracts, and vertical integration (MacDonald and Korb 2011). The relationships between sellers and buyers are closer with contracts than in spot markets. Under contracts, buyers and sellers exchange more information and share risks and profits. In vertical integration, sellers and buyers become part of the same organization. Such integration allows for the smooth flow of information, and all risks and profits belong to the same organization. This study explains that © Institute of Developing Economies, Japan External Trade Organization (IDE-JETRO) 2022 T. Shimizu, The Growth of the Fruit and Vegetable Export Industry in Peru, SpringerBriefs in Economics, https://doi.org/10.1007/978-981-16-9629-9_3

23

24

3 From Preserved to Fresh Export

1,000 t

US$ million 450

450 producon (le axis)

400

400

fresh (right axis)

350

350

preserved (right axis)

2018

2016

2014

2012

2010

2008

2006

0

2002

0

2004

50

2000

50

1998

100

1996

100

1994

150

1992

150

1990

200

1988

200

1986

250

1984

250

1982

300

1980

300

Fig. 1 Peru’s asparagus production and export (Source MIDAGRI, UN Comtrade, and Global Trade Atlas)

changes in the form of transactions in the value chain are keys to understanding the expansion of fresh asparagus export. Because of the vertical integration of the value chain, agribusiness companies were better able to respond to particular demand for FFVs in the international market. The analysis of the evolution of preserved asparagus export is based on the reviews of existing studies regarding the sector (Elías Minaya 1995; Glover and Kusterer 1990). The analysis of asparagus production and trade is based on statistics from the Ministry of Agriculture of Peru (MIDAGRI), FAOSTAT, UN Comtrade, Global Trade Atlas, and USITC Data Web. The information regarding value chain activities is based on interviews conducted with agribusiness companies (September–October 2005) and small and medium-scale producers (September 2006) dedicated to the production and export of asparagus. The next section explains the rise and stagnation of preserved asparagus export. The following two sections will then describe the start and growth of fresh export. The entry of agribusiness companies, technology investments, and the integration of different stages in the value chain were critical factors for the development of the fresh asparagus export industry in Peru. The final section concludes the findings of this chapter.

2 Rise and Stagnation of Preserved Export

25

2 Rise and Stagnation of Preserved Export Existing studies described the evolution of Peru’s asparagus production (Marañón 1994; Elías Minaya 1995; Shimizu 2006). White asparagus production for preserved exports began in the La Libertad region on the northern coast of Peru in the 1950s. At that time, mainly small-scale farmers cultivated white asparagus and sold the crop to processing plants in the area through intermediaries. The processing plants produced the preserved asparagus and exported it overseas, mainly to European countries. Because of the agrarian reform in the 1970s, processing plants could not own largescale farms and cultivate asparagus. Instead, they promoted its cultivation among small-scale farmers by providing seeds and credit and shared cultivation techniques in what was known as the out-grower system (Glover and Kusterer 1990).

2.1 Factors for Growth Between 1980 and 1990, asparagus production in Peru increased by 13 times, from 4,400 tons to 58,000 tons, and preserved asparagus export rose by eight times, from USD 3.2 million to USD 26.6 million (Fig. 1). Several factors contributed to this growth (Elías Minaya 1995). The first factor was a changing international market. In the 1970s, Taiwan was the leading producing and exporting region of preserved asparagus (Taiwan Canners Association 1973); however, its production and exports declined rapidly due to the nation’s industrial development. Peru took advantage of the gap between demand and supply of preserved asparagus on the international market. The second factor was the favorable climate and soil in the northern coastal region of Peru. Its temperature is stable throughout the year, with monthly maximum temperatures between 20 and 25 degrees centigrade and minimum temperatures between 14 and 18 degrees. This temperature makes it possible to harvest asparagus twice a year. In addition to the climate, the region’s sandy loam soil is suitable for white asparagus production. With this type of soil, it is easy to mound up soil over the plant, and asparagus grows straight in the mound. The third factor was an agricultural base in the region. Boasting four main rivers, the Chao, the Virú, the Moche, and the Chicama, the La Libertad region was an important agricultural producer in the country. Commercial agriculture, particularly sugarcane and maize production, had developed along these rivers for many years; therefore, farmers could easily obtain capital, inputs, and technical services from local suppliers. In addition to this agricultural base, the industrial base in Trujillo city, the capital of the La Libertad region, contributed to the development of the asparagus industry. Trujillo is one of the major industrial cities in Peru. Because of its proximity to fishing ports, the production of canned tuna was an important local industry. This existing industrial base aided to develop processing plants for preserved asparagus.

26

3 From Preserved to Fresh Export

Finally, the availability of a low-cost labor force was an essential factor in the development of the preserved asparagus industry. Since the 1960s, there has been massive immigration from the Andean highland region to the coastal region. Immigrants were seeking better economic opportunities, and this inflow of immigrants coincided with the increasing demand for the labor force in farms and processing plants. These immigrants worked in farms and plants and constructed houses and villages in the area. The villages further attracted additional immigrants from the highland region.

2.2 Competition with China The export of preserved asparagus stagnated from the mid-1990s (Fig. 1), as Peruvian preserved asparagus faced stiff competition with Chinese products (Shimizu 2009). Among the European countries, Spain has been the principal destination of Peruvian preserved exports. In 2000, more than 60% of the exports went to this market. The competition in the Spanish market demonstrates how Peruvian products competed with Chinese products. Figure 2a and 2b present the trade values and unit prices for Spain’s imports of preserved asparagus from Peru and China. The imports from both countries combined accounted for more than 90% of Spain’s preserved asparagus imports in 2000. In the same year, about two-thirds of Peru’s preserved export went to Spain. During the 1990s, most of Spain’s preserved asparagus imports were froms Peru. Beginning in the mid-1990, Spain started to import preserved asparagus from China. Imports from China surpassed those from Peru in 2005, and China has been the principal supplier of preserved asparagus since then. The price competitiveness of Chinese products explains their dominance in the Spanish market. During the 1990s, the unit value of imports from China was lower than that from Peru by 40%. In the Spanish market and other important markets in Europe, such as Germany and France, Peru’s preserved asparagus lost its market share to cheaper Chinese asparagus.

3 Start of Fresh Export While Peru’s preserved asparagus export stagnated in the second half of the 1990s, its fresh asparagus export gradually grew during the same period. Two factors can explain the growth in the early stage. The first factor was finding a niche in the U.S. market with counter-season production, and the second factor was identifying a new production region favorable to fresh export.

3 Start of Fresh Export

27

a US$ million 120

100 China

Peru

80

60

40

20

2018

2016

2014

2012

2010

2008

2006

2004

2002

2000

1998

1996

1994

1992

1990

0

b US$/kg 4.0 3.5 China

Peru

3.0 2.5 2.0 1.5 1.0

2018

2016

2014

2012

2010

2008

2006

2004

2002

2000

1998

1996

1994

1992

0.0

1990

0.5

Fig. 2 Spain’s preserved asparagus imports (a) and their unit value (b) (Source UN Comtrade)

3.1 Niche Market The production of green asparagus for fresh export began with farmers in the Ica region on the southern coast in the 1980s. With help from the United States Agency for International Development, producers examined new crops, such as melon, paprika, green beans, and asparagus, in the hope of exporting crops to the U.S. market. They chose asparagus, and formed an asparagus producers association called APEI (Asociación de Productores de Espárragos de Ica) to promote its production (O’Brien and Díaz Rodriguez 2004).

28

3 From Preserved to Fresh Export

The reason that farmers chose asparagus was the discovery of a potential niche in the U.S. market (Shimizu 2009). Figure 3a and 3b present U.S. monthly fresh asparagus import in 1990 and 2010. In 1990, the United States imported 19,858 metric tons of fresh asparagus, mainly from Mexico, in January through March. The import between April and June was minimal because these months were the harvest season in the states of Washington and Michigan, principal asparagus producers in the United States. Although the country imported from July through December, the volume was small compared to the imports from January through March. a 7 6 Others

5

Peru

Mexico

4 3 2 1 0 JAN FEB MAR APR MAY JUN

JUL AUG SEP OCT NOV DEC

b 30 25 Others

Peru

Mexico

20 15 10 5 0 JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC

Fig. 3 U.S. fresh asparagus imports in 1990 (a) and in 2010 (b) (Source USITC Data Web)

3 Start of Fresh Export

29

In 2010, the annual import was 171,090 tons. The volume between January and March was large, but the United States consistently imported throughout the year, including during its own harvest seasons. The share of Mexico dropped from 74% in 1990 to 48% in 2010. Most of the imports from May to December were from Peru, whose share increased from 10% in 1990 to 51% in 2010. With the benefit of hindsight, we know that in the U.S. market in 1990, there was unsatisfied demand for fresh asparagus during the months between April and December. Peruvian producers looking for export opportunities at that time identified the potential of this niche market and chose asparagus to meet the demand. As a result, Peru became the most important supplier of fresh asparagus for the U.S. market in 20 years, dominating the market for eight months of the year.

3.2 New Production Regions Until the 1980s, the La Libertad region on the northern coast produced most of the crops for preserved asparagus because the climates on the northern coast was stable throughout the year, which allowed year-round production of white asparagus. However, when fresh export began increasing in the 1990, production in the Ica region on the southern coast started rise. By the second half of the 1990s, production in the Ica region caught up with that in the La Libertad region (Fig. 4). Production in the Ica region grew steadily during the 1990s because the conditions in this region were better suited for green asparagus production. Compared with the La Libertad region, the Ica region has more hours of sunshine, which is essential for the production of high-quality green asparagus. The spring months from September to December are the primary harvest season in the Ica region, which coincides with the U.S. niche market.

180 160 La Libertad

140

Ica

Others

120 100 80 60 40 20 2010

2008

2006

2004

2002

2000

1998

1996

1994

1992

0 1990

Fig. 4 Regional asparagus production in Peru (Source MIDAGRI)

30

3 From Preserved to Fresh Export

4 Growth of Fresh Export Finding a niche in the U.S. market, during the 1990s, the producers in the Ica region started to increase green asparagus production for fresh export; however, it was just the beginning of the development of the FFV industry in Peru. As Fig. 1 shows, fresh export steadily increased until the beginning of the 2000s. Starting in 2002, its growth accelerated and continued for over 10 years. Between 2001 and 2013, the export value of fresh asparagus increased by almost eight times, with an annual growth rate of around 19%. This outstanding growth was possible because of the integration of the value chain for fresh asparagus export (Shimizu 2009). Value chain integration consists of three factors: the entry of agribusiness companies in FFV production, the introduction of technology in the field, and the integration of different stages, from input procurement to sales to supermarkets in the market countries. This integration transformed the flow of goods and information across the different stages in the value chain.

4.1 Entry of Agribusiness in Production Although medium-scale farmers in the Ica region started to produce green asparagus for fresh exports, it was large-scale agribusiness companies that made exports’ outstanding growth possible. As explained in Chap. 2, the economic reforms in Peru during the 1990s allowed corporations to own large-scale farmland. Some business groups in other industries considered this change a business opportunity and invested in agricultural production. Table 1 lists asparagus producers and exporters surveyed in October 2005 (Shimizu 2007). Companies A–D mainly produced and exported fresh asparagus, whereas companies E–G mainly produced and exported preserved asparagus. H–J are individual producers who produced either white or green asparagus and sold it to others. Companies A and C are examples of agribusiness companies founded by business groups in the manufacturing and mining industries. Company A bought large-scale farms in the Ica region that belonged to an agricultural cooperative.1 The cooperative previously produced cotton, but by the 1990s discontinued the cultivation due to a lack of funds. Company A acquired the farm from the cooperative and invested in wells, reservoirs, irrigation equipment, and a packing plant. Company B is one of the pioneers of fresh asparagus export. The company exported asparagus from its own farm and other producers. Company D is a broiler company in the La Libertad region.2 It invested in white asparagus production for preserved export, later shifting to green asparagus production for fresh export. 1 2

An interview with Company A’s general manager in September 2005. An interview with Company D’s general manager in October 2005.

Region

South

South

South

North

A

B

C

D

Category

Fresh asparagus exporters

1989

1998

1987

1995

Start of operation

Agriculture (broiler)

Mining

Agriculture

Manufacturing (pharmaceutical)

Origin of capital

Table 1 Asparagus producers and exporters surveyed in October 2005

700 ha

560 ha

480 ha

1200 ha

Area of asparagus production

From own farm and from medium-sized out-growers who are foreign partners

99% from own farm, 1% from out-growers

Procurement of asparagus

From white 100% from own to green farm

Green

Green

Type of asparagus

Sales on consignment for fresh, and direct sales for preserved

Sales on consignment to the USA and sales with fixed price to Europe (50% each)

Direct sales to the USA and fixed price to England

Principally direct sales

Sales channels

(continued)

Fresh to the USA; preserved to Europe

USA 70%, Europe 30%

Europe 70%; USA 30%

Four years prior, 98% to the USA; now 80% Europe and 20% USA

Destination of exports

4 Growth of Fresh Export 31

North

J

1998

1999

1997

1994

1994

1997

Start of operation

Area of asparagus production

Local asparagus broker

Foreign capital 60%

Agriculture

105 ha

50 ha

85 ha

885 ha

1100 ha

Fisheries, foreign 1500 ha capital 45% (from 2003)

Origin of capital

Source Prepared by the author based on the interviews with companies

North

I

North

G

North

North

F

H

North

E

Preserved asparagus exporters

Producers

Region

Category

Table 1 (continued)

White

From white to green

From white to green

White; minimal green

White

Green 2/3, white 1/3

Type of asparagus Sales on consignment for fresh, and sales on fixed price for preserved

Sales channels

Preserved to Spain, France, and the USA; fresh to the USA

Destination of exports

100% from out-growers, recently started to produce on their own Sales on consignment

No exports

No exports

USA

Preserved to Europe (Denmark) and fresh to North America

65–70% from own Direct sales 1/3; Europe and the farm and the rest sales on USA from out-growers consignment 1/3; sales through distributors 1/3

75%–80% from own farm, the rest from large-size (250–300 ha) and medium-size (30–50 ha) out-growers

Procurement of asparagus

32 3 From Preserved to Fresh Export

4 Growth of Fresh Export

33

The companies that exported preserved asparagus on the northern coast began to dedicate a portion of production to fresh export. Company E is one of the most important preserved asparagus exporters in Peru.3 A prominent local business group in the fishery sector acquired a food processing plant that was procuring white asparagus from local producers. When the government completed the CHAVIMOCHIC irrigation project,4 the company acquired large-scale land in the project and invested in production to procure raw material from its own farm. Facing the surge of demand for fresh asparagus, Company E shifted two-thirds of its production from white to green asparagus. The company also procured from other producers, like Producer I, which previously produced white asparagus but switched to green asparagus. Companies F and G,5 which were the principal exporters of preserved asparagus, also acquired large-scale land in the irrigation project. Their production of fresh export was minimal at the time of the survey; however, both companies increased the production of fresh exports after this time. As these examples demonstrate, by acquiring large-scale farmland, agribusiness companies became the principal actors of asparagus production for fresh export.

4.2 Introduction of New Technologies Agribusiness companies were very active in investing in new technologies in the field to produce larger volumes of high-quality asparagus. Some relevant examples of new technologies are drip irrigation, hybrid seeds, and professional management (Shimizu 2009).6

4.2.1

Drip Irrigation

In the coastal region, where asparagus is produced in Peru, there is almost no rainfall. Irrigation is indispensable for any agricultural production. Farmers can obtain water either from rivers or wells. Using water from rivers requires payment for hours of use. Use of water from wells requires payment for the energy to pump it up. In any case, water is a scarce resource, and it is critical to use it efficiently. Small-scale white asparagus farmers employed a surface irrigation system in which water flowed into furrows in the fields. Because a large amount of water was absorbed by the soil prior to reaching the plants, this irrigation method was inefficient. 3

An interview with Company E’s administration and finance manager in October 2005. CHAVIMOCHIC is one of the principal national irrigation projects in the La Libertad region. See Chapter 2 for details. 5 An interview with Company F’s general manager and Company G’s director/manager in October 2005. 6 The information about new technologies in the field is based on field visits to agribusiness companies in September and October 2005. 4

34

3 From Preserved to Fresh Export

With this system, it was difficult to adjust watering amount and timing, and weeding was crucial. Agribusiness companies introduced drip irrigation systems in their farms. When acquiring large-scale farmland, a reliable water source was first secured. In the Ica region, drilling a new well was strictly controlled by local regulation; therefore, agribusiness companies acquired farms with existing wells and reactivated them, building reservoirs to stock water. In the CHAVIMOCHIC irrigation project area in the La Libertad region, the farms came with water supplied through underground pipes. The agribusiness companies built pumping stations with filters and pumps controlled by computer systems. They also installed drip irrigation tubes in fields to deliver water directly to the plants. Drip irrigation systems have several advantages over traditional surface irrigation systems. First, the amount of water used in drip irrigation is minuscule compared with surface irrigation. Second, by mixing liquid fertilizers into the water, producers can save the labor of applying fertilizers in the field. Third, by adjusting the amount and timing of watering, it is possible to control plants’ growth. Finally, because only the crops receive water, there is a minimal amount of weed growth, so weeding is unneeded. The initial cost to install a drip irrigation system was around USD 4,000–5,000 per hectare. Because a reservoir and a pumping station serve many hectares, the larger the production scale, the lower the cost per hectare. Because of economies of scale, agribusiness companies with larger farms have the advantage of saving on irrigation costs.

4.2.2

Hybrid Seeds

The first generation (F1) hybrid seeds can bring homogenous high-quality and highyield harvest because of heterosis or hybrid vigor. Harvested asparagus is classified based on length, diameter, straightness, color, and tip condition. High-quality asparagus is exported as fresh asparagus and receives a high price. Low quality asparagus is processed or frozen and receives a lower price. The investment in hybrid seeds is rewarding, though the high initial cost can be a hurdle. Most small-scale farmers on the northern coast used asparagus seeds that were obtained from their fields or their neighbors. Some farmers purchased second generation (F2) hybrid seeds from local stores. The harvest from F2 was not as good as that from F1, but the price was around USD 80 per hectare. In contrast, agribusiness companies use F1 hybrid seeds imported from the United States. They cost around USD 750 per hectare. Although F1 was extremely expensive compared to F2, the initial investment pays off in the long run because asparagus is a perennial plant for close to 10 years.

4 Growth of Fresh Export

4.2.3

35

Professional Management

Many small-scale farmers in Peru have limited education, and only finished primary education. Only a few farmers completed secondary education. Because the government eliminated most public extension services during the neo-liberal economic reforms of the 1990s, it was difficult for small-scale farmers to improve their cultivation practices. They learned how to produce asparagus by watching their neighbors. When agribusiness companies started asparagus production, they invited specialists from the United States to seek advice, experimenting with several varieties and choosing one that most suited the area. At the same time, agribusiness companies hired agronomists with university educations as production managers, who managed all production processes, including preparation of seedlings, implantation in fields, control of drip irrigation, application of fertilizers and agrochemicals, and harvesting. One of the production managers’ tasks is to control pests and diseases. Because asparagus production increased rapidly and was concentrated in limited areas on the northern and southern coast, the proliferation of certain pests and diseases became a serious problem. Many farms introduced integrated pest management, using preventive measures and biological controls with beneficial insects. Production managers often participate in technical seminars to stay updated on the latest production and management techniques.

4.3 Integration in the Value Chain In addition to investing in large-scale farms and new technologies, agribusiness companies integrated different stages of the fresh export value chain, such as production, packing, and export. This integration connected supply with demand, making the outstanding growth of fresh asparagus export possible. Compared with the preserved export value chain, integration in the fresh export value chain is notable. Figure 5 compares the structure of two value chains. Until the 1990s, the value chain of preserved asparagus exports consisted of producers, intermediaries, and processing plants. The value chain was not integrated, and transactions among actors were based on spot markets. Small and mediumscale producers grew asparagus using non-hybrid seeds and conventional surface irrigation. Intermediaries visited these producers, and purchased their harvest through spot sales. They washed and classified the asparagus, delivering it to processing plants. The processing companies washed, branched, bottled asparagus, and shipped it via maritime transport to importers and distributors in European countries. When some producers began exporting fresh asparagus from Peru, they used the same value chain of preserved asparagus; however, they faced some challenges. One of these was quality deterioration in transit. In the case of preserved asparagus, intermediaries collected asparagus from several producers, taking more than several

36

3 From Preserved to Fresh Export

Fig. 5 Value chains of asparagus exports (Source Prepared by the author based on continuing research)

hours for delivery to processing plants. This lapsed time was not a problem for preparing preserved products because asparagus only had to maintain freshness until it reached the processing plant. Once it was branched and bottled, the product could last for an extended period. In the case of fresh asparagus, it must maintain freshness until reaching final consumers. The value chain of preserved asparagus was unable to fulfill this function. The other challenge was the certification and traceability of asparagus. Due to growing consumer concerns regarding food safety, environmental protection, and workers’ welfare, in 1997, a European supermarket group set up a standard called the EUREPGAP (Euro-Retailer Produce Working Group Good Agricultural Practice). The buyers of these supermarkets began to require their suppliers to obtain EUREPGAP7 certification. Furthermore, buyers wanted information about crop production, including the application of fertilizers and agrochemicals. 7

EUREPGAP changed its name to GLOBALGAP in 2007, and has now been introduced in more than 135 countries as an independent certification system for good agricultural practice (GLOBALG.A.P. website, globalgap.org/uk).

4 Growth of Fresh Export

37

The preserved asparagus value chain could not fulfill the request from European supermarkets because small-scale producers could not afford the certification costs. Although some medium-scale producers could obtain the certification, as long as intermediaries collected from many producers, the exporters were unable to maintain the traceability of asparagus. Agribusiness companies integrated the value chain. Because of this integration, the companies were able to improve logistics, obtain certification and traceability, and achieve the planned production.

4.3.1

Improving Logistics

By integrating different stages in a value chain, from production to export, or from farms to the airport, agribusiness companies minimized the quality deterioration of fresh asparagus (Figure 5, improving logistics). They built packing plants next to their farms to minimize transportation time. On farms, collectors circulated to pick up the harvests, delivering them to the packing plant within an hour. At the plant, workers washed, classified, bundled, and packed asparagus in boxes before storing them in a cold storage warehouse. The next morning, the asparagus is transported to the international airport in Lima, and shipped to U.S. and the European markets. By reducing time from farms to the airport, agribusiness companies avoid quality deterioration and extend the shelf life of fresh asparagus.

4.3.2

Obtaining Certification and Traceability

The integration of different stages helped agribusiness companies obtain certifications and maintain traceability (Figure 5, obtaining certifications). To obtain certifications in production and processing, agribusiness companies invested in farms’ and plants’ hardware and software. They prepared infrastructure for proper maintenance of agricultural machinery and equipment, safe storage and handling of agrochemicals, and the adequate welfare of workers, including dining facilities and bathrooms. They also established procedures and information systems for the planning, execution, and evaluation of production, processing, and delivery. All work in the farms and plants are programmed and executed by a section of a farm called a lot. The companies prepare an information system to keep track of production and processing records by lot. This system enables companies to maintain crops’ traceability (Figure 5, preserving traceability). Through these efforts, agribusiness companies are able to obtain certifications such as GAP (Good Agricultural Practice) for farms, and GMP (Good Manufacturing Practice) and HACCP (Hazard Analysis and Critical Control Point) for packing plants. These certifications are periodically renewed.

38

4.3.3

3 From Preserved to Fresh Export

Planning Production

As production and export volumes grew, agribusiness companies sought to change sales channels from indirect sales through brokers to direct sales to supermarket chains. Direct sales allowed companies to plan production, improve operational efficiency, and increase products’ value-added. In the earlier stage of the fresh exports, medium-scale producers exported through brokers with consignment sales. The producers consigned their crops to brokers, and the brokers looked for buyers, set the price, and sold them. Brokers paid the sales to the producers after deducting their commissions. In this arrangement, producers had little information about the buyers or the market. Because market price fluctuated depending on market conditions, producers could not predict the total sales in advance. Instead of consignment sales through brokers, agribusiness companies sought direct sales. In direct sales, the agribusiness companies look for buyers, such as supermarket chains, in market countries, negotiating directly with buyers. They sign sales contracts specifying quality, quantity, price, and delivery time. In some cases, supermarket chains specify the packing material with their brand name. Direct sales to supermarket chains offer advantages for agribusiness companies. The first is production planning (Figure 5, production planning). Because they know how much asparagus must be shipped each week, they can plan their production, including field preparation, irrigation, inputs, personnel, facilities, and transportation, which allows for improvements in operational efficiency. The second is price stability. In general, such contracts fix the sales price, which may not be as good as the peak price in the market; however, the contract guarantees a minimum price if the market experiences a price drop, with which the agribusiness companies can avoid loss. The third is access to market information. Direct sales with contracts can lead to fixed relationships between agribusiness companies and the supermarket chains. The information shared between two actors flows before and after crop transfer. This information is valuable for agribusiness companies to improve operations and raise product value. For example, one supermarket claimed that the weight of a bunch of asparagus was a little less than specified in the contract. The companies calculated the evaporation of water and adjusted the weight to meet the specification.8 With market trend information, agribusiness companies can prepare shipments to fit the market demand.

8

This information is based on the interview with the general manager of an agribusiness company in September 2005.

5 Conclusion

39

5 Conclusion This chapter described the evolution of Peruvian asparagus exports, focusing on the outstanding growth of fresh exports. The country started with the export of preserved asparagus. Because of the favorable conditions, the country became one of the principal exporters of preserved asparagus for the European market. Its climate, soil, labor force, and industrial base helped the country supply high-quality preserved asparagus for a competitive price. However, after China started expanding its export, the competition in the European market increased, and Peruvian export stagnated. Meanwhile, fresh export gradually increased in the 1990s. Medium-scale producers in the south started fresh export, followed by preserved asparagus processing companies in the north; however, they were unable to meet buyers’ expectations in terms of quality, certification, and traceability. Fresh export started to rapidly increase in the 2000s, following the entry of agribusiness companies. They invested in large-scale farms with cutting technologies, drip irrigation, hybrid seeds, and professional management. By integrating production, packing, and export, agribusiness companies improved logistics to maintain the freshness of produce. As required by supermarket chains’ buyers, they could obtain and renew certifications for the farms and plants and maintain traceability from farms to the airport. In addition, direct sales to supermarket chains allowed agribusiness companies to improve operational efficiency and add more value to their products. This value chain integration has two important implications in the development of the FFV export industry in Peru. The first is the transformation of the business model. The business of preserved asparagus export was based on a product-out model. The country exports what it can produce better. In this business model, other countries with more favorable conditions can easily replace Peru, as China did. In contrast, fresh asparagus export is based on a market-in model in which the country produces what consumers want. To produce, process, and deliver fresh asparagus, agribusiness companies had to integrate value chains. Other countries cannot imitate it easily. The second implication is upgrades of agribusiness companies in the value chain. In the early days of preserved asparagus export, small and medium-scale producers were unable to invest in new technologies. In addition, each actor in the value chain had a limited function: production, assembling, processing, marketing, exporting, and distributing. For fresh asparagus exports, agribusiness companies invested in new technologies in the field and in plants. Furthermore, they expanded and integrated activities from production to export. With this integration, agribusiness companies achieved three kinds of upgrades: process, product, and functional upgrades. The introduction of new technology enabled improvements of both yield and quality. Planning production allowed them to produce according to the orders, including packing with retailers’ branded packaging materials. These are process and product upgrades explained in Chapter 1. Engaging in marketing activities in market countries increased overall margins from FFV exports. This is a functional upgrade.

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3 From Preserved to Fresh Export

This case study demonstrates that although FFV export is based on agricultural export, it differs from the traditional primary export. Asparagus is not physically processed, but it is a value-added product. The value is the availability of high-quality fresh produce throughout the year at a reasonable price. By integrating different stages of the value chain, agribusiness companies are producing this value, and the growth of agribusiness companies has led to the rapid development of Peru’s FFV export industry.

References Elías Minaya JF (1995) Los campesinos y la agro-industria del esparrago en el Valle de Viru. Universidad Nacional de Trujillo, Trujillo Glover D, Kusterer K (1990) Small farmers, big business. St. Martin’s Press, New York. https://doi. org/10.1007/978-1-349-11533-4 MacDonald JM, Korb P (2011) Agricultural contracting update: contracts in 2008. Economic Information Bulletin, vol 72. United States Department of Agriculture, Washington, DC Marañón B (1994) Obreros en la indusria esparraguera: Valle de Chao-Virú e Ica. Debate Agrario 17:27–52 O’Brien TM, Díaz Rodriguez A (2004) Mejorando la competitividad y el acceso a los mercados de exportaciones agrícolas por medio del desarrollo y aplicación de normas de inocuidad y calidad: El ejemplo del espárrago Peruano. IICA (Instituto Interamericano de Cooperación para la Agricultura), Lima Shimizu T (2006) Expansion of asparagus production and exports in Peru. IDE-JETRO Shimizu T (2007) Structural change in the supply of asparagus from Peru (in Japanese). In: Hoshino T (ed) The rise of new primary export economies in Latin America: structure and strategy (in Japanese). IDE-JETRO, Chiba Shimizu T (2009) Structural changes in asparagus production and exports from Peru. IDE Discussion Paper. IDE-JETRO, Chiba. http://hdl.handle.net/2344/843 Taiwan Canners Association (1973) Taiwan exports of Canned Food 1972. Taiwan Canners Association, Taipei

Data Sources Global Trade Atlas https://connect.ihsmarkit.com/gta/home MIDAGRI (Ministerio de Desarrollo Agrario y Riego) Sistema integrado de estadísticas agrarias. https://siea.midagri.gob.pe/portal/, https://siea.midagri.gob.pe/portal/index.php/sistemas-inform acion UN Comtrade (United Nations International Trade Statistics Database) https://comtrade.un.org/ USITC DataWeb (the United States International Trade Commission trade and tariff data) https:// dataweb.usitc.gov/

Chapter 4

Diversification of Export Crops

1 Introduction The rapid growth of fresh asparagus export during the 2000s marked the beginning of Peru’s fresh fruit and vegetable (FFV) export as an industry. Following asparagus, exports of grapes, avocados, blueberries, and other crops significantly increased during the 2010s (Fig. 1). With this diversification, Peru has become one of the leading FFV exporters in the world. According to the data from FAOSTAT, in 2019, Peru was the No. 1 exporter in blueberries, No. 2 in asparagus, No. 3 in avocados, and No. 5 in grapes and mangoes.1 The leading actors in the development of the FFV export industry in Peru are agribusiness companies. After integrating the different stages of the value chain and increasing fresh asparagus exports, they began diversifying export crops. The strategy was initiated to overcome problems associated with the seasonality and uncertainty of agriculture. This diversification helped them stabilize and expand businesses and transformed the FFV export industry into one of the most promising sectors in the Peruvian economy. This chapter analyzes the diversification of export crops from two perspectives. The first is due to problems of seasonality and uncertainty and challenges in managing labor, and production and sales risks. By diversifying export crops, agribusiness companies have been trying to overcome these problems. The first part of this chapter analyzes business strategy focusing on the supply side. The second is identifying and adjusting to demand. Overcoming challenges on the supply side is not sufficient for agribusiness companies’ expansion. They needed a strategy on the demand side. The international market for FFVs is extremely competitive. In Latin America only, there are other major FFV exporters such as Mexico and Chile. They export FFVs mainly to niche markets in North America, taking 1

Peru’s ranking as a net export could be higher than these positions because the Netherlands, an important re-exporter in Europe, ranks above Peru in exports of avocados, mangoes, and grapes.

© Institute of Developing Economies, Japan External Trade Organization (IDE-JETRO) 2022 T. Shimizu, The Growth of the Fruit and Vegetable Export Industry in Peru, SpringerBriefs in Economics, https://doi.org/10.1007/978-981-16-9629-9_4

41

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4 Diversification of Export Crops

million USD 1,000 asparagus

900

avocados

800

mangoes

700

citrus fruit

600

grapes

500

bluberries

400 300 200 100

2019

2018

2016

2017

2015

2014

2012

2013

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

0

Fig. 1 Peru’s principal FFV exports (Source Global Trade Atlas)

advantage of early harvest and counter-season production. Peruvian agribusiness companies were obliged to identify potential demand among niche markets. The second part of this chapter analyzes business strategy focusing on the demand side. This sector’s analysis is based on interviews with agribusiness companies’ executives in Peru from 2012 to 2016. Some information was updated with information on companies’ websites. Information about international trade was obtained from statistical databases such as FAOSTAT, UN Comtrade, Global Trade Atlas, and USITC Data Web.

2 Overcoming Seasonality and Uncertainty Agriculture is an industry characterized by fluctuation. Demand for labor, equipment, and facilities fluctuates depending on the season. Production volumes and market prices fluctuate depending on climate, pests and diseases, and the balance of supply and demand in the market. Peruvian agribusiness companies have been successful in increasing fresh asparagus export; however, as they expanded the scale of operations, these fluctuations became obstacles to their growth.

2 Overcoming Seasonality and Uncertainty

43

An argument in agricultural economics asserts that seasonality is the main feature that distinguishes farm organizations from organizations in other sectors (Allen and Lueck 2003). In each stage of the production cycle, from land preparation to harvest, producers perform different tasks. They also engage in related agricultural activities, such as obtaining credit for inputs prior to production and marketing harvests following production. Because there are many kinds of tasks, and producers perform each one of them only for a short time period, at a certain time of the year, the benefit such of specialization is limited. Additionally, labor demand varies depending on the season. During peak seasons, like planting and harvesting, labor demand is high. During slack seasons, such as between planting and harvesting, and after harvesting and before planting the following year, labor demand is low. Because of this seasonality, it is difficult for large-scale agribusiness companies to manage their labor forces. Hiring permanent workers to cover all farm work is too costly because some workers do not have work to do during the slack seasons; therefore, agribusiness companies usually hire temporary workers during peak seasons. However, the search and training expenses of temporary workers are costly as well. Companies needed a solution to overcome this problem that originates from seasonality in agriculture. Uncertainty of production is another factor that makes agribusiness companies more vulnerable (Iguni 2014). There may be a poor harvest because of abnormal weather conditions or outbreaks of pests and diseases. In such cases, agribusiness companies cannot maintain their labor force because they are unable to pay workers due to the poor harvest. Peruvian agribusiness companies exporting FFVs have overcome the disadvantages originating from seasonality and uncertainty through diversifying export crops from asparagus to other crops, such as grapes, avocados, and blueberries. Examining three such cases of diversification aids the understanding of how they coped with these problems.

2.1 Cases of Crops Diversification Case 1 Camposol2 Camposol is the largest FFV exporter in Peru, founded in 1997 through an investment from the fishery sector. The company acquired 2,300 ha of land at the large-scale national irrigation project in the La Libertad region on the northern coast. It also acquired other farmland in the Piura region in 1998 and a tomato processing plant in La Libertad in 1999. To increase its operation, the company accepted Spanish capital investment in 2003. In the beginning, the main export product of the company was preserved white asparagus. The company also exported other preserved vegetables, such as bell 2

Based on an interview with the administration and finance manager in October 2005, farm visits in La Libertad in February and November 2012, and interviews with commercial director in October 2012 and August 2016.

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4 Diversification of Export Crops

peppers and artichokes. In 2005, the company had 9,500 ha in total (6,900 ha in La Libertad and 2,600 ha in Piura). On this land, the company was producing asparagus (1,500 ha), avocados (800 ha), bell peppers (550 ha), artichokes (400 ha), and leeks (50 ha) in La Libertad, and mangoes (500 ha) in Piura. Its sales were composed of asparagus (55%, 2/3 preserved and 1/3 fresh), preserved bell peppers (15%), preserved artichokes (13%), fresh avocados (12%), and fresh mangoes (5%). It mainly exported preserved white asparagus to Spain and France and fresh green asparagus to the United States. By 2012, the value of fresh asparagus exports surpassed that of preserved exports. In 2015, the company produced avocados (2,600 ha), asparagus (2,400 ha), mangoes (450 ha), and bell peppers (330 ha). It also added new crops, such as grapes (450 ha), blueberries (200 ha), and oranges (100 ha). After this, the company replaced asparagus with blueberries for crop rotation and higher margins. In 2019, the total planted area was 8,925 ha, of which, 4,410 ha was for avocados and 2,559 ha for blueberries.3 Case 2 TALSA4 Grupo Rocio, a poultry and dairy company on the northern coast, founded TALSA as its FFV division in 1989. At the end of the 1980s, the company introduced a drip irrigation system from Israel to Peru to produce crops in a desert area in the La Libertad region. With this technology, TALSA began producing white asparagus in 1990. By 1994, production expanded to 200 ha and a processing plant was built to produce preserved asparagus for the European market. In the large-scale national irrigation project (CHAVIMOCHIC project), the company acquired 490 ha in 2001 and 1,900 ha in 2004. In the middle of the 2000s, TALSA switched its primary export from preserved asparagus for the European market to fresh asparagus for the U.S. market. The company began to diversify crops to avocados in 2005 and blueberries in 2011. In 2011, the production area was 700 ha each for asparagus and avocados, and 125 ha for blueberries. The company was experimenting with several blueberry varieties to find one that fit the local soil and climate conditions. In 2016, 1,000 ha were allocated for blueberries, 700 ha for avocados, and 550 ha for asparagus. To expand the blueberries business, an alliance was forged with Hortifrut, a Chilean company specialized in the production and export of berries. Case 3 Agrokasa5 While the first two companies are based on the northern coast and started their business with preserved asparagus, Agrokasa is based on the southern coast and 3

The company’s 2019 annual report is available at the following website. https://ml-eu.globen ewswire.com/Resource/Download/850f7f41-9765-4958-9fe7-b9e3aa0f8a80 (viewed in October 2020). 4 Based on interviews with the CEO in October 2005, September 2006, November 2012, August 2016, and October 2018 and a farm visit in November 2012. 5 Based on interviews with the CEO in September 2005 and August 2015 and a farm visit in October 2005.

2 Overcoming Seasonality and Uncertainty

45

specializes in producing and exporting fresh produce. It is a subsidiary of a national pharmaceutical company. Agrokasa first acquired 200 in the Ica region in 1995 and then 1,200 ha in 1997. In 2005, it acquired 2,300 ha in the Lima region. From the beginning, the company only produced for fresh export, planting 95 ha of grapes and 73 ha of asparagus. Agrokasa started to produce two crops with different harvest seasons to more efficiently use its packing plant. Initially, they mainly exported fresh asparagus because they knew more about its production and market. When airfreight cost rose in the middle of the 2000s due to high fuel prices, they shipped fresh asparagus through marine transport. Simultaneously, they began to increase the production of table grapes, which were also shipped through marine transport. In 2015, its production scale was 944 ha for avocados, 905 ha for asparagus, and 451 ha for grapes. They were also beginning to produce blueberries in 150 ha, like other agribusiness companies. In 2019, the total production area was 2,239 ha (avocados 1,227 ha, grapes 433 ha, asparagus 432 ha, and blueberries 147 ha).6

2.2 Strategy for Crop Diversification These agribusiness companies have been diversifying export crops to cope with the seasonality and uncertainty of agriculture. There are three channels through which they can gain competitiveness with such diversification: leveling demand for labor and facility, sharing existing assets with new crops, and reducing uncertainty in the production and market.

2.2.1

Leveling Demand

Managers in the agribusiness companies often mentioned that sustaining demand for labor and facilities was critical. Because of the seasonality of agricultural production, demand for labor and facilities varies from season to season. Additionally, FFV exports from the southern hemisphere often target a narrow temporal niche market in the northern hemisphere. Therefore, harvest, packing, and shipping are concentrated in short periods of the year. Producers can harvest fresh green asparagus throughout the year, except in February and March. However, the market niche in the United States for Peruvian fresh green asparagus is limited to four months, from September to December, after the domestic harvest in the United States and before the Mexican harvest. The seasonal variation in demand for labor and facilities is costly for agribusiness companies. As to the labor force, the companies have to hire temporary workers for harvest and packing in every peak season, bearing both search and training costs. In addition, when Peru enjoyed an economic boom between the second half of the 6

According to the company’s website: https://www.agrokasa.com/en/ (viewed on October 2020).

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4 Diversification of Export Crops

Table 1 FFV harvest seasons in Peru Months Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Asparagus Grapes Crops

Avocados Blueberries Mangoes Citrus fruit Pomegranates Peppers

Note Peak and secondary harvest months are marked with dark and light shades, respectively Sources Elaborated by the author based on information on the corporate websites of Agrokasa, Camposol, and Damper

2000s and the first half of the 2010s, the labor force demand of other sectors was high. To secure enough workers with temporary contracts, agribusiness companies offered better wages than other sectors. As to facilities, agribusiness companies need to invest in packing plants and refrigerated warehouses with enough capacity to accommodate FFVs in peak seasons. These facilities were underutilized during non-producing seasons. Such investment is very costly for the companies. To overcome the seasonality problem, agribusiness companies have been seeking crops that will allow them to sustain demand for labor and facilities. Table 1 presents the harvest seasons for principal export crops in Peru. The peak harvest months for fresh asparagus are between September and December; therefore, agribusiness companies sought crops with peak seasons in other months of the year. In Peru, most of the production zones for FFV export crops are located in the coastal regions with minimal rain and stable temperatures throughout the year. Drip irrigation in dry weather makes it possible to adjust harvesting seasons to a certain extent by controlling irrigation. With the introduction of grapes and avocados, peak harvest months are extended from four to eight months of the year. By sustaining labor demand, agribusiness companies can hire more permanent labor rather than temporary labor, saving the search and training expenses for temporary labor. The companies also have more incentive to invest in training permanent labor to improve productivity. By sustaining demand for facilities, the companies can reduce facilities’ idle time. The high use of facilities throughout the year can reduce packing, storage, and refrigeration expenses per unit of production.

2 Overcoming Seasonality and Uncertainty

2.2.2

47

Sharing Assets

Because many existing assets in farms and plants can be used for other crops, diversification allows agribusiness companies to use them more efficiently. The existing assets include tangible assets, such as irrigation equipment, machinery, and packing and refrigeration facilities. For example, irrigation equipment, such as water pumps, filters, and controllers, are the same for many crops; just the types of tubes used in the field can differ, depending on the crops. In packing plants, companies only need to modify packing lines and refrigeration warehouses to accommodate different crops. Additionally, intangible assets, such as knowledge and skills to introduce new crops and marketing channels can be shared. When companies introduce new crops, they invite consultants from overseas, conduct cultivation tests with different varieties and different irrigation patterns, and choose commercial production cultivars. Although each crop has different characteristics, the know-how to introduce new crops is similar for any crop. With respect to marketing channels, Peruvian companies generally sell their produce to clients such as brokers, importers, and retailers in market countries. These clients are seeking stable supplies of a variety of products throughout the year; therefore, the companies can easily sell new crops to the same clients. Additionally, if agribusiness companies can supply not just one crop for a few months of the year, but several kinds of crops for many months of the year, negotiation power with clients would improve, and they may obtain better contract terms for their crops.

2.2.3

Reducing Uncertainty

Crop diversification also helps to reduce uncertainty in production and sales for agribusiness companies. Uncertainty of production may originate from abnormal weather and an outbreak of pests and diseases. The weather in the Peruvian coastal regions is relatively stable, with mild temperatures and minimal rain. However, weather abnormalities have occurred in recent years. El Niño in 2017 brought heavy rain to the northern coastal regions. As a result, grape production in the Piura region dropped from 278,000 tons in 2016 to 167,000 tons in 2018, representing around a 40% drop in two years (MIDAGRI). The heavy rain from El Niño also caused severe damage to road infrastructure in the regions, which interrupted the transportation of FFVs for export. Large-scale production of a single crop is also vulnerable to outbreaks of pests and diseases; an outbreak can lower production. The use of agrochemicals to control them increases production costs, and raises food safety concerns due to pesticide residue. Agribusiness companies try to reduce production uncertainty by cultivating multiple crops in more than a few regions. Uncertainty of sales originates from price variations in the international market. Peruvian agribusiness companies try to take advantage of high prices in FFV niche markets. In a niche market, prices can fluctuate widely depending on the balance of

48

4 Diversification of Export Crops

supply and demand. For example, supply concentration can cause market saturation, leading to a significant price drop. By selling multiple crops in multiple markets, such as Europe, North America, and Asia, agribusiness companies can mitigate a negative effect in one market. The diversification of means of transportation is another way to cope with uncertainty. During the commodity boom from the second half of the 2000s and the first half of the 2010s, air transportation expenses for fresh asparagus increased due to high fuel prices. To reduce this transportation cost, agribusiness companies attempted two approaches. One is shipping fresh asparagus via marine transport with a controlled atmosphere technology that delays deterioration. The other is identifying other crops that companies can be shipped sea transport; avocados and grapes matched this criterion.

3 Seeking Gaps in Niche Markets Agribusiness companies have been proactively diversifying crops to overcome the challenges related to seasonality and uncertainty in agriculture. However, prior to diversifying export crops a market for each crop must be identified. To increase the FFV export, companies seek to identify niche markets and supply the produce to target them. With increased international trade of FFVs, finding such niches is becoming more difficult. When Peruvian agribusiness companies were seeking market opportunities to diversify export crops, they confronted intense competition in the international market. For grapes, Chile was the leading supplier in the northern hemisphere’s counter-season niche market. There are also other competitors in the southern hemisphere, such as South Africa and Australia. For avocados, Mexico is the world’s No. 1 producer and the leading supplier for the U.S. market, with a share of 88% in 2019. To diversify export crops, Peruvian agribusiness companies needed to find a niche in the niche market. This book refers to this as a gap in the niche market. By finding gaps in niche markets, the companies were able to diversify export crops. Two types of gaps were identified: temporal gaps and geographical gaps. By analyzing exports of avocados, blueberries, and grapes, the following sections demonstrates how Peruvian companies took advantage of gaps in niche markets.

3.1 Geographical Gaps Peruvian agribusiness companies first targeted geographical gaps. Because the primary market for Chile and Mexico is the United States, Peruvian companies looked for other markets. One is European countries, mainly the Netherlands, the United Kingdom, and Spain, and the other is China, including Hong Kong. In the United States, they also found a gap in the northeastern part of the country.

3 Seeking Gaps in Niche Markets

49

As for table grapes, the production for fresh exports in Peru began to increase at the beginning of the 2000s. For the first few years, the principal destination of grapes was China through Hong Kong. In 2002, 39% of Peruvian grape export by volume went to Hong Kong. Other destinations were the United States (27%) and United Kingdom (18%) (UN Comtrade). Later, European countries became the principal destination. In 2012, 38% of Peruvian grape exports went to Europe, including the Netherlands, Russia, the United Kingdom, and Spain. Finally, after the second half of the 2010s, Peruvian grapes penetrated the United States, and it became the principal destination. As for avocados, Peru has been the leading supplier for the European market. The country could not export to the United States because the U.S. government banned avocado import from Peru for phytosanitary reasons. Following the Peruvian public and private sectors’ efforts, the U.S. government lifted the import ban in 2011 (Chapter 5). Since then, Peruvian agribusiness companies had been trying to penetrate this market. The United States is the largest consumer and importer of avocados. In 2019, the United States imported 45% by volume of world avocado exports, with domestic production supplying 14% of the U.S. market and import supplying 86%. Among the U.S. import, 88% by volume came from Mexico. Peru was the second largest supplier of avocados to the U.S. market, at 8% (UN Comtrade). Although Peru’s overall avocado import share in the U.S. market is small, its share in the ports of the east coast (Philadelphia and New York) is 83%. Most of the avocado production inside the country is in California, and most Mexican avocados are imported through the Mexican border by land; therefore, there is plenty of avocado supply in the western and southern parts of the country. In contrast, major northeast cities are very far from California and the Mexican border. Because long-distance land freight is generally costlier than maritime freight, Peruvian avocados can compete with Mexican ones in the northeastern cities of the United States (Shimizu 2016).

3.2 Temporal Gaps In addition to geographical gaps, Peruvian FFV producers sought temporal gaps for potential new markets. In every season of the year, there are a few principal exporters in the international grape market. From August to November, fall in the northern hemisphere, Italy and the United States are principal suppliers. Between March and May, fall in the southern hemisphere, Chile is the largest supplier. What Peruvian companies have been trying to do is to fill a supply gap among these major exporters. Being located in the southern hemisphere, the main harvest season for grapes in Chile and Peru is in March. Because the potential markets for table grapes are the same, the United States, Europe (the Netherlands and the United Kingdom), and Asia (China, South Korea, and Japan), Peruvian companies needed to differentiate their produce from Chilean grapes; therefore, they tried to export earlier than Chilean

50

4 Diversification of Export Crops

million USD 900 Chile

Peru

USA

Italy

South Africa

800 700 600 500 400 300 200 100 0 Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Fig. 2 Monthly grape export from top 5 exporters (2019) (Source UN Comtrade)

exporters. Figure 2 shows monthly grape export from the world’s top five exporters.7 Chile mainly exports from February through May, with its peak in March and April, whereas Peru exports from November to January with its peak in December and January. By filling a gap between exports from the northern hemisphere (the United States and Italy, from August to November) and the southern hemisphere (Chile, from February to May), Peru increased its grape export to U.S. and European markets. The peak of export differs from the traditional peak of harvest in Peru, as a result of the efforts of Peruvian companies to adapt to the demand in the international market. Figure 3 presents monthly regional grape harvests in Peru. The top two grape producers, the Ica and Piura regions, produce 72% of national production. The producers in Ica harvest between December and March, whereas the producers in Piura harvest between October and December. As mentioned in Chapter 2, grape production in Piura recently began at the end of the 2000s. The region is located in the northern part of Peru, at 2 to 4 degrees south latitude, and has a dry tropical climate throughout the year. Grape production in a dry tropical climate was new in Peru. The producers in Piura introduced cultivation techniques from their counterparts in Petrolina, one of the centers of tropical grape production in Brazil. In the Piura region, they produce table grape varieties common in the international market, such as Red 7

According to UN Comtrade, the top five exporters in terms of value are Chile, Peru, the USA, Italy, and South Africa. FAOSTAT data lists China instead of South Africa.

3 Seeking Gaps in Niche Markets

51

1,000 MT 160 140 120 Ica

Piura

100 80 60 40 20 0 Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Fig. 3 Monthly regional grape harvest in Peru (2019) (Source MIDAGRI)

Globe, Thompson Seedless, Crimson Seedless, and Superior Seedless. Production was programmed to concentrate the harvest between October and January when there is a supply gap in the international market.8 Blueberry exports are another example of filling a temporal gap in a niche market. Globally, Canada and the United States have been the leading producers of the crop. In the United States, blueberry consumption grew much faster than production. The country began to import the fruit on a large scale from the end of the 2000s. Chile took advantage of this opportunity, starting to produce and export blueberries to the U.S. market. Within a few years, Chile became the leading exporter of blueberries (Figure 4). Peruvian producers followed Chilean producers, starting to produce blueberries on an experimental basis as early as 2011. They knew that Chile was exporting blueberries to the U.S. market between November and January, and Peru could fill the gap in September and October.9 Figures 5a and 5b present the origins and value of U.S. blueberry imports in 2015 and 2019. In 2015, Canada, Argentina, and Chile were major suppliers in the months from September to December. By 2019, Peru had replaced these countries. In terms of value, Peru became the largest supplier 8

From an interview with an agronomist at a grape farm in Piura, Peru, October 2018. From an interview with the CEO of an asparagus exporting company in Trujillo, Peru, November 2012.

9

52

4 Diversification of Export Crops

300

250 Canada

Chile

USA

Spain

Peru

200

150

100

50

2019

2018

2017

2016

2015

2014

2013

2012

2011

2010

2009

2008

2006

2007

2005

2004

2003

2002

2001

2000

0

Fig. 4 Blueberry export from top five exporters (Source UN Comtrade)

of blueberries in the U.S. market in 2019. The unit price of Peruvian blueberries (USD7.55/kg) was much higher than Canada’s (USD2.06/kg). The high unit price of Peruvian blueberries comes from agribusiness companies’ strategy to concentrate production during a gap in the international market when supply from other countries is scarce. In Peru, the La Libertad region produced 79% of national production in 2018, followed by the Lambayeque region, with 17%. These regions are at 5–9 degrees south latitude, and the climate is warm and mild throughout the year. This climate is very different from other blueberry exporters, such as Chile and Canada. Blueberries have three main varieties: high chill, mid-chill, and no chill. In the northern part of the United States, Canada, and Chile, where latitude is high, producers choose high chill or mid-chill varieties. In the southern part of the United States and Mexico, producers choose no chill varieties.10 In Peru, the producers choose no chill varieties to supply blueberries pinpointing the international market gap11 (USDA 2017).

10

For blueberry varieties, see the following web site: https://www.fallcreeknursery.com/commer cial-fruit-growers/varieties#. 11 From an interview with the CEO of an FFV trading company in Lima, Peru, August 19, 2016.

3 Seeking Gaps in Niche Markets

53

a million USD 200 180 Peru

Chile

Mexico

Canada

Argenna

Others

160 140 120 100 80 60 40 20 0 JAN

FEB

MAR APR MAY JUN

JUL

AUG

SEP

OCT NOV DEC

b million USD 200 180

Peru

Chile

Mexico

Canada

Argenna

Others

160 140 120 100 80 60 40 20 0 JAN

FEB

MAR APR

MAY

JUN

JUL

AUG

SEP

OCT

NOV

DEC

Fig. 5 U.S. monthly blueberry import in 2015 (a) and in 2019 (b) (Source USITC Data Web)

54

4 Diversification of Export Crops

4 Conclusion Following the remarkable growth of fresh asparagus exports, Peruvian agribusiness companies succeeded in diversifying export crops. The exports of grapes, avocados, blueberries, and other crops have been growing since the end of the 2000s. Now, Peru is one of the leading exporters of these FFVs. This diversification of export crops is the result of the agribusiness companies’ efforts to address seasonality and uncertainty in agriculture. By combining crops with different peak seasons through crop diversification, the companies can sustain demand for labor and facilities. At the same time, by producing and exporting several crops to several markets, they can reduce risks from production and sales uncertainty. The agribusiness companies sought to diversify both export crops and markets. To compete with leading FFV exporters like Chile and Mexico, they identified two kinds of gaps in niche markets: geographical gaps and temporal gaps. In the case of grape exports, the companies first aimed at European and Chinese markets. In the case of avocados, they aimed at northeastern cities in the United States. When Peruvian companies began to export table grapes and blueberries to the U.S. market, they aimed to supply during the months just before the arrival of Chilean produce. This export crop diversification helped Peruvian agribusiness companies to be competitive in the international market and the FFV export industry to develop; however, this development was not possible without collective efforts in the industry. The next chapter analyzes the collective efforts and collaborations between the public and private sectors.

References Allen DW, Lueck D (2003) The nature of the farm: Contracts, risk, and organization in agriculture. MIT Press, Cambridge, MA. https://doi.org/10.7551/mitpress/4883.001.0001 Iguni Y (2014) Understanding family business in economics (in Japanese). In: Agriculture and economics (in Japanese), vol 80. Showado, Kyoto Shimizu T (2016) Integration and export strategy of fresh fruit and vegetable exports from Latin America: A case of Peruvian avocados (in Japanese). In: Sato K (ed) New wave of innovations in food system. Nihon Keizai Hyoronsha, Tokyo, pp 179–194 USDA (2017) Peruvian Blueberry Production Blooming. United States Department of Agriculture, Global Agricultural Information Network Report

Data Sources FAOSTAT (Food and Agriculture Organization of the United Nations). http://www.fao.org/faosta t/en/ Global Trade Atlas. https://connect.ihsmarkit.com/gta/home

References

55

MIDAGRI (Ministerio de Desarrollo Agrario y Riego) Sistema integrado de estadísticas agrarias. https://siea.midagri.gob.pe/portal/ https://siea.midagri.gob.pe/portal/index.php/sistemas-inform acion UN Comtrade (United Nations International Trade Statistics Database). https://comtrade.un.org/ USITC DataWeb (the United States International Trade Commission trade and tariff data). https:// dataweb.usitc.gov/

Chapter 5

Collective Actions

1 Introduction As we have observed in the previous chapters, agribusiness companies’ individual efforts were the key to the expansion of the FFV export industry in Peru. The companies invested in technology for agricultural production, integrated value chains, diversified crops, identified markets, and achieved an impressive increases in exports. However, there are limits to what private companies can do individually. For example, a private company cannot construct infrastructure, like roads and ports, because it is too costly. A private company also does not have an incentive to provide public goods if others can use them without sharing the expense. In other words, a private company alone cannot provide goods that require a large amount of investment that can be accessed and used by anyone without assuming any cost. Existing studies on industrial clusters demonstrate that by combining individual effort into collective effort and connecting the private sector with the public sector, a group of private companies can overcome the limits of an individual private company. We can find these efforts in industrial clusters. As explained in Chapter 2, industrial clusters are “geographic concentrations of interconnected companies and institutions in a particular field” (Porter 1998). Such concentrations can produce “collective efficiency,” which improves the efficiency of individual companies within the clusters (Schmitz 1999). In addition to clusters’ effects on local external economies, collective actions by individual actors can produce collective efficiency within the cluster. With these collective actions, private companies can mobilize a large volume of resources. Also, by organizing themselves into associations for collective actions, they can acquire a quasi-public nature through collaboration with the public sector. Some studies analyze agricultural clusters in Latin America, such as wine and fruit clusters in Chile, cut flower clusters in Colombia and Ecuador, and dairy industries in Argentina (Casaburi 1999; Gálvez-Nogales 2010; Fairbanks and Lindsay 1997).

© Institute of Developing Economies, Japan External Trade Organization (IDE-JETRO) 2022 T. Shimizu, The Growth of the Fruit and Vegetable Export Industry in Peru, SpringerBriefs in Economics, https://doi.org/10.1007/978-981-16-9629-9_5

57

58

5 Collective Actions

This chapter takes a similar approach to these studies, analyzing the Peruvian FFV export industry as an industrial cluster. There are a few studies that analyze the asparagus cluster (O’Brien and Díaz Rodriguez 2004) and the horticulture cluster (World Bank 2017) in Peru; however, these studies mainly focus on the contribution of the public sector. This chapter focuses on the roles of the private sector and the collaborative actions that aided the development of Peru’s FFV export industry. The first section analyzes how actors in the private sector organized themselves into industry associations and the kind of collective actions they took. These actions include promoting exports, offering cold storage services, joint marketing, and lobbying for the industry. The second section analyzes how individual companies contributed to improving national phytosanitary capacity, which is indispensable for FFV exports. This chapter’s analysis is based on information obtained from interviews conducted with managers of industry associations and officials from the national organization in charge of phytosanitary controls, which mainly took place in 2012 and 2013.

2 Organizing Actors In the early stage of the expansion of fresh asparagus exports, the Peruvian government understood the importance of improving the competitiveness of its agricultural exports. One of the policies that aimed to improve their competitiveness was helping producers and exporters1 to organize. A government agency for export promotion called PROMPEX (La Comisión para la Promoción de Exportaciones)2 under the Ministry of International Trade and Tourism was in charge of this task. The agency provided producers and exporters with a financial incentive to organize (O’Brien and Díaz Rodriguez 2004). As a result, producers and exporters, many of which are agribusiness companies, created the associations listed in Table 1. Producers and exporters organized themselves by crops. The first association was the Peruvian Institute of Asparagus and Vegetables (Instituto Peruano del Espárrago y Hortalizas: IPEH). Preserved and fresh asparagus was the dominant vegetable export in the 1990s and the first half of the 2000s. Exporters of preserved asparagus diversified their products to other preserved vegetables, such as artichokes and bell peppers; therefore, “vegetables” was included in its name. After IPEH, producers of

1

Agribusiness companies are the core members of these associations. Because small and mediumscale producers and exporters also belong to the associations, this chapter refers to their members as producers and exporters. 2 The agency was reorganized and is currently a part of PromPeru, an export and tourism promotion commission under the Ministry of Foreign Relations.

2 Organizing Actors

59

Table 1 The industry associations for fresh fruit and vegetable exports Associations

Crops

Founded

Members (2015)

Note

Peruvian Institute of Asparagus and Vegetables (IPEH)

Asparagus, artichokes, and bell peppers (fresh and preserved)

1998

39

Members produce 75% of asparagus and 90% of artichokes

Frío Aéreo Association Cold storage at Lima airport

1998

29

85% of FFV export goes through its facility

Association of Citrus Producers of Peru (ProCitrus)

Citrus

1998

140

Members export 85% of citrus. It has a packing plant and a marketing company, CPF

Association of Hass Avocado Producers of Peru (ProHass)

Hass avocados

1999

77

Members export 90% of avocados. Export through CPF

Peruvian Association Mangoes of Mango Producers and Exporters (APEM)

2000

19

Members export 60% of mangoes

Association of Table Grape Producers of Peru (PROVID)

Table grapes

2001

26

Members export 80% of table grapes

Association of Agricultural Producers of Peru (AGAP)

Fresh fruit and vegetables for export

2003

7

Association of Pomegranates Pomegranate Producers of Peru (PROGRANADA)

2013

14

Association of Blueberries Blueberry Producers of Peru (PROARANDANOS)

2014

6

Federation of the FFV producers associations Members generate 80% of pomegranate production

Includes all principal producers

Source Elaborated by the author based on industry websites (www.portafruticola.com) and O’Brien and Díaz Rodriguez (2004)

other crops, such as citrus fruits, avocados, mangoes, and table grapes, founded associations in the following years. In 2003, these associations formed AGAP, a federation of the associations. AGAP represents the interest of the FFV export industry as a whole in domestic politics and trade negotiations. Among these associations, Frío Aéreo differs from others, as producers and exporters of fresh produce formed this association to fill the gap in the cold chain. A later section will describe this in detail.

60

5 Collective Actions

These associations needed to secure financial resources for effective collective actions. To do so, they charge admission fees, annual membership fees, and commissions for joint procurement. Surcharges based on export volumes are also an important source of finance. Because all exports are registered at customs, and the information is available to the public, the associations can keep track of the amount that their members have to pay for surcharges. Because the export volume of FFVs significantly increased in the past decades, surcharges became the most important source to finance the associations’ projects. The associations also receive financial help from the Peruvian government and international organizations.

2.1 Export Promotion3 Export promotion is one of the principal activities of producers and exporters associations. To promote Peruvian FFVs, these associations participate in international trade shows, such as the Fresh Summit in the United States, Fruit Logistica in Berlin, and Asian Fruit Logistica in Hong Kong, where they endeavor to market the attractive image of Peruvian produce in the international market. Among the associations, IPEH stepped further into this activity. In the U.S. market, the largest market for Peruvian fresh asparagus export, the association organized importing companies and created the Peruvian Asparagus Importers Association (PAIA). PAIA collected information about market trends in the United States and provided it to Peruvian exporters. PAIA also became a contact point for U.S. retailers that are interested in buying asparagus from Peru. Furthermore, PAIA promoted Peruvian asparagus by participating in tasting events at supermarkets in the U.S. market.4 Another important activity is representing the interests of the industry in international negotiations. The representatives of IPEH participated in the trade negotiations between Peru and the United States. They asked the U.S. government to renew a preferential trade act (ATPA and ATPDEA, see Chap. 2) that allowed Peruvian asparagus tariff-free access to the U.S. market (O’Brien and Díaz Rodriguez 2004). Inside the country, IPEH has been very active in improving the quality of produce and ensuring food safety. For example, collaborating with the National Institute of Agricultural Research (Instituto Nacional de Investigación Agraria: INIA), IPEH improved asparagus varieties for better crop quality. It also researched integrated pest management, which reduced dependence on agrochemical pesticides with alternative methods, such as the application of other insects as natural enemies against pests.

3

Information is based on O’Brien and Díaz Rodriguez (2004) and an interview with a manager of IPEH in September 2005. 4 The activities of PAIA can be found at its website: https://peruvianasparagusimportersassociation. com/.

2 Organizing Actors

61

2.2 Cold Storage Service5 Frío Aéreo (Cold Air in Spanish) is an example of collective actions among fresh produce exporters. With help from the government’s export promotion agency, PROMPEX, mainly asparagus exporters founded the association in 1998. Its objective is to offer cold storage services at Lima international airport. Before Frío Aéreo started its operation, there was no cold storage warehouse in the airport. The exporters shipped fresh asparagus from cold storage warehouses in their farms to the airport with refrigerated trucks. After arriving at the airport, asparagus was left in a freight terminal without any refrigeration until it was loaded on airplanes. Sometimes, the transition time from the refrigerated trucks to the airplanes was four to five hours. This gap in the cold chain deteriorated the quality of the asparagus and shortened its shelf life. In addition, exporters had no information about the quality of logistics services at the airport. Frío Aéreo filled this gap, constructing a cold storage warehouse inside the airport and offering cold storage service to all exporters. This decreased transition time from hours to 15 to 20 min. Frío Aéreo also collected information about logistics services at the airport, such as transition time and temperatures when unloading from trucks and loading onto airplanes. This information helped improve the quality of all logistics services at the airport. Furthermore, Frío Aéreo provided information about weekly fresh export through their facilities to its members. With this information, members can better plan their production, considering the capacity of logistics at the airport. In October 2018, about 75% of fresh asparagus was exported by air, out of which more than 90% went through Frío Aéreo.

2.3 Joint Marketing ProCitrus and ProHass are producers associations for citrus and Hass avocados, founded in 1998 and 1999, respectively. In addition to joint procurement for agricultural inputs and technical assistance to improve crop quality, in 2001, these two associations created a joint marketing company called CPF (El Consorcio de Productores de Frutas S.A., Fruit Producers’ Consortium in Spanish). To help small and mediumscale members who had difficulty exporting individually, CPF took charge of joint marketing. The company looks for buyers for citrus and avocados in foreign markets and takes orders from them. In harvest season, CPF receives fruits from its members, processes them at rented packing plants, and ships them to the buyers. The company collects sales from the buyers and pays to producers, deducting commissions. It is the principal exporter of citrus fruits in Peru.

5

Information is based on O’Brien and Díaz Rodriguez (2004) and interviews with managers in September 2005 and October 2018.

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5 Collective Actions

2.4 Representing the Industry The Association of Agricultural Producers of Peru (la Associación de Gremios Productores Agrarios del Perú: AGAP, the Association of Agricultural Producers Unions of Peru in Spanish) is a federation of the seven producers and exporters associations of export crops. One of its essential missions is political lobbying to protect the interests of the FFV export industry. AGAP put a large amount of effort into lobbying in favor of the Agriculture Sector Promotion Law 27360.6 The Peruvian Congress enacted the law in 2000 with validity until 2010. To extend the law’s validity, AGAP disseminated information about the industry’s contribution to the national economy, defining the FFV export industry as “modern agriculture.” It highlighted modern agriculture as one of the fastest-growing sectors in the economy that produced many innovations. AGAP also emphasized modern agriculture’s creation of many quality jobs in the rural sector. For the sustainable development of modern agriculture, AGAP argued for the importance of legal stability and insisted on extending the law’s validity (Apoyo c2015). As a result, in 2006, the Peruvian Congress extended its validity for 15 years until the end of 2021, and once again, in 2019, Congress extended the law’s validity for 10 more years until the end of 2031.7

3 Building Phytosanitary Capacity for Exports Although the associations can solve some problems for individual producers and exporters, a private sector by itself cannot overcome all challenges. One of those problems was a phytosanitary issue. Without a sound national phytosanitary capacity, agribusiness companies could not export any FFV. By transferring private resources to the public sector, the companies helped improve national phytosanitary capacity and increased FFV exports. According to the Food and Agricultural Organization (FAO), phytosanitary capacity is “the ability of individuals, organizations and systems of a country to perform functions effectively and sustainably to protect plants and plant products from pests and to facilitate trade” (FAO 2017). The governmental organization in charge of building phytosanitary capacity is a national plant protection organization (NPPO). The role of an NPPO related to FFV exports is to agree on phytosanitary protocols with counterparts in market countries, monitor the implementation of the protocols in farms and packing plants, and issue export certificates for FFVs. Phytosanitary capacity for FFV export is a kind of public good, which is both non-excludable and non-rivalrous. The private sector cannot build it alone. To build 6

See Chap. 2 for detail regarding the Agriculture Sector Promotion Law. During the political crisis in 2020, the Peruvian congress derogated the Agriculture Sector Promotion Law. Chapter 6 explains the derogation.

7

3 Building Phytosanitary Capacity for Exports

63

this public good, producers and exporters collaborated with the NPPO. The associations mobilized resources from members and transferred them to the public sector. The progress in the phytosanitary protocol agreements is the result of collaboration between the public and private sectors.

3.1 Phytosanitary Protocol Many countries do not allow the free import of FFVs to prevent harmful pests and diseases from intruding into their territory. Only after the NPPOs of both exporting and importing countries sign an agreement on phytosanitary protocols will importing countries accept FFVs from exporting countries. A phytosanitary protocol specifies a crop, or sometimes a variety of a crops. The protocol includes measures to eliminate pests and diseases and procedures for NPPO’s issuing export certificates in exporting countries. Signing an agreement on a phytosanitary protocol is the first step to exporting FFVs. The World Trade Organization (WTO) established the “Sanitary and Phytosanitary Agreement” (SPS Agreement) to facilitate international trade of FFVs. This agreement recommends exporting countries adapt international organizations’ standards, such as the Codex Alimentarius Commission, the International Plant Protection Convention, and the World Organisation for Animal Health. Some studies conclude that these international standards facilitated FFV trade (Roberts and Krissoff 2004). Others argue that for many developing countries, phytosanitary issues remain obstacles to exporting FFVs. A survey of NPPOs in developing countries indicated that they were unable to meet international standards due to lack of phytosanitary capacity (Henson and Loader 2001). In Peru, the NPPO is SENASA (Servicio Nacional de Sanidad Agraria, National Agricultural Health Service in Spanish); an agency under the Ministry of Agriculture. This agency has a pivotal role in building phytosanitary capacity for FFV exports. SENASA’s essential achievements are to agree on phytosanitary protocols for principal FFVs (Table 2). When the NPPO of the importing country judges that there is a low risk of fruit pests or diseases, it requires only a phytosanitary certificate issued by SENASA. Upon confirming that there are no fruit pests or diseases at the export inspection, SENASA officials seal the container and issue a phytosanitary certificate. The container remains sealed until the NPPO officials of the importing country open the container. When the NPPO of the importing country judges that there is a high risk of fruit pests and diseases, it requires additional phytosanitary measures, such as a low-temperature or hydrothermal treatment (hot water immersion), which eliminate pests and diseases. Upon confirming that the exporters properly implemented these measures and there are no fruit pests or diseases, SENASA officials seal the container and issue a phytosanitary certificate.

Venezuela

Costa Rica

Taiwan

China

Brazil

Guatemala

India

Bolivia

Republic of Korea

New Zealand

Uruguay

Dominican Republic

2001

2001

2003

2005

2005

2006

2007

2007

2009

2011

2012

2013

2017

Low-temperature treatment

Phytosanitary certificate only

Low-temperature treatment

Low-temperature treatment

Phytosanitary certificate only

Low-temperature treatment

Phytosanitary certificate only

Phytosanitary certificate only

Low-temperature treatment

Low-temperature treatment

Low-temperature treatment

Low-temperature treatment

2016

2016

2015

2015

2013

2011

2010

2010

2009

2007

2006

2001

2000

Canada

1995

Low-temperature treatment

Avocados 2000

United States

Grapes

Low-temperature treatment

Export crop Year

Condition

Year

Market country

Export crop

Table 2 Peru’s phytosanitary protocol agreements for principal FFVs for export

Colombia

India

China

Japan

Chile

United States

Uruguay

United States

Singapore

Guatemala

Brazil

Argentina

Panama

Chile

Market country

Phytosanitary certificate only

Phytosanitary certificate only

Phytosanitary certificate only

Phytosanitary certificate only

Phytosanitary certificate only

Low-temperature treatment

Phytosanitary certificate only

Phytosanitary certificate only

Phytosanitary certificate only

Phytosanitary certificate only

Fumigation

(continued)

Fumigation/low-temperature treatment

Condition

64 5 Collective Actions

El Salvador

United States

Guatemala

China

Singapore

Colombia

Brazil

Dominican Republic

2003

2004

2006

2007

2008

2009

2016

2016

2018

China

2013

China Colombia Canada

2016 2016 2016

United States

Ecuador

Republic of Korea

Uruguay

Japan

Singapore

China

Mexico

Argentina

New Zealand

Chile

United States

Market country

Low-temperature treatment

Low-temperature treatment

Low-temperature treatment

Hydrothermal treatment

Phytosanitary certificate only

Hydrothermal treatment

Phytosanitary certificate only

Hydrothermal treatment

Hydrothermal treatment

Hydrothermal treatment

Hydrothermal treatment

Hydrothermal treatment

Hydrothermal treatment

Condition

Note Blank cells lack information on phytosanitary conditions Source Based on “SISTEMA DE CUARENTENA VEGETAL” (mimeo in SENASA, obtained in April 2013) and SENASA Memoria Annual (2013–2016)

Phytosanitary certificate only

2015

Uruguay

2011

Phytosanitary certificate only

Blueberries 2014

Phytosanitary certificate only

South Africa

2005

2015

2015

2010

2009

2006

2004

1998

1997

Asparagus

Phytosanitary certificate only

Phytosanitary certificate only

Low-temperature treatment

Phytosanitary certificate only

Low-temperature treatment

Phytosanitary certificate only

1996

Costa Rica

2001

Phytosanitary certificate only

Mangoes 1994

Venezuela

Citrus fruit

Phytosanitary certificate only

Export crop Year

Condition

Year

Market country

Export crop

Table 2 (continued)

3 Building Phytosanitary Capacity for Exports 65

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3.2 Opening Up the U.S. Market As Chapter 2 described, Peru has been actively signing free trade agreements (FTAs) with its major trade partners since the 2000s. These FTAs also helped SENASA to reach agreements on phytosanitary protocols. After signing a free trade agreement with the United States in April 2006, Peru actively pursued FTAs with other countries. To take advantage of the low tariffs of these FTAs, SENASA sought agreements on phytosanitary protocols with these trade partners. Among the agreements Peru signed, the one with the United States was an important achievement for SENASA. This is not only because the United States is the largest market for Peru, but also because having an agreement with the United States opened doors for other markets. Through negotiation with APHIS (Animal and Plant Health Inspection Service), the NPPO under the United States Department of Agriculture, SENASA acquired knowledge and experience about implementing phytosanitary measures and certification of their implementation. As shown in Table 2, following agreements on grapes and mangoes with the United States, Peru achieved agreements with other countries because SENASA improved its capabilities through negotiation with APHIS. In the agreements with the United States, APHIS required low-temperature treatment for grapes and hydrothermal treatment for mangoes. For effective implementation of the treatments, APHIS provided detailed information to SENASA, including treatment manuals. When APHIS negotiates with exporting countries on phytosanitary protocols, it checks whether exporters are able to implement the measures established in the protocols and whether the NPPO of the exporting country can appropriately certify their implementation. According to a SENASA official, many FFV importing countries refer to APHIS’s treatment manuals to establish phytosanitary measures for their countries. This implies that once an NPPO of an exporting country reaches an agreement with the United States, it will be easy for the NPPO to reach agreements with other countries.8 Another achievement of SENASA in building phytosanitary capacity is gaining the trust of its counterparts in market countries. The delegation of the authority to certify the implementation of phytosanitary measures is evidence of this trust. A good example of this is the certification of mangoes for the U.S. market. To export mangoes to the U.S. market, exporters need to implement hydrothermal treatment. In the treatment, mangoes should be immersed in hot water so that the pulp temperature remains over 47.2 °C for over five minutes. The APHIS treatment manual describes the treatment procedures and the detailed specifications of facilities, such as the electrical and electronic components used in the facilities.9 In the beginning, APHIS was unsure whether SENASA inspectors could correctly monitor the implementation; thus, APHIS sent its inspectors to oversee SENASA 8

From interviews with a SENASA official in April 2013. The treatment manuals can be found on the USDA’s web site: https://www.aphis.usda.gov/imp ort_export/plants/manuals/ports/downloads/treatment.pdf.

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inspectors’ monitoring process. Peruvian exporters needed to assume the cost of APHIS inspectors. After APHIS inspectors confirmed that SENASA inspectors properly conducted the inspections, and there was a good track record of phytosanitary conditions with mangoes exported from Peru to the United States, APHIS withdrew the requirement of the presence of its inspectors in 2007. After that, APHIS accepted certificates issued by SENASA officials without the presence of APHIS inspectors.10 APHIS personnel visits processing plants only before the harvest season to inspect facilities and sometimes during the harvest season to verify SENASA’s certification process. This delegation of authority helped agribusiness companies to save the cost of foreign inspectors.

3.3 Mobilization of Resources Because agribusiness companies mobilized resources in the private sector through the associations to support SENASA, it improved its capacity to inspect and certify FFV exports from Peru. One example of resource transfer is financial help from the association to SENASA to prepare for phytosanitary protocols. In the case of Hass avocados for the U.S. market, SENASA agreed on the phytosanitary protocol with APHIS in 2010. In this protocol, APHIS required a low-temperature treatment for Peruvian avocados to eliminate fruit flies; however, a low-temperature treatment deteriorated the quality of the fruits. With this protocol, Peruvian avocados could not compete with Mexican avocados in the U.S. market. ProHass, the association of producers of Hass avocados in Peru, endeavored to solve this problem by supporting SENASA.11 ProHass helped SENASA to conduct a study to show that fruit flies did not infest Peruvian Hass avocados. The study cost around USD 800,000, out of which USD 150,000 was born by ProHass. The members of ProHass also supported SENASA by providing a field, materials, and fruits for the study. APHIS accepted the result of this study. It agreed on a phytosanitary protocol that required only a phytosanitary certificate issued by SENASA. After APHIS withdrew the requirement of low-temperature treatment in 2011, Peruvian avocado exports to the U.S. market boosted. The other example is grape exports. To export table grapes to the U.S. market, exporters need to apply the low-temperature treatment. The treatment manuals by APHIS specify that table grapes should be kept at less than 1.1 degrees Celsius for over 15 days. However, some market countries required SENASA to prove the effectiveness of this treatment. Provid, the table grape producers and exporters association, offered the necessary support to SENASA. The association installed cold

10 11

From an interview with a SENASA official in April 2013. From an interview with ProHass staff, August 2012.

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chambers at SENASA’s site, and provided many varieties of grapes at different stages of maturity.12 This support accelerated the study process. Associations also helped SENASA improve its human capital. Because of budget constraints, SENASA could not send its staff abroad for meetings and training. When it was necessary to send its staff overseas for capacity building and to update their knowledge, SENASA appealed to the associations for help. The associations have financed these trips on many occasions. Furthermore, producers and exporters individually help SENASA to speed up the certification processes. For example, obtaining phytosanitary certificates for export requires inspections from SENASA to obtain certificates at various stages, from production to export. Before the harvest season, farms and processing plants must receive inspections. During the production period, farms must receive SENASA staff who monitor for pests and diseases. Once harvest season begins, every shipment from farms to plants, every phytosanitary measure implemented at the plants, and every container to be shipped must receive inspections. In peak seasons, SENASA does not have enough resources to promptly mobilize its inspectors. In that case, producers and exporters often offer logistical support for SENASA inspectors to conduct inspections. These resource transfers from the private sector to the public sector helped the country build its successful phytosanitary capacity. In other words, through the collective actions of associations, Peru built public goods with help from the private sector. The success of this partnership comes from the structure of producers and exporters associations. They are organized separately based on export crops. Some agribusiness companies, such as large-scale companies that diversify crops, are members of several associations. Other, medium and small-scale producers, are members of a single or a few associations. The functions of the associations are similar, but organizing specifically by crops has a significant advantage. When the board of directors of each association proposes a project to spend its resources, it can quickly obtain members’ approval if the members’ benefit is made clear. Helping SENASA agree on a phytosanitary protocol with a potential market country is one of these examples. Because members know that the associations use their resources to open up the market for their crops, not other crops, they have a strong incentive to support the projects. The quasi-public nature of industry associations also helped them to obtain resources from international cooperation agencies.

4 Conclusion In addition to the individual efforts of agribusiness companies, their collective actions have been an important factor for developing the FFV export industry in Peru. To induce collective efficiency among actors in the sector, the Peruvian government facilitated the organization of producers and exporters. First, asparagus 12

From an interview with Provid staff, May 2013.

References

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producers and exporters formed an association, followed by producers and exporters of other export crops, such as citrus fruits, avocados, mangoes, and table grapes. These associations also formed a federation of associations to represent the industry’s interest in the political arena. The examples of collective actions by these associations include marketing to promote Peruvian produce in market countries and to establish sales channels, constructing a cold storage facility and offering logistics services at the international airport, processing and selling FFVs on behalf of producers, and lobbying to extend the validity of a law that benefits the industry. One of the most significant achievements of these collective actions is supporting the establishment of phytosanitary capacity for FFV exports. In many developing countries, the government does not have enough resources to build this capacity. Peru was one of them. To address this lack, the associations mobilized resources in the private sector and transferred them to the public sector. With these resources, the NPPO achieved agreements on phytosanitary protocols with their counterparts in the market countries. The private sector’s financial and logistical assistance also helps the public sector to receive relevant training and to monitor and efficiently certify protocol implementation. The success of the Peruvian FFV export industry was mainly due to the individual efforts of the agribusiness companies; however, there are limits to what companies can accomplish individually. With collective actions through associations, obstacles have been overcome and FFV exports have increased exponentially.

References Apoyo (c2015) Contribución e impactos de la agricultura moderna al desarrollo del Perú. Asociación de Gremios Productores Agrarios del Perú (AGAP), Lima Casaburi GG (1999) Dynamic agroindustrial clusters: the political economy of competitive sectors in Argentina and Chile. St. Martin’s Press, New York Fairbanks M, Lindsay S (1997) Plowing the sea: nurturing the hidden sources of growth in the developing world. Harvard Business School Press, Boston FAO (2017) Preparing a national phytosanitary capacity development strategy Gálvez-Nogales E (2010) Agro-based clusters in developing countries: staying competitive in a globalized economy. Agricultural Management, Marketing and Finance Occasional Paper. FAO, Rome Henson S, Loader R (2001) Barriers to agricultural exports from developing countries: the role of sanitary and phytosanitary requirements. World Dev 29(1):85–102 O’Brien TM, Díaz Rodriguez A (2004) Mejorando la competitividad y el acceso a los mercados de exportaciones agrícolas por medio del desarrollo y aplicación de normas de inocuidad y calidad: El ejemplo del espárrago Peruano. IICA (Instituto Interamericano de Cooperación para la Agricultura), Lima Porter ME (1998) Clusters and the new economics of competition. Harvard Bus Rev 76(November– December):77–90 Roberts D, Krissoff B (2004) Regulatory barriers in international horticultural markets. Electronic Outlook Report. Economic Research Service, United States Department of Agriculture, Washington, DC

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Schmitz H (1999) Global competition and local cooperations: success and failure in the Sinos Valley, Brazil. World Dev 27(9):1627–1650 World Bank (2017) Gaining momentum in Peruvian agriculture: opportunities to increase productivity and enhance competitiveness. World Bank, Washington, DC

Chapter 6

Conclusion

International fresh fruit and vegetable (FFV) trade has been growing in recent years. As the purchasing power of consumers improves, they demand more high-quality FFVs throughout the year. Responding to this demand, Latin American countries are expanding FFV exports. Among the countries in the region, Chile and Mexico are pioneers for FFV exports. Chile is the largest supplier of counter-season fruits to the northern hemisphere. Mexico is the largest supplier of FFVs to the U.S. market. Peru is following the path of these pioneers. The country was the leading exporter of preserved asparagus until the 1990s; however, while preserved export stagnated in the middle of the 1990s, fresh export significantly increased in the 2000s. Peru has rapidly become the No. 1 exporter of fresh asparagus in the world. Furthermore, since the end of the 2000s, the country diversified its FFV exports to other crops, such as grapes, avocados, blueberries, mangoes, and citrus fruits. The importance of the FFV export industry in the Peruvian national economy has been recognized in recent years, especially following the end of the commodity boom in the mid-2010s. While exports of natural resources such as oil and gas, minerals, and copper products dropped, exports of FFVs continued to steadily increase. They are the only group of export products that did not drop after the commodity boom. Therefore, the industry has attracted attention as one of the engines of economic growth in the Peruvian economy. The first section of this chapter summarizes the findings of the preceding chapters, explaining why and how the FFV export industry has developed in Peru. The following section identifies the challenges facing Peruvian FFV export industry. The scarcity of two important production factors; namely, water and labor, could be a constraint for the industry’s sustainable development. The last section discusses the remaining issues for research on the industrial development of agriculture in Peru.

© Institute of Developing Economies, Japan External Trade Organization (IDE-JETRO) 2022 T. Shimizu, The Growth of the Fruit and Vegetable Export Industry in Peru, SpringerBriefs in Economics, https://doi.org/10.1007/978-981-16-9629-9_6

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1 Factors for the FFV Export Industry Development The preceding chapters explained the central role of agribusiness companies in the development of the FFV export industry in Peru. After land market reform in the 1990s, some business groups that had accumulated capital in other sectors of the economy began to invest in agriculture. They acquired large-scale farmland from bankrupted cooperatives in the south and from national irrigation projects in the north. They took advantage of the abundant labor force that immigrated from the underdeveloped Andean highland region to the more-developed coastal region. The companies invested in technologies in the field for production, as well as processing plants and warehouses for logistics. In addition to this large-scale farmland acquisition, their business strategies have led to the development of the FFV export industry. These strategies include value chain integration, diversification of export crops, and collective actions among producers and exporters. By integrating the asparagus value chain, including input procurement, production, packing, export, and marketing, Peruvian agribusiness companies improved both yield and quality in the field, maintaining freshness and traceability until it reaches consumers. This represents both process and product upgrades. In addition, by expanding more functions in the value chain, the companies increased margins. This is a functional upgrade. Many FFV producers in developing countries tend to remain producers, selling their produce to intermediaries that then sell it to global retail chains in market countries. In the case of Peru, the producers were agribusiness companies with more resources. They started to expand their activities in the value chain to increase their margins. These upgrades allowed them to improve operational efficiency and add more value to crops. Diversification of export crops is the strategy chosen to overcome the obstacles related to seasonality and uncertainty in agriculture. By combining crops with different harvest seasons, agribusiness companies endeavored to sustain demand for labor and facilities throughout the year. Diversification can also mitigate the negative impacts of each crop on overall business. By producing multiple crops in multiple locations for multiple markets, agribusiness companies can reduce the risk of poor crops and price drops. To find markets for diversified crops, agribusiness companies identified markets for their produce, taking advantage of geographical and temporal gaps in niche markets. Collective actions among the producers and exporters mobilized resources in the private sector to build public goods for FFV export. They organized into the associations by export crops, and these associations have been promoting export by improving logistics infrastructure in cold chains and jointly marketing their produce in overseas markets. Additionally, the federation of these associations represents the industry’s interests in national politics and international trade negotiations. The most important achievement by the collective actions was helping to build a sound phytosanitary capacity in the public sector, enabling the industry to overcome phytosanitary barriers in the foreign markets.

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These findings indicate a transformation in value creation in Peruvian agricultural export. In traditional agricultural exports, such as sugar and cotton, the production itself created the most value. Because Peru had endowments of favorable production factors, such as favorable climate, soil, and an abundant labor force, it could produce these products cheaper than other countries. The value was originated from these endowments. This means that other countries with similar endowments can easily catch up with Peru. And that was exactly what happened. By the 1990s, Peruvian sugar and cotton lost their price competitiveness in the international market, and the country almost ceased exporting products. In FFV exports, it is not just the production itself but the whole chain that creates the value of the exports. To satisfy demand, producers and exporters need to be aware of the trends in the market, especially niche markets and gaps in the niche markets. They produce the crops with knowledge-intensive inputs, such as new varieties for superior quality and computer-controlled drip irrigation. They also arrange logistic services to deliver crops in good condition, with traceability and food safety and phytosanitary certificates. The value is created in building a whole value chain. It takes time to build a value chain, and other countries cannot easily duplicate this model.

2 Challenges for Peruvian FFV Export Industry Thanks to the individual and collective efforts of agribusiness companies and their cooperation with the public sector, the FFV export industry in Peru has been growing for 20 years; however, some concerns remain regarding the sustainability of the industry. Resource limitations; namely water and labor force, could be a constraint in the future growth. Water is a scarce resource in the Peruvian coastal region, where most of the FFVs for export are produced. In the Ica region, the groundwater level has dropped due to overuse (Rendon Schneir 2013). Lack of available water could become a constraint to the future growth of the industry. There are two plans to overcome this scarcity; one is to increase the use of existing river water, and the other is to provide more water in the rivers. Peru has three basins: the Pacific, Atlantic, and Titicaca basins. Rainwater falls on the land flow to either the Pacific Ocean, the Atlantic Ocean, or Lake Titicaca. According to the National Statistics Institute, 98.2% of the country’s hydraulic resources belong to the Atlantic basin, 1.5% to the Pacific basin, and 0.3% to the Titicaca basin. Out of 32 billion square meters of water in the Pacific basin, around 70% flows to the Pacific Ocean without being used (INEI 2015). The first plan is to increase the use of river water in the Pacific basin. The CHAVIMOCHIC irrigation project in the La Libertad region is an effort to improve river water usage (Chapter 3). The irrigation canal diverts water from the Santa River to the desert along the coast. The first two phases of the project are completed, converting 47,000 hectares of the desert into productive farmland. The third phase,

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which is under construction, is expected to incorporate 63,000 hectares of the desert into production.1 The second plan is to transfer water from the Atlantic basin to the Pacific basin. The Peruvian government planned a few projects of this kind. One of them, the Olmos project, is in the Lambayeque region on the northern coast. To transfer water from the Atlantic to the Pacific basin, the project constructed a reservoir in the Andean highlands and a 20 kilometer tunnel that penetrated the Andean highlands. In addition, the project built 15 kilometers of canals and 50 kilometers of pipelines to distribute water to farmland. This project will create 38,000 hectares of newly irrigated farmland for the agribusiness companies and improve 5,500 hectares of farmland for small producers. As of October 2018, 20,000 hectares of farmland were already in production. Among those, 8,000 hectares are cultivating FFVs for export, such as avocados, blueberries, asparagus, and grapes.2 According to an industry report, there are six large-scale irrigation projects in Peru, including the third phase of CHAVIMOCHI and the Olmos project. When completed, these projects will establish 211,000 hectares of new farmland (Apoyo c2015). Although a newspaper article reported about delays of these projects (Ortiz 2014), they are expected to ease the constraint of water availability in the future. Labor conflict is another concern in the industry. The FFVs export industry is very labor-intensive. Because the crops are delicate and the export market demands quality, it is not easy to mechanize harvesting and packing. The agribusiness companies hire a large number of workers in their farms and packing plants. Because of the government’s preferential treatment, the companies have been able to take advantage of flexible and cheap labor. However, recent conflicts between the companies and their workers will change this situation. The Agriculture Sector Promotion Law (Ley 27,360, see Chapter 2 for detail), established in 2000, allowed the companies to hire temporary workers during peak seasons. The law also permitted that the companies give their workers only 15 days of paid vacation a year instead of the 30 days that companies in other sectors are mandated to give their workers. Initially, the law was valid only for 10 years, and industrial organizations, such as AGAP, have been lobbying to extend the law. The Peruvian Congress has extended the law a few times in the past. The last extension, which Congress approved in September 2019, was until 2031. After the political crisis in Peru in November 2020, in which the president changed twice within a week, workers in the FFV export sector protested, asking for better working conditions. Demanding to abolish the law, the protesters blocked the principal highways and interrupted passenger and freight transportation. To put down the protests, Congress finally abolished the law in December 2020. Now the government

1

The information about the CHAVIMOCHIC project can be found on its website: http://www.cha vimochic.gob.pe/. 2 The figures are based on information collected during a visit to the Olmos project in October 2018.

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is preparing a new law to improve working conditions in the sector. The agribusiness companies are no longer able to take advantage of the flexible and cheap labor force. They must improve labor productivity further to remain competitive in the international market.

3 Evolution of Value Chains This analysis of the development of the FFV export industry in Peru demonstrates the possibility of economic and industrial development based on agriculture. This case raises new questions regarding the evolution of value chains in agricultural export. Chapter 3 reveals how agribusiness companies increased fresh asparagus exports by integrating production, packing, and export. After two decades of the development of the industry, some companies altered their strategy, beginning to source some of the FFVs from other farms. This can be considered a kind of disintegration of the value chain. At the beginning of the development of the FFV export industry in Peru, an integrated value chain was the only way to meet the demand for fresh asparagus exports because the characteristics of demand and supply of fresh produce vastly differ from those of preserved products. There were no seeds and equipment specialized for fresh asparagus in the local market. There was no farm with a GAP certificate. There was no producer who could deliver fresh asparagus promptly after the harvest. There was no intermediary who could maintain production records for traceability. Consequently, agribusiness companies integrated activities in the value chain, including input procurement, production, packing, export, related logistics services, and sales to retailers in market countries; thus, they were able to meet clients’ demand. As the FFV export industry developed, the domestic markets of each stage of the value chain grew in size. Some companies began to offer inputs and equipment for FFV production. Other companies specialized in certifying industrial standards started to offer certification services related to FFV export, such as GAP and HACCP. Using the products and services offered by these companies, some medium-scale farms began to produce high-quality fresh asparagus for other companies. It was convenient for agribusiness companies to source FFVs from outside. They could increase exports without investing in production. Instead, they could invest in other stages of the value chain, such as developing new crop varieties, increasing the capacity of packing plants and refrigerated warehouses, and extending marketing networks by opening branches in foreign countries. A hypothesis regarding the evolution of value chains in agriculture can be derived from this recent trend. When a new kind of demand arises, actors try to satisfy the demand by doing it by themselves because no one else in the market is offering the products and services that did not previously exist. Integration is a way to do this independently. As the industry grows, the market size of each stage of the value chain rises. This growth allows other actors to join the value chain and specialize in one stage. Thanks to the benefits of the division of labor and economies of scale,

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specialized actors can improve their efficiency. The integrated agribusiness companies will then have the option to source from outside. Thus, the value chain begins to disintegrate. This hypothesis could be verified by comparing different value chains in agriculture. Finally, the development of the FFV export industry in Peru presents a good example for other developing countries that seek to develop their economy based on the agricultural sector. Because market conditions constantly change, the strategies that Peruvian agribusiness companies introduced may not be effective for others. Nevertheless, this study demonstrates that trying new strategies to adapt to changes, especially changes on the demand side, can lead to the exponential development of individual companies and industries.

References Apoyo (c2015) Contribución e impactos de la agricultura moderna al desarrollo del Perú. Asociación de Gremios Productores Agrarios del Perú (AGAP), Lima INEI (2015) Compendio Estadístico Peru 2015. Instituto Nacional de Estadística e Informática, Lima Ortiz M (2014) Proyectos de irrigación paralizados por demoras burocráticas. El Comercio Rendon Schneir E (2013) Exportaciones agrarias y gestión sostenible del agua en la Costa Peruana: el caso del valle de Ica. Sinergia E Innovación 1 (08)

Data Sources Central Reserve Bank of Peru, Statistics Series https://www.bcrp.gob.pe/en/statistics.html FAOSTAT (Food and Agriculture Organization of the United Nations) http://www.fao.org/faosta t/en/ Global Trade Atlas https://connect.ihsmarkit.com/gta/home MIDAGRI (Ministerio de Desarrollo Agrario y Riego) Sistema integrado de estadísticas agrarias. https://siea.midagri.gob.pe/portal/ https://siea.midagri.gob.pe/portal/index.php/sistemas-inform acion UN Comtrade (United Nations International Trade Statistics Database) https://comtrade.un.org/ USITC DataWeb (the United States International Trade Commission trade and tariff data) https:// dataweb.usitc.gov/

Index

A AGAP (Asociación de Gremios Productores Agrarios del Perú, 59, 62, 74 APHIS (Animal and Plant Health Inspection Service), 66 Asparagus, 1, 7, 9, 11, 17, 23, 58, 65, 71 ATPA (Andean Trade Preference Act), 20, 60 ATPDEA (Andean Trade Preference and Drug Eradication Act), 20, 60 Avocados, 2, 12, 17, 43–46, 49, 59, 61, 64, 67

B Blueberry (blueberries), 1, 12–14, 17–19, 41, 51–54, 59, 65

C Certification, 36, 37, 39, 66–68 CHAVIMOCHIC (Chao, Virú, Moche, and Chicama river irrigation project), 16, 33, 44, 73 Chile, 1, 3, 4, 11, 12, 41, 48, 54, 64 China, 3, 12, 20, 26, 48–50, 64, 65 Citrus fruit, 13, 42, 46, 59, 61, 64 Cluster, 4, 5, 8, 57, 58 Cold storage service, 58, 61 Collective action, 2, 8, 57, 60, 61 Collective efficiency, 8, 9, 57, 68 Collective effort, 57, 73 Contracts, 5, 6, 23, 38, 46, 47

D Diversification, 8, 11, 41, 43, 45, 47, 48, 54

Drip irrigation, 33–35, 39, 44, 46 E Economic growth, 1, 11, 13, 14 Economic reform, 11, 15, 16, 30, 35 Ecuador, 12, 13, 57, 65 EUREPGAP (Euro-Retailer Produce Working Group Good Agricultural Practice), 36 Export promotion, 19, 58, 60, 61 F FAO (Food and Agriculture Organization of the United Nations), 62 FAOSTAT (FAO Statistical Database), 24, 41, 42 Fluctuation, 2, 4, 6, 9, 42 Fresh asparagus, 9, 11, 14, 23, 26, 28, 41, 46, 48, 58 FTA (free trade agreement), 3, 20, 66 G GAP (Good Agricultural Practice), 37, 75 Geographical gaps, 48, 49, 54 GLOBALGAP (Global Good Agricultural Practice), 36 GMP (Good Manufacturing Practice), 37 Grapes, 2, 12, 17, 18, 41, 43–51, 59, 64, 66–69 GVC (global value chain), 4, 6 H HACCP (Hazard Analysis and Critical Control Point), 37, 75

© IDE-JETRO 2022 T. Shimizu, The Growth of the Fruit and Vegetable Export Industry in Peru, SpringerBriefs in Economics, https://doi.org/10.1007/978-981-16-9629-9

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78 HS (Harmonized System), 12 Hybrid seeds, 34

I Ica, 16–19, 27, 29, 30, 45, 50 Integration, 5, 6, 9, 23, 30, 35, 37 IPEH (Instituto Peruano del Espárrago y Hortalizas), 58–60 Irrigation project, 16, 33, 34

J Joint marketing, 58, 61

L La Libertad, 16, 18, 25, 29, 52 Lambayeque, 16, 18, 52, 74 Land market, 11, 15–17 Lima, 18, 45 Logistics, 6, 8, 37, 61

M Mangoes, 12, 17–19, 41, 46, 59, 64, 66 Mexico, 1, 11, 12, 23, 28, 41, 48, 52 MIDAGRI (Ministerio de Desarrollo Agrario y Riego), 24 MINAGRI (Ministerio de Agricultura), 16 Mining, 1, 13, 30

N National economy, 11, 13 Niche market, 27, 29, 41, 45, 48, 51 NPPO (National Plant Protection Organization), 62, 63, 66 NTAX (Non-Traditional Agricultural Export), 4, 8, 14

P PAIA (Peruvian Asparagus Importers Association), 60 Peppers, 12, 44, 46, 58, 59 Phytosanitary capacity, 58, 62, 63, 66, 68 Phytosanitary protocol, 62, 63, 66–69 Piura, 17–19, 43, 47, 50

Index Planning, 4, 37–39 Pomegranates, 46, 59 Prebisch–Singer hypothesis, 2, 3 Preserved asparagus, 9, 14, 24–27, 35–37, 58 Producers and exporters association, 60, 62, 67, 68 Promotion policy, 19 PROMPERU (Comisión de Promoción del Perú para la Exportación y el Turismo), 19, 58 PROMPEX (Comisión para la Promoción de Exportaciones), 19, 58, 61 Public goods, 9, 57, 62, 68

S Seasonality, 7–9, 41–43, 45, 48, 54 SENASA (Servicio Nacional de Sanidad Agraria), 63, 65–68 Smile curve, 6, 7 Spain, 12, 26, 27, 48, 49 Supermarket, 3, 30, 36–39, 60

T Temporal gaps, 49, 51 Traceability, 36, 37 Trade liberalization, 11, 15, 20

U Uncertainty, 7–9, 41–43, 47 UN Comtrade (United Nations International Trade Statistics Database), 24, 42 Upgrade, 5–7, 39 USDA (United States Department of Agriculture), 66 USITC (United States International Trade Commission), 24, 42

V Value added, 6, 19, 38 Value chain, 4–7, 23, 35–37

W WTO (World Trade Organization), 3, 63