“Implications of the Quinoa Boom on the Farmers’ Income"

How do changes in the quinoa market structure mediate quinoa farmers’ income

A Research Paper presented by:

Cinthya Verastegui EffelBolivia

in partial fulfillment of the requirements for obtaining the degree of

MASTERS OF ARTS IN DEVELOPMENT STUDIES

Specialization:

Full Name of SpecializationECD

Members of the Examining Committee:

Dr. Susan NewmanDr. Howard Nichols

The Hague, The NetherlandsDecember 2012

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ContentsList of Tables

5List of Figures

5List of Images

5List of Diagrams 5List of Acronyms 6Abstract 7Relevance to Development Studies 8Keywords 8

Chapter 1 INTRODUCTION 9

Chapter 2 Changes in the Quinoa Value Chain analyzed through the Global Commodity Chain lens

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Chapter 3 Mapping the Quinoa Value Chain 27a) Identification of Actors 28b) Market Structure and Bargaining Processes Pre and Post Demand Changes 32

Chapter 4 New Private Players characterize the Current Quinoa Market Structure 37

a) Loss of Monopoly 37b) Loss of Market Share 39

Chapter 5 New Business Practices in the Current Quinoa Market Structure and its Implications for the Quinoa Farmers’ Income

41a) Vertical Integration Strategies and Market Coordination

41b) Farmers Bargaining Power under “Contract Models” 45c) Price Implications of the New Competitive Environment

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Chapter 6 CONCLUSIONS 52

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Appendices 59References

Error: Reference source not found

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List of TablesTable 1: Trend in Quinoa Prices (FOB) between 1990 and 2010

13Table 2: Volume trend of quinoa exports between 1990 and 2010.

14Table 3: Price distribution under Jatary 21Table 4: Difference in export prices received between the PO’s and private firms. 44Table 5: Price paid by Quinoa Corporation between 1999 and 2005.

52Table 6: Quinoa price trend between 1990 and 2010 (FOB) 62

List of Figures

Figure 1: Trend in Quinoa Prices (FOB) between 1990 and 2010. 13

Figure 2: Volume trend of quinoa exports between 1990 and 2010. 14

Figure 3: Quinoa Export Destinations 15Figure 4: Evolution of Quinoa Exporters between 1990 and 2004.

16Figure 5: Producer prices as a share of exporter prices (US$/MT)

19Figure 6: Producer prices versus exporter prices (US$/MT) 20Error: Reference source not found

Error: Reference source not foundFigure 8: Market share by the producer organizations before the entry ofnew private firms. 39Error: Reference source not found 39Error: Reference source not found 41Figure 11: Evolution of quinoa exports by producer organizations

(ANAPQUI and CECAOT) and private firms (Andean Valley, Jatary and Quinoa Bol S.R.L.) between 1990 -2004 49

Figure 12: Commodity Prices Trend (US$/TM) 62

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List of ImagesImage 1: Bolivia/Quinoa stand at the “Floriade” event. 11Image 2: Bags of quinoa ready to be sold at the “Challapata Fair”.

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List of DiagramsDiagram 1: The Quinoa Value Chain 28Diagram 2: Incentives offered by the three venues 34 Diagram 3: Mapping of producer organizations ANAPQUI and CECAOT 59Diagram 4: Mapping of the vertical integration by Jatary and Quinoa Bol S.R.L. 60Diagram 5: Mapping of the US market 61

List of MapsError: Reference source not found Error: Reference sourcenot found

List of Acronyms

ANAPQUI The National Association of Quinoa ProducersCECAOT Central de Cooperativas Agropecuarias “Operación Tierra”

LTDA. BDCC Buyer Driven Commodity ChainsCABOLQUI Bolivian Chamber of Royal Quinoa and Organic Product

ExportersFAO Food and Agriculture Organization of the United Nations GCC Global Commodity ChainsIYQ International Year of the Quinoa HA HectaresICA International Coffee Agreements IYA International Year of the Quinoa MNC Multinational Corporations

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MT Metric TonsNAFTA North American Free Trade Agreement NGO’s Non-governmental OrganizationsPO Producer OrganizationsPDCC Producer Driven Commodity ChainsSBPC Bolivian System of Productivity and Competitiveness WSA World System Approach

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AbstractThis thesis analyzes the implications of the current quinoa market structure on some aspects of the farmers’ income such as producer prices and bargaining power through an alternative approach to mainstream economics. The increased demand for quinoa during the last few years, especially since 2006 have led to an increase in the value and volume of the transactions related to this market. As a result new private firms have entered the quinoa market seduced by the potential profits. The entry of these new private firms has changed the structure of the quinoa market, which through new business practices have displaced the monopoly that the peasant producer organizations had in the market for organic quinoa exports.

The implications of such changes on the farmers’ income are studied in this paper through the Global Commodity Chain analytical framework which puts at the center of the discussion issues surrounding the power relations within a production process. While under mainstream economics efficient price discovery is thought possible through market clearing at each stage of the production process, the GCC analytical framework is more careful in drawing conclusions from market data and challenges us to inquire into the types of relationships amongst the different participants in a particular production process; which is why, this paper starts the analysis by mapping out the Quinoa Value Chain looking to uncover the power relations at work therefore the bargaining power of each actor and ultimately the distribution of profits.

For the case of the quinoa farmer in Bolivia, this paper shows that the new business practices brought by the private firms manifested in vertical integration strategies which include “contract systems” have limited the bargaining power of the farmer to its contract specifications. Hence the possibilities that quinoa farmers have to profit from the booming demand for their crop are seriously circumscribed by those who are able to more successfully enter the models of vertical coordination.

Lastly, this thesis bears in mind that a limitation in its analysis is the lack of sufficient knowledge regarding the type of relationship between the peasant producer organizations and the farmers, since this information could bring light on explaining some recurrent themes mentioned by the farmers interviewed during the fieldwork and that is the issues of price volatility. Often farmers would mention their frustration about a lack of knowledge regarding how prices are set in the quinoa market, which often caused them significant losses. Furthermore, despite the increasing difficulty that the producer organizations have in fulfilling their role of “protecting the farmer” under the new quinoa market structure, these remain important for the lives of the farmers, which is why this paper recommends the need for state policy on control mechanisms to help stabilize prices in the quinoa market (currently characterize by high levels of volatility) as well as a greater support for the producer organizations since these represent a point of reference and buffer between the quinoa farmer and the private firms.

Concluding, the data presented in this paper is a combination of desk research and fieldwork interviews to a wide spectrum of actors which include: government personnel, university lecturers, private firm and producer organization representatives as well as quinoa farmers.

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Relevance to Development StudiesThe recent boom in food type commodity prices between 2006 and 2008 has reopened the opportunity to analyze how do farmers fair under what are presumed to be favorable market conditions – that is high crop prices.

This thesis focuses on the quinoa farmers in Bolivia and analyzes the implication of high quinoa prices on the farmers’ income in a more holistic way that the Global Commodity Chain (GCC) analytical framework allows in contrast to mainstream economics. Although producer prices data was taken into consideration as a point of departure for the analysis, this paper does not rely on these figures to draw conclusions from.

Instead, through its analysis attempts to uncover the power relations governing the Quinoa Value Chain and in this way contribute to the economic literature on the quinoa case with a more challenging and thought provoking debate.

Lastly, not much research and data is available on the current market structure post the changes in its demand. Most academic works on the subject date back to 2005, which is precisely when the craze for quinoa and its prices start to shoot up. Hence this work aims to contribute with more up to date data as well as fieldwork interviews that have captured the current sentiment of the different actors’ participants of the Quinoa Value Chain.

KeywordsBolivia, quinoa, value chain, organic, prices, vertical integration, farmers, ANAPQUI

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Image 1: Bolivia/Quinoa stand at the “Floriade” event.*Source: Picture taken by the author at the “Floriade” event on June 12 th, 2012.

Chapter 1 INTRODUCTION

‘In 2006, the production (of quinoa) was barely of 7.000 tones but as of last year, we don’t have data for this year yet, the production went up to 20.336 metric tons. From 7.0000 to 20.000 in very little time is the growth of quinoa production. The producers export primarily to Europe but also to USA and Asia. The exports have gone up from $8 million in 2006 to $63 million in 2011. Since it is a new product for the world, the market is growing’

Bolivian president Evo Morales

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At the Floriade1 event Venlo, The Netherlands

June 12, 2012

The Bolivian president Evo Morales participated at the Floriade event during the month of June of this year, as part of the activities surrounding the International Year of the Quinoa (IYQ). The Organization of the United Nations for Food and Agriculture (FAO) has declared next year 2013, as the Year of the Quinoa. This has been the result of a pursuit by the Bolivian government that started in the 70’s to promote the consumption of quinoa both nationally and internationally. In the year 2002, the Bolivian System of Productivity and Competitiveness (SBPC) laid out a plan which in addition to the goal of having a year designated by the FAO for the promotion of the quinoa it also included the target of having 50% of the total quinoa production to be produced and managed by the peasant Producer Organizations (PO’s).

The creation of the producer organizations during the 1980’s came in handy and facilitated the commercialization of quinoa. Now there was also a “social” cause behind its promotion. However, it is during the decade of the 2000’s that the volumes of quinoa production and commercialization reached significant levels in Bolivia (Caceres, 2005). Below is a quote from Freddy Mamani, second secretary for the Bolivian Mission at the United Nations that sums up the transition that the quinoa grain has experienced in the market over the last 20 years:

“I think that the quinoa has had three phases. Up until the 1990’s, the quinoa was simply “comida de indio” (food of and for the indigenous). Derogatorily, it was referred as food that only the indigenous could eat. Hence the quinoa along with the llama meat was only produced for self-consumption of the producing families. On a second phase, in the early 2000’s, the quinoa starts to become a product for exchange. For example, farmers would exchange two kilos of quinoa for one kilo of rice. Currently, on a third phase, we see a reversal of the situation where there is actually a high demand for quinoa. The quinoa is no longer just the food of the indigenous and it is being exported and so on”

Freddy MamaniSecond Secretary, Permanent Mission of Bolivia to the United Nations

Interviewed on July 26, 2012UN Headquarters – New York, USA

The fairly recent spike, as of 2006, in the figures related to the quinoa market has to do primarily with a change in the preferences of consumers in the industrialized countries for organic and fair trade related products. In addition, the increasing demand for grains with no gluten 2 content such as the quinoa have played a role in its increasing demand; as well as the creation of food security programs by international organizations like the FAO, which have included the quinoa in their programs due to its high nutritional content and adaptability to different and harsh climates (Birbuet and Machicado, 2009).

1 I visited the Floriade event as part of my fieldwork activities. 2 Currently 0, 4% of the world’s population suffers from celiac disease (Birbuet and Machicado, 2009).

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As a result, quinoa prices have more than tripled over the last 20 years:

Table 1: Trend in Quinoa Prices (FOB) between 1990 and 2010

Year Price of Quinoa (FOB)1990 $830 (US$/MT)2000 $1.259 (US$/MT)2010 $3.061 (US$/MT)

0

500

1000

1500

2000

2500

3000

3500

830

1259

3061

FOB Quinoa Prices between 1990 - 2010

Price trend for quinoa exports in US$/TM

Figure 1: Trend in Quinoa Prices (FOB) between 1990 and 2010.

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Similarly, the volume of quinoa exports has more than quadrupled:

Table 2: Volume trend of quinoa exports between 1990 and 2010.

Year Volume of Exports (MT) 2000 1.431 (MT)

2009 (peak year) 14.376 (MT) 2010 8.378 (MT)

0

2000

4000

6000

8000

10000

12000

14000

16000

1431

14376

8378

Volume of Quinoa Exports between 1990 - 2010

Volume of Quinoa Exports in Metric Tons (MT)

Figure 2: Volume3 trend of quinoa exports between 1990 and 2010.

The main international market destinations are the US which imports almost half of the total Bolivian quinoa exports with a 48% market share, followed by France with 16%, the Netherlands with 11%, Germany at 9%, Canada and Brazil4 at 4%. The last 8% is covered by a few other countries which import quinoa on a smaller scale such as England, Israel and Peru5.

3 Although the level of volume exports has come down during the last year, it continues to be double what the level was just six years back in 2006 with 8.378 (MT), as the graph shows.4 Brazil is a young market, but is growing rapidly. 5 Although Peru is one of the main quinoa producing countries (along with Ecuador) they also import quinoa. However, the majority of the quinoa that goes to this country is actually smuggled through the “Black Market” in the “Challapata Fair” versus being officially imported. Peru is the biggest consumer of quinoa around the world.

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USA48%

France16%

The Netherlands11%

Germany9%

Canada4%

Brazil4%

Others8%

Quinoa Export Destinations

Figure 3: Quinoa Export Destinations

As shown above through the tables and graphs, the increased demand for this grain has led to a spike in the value and volume of the transactions related to its market. Yet in addition to an increase in the figures, there has also been an interesting dynamic in the quinoa market structure since the late 1990’s, and that has to do with the immersion of new actors in the form of private firms seduced by the potential profits its market appears to offer. The graph below shows the evolution in the number of quinoa exporters between 1990 and 2004.

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19901991

19921993

19941995

19961997

19981999

20002001

20022003

20040

100200300400500600700800900

1000

Evolution of Quinoa Exporters between 1990 - 2004.

Andean ValleyANAPQUI (PO)CECAOT (PO)IrupanaJataryQuinoa-BolQuinoa FoodsSAITEOther firmsM

etric

Ton

s

Figure 4: Evolution of Quinoa Exporters between 1990 and 2004.

*Source: (Laguna 2005, as cited in Ton 2006).

The entry of these new private firms has dramatically changed the structure of the quinoa market as will be illustrated in the coming chapters. The ways in which the quinoa market has changed has serious implications for the quinoa farmers. The aim of this paper is to find out:

“How do changes in the quinoa market structure mediate aspects of the farmers’ income”?

In light of all of this, the thesis that this paper will put to the test is as follows:

“The immersion of new and more private firms into the quinoa market structure during the late 1990’s, lured by the potential profits its market appears to offer have displaced the producer organizations from the quasi-monopoly they had in the market for organic quinoa exports. The entry of these new private firms have brought new and more business oriented principles to its market manifested in vertical integration strategies which include “contract systems” in its interaction with the farmers. Under the new market structure, the ability of the farmer to profit from the booming quinoa market is seriously limited by contract specifications which do not offer the farmer the opportunity to participate in more profitable upgrading activities along the chain. Lastly, the continuous loss of market share by the producer organizations to the private firms reinforces these practices threatening the expansion of “wage worker” types of farmers throughout the quinoa fields in Bolivia, dangerously challenging the country’s ability to benefit from its booming sector”.

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The questions set out on this paper have been formulated following the Global Commodity Chain analytical framework, which will be described at length in the following chapter.

Chapter 3 starts by mapping out the Quinoa Value Chain looking to first identify the full set of actors involved in the Bolivian quinoa market. Distinguishing in the process the ways in which the quinoa market structure has changed post the increased demand for this grain and with the entry of the new private firms into its market structure. While up until the 1970’s quinoa farmers pretty much had only one venue where to sell their quinoa production, starting from the 80’s and onwards new quinoa buyers enter the quinoa market structure in the form of peasant producer organizations as well as new and more private firms. Each one of these selling points has different incentives (identified during the fieldwork) that the farmers take into consideration for their decision-making process. The characteristics surrounding each selling venue will be illustrated in this chapter.

Chapter 4 and 5 will be dedicated to analytically answering the main question as well as the related sub-questions:

“How have changes in demand affected the quinoa market structure during the last 20 years?The time scope of the analysis in this thesis is on the last twenty years since the quinoa market structure starts to fundamentally change since the 1990’s. As the quote from Mr. Freddy Mammani, Second Secretary of the Permanent Mission of Bolivia in the United Nations illustrated, up until the 1980’s, the quinoa had pretty much no value in the market. At most, it was a product for exchange yet starting in the 1990’s, the demand for this grain increases dramatically thanks to a change in the preference for organic and fair trade related products, by the consumers in the industrialized countries.

The first set of actors that enter the quinoa market in response to the changes in the demand for this grain were the peasant producer organizations which pretty much held a monopoly over the market for organic quinoa exports during the 1990’s. Yet, starting in the decade of the 2000’s, new private firms enter the quinoa market displacing the monopoly that the peasant producer organizations had and threaten their dominance in the chain. The implications of such changes will be studied in detail in Chapter 4.

“How have these changes in the quinoa market structure affected aspects of income such as producer prices, their bargaining power?The entry of new private firms into the quinoa market structure have brought novels forms of competition to the chain such as vertical integration strategies which include “contract systems” that limit the farmers’ bargaining power to its contract specifications. Furthermore, the closed nature of such vertical integration strategies has exacerbated the market loss by the producer organizations which contribute to reinforce the entry of the quinoa farmers into such “contract systems” despite the not so favorable conditions. The implications of such new business practices on the farmers and producer organizations will be studied in more detail in chapter 5.

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Lastly, the data presented in this paper has been gathered through a combination of desk research and fieldwork in Bolivia where a wide spectrum of actors were interviewed following the GCC analytical framework. These include: quinoa farmers, producer organizations representatives, private firms personnel and university lecturers, located in the cities of Oruro and Potosi in Bolivia. In addition, government officials were interviewed at the UN Headquarters in New York, USA. A total of 35 people were interviewed.

Fieldwork interviews were conducted looking to gather the current sentiment of the different participants in the Quinoa Value Chain with a focus on the quinoa farmer. Following the GCC analytical framework to be described next, the questions asked during the fieldwork aimed to uncover the power relations within this chain looking to bring clarity to what the current quinoa market structure means for the farmers’ income.

Chapter 2Changes in the Quinoa Value Chain analyzed through the Global Commodity Chain lens

The ways in which the world communicates and trades have significantly changed over the past 20 years, and so have the rules of the game under what is known as Globalization.

In economic terms, there have been important shifts in the global production and trading system, which are characterized by: a) the disintegration of the stages of the production process and consumption across national boundaries, b) the increasing spread between producer prices and consumer prices; while producer prices go down, consumer prices do not, c) it is common for products to be produced in developing countries and be consumed in the industrialized ones, d) intangible aspects of the production process such as marketing, brand development and design are key factors in securing real profits, e) Multinational Corporations (MNC) exert powerful influence in the coordination and governance of global production and trade, lastly f) “flexible systems of production” characterized by sub-contracting and off-loading less profitable activities onto smaller and weaker firms are more and more prominent in today’s global production and trading system (Newman, 2009).

Interestingly, the changes that the quinoa market structure has undergone during the last 20 years follow similar patterns and characteristics. For example:

a) The disintegration of the production process (flexible systems of production) and consumption across national boundaries is manifested in the fact that although the production of the quinoa product starts in Bolivian processing centers, the final stages of the process are usually finished in the destination country, closer to the consumer.

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b) The increasing spread between producer prices and consumer prices can also be seen in the quinoa case. As demonstrated earlier, quinoa export prices have shot up significantly over the last 20 years. However, quinoa producer prices seem to actually be on a downward trend with an increasing gap between producer prices and export prices as the following figures illustrate.

19911992

19931994

19951996

19971998

19992000

20012002

20032004

20052006

20072008

20092010

0.000

0.100

0.200

0.300

0.400

0.500

0.600

Producer Prices as a share of Exporter Prices (US$/MT)

Figure 5: Producer prices as a share of exporter prices (US$/MT)

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0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

Producer Prices (US$/MT); 1332.6

Exporter Prices (US$/MT); 3061

Producer Prices alongside Exporter Prices

Figure 6: Producer prices versus exporter prices (US$/MT)

c) It is common for products to be produced in developing countries and consumed in industrialized ones. In fact, internal quinoa consumption in Bolivia is quite low compared to its demand and consumption in the industrialized countries. According to the Bolivian Vice Minister of Rural Development Victor Hugo Vazquez, internal quinoa consumption for this year (2012) will be limited to a total of 12.000 tons which is considered a very low figure. In a very different manner to the external consumption of quinoa, the internal consumption has barely increased by a little more than a kilo per capita over the past few years (Exportacion de Quinoa se duplicara el 2012).

d) Intangible aspects of the production process such as marketing, brand development and design are key factors in securing real profits: an example of this can be found in the price distribution under the French company Jatary. While the Bolivian quinoa farmer receives 10% of the final price paid by the French consumer; Jatary, which is positioned closer in the chain to the intangibles of the production process, receives more than double the percentage received by the farmer, specifically 24%. Furthermore, the next set of actors downstream the chain, such as the importing company EURONAT (to be analyzed in detail in the following chapters) receives 76% of the total price paid by the consumer. See table below:

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Table 3: Price distribution under Jatary

French market: price distribution under Jatary (2004)Quinoa Bolivian Price (bolivianos) per quintal

Price in US$ Consumer Price distribution (%)

Quintal Kg

Quinoa (1) consumer Price

4.92 100

Price paid to the Bolivian producer

175 22.7 0.49 10

Challapata market Price

150 19.5 0.42

FOB Price (ton) received by JATARIY (2)

1,200 1.20 24

Difference (1-2) =northern margin

3.72 76

* Source: (Raynolds, 2007)

e) Multinational Corporations (MNC) exert powerful influence in the coordination and governance of global production and trade: the French retailers EURONAT and MARKAL represent those big players in the Quinoa Value Chain that are challenging and changing its market structure as will be discussed in the following chapters.

There is a strand of scholars who are interested in studying this processes resulting from Globalization acknowledging that there are winners and losers under what has been named by them as Global Commodity Chains (GCC). According to Jennifer Bair (2005), a leading scholar in this literature “GCC helps us analyze the local consequences of globalization for firms and workers”.

Although this strand of literature is fairly recent (dating back to the 1990’s), the commodity chain as a concept was originally thought of in the World Systems Approach (WSA) literature (back in the 70’s). Immanuel Wallerstein, (one of its founders) conceives the commodity chain “as a network of labor and production processes whose end result is a finished commodity”. For the WSA, the totality of all commodity chains makes up the global production system (Hopkins and Wallerstein, 1982).

This concept would later be retaken by Gary Gereffi who in 1994, through his work titled “The Organization of Buyer-Driven Global Commodity Chains: How U.S. retailers shape overseas production networks” would establish the concept of commodity chain as one unit of analysis through what he called Global Commodity Chains (GCC). Under GCC, concepts drawn from the international business

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literature (such as industry structure, governance and value added) are emphasized over others coming from the dependency theory, which WSA was influenced by.

Gereffi starts by identifying four key dimensions with respect to which every commodity chain can be analyzed: 1) a physical input-output structure (which is the process of transforming the raw material into a final product), 2) a territoriality (or geographical scope), 3) a governance structure and 4) an institutional context. However, the focal point of its analysis is on the third dimension: governance structure, since as for Gereffi there are power relations embedded within each stage of the production process which set apart the winners and losers of globalization.

It is in this context that GCC is interested in determining which the ‘driving firms’ in a chain are, since this will speak about their ability to control the various aspects of the production process and therefore about how value is created, appropriated and/or distributed within the chain (Bair, 2005).

For Gereffi and Korzeniewicz (1994), there are two types of governance structures based on this “driveness” factor: buyer driven and producer driven commodity chains (BDCC’s and PDCC’s, respectively).

BDCC’s (buyer driven) are essentially found in labor-intensive production processes where “production itself is contracted out to a network of independent firms that obtain necessary inputs and organize supply to hegemonic retailers” (Gereffi and Korzeniewicz, 1994). As mentioned at the beginning, this is the process where the sub-contractors “themselves begin to transfer the least profitable parts of their new portfolio of functions to other nodes”. The driving firms in BDCC’s are Retailers and Branded Marketers which specialize in design, branding, marketing, financial services and are usually found in consumer goods industries, such as garment and footwear (Gibbon, 2001). “International subcontracting of more labor-intensive manufacturing is common; as are strategic alliances between international rivals” (Gibbon, 2001). Similar governance structures are found in the commodity chain of some agricultural products. This reflects the power of supermarkets over the producers (Bair, 2005) (Dolan and Humphrey, 2000).

On the other hand, PDCC’s (producer driven) are usually found in capital and technology intensive industries. In this case, the coordination of production takes place amongst heavy transnational corporates and through a wide network of subsidiaries, suppliers and subcontractors (Newman, 2012). These tend to be multilayered (first, second and third tier suppliers) and involve thousands of firms (including parents, subsidiaries and subcontractors). Capital and proprietary know-how represent the main barriers to entry into the “producer node”. (Gibbon, 2001).

Yet, for some opposing scholars these categorizations reveal the descriptive nature of the GCC analytical framework. For these, GCC is poor in the analysis and reliant on chain typologies that do not adequately account for the diversity in empirical case studies (Newman, 2009)

Furthermore, GCC has been accused for being somewhat deterministic when depicting the industrial organization of chains, its governance and upgrading. It is also accused of being “fatalistic”,

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since it suggests that the limits of economic activity in developing countries are determined almost entirely by the economic structures and behavior in OECD countries (Gibbon, 2001).

Another concept that is extensively used in the GCC literature in addition to governance is the one related to upgrading. This concept makes reference to the processes through which actors’ upstream (that is closer to the production side) can move along the chain towards higher added value activities (closer to the final consumer). Upgrading can be done in different ways, such as: intra-chain (also called functional), or by product, by process or inter-chain.

Intra-chain upgrading, is when a firm takes on additional functions beyond basic production such as design or logistics management, securing in this way its position within the chain. “Full-package manufacturers” are an example of this. Product upgrading is when more sophisticated products are produced with higher unit prices. Process upgrading, happens when the technology or production systems are improved. Finally, inter-chain upgrading takes place when there is a move from one industry to another (Bair, 2005) (Gereffi et al. 2001b; Humpfrey and Schmitz (2001).

However, several studies suggest that the ability of firms to upgrade in any of the ways mentioned above is more and more difficult due to increasing entry barriers as we move along the chain (Newman, 2012). Interestingly, it seems to be that the barriers of entry to the intangible aspects of the production process (such as marketing, design and brand development) are much greater than the barriers of entry to the tangible ones (meaning production and manufacturing), the least profitable (Bair, 2005) (Gereffi et al. 2001b).

Furthermore, although upgrading is thought of as a positive for those involved, this is not always the case. In fact, upgrading (intra-chain) can often simply mean the increased competitiveness of the firm, as it takes on additional responsibilities without reaping the benefits associated with upgrading, such as increased security within the chain and/or greater profitability. What’s more, smaller firms within the country are often excluded in this process.

For example, a comparative study of Kenyan horticulture and Indian textile value chains by Dolan and Tewari, concluded that “changes in both value chains associated with processes of upgrading on the part of the largest firms severely circumscribed the future upgrading prospects of smaller producers and pose the danger of excluding a large swathe of low-performing domestic firms from the circles where new skills and learning are being generated” (Bair, 2005)

Similarly, for the case of the workers, upgrading does not necessarily translate into higher wages, greater job security or improved working conditions (Newman, 2012) (Ponte 2002; Schurman 2001; Talbot 1997)

Yet, according to Cramer (1999) another opponent scholar, GCC analysis over-emphasize what it refers as the “rigidly exploitative terms” set by the multinational corporations. For some scholars (GCC), places the firm at the center-stage of its analytical work hence firms are thought to be in “uniquely powerful positions in terms of their ability to shape outcomes along the chain and the distribution of value added”. In this sense, upgrading is only possible at the firm level. Labor and other social categories

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are not taken into account for the analysis, which shows the departure of the GCC literature from the World System Approach (its origin). Under WSA, labor is thought to be quite important.

Another set of criticisms, accuse GCC analysis for being too worried by the vertical nature of the chain and as a consequence have neglected the inter-chain interactions. In addition, according to Newman (2009), there has been an exclusion of finance, which has for example left commodity derivatives out of the analysis.

Furthermore, for some authors like Bair, the emphasis of the literature on concepts such as upgrading (as mentioned above), although necessary and useful, these lack an analysis of the social context surrounding these upgrading processes (or lack thereof). Hence, proposes an agenda for what she has called a “Second generation of commodity chain research”.

For Bair, the next generation of commodity chain research should pay close attention to the factors “external” to the chain and by this she means the contextual factors that affect whether or not the different participants in the chain benefit and the extent to which they do. She highlights the importance of market institutions, regulatory mechanisms, particularly of trade policy and how these have an effect on the extent to which developing countries benefit from their participation in commodity chains.

Some examples are found in the context surrounding the International Coffee Agreements (ICA) and the North American Free Trade Agreement (NAFTA). According to Stefano Ponte, changes in the ICA regime negatively affected developing country exporters: ‘From a balanced context between producing and consuming countries within the politics of international coffee agreements, power relations shifted to the advantage of transnational corporations. A relatively stable institutional environment where proportions of generated income were fairly distributed between producing and consuming countries turned into one that is more informal, unstable and unequal’ (Bair, 2005)

Similarly, a study done by Plankey Videla on ‘Moctezuma’ a large Mexican apparel firm, concludes that the inability of this firm to take advantage of the “export environment” (created and brought to the country with NAFTA) has more to do with the characteristics of Mexico’s contemporary business environment than with the organizational dynamics of this particular commodity chain. The lack of friendlier banking rules that facilitates credit for domestic firms impedes these to convert the potentially “favorable conditions” into solid sustainable growth for these firms and ultimately bring benefits to the firm’s owner and its workers (Bair, 2005).

Furthermore, a study done by Bair and Gereffi (1998) explain how the dramatic increase in apparel exports from Mexico after 1994 is a reflection of the response of leading US textile and clothing companies to the new trade regime - NAFTA. In addition, they show how the shift from the maquila to a full-package production model (under NAFTA) left Mexican exporters pretty vulnerable and dependent on the conditions of the US economy.

The contextual factors in the Quinoa Value Chain seem to be somewhat favorable at the moment. For example, in March of last year (2011), the Bolivian president launched the Organic Quinoa

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Sectorial Credit Program budgeting Bs. 84million ($12 million approx.) coming from the state-run Productive Development Bank. These credits vary in size. Small-size farmers can receive up to Bs.21.000 ($3.000 approx.), medium-size farmers can receive between Bs.21.000 - Bs.70.000 (up to $10.000 approx.), while producer organizations can obtain between Bs. 70.000 – Bs. 350.000 (up to $50.000 approx.). According to the bank’s general manager, Veronica Ramos, 19.000 farmers had already received credits6 (Ministry of Economy and Public Finance, 2011). In addition (as mentioned earlier), some international organizations like the FAO are supporting the Quinoa Value Chain by including this grain into their worldwide food security programs and naming the year 2013 as the Year of the Quinoa (IYQ) helping to promote this grain around the world.

Although the GCC literature, (as mentioned earlier) has been criticized for being somewhat descriptive; in my view this is an unfair assessment of GCC as an analytical framework given that the core of the GCC analysis is on a constant quest to determine the power relations within the production process, which by no means is a descriptive endeavor. The methodology that GCC employs for this purpose is a reflection of this and consists of:

a) Determine the full set of actors involved from the production stage until its final distribution to the consumer,

b) Determine the type of relationships that exist amongst them; and finally with the previous information,

c) Find out where and how value is added to the product, the division of labor and the distribution of profits along the chain.

The purpose of making the mapping of the commodity chain the starting point for the analysis is intentional. For commodity chain scholars, to “describe a chain’s governance structure is to illuminate the nature of power relations that exist along a chain” (Bair, 2005). Power in GCC is conceived as the ability to coordinate the system (of production) rather than the concentration of ownership of the productive resources (Gibbon, 2001).

Furthermore, GCC scholars recognize the numerous downsides to globalization such as falling and volatile producer prices (Newman, 2009). The quinoa value chain is no exception and similar trend (refer to Figure 5 and 6) can be found in their producer prices, as mentioned earlier. The gap between producer prices and exporter prices seems to be widening even though quinoa prices have shot up over the last few years.

These imbalances in the distribution of profits amongst the different actors in a commodity chain are a manifestation of the power relations within it that GCC is interested in studying, because these will ultimately reflect the bargaining power of each actor involved in the production process and therefore will help us understand the processes behind the profit distribution scheme.

6 The farmers’ ability to pay back the loans is measured by the number of cultivated areas.

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During my fieldwork and while talking to farmers, I realized that a constant source of worry for them are the price swings that characterize the quinoa market nowadays in the context of its changing market structure (which I will continue to illustrate in the following sections).

Often, farmers would express their frustration over a lack of information as to how prices are set since this causes them significant losses. Interestingly, they would often mention that it was the ones in the capital of the country (La Paz), the ones who “knew”:

“[.. a bit hesitant to say..] the ones from La Paz. Well the big entrepreneurs. When we lose, we really lose. When we win, we win. I have no clue how they manage this sort of stuff. The price I mean.. I really don’t understand. The big guys (the big entrepreneurs) are the ones who set the price”

Quinoa Farmer from the Quijarro Province in the city of OruroInterviewed at the “Challapata Fair”

August 18th, 2012

While perhaps mainstream economics would disregard this last quote or at most consider it anecdotal, an analysis done through GCC may be more careful and question “what this knowledge by the ones in the capital” means in terms of uncovering the power relations within the chain. This information has implications for the bargaining power of the farmers and their ability to capture profit in the quinoa market.

Under mainstream economics, price transmission is basically explained through competitive pricing behavior (Bargawi and Newman, 2009). In other words, it assumes there is market clearing at each stage of the production process. It does not take into account that actors downstream the chain (closer to the consumer) can heavily influence what happens to the actors upstream (closer and ultimately to the producer). Furthermore, mainstream economics does not study the connections between each one of the stage of the production process. It ignores them.

For Newman (2009), “Neoclassical economic theory is inherently unable to deal adequately with the existence of vertical supply structures (chains) since it relies on a horizontal model of supply and demand. At best, a supply chain is conceptualized as a series of stacked supply and demand processes. The relationship between one stage in the vertical production process and another (except as a purchaser of supplier of inputs) is inherently absent from the framework”.

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The changes that are brought to the structure of domestic marketing systems by financial globalization (mentioned at the beginning of this chapter) exacerbate either the quick passing of negative price changes to the farmers versus positive ones (Shepherd, 2004) (Newman, ?) and or the quick passes of wholesale price increases onto consumers versus negative downturns (Morriset 1998; Abdulai 2006).

In the quinoa case, this is manifested in the fact that while producer prices as a share of exporter prices appears to be on a downward trend, quinoa products in the industrialized countries have more than tripled in prices. According to a recent report by NPR, just six years ago American shoppers could purchase quinoa for $1.50 per pound whereas now retailers get between $4.50 and $8, for every pound they sell of quinoa (NPR, 2012).

Concluding, in a nutshell the literature of Global Commodity Chain (GCC) puts at the center of the analysis the existence of power relations embedded within each stage of the production process and through its study attempts to explore the bargaining power of each actor involved in such production process. Since the distribution of power amongst the different actors along the chain will most likely not be equal, this will ultimately determine, or at the very least influence, their level of profits and its distribution. As illustrated above, the GCC literature aims to provide an alternative approach by focusing on institutional structure and power when analyzing price transmission and income shares (Morisset, 1998; Shepard, 2004; Fafchamps and Vargas Hill 2008). In this way, the analysis becomes much more complex and thought provoking than what perhaps mainstream economics would allow.

This paper will attempt to study these complexities in the more holistic way that the literature of Global Commodity Chain proposes and, through this analytical framework, answer the main question set out on this paper:

“How do changes in the quinoa market structure mediate quinoa farmers’ income?”

The Quinoa Value Chain analyzed through the Global Commodity Chain lens informs us that the presence of more and new players in the market contesting for the dominance of the chain and the distribution of profits will have impacts upstream – on the farmers and their incomes.

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Chapter 3Mapping the Quinoa Value Chain

Diagram 1: The Quinoa Value Chain

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Quinoa Farmers

Organic and Non Organic

Producer Organizations

(ANAPQUI and CECAOT)

Mostly deal with Organic Quinoa

EXPORT to markets in the US and Europe (primarilly)

Regional PO's deliver the quinoa to the umbrella

POs for full or final processing.

Importers and Distributors

Ex. Rapunzel, GEPA.

Retailers and Supermarkets

Private Firms (new private firms enter the quinoa market during the late

1990's)

Small Land Owners

EXPORT to markets in the US and Europe (primarilly)

Some companies are vertically integrated throughout the chain. Ex. Jatary.

Importers and DistributorsFrench company Euronat

is vertically integrated with Jatary.

Retailers and Supermarkts

Ex. Carrefour

"Challapata Fair"

Medium or Big Size Land Owners

Also, known as the "Black Market" since Qunoa is either smuggled into Peru or destine towards the Internal Market.

Conventional Quinoa prices are set here.

SELLProduce mostly for self

consumption

a) Identification of Actors The set of actors7 involved in the case of the Quinoa Value Chain in Bolivia are varied and start with the farmers (producers), followed by the producer organizations, private processing firms, exporters, importers and or distributers, which can either be private companies or fair-trade related organizations with and without transnational reach (Laguna, 2006).

I will continue the GCC analysis by describing each set of actors starting with the farmers:

Farmers (producers)

Quinoa production in Bolivia represents the most important economic activity for around 70,000 farmers in 200 communities of the Andean cities of Potosi, Oruro and La Paz (Ledezma et al. 2011). The first two cities are amongst the poorest in the country.

Quinoa farmers can be classified as small if they own between 2 – 5 hectares of land, medium-size farmers if they own between 10 – 20 hectares of land and large-size farmers if they own more than 20 - 30 hectares of land. In addition to their land size, quinoa farmers can also be classified by the type of quinoa they produce as either organic farmers or conventional quinoa farmers (non-organic).

While small size land owners mostly produce quinoa for self-consumption, medium and large size land owners also produce it for commercialization purposes. Currently, quinoa farmers have three venues where to sell their production: a) the producer organization they belong to, b) private processing firms and c) the “Challapata8 Fair” (located in the city of Oruro).

Next:

Producer Organizations (PO’s)

‘Cooperatives and producer organizations have a key role to play in bringing about a future without hunger’ he said (FAO Director-General Jose Graziano da Silva). Standing alone, a smallholder has fewer opportunities. When farmers get together, they have better condition to negotiate of price and better access to assets and services such as information, communication, input and output markets, natural resources, from local to international levels’ (FAO, 2012).

Producer organizations in developing countries such as Bolivia are very important for the lives of the farmers since these are supposed to fulfill an economic and social function (of interest representation). The economic function deals with the: collecting, processing, marketing of agricultural products, implementation of quality assurance programs and training. Training consists of how to

7 Another set of actors considered as supporting institutions/bodies are: public institutions, NGO’s, certifying companies, international organisms of cooperation (Laguna,2006).8 This was one of the locations I visited during my fieldwork.

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improve farm gate prices (by reducing logistic inefficiencies), reduce transaction costs and strengthen their bargaining power (Ton and Birbuet, 2006).

The producer organizations of the Quinoa Value Chain in Bolivia emerged during the 70’s and 80’s along with the support of Belgium NGO’s with the objective of improving the living conditions of the quinoa farmers through the acquisition of better prices and the incorporation of value added by the producer organizations along the different levels of the quinoa chain.

There are two main umbrella producer organizations: ANAPQUI and CECAOT9. These two were established in 1983 and 1974 respectively and represent a total of 3,000 households. Geographically speaking, ANAPQUI covers the cities of Oruro and La Paz grouping a total of 9 regional producer organizations along the regions of the Uyuni Salt Dessert. On the other hand, CECAOT 10 is concentrated in the city of Potosi and brings together a total of 13 local co-ops in the North Lipez province.

The president of CECAOT describes his organization as follows:

‘My name is Javier Lopez, I am the president of the CECAOT. We are located in the North-Lipez Province of the city of Potosi. We are organic producers certified by the certification office and organized as a cooperative. There are 13 cooperatives associated in 13 communities. We have around 300 members approximately. We are in charge of producing quinoa as well as commercializing it. Our main activity though is the processing and commercialization. Our processing plant is here (Uyuni) because in our community there wasn’t electricity in the past. Which is why around 7 to 8 years ago, we installed this processing plant. It is true that in the last few years, the business of quinoa has increased as well as the production and the price of quinoa. This last two years we’ve had good climate for the quinoa. We’ve had lots of rain. We have lots of production. We have around 16000 certified quintals which should allow us to export for around a year’.

Javier Lopez DelgadoPresident of CECAOT – Central de Cooperativas Agropecuarias “Operación Tierra” LTDA.

Interviewed at CECAOT’s Headquarters in Uyuni, Potosi- Bolivia August 17, 2012

Next:

Private Firms (processing firms, exporters and importers)

According to the Bolivian Chamber of Royal Quinoa and Organic Product Exporters (CABOLQUI 11) there are ten private companies in Bolivia involved in the market for quinoa exports. As mentioned earlier, most of these companies entered the market late in the 1990’s. For example:

‘Jatary’, starts exporting organic quinoa since 1996.

9 I visited both PO’s during my fieldwork and interviewed the presidents of both organizations. A diagram with the list of the regional associations under ANAPQUI is provided in the Appendix – Diagram #3. 10 CECAOT is organized as a cooperative. 11 This organization was created in 2005.

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‘Coronilla S.A’., starts exporting organic quinoa since 1997.

‘Quinoa BOL S.R.L’., exports organic quinoa since 1998.

‘Andean Valley’, exports organic quinoa since 1999.

‘Irupana S.A’., since 2003.

‘Quinoa Foods Company S.R.L’, since 2002.

Some of these firms like the ‘Coronilla S.A.’ and ‘Quinoa BOL S.R.L’ have some other smaller subsidiary firms such as ‘Real Andina12’ (created in 2004) that are geographically based in the quinoa producing communities and take care of some of the more basic upgrading functions. Upgrading in the quinoa value chain starts with the basic removal of the saponin13 and cleaning of the grain to allow its basic consumption; followed by its packaging, next its transformation into flour, flakes and insufflated quinoa (also called popocorn) which will later allow the production of even higher processed and unit cost products such as breakfast cereals, energy bars, pastas, muesli, sweets, etc. (Gandarillas, 2011).

Private firms will usually have specific quinoa producing communities they work with to secure their quinoa supply under “contract” models, which will be explained in greater detail in the following chapters. Nevertheless, if their “strategic partners” as the private firms refer to the farmers, fail to provide them with the amount of quinoa they need then they will also buy the quinoa from other farmers who come to offer their production14 to their locations.

Furthermore, some of these firms like ‘Jatary’ and ‘Quinoa Bol S.R.l.’ are vertically integrated with some other larger international companies, such as the French EURONAT and MARKAL 15; which actually created the local processing firms (‘Jatary’ and ‘Quinoa Bol S.R.L’) alleging unpunctual deliveries and lack of quality from the quinoa coming from the producer organizations. Both EURONAT and MARKAL used to work with ANAPQUI (producer organization) prior to creating their own local processing firms.

Lastly:

The “Challapata Fair”

Another important actor/institution of the quinoa market is the “Challapata Fair” also known as the “Black Market” since at this fair several products are smuggled into the bordering country of Peru 16, the quinoa being one of those.

Most of the quinoa commercialized at this point is conventional (or non-organic). Although farmers have a price incentive (as it will be illustrated further) to produce organic quinoa not all farmers

12 I visited this private firm during my fieldwork.13 The saponin is a bitter coat that covers the quinoa grain. 14 Ideally, certified organic quinoa is preferred. 15 A diagram with the list of the companies vertically integrated is provided in the Appendix – Diagram # 4.16 As mentioned earlier Peru is the biggest consumer of quinoa in the world.

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are able to do so. If that is the case, then their main market will be the “Challapata Fair”, since the quinoa buyers here are not concerned with whether or not the quinoa is organic.

‘Between 35%-40% of the farmers in the area are organic producers. The organic producers are registered and follow an auditing system. There are norms that they have to follow in order to export their production to the US, Japan, etc. Whereas the conventional producers use chemicals and their main market is the market in Challapata. Not really for exports’.

Ing. Marcelo GonzalezProfessor at the Technical University of Oruro

Interviewed on August 15th, 2012.

The “Challapata Market” is an important one within the Quinoa Value Chain since this represents a point of reference where conventional quinoa prices are set.

Image 2: Bags of quinoa ready to be sold at the “Challapata Fair”.

* Source: Picture taken by the author at the “Challapta Fair” on August 18th, 2012.

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Following, I will illustrate the interaction of the farmers with each one of these actors when commercializing their quinoa.

b) Market structure and bargaining processes pre and post demand changes

The Quinoa Farmer and the “Challapata Fair” (pre-demand increases)

According to Raynolds et al. (2007), up until the 1970’s the “Challapata Fair” represented the only commercial path where the farmers could sell their quinoa production. “The quinoa was purchased in small quantities from peasant producers, collected and consolidated by wholesalers who monopolized its distribution”.

Also, the “trueque17” used to be practiced. Middle men would come to the quinoa producing communities offering some “staple products” such as: candles, some clothing and other food products in exchange for quinoa. According to Mr. Javier Ramos, production chief at ‘Real Andina’ the middle men would often take advantage of the farmer and pay really low prices:

‘[…] the middle man was abusing the producers. They would pay the farmer with whatever price they wanted. They used to take some “staple products” such as candles, lighters, rice, or flour and would exchange it for quinoa. I’m talking about when the quinoa was priced at Bs.20-Bs.30 (currently the average price for a quintal of quinoa is Bs.600). Three quintals of quinoa would be exchanged for one of sugar or two quintals of quinoa would be exchanged for one of flour.3 for 1 and 2 for 1’

Javier Veliz RamosProduction Manager at private firm “Real Andina”

Interviewed at the company’s office in Uyuni, Potosi- Bolivia August 17, 2012

Nowadays, even though the “Challapata Fair” is not the only venue where the farmer can sell the quinoa, this market remains important for the Quinoa Value Chain since it is here where conventional quinoa prices are set. For Raynolds et. al. (2007) the “Challapata Fair” represents quinoa’s “Wall Street”, where its prices are set on a weekly basis. This market is dominated by the logic of supply and demand here, with about a dozen buyers and the farmers as price takers.

However, as explained earlier, the increased demand for the quinoa grain has led to the immersion of new players in the market hence the farmer under the current market structure has more than one venue where to sell the quinoa. Each one of these venues has different incentives and paying structures, which will influence the farmer’s income. During my fieldwork, I identified a few factors 18 that a farmer will take into consideration when choosing one venue over another: 1) the relationship the

17 Local word that means exchange. 18 Nevertheless this is not meant to be a complete list but rather the factors I identify as important.

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farmer has with its producer organization, 2) how needed is the farmer for cash, 3) the price that each buyer is willing to pay for the quinoa and 4) the type of quinoa the farmer produces, which can either be organic or conventional (that is non-organic).

Following, I will elaborate on each one of these factors by describing the interaction of the quinoa farmer with each one of the selling venues.

Diagram 2: Incentives offered by the three venues

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Quinoa Farmer

Organic and Convetional

Producer Organizations

- Farmers will have to wait at least 1 month and a half to get paid. - Prices are set in advance. - Prices are usually higher than what the private firms pay (although not always). - But higher (usually) than what the "Black Market" pays.

Private Firms- Farmers will have to wait at least 3 monhts to get paid. - Prices are set at the "signing of the contract". However, these only indicate the % that will be added to the "Challapata price", which varies on a weekly basis.- Prices paid are usually lower than what the PO's pay (although not always). - But higher (usually) than what the "Black Market" pays.

"Challapata Fair"

- Farmers are paid on the spot. - Prices are set on the spot. - Prices are usually lower than what the PO's and private firms pay.

The Quinoa Farmer and the pay incentives through the Peasant Producer Organizations

During harvest time, quinoa farmers affiliated to the peasant producer organizations will collect their quinoa and “make their acopio (delivery)” it to their regional peasant producer organizations. These in turn will deliver it to the main umbrella producer organizations ANAPQUI or CECAOT.

The pay incentives that a farmer has to sell the quinoa to the peasant producer organization involve:

- a higher price than the one being paid by the Private Firms and the one being paid at the “Challapata Fair”, also

- affiliated farmers also have the opportunity to be paid for their participation in the transformation of the product and direct sale of the quinoa to the importers (Reynolds, 2007), furthermore

- affiliated farmers value having the peace of mind of knowing that their quinoa production already has a “buyer” who is willing to pay a “higher price”

However, although these are the ideal conditions, the peasant producer organizations are not always able to serve all of their members since their business transactions are small compared to the quantity of quinoa they receive from their members. This means that although affiliated quinoa farmers have a “secure buyer” this may not be able to purchase all of the production of the farmer. In this case, the farmer will have to recur to the second best price option – the private firms.

The Quinoa Farmer and the pay incentives through the Private Firms

- The price that private firms offer is also higher than the one offered at the “Challapata Fair” and often rival the one offered by the peasant producer organizations, however

- farmers will have to wait at least 3 months to get paid; the waiting time with the peasant producer organization is of 3 months, also

- farmers do not get paid any additional amount from the processing of the grain.

Lastly, private firms will buy quinoa from individual farmers however they primarily work with “contract systems” (which will be described in more detail further in chapter 5) in order to secure their quinoa supply.

The Quinoa Farmer and the pay incentives in the “Challapata Fair” (post demand increases)

Given that both peasant producer organizations and private firms delay in their payment, if a farmer is in need for quick cash then the best option will be the “Challapata Fair”, since payment here is done on the spot. The disadvantage however as already mention is that:

- the price paid at this point is usually lower than what the peasant producer organizations and private firms offer. According to Prof. Marcelo Gonzalez from the Technical University of Oruro, farmers when in need will sell their quinoa production at whichever price.

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‘[…] well this has to do with their “necessities”. Sometimes they (farmers) won’t even ask what the price the quinoa is being bought at, is’

Ing. Marcelo GonzalezProfessor at the Technical University of Oruro

Interviewed on August 15th, 2012.

Lastly, as mentioned earlier if a farmer is only able to produce conventional quinoa then the “Challapata Fair” continues to represent the only selling point for this farmer under the current market structure post the demand increase.

The market for conventional (non-organic quinoa) pre and post demand changes

Initially, the commercialization of quinoa was for conventional or non-organic quinoa. However during the 1990’s there is a shift in the preference by the consumers in the industrialized countries for organic quinoa. According to Laguna et al. (2006), during the 1990’s the demand for quinoa in the industrialized countries (US and Europe) changed its requirements and turned almost exclusively organic. The shift in Europe took place in 1995 while for the US market in 1999. Hence the quinoa market in Bolivia followed similar pattern and focused on organic quinoa production.

However, although both producer organizations and private firms deal primarily with organic quinoa they also commercialize conventional quinoa which is destine primarily towards the internal market.

In addition, there have been some instances in which private firms have been accused for buying conventional quinoa in the “Challapata Fair” but selling it as organic quinoa to the distaste of the producer organizations that work hard in obtaining and maintaining their organic certification.

‘ANAPQUI and CECAOT are the only exporters in Bolivia that have an internal quality control and certification policy. The private firms buy in the Challapata market and export them as organic. […] Other export firms get their quinoa at lower price and use fraudulent certification practices (mixing organic quinoa with conventional quinoa). Although the producer organizations are not decisive in regulation of farm gate prices, their position in the international market for organic quinoa gives them the possibility to contribute to improving the living conditions for the producers’ (CIOEC-Quinoa , as cited in Ton, 2006:9).

Quinoa farmers have an incentive to produce organic quinoa over the conventional one, since the price paid for it, is greater than the price for conventional quinoa (or non-organic). This was confirmed by the quinoa farmers interviewed during my fieldwork:

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‘There is a big difference in the price of organic quinoa versus non-organic quinoa. For example, in the “Black Market19”, the price of white20 quinoa non-organic is Bs.520 per quintal (or $7421); versus the price of the organic quinoa which is around or above Bs.700 (or $100)”.

Ovidio Silvestre AlanocaResponsible of personnel at ANAPQUI and Quinoa Farmer

Interviewed at the PO’s headquarters in the town of Challapata, Oruro - BoliviaAugust 16th, 2012

However, as it will be illustrated later in the paper obtaining the certification is costly and complicated to do it on an individual basis hence only associated farmers are able to produce organic quinoa.

In conclusion, the increased demand for quinoa has increased the selling venues for the farmers (as illustrated above). Although each one of these venues has different pay incentives the main difference is between the “Challapata Fair” and the other two venues: the producer organizations and private firms. Since:

- the price paid at the “Challapata Fair” are lower however immediate payment is received , whereas with the producer organizations and private firms

- the price paid is higher yet there is a significant delay in payment.

On the other hand, the difference in pay incentives between the producer organizations and the private firms do not seem to be very different, except for

- the additional payment the farmer gets for the processing of the product

- the price difference between these two player does not appear to be significant, and

- the inability of the producer organizations to buy all of the quinoa from their affiliated farmers may compensate the lower price offered by the private firms

Concluding, although the selling venues for the farmer post the increase in the demand for its crop are greater, this does not appear to have increased the bargaining power of the farmer significantly, since the two major “quinoa buyers” meaning the private firms and the producer organizations do not offer significantly different incentives. At most, the increased number of venues may allow the farmers to sell more of the quinoa production they would otherwise, however their

19 The “Challapata Fair” is also called the “Black Market” since quinoa is also smuggled to the bordering country of Peru through this point. 20 There are several kinds of quinoa. The “white” variety is the most highly commercialized and preferred. 21 Conversion rate as of 24/10/2012.

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ability to bargain for higher prices or “play these two actors” (the PO’s and the private firms) seems seriously limited due to the very similar pricing incentives these two offer.

It appears that in fact, the major impact of the increased number of selling venues has been on the bargaining power of the producer organizations in the market. Next, I will illustrate the new quinoa market structure and its implications for the producer organizations and farmers.

Chapter 4New private players characterize the current quinoa market structure

In addition to the spike in the value and volume of the transactions related to the quinoa market (as shown earlier), the increased demand for this grain has led to the entry of new actors to the quinoa value chain in the form of private firms seduced by the potential profits its market appears to offer.

This has implied the loss of the quasi monopoly the producer organizations held in the market for organic quinoa exports up until the late 1990’s which consequently has meant the loss of market share, to be shown.

a) Loss of MonopolyAccording to Raynolds (2007), the producer organizations pretty much had a monopoly over the Bolivian quinoa exports during the 1990’s. Specifically, by 1998 between ANAPQUI and CECAOT the producer organizations had a 78% share of the export market. ANAPQUI held a market share of 57% while CECAOT’s reached a 21%. Together these two producer organizations had almost 4/5 of the total market for quinoa exports.

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57%

21%

22%

PO's market share up until 1998ANAPQUI CECAOT Others

Figure 8: Market share by the producer organizations before the entry of new private firms.

However, the following year in 1999, the share of the export market of quinoa by the producer organizations would start to fall which coincides with the entering of private firms in the quinoa value chain, as illustrated below:

*Source: (Laguna 2005, as cited in Ton 2006).

b) Loss of Market Share

The entrance of private firms in the Quinoa Value Chain represented a definite market loss by the producer organizations to the private firms. While in 1998, the producer organizations held a market share over the quinoa exports of 78%, by 2004 this percentage had reduced to 34%. Currently according

39

to the Bolivian Chamber of Royal Quinoa and Organic Product Exporters (CABOLQUI), the private firms hold 70% of the market for quinoa exports leaving the remaining 30% in the balance sheets of the producer organizations.

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1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 20040

100

200

300

400

500

600

700

800

900

1000

Evolution of Quinoa Exporters between 1990 - 2004.

Andean ValleyANAPQUI (PO)CECAOT (PO)IrupanaJataryQuinoa-BolQuinoa FoodsSAITEOther firmsM

etric

Ton

s

1998 2004 20110%

10%

20%

30%

40%

50%

60%

70%

80%

90%

78%

34%30%

Evolution of the quinoa export market share by the PO'sTrend

Figure 9: Evolution of the quinoa export market share by the PO’s between 1998 and 2011.

In conclusion, the increased demand for quinoa encouraged the immersion of new actors in the form of private firms to the Quinoa Value Chain, lured by the potential profits its market appears to offer. The entry of these new private firms represented a dramatic altering event for the chain which brought competition to its market structure displacing the quasi-monopoly the producer organizations had up until the mid-1990’s. Furthermore, the new private firms established more business oriented practices in the chain, such as vertical integration strategies and contract models. The combination of these factors have made the Quinoa Value Chain more complex and have reorganized its governance structure with impacts upstream in addition to new downstream relations (Laguna 2006).

This new organization of the quinoa market structure has implications for some aspects of the farmers’ income which will be discussed in the following chapter as these are essential to answering the main question put forward in this paper:

“How do changes in the quinoa market structure mediate quinoa farmers’ income?

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Chapter 5New business practices in the current quinoa market structure and its implications for the quinoa farmers’ income

a) Vertical integration strategies and market coordination

According to Raynolds (2007), the new private firms that entered the quinoa market during the late 1990’s, were particularly French retailers. An example is the French company Jatary created in 1996, which thanks to the vertical integration model this company is part of, received a fully equipped plant from its larger partner EURONAT plus benefited from heavy marketing carried out in France. In addition, in 2004 another large global player entered the downstream segment of the Quinoa Value Chain and that is CARREFOUR a transnational retailer, distributor and hypermarket. This company signed a five-year contract with EURONAT and JATARY.

Furthermore, this vertical integration strategy by the French retailer has also involved the creation of its own certification entity, called Bio-Equitable. Jatary and EURONAT started working with the Bolivian certifier BOLICERT, however later decided along with other French companies which specialized in the transformation and distribution of organic products, to create their own label alleging lack of confidence on the Bolivian certifier. Unlike with other labels, the firms associated under Bio-Equitable are not required to work exclusively with producer organizations in order to carry the “organic” label. Instead, they are only required to provide technical assistance to the farmers as well as pay for their organic certification22 (Laguna, 2006).

Interestingly, this model (vertical integration) seems to be proving successful for the French group, as the quick rise in the market share for organic quinoa exports by the French subsidiary company Jatary shows, since its exports quickly increase from the moment this company enters the market in 1997 almost catching up the major quinoa exporter in 2004, producer organization ANAPQUI. See graph below:

22 The private firm retains these organic certificates.

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19901991

19921993

19941995

19961997

19981999

20002001

20022003

20040

100200300400500600700800900

1000

Evolution of quinoa exports between ANAPQUI and Jatary between 1990-2004

ANAPQUI (PO)Jatary (FR)

Met

ric T

ons

Figure 10: Evolution of Quinoa Exports Between ANAPQUI (PO) and Private Firm Jatary.

The case of the vertical integration between French companies Jatary (local subsidiary), EURONAT (importer), CARREFOUR (retailer/distributor/hypermarket) and BIO-EQUITABLE (organic certifier) represent an example of how coordination manifested through open and direct dialogue) between upstream actors (closer to the production side such as Jatary) and downstream actors (closer to the consumer such as CARREFOUR) can have dramatically different results as the fall and rise of exports by the producer organization ANAPQUI and Jatary, illustrate.

Furthermore, the coordination that vertical integration is characterized by and that it is manifested in the French case in the form of:

a) allocation of resources (fully equipped plant for Jatary),

b) marketing (heavily carried out in France),

c) a secure buyer (five-year contract with CARREFOUR),

represent not only competition (previously inexistent) in the Quinoa Value Chain but also a very different structure and rules of the game in which the private firms contest the dominance of the chain through a very closed group whose power reside in their ability to coordinate the entire production process.

Another example that shows the dramatically different results that can be obtained through higher levels of coordination can be found in the case of producer organization CECAOT.

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According to Reynolds (2007), since 1991 CECAOT has been working with a “broker” who does not agree to share the information about who exactly the importers are. Hence the relationship between this broker and the producer organization CECAOT, is simply restricted to the definition of export prices which interestingly turn out to be lower than the ones received by the other producer organization ANAPQUI (which does not have this sort of “obscure” relationship with its importing companies); as well as the prices received by the French subsidiary firms Jatary and Quinoa Bol, who of course have a direct flow of information since these belong to the vertical integration model.

The price that each organization and private firm received for their quinoa between the period of 2000 and 2004 is as follows:

Table 4: Difference in export prices received between the PO’s and private firms.

Export Prices between 2000 – 2004CECAOT (PO) $1050 (lowest)

ANAPQUI (PO) $1200JATARY (private firm) $1250 - $1350

QUINOABOL (private firm) $1100 - $1150

This was corroborated during my fieldwork interview with the president of the producer organization CECAOT who asked me if people in the Netherlands consumed quinoa. I was surprised to hear he did not have this information considering that the Netherlands is the third biggest importer of quinoa in the world. However, while doing further research and learning the commercial dynamics of this producer organization (whose financial standing is not as strong as the other PO), the reason for the lack of knowledge by the president of this producer organization became clearer. Below is the statement he made during the interview:

‘Do people in the Netherlands consume Quinoa? Open markets in the Netherlands! That way we will improve the economic situation of the farmers’.

Javier Lopez DelgadoPresident of CECAOT – Central de Cooperativas Agropecuarias “Operación Tierra” LTDA.

Interviewed at CECAOT’s Headquarters in Uyuni, Potosi- Bolivia August 17, 2012

Lastly, another example can be found in the case of the red quinoa.

The entry of new private firms and the buyer-driven nature of the Quinoa Value Chain have transformed it into a chain of higher complexity and this is expressed through an increase in the demand for different kinds of quinoa, mainly based on color. Interestingly, although the work required to harvest each kind of quinoa is the same (for all), its prices vary quite significantly as well as fluctuate depending on the preferences of the consumers in the industrialized countries. During my fieldwork, I had the

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opportunity to ask Mr. Javier Veliz Ramos about what he thought was behind the fluctuations in the price of the quinoa. This was his response:

‘The middle men and the “Black Market” of Challapata. The demand! For example, in Challapata the red quinoa that was costing Bs.1500 now costs Bs.300. Can you imagine that?! This cannot be justified in any way! Because you do the exact same work for this quinoa as well. There aren’t any extra works to do. Or no more investment is needed”

Javier Veliz RamosProduction Manager at private firm “Real Andina”

Interviewed at the company’s office in Uyuni, Potosi- Bolivia August 17, 2012

While the price of the white quinoa real23 is on average between Bs.600 to Bs.700 per quintal (or €66 to €7724respectively), during the year 2008 the price of red quinoa had jumped up to Bs.1500 (three times more) just to plummet to Bs.300 the next year. The increased demand for this color of quinoa had to do with a sudden preference by the chefs in the industrialized countries who liked the exotic color that this quinoa gave to their dishes. The farmers encouraged by the high prices being paid for this color of quinoa planted it exclusively in their fields. Hence, when the prices came down the following year (due to an excess in supply), several of these farmers had to face significant losses. Interestingly, this year the black quinoa is following similar pattern. Its price as of August 25 of this year (2012) was at Bs.1500. It would be no surprise for its price to plummet next year similarly to the case of the red quinoa.

In conclusion, the almost direct role that the preference in the tastes of consumers in the industrialized countries had for how prices were set in the case of the red quinoa is evidence of the buyer-driven nature of the chain. The implications of such in the current quinoa market structure characterized for vertical integration strategies of coordination for the farmers’ income are manifested in the lack of inclusion of the farmer in the lines of communication and coordination with downstream actors; therefore farmers’ find themselves trying to “intuitively” determine the direction the market is taking via some price signals which are not always the most efficient indicators, as the case of the red quinoa shows. Furthermore, while mainstream economics logic of supply and demand would be enough to explain the price consequences of the red quinoa (excess of supply), an alternative approach like the GCC analytical framework has allowed us in this analysis, is more helpful in determining the causes behind such excess in supply.

23 The white quinoa real is the most highly commercialized quinoa hence its prices serve as a reference point for the setting of prices of all other kinds of quinoa. 24 Conversion rate as of 25/10/2012. 25 Month dedicated to the field work in the quinoa producing communities of Bolivia.

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The “contract-model” practices that the private firms have implemented in the quinoa fields to secure their quinoa supply is another example of this coordination effort and will be studied in more detail in the following section due to its critical implications for the quinoa farmers’ income.

b) Farmers bargaining power under “contract models”

According to Reynolds (2007), the entrance of new private firms in the upstream segment of the quinoa chain consolidated the “contract model” between individual peasant producers and agro-industrial companies, establishing a functional division of labor whereby peasants are limited to their agricultural function and subject to “selection” according to quality requirements.

The contracts under the “contract-model” mentioned above are characterized by:

a) The specification of the duration of the agreement which is normally a year with the possibility of renewal,

b) A ballpark price which is normally set taking the quinoa price quoted at the “Challapata Fair” as the base and adding a specific percentage to it,

c) Pre-financing for the organic certification26 of the farmers’ land plus some technical assistance and equipment; and lastly

d) Commitments where the farmer promises the organic quality of the quinoa production following the practices required by the exporting companies and organic certifiers; who themselves follow international norms. In addition, some monitoring is agreed upon with the farmer (Reynolds, 2007).

However, according to Laguna (2006), it is often the farmers who in fact provide the financing to the private firms. Since farmers agree to wait several months (9 months in some cases) for full payment accepting to receive only a small percentage (10% at least) of the full pay when delivering their production to the collecting locations. Hence, the farmer does not only receive payment late but also loses due to the depreciation factor. Furthermore, small-land size farmers may lose out to the big-land size farmers due to a certain selectivity factor in favor of them by the private firms. It makes business sense to prefer dealing with a reduced number of farmers that can bring them the most quinoa. Transaction costs increase the higher the number of quinoa suppliers private firms have to deal with.

These set of conditions were confirmed during my fieldwork when I interviewed a manager from a private local subsidiary firm.

26 The private companies retain the certificates.

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‘We have actually been able to establish a relationship of trust. If they (the farmers) are giving us above 50 to 100 quintals, we pay them between 25% to 50% of the full pay. And then the rest they let us pay them 1 to 2 months after. We have gained their trust! This helps us a lot. Because to have enough funds to pay everybody is terrible! It is very difficult! It is not possible to serve everybody immediately. We wouldn’t be able to serve not even the 50% of our producers’.

Javier Veliz RamosProduction Manager at private firm “Real Andina”

Interviewed at the company’s office in Uyuni, Potosi- Bolivia August 17, 2012

The producers that work with private firms also tend to be organized under some sort of associations however unlike with the peasant producer organizations (ANAPQUI and CECAOT), these lack any autonomy or social command and the farmers are not able to profit from any value added or upgrading activities with the raw product. Furthermore, as mentioned previously although a set price structure is established when signing the contract, farmers are not able to negotiate this sales price and only have the guaranteed that this will be higher than the one offered at the “Challapata Fair”; which fluctuates on a constant basis. These price swings were an issue mentioned on a continued basis by the farmers interviewed during my fieldwork.

Furthermore, there also appears to be some horizontal coordination amongst the private firms to exert control over the farmer by offering similar pricing.

The depiction (above) of the interaction between the farmers and the private firms under the “contract system” speak of a relationship boss-worker type where the farmer is simply another source of input of the overall production process. Hence, the bargaining power between the farmer and its employer (the private firm) are limited to the specifications set out in the contract which does not offer any possibilities to profit from upgrading activities of the grain nor of any positive developments happening in the market and within the chain. The profit and the participation of the farmer in the distribution of gains from the Quinoa Value Chain under the “contract system” will be limited at most, to the productivity27 of the land, its size and the labor force that the farmer possess and or is able to hire.

Yet despite these unfavorable conditions several farmers not affiliated with the peasant producer organizations (ANAPQUI and CECAOT) decide to join these types of contracts with the private firms looking to have (reference):

a) An organic certification,

b) Prices at least greater than the ones offered at the “Challapata Fair” and

c) A secure buyer.

27 The continuous quinoa plantation is leading to the degradation of the land therefore to a loss in productivity. While in 2003, the productivity per hectare was of 26,46 (MT), by 2007 this productivity went down to 23,17 (MT).(Ledezma, 2011)

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According to Mr. Marcelo Gonzalez28 (lecturer at the Technical University of Oruro), it does make sense for farmers to associate in order to obtain the organic certification since obtaining this certification is costly (as illustrated earlier in the paper). Plus the price paid for the organic quinoa is higher than the price paid for conventional quinoa (or non-organic). As of August 2012, the price paid per quintal of organic quinoa real29 was of BS.600 to Bs.700, which is equivalent to $86 to 101 30

respectively; versus Bs.520 approximately (or $74) for the conventional quinoa (or non-organic).

“The majority of organic quinoa farmers are farmers belonging to an association. Because producing organic quinoa involves extra costs. They have to pay to the certification office and it is the producer organizations the ones who take care of these fees. Hence to do it individually would be a bit too complicated”.

Ing. Marcelo GonzalezProfessor at the Technical University of Oruro

Interviewed on August 15th, 2012.

Although being affiliated to the peasant producer organizations – ANAPQUI and CECAOT, represent the first choice for the farmers not only due to the economic incentives (of a higher and fixed price) but also of social representation (at least in principle), this is not always possible since often the producer organizations cannot serve all of their members. Hence farmers end up having to recur to their second best option which is either selling their production to the private firms on an individual basis (and occasionally) or officially become part of an association of farmers sponsored by a private firm, therefore enter into the “contract system” (as explained in chapter ?).

This became apparent during my fieldwork interviews with some quinoa farmers and private firm representatives.

‘The thing is that ANAPQUI does not get to serve all of its producers. ANAPQUI restricts them. Despite being a pioneer firm along with CECAOT (which is nearby), […] ANAPQUI cannot satisfy all of its producers. So their members actually come here to offer us quinoa. According to when we withdraw the money (receive payment), if our “strategic partners” (the farmers) do not offer us quinoa then their own members such as SOPROQUI31, CEDEINKU or APROQUILLAN come and offer us quinoa; so we buy their quinoa because it is also organic’

Javier Veliz RamosProduction Manager at private firm “Real Andina”

Interviewed at the company’s office in Uyuni, Potosi- Bolivia August 17, 2012

28 Interviewed during my fieldwork. 29 There are different types of quinoa. The “Quinoa Real” is the most highly commercialized. 30 Conversion rate as of 12/10/2012. 31 SOPROQUI, CEDEINKU and APROQUILLAN are regional producer organizations affiliated under ANAPQUI (its main umbrella organization). I interviewed the president of regional organization SOPROQUI during my fieldwork. The list of all regional producer organizations under ANAPQUI is provided in the index under Diagram #3

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Similarly, Mr. Ovidio Silvestre Alanoca a quinoa farmer as well as a worker at ANAPQUI indicates:

‘[…]. There are around 2.000 to 2.500 farmers that the association cannot buy the quinoa from all. For example, I have 10 to 20 quintals. If I have an emergency that day.. (meaning the day he wishes to sell his quinoa production), ANAPQUI will not buy my quinoa production immediately. Then in that case I will have to sell it immediately to somebody else in the “Black Market32”’.

Ovidio Silvestre AlanocaResponsible of personnel at ANAPQUI and Quinoa Farmer

Interviewed at the PO’s headquarters in the town of Challapata, Oruro - BoliviaAugust 16th, 2012

As expected this creates a series of internal conflicts within the producer organizations since these often find themselves having to choose which farmers (producers) will benefit from the fair trade price. Furthermore, these problems are exacerbated, since producer organizations do not seem to have clear mechanisms to determine which farmers will access the fair trade price and secondly there are no compensation mechanisms for those farmers that cannot benefit from it (Ton and Bijman, 2006).

The inability of the producer organizations to serve all of their members has to do with the fact that their participation in the organic fair-trade market is characterized by small-scale transactions. In other words their market share is lower than the total product offered by all of the associated farmers (as explained earlier).

In conclusion, the market loss experienced by the producer organizations to the entry of the private firms exacerbates their inability to serve all of their members hence unintentionally contribute to the flow of their farmers into “contract-system” practices that lock them into a defined and limited set of activities (in its relation with the private firms). This develops into a cycle in which the producer organizations lose market share to the private firms primarily due to the new strategies of vertical integration that they bring to the Quinoa Value Chain and also contribute to the loss of their ability to “control” the farmer. Who at the same time through its dealings with the private firms unwittingly empowers them through “cheap credit” sort of practices as explained earlier, looking to simply come ahead with their quinoa production and participate in the distribution of profits from the quinoa market in the context of its changing structure.

Lastly, the market share loss by the producer organizations and the competition brought by the new private firms into the quinoa market structure has implications for the quinoa price and the farmers’ income, which will be analyze in the following section.

32 The “Challapata Fair” is also known as the “Black Market” since most of the quinoa destine towards the bordering country of Peru is smuggled through this market/location.

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c) Price implications of the new competitive environment

According to (Laguna,2006), looking at the volume of exports by the top quinoa exporters and the dates of entry or creation of the new firms suggests that the growth in quinoa demand (and favorable prices) did not necessarily translate into the strengthening of the position of the producer organizations in the market. In addition, international trade and quality requirements by western markets created higher and new entry barriers for the producer organizations and their aspirations to participate in higher upgrading activities along the chain.

It is particularly interesting to analyze the case of the private firms Andean Valley, Jatary and Quinoa Bol S.R.L because in addition to the fact that they serve the major quinoa importing countries: USA, France and the Netherlands, these private firms belong to the set of firms that came into the quinoa chain in the late 1990’s, seduced by the potential profits the quinoa market appears to offer and pretty quickly increased their share over the market for organic quinoa exports. Andean Valley enters the organic quinoa market in 1999, Jatary in 1996 and Quinoa Bol S.R.L. in 1998. The figure below shows the evolution of the quinoa exports by these companies and the major producer organizations.

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Figure 11: Evolution of quinoa exports by producer organizations (ANAPQUI and CECAOT) and private firms (Andean Valley, Jatary and Quinoa Bol S.R.L.) between 1990 -2004.

While the case of the private firm JATARY gave us an example of vertical integration within the Quinoa Value Chain and its implications for its structure and the farmers’ income in the form of misleading price signals; the case of private firm Andean Valley allow us to explore and analyze the increased competitive environment that the entry of new private firms have brought to the chain and how this mediates quinoa prices and the farmers’ income.

Andean Valley enters the organic quinoa market in 1999 and serves primarily the US market through the importing company Quinoa Corporation33. This importing company Quinoa Corporation used to work exclusively with producer organization ANAPQUI, however the entry of this new private firm Andean Valley caused the producer organization to lose its exclusivity contract with the importing company. This represented a significant loss for the producer organization since the US market constitutes almost half the market for the Bolivian quinoa imports.

The competitive environment that the entry of private firm Andean Valley created in the chain led to two interesting developments. First, the competition between Andean Valley and ANAPQUI brought down the FOB price for the organic quinoa.

While in 1999, importing company Quinoa Corporation paid $1.420 per ton of quinoa; between the years 2000 and 2005, the price that the importing company paid was lower and fluctuated between $960 and $1090.

33 A diagram mapping its market is included in the appendix under – Diagram #4

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19901991

19921993

19941995

19961997

19981999

20002001

20022003

20040

100200300400500600700800900

1000

Evolution of quinoa exports by PO's and private firms between 1990-2004

Andean Valley (US)ANAPQUI (PO)CECAOT (PO)Jatary (FR)Quinoa-Bol (FR)

Met

ric T

ons

Table 5: Price paid by Quinoa Corporation between 1999 and 2005.

Price paid by Quinoa Corporation1999 $1420 per ton of quinoa

2000 - 2005 $960 - $1090 per ton of quinoa

Secondly, importing company Quinoa Corporation took advantage of this competitive environment and imposed greater requirements on its quinoa suppliers ANAPQUI and Andean Valley. The importing company required them to provide cleaner and homogenous grain, more punctual delivery, etc. Similar, types of developments seem to have taken place between producer organization ANAPQUI and its other importing companies in Europe, Asia and Latinamerica.

Hence, the competition that Andean Valley brought to the market represents several losses for the producer organization ANAPQUI, such as:

a) A significant market share loss, considering that the US is the main importer of Bolivian quinoa),

b) Higher quality demands, which imply higher production and or transactions costs just to maintain the customer,

c) A lower FOB price which ultimately affects (d)

d) The price paid to the farmer whether this is associated with ANAPQUI or works with the private firm (in this case) Andean Valley through the “contract system”.

Furthermore, importing companies appear to go back and forth from working with the producer organizations for their quinoa supply or the local private firms which causes huge imbalances in the PO’S accounts.

In conclusion, the themes raised in this last chapter make reference to the vulnerability that farmers face in the current quinoa market structure and in spite of its current “profitable prospects”.

This is manifested in their necessity to associate and participate in “contract systems” which conditions are not the most favorable yet at least (in principle) these provide some sense of “stability” and “predictability” for their transactions and livelihood. Since, the buyer-driven nature of the chain and the ‘closed vertical systems of coordination’ which exclude the farmer from the flows of communication and that the producer organization do not seem to be able to improve (such flows of communication), makes it increasingly difficult to cope with the volatile price swings that currently characterize the quinoa market structure and that threatens the financial stability and security of the farmers who find themselves trying to “intuitively” catch the direction that the market is taking via some “price signals”, which are not always the most efficient indicators, leaving the farmers with significant losses in some instances.

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The exclusion of the farmer within the dialogue of downstream and upstream actors or rather its inclusion as simply a receptor of information makes of the new quinoa market structure a pretty confusing and uncertain scenario for the farmer which neither the “contract systems” of the private firms nor the producer organizations commands are able to tone down but quite the opposite seem to exacerbate through their competition. Lastly, the “secondary role” that the farmer has in the new Quinoa Value Chain manifested in the conceiving of the farmer as simply a “worker” despite its direct contact with the production of the grain itself, speak of the unequal distribution of power within the chain swayed towards those actors who are able to more successfully enter the new models of coordination that the new private firms propose and therefore influence or determine the distribution of profits within the chain.

Chapter 6CONCLUSIONS

My interest to study the issues raised throughout this paper sparked in a context in which commodities 34 are back in the center stage of economic discussions due to the fairly recent spike in its prices, its role in the craze for the creation of alternative energy sources, its potential to establish new power structures depending on the control and ownership of such commodities and lastly its crucial importance for the world as a whole, due to its direct connection for food security in the midst of the threats that climate change brings to its availability.

However, during my preliminary research I had encountered several studies which suggested that the farmers involved in the production of such commodities where not part of the exciting or promising part of the story. In fact, it appeared that in several instances the farmers’ income as a matter of fact were going down as the prices for the commodities they produced were rising.

Hence, when I choose to study the case of the quinoa farmers in Bolivia, right away I looked for a similar pattern. However, to my surprise producer prices had gone up just as quinoa prices had. This confused me and I felt compelled to dispute this numbers. I did not believe them. Yet, as I continued with my research I understood that my focus on the upward or downward trend of the data was erroneous and ran the risk of being simplistic with the analysis. Although this paper starts highlighting the increasing gap between producer prices and export prices this could only be a point of departure.

The Global Commodity Chain analytical framework represented an alternative approach to the emphasis that mainstream economics puts on data and figures to draw conclusions from. Instead this paper attempted to uncover the power dynamics underneath the numbers, conscious of the fact that as the GCC literature informs us the production process is inherently characterized by power relations which guide the distribution of profits within and often reveal more than what the numbers do.

34 A figure plotting the quinoa price trends along with the other commodities is included in the Appendix – Table 6.

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The tripling of quinoa prices over the last 20 years however, made it an interesting and challenging market to study from the GCC perspective, precisely due to the fact that such “positive trend in prices” on the surface already seemed to signal a promising scenario for all of those involved. Yet, regardless of whether or not this was the case, such a dramatic change in figures deserved at least an analysis regarding the causes behind. In the case of the quinoa market, the change in the preference for organic and fair trade related products by consumers in the industrialized countries led to a spike in its demand, which was followed by a similar boom in its prices, the value and volume of its exports and most importantly the immersion of new actors into the Quinoa Value Chain.

The entry of new actors into the chain during the late 1990’s, in the form of new private firms seized the quasi-monopoly held by the peasant producer organizations over the market for organic quinoa exports transforming its structure not only due to the increase in the number of players in the market but also because these new private players brought with them novel forms of competition characterized by vertical integration strategies which signified the continuous loss of market share by the producer organizations; plus the increasing entry barriers to higher value added activities along the chain due to the closed nature of such vertical integration schemes dominated by the private firms which also include “contract systems” in its interaction with the farmers.

These “contract systems” represent the change in the quinoa market structure that have had the biggest impact on aspects related to the farmers income since these limit the bargaining power of the farmer in the market to its contract specifications hence the farmer under the new quinoa market structure has become primarily a “wage-worker” whose prospects of taking part on the distribution of profits is limited to the size and productivity of the land plus the labor force the farmer possess or is able to hire. The farmers’ participation from the gains of higher upgrading activities or of any positive development within the chain is severely circumscribed by those who are able to more successfully enter the vertical integration models.

“How do changes in the quinoa market structure mediate quinoa farmer’s income?

In summary, the changes that the structure of the quinoa market has undergone as a result of the increased demand for this grain manifested in the immersion of new private firms have at most implied a second best wage option for the farmer whose participation in the “contract system”, sponsored by the private firms contributes to the strengthening of this system and the consequent market share loss by the producer organizations, reinforcing in this way the structures that are allowing the new private firms to contest the dominance of the chain.

One of the limitations of the analysis in this paper has to do with the relationship between the farmer and the peasant producer organizations. Although both ANAPQUI and CECAOT in addition to their economic function are supposed to fulfill a social representation function, during my fieldwork I did not feel a strong affiliation between the farmers and the producer organizations nor a sense of belonging to the group. However, this does not necessarily mean that is the case. The questions asked during my fieldwork were not meant to address this. However, I believe that finding out more about the nature of the relationship between the quinoa farmers in Bolivia and their producer organizations

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(strong or weak) would contribute to our understanding regarding issues such as the flaws in price transmission that affect negatively the farmers. Additionally, further research is necessary on the scheme of the distribution of profits within the producer organization itself, in order to better understand the real profiting prospects that the affiliated farmers have when participating in the upgrading activities within the producer organizations.

In my view, producer organizations in the quinoa case in Bolivia are important in the sense that the essential goal of the organization is to “protect the farmer”.

“What really led us to organize is the fact that the middle-men were “fattening” on a constant basis at the expense of the farmer because the price of quinoa was quoted at really low prices and also the “trueque”35used to be practiced. This means that the middle-men for example would bring us a shirt to be exchanged for 1 quintal of quinoa”.

Santiago AlanesSupervision Secretary at ANAPQUI

In addition, there is a crucial difference between the private firms and the producer organizations and that is the fact that they own the land. In Bolivia, the quinoa fields belong to the farmers or are considered as communitarian. Therefore according to law, the land cannot be sold to private companies. The affiliated farmers own the producer organizations as well as the tracts of land or have the right to use the land because they are part of the given community (Birbuet and Machicado, 2009).

Hence, although the mission of the peasant producer organizations ANAPQUI and CECAOT is becoming increasingly difficult to fulfill due to the challenges that the immersion of new private firms have brought to the quinoa market structure (as illustrated throughout the paper), these remain important for the lives of the farmers since their presence and existence continues to represent a buffer between the farmer and the new private firms which until now take the practices of the producer organizations as a point of reference for their interactions with the farmers. Furthermore, unlike any of the other players in the market, the producer organizations have the goal of integrating the farmer into higher upgrading activities along the chain and into any positive development within it.

Recently, the producer organizations were able to gain some important shares in the internal market over the private firms such as:

1) Make the producer organizations eligible for the provision of food for nutritional programs. Something which until 2004 had been reserved for firms inscribed in the Bolivian Chamber of Commerce (hence private firms had preference), and

2) The producer organizations were decisive in changing the policy of government-sponsored food nutritional programs. This means that now Andean cereals such as the quinoa are a central

35 Local word that means “exchange”.

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component of the government’s food security program. As of today, the quinoa is a major ingredient on public school breakfasts.

The introduction of this sort of policies has been easier under the current government headed by President Evo Morales, since it prides itself in being an indigenous government hence a very important part of its agenda is to preserve and if possible re-implement ancestral indigenous practices. In fact, one of the goals of the current government is to have 50% of the total quinoa production coming from the producer organizations (Ministry of Economy and Public Finance, 2011).

Currently, quinoa production represents about 3.6% of the Bolivian agricultural GDP and its participation has been rising in recent years. As of 2007, Bolivia’s agricultural GDP was of $320 million and its contribution to the national GDP was of 17%.

Under the GCC analytical framework, upgrading is a necessary condition for survival in this era of global production processes: ‘In order for countries to succeed in today’s international economy, they need to position themselves strategically within.. global networks and develop strategies for gaining access to the lead firms in order to improve their position’ (Bair, 2005)

Developing countries around the world seem to be very well aware about the importance of immersing themselves within value chains in order to prosper economically. An example of this are the UNCTAD meetings were ideas and initiatives promoting the immersion of developing countries into value chains are championed by these. There seems to be a general consensus still that believes that if a country is able to successfully shift from import-substituting industrialization strategies in favor of export oriented initiatives, the country as a whole will benefit and immediately assume a bright picture for all of those involved in such export strategies. Yet, as I have attempted to show throughout this paper often, the story is much more complex than what the numbers seem to indicate.

Furthermore, despite of the not so rosy picture presented in this paper regarding the economic implications of the current quinoa market structure on the farmers’ income, I must recognize that during my fieldwork in addition to the wide frustration expressed by the farmers due to the volatility in prices, I was also able to perceive an overall sentiment of down to earth expectation that this “quinoa boom” could in fact contribute to an improvement in their quality of life. After all up until the increase in the demand for this grain, the quinoa producing communities had no real profiting prospects whatsoever.

There seems to be a perception by the farmers interviewed, that some farmers have in fact reaped the economic benefits of the “craze for quinoa”. Below is a quote from a farmer who I asked if she thought that farmers were benefiting from the current high quinoa prices. This was her response:

‘Yes, of course! Before here you use to only see “little cars” now you see “big Volvos”!’

Quinoa Farmer Interviewed at the “Challapata Fair”

August 18th, 2012

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In addition, quinoa communities have been experiencing a reversal in migration. Quinoa farmers who had previously migrated to other cities looking for better economic opportunities are coming back to the quinoa fields encouraged by the news of the high quinoa prices and the promises for profits. There is also another group of “farmers” who although continue to live in the cities they had previously migrated to, they “plant quinoa by cell”. Meaning, they just call and hire people to plant quinoa for them and only come to the quinoa fields during harvest time. Interestingly, this reverse migration is causing some tension amongst the farmers since some have overtaken these lands thinking they had been abandoned. Lastly, several quinoa farmers encouraged by the high quinoa prices are becoming monocrop farmers dedicating themselves exclusively to the plantation of quinoa leaving no space for the raising of llamas, previously a second source of income for the farmer. The aggressive plantation of quinoa (non-stop) is also dangerously threatening the future productivity of the quinoa fields.

Although the focus of this paper is not on the social or environmental implications of the increased demand for quinoa, these developments reinforce the need for a much stronger presence of the Bolivian state in the quinoa fields. So far the intervention of the Bolivian government in the Quinoa Value Chain has mostly been limited to policy surrounding the promotion of the quinoa looking to increase its consumption and demand in external markets. Yet, given the current trend in the preference of the consumers in the industrialized countries for high quality organic and fair trade related products, such as the quinoa, the intervention of the Bolivian government to promote its consumption seems an unnecessary double effort. There seems to be an impression by the current government that an increased demand for the grain automatically translates into a benefit for the farmers which as seen throughout the paper this is not necessarily the case.

Instead, I believe a lot more intervention is needed in the area of regulation. For example, during my fieldwork I could perceive that in the town of Challapata where the fair is located, there is absolutely no control to stop the smuggling of quinoa to the bordering country of Peru. Farmers would openly mention that the quinoa commercialized in the fair was also being illegally destined for Peru.

“[..] all the quinoa here is going to Peru, via desaguadero”.

Gonzalia, Quinoa Farmer Interviewed at the “Challapata Fair”

August 18th, 2012

Furthermore, government intervention is needed to help bring some stability to the volatile nature of the current quinoa market structure that responds to changes in the demand, often causing huge losses for the farmers who find themselves trying to “intuitively” determine the direction of the market, following some price signals which are not the most efficient indicators. As mentioned earlier government efforts seem to be concentrated on the promotion of the product. During my research I did

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not encounter any government entity in charge of overseeing and or regulating the developments happening in the Quinoa Value Chain.

In addition, given the important role that the producer organizations still play in the lives of the quinoa farmers, government support is needed to strengthen the producer organizations and thereby help strengthen the position of the farmers within the chain. As illustrated throughout the paper, the new business practices (i.e. vertical integration) that the private firms bring to the Quinoa Value Chain are quite difficult to compete with due to its “closed nature”. Similarly, producer organizations should take advantage of the pride and the identification of the current Bolivian government, which promotes the quinoa grain internationally as a “gift from the indigenous to the world” with indigenous causes to help create policy in their favor.

Lastly, the “quinoa craze” is leading some other countries such as India, Canada and the US to start experimenting with the plantation of quinoa in their lands. Currently these crops are under test given that the ideal condition for the quinoa plant to grow is the cold weather found in the Bolivian salt flats. Should these countries be successful in adapting the quinoa plant to their fields a very interesting question emerges: how would the Bolivian quinoa farmer fair in a market with even a lot more players?

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Appendices

Diagram 3: Mapping of producer organizations ANAPQUI and CECAOT

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Producer Organizations

Peasant PO

Regional Producer Organizations

ANAPQUI

Umbrella PO

COPROQUIRCRegional PO

APROQUIRY

Regional PO

SOPROQUIRegional PO

APROQUIGAN

Regional PO

APQUINQUI

Regional PO

COPROQUINAC

Regional PO

CEDEIINKU

Regional PO

APREQC

Regional PO

ARPAIAMI

Regional PO

CECAOT

Umbrella PO

13 cooperatives associated in 13

communities

ANAPQUI

Umbrella PO

CECAOT

Umbrella PO

Diagram 4: Mapping of the vertical integration by Jatary and Quinoa Bol S.R.L.

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Quinoa Importers

Countries

FranceMarket share 16%

CARREFOURRetailer/Distributor/Hypermarket

EURONATImporter and Distributor

JATARYCreated in 1996.

NetherlandsMarket share 11%.

MARKALImporter adn Distributor

Quinoa Bol S.R.L.

Created in 1998.

Diagram 5: Mapping of the US market

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USAMarket share 48%

ShoppersSupermarket

Quinoa Corporation

Importer and Distributor

Andean Valley

Relationship established since 2000.

Table 6: Quinoa price trend between 1990 and 2010 (FOB)

Year Export quinoa prices (FOB)1990 8301991 9001992 9201993 10201994 13001995 12501996 10501997 12101998 12601999 13432000 12592001 11362002 11532003 11012004 11402005 11552006 11662007 12542008 22332009 30022010 3061

62

19901992

19941996

19982000

20022004

20062008

20100.000

100.000

200.000

300.000

400.000

500.000

600.000

700.000

800.000

0

500

1000

1500

2000

2500

3000

3500

Commodity Prices Trend (US$/TM)

Barley (US$/TM - Canada)Rice (US$/TM - Thailand)Wheat (US$/TM - United States)Maize (US$/TM - United States)Sorghum (US$/TM - United States)Soybean (US$/TM - United States)Commodity Prices (US$/TM - all)Commodity Prices (US$/TM - Food)QUINOA (US%/TM - Bolivia)

Figure 12: Commodity Prices Trend including quinoa prices (US$/TM)

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