The Brazil nut is a non-wood forest product that grows naturally in the Amazonian forests of Brazil, Bolivia and Peru. The Brazil nut fruit comes from one of the tallest trees of the Amazon Basin's tropical rainforest. The fruits fall naturally to the ground and are collected, processed and sold primarily on the international market, which has an established demand for the nut. Bolivia is the largest exporter, followed by Brazil and then Peru. Peru's production is located in the southeastern Department of Madre de Diós.
The Peruvian Government is the official owner of all Brazil nut trees and provides 40-year concessions to individuals with the exclusive rights to harvest the nuts found in a certain area. The Brazil nut production chain has four components: production; collection (cleaning paths between trees, gathering the fruit, opening the fruit and transporting them to the camp); processing (drying and soaking, peeling the nuts, drying the peeled nuts) and commercialization.
Brazil nut extraction in southern Peru was traditionally carried out informally, with harvesters going into the forest without any government intervention or regulation. In the 1990s, the government progressively started to actively regulate the sector. The harvester must present a management plan within the current system of concessions for non-wood forest products in order to obtain a concession for Brazil nut extraction.
Brazil nut businesses are micro-enterprises owned generally by one person who works in the harvesting process and who contracts family and/or non-family labour. The number of employees during any given season ranges from one to seven, with an average of approximately four. The enterprises carry out the complete harvesting process up to drying the peeled nuts, and then sell to intermediaries or directly to processing/export companies. Brazil nut collectors generally do not depend exclusively on nut production for their livelihoods, but also carry out other activities such as cattle-raising, agriculture, timber collection and commerce.
The Brazil nut concession system also requires that any group or person granted a concession must present a tax identification number emitted by the Peruvian Government. Given the low levels of organization among harvesters, this leads to a concentration of concessions given to single micro-entrepreneurs, who then subcontract family and non-family members to harvest in the concession.
The costs incurred by the collectors for their production activity include legal costs (in obtaining and maintaining concession rights), collection costs and harvest costs. The micro-enterprises that harvest Brazil nut do not operate throughout the whole year, but for three to nine months depending on their form of sale and the zone in which their concession is located. Those working the minimum generally turn their harvest over to a processing firm that peels and classifies the nuts, while those working longer are more directly involved in the entire harvesting and preparation process.
Peru has a relatively developed microfinance sector, with services being provided by many different types of institutions. These include formal financial institutions, including commercial banks, municipal savings and credit banks (Cajas Municipales de Ahorro y Crédito), rural savings and credit banks (Cajas Rurales de Ahorro y Crédito) and institutes for the development of micro and small enterprises (Entidades de Desarrollo para las Pequeñas y Micro Empresas), as well as semi-formal institutions such as savings and loan cooperatives and microfinance NGOs. Non-formal money lenders also continue to play an important role.
When there is significant outreach of microfinance institutions and competition in urban areas, the rural sector faces more difficulties in accessing microfinance services. Following the closure of the state-owned agricultural bank in 1992, the rural savings and credit banks were created in 1994 to fill the gap. Although these institutions allocate 51 percent of their total portfolio (approximately US$35 million) to the agricultural sector, the overall volume of their operations is still not sufficient for the needs of the sector. The municipal savings and credit banks represent an important player in the Peruvian microfinance sector. However, only 7.4 percent of their total portfolio (approximately US$17 million) is dedicated to agricultural activities.
The role of credit unions in the microfinance sector is fairly limited because they do not provide significant microcredit and have limited overall outreach. I nstitutes for the development of micro and small enterprises are the newest form of financial institution in Peru. Created in 1996, they represent a stepping stone for NGOs looking to upgrade into the formal sector. These institutes are commercial enterprises dedicated to providing credit services, and are initially restricted in their capacity to capture savings, which they can do only after accumulating US$1 million in capital. Institutes for the development of micro and small enterprises currently dedicate approximately 3.4 percent, or US$1.4 million, to the agricultural sector.
In 2001, the government passed a law creating a new state-owned bank, AGROBANCO, to ensure provision of microfinance to the rural sector. The specific purpose of this bank is to provide credit to the agricultural sector, as well as to function as a second-tier bank providing lines of credit to other formal financial institutions.
The Department of Madre de Diós is located in southeastern Peru and borders with Bolivia and Brazil. Its population is approximately 100 000 and its land area of 8.476 million hectares represents 6.6 percent of the national territory. The Department is more isolated than other parts of the Amazon due to poor roads, and thus has limited industrial and commercial development. There are three municipal savings and credit banks active in the department, but no rural savings and credit banks or institutes for the development of micro and small enterprises.
The Brazil nut industry is a driving force for the Department of Madre de Diós. It is estimated that anywhere from 22 to 30 percent of the population of the Department derive their income directly or indirectly from the Brazil nut trade. According to the National Census, over 70 percent of those living in the Department are poor, and the incidence of poverty among those with Brazil nut-based livelihoods is even higher.
Studies on Brazil nut collectors´ incomes have shown that this activity, completed in three months, generates on average 67 percent of their gross annual income. In absolute terms, this is equivalent to US$6 410 annually per harvester, or an average of US$534 per month. Considering that the average family size is 6 people, this signifies a monthly per capita income of US$89. This is less than the minimum living income, which for the country as a whole averages at US$200 per month.
Most of the concessions visited during the case study (67 percent) confirmed that they were unable to save from their earnings. The main causes identified were the low selling prices, the relatively high costs, the large number of family members depending on the activity and the relatively non-diversified income sources.
To access financial resources, Brazil nut harvesters avail themselves mainly of advance payment systems, and attempts to introduce financing alternatives have not met with much success. The most common financing instruments utilized include:
Apart from the municipal savings and credit banks, other providers of microcredit are either informal financial sources embedded in the production and supply chain, such as sellers, exporters or intermediaries, or government and international cooperation initiatives.
The three municipal savings and credit banks in the Department of Madre de Diós are the Caja Municipal de Tacna, the Caja Municipal de Arequipa and the Caja Municipal de Cuzco. The Caja Municipal de Tacna is one of the most important in the Department, with 8 000 outstanding loans and an outstanding portfolio of approximately US$6.8 million. It is considered a leading microfinance institution in Peru, showing a high level of profitability, high portfolio quality and strong management. Special credit lines are offered for micro and small enterprises, mortgages, and pawning. Agricultural credit is not currently offered in Madre de Diós, nor is there a special line of credit for Brazil nut harvesters.
Loans for micro and small enterprises have the following characteristics:
Municipal savings and credit banks do not keep records regarding the number of Brazil nut harvesters who have taken loans. They put special emphasis on analysing the overall repayment capacity of the client, taking into account overall cash flow. Brazil nut harvesters with relatively diversified livelihood strategies and educational levels have more access to the services they provide. Those who are more exclusively dependent on Brazil nut collecting and on subsistence agriculture in general do not have access to loans from such institutions.
The Operadora de Crédito Social para el Desarrollo Sostenible de Madre de Diós is an association created to satisfy the financial needs of farmers, Brazil nut collectors, people working with small livestock and those in marginal urban areas working in small-scale commerce. The institution was founded in 1998 and capitalized through a Peruvian-Canadian cooperation agreement. Initiating with a fund of US$314 000, the programme lent approximately US$2.4 million in four years, reaching approximately 1 850 clients, 200 of whom were Brazil nut collectors. Approximately 100 collectors had loans at any given time, and the total loan amount to this group was US$90 000.
The characteristics of the loans provided through the programme were:
Community assemblies were held to approve loans at the community level. However, loans were then individual. The institution is no longer providing credit and is in the process of recuperating US$250 000 in outstanding overdue loans. Failure of the programme can be attributed to a number of factors, some of which are related to management. Lack of supervision for monitoring and follow-up on loans with clients at the field level was key to high loan loss rates (20 percent annual).
These businesses are dedicated to the processing, marketing and export of Brazil nuts. They establish direct relationships with the Brazil nut collectors. In order to guarantee their sources of supply and therefore to meet their orders, they work with a prepayment system, or habilito. As of November 2004, there were nine processor/export companies offering habilitos in the Department.
The general conditions of the habilito are:
The habilito is based primarily on a trust relationship and the habilitador uses local knowledge when deciding to whom to provide an advance. Future advances are dependent on meeting current obligations. However, some enterprises also require some kind of collateral guarantee. In the case of non-payment, companies require that the collectors sign documents recognizing the debt and attempt collection in the next harvest. Some companies collect on collateral that has been put in guarantee. If no guarantee has been offered, repayment is encouraged through pressure tactics.
Some companies require that 100 percent of the collector's production is committed exclusively in order to give the habilito. The Brazil nut trade that is used to cancel the debt may be valued at the pre-agreed price or at the current market price. Other companies require only that the collector pay the value of the debt and the remainder of the production may be sold freely. In the case of non-payment, companies require that the collectors sign documents recognizing the debt and attempt collection in the next harvest. Some companies collect on collateral that has been put in guarantee. If no guarantee has been offered, repayment is encouraged through pressure tactics.
Intermediaries are individuals who work placing habilitos and buying Brazil nut to sell to the processing/export companies. Their profit is earned through sales margins. Intermediaries can handle an average of 60 habilitos per harvest, for a total of approximately S/.30 000 (US$8 955).
In some cases these intermediaries work with money from processing/export companies, while in others they work with their own capital. Conditions of the habilitos are similar to those with the export companies. However, the intermediaries tend to work within shorter time frames and implement more intense monitoring practices than do export companies. The habilito is not formalized, and at most, a receipt for the disbursement is signed.
Although it is not currently providing credit to Brazil nut collectors, FONDEBOSQUE, a private foundation created to channel funds from the Peruvian government and international cooperation to strengthen the forest sector, has begun to support mapping of the Brazil nut concessions. In addition, the institution has developed a fund to provide credit to forest concessions. This fund is capitalized by AGROBANCO and channelled through the Caja Municipal of Tacna. To date, credits provided have been for timber extraction. However, a Brazil nut collectors association has submitted an application for a loan under this programme.
FONDEBOSQUE is currently working on developing a supply chain project with the Asociación de Castañeros de Alerta, a Brazil nut harvester association. The project, which would represent an interesting alternative to the traditional system, is backed by the export company, El Bosque, which would guarantee the full amount turned over to the harvesters. The company would also guarantee the purchase of 100 percent of the production of the Association.
Unlike the former Banco Agrario, AGROBANCO has the mandate to operate according to market conditions and with sound financial management. This means that it should charge interest rates sufficient to generate profits and should appropriately manage its risk. The bank focuses on supporting the development of specific supply chains or value chains intervening in links from basic production to marketing. To date, AGROBANCO has worked primarily through local operators, who in turn relate directly to the credit clients conforming to a given chain.
AGROBANCO loans for micro and small enterprises have the following characteristics:
There have been a number of procedural problems with the relationship between AGROBANCO and its local operators, leading to delays in loan disbursement and frustration among potential clients. Toward the end of 2003, FONDEBOSQUE worked on developing value chain projects in the Madre de Diós timber concessions. However, the project did not result in a loan through AGROBANCO, principally due to a lack of guarantees among the concession members.
Brazil nut harvesters are not an attractive market for microfinance institutions given the limited time in which they are active in their business and the isolated manner in which they work. Further development of the micro-enterprises and their associations will be necessary to attract more focused financing outside of the informal sector.
An alternative option for financing the harvesters would be to focus on their entire livelihoods system as opposed to taking into account only the Brazil nut activities. For the harvesters based in the urban settlements surrounding Puerto Maldonado, this option is more immediately accessible, given the diversified livelihoods activities that show more stability and profitability. For those depending more on agricultural activities to complement Brazil nut extraction there are greater limitations.
The habilito system fulfils an important need for both Brazil nut harvesters and processing and export companies. Processing and export companies have a vested interest in ensuring that the harvesters are able to carry out their role within the supply chain. For this reason, they are willing to risk their own funds to finance these activities. They use an intimate knowledge of the individual harvesters in order to minimize their risks, lending only to those with a good reputation and high potential for repayment. Without these funds, most harvesters simply would not be able to carry out harvesting activities.
At the same time, many of the companies expressed a preference for the introduction of specialized financial services into the system. This would allow them to minimize their risks and focus on the commercialization process. The drawback for processing and exporting companies is that they would have to compete for obtaining supply based on offering better prices or purchase conditions to the harvesters. The harvesters would be able to sell to the highest bidder and would not be constrained by pre-set purchase prices. However, alternative sources would require paying an interest rate and adhering to specific payment dates and amounts, in cash. The habilito system, on the other hand, permits maximum flexibility in terms of the payment plan.
The Peruvian forest concession system has recently been significantly revised and concessions for non-wood forest products were granted starting in 2003. Many of the rules of the game continue not to be clear, and this lack of clarity also contributes to a sense of risk on the part of the financing institutions. Clearer rules, in addition to stronger overall microfinance institutions, might contribute to more effective financial services for the sector.
Recently, new alliances have begun to form among supply chain actors, financial institutions and semi-governmental agencies. These alliances may offer future alternatives for making financial services more agile and accessible to the harvesters. If credit is seen as a package to the alliance members, limitations caused by the short term of the loans can be minimized since the processing and marketing activities require longer terms.
A number of key improvements in the overall Peruvian Brazil nut industry environment could contribute to improved finance options, including:
