“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:
CinthyaVerasteguiEffel
Bolivia
in partial fulfillment of the requirements for obtaining the degree of
MASTERS OF ARTS IN DEVELOPMENT STUDIES
Specialization:
Full Name of Specialization
ECD
Members of the Examining Committee:
Dr. Susan Newman
Dr. Howard Nichols
The Hague, The Netherlands
December 2012
Contents
List of Tables
List of Figures
List of Images
List of Diagrams
List of Acronyms
Abstract
Relevance to Development Studies
Keywords
Chapter 1 INTRODUCTION
Chapter 2 Changes in the Quinoa Value Chain analyzed through the Global Commodity Chain lens
Chapter 3 Mapping the Quinoa Value Chain
a) Identification of Actors
b) Market Structure and Bargaining Processes Pre and Post Demand Changes
Chapter 4New Private Players characterize the Current Quinoa Market Structure
a)Loss of Monopoly
b) Loss of Market Share
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
b) Farmers Bargaining Power under “Contract Models”
c) Price Implications of the New Competitive Environment
Chapter 6 CONCLUSIONS
Appendices53
References63
List of Tables
Table 1: Trend in Quinoa Prices (FOB) between 1990 and 201011
Table 2: Volume trend of quinoa exports between 1990 and 2010.12
Table 3: Price distribution under Jatary19
Table 4: Difference in export prices received between the PO’s and private firms.43
Table 5: Price paid by Quinoa Corporation between 1999 and 2005.51
Table 6: Quinoa price trend between 1990 and 2010 (FOB)60
List of Figures
Figure 1: Trend in Quinoa Prices (FOB) between 1990 and 2010.11
Figure 2: Volume trend of quinoa exports between 1990 and 2010. 12
Figure 3: Quinoa Export Destinations13
Figure 4: Evolution of Quinoa Exporters between 1990 and 2004.13
Figure 5: Producer prices as a share of exporter prices (US$/MT)17
Figure 6: Producer prices versus exporter prices (US$/MT)18
Figure 7: Limitations of mainstream economics analysis of market structures. 25
Figure 8: Market share by the producer organizations before the entry of new private firms. 38
Figure 9: Evolution of the quinoa export market share by the PO’s between 1998 and 2011. 39
Figure 10: Evolution of quinoa exports between ANAPQUI (PO) and private firm Jatary.41
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 49
Figure 12: Commodity Prices Trend (US$/TM)62
List of Images
Image 1: Bolivia/Quinoa stand at the “Floriade” event.9
Image 2: Bags of quinoa ready to be sold at the “Challapata Fair”.31
List of Diagrams
Diagram 1: The Quinoa Value Chain27
Diagram 2: Incentives offered by the three venues33
Diagram 3: Mapping of producer organizations ANAPQUI and CECAOT58
Diagram 4: Mapping of the vertical integration by Jatary and Quinoa Bol S.R.L.59
Diagram 5: Mapping of the US market60
List of Maps
Map 1: Quinoa producing communities in Bolivia61
List of Acronyms
ANAPQUIThe National Association of Quinoa Producers
CECAOTCentral de Cooperativas Agropecuarias “Operación Tierra” LTDA.
BDCCBuyer Driven Commodity Chains
CABOLQUIBolivian Chamber of Royal Quinoa and Organic Product Exporters
FAOFood and Agriculture Organization of the United Nations
GCCGlobal Commodity Chains
IYQInternational Year of the Quinoa
HAHectares
ICA International Coffee Agreements
IYAInternational Year of the Quinoa
MNC Multinational Corporations
MTMetric Tons
NAFTA North American Free Trade Agreement
NGO’sNon-governmental Organizations
POProducer Organizations
PDCCProducer Driven Commodity Chains
SBPC Bolivian System of Productivity and Competitiveness
WSAWorld System Approach
Abstract
This 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.
Relevance to Development Studies
The 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.
Keywords
Bolivia, quinoa, value chain, organic, prices, vertical integration, farmers, ANAPQUI
Image 1: Bolivia/Quinoa stand at the “Floriade” event.
*Source: Picture taken by the author at the “Floriade” event on June 12th, 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
At the Floriade[1]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 thetargetof 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 Mamani
Second Secretary, Permanent Mission of Bolivia to the United Nations
Interviewed on July 26, 2012
UN 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 inthe preferencesof 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).
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)
Figure 1: Trend in Quinoa Prices (FOB) between 1990 and 2010.
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)
Figure 2: Volume[3] 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 Brazil[4] at 4%. The last 8% is covered by a few other countries which import quinoa on a smaller scale such as England, Israel and Peru[5].
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.
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 inthe 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 broughtnew 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”.
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.