A New Approach to Development for Farmers in Peru



Carissa De Young

University of Michigan Ross School of Business and SNRE

 

This summer I am interning in Lima, Peru at Shared-X, an impact investing company that purchases farms in developing countries and then works with small farmers in surrounding communities to deploy advanced farming techniques and to secure contracts to sell their harvest at a fair price. Shared-X focuses on premium crops like specialty coffee, organic bananas, and aromatic cocoa, which receive a higher, more stable price because of product quality. This shields farmers from the risk of selling in volatile commodity markets where the price might vary wildly from year to year. Likewise, the use of innovative cultivation technology allows farmers not only to ensure the quality of their crops but also to increase yields. That combination of higher yields and stable contracts at higher price points results in farmers receiving a better income at the end of the harvest season.

At a Shared-X organic banana farm in northern Peru

Shared-X’s model for lifting thousands of farmers out of poverty is a break from most approaches I have seen in international development. Before I started my first year as a dual MBA/MS candidate studying sustainable enterprise at the University of Michigan, I spent five years working in economic development in Latin America. Most of the organizations I met either served as intermediaries – buying from farmers at a fair trade price premium, or service providers – offering one-off assistance with elements of the all-necessary trifecta of knowledge, tools, and capital.

However, both intermediaries and service providers seemed to fall short of having a lasting, large-scale impact, regardless of whether they were classified as government initiatives, nonprofits, or large agribusiness CSR programs. The intermediaries depended on farmers remaining poor. Once a farmer surpassed the level that would justify labeling her product as “fair trade,” she often had to “graduate” from the program. Buyers in developing countries were willing to pay more to help someone at the bottom at the socioeconomic scale, but not to help someone who had achieved middle income status.

Service providers, on the other hand, often focused on short-term progress. Once a class was taught, some equipment was delivered, or a microloan was paid off, the connection ended. Despite their best intentions, many service providers could not offer the range of services farmers needed to continue growing. In other cases, the funding ended after a grant cycle. Program facilitators offered the service, collected metrics of some measure of progress, and then moved on to their next region of research.

Shared-X’s difference is that it enters into a long-term partnership with farmers. By growing crops in the same region, Shared-X faces the same challenges of crop pests and infrastructure failures. This creates an impetus to search for ways to increase plant health and to bring more government resources to the region. Likewise, Shared-X markets and sells its harvest alongside that of its partners. When negotiating sale prices for small farmers, Shared-X isn’t just doing a favor for the farmers. It is negotiating for its own interest as well, leading to more care and concern for both short-term and long-term sales strategies.

As Shared-X celebrates its first year in business later this month, it draws on over a decade of work developing this model on the farms that were the forerunners of the Shared-X business today. There is a sense of anticipation as the company readies itself to expand into new areas. This model has been tested in Peru and has changed the lives of many coffee farmers, but as the model is fully deployed in other regions and other crops, it could have a multiplier effect, providing small farmers with true partners to work together toward long-term, sustainable growth.

Coffee fields at Finca Matapalo, one of the forerunners of Shared-X