Blog post
A 'Fish-Eye' view on forest conservation: specialty chili sauce providing an alternative to gold mining in the Peruvian Amazon
Rapid deforestation threatens the Amazon rainforest in Perú. One would not automatically think of private businesses as advocates for conservation. Yet, this case study of a speciality chili sauce company from Peru shows how actors in the informal economy, triggered by economic incentives, can contribute to nature conservation.
Javier Gordillo Jordán (ADAMA S.A.C., Peru) and Thies Reemer (Wageningen Centre for Development Innovation), October 2024
This blog is part of the informal economies trajectory of Wageningen University and Research together with alumni from different countries in Africa, Asia and Latin America (KB-35 programme 2023-2024).
Pioneer farmers are attracted to destructive gold mining
Peru has the second-largest portion of the Amazon rainforest, after Brazil. The Amazon covers 60% of the national territory. The Madre de Dios region is part of that. It is marked by high levels of biodiversity and low population density. Major economic activities are Brazil Nut collection, logging and timber, tourism, agriculture, and… last but not least… illegal gold mining. Like in other parts of the Amazon, gold fever is destroying thousands of hectares of forest. It brings along human trafficking, drugs, and violence. Some (farmers’) land is just invaded. Despite knowing that their land will be left completely bare, many farmers also rent out their land to illegal gold miners for high short-term gain. This practice transforms the forest in lunar landscapes, where, for years, nothing can grow anymore.
Amazon farmers are usually immigrants who came from other regions since the 1970s, especially Andean regions. The government promised land titles to those who dare to “conquer the Amazon”. They are hardworking people with a pioneer mindset. Generally, they prefer to work in informality, remaining independent from formal organisations or contracts so that they are flexible to do as they see fit. Therefore, organisations and companies generally find it difficult to work with them.
Chili sauce company offers an alternative
There is a rare chili species that grows in the Madre de Dios region in the Southern Amazon of Peru. Madre de Dios is the least inhabited region of the country and until 2008 it was poorly connected to the rest of Peru. It is a small, native chili variety known as ‘ojito de pescado’ (‘fish eye’). People use it fresh to spice up their meals. In 2009 the production level was still very low, just a few plants per household. That year, now 15 years ago, a chili sauce company (ADAMA; “Aceites y Derivados Amazónicos SAC”) started sourcing ‘fish eye’ chili from Madre de Dios, to produce a specialty chili sauce. More farmers became interested, and farmers planted some more plants to take advantage of this new market opportunity.
Although hardly recognised, private companies like ADAMA can create an incentive to farmers not to fall into the trap of gold mining or renting out land for gold mining.
We founded ADAMA in 2008 in order to bring happiness to people through products that add value to Amazon biodiversity. Looking at the challenges it brings, I believe gold doesn’t bring happiness. When people eat our chili sauce, they’re not only spicing up their meal, but also, they’re helping us to create bridges between the urban and rural areas. Also, chili does bring happiness! Chili’s capsaicine, the substance that produces the heat, generates endorfines, one of the hormones of happiness. On a wider scale the chili can help preserve the Amazon forest, also contributing to happiness.
ADAMA only buys ripe chilies that farmers need to sort and select carefully. Compared to other buyers who buy unsorted red, orange and green peppers, ADAMA pays a higher price to farmers. ADAMA also offers a price that is fixed at a level that is profitable for farmers: 25 soles/kg year-round, a bit higher than price in the dry season, for ripe chili peppers to encourage farmers to sell more. This is an incentive and risk mitigation for farmers, because during the peak rainy season prices can drop to around 8 soles per kg. The market demand for fish eye chili is very limited in the Madre de Dios region, which hosts a little over 100 thousand inhabitants. Bigger markets are Cusco, Arequipa, and especially Lima, Peru’s capital with nearly 10 million people. The international market demand for hot sauce exceeds a value USD 2 billion.
ADAMA was originally founded in Madre de Dios, where all processes were carried out. For more than ten years, the hot sauce was produced in the Madre de Dios region. All inputs, such as bottles, caps, boxes and labels, had to come from Lima. Also lab services were provided there, almost 900 km away. This meant high transport costs, the choice was between expensive airfreight or transport over land (2 days by bus and 4-5 days by truck).
During the Covid-19 pandemic, ADAMA decided to outsource sauce production in Lima (where all inputs and services are available) and to partner with a local collector (Ecodely) for chili supply to be able to focus more on sales in Lima. In this way, ADAMA sourced from farmers via Ecodely.
Dealing with farmers who prefer informality
Chili producers’ plots range between 10 to 30 hectares. Most farmers work a third of it, the rest remains as primary or secondary forest. The main crops that provide income are cassava, papaya, corn, rice, orange, avocado, banana and plantain. With a very modest local market, prices go down at harvest time when everyone produces the same. This is not very profitable. Ojito de Pescado chili is therefore an interesting option. It produces fast (three to four months), a lot (up to 5kg per plant per year), and prices are relatively high.
With their pioneer mindset, a vast majority of farmers prefer to mind their own business and are reluctant to collaborate and coordinate. This is also based on bad experiences in the past. After ADAMA first purchased, many farmers planted too many plants too fast, which made it impossible for the company to keep up and buy all the produce. Farmers turn down the idea of signing agreements that specify volumes and prices. They also do not work with formal receipts for the transactions. They like to feel free to do what seems best for their family at any time and most farmers are reluctant to associate with others for collective supply agreements. If they do, they do not feel a strong commitment, which means that at the first inconvenience they are likely to leave.
There is a high level of general distrust in formal agreements and farmers don’t like committing themselves to relative strangers.
This gives ADAMA a hard time, because it needs a regular supply of chilies, in terms of volume, quality and time of delivery, in exchange for the risks ADAMA takes when offering year-round high prices to farmers. Production during the dry season depends on irrigation, and this requires access to finance. Operating individually, they depend on informal money lenders who charge disproportionally high interest rates, and collect equipment or motorcycles from farmers in case they are unable to repay the loan. The Government has a fund for farmer groups (minimum of 20 farmers) who submit convincing proposals. Due to distrust and inability to write proposals these funds are hardly accessed. There are only a few cases where NGO’s supported group formation and proposal writing.
After harvesting, farmers put the chilies in sacks. They use their own motorbike and/or hire an informal transporter (usually a station wagon taxi) to bring their production to the chili collector for sale. Taxis are paid in cash.
Local collection via Ecodely, a farmer-owned company
At the stage of chili collection the supply chain becomes more organised. The chili collector is a rare case where a farmer’s association actually worked. Agroindustrias Delicia Amazonica SRL (Ecodely) is a registered company owned by a farmer association in Madre de Dios. Apart from aggregating chili among their members, they also buy from other farmers. To ensure the quality, Ecodely checks maturity (mature but not too much) and whether the chili peppers have the tail (peduncle), and general appearance. Ecodely pays farmers in cash at the fixed price agreed. Ecodely then prepares the chili in plastic buckets in a special vinegar solution (upon ADAMA recipe) to be sent to Lima, with formal receipts for every delivery. The trucks carry chili buckets along with all kinds of other products. Ecodely also produces and commercializes its own ‘fish eye’ chili sauce in Madre de Dios.
Once the buckets from Ecodely arrive in Lima, ADAMA takes it to processing facility JFZ Alimentos SAC that complies with all health and sanitation requirements. The final product is 90cc Madre Selva chili sauce bottled, labelled and boxed, ready the sell to speciality shops, restaurants, mini markets and supermarkets in Lima, Cu sco, Madre de Dios and abroad.
As many other companies, ADAMA is recovering from the Pandemic and lacks funds for investment and work capital. As a small company buying small quantities, it lacks credit for bottles, labels and other inputs. When customers delay their payments, ADAMA is forced to take a formal bank loan, which has at least 25% annual interest. If this fails, it has to turn to informal lenders, who charge even higher interest rates. On the other side, there are government funds accessible through contest basis and for specific issues, such as quality assurance, digital marketing and innovation. All of them require a counterpart by the company of at least 30%. ADAMA has won two of them in the past having to borrow money for the counterpart.
Fish eye steps towards more impact
- Address trust issues in the supply chain. The lack of trust in the informal part of the supply chain is the main limiting factor for creating a reliable supply of good quality chili. In fact, in partnership with Ecodely and JFZ, ADAMA has a much higher absorption capacity than is currently realized.
- Market development. There is enough demand in the market for chili sauce in general, and the demand for speciality chili from Ojito de Pescado can be further developed if the supply is regular and reliable. International tourists who visited Madre de Dios are often willing to pay expensive shipping costs to get the sauce, showing the potential for export.
- Manage trade-offs. Even though the chili production helps farmers not to fall into the trap of illegal gold mining, still there is always a possible trade-off between forest conservation and production. Would Amazonian farmers cut more forest for increasing chili production if it is even more attractive? ADAMA is aware that a commitment is necessary to ensure environmental sustainability for the Madre Selva hot sauce. Compared to other crops, the chili is high-value and does not require a lot of land to earn income.
- Recognise the role of businesses in conservation efforts. There are small businesses, like ADAMA, that are genuinely interested in, and making a positive contribution to nature conservation. This is largely unrecognised. There is very little integration of private sector thinking in NGO programmes. For example NGO supported Brazil Nut value chain projects that were implemented for more than two decades largely failed because of the lack of proper market demand. Conservation and development NGOs could include Ojito de Pescado chili in their programmes and work with businesses like ADAMA and Ecodely, to implement agroforestry schemes and at the same time harness the clear value chain and market development opportunities.
- Recognise the role of businesses in conservation efforts: The genuine interest and positive contribution by small businesses like ADAMA in nature conservation is usually unrecognised. While private sector thinking is increasingly integrated in NGO programmes, there is still much ground to cover. Other value chains in the region, such as Brazil Nuts, hold more than 20 years of continuous projects. Since a few years private sector is more involved, yet more work is needed. Most projects are short term, others struggle to get enough funds to continue, or sometimes, NGO headquarters change priorities and projects fall apart. Private companies integrate formal and informal actors, build long term relationships based on a common interest, a need to respond to the market. NGO’s can certainly bridge between different cultures (business vs farmer, urban vs rural) but not underestimate or take over other actors’ roles. And yes, if well performed, private companies can be allies for conservation and development goals.
- Prevent invasion of mining initiatives on farmers lands. Immigrant farmers are facing the issues of (potential) invasion of mining initiatives on their lands. A good number of farmers lack a proper land title. It is not just their right, but also prevents invasion and enables them to use it as collateral to obtain loans. Government institutions should prioritize this kind of interventions in a region where illegal gold mining operates practically at will (with a pro-mining Regional Governor and Madre de Dios Congressman).
- Let farmers be farmers: In most development programmes there is a common assumption that farmers want to become entrepreneurs – even if they do not aspire this - and that private midstream actors need to be cut out to increase benefits of farmers. Each actor in the chain has a role and the chain is stronger if each link does what it best does.
- Although it is very hard to achieve, the development of more farmer-owned companies, such as Ecodely is important to provide a countervailing power towards illegal mining initiatives. A company/association is stronger than a single farmer.
A more positive attitude towards private sector actors will help to invest in market development for the Ojito de Pescado and other agricultural commodities with market demand, providing a bigger push towards more happiness than illegal gold mining will ever bring.
For more information you can contact Javier Gordillo Jordán at: jfgordilloj@gmail.com