francisco a. leguizamon john c. ickis tierra...

SKE-133

O C T O B E R , 2 0 0 9

_________________________________________________________________________________________________________ Francisco Leguizamón and John Ickis, both from INCAE Business School, prepared this case with the collaboration of Juliano Flores, also of INCAE, as part of the SEKN Case Collection. SEKN cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2008 INCAE. To order copies or request permission to reproduce materials, call (800) 988-0886 or (617) 783-7500 outside U.S. and Canada, write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means −electronic, mechanical, photocopying, recording, or otherwise− without the permission of the above mentioned copyright holder. At the time this case was developed, the SEKN membership consisted of AVINA, EGADE, Harvard Business School, INCAE, Pontificia Universidad Católica de Chile, Universidad de Los Andes, Universidad de San Andrés, Universidade de São Paulo, IESA, ESADE and Universidad del Pacífico.

F R A N C I S C O A . L E G U I Z A M O N

J O H N C . I C K I S

Tierra Fértil

In March 2007, Jorge Cordero, newly-promoted Agribusiness Director of the Corporación de Supermercados Unidos (CSU), a major Costa Rican supermarket chain, was reviewing the experience of the company’s fresh produce sourcing system, the Tierra Fértil (“Fertile Land”) program, that engaged small farmers as suppliers. CSU had recently merged with the major retail chain in Guatemala as part of its strategy to expand throughout Central America. The new partners and potential foreign investors in the supermarket group wanted to know whether the Tierra Fértil system could ensure quality standards at a cost lower than, or at least competitive, with that provided by large farming operations.

An experienced agribusiness manager, Cordero had a bachelor´s degree in business from a private university in Costa Rica and a licenciate (post-bachelor´s) degree in food technology at the University of Costa Rica. He came to CSU following twenty years in Gerber Foods, first as Manager of Quality Assurance, then as Regional Director of Manufacturing and finally as General Manager for Central America and Panama. He understood the advantages of scale and technology, but since joining CSU in February 2003, he had been impressed with the Tierra Fértil program. Now, in his new position as Agribusiness Director for the Central American region, it was his responsibility to determine the sourcing model for the expanded corporation and to convince the executive team of the wisdom of his choice. He realized that the future of Tierra Fértil hung in the balance.

The CSU Corporate Group

The CSU supermarket group was founded by entrepreneur Enrique Uribe in 1960 and by 2006 it operated 130 points of sale in Costa Rica and neighboring Nicaragua, with four store formats:

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Mas x Menos. This format featured large, comfortable stores in central locations, with a vast selection of groceries and top quality customer service. It targeted middle and higher income segments.

Palí This pioneer discount format offered staple products at the lowest market prices. Store premises were plain and unpretentious. Products were displayed in cardboard cartons, and customers packed their purchases in their own bags.

Hipermás This format provided one-stop shopping, with a wide range of brands and services offered to satisfy the entire family. Stores featured 55,000 to 60,000 shelves - 70% of them filled with non-food categories including home appliances; electronic, audio and video devices; hardware, paints, automotive supplies, cosmetics, personal care products, garments, gardening tools, pet store supplies, indoor and outdoor furniture, toys, PC’s and office supplies, and jewelry.

Maxi Mercado With this format, the corporation offered customers both a broad selection of products and competitive prices in simple, yet convenient premises. These stores featured ongoing novelties and point-of-sales activities organized by vendors.

The CSU Corporate Group also included a separate entity, the Corporación de Compañías Agroindustriales (CCA), responsible for supplying a large share of the food items sold in CSU supermarkets. The CCA of three divisions – meat, trade and industry, and agriculture.

The meat division: This division included three companies: Industrias Cárnicas, that processed meat, sausages, and cold cuts with the La Hacienda, La Lonja and SuAve private labels; Granja Avícola Ricura, a vertically-integrated poultry production and processing operation that worked with 70 partner producers and sold under the SuAve and Nutrihuevo labels; and Pescarnes, a fish and seafood storage and distribution outfit that operated the Altamar brand.

The trade and industry division:. Three companies were also included in this division: Decoinsa, with over 400 products sold under the Sabemás, SuperMax private labels and the Suli brand; Alimentos Naturales, a natural foods company that sold under the Alín brand, and Panificadora El Hornito, a bakery.

The agricultural division: This division sourced over 250 types of fruits, vegetables, and grains to all four supermarket formats through Hortifruti, a wholly-owned purchasing subsidiary. Some 70% of Hortifruti’s vendors were small and medium-sized farmers who required technical support to comply with the supermarket group´s quality and delivery requirements.

Tierra Fértil in Costa Rica

Prior to the establishment of Hortifruti as a buying subsidiary, the CSU supermarkets purchased vegetables in public markets, where middlemen, known as “coyotes,” sold produce

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that they bought directly from farmers. Coyotes typically visited small farms with a pickup truck and sometimes purchased the crops before they were harvested. Farmers often accepted low prices in exchange for credit with which to purchase agricultural supplies.

As Costa Rican consumers became more demanding, the freshness and variety of fruits and vegetables became an increasingly important differentiating factor for supermarkets competing in the metropolitan area of San José, the capital. As neither quality nor steady supply were assured in the public markets, Hortifruti was created in 1972 to purchase directly from farmers, many of whom grew vegetables on less than three acres of land. There were few economies of scale in vegetable farming, and it was traditionally a family enterprise in Costa Rica. Recognizing that these small growers required technical assistance to meet CSU quality standards, Enrique Uribe created the Tierra Fértil Program in the following year. At the time, the CSU Group had only five supermarkets, but even then Mr. Uribe realized how difficult it was to supply a growing number of outlets with agricultural products of standard quality the year round to meet rising customer expectations.

In 1974 Jorge Cavallini, an agricultural engineer from the University of Costa Rica and formerly director of the university´s experimental station for fruits and vegetables in Alajuela, joined Hortifruti as a plant manager. After attending INCAE´s Advanced Management Program he became general manager, a position that he held until his semi-retirement in the year 2000. Since then he divided his time between growing mangos, cattle ranching, running a plant nursery and acting as advisor to Hortifruti and its Tierra Fértil program. Much of what Jorge Cordero knew about the program he had learned from Mr. Cavellini, who described how it initially focused on promoting more efficient and safer ways for small farmers to deliver their products. :

Farmers were used to storing their produce in wooden crates that were potentially harmful for fruits and people. As farmers insisted on using them, we had to pay a premium price to a leading farmer in Cartago [a mountain area in the central plateau] whenever he delivered his produce in plastic crates. Three months later, we no longer needed to pay him an incentive, as he recognized the advantages and became a passionate advocate of plastic crates among other farmers. Now all Hortifruti’s vendors deliver their produce in plastic crates.

After introducing safe, hygienic packaging, Tierra Fértil set out to improve produce transportation, demanding special freight conditions. Produce from small farmers who could not comply with this requirement and lived en route to points of sale was picked up at their farms. This resulted in a reduction of waste in classification, packing, transportation, reception, placement on shelves from 25% to less than 5%. According to Mr. Cavellini,

Back then, fruits were handled by 10 to 15 workers, while now only two or three hands touch our fruit. This has enabled us to pay more to producers and to buy more crops from them, because that 25% waste was thrown away here. In turn, farmers started to trust our agronomists more. Even more than the gains in operational efficiency, we believe one of the greatest gains in this program has been the credibility we earned among farmers.

In 1985, a campaign to promote rational agrochemical use was orchestrated by Tierra Fértil through an alliance with a public agricultural supply agency that reported to the Costa Rican


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Agricultural and Livestock Ministry (MAG). Through this alliance, information on efficient and safe agrochemical utilization was provided to farmers in a two-year training program across the country.

In 1987, efforts were launched in Costa Rica to reduce stomach cancer incidence as a result of excessive agrochemical usage in farming. An agreement was forged with the Costa Rican Health Ministry’s Nutrition and Health Research and Education Institute as well as the Agricultural and Livestock Ministry’s Agrochemical Residue Lab. Two years later, plants and farms were evaluated to determine if farmers were applying the knowledge they had acquired.

But providing technical information for food safety was not enough. As the number of CSU points of sale continued to increase in the late 1980s, Tierra Fértil’s agronomists, who were also responsible for buying the produce, realized they needed the farmers to become more entrepreneurial. Mr. Cavallini, who had worked for years as an extensionist, explained:

… We had to call the town’s bar to place orders with farmers who lived half a mile or a mile away. It was time for us to rely on farmers who had a phone for us to contact them immediately. Then, we moved on to focus on their storage rooms, requiring running water, both for vegetable irrigation and harvest washing.

Over the next fifteen years, Tierra Fértil continued to evolve. The potential for export of fresh and processed products to the United States, Canada and Europe encouraged Hortifruti to raise its quality, hygiene and service demands for farmers. Tierra Fértil worked with producers to enhance production discipline and attention to planting, harvest, storage and transportation details.

In 1990, a cholera outbreak reached Central America, and Hortifruti’s farming suppliers faced a significant demand increase as a result of the safety campaigns developed by Tierra Fértil over recent years. The program provided cholera prevention training for over 2,000 people that year, including farm hands, farmers’ relatives and Hortifruti’s plant workers. Produce demand grew up to 400%, and some farmers were forced to rent additional land to meet their production plan requirements.

In the early 1990s, as the number of CSU outlets continued to grow, it became harder for Hortifruti to manage the washing, packing, and storage operations. As these processes required more employees and space, the machinery and materials used for them were transferred to the farmers, who were trained by technicians to conduct these operations. Some farmers failed to adjust to these increasing demands and chose to leave the program. However, as Cavallini reported,

Many of the farmers who left the program returned awhile later, as they had become accustomed to the orderly and hygienic process used here. Several competitors had no contact with farmers and handled everything through middlemen. Some of our producers used to say, ‘these people at Hortifruti are very demanding, but, because they are so demanding, I’m learning.’

By 2007, the program provided technical assistance and other kinds of support to more than 1,600 small and medium-sized vegetable, fruit and grain producers throughout Costa Rica. Before receiving Tierra Fértil’s support, most of these farmers had no access to loans


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technology, or markets. Tierra Fértil provided advice on what to grow and when, based on Hortifruti’s knowledge of consumer preferences drawn from CSU supermarket experience. The program instructed growers on quality and timely planting, so that harvests would help to mitigate supply seasonality. Exhibit 1 shows the supply scheme developed by Tierra Fértil.

Florentino Brenes, a small farmer and Hortifruti supplier for 27 years, noted,

[Tierra Fértil extensionists] hold a lot of lectures together with farm supply companies, for instance, on pesticides and how to use them. And then, of course, they test our products every month, and, if they come up with a “heavy” pesticide trace, they don’t purchase from us until we fix the problem. Their agronomists come to look at our produce every now and then, and, when they see some damage, they advise us on what to do.

Tierra Fértil was now pursuing farm production diversification, crop scheduling and phasing, rational agrochemical use, efficient irrigation, environmental care, new variety introduction (grape tomato, sweet peppers, broccoli, cauliflower), tunnel utilization (to produce lettuce, cabbage, broccoli, chiltoma pepper, tomato and celery seedlings), greenhouse construction for commercial production and the use of specialized equipment for such operations as root washing and automated packing.

Tierra Fértil supported organic product growers and sought “exotic” produce. It also instituted the “Excellence Award,” awarding a $4,000 prize and an all-inclusive trip abroad to the farmer judged best at a farming fair organized annually and attended by more than 800 farmers. Guillermo Enrique Paniagua, a vegetable farmer in the Costa Rican central plateau, won the award in 2006. He recounted the fifteen years that he and his family had been selling to Hortifruti through the Tierra Fértil program:.

When we began selling to Hortifruti we were producing a few varieties of lettuce, beets, and colander. Five years ago we began to work with organic vegetables, and now we are also producing a range of organic products including parsley and montaza. This entire farm is certified.

Referring to their relationship with the agronomists of Tierra Fértil, Paniagua commented, “they have taught us to manage this enterprise and helped us to grow as producers and as people.”

Prices for farmers

Hortifruti applied a “fair price policy,” paying suppliers a price based on the statistical mode of the price paid by the nation’s leading wholesale market, CENADA, plus a premium for compliance with the company’s presentation, safety and packaging requirements. Exhibit 2 illustrates the agribusiness chains for CENADA and Hortifruti, showing the primary players and retail price indexes for producers under each system. A Costa Rican farmer engaged in the Tierra Fértil program pointed out,

The prices paid by Hortifruti are good, because they are the same as CENADA’s. When the market is up, Hortifruti pays high prices, and when the market is down, they


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pay less, although they are always trying to help us. In addition to the CENADA price, they pay for our additional expenses, such as the net we use to pack pods and the wages we pay to pickers.

Geovanny Masís, Chairman of Costa Rica’s Horticultural Chamber, an organization directly involved in the Tierra Fértil program, questioned whether the farmers were getting a fair deal:

One of the problems with the [Tierra Fértil] program is that farmers are not protected against negative price variations, as Hortifruti pays market prices. Yet, although this price does not recognize the value added as a result of the higher safety standards and improved practices demanded by the company, farmers who fail to comply with company standards are punished.

However, for Roberto Fuentes, a prize-winning producer from the nearby village of Guácimo, the prices paid by Hortifruti had resulted in a virtuous circle of improved quality and higher income:

I was a poor papaya grower when one day seven years I started to sell to Hortifruti. Now I have my own pickup truck, my own farm, and I have provided jobs to 21 people from this village. With the prices that I get from Hortifruti, I can buy the best fertilizer to get good harvests and select the best crops for sale to Hortifruti. My goal is to maintain the best quality and to stick with Hortifruti as long as I live, and hopefully my family will continue after I am gone.

Expansion in Nicaragua

The Tierra Fértil program began expanding to Nicaragua in 1998, at a time when the local market was growing and consumers were seeking greater product selection.1 Fresh produce was key to retailing differentiation, and there was growing awareness of the importance of quality and hygiene standards. But despite a favorable market, CSU’s progress in Nicaragua was slow. Farmers in Nicaragua were corn and bean growers, accustomed to only two sowing and harvest periods a year, whereas Costa Rican farmers worked with shorter vegetable planting and harvest cycles, spanning only 21 days in the case of cucumbers. The average distances between farms and storage facilities were larger, and roads were less accessible in Nicaragua than in Costa Rica. While Costa Rica’s supplier base included seasoned farmers with experience in several crops, Nicaragua’s farmers embraced the “corn culture” – a single crop. Cavellini explained:

Crop practices, harvest marketing policies, risk aversion, relationships with other community members, as well as corn and bean growers’ expectations all hinder farmers’ transition into vegetable production. Practically everything, except the land they use, is new to them: new products, new planting and harvesting methods, new supplies, new sowing and harvesting schedules; new vegetable color, size and texture requirements; new practices to store and pack products, and, finally, new ways to set and negotiate prices as well as new payment terms.

1 In 2001, the Tierra Fértil program also began working in Honduras, on a limited basis.


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As a result of these differences, only 250 farmers of the nearly 350 who had originally signed up, remained in the program. Tierra Fértil agronomists attributed the high desertion rate to their unwillingness of many corn-and-bean farmers to accept the discipline demanded by horticulture or to their inability to adopt new farming practices, which led to poor harvests and broken commitments.

In this setting, Tierra Fértil started to work with growers in several regions to produce improved quality varieties and new products formerly unknown in Nicaragua, such as miniature vegetables, including baby carrots and zucchini. Cavallini commented on the adoption of these new crops:

We found farmers who live in poverty because they insist on growing crops on land that is not suitable. Whenever he reports on projects involving crop changes, one of our agronomists always tells me, ‘let me introduce you to the worst strawberry grower in Nicaragua, who has now become the best lettuce producer in the country.’ Here, in Costa Rica, we don’t tell farmers what to grow any more. They are very knowledgeable because they have tried a lot of things and learned a lot.

When Tierra Fértil extensionists arrived in Nicaragua, they found that farmers’ margins were so low that they were barely able to survive. Shelf prices were almost four times as high as the prices paid to farmers. Their first step was to open storage centers to eliminate middlemen and to offset the great distances and lack of suitable roads. One initial experience involved a group of farmers in León, who did not believe they would be paid two córdobas per kilo, as intermediaries were paying them 65 cents per kilo. When they began to receive the higher amount, the program quickly gained credibility among farmers in the area.

Hortifruti had a policy of paying small farmers in cash on delivery, while medium-sized farmers were paid shortly afterwards. Prompt payment was seen by producers as another benefit of the Tierra Fértil program. “I know many farmers who have been cheated by middlemen who take their produce and never to pay them,” said one supplier. “Hortifruti pays us on time, and they are very responsible about it.”

Strict product quality and safety requirements, plus improved logistics, had enabled several farmers to export, as had happened in Costa Rica. Jugar del Valle, a company built by ten landless farmers who rented farms to grow their crops, had been selling through middlemen until Hortifruti became one of its major buyers in 1992. Back then, Jugar del Valle’s sales totaled less than US$ 450 a month; in 2003 its monthly sales averaged US$ 15,000., due in part to the export sales made possible by the higher quality standards exacted by Tierra Fértil.

Tierra Fértil’s assistance to farmers in gaining access to credit was another program benefit. In some cases, Tierra Fértil provided the credit directly, taking the crop as collateral. In other cases, farmers used their production purchase guarantee with Hortifruti as collateral for bank loans or for the purchase of supplies. Some Hortifruti suppliers reported having obtained lower interest rates on bank loans as a result of their engagement in the Tierra Fértil program. As reported by Milton Ramos, Hortifruti’s purchasing manager in Nicaragua, the company was negotiating with LAFISE, a regional financial services group based in Nicaragua, to help its small farm suppliers access financing at moderate rates and on friendly terms.


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Comparing the implementation of the Tierra Fértil program in Costa Rica with its rollout to Nicaragua, Cavallini commented:

In Costa Rica, we provide technical support. If there is a problem with a product’s root, we tell farmers, and they go to the Ministry of Agriculture or Fertica [a fertilizer plant], or they call their agrochemical supplier or surf the Internet to read up on it and solve the problem. In Honduras and Nicaragua, there is virtually no government technical assistance. We have found subsistence farmers, and the support provided by Tierra Fértil has gone from providing seeds to approaching banks to help farmers access loans, and from finding seed vendors to teaching growers how to use drip irrigation systems. In sum, we have become involved in the entire process.

One former subsistence farmer was Manuel Díaz, who had been growing corn and beans in the western Department of León until he began selling baby corn to Hortifruti five years earlier. “At that time I had no means of transportation,” he recounted. “Later I bought a horse and cart, and now I have a tractor. I´ve been progressing, growing. I have 3 irrigation pumps, and I provide jobs to five people, in addition to my family. This was like a blessing from heaven…” Díaz used to produce 7,000 ears of baby corn per week; by 2007 he was delivering 30,000 per week. His oldest son had also become a Hortifruti supplier.

Alliances with CSO’s

To reach a larger number of farmers in Nicaragua, Tierra Fértil extensionists had started to build partnerships with civil society organizations (CSO’s). As Jorge Cavallini explained, these alliances had been necessary but sometimes frustrating:

… we are not going to build this project on our own. But we have been disappointed by CSO’s that only apply for funding to develop programs where they can take pictures and submit charts to justify their requests. In Costa Rica, we barely work with CSO’s, so we’ve had to learn how to do it in Nicaragua. We had specified the profile of CSO's we wanted to work with, reviewing their by-laws, composition, origin, funding, and initiatives they have carried out in other countries, so as not to start from scratch and to have the resources to reach farmers who need them. Sometimes these organizations work in an area where a politician lives in exchange for political support.

Although some CSO's provided useful support for the program, according to Cavellini, others counted the number of meetings with Tierra Fértil agronomists instead of measuring improvements in farmers’ harvest volume and quality. He felt that interactions with CSO extensionists officials had failed to produce a more entrepreneurial attitude on the part of farmers, but still viewed these partnerships as instrumental for the program:

While [CSO’s] do not share our sense of urgency to increase farmers’ income, their proximity to farmers and their involvement in new crop practice training will continue to be very important for us. The same goes for local officials in the Agricultural Ministry’s programs. The key to Tierra Fértil lies in our ability to facilitate Nicaraguan farmers’ migration from single crop practices to horticulture, so that they can become knowledgeable suppliers.


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Tierra Fértil would not have been able to accomplish this much without its partner CSO's. For example, a CSO tells us ‘we have the necessary resources to support small farmers, to help them become more high-tech, but then, when we get them to produce, we don’t have anyone to sell their produce to.’ When we come into the picture, the equation is complete.

Thus, partnerships with CSO’s enabled the Tierra Fértil program to leverage its resources. In communities where CSO’s offered training and financial support to farmers, Tierra Fértil’s work was easier, as efforts required to prepare and educate farmers to comply with program demands – phased harvests throughout the year, shifts from traditional crops, adhesion to quality, packaging, safety and hygiene standards - were reduced. Examples of successful collaboration efforts included the following:

Ocotal-ADRA:2 Tierra Fértil joined a CSO, Adventist Development & Relief Agency International (ADRA), to provide technical and financial support to small farmers in Nicaragua’s Ocotal region. Growers in this area used to earn $ 300 a year and subsequently increased their average income to $ 1,000 a month. They used to produce corn, with two harvests a year on a parcel of land measuring 75,000 square feet. With the support of Tierra Fértil and ADRA, these farmers changed their crop and production scheme to produce tomatoes in tunnels over a 4,300-square-foot area. Commented one of the famers: “In 25 years, I had never produced anything in the dry season.” As a result of the project, he was able to build his own home and keep his children in school.

Technoserve.3 Together with this CSO, Tierra Fértil developed a support plan for 50 small vegetable growers in the town of Sébaco, offering technical assistance to enhance their production and a guarantee to market their products through the CSU supermarket chains.. Through their commercial arrangement with Hortifruti, these small farmers gained access to a market for their produce at stable prices. The company provided a storage center for producers and sent its delivery trucks to their farms three times a week to pick up their vegetables, sparing them storage and shipping costs. This project was later expanded to Jinotega, a vegetable growing region to the north, Angel Villagra, an 18-year-old broccoli producer from that region, said: “My life has changed. Before I had nothing, not even a machete. Now I have tools, a plow, and fertilizer sprayers, I built a house where my three brothers and I pack and deliver 90 cases a week to Hortifruti. We are planning to double that.”

CICA. Tierra Fértil sought the support of the Food Research and Technology Center (CICA) and a CSO to find a solution for bananas turning black on supermarket shelves. “This CSO provided the entire funding, and we contributed the machinery and computers, as well as our support for CICA personnel and students, while points of sale set up the shelves for our experiment,” recalled Jorge Cavellini. “With this collective effort, we were

2 Adventist Development & Relief Agency International (ADRA). ADRA’s origins date back to the 1980s, but Adventist humanitarian works started earlier. ADRA is viewed by international agencies as a humanitarian and development agency network. A confessional CSO associated with the Adventist Church, ADRA maintains an independent structure and administrative organization, operating in over 140 countries around the world.

3 Technoserve helps business men and women from rural areas in developing countries to build business ventures that produce income, opportunities and economic growth for their families, communities and nations.


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able to solve this problem, securing significant benefits for farmers, as bananas now have a longer shelf life. “

Jorge Cordero believed that progress of the Tierra Fértil program in Nicaragua to date (see Exhibits 3 and 4) justified strengthening the program by recruiting more agricultural extension professionals, who specialized in vegetable growing techniques, who understood the traditional farmers’ culture, and who could facilitate their transition to horticulture.. Alberto Pereira, Program Director in Nicaragua, agreed. He believed that program desertion would decrease as a result of the “demo effect” triggered by successful program members among their neighbors, relatives, friends and other farmers.

A Visit to Nagarote

Jorge Cordero recalled a conversation with a social researcher who had described his visit to the 44-acre Los Cocos farm in Nagarote, Nicaragua, owned by José Méndez and his wife, Martha Velázquez. Before starting to sell to Hortifruti seven years earlier, the couple grew cushaws, a variety of crook neck squash, on seven acres of land. By 2005, they produced cucumbers, eggplants, spinach, beans, and sweet peppers on 25 acres.4 Their arrangement with Hortifruti had enabled this farming couple to learn new crop techniques, expand their farming area, and gradually increase their production and offerings for the company. As Mr. Méndez told the researcher,

When we started to work with Hortifruti, we used to deliver around 40 crates of cucumbers three times a week. We are now delivering 100 crates of cucumbers three times a week. We have also learned to grow other produce, such as spinach and eggplant… People come to see how we do it.

José Méndez and Martha Velázquez received ongoing technical support, and agronomists working with the Tierra Fértil program helped them to schedule their crops. Communications between the company and the couple were handled via telephone and weekly visits by an agronomist and a buyer from Hortifruti. The company paid them every Friday. In late 2005, the couple was granted a loan by a local commercial bank (BAC Nicaragua Bank), where they had a savings account. They reported that their relationship with Hortifruti had been instrumental in obtaining the loan.

Although this farming couple had drawn significant benefits from their relationship with Hortifruti through the Tierra Fértil program, including income increase, access to financial services, and improved living conditions – telephone service, electricity and home appliances- the researcher reported that even with four employees, they were somewhat reluctant to expand their crops any further. The researcher concluded “their limited entrepreneurial vision prevents them from hiring additional help to further increase their production and enhance their living conditions. This seems to be – at least in this case - a limiting factor.”

4 Field interview with José Méndez and Martha Velásquez, conducted on April 29, 2006.


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The Future

Jorge Cordero had to decide whether he should recommend expanding the Tierra Fértil program to the rest of Central America. The program had unquestionably been a success in Costa Rica, and the results from Nicaragua, after eight years of hard work to overcome barriers, were encouraging. But he did have a number of concerns: first, might the limited entrepreneurial vision in Nicaragua, as reported by the social researcher in Nagarote, impose a ceiling on the growth and development of small farmers in that country? And if that were true, what should he recommend for the future of the Tierra Fértil program in Nicaragua? Might a similar ceiling exist in the other Central American countries, and what were the implications for the expansion of the program to the entire region?

Second, Cordero knew that farmers in El Salvador and Honduras also shared a corn-and-beans culture. How difficult might it be for these farmers to shift to horticulture? As Jorge Cavellini had cautioned him, “To be a Hortifruti supplier means complying with stringent requirements of quality and appearance. It also means reliable delivery and scaled production scheduling. Some farmers are simply not prepared for the additional work that this entails.” The barriers to change had been overcome in Nicaragua, but would the same formula work in other countries? There were many more CSO´s working in Nicaragua than in El Salvador and Honduras. Was the presence of CSO´s, with their vehicles and mobile phones, necessary for success?

Third, could the new Guatemalan alliance partners be convinced that the Tierra Fértil model was appropriate for their country? Like Costa Rica, Guatemala had many micro climates and over the past 30 years, many Guatemalan corn-and-bean farmers had switched successfully to vegetables. Was Tierra Fértil really necessary, or could traditional systems be relied upon to source vegetables?

Fourth, if it were decided to launch Tierra Fértil in the countries of northern Central America, how could logistical and security problems be overcome? Rural violence was a much greater threat in Guatemala and El Salvador than in Nicaragua or Costa Rica. Might the risks and costs outweigh the benefits? CSU and its Guatemalan partners could opt for buying only from medium and large producers, minimizing their exposure in rural areas. On the other hand, there were risks in concentrating their purchases among a few large suppliers, and they might not obtain the wide variety of vegetables that consumers demanded. Also, the Tierra Fértil program was part of the CSU policy of social responsibility.

Jorge Cordero knew that he did not have all the answers to these questions, but there was a fifth and even more urgent set of questions that he was being asked, and his review with Jorge Cavellini should provide the answers: was now the time to phase out the original Tierra Fértil program in Costa Rica? Had its goal been accomplished?

The future the Tierra Fértil program and of many small farmers in the region depended upon his recommendations and the effectiveness with which he could communicate them to the CSU executive team and to their new alliance partners, Cordero was aware that the Central American partners were exploring a strategic alliance with global retailers as and that they, too, would need to be convinced.


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Exhibit 1 The Tierra Fértil Program Operating Scheme

Exhibit 2 Primary Actors, Retail and Farmer Price Indexes

Note: The initial price used is for illustrative purposes only, as the price paid by Hortifruti, as compared to that paid by freight companies, depends on product type. However, according to the company, final prices maintain a proportion similar to the one shown above.

Source: Information provided by Hortifruti.

P=100

P=125

Finca – Agricultor ´´´´´´´´´´´´´´´´´´

Hortifruti (%)

Transportista (%)

=225

=200

directamente

=210

CENADA (%)

Mayorista (%)

Minorista Verdulerías Abastecedores (%) PulperíasPa

CSU (%)

Supermercados (%)

Farm - Farmer

Freighter(%)

Wholesaler(%)

Supermarkets (%)

RetailersGrocery storesSuppliers (%)Town barsdirectly

P=100

P=125


Hortifruti (%)

Transportista (%)

=225

=200

directamente

=210

CENADA (%)

Mayorista (%)


CSU (%)

Supermercados (%)

Farm - Farmer

Freighter(%)

Wholesaler(%)

Supermarkets (%)

RetailersGrocery storesSuppliers (%)Town bars

P=100

P=125


Hortifruti (%)

Transportista (%)

=225

=200

directamente

=210

CENADA (%)

Mayorista (%)


CSU (%)

Supermercados (%)

Farm - Farmer

Freighter(%)

Wholesaler(%)

Supermarkets (%)

P=100

P=125


Hortifruti (%)

Transportista (%)

=225

=200

directamente

=210

CENADA (%)

Mayorista (%)


CSU (%)

Supermercados (%)

Farm - Farmer

Freighter(%)

Wholesaler(%)

P=100

P=125


Hortifruti (%)

Transportista (%)

=225

=200

directamente

=210

CENADA (%)

Mayorista (%)


CSU (%)

Supermercados (%)

Farm - Farmer

Freighter(%)

Wholesaler(%)

P=100

P=125


Hortifruti (%)

Transportista (%)

=225

=200

directamente

=210

CENADA (%)

Mayorista (%)


CSU (%)

Supermercados (%)

Farm - Farmer

Freighter(%)

P=100

P=125


Hortifruti (%)

Transportista (%)

=225

=200

directamente

=210

CENADA (%)

Mayorista (%)


CSU (%)

Supermercados (%)

Farm - Farmer

Freighter(%)

Wholesaler(%)

Supermarkets (%)

RetailersGrocery storesSuppliers (%)Town barsdirectly

Tierra Fértil Scheme

Micro and Small

Farmers

State Agencies and NGOs

Organization Training Financing Pricing info.

Fair pricesBPA/BPMFood safetyProduct cleanlinessGlobal standards

ProcurementQuality control Customer service Waste management Market information

Tierra Fértil Scheme

Micro and Small

Farmers

GovertAgencies

and NGOs

Organization Training Financing Pricing info.

Fair pricesBPA/BPMFood safetyProduct cleanlinessGlobal standards

ProcurementQuality control Customer service Waste management Market information


13

Exhibit 3 Selected Data on Tierra Fértil in Nicaragua

Commercial Data 1998 2005 Direct imports 60% 10% Local supplies 20% 85% Imports / Intermediary 20% 5% Exports to Central America (in U.S. dollars) $ 0 $ 1.8 million

(2,300 tons)

Source: Hortifruti.

Exhibit 4 Farmers’ Sales (in Nicaraguan córdobas)5

5 On May 25, 2006, the exchange rate was US$ 1 = 17.48 córdobas.

Productor: Clifford Dueck

C$ 102,164

C$ 301,422C$ 386,809

C$ 0C$ 100,000C$ 200,000C$ 300,000C$ 400,000C$ 500,000

2003 2004 2005

Productor: Filadelfo Sotelo

C$ 240,540

C$ 392,604

C$ 562,466

C$ 0C$ 100,000C$ 200,000C$ 300,000C$ 400,000C$ 500,000C$ 600,000

2003 2004 2005

Productor: Diego Salgado

C$ 540,211

C$ 825,369

C$ 0C$ 200,000C$ 400,000C$ 600,000C$ 800,000

C$ 1,000,000

2003 2004 2005

Productor: Roberto Torres

C$ 120,000

C$ 241,821 C$ 250,087

C$ 0C$ 50,000

C$ 100,000C$ 150,000C$ 200,000C$ 250,000C$ 300,000

2003 2004 2005

Farmer: Filadelfo Sotelo Farmer: Clifford Duck

Farmer: Roberto Torres Farmer: Diego Salgado

Productor: Clifford Dueck

C$ 102,164

C$ 301,422C$ 386,809

C$ 0C$ 100,000C$ 200,000C$ 300,000C$ 400,000C$ 500,000

2003 2004 2005

Productor: Filadelfo Sotelo

C$ 240,540

C$ 392,604

C$ 562,466

C$ 0C$ 100,000C$ 200,000C$ 300,000C$ 400,000C$ 500,000C$ 600,000

2003 2004 2005

Productor: Diego Salgado

C$ 540,211

C$ 825,369

C$ 0C$ 200,000C$ 400,000C$ 600,000C$ 800,000

C$ 1,000,000

2003 2004 2005

Productor: Roberto Torres

C$ 120,000

C$ 241,821 C$ 250,087

C$ 0C$ 50,000

C$ 100,000C$ 150,000C$ 200,000C$ 250,000C$ 300,000

2003 2004 2005

Farmer: Filadelfo Sotelo Farmer: Clifford Duck

Farmer: Roberto Torres Farmer: Diego Salgado

francisco a. leguizamon john c. ickis tierra...

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