Exporting Panela in Peru: How Sweet It Is

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 MAKING A DIFFERENCE

Sugar Cane field


Background 

In the highlands of Piura in northern Peru, families derive most of their income from coffee grown in small plots measuring less than two hectares (about five acres). Some also grow sugarcane and make cañaso, a popular alcoholic liquor, or chancaca, molasses in block form. In 2001, the international price of coffee plummeted 66 percent from about $1.05 per pound in 1997 to a mere 35 cents. The following year, it bottomed out at 30 cents, the lowest price in three decades.

Programa Integral para el Desarrollo del Café (PIDECAFE, now known as PROGRESO), a nongovernmental organization supporting associations of coffee farmers, proposed to diversify the farmers’ sources of income by introducing panela, or granulated brown sugar. The proposal included the participation of women in the associations that had been closed to them. In 2002, the IAF awarded PIDECAFE $264,064 to be disbursed over three years and later authorized an additional $50,000 to upgrade 10 small sugar mills. PIDECAFE contributed $35,281 to the project, mostly in kind, and mobilized $99,680, including $48,685 in cash from other sources. The 10 mills were to be managed by PIDECAFE’s member associations (APPAGROP or Asociación de Pequeños Productores Agropecuarios) and to produce a total of 2,000 metric tons of brown sugar, at least half of which would be certified as organic, for domestic markets. Initially, PIDECAFE did not plan to export the production. Marketing services were to be provided by Central Piurana de Cafetaleros (CEPICAFE), a regional coffee growers’ association with which PIDECAFE was affiliated.

Findings

In 2012, a team of evaluators assessed PIDECAFE’s IAF-funded activities and impact on member associations, individual members and the community. The team specifically focused on the certification and sale of organic brown sugar. Noteworthy findings include the following:

Processing the sugar
Workers cleaning cauldrons used to process brown sugar 

 Export of Organic Granulated Brown Sugar, 2011

 Destination

Metric Tons

Containers

 France

423

18

 Italy

 206

 14

 Canada

27

2

 Total

 656

 34

Brown sugar as offered in the market
Organic brown sugar is being marketed  in France under the Ethiquable label and in Italy by Alce Nero


  • About 1,000 individuals, 20 percent of them women, received training in cultivating sugarcane, producing brown sugar, and in the construction and maintenance of sugar mills.
  • The sugarcane yield increased from 60 to 100 tons per hectare, thanks to PIDECAFE’s introduction of a new variety and techniques that included staggered planting and contour lines, which also reduce soil erosion. The area under cultivation increased from 151 hectares in 2003 to 207 at the end of project in 2006 to 385 hectares when the evaluation took place.
  • The original plan to sell panela in domestic markets was shelved when a French customer that had been purchasing CEPICAFE’s coffee decided to test the demand for the new product in France. Following suit, an Italian buyer placed an order of 400 metric tons that CEPICAFE could not fully supply. The customer was nevertheless satisfied and, from that point on, CEPICAFE concentrated on exporting its entire stock of panela to these two European clients. 
  • The demand for panela, a product unknown in this region prior to 2002, grew to nine tons within the year. By 2006, CEPICAFE was exporting 517 tons and within five years was exporting 656 tons certified as organic. PIDECAFE and CEPICAFE’s most pressing problem is keeping up with demand, especially in view of the expensive infrastructure required.  
  • Fourteen sugar mills were constructed during the grant period, or four more than anticipated. By 2006, European buyers demanded that mills conform to the Hazard Analysis and Critical Control Points (HACCP), which specifies requirements for food safety. This prompted PIDECAFE to apply for IAF funding to invest in bringing six mills into compliance with the stringent standards. PIDECAFE invested its second IAF award in retrofitting six mills . At the time of the evaluation, 21 certified APPAGROPs were using these mills to produce organic granulated brown sugar.
  • More benefits accrued to CEPICAFE and its members when the two European buyers decided to clean and package the panela in CEPICAFE’s facilities. The buyers paid for the necessary equipment
  • From 2003 to 2011, panela sales generated $1.35 million for more than 300 families, adding about $570 to the annual income of each family.

Impacts

Panela commands a price four to five times higher than chancaca or cañaso, a significant boost to the income of struggling farmers.

As more raw cane went into granulated brown sugar, the quantity available for cañaso decreased and so did violence against women that consumption of the inexpensive spirits in these communities has fueled for years. Women, who had traditionally been heavily involved in the distilling, benefit from reduced exposure to the ash-laden air of the bonfires needed to produce cañaso. Acceptance into the previously male-only producer associations has also benefited women. Many participate as members, and some as leaders, in decision-making.

The additional income has improved the local diet. “When you live in extreme poverty, basic needs are not covered,” Amado Rea told the evaluation team. “Instead of three meals a day, you eat two; and the food you consume is not to maintain a balanced diet, but to survive.” Thanks to panela sales, Amado and other families report eating three nutritious meals a day.

Families used to involve their children in making chancaca, usually in wrapping the product. CEPICAFE’s agreement with the foreign buyers prohibits the use of child labor to produce panela. This resulted in more children attending school. The extra income earned from panela paid for tuition and school supplies, which parents could not afford in the past.

Even families that did not switch to panela have benefited from income diversification. As sugarcane is used in the production of panela, less is available for cañaso, whose price shot up from 12 soles ($4.50) per can (about 18 liters) to 45 soles ($16.90). The price of chancaca certified as organic rose from 40 soles ($15.04) per 50-kilogram bag in 2003 to 110 soles ($41.35) in 2012; for noncertified chancaca it rose to 100 soles ($37.59).

 GDF levels in pyramid graphic

The results of PIDECAFE’s project were collected and analyzed using the Grassroots Development Framework (GDF). The GDF measures results on three levels: the individual or family level; the organization or grantee level, and the community or society level. At the lower level of the GDF cone, this project positively impacted the lives of more than 500 families as measured by tangible indicators such as health, nutrition, jobs and income; and the intangible indicators of leadership and self-esteem. PIDECAFE excelled at management and resource mobilization as documented on the tangible side of the mid-level of the cone. It received high marks for identifying new sources of income for its members and for disclosing information with transparency. At the upper level of the cone, PIDECAFE has encouraged residents to participate in decision-making processes with municipal authorities, benefiting the community at large. The mill built with IAF funds in Santa Lucía de Peté became a model for other communities as captured by the “replication” indicator in the GDF.

 

PIDECAFE has continued expanding its work in the highlands of Piura. A subsequent IAF grant funded the introduction of cacao. Today, PIDECAFE is assisting producer associations in several Peruvian regions, extending loans, offering training and providing marketing services for organic coffee, granulated sugar, mangos, avocados, pineapples and limes.

An important tangible result of the project was the unexpected construction of a dirt road extending 11.5 miles between Montero and adjacent communities. In 2006, the obvious benefits derived from the production of granulated brown sugar, and the urgent need to facilitate the hauling of sugarcane from the fields to the mill, convinced municipal authorities to finance the first section of the road linking Montero to Nogal; a second section from Montero to Majada was built in 2009. The municipality contributed equipment, materials and technicians, while the producer associations provided unskilled labor. Community residents participated in decision-making, assuring that Montero’s authorities would allocate funding for the road from the municipality’s budget. According to Mayor Marco Antonio Merino Arias, the project reduced the demand for government services, such as healthcare because sugarcane growers could afford to pay for services they would have otherwise asked the government to provide.

Sustainability

From a technical perspective, PIDECAFE’s project is sustainable. Producers learned to maximize yields by adopting appropriate farming methods and selecting the best variety of sugarcane. Sanitary measures for processing panela, required by foreign buyers and instituted with IAF support, are still in place. And the know-how acquired by growers and others through workshops and visiting technicians not only served producers well in their farming enterprise but allowed them to help others interested in producing panela.

Commercial ties among PIDECAFE, CEPICAFE and APPAGROPs continue to flourish because of panela. The experience led PIDECAFE to venture into other crops. CEPICAFE and PIDECAFE plan to formalize their enterprise, which will require raising $500,000. PIDECAFE’s efforts to further the advocacy of the APPAGROPs on behalf of sugarcane growers paid off when municipal authorities funded needed roads. The APPAGROPs are now pushing for water and electrical services for their communities.

When it submitted its first proposal to the IAF, PIDECAFE had limited experience with panela and underestimated the cost of construction at $5,000 per mill. PIDECAFE’s shift to exporting to Europe required compliance with more stringent health standards and the requirements for organic certification. The use of stainless steel cauldrons, motorized milling equipment and tiled processing facilities added costs that were not originally budgeted.

Demand for organic panela far outstrips what APPAGROPs can supply, but the income generated is insufficient to finance new mills at a cost of approximately $100,000 each. The APPAGROPs hesitate to approach investors because they fear losing control of their business.

Lessons

What worked: Key to a successful venture is the ability to adapt to changing circumstances, as PIDECAFE did by taking advantage of the opportunity to export granulated brown sugar instead of proceeding with plans to market panela locally. The shift entailed unexpected costs, which prevented PIDECAFE from bringing more mills into compliance with the clients’ standards. The experience prompted consideration of different scenarios emerging from its market analysis and fine-tuning budgets presented to potential donors.

Given the right incentive, people are willing to change their behavior. In this case, the incentive for farmers was increased income as a result of producing panela that conformed to European standards. PIDECAFE’s farmers willingly adopted the required practices, such as washing their hands before handling the panela, and ceased allowing dogs in the mill, eating sugar out of the cauldron and relieving themselves on the grounds of the mills instead of in the facilities provided.

Challenges: PIDECAFE’s limited experience with panela production was tested early on. The design of the roof in the mills interfered with ventilation. Condensation built up during the boiling process and droplets fell into the panela drying below. PIDECAFE replaced the roofs at a cost it had not foreseen.

Also not foreseen was the cost of building mills in compliance with the requirements to produce certified brown sugar. PIDECAFE had targeted an output of 1,000 metric tons of certified panela by early 2006. As of 2011, the combined production of the six certified mills totaled 655 metric tons. More sugarcane growers would have benefited had PIDECAFE been able to build more mills.

Conclusions: The production of panela brought hope and opportunities to many farmers, mitigating the effect of the low international price of coffee and the low domestic price of sugarcane and its derivative. It also brought relief to women who had worked under terrible conditions. The income generated helped participants eat better and send their children to school.

Local government authorities readily recognized the value of panela and began supporting APPAGROPs with resources necessary to build additional mills and equipment to construct roads, linking the mills and the participating communities. The APPGROPs became advocates for other services needed in their communities and they play an important role in creating local development plans.

Panela opened the door to other ventures, notably the production and export of cacao, prompting PIDECAFE to change its name to PROGRESO, since its crops are not limited to coffee.

PIDECAFE still depends on donors. Some of its staff have advanced professionally. A technician was contracted by a European organization to provide assistance to panela producers in Madagascar; individuals managing the IAF-funded project became advisors to Peru’s minister of agriculture.


To request the full evaluation (only in Spanish), email inquiries@iaf.gov