UCLA Anderson MBA students conduct Applied Management Research (AMR) projects in lieu of a thesis. The nation’s first business school field study program, AMR partners students with top organizations to solve a key strategic problem. The Center for Global Management sponsored four UCLA Anderson Class of 2018 teams to work with Conservation International, which partners with indigenous groups internationally and pairs local expertise with student consultants.
This story is one of the four by students who collaborated with CI to help find sustainable solutions to enhance economies in environmentally sensitive parts of the world. UCLA Anderson Class of 2018 AMR students made their final presentations on March 9.
By Pascual Daniel George Eley, Santiago Fernandez Quiroz, Ryan Seiji Imamura, Alfredo Jose Noriega Aurazo, Michael David Snyder (Class of 2018)
Our Applied Management Research (AMR) team engaged with Conservation International to support the development of an environmentally sustainable value chain for coffee production in the San Martín region of northern Peru. The goal was to identify the key to scaling current efforts to improve sustainability by identifying optimal linkages in the value chain for intervention. Evaluating the current split of value-capture across the chain to understand how best to incentivize local farmers was inherent to these efforts and any intervention efforts need to consider the social and economic impact on the small communities in the San Martín region.
After several weeks of extensive secondary research, we understood the broader economic context in which the coffee sector in Peru operates. A combination of price pressure and limited power relative to middlemen in the value chain left smallholder farmers exposed to the fluctuations of the volatile coffee market. Along with the unfavorable effect this had on living conditions, the corresponding drive for increased yield to make up for limited pricing power adversely impacted the environment (coffee farming has been identified as the leading cause of deforestation in the San Martín region). Our primary research entailed interviews with coffee industry players and subject matter experts, and an in-country visit to meet with smallholder farmers, local community representatives and leaders of cooperatives.
We made a five-day trip to Peru that included Lima and the San Martín region to conduct our research. (Our trip was shortened by two days because of an escalating strike among rice farmers in the San Martín region but we were able to gather enough information to complete our research.) In Lima we attended a monthly meeting with the National Coffee Board that brings representatives of more than 300,000 farmers to discuss issues with their product and process. We used these conversations among local representatives to build upon our secondary research to understand the best practices and challenges unique to the region.
We also attended the Reto de Café Sostenible, an alliance the government of San Martín and farmers established to explore best practices across the value chain and improve the product offered within the region. We later flew to Tarapoto, where we spent a full day immersed in the activities of the successful Oro Verde cooperative based in Llamas. We conducted primary research among existing cooperatives, with a goal of identifying how best to engage with member farmers, fostering loyalty and ensuring quality in the collective final product. Don Pablo, one of the cooperative’s leaders, shared his thoughts on the successes and challenges faced by Oro Verde and explained how the cooperative was working to improve the quality of the coffee beans it exports to the market. Oro Verde has hired a full-time head coffee taster to help evaluate bean quality. The cooperative also invested in an onsite coffee roaster to enable direct-to-consumer sales of coffee from its farmers.
Farmer Don Bruno walked us through his farm, where we were concluded that (1) first-order economic needs of farmers must be met before any real engagement in sustainable practices can be achieved; (2) preserving biodiversity is a concern, but climate change is not perceived as a direct threat at the individual farm level; (3) financing is a significant challenge; and (4) younger generations are leaving small farming communities to pursue opportunities in larger cities, a challenging social dynamic that is becoming increasingly prevalent.
As our study continued, we weighed alternatives and determined three primary recommendations to support the development of a more sustainable value chain for coffee in the San Martín region:
(1) Conservation International should continue to support the development and expansion of cooperatives as ideal organizations to encourage the institutionalization of small farmers. Cooperatives can strengthen the position of small farmers in the value chain, provide better access to financing, facilitate involvement in reforestation projects and spread best practice techniques to improve quality.
(2) Value-added activities must be pursued at the cooperative level to enable small farmers to maximize economic return. At their core, value-added activities link to improving the quality of farmers’ yields. The higher the quality of coffee produced by a farmer, the more secure that farmer’s position is in the value chain, and the greater the premium commanded by their coffee. Initiatives to support the premiumization of coffee can help overcome the commoditization of low-quality coffee and the corresponding vulnerability facing informal farmers in the value chain.
(3) Conservation International ought to build upon the momentum achieved through the National Action Plan for Coffee and the Sustainable Coffee Challenge to promote an affordable local certification program, which can help informal small farmers transition to the more formalized, market-oriented economy and encourage the adoption of environmentally sustainable, quality-enhancing practices.
Field research was essential for us to advance our knowledge of San Martín and its agricultural, economic and human concerns. Our team thanks the UCLA Anderson AMR office and the Center for Global Management for supporting our primary research trip to Peru and for empowering our team to tackle this type of business challenge.
After water, coffee is the most consumed drink worldwide. It is an important commodity that involves more than 25 million producers at global level.
Posted by: Addy Brown | 04/22/2018 at 08:30 AM