Monday, November 7, 2005
Julio Maura, executive president of GrupoNueva, describes how his company is set on making products affordable for Latin America?s poorest farmers.
Virtuous circles, environmental footprints, sustainability matrices ? corporate responsibility now has a new shape to add to its conceptual armoury: the pyramid.
Coined by CK Prahalad in his much profiled book ?The Fortune at the Bottom of the Pyramid?, the theory centres on the world?s three or four billion poor people who live on less than two dollars a day. According to Prahalad, the poor are an untapped market worth an estimated 15 trillion dollars a year.
GrupoNueva, a Chilean company dealing in forest products and associated services, is one of the most fervent advocates of Prahalad?s pro-trade solution to global poverty.
It fell to Amanco, a subsidiary of GrupoNueva, to see if it could make the theory work. Last year, the water management company challenged all its business units to come up with a way of making its products available to low-income communities.
The winning solution came from Guatemala. The idea revolves around providing small drip irrigation systems to small-scale farmers. The new technology not only cuts farmers? production costs, but also ensures consistent water supply all year round. Amanco has set itself the goal of establishing 2,500 such projects over the next five years, with a sale value of $5 million.
Into the bargain, Amanco is encouraging participating farmers to introduce water efficiency measures and to start growing more profitable crops for export.
The main obstacle to the scheme, as with all business initiatives with low-income communities, is access to finance. The farmers Amanco is targeting simply don?t have the initial capital to invest in the company?s irrigation system.
To get around the problem, the Chilean company teamed up with Guatemala?s Ministry of Food, Agriculture and Livestock, which agreed to help finance the installation of the irrigation systems. The ministry is also providing the technical assistance and training required for the shift in production methods. Meanwhile, Amanco is working with two local non-profit organisations to provide its target farmers with the necessary expertise for selling their produce overseas.
The project?s initial results do much to authenticate Prahalad?s theory. Participating farmers have cut labour costs by an average of a third and have seen their water use halve during irrigation. Improvements in production (up by over a fifth) and quality have translated into long-term contracts with foreign buyers and, in turn, increases in the standard of living. Farmers? incomes have doubled to about $1,950 a year, enabling them to integrate into the formal economy and to pay for their children?s schooling.
Amanco is looking to expand the model in Guatemala and then gradually across other Latin American countries. Again, finance remains the sticking point. The company has approached financial institutions such as the InterAmerican Development Bank to secure low-interest loans for farmers.
This project is not guaranteed to net a fortune, but, replicated across enough industries and enough countries, it just might. It is a challenge that Grupo Neuva, for one, is willing to take.
