NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Tuesday, December 20, 2005

Small family farms are an endangered species in Brazil, as in many countries of the developing world. Saving farmers from the threat of extinction?or migration to cities where their skills cannot be used and they lose their connection to the land?is the mission of ARCO Contestado, a regional marketing agency based in Mafra, a city of about 50,000 residents and the center of a micro-region of a dozen smaller towns in the state of Santa Catarina, in southeastern Brazil.

In the Mafra region, some 1,300 family farmers in 17 highland municipalities are switching to new crops and animal products and gaining skills, strength and bucks. The farmers are the vanguard of a successful local economic development project.

This expanding project to increase the economic viability of family farms is spearheaded by ARCO Contestado, which bases its success on partnerships and alliances formed with farmers unions, local research groups, municipal and state technical agencies and merchants. By producing select or specialized vegetables and foods, the farmers have opened up new markets, getting their crops and products onto the shelves of major supermarket chains in southern Brazil, making their small plots much more profitable. As family incomes have grown, the farmers have been able to raise their standard of living, eating better, getting dental care and even buying cars that permit much greater mobility in their poorly served rural area. And other farmers, looking on, have become convinced to follow the lead and convert to new products that have more stable, promising markets.

For its local economic development promotion, ARCO Contestado draws on a methodology that makes a quick analysis of the competitive advantages and disadvantages of a small region. The Participatory Appraisal of Competitive Advantage (PACA) is designed to identify in a rapid study the products or projects that are most promising for developing economic activity in small regions. The PACA approach specifically seeks to avoid undertaking prolonged, costly and often abstract diagnostic studies.

In 1998 the agency that was the precursor to ARCO Contestado found through such a study that the greatest potential for economic development in and around Mafra lay with agriculture and trade, tapping into the expertise of local support institutions including an agricultural extension agency and credit cooperatives for agriculture. The study also found that the region was ill equipped for competing in industrial production. Development with the PACA approach, then, would be centered on mobilizing and coordinating local agencies and individuals and raising crops or developing farm products that would be different from other crops. This would be the way to give a competitive edge to farming in Mafra. The focus of the local economic development promotion is upgrading small family farms, and this effort has “evolved beyond our already optimistic expectations,” says a PACA study.

Most family farms in the Mafra area have between eight and 15 hectares, and obviously cannot compete with Brazil’s large agro-industries. The intent is to break farmers’ dependence on so-called “low density products” such as commodities which are subject to violent swings in price and crops or livestock that require extensive agriculture. “These farms can greatly improve the marketability and profitability of their output by becoming ’high-density economy’ units,” says Ilgo Welp, president of ARCO Contestado, of the efforts to have farmers substitute their fields of tobacco, a traditional crop in the region, with vegetables and legumes. “Tobacco pays little money, the process of raising it is toxic, many producers die young and it is not a sustainable crop,” says Welp.

The central concept behind the conversion of family plots is to create strategic advantages for farmers. Products must offer a competitive advantage by being singular, or distinct from others, and hard to imitate. The products must also provide a dynamic advantage by being sustainable and renewable to provide guaranteed continuity in production over 15 to 20 years. These advantages create a high-density economy on farms and “add and appropriate value for the farmer,” says Welp, a former multinational executive and university professor. ARCO Contestado’s specialists provide training and technical assistance to the farmers’ groups in negotiating with the market, secure cost savings through group purchases and help increase the prices farmers receive by processing more highly priced farm products. Linking farmer organizations with the technical support needed to get to market with desired goods has a single goal: creating and appropriating higher value for family farmers.

“The vision is systemic,” says Welp.

Organic Produce in High Demand

Some of the distinct, sustainable crops that small farmers around Mafra are now producing include slow-grown chickens raised without hormones, toxin-free fresh vegetables and dried grains, bottled pickles and beets,

rabbit, pasteurized milk and eggs. Classic examples of conversion to high density agriculture include shifting production away from the region’s traditional extensive soy bean farming and using the same lands to produce strawberries, giving up raising onions and producing onion seeds instead. The benefits for farmers are clear: the price for soy beans sold from one hectare of land was about $200, while the price paid for strawberries grown on that same hectare of land is at least $12,000, or 60 times better than the pay for soy beans. The price of onion seed on the market is more than $15 per kilo, a vast improvement over the price of onions.

Business Know-How

Local economic development involves many actors, and persuading all of them to work together is critical to achieving successful production of new crops and farm products and then getting them to market. ARCO Contestado acts as the nucleus of the effort, with its small staff of seven technicians including a financial manager and commercial agricultural extension agents. Farmers’ associations function as the right-hand of ARCO Contestado, because they help organize farmers who convert to new products. By increasing the numbers of producers who switch to new crops or processed foods and organizing joint purchases of agricultural inputs, the farmers’ unions help the project gain production to scale that can supply wider markets and stimulate economies of scale with volume purchases. ARCO Contestado gains critical knowledge needed for the new products by working closely with a local research and agricultural extension agency, the state sanitation authority and agricultural marketing research agency, the municipal economic development staff and business associations.

By reaching out to technical agencies and to supermarket chains and other food distributors, ARCO Contestado “follows a clear business logic, is driven by market opportunities and clearly understands managing the entire value chain?from purchasing inputs to distribution to customers,” says the PACA case study.

“Green Chicken and Flower Fed Bees”

The process of conversion of family farms typically begins on a small scale and advances gradually. Before working with farmers, market research was carried out in nearby towns and the large city of Curitiba, located north of Mafra. The study found that customers would pay a premium for chickens raised without hormones, antibiotics, and stress from modern, intensive feeding techniques. Conventional chickens are fed to mature in 30 days, and the no-stress chickens mature in 90 days. “When we made the calculation, we found that the market would pay for chickens raised over a period of 90 days,” says Welp.

The farmers participated in a two-week training course to learn how to raise the new product. The training method alternates one day of theoretical discussion with one day of practice on the homestead. Technical problems arose with the care of the chickens, and these could be confronted immediately in class and in the farmer’s coops. This hands-on learning allows farmers to see the benefits of making the conversion, says Welp. “A project dies in three weeks if there is no concrete return,” he says.

In the first year, the eight families produced an average of 70 “green” chickens a week. In the second year, production doubled to 150 chickens per week. Last year, the farmers numbered 116 families, and this year 160 families will be producing 20 tons per month, says Lima.

The incentive for switching to colonial chickens is strong. “Conventional chickens are bought by wholesalers for about $1.00 a kilo, while colonial chickens fetch $1.50 a kilo and, at retail outlets, about $1.65 a kilo,” says Sidney Lima, ARCO Contestado agricultural technician for the chicken, honey and rabbit projects.

The technical assistance of ARCO Contestado has created markets for the colonial chickens with small convenience stores, supermarket chains and even institutional clients. Using this method, small farmers in the Mafra region have adopted new technologies and developed high-density economies with a variety of products. Twenty families are producing rabbits that are sold to distributors in two states in southern Brazil and that are then sold at supermarkets like Carrefour. By mid-year 2005, an income-enhancing slaughterhouse will be completed that can prepare the chickens and rabbits for packaging.

Similar successful results have been achieved for other products. A group of nine families in S?o Louren?o built a micro-pasteurizing plant that processes and packages milk, and in just a few years daily production has expanded from 117 liters to 10,000 liters. By pasteurizing and packaging the milk, farmers receive a much higher return than could be got from selling raw milk to wholesale buyers. Other distinctive products being produced by farmer groups include bottled pickles and beets, strawberries, honey and organic beans dried without using toxins. Mafra honey is considered to be one of the best in Brazil because bees can feed on the wide variety of flowers found in the region. Some 20 farmer associations are producing honey, and ARCO Contestado is laying the groundwork for opening export markets by obtaining approval from the United States and Germany for the honey. For the time being, the farmers will continue to sell the honey in Brazil, where the price is favorable, and will only export once the international price improves, says Lima.

Arco’s Key Partners

ARCO Contestado’s technical assistance and marketing capacity are strengthened by the alliances it has formed with local and regional institutions. Rural syndicates that organize family farmers are “our right arm,” says Welp. The syndicates help recruit and group farming families for participating in the steps that lead to conversion to new products.

The Agriculture and Animal Husbandry Research Company (known by its Portuguese acronym of Epagri) provides both research and agricultural extension for medium and large-scale farmers in the Mafra region. With the farmers of Mafra, Epagri helps set up classrooms and study programs as well as develop and train them in the use of new technologies.

A major partner in ARCO Contestado endeavors is the Companhia Integrada de Desenvolvimento Agr?cola de Santa Catarina (CIDASC), the agency that controls food safety of products of animal origin. There are more than 500 norms and standards in Brazil’s animal health and food safety regulations, making it difficult for micro- and small businesses to meet all sanitary requirements.

Currently, CIDASC provides technical advice on processing animal products and is helping to design a cold storage and meatpacking plant. The group has also helped set up sanitation and quality control procedures and trained workers for the slaughter house “We contaminate them with our idea, they are more infected with it than we are, they fight for the project,” Welp says.

The state government of Santa Catarina maintains an rural economy research center, ICEPA (Instituto de Planejamento e Economia Agr?cola de Santa Catarina) that answers questions about crops and market demand as soon as the next day, says Welp. The institution identified demand for colonial chicken in the Curitiba market and advised Mafra to gear up to produce 20 tons of this type of fowl by the year 2006.

Business associations have proven to be a vital link in the chain from farm to market. Industrial and commercial associations help Mafra develop linkages with retailers. In particular, business groups have helped to open up channels for marketing Mafra products to supermarkets and chain stores. Municipal governments have also donated vehicles for transporting produce and a school building now houses a factory to produce grape juice, jams and peach conserves. “These public donations are important because the added income generated with these grants creates more tax revenues,” says Welp.

New Farming Cultures

Technical assistance, marketing advice, connections and credits make major contributions to the development of high-density economy in the Mafra highlands. But the hard work, dedication and motivation of the farm families are what make it possible to make the turnaround in the future of family farms. “The tense climate and farmers’ eagerness for improvements are what opens them to new ideas,” says Welp.

The impact of ARCO Contestado expanded gradually in the 17 municipalities of the Mafra area. In 1997 and 1998, ARCO Contestado worked with a small group of family farmers?”the believers,” says Welp. At that time, the farmers who were learning how to raise new crops and animals sold their products only on the local market. Other farmers in the area looked on, skeptical because so often in the past projects were launched with great fanfare and then stopped in mid-stream because the government changes or funds dry up.

After two harvest seasons with little participation in the initial phase, more farmers joined and production increased so the project gained scale and was able to sell to five municipalities, reaching a micro-regional market, says Welp. The number of participating families nearly doubled, from 272 to almost 600 families. At this point, in 1999 and 2000, families began to see their income increase substantially: from US$300 per family per month to US$500 per family per month. Today, the average income is $187 per person per month, which, for a family of four, would total $748 per month.

Threshold for Success

The effort of ARCO Contestado to diversify and intensify family farm production reached the consolidated stage in 2001. “We faced no more resistance,” says Welp. The number of participating families nearly doubles again, reaching a total of 1,114 families.

ARCO Contestado marketing now helps their produce reach the large market of Curitiba, which is home to 1.5 million people. “We are now asked to come to communities and we have to say no,” says Welp.

Increased income, substantial discounts on volume purchases for farming supplies, and reduced waste convinced farmers to try the technical assistance and new crops. Farmers quickly recognized that buying large volumes of oat and wheat seeds at $6 per sack instead of the original $25 a sack made a lot more sense. “That was a short-term result with the power to convince,” says Welp.

As a result, instead of relying on outside funding, ARCO Contestado is now at a stage at which it is developing financial self-sufficiency. Farmers pay five percent of their gross sales to finance ARCO Contestado’s technical and marketing assistance and their success is strengthening the growing trend toward self-financing of ARCO Contestado.

Another measure of the project’s success might be a surprise. Of the 32 sons and daughters who recently graduated from university with business-administration studies, two-thirds decided to return to their home farms because they had seen greater earnings and a promising future at the family homestead.