The Organic Option and Farmers' Markets - cgiar

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March 2011


Is There an ‘Organic Solution’ for Small Farmers in Latin America?:

A Case Study of a Peruvian Organic Marketplace

Jennifer C. Loomis*

Douglas L. Murray**

Meghan Mordy***


Can “organic farmers’ marketplaces” provide small farmers with a more secure
market and higher income?
This study draws on a consumer survey and in
depth interviews with
vendors and farmers in a Peruvian organic marketplace to understand the challenges and

opportunities involved in linking small organic farmers to domestic conscious consumers in the
Global South. The study reveals that consumer demand for environmentally sustainable and
socially just goods exists in Peru, but long term support is needed in
order to overcome the
market failures that prevent this opportunity from developing.

*Ph.D. student, Department of Sociology, Portland State University

essor, Department of Sociology
, Colorado State University

Ph.D. student, Department of Sociolo

State University



It has long been argued that small farmers
in the Global South
are uniquely positioned to
produce high
value, labor
intensive organic horticulture and dairy products at consumer

(IFAD, 2003)

However, evidence suggests that small farmers in Latin Ame
rica are
increasingly being pushed out of lucrative organic export markets by large scale producers

(Raynolds, 2004; 2008)
Development practitioners are now implementing programs to link
small farmers with

markets for organic products in Latin America
. The argument is that
face sales in domestic

will help s
mall farmers develop a loyal consumer
base that in turn will guarantee them a secure

market and higher

income over time.

This paper
evidence from a case study
one such program in Peru which aims to reduce poverty

constructing a local “farmers’ marketplace” and

promoting consumers’ appreciation of
organic products.

In contrast to

previous studies which examine

the opportunities and barriers for
incorporating producers into the organic market from the production side, this study examines
domestic consumer demand an
d interest in organic products. Specifically, we examine two areas
of debate: (1)
What are

consumers’ knowledge and beliefs about organic products? Do
these beliefs signal that demand for organics will grow over time?

What are the vehicles for
increasing consumer demand?

an organic ‘farmers’ markets’ achieve
the dual objective of
g consumer deman
d and linking small farmers to this

added market

over the long


Theoretical Overview and Previous Research

Poor Agricultural Development

A majority of the one billion people living on an income of $1 or less per day and one
half of the world’s undernourished (400 million people) belong to families working small farms
of two hectares or less of land
(Hazell et al., 2007)
. Many theorists argue that linking these small
farmers to value

markets (fruit, vegetables, dairy, organics, etc.) will
increase their income and
reduce poverty
. They call for a transformation of

policies at the national and international levels
from neoliberal to

Development economists have identified several ‘market failures’ that prevent small
farmers from competing in market economies. Many, however, argue that ‘pro
poor’ agricultural
growth is possible if
the state (and/or international donors) provide effect
ive, short
stimulants to market development
(Dorward et al., 2003; H
azell et al., 2007; Reardon and
Barrett, 2000)
. These ‘pro
poor’ theories

attempt to tread a middle ground

between long
subsidies to the agricultural sector and neoliberal laissez faire approaches, both of which are seen
to have failed. The emphasis is on
using public funds to provide

term “kick starts” that are
capable of correcting market failures

and linking small producers to
value markets over the
long term. It is assumed that once these “kick starts” create more lucrative market opportunities,
the private sector will enter the market, taking over the state’s subsidizing activities and allo
it to exit.
Given the association of subsidies with rent seeking and corruption in the pre

era and the subsequent structural adjustment policies which pushed Latin American
governments to abandon such programs, many governments and non
governmental organizations
in the region have embraced these short
term programs as a vehicle for countering r
ising rates of
rural poverty and outmigration.


Our case study is an example of such a program. It aims to ignite consumer demand for
organic products by building a physical marketplace, developing a certification system so that
consumers can be aware of
which products are organic, and providing informational and
promotional materials. Moreover, it provides support to farmers as they convert from traditional
to organic farming, helping them to incorporate appropriate methods, access credit, and purchase

The support is not a long
term commitment, but rather an evolving set of short
programs designed to meet emerging needs.

Evidence from case studies of other kick
starting programs in Latin America
, however,

suggests that many end up idling l
term. To date, there has been no widespread replication of
initial pilot projects. For example, case studies of horticultural cooperatives formed in El
Salvador, found that the program serves only 3% of small horticultural producers in the country

after being active nearly 10 years. The authors concluded that the program will be unable to
sustain itself without long
term public aid
(Hellin, Lundy, and Meijer, 2006)
. In Nicaragua,
researchers found that the pilot ‘kick
ng’ programs spent on average eight times more per
beneficiary than what the Ministry of Agriculture in Nicaragua budgets. In addition, the
researchers noted that the programs tended to serve a relatively elite class of small farmers
(Reardon et al., 2006)
. Similarly, researchers of cooperatives small organic farmers in Mexico
found that assistance programs had not expanded service beyond an initial set of beneficiaries
served by foreign funded NGOs
(Gomez Tovar et al., 2005)

Researchers are just beginning to identify the factors that lead some programs to succeed
and others to fail. For example, analysis of fresh fruit and vegetable programs
in Nicaragua and
(Jano and Mainville, 2006)
, small scale beef producers in Costa Rica
alsevich et
al., 2007)
, and dairy programs in Mexico and Chile
(Berdegue, 2001; Gomez Cruz et al., 2004)


found that those associations with higher levels of human and social capita
l, were the most likely
to succeed. These groups were able to manage administrative tasks, negotiate production
conditions and contracts with buyers, learn from their mistakes and adapt to changing market
conditions, and control opportunistic behaviour by
members. Each of these critical success

not identified in the initial program design which had focused instead on the transfer
of technologies and inputs, credit access, and the legalization of the farmers’ associations.

Organic Option

d Farmers’ Markets

To date, many of the ‘pro
poor’ agricultural development programs have aimed to link
small farmers to growing domestic markets for high
value horticultural, dairy, meat, and poultry
products. As urbanization increases, supermarkets are
proliferating across Latin America,
transforming the way that consumers shop and to whom farmers sell their agricultural produce

(Reardon and Barrett, 2000)

Large scale producers, however, are increasingly monopolizing the
lucrative super
market opportunity and pushing undercapitalized small farmers who are less able
to meet the quantity, quality, and “just
time” production demands placed on them by
corporate buyers to sell in much less profitable spot markets where the majority of profi
ts are
earned by middlemen

(Berdegue, 2001; Reardon et al., 2006)

At the same time, small farmers’

access to organic export markets is severely limited due to the substantial barriers to entry for
small, undercapitalized firms created by expensive and demanding certification programs and the
dominance of these markets by highly capitalized firms

(Raynolds, 2004; 2008)

For these reasons, development practitioners are exploring th
e opportunities for

demand for organics to provide small farmers with secure market where they can

competitive advantage

over the long term
. Many small farmers use very little or no chemical
inputs, something that puts them at a
disadvantage in competition to sell to supermarkets

but at

an advantage in organics
. Moreover, large agro
export organic farms have not demonstrated an
interest in the domestic market given the lack of articulated consumer demand
, the minimal price
ntial between organic and conventional goods in the Global South, and the fact that they
have invested significant amounts of “sunk capital” in competing in the export markets.

Building on the experience of direct
marketing programs in the Global North

(Allen and
Kovach, 2000; Hinrichs, 2000)

assistance programs i
n the Global South are now aiming to
local marketplaces to support local farmers and achieve environmental and social goals. Through
marketing in farmers’ markets, the reasoning goes, consumers will come to learn about
and value organic goods pr
oduced by local farmers and recognize that purchasing these products
increases the viability and health of the local economy
. Consumers are able to purchase high
quality, nutritious, chemical
free, and fresh products whereas farmers’ access to a secure mar
allows them to generate more income, reinvest in traditional farming methods, and reassert
control over production decisions
(Allen and Kovach, 2000; Hinrichs, 2000)
Our study explores
the veracity of these claims, identifying the opportunities and challenges practitioners should be
aware of as they apply this new

approach to “pro
poor” agricultural growth.

Research Design


The study
took place in the city of Huanca
yo in t
he Andean region of Peru. Huanca
yo has
a population of 430,000 and lies at an elevation of 10,629 feet
. The surrounding countryside
dominated by small and subsistent farms where peasant families

potatoes, corn, and
horticultural, dairy, and poultry products
The majority of these families live in poverty.

he organic marketplace in Huanca
yo (called a

was foun
ded in 2001 and is held
every Saturday morning from 8:30am to 2:30pm. It is held in a plaza visible from the street and

easily identified by its bright yellow and green tarps. There is a large open space for people to
congregate and an information booth at

the head of the plaza which provides brochures and other
information on the health and environmental benefits of organic production as well as the
farmers that participate in the marketplace. About 25 vendors sell their products on a weekly
basis. The pre
dominant items
for sale are vegetables, including

potatoes, corn, lettuce, spinach,
herbs, carrots, and broccoli.

Dairy products, meat and poultry, baked goods, and prepared meals
are also sold, however

on a more limited basis.

In contrast, the co
al marketplace in Huanca
yo is much larger, covering nearly
five city blocks and with nearly 100 individual stands.

n comparison to the organic market, the
conventional market sells a large variety of products and is open every day.

Whereas shoppers at

organic market are likely to find some of the product they hope to buy either sold out or not
even being offered that day, conventional shoppers are almost guaranteed to find what they are
looking for and can purchase it at times or days of the week which

may be more convenient to
them than Saturday morning and midday.


As an exploratory study, this project was “designed to inform initial theorization which
can be used to develop a more in
depth research project”
(Holloway and Kneafsey, 2000:

The primary data collection strategy was a comparative consumer survey of shoppers in the
organic and conventional marketplaces in Huancayo.

The convenience sample design was based
on previous exploratory marketplace studies. Every third shopper who had completed their
purchase and was exiting the marketplace was asked to complete a consumer survey. A total of
159 shoppers were interviewed (87

in the organic market and 72 in the conventional market).
The survey included a series of closed and open
ended questions designed to reveal the qualities

of food products as well as the shopping environment that consumers valued

and looked for
when decid
ing purchase
. It also aimed to identify those qualities that consumers felt were
missing from currently available food products and marketplaces.

In addition to the

survey, several in
depth interviews were carried out with farmers,
vendors, and

s. In total, 20


farmers and 20
vendors were
interviewed. The study team also completed a price comparison of organic and conventional
products. Lastly, data was compiled from
a previous survey completed by project partners the
Network for O
rganic Agriculture (RAE) and the Center for Rural Support (CEAR) in 2007

the barriers to increasing


d by

small farmers
in the region



The survey generated a profile of the typical organic and conventional marketplace
shopper. Organic consumers were largely employed (79%) and highly educated (75% had
completed some college). Moreover, the majority were women (64%) between the ages of 36
nd 55 (53%). The conventional marketplace shoppers were also largely employed women in the
age bracket but they tended to be less educated (only 50% had completed some college).

The majority of organic shoppers had learned about it simply by walking by (
) or
through word of mouth (
). One in eight organic shoppers (12.5%)

visiting the
marketplace for the first time.
A major draw of the organic marketplace was the availability of
prepared meals. Forty
eight percent of survey respondents said that t
hey specifically came to the
market to eat a traditionally prepared meal. Of these meal
shoppers, 25% also purchased other
products while they were there. In contrast, conventional shoppers were much less likely to
purchase a prepared meal (less than 5% of

those surveyed did so).


In r
esponse to
ended question about what makes organic products different from
conventional ones
, organic shoppers

lack of chemicals and health advantages

benefits (
) and better taste (
). Only 11% of conventional shoppers knew
what organic production involved and were able to point to either their health or environmental
benefits. While organic shoppers appreciated the quality of the vegetables and produce, many
disappointed by the

lack of fruits, meat, and dairy products available

in the organic

Moreover, several cited the limited hours and lack of variety as a barrier to their
increasing purchases in the market. Thirty
one percent desired more

, and
11% meat, poultry
, eggs

or fish

An additional challenge to expanding consumer purchases of organic products revealed
by the survey is that of convenience. Conventional shoppers cite convenience as the major
reason for their using it: the fact that the conventional market “sells everythin
g,” everyday of the
week means that consumers can access it at times that work best for them. Moreover, many
noted that its location close by meant that it was easier to carry home heavy bags of purchases.

Shoppers in the organic and conventional marketpl
aces appear to be motivated to
purchase for different reasons. Conventional shoppers are looking to stock their pantries and
refrigerators, purchasing vegetables, fruit, meat, and poultry in high volumes. In comparison

shoppers in the organic market are o
ften drawn there to purchase prepared meals

(48%) or


. To fill their shopping needs,
organic shoppers
still need to attend the conventional
marketplace which continues to be better stocked, more convenient, and, at times, cheaper. The
er variety and volume of products available in the conventional market is reflected by the
fact that shoppers in these markets spend an average of two times more than


The survey also identified several issues which signal that

Huancayo consumers are
interested in purchasing more organic products. When asked if they were willing to pay more for
products that were guaranteed to have minimal chemical residues and to be produced in an
environmentally sustainable way, 90% of convent
ional shoppers and 98% of organic shoppers
answered affirmatively.


Interviews with the vendors also produced interesting findings. Seventy percent of
vendors are women, many of whom are selling products produced on their families’ farms. Most

sell at both the organic and conventional markets. The majority of the vendors interviewed
described how they

attempt to differentiate their product by appealing to its organic qualities

omplain that
most of their
customers are unaware of what organi
c means
73% feel
that selling in the organic market is more profitable than in the conventional market
. This is
significant because the p
rice comparison

between similar products in the organic and
conventional markets revealed that they have very

similar prices. In many cases, the organic
products were cheaper than their conventional counterparts. We are not confident about the
reasons for this. Organizers of the organic market stated that v
tend to
set prices at similar
levels to those in c
onventional markets in order to attract customers
. Vendors also suggested that
selling in the organic market meant that their smaller items (some organic products tend to be
smaller than conventional ones) were not punished for their size and received the
same price.


Organic consumers are frustrated by the lack of variety and the limited hours of the
marketplace. Increasing supply and variety, however, is not a simple issue for organic farmers.
five percent report

significant barriers to incr
easing production, including lack of land and

An additional 88% lack
sufficient amounts
of organic fertilizer
or the equipment need

to manage it in large quantities
(i.e., tractors)
. Forty
six percent

cite a need
irrigation systems

to deal wit
h the long dry season. Several also mentioned that extreme
temperatures, including
periodic freezes
, have ruined their crops, causing them severe financial difficulties.


What potential exists for
“kick starting” organic agriculture markets and
poverty by expanding consumer demand for
goods? How well do


serve as a vehicle for informing consumers about the value of organics and shifting
their purchasing behavior from buying anonymous goods in conventional markets to “food with
a human face” in specialized marketplaces

While the opportunity to appeal to c
interest in healthy, environmentally
friendly, and socially just goods


in the Global
South, t
his case study in Huancayo, Peru reveal
s several challenges inherent to this approach to
agricultural development.

Expanding reliable su

In our survey of organic shoppers,
desired a larger
variety of products and longer
These shoppers are unable to satisfy their shopping needs in the organic
marketplace and thus search out the majority of their food purchases in
marketplaces. T
he data from the farmers present

difficult challenges involved in increasing
production to meet organic shoppers’ demand. Moreover, given the very similar prices of
organic and conventional products, it is not clear to what

extent organic farmers’ benefit from
their sale. Consumers have not signaled a “true willingness to pay” more in practice (although
they express that interest in the survey.) The lack of a significant price differential has resulted in
few farmers being e
ncouraged to increase production or make investments in switching to

It appears that Huancayo marketplace is caught in a ‘low
equilibrium’ poverty trap,
meaning that input (land, credit,

and the prices available in output markets are too we
spark substantial growth in this sector

(cite Kydd.)

Managing the marketplace

The organic marketplace requires significant support

from producers’ organizations and
local NGOs in order to keep up the infrastructure, produce promotional materials an
d manage the
information booth, and certify and monitor producers. The marketplace

succeeded in
increasing consumer awareness about the value of organics, but
this success is

to a
set of
educated consumers who live close by. Moreov
er, it appears that the most economically
viable activity pursued in the marketplace is the production of prepared meals.
The activity of
prepared meals
requires much more investment than simple fruit, vegetable, or baked goods
stands. Prepared meals
ve bringing in cook stoves and

water for
washing dishes and setting
up and keeping clean tables and areas for customers to eat.
These issues often become high
priority ones for managers and staff due to the need to meet health and sanitation standards and
regular visits by inspectors.
While the production of prepared meals

to draw a significant
number of consumers to the organic market
, i
t is not clear how much this activity


small farmers.
Further evidence is needed

on whether the costs of providing
prepared meals pays off in terms of the number of new customers or dual purpose customers it
brings into the market.


In our survey,
80% of
organic and conventional shoppers desired an
official certification

for organic goods. While
the other 20%

confidence and trust in

the farmers’


about the quality of the product
, the majority

of consumers want

a comprehensive

system. Previous research demonstrates that
, however,

barriers to
entry into this market

for more disadvantaged small farmers
2004; 2009)
Also, as eviden
ced by this case, setting up certification criteria is a contentious and
difficult process

involving several organizations and producers’ groups in a competition to
produce a certification system that meets their needs

The more powerful farmers and
zations seem likely to win this debate.

Farmers’ markets are intended to

counteract the power and inequality issues involved in
certification programs
by providing consumers an opportunity to meet farmers face
face in the
marketplace and build trust a
bout the quality of the products.
This face
face interaction is
theorized to reduce consumers’ interest or demand for a certification program.
Our data suggest
that this may be happening for some consumers and farmers, but the large majority prefer the
convenience of a certification. Further evidence is needed about the impact of face
exchange on consumer
s’ opinions about certification as well as on the effectiveness of
innovative consumer
tourist programs which
have been started to
bring regular

customers to the
farm to view and participate in the production process.

term support

It is clear that making organics into a poverty
relieving vehicle for small farmers


involves more than a simple “kick start” on either the demand or s
upply side of the
Our data demonstrate that c
ontinued assistance is necessary at the level of the farm,
producers’ organization, and marketplace.
Moreover, the entrance of private sector suppliers and
buyers into the market is neither imminent no
r assured.


: Future Research

After years of investing in response to
side “market failures” faced by small
farmers (i.e., lack of capital, technical assistance, farmers’ organizations, etc.), development
programs are currently attempt
ing a new strategy: increasing consumer demand for locally
produced goods. Our case study demonstrates that this approach has some promising potential to
transform consumer conscious
ness about the social and environmental costs of production
build a co
alition of consumers interested in supporting their local economies in the Global South.
However, it also demonstrates that the act of simply setting up a physical marketplace


far from
a sufficient solution to the problems of low levels of supply, the l
ack of a price premium, the
challenge of certification, and minimal consumer knowledge of the benefits of organic
production. Moreover, it is not clear whether achieving these goals will result in higher income
and better quality of life for small farmers.

The wide adoption of
poor agricultural

growth strategies has signaled a shift in
development ideology from “the market cures all ills” to “we need to support the weakest players

in agricultural markets

if we are going to

reduce poverty.” However, the

latter version largely
adopts the same understanding about how markets function as its neoliberal predecessor: The
market is still envisioned as the long
term cure, it just has some holes (or “failures”) that need to

filled by the public se
Our case study suggests that these market failures are
far from simple holes, but may be systemic. Further research is needed on several issues in order
to address the challenges faced by peasant families across Peru and Latin America.

The Econo
mic Payoff of Organics for Small Farmers

Our survey revealed that consumers are willing to pay more for environmentally
sustainable and socially just goods, but we did not identify how much more consumers will pay.

This lacuna is significant. The price dif
ferential and how it transforms over time as consumers
become more aware of the value of organic goods is likely to play a large role in shaping the
future of organic production in Peru. Moreover, we also did not demonstrate whether consumers
are aware of
the dangers posed by chemical inputs and whether or not they trust that


chemical residues on conventional products are limited to healthy levels by existing
safety programs
. Consumers’ knowledge about the potential dangers of chemical inputs
and their
confidence in the state to manage it needs to be assessed.

In addition, we need to understand not only what consumers are willing to pay but also
how much more costly it is
for farmers
to produce organic products. It is theorized that

investment of many more labor hours required for organic production is offset by the absence of
needing to purchase chemical inputs

However, our data point to the fact that many organic
farmers are looking to purchase organic fertilizer on the market. Th
ere are also additional costs
involved in switching to organic production and protecting crops from disease, insects, and
weather. These two perspectives need to be brought together so that policymakers can
understand the potential pay off as well as the c
osts and risks associated with organic production
for small farmers before they can design an adequate assistance program.

The Conscious Consumer and Farmers’ Markets

In much of the literature about organic and local markets, it is assumed that consumer
will inevitably learn to appreciate the environmental and social benefits embodied by these
Farmers’ markets are theorized to play a key role in heightening consumers’
consciousness by providing them access to face
face contact with farmers
and generating
knowledge of the human labor embodied in food.
However, we still know very little about what

makes consumers “conscious” of these issues and shifts their purchasing behavior
conventional to organics.

In addition
, previous studies revea
l that
dynamics and politics of creating and managing
’ markets is

shaped by

differential between farmers and consumers: consumers
are much more powerful in setting the criteria about what organics mean, how it will be proven
that an item is

organic, and what will be produced and sold (cite Hinrichs). We must learn more
about how power shapes small farmers’ experiences in these markets and whether or not it
erodes their control over production processes.

al Studies on Small Farmers
’ Access to High Value Markets

These issues are related to the need for longitudinal studies which identify those

that guarantee small farmers long
term access to high value markets
. In development theory and
practice, small farmers’ competitivenes
s in producing high
value, labor intensive goods has
largely been

assumed to be automatic. Yet results demonstrate that
their competitiveness

is far
from assured or permanent

due to the dynamic changes taking place in the Global South in urban
food markets

and the significant barriers to entry into these markets that small farmers face

Some studies reveal, such as those related to the s
research, that w
hen market
for labor intensive goods expand and become

more valuable, small producers are pus
hed out

more highly capitalized firms.
The ‘kick start’ theory promoted by d
evelopment e

leads policymakers to
assume that

small farmers can be “made” competitive by fixing short
failures such as
organizational problems,
lack of consumer k
nowledge, poor information on the
part of producers, etc. Sociological perspectives, however, suggest that inequality and power will
play a much more significant role in shaping who has access to these income generating
opportunities over time. These views

suggest that the “tinkering” promoted by development

economists, may need to be supplemented by more transformational programs involving long
term support and investment in rural communities and poverty reduction. The problem with
transformational strateg
ies in the past is that they were often implemented in top
down ways
which ignored the interests of local populations and reinforced local power dynamics.

Further evidence is needed on the strengths and weaknesses of these “
” versus

al” approaches. We also need to examine the possibility of combining these
approaches in a sequenced way in order to understand those programs that will be effective in
different areas and for different populations.

The Role of the State

The state has p
layed a significant role in supporting agriculture in the Global North.
comparison to what their counterparts in the Global South, farmers in the Global North receive
significant financial and infrastructural support. For example, f
armers’ markets in th
e North are
n subsidized by public dollars and several technical assistance programs are provided.
Southern states are beginning to experiment with more active
government participation in
supporting small and organic producers. For example, in Bra
zil the government has helped small
organic farmers find a stable venue for selling their goods by subsidizing
public schools
from them. The state is likely to play more than a temporary role in providing a pro
poor option in agricultural deve
lopment. Further research is necessary in order to specify what
role states can effectively play.



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