To carve a path out of poverty, farmers in Latin America were drawn into cultivating coca plants. As the ReVista: Harvard Review of Latin America reports, it was an opportunity to improve their well-being, since international demand for cocaine was growing and farmers had no access to credit or markets for traditional agriculture products. In the 1980s, the Amazon became the kingdom of the coca leaf and Peru became the largest coca leaf producer in the world. But farmers’ poverty levels remained the same, and they were trapped inside the drug trade.
Public sector efforts to eradicate coca planting and replace it with other agricultural activities were unsuccessful. Financial and technical support, property land titles, and seeds and markets for substitute products were unavailable.
Around the same time that Bill Drayton founded Ashoka in 1980, arguably the world’s largest supporter of social entrepreneurs today, Palmas del Espino – a private company of conglomerate Grupo Romero – started a win-win business to shift the sector away from coca planting to cultivate oil palm and cocoa trees instead, and in the process create a genuine opportunity for families to rise out of poverty.
The company is based in the district of Uchiza inside the region of San Martín, Peru where part of the Amazon stands. Today, it has over 12,300 hectares of oil palm and 250 hectares of cocoa, and manufactures products such as cooking oil, shortening, soap, and chocolate. Employing more than 1,500 people, it plays a significant role in the livelihoods of many.
But the beginnings of the company were tough. First there was the competition for labour from the lucrative coca trade. It is difficult to get farmers to abandon coca planting and opt for an alternative that takes four years of financing and cultivation to bear fruit and generate income. They could not wait and no financial institution would give credit to poor farmers. A hostile political climate, heavy security measures, and price subsidies from imported cooking oil almost threw the company into bankrupt. It was not until the 1990s that the company started to recuperate its losses following military defeat of the Shining Path and the easing of price controls.
To help farmers shift to cultivate oil palm, Palmas del Espino supplies seedlings at cost, offers technical assistance and training in oil palm management, and provides guaranteed markets at fair prices. To ensure sustained income for farmers, the company fought to secure them land titles and credit. It negotiated a loan of $1,090,000 with Peru’s largest financial institution, the Banco de Credito, for families who wanted to grow palm, which would be guaranteed by their land titles and managed by Palmas del Espino.
A properly managed palm tree can be harvested for 25 years. Even though annual generated income is less than that of coca leaf, planting palm trees has its advantages: it is legal, has low risk and maintenance costs, and provides steady income over time.
The Problem With Philanthropy
In 1986, at a time when the terms “social entrepreneurship” and “social enterprise” only started to surface, Ashoka Brazil became Ashoka’s first program in Latin America and is currently the largest of its kind. The early adoption is unsurprising. Contrary to many economies, charity was never a method that existed to create a stronger society in Latin America. According to Alexander Kliment of the Financial Times, there is the cultural aspect of countries in Latin America that believe social welfare is the responsibility of the church and the state, not private individuals.
Secondly, there is little tax incentive for people to donate and even when they do, there are many loopholes in the system that prevent taxing well and fairly. In Mexico, individuals can write off 7 percent of taxable income as donations to officially registered non-profit organizations. In Brazil, individuals can write off 6 percent and companies can list donations of up to 2 percent of their net income as business expense. The number is lower in Argentina at 5 percent. Colombia is an exception, allowing write offs of up to 30 percent.
Finally, there is the argument that incentives alone are not enough to entice people to give. Professor Cynthia Sanborn from Peru’s Universidad del Pacífico, and expert on Latin American non-profits and philanthropy, explains that giving is based on “personal experience, family circumstances, religious faith, or even effective fundraising”. If an individual decides to give, tax incentives may only influence how much is given. There is simply not enough philanthropy to go around the region.
Fostering Social Enterprise
A weak social sector and absent philanthropy give space for companies like Palmas del Espino to fill the void. Rhett Morris, Endeavor’s Director of the Center for High-Impact Entrepreneurship, believes that limitations of government social programs and philanthropy in Latin America are the reasons entrepreneurs play an increasingly important role in delivering essential services. Many including some of Latin America’s biggest tycoons believe it is a legitimate solution to poverty.
“Poverty doesn’t go away with charity, social services, paternalism or speeches,” Carlos Slim, Mexican billionaire and the world’s richest person, told the Financial Times. “You can only defeat poverty with jobs and with people who create jobs.”
“Philanthropy makes a lot of sense for some things,” said Maria Emilia Correa, an expert in sustainable entrepreneurship. “But when you can make a business out of solving a social or environmental problem, you have sustainability in the real sense, because it’s going to work even if you have no donations.”
Today, progress in the sector is apparent. Correa is working with a team on Sistema B, a project that aims to replicate the third-party “B-Corporation” certification model popular in the United States. The Social World Enterprise Forum will be held in Latin America – Rio de Janeiro, Brazil – for the first time in October 2012. It will be hosted by NESsT, a non-profit that promotes social enterprise in emerging markets.
Latin America is increasingly turning to market-driven models to solve social and environmental problems. The Aspen Network of Development, Avina Foundation, and Potencia Ventures conducted a survey of 140 Brazilian social enterprises and found that 64 percent were operating as conventional businesses, with no reliance on donations. The remainder partly relied on donations but intended to become financially self-sufficient. Enova, a social enterprise that provides quality education for low-income communities in Mexico by building small, cost-effective educational centres, is an example of how market models can drive development rapidly. It began in 2005 and there are currently 70 schools set up across Mexico and over 62,000 graduates to date.
Social enterprise plays a critical role to tackle social and environmental problems in Latin America. Over 30 years ago, Palmas del Espino took a big step forward in creating sustainable businesses for low-income farmers. But as experience shows, running a social enterprise is not an easy task. Farmers need not only steady employment, but technical support, access to credit, and land titles to ensure sustained income. There needs to be a strong ecosystem that allows the enterprise and its beneficiaries to flourish. Without widespread market-linked crop substitutions and effective efforts to reduce international demand for the coca leaf means it will still be grown Peru, Bolivia, and Colombia. It may come as no surprise that the U.N. Office on Drugs and Crime reported a 3 percent increase in coca leaf production over the last year in Colombia, with Peru regaining its former distinction of world’s top cocaine producer.
Families in Latin America still try desperately to look for livelihood alternatives. Argemiro Melo, whose four of five sons left to search for work after having stopped coca production, is one of them. “I want to bring my family back together. Growing cocoa means a fresh start for us,” he said.
While the transition can be tough, farmers are positive. “After coca, we tried peanuts, but many people’s crops failed. Then we turned to a starch-rich tuber known as malanga, and finally we began to plant cocoa. We see that this is our future,” said José Cundar, a community leader of a town in Colombia.
“We have more peace of mind now. People have a fresh, more positive outlook,” said Fabio Portilla, owner of a cocoa farm.
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