Cecilia (center) with Root Capital CEO Willy Foote (right) and a member of APBOSMAM banana association in Piura, Peru
We sat down with Cecilia Yáñez, a senior investment analyst at Root Capital’s Lima-based partner organization ACCDER, to get the inside scoop on her work in northern Peru. Lately, Cecilia has been working with our Financial Advisory Services team to provide hands-on financial management training to eight prospective organic banana clients in the region.
Tell us about the banana industry in Peru. Why has Root Capital’s Financial Advisory Services (FAS) focused on banana associations and cooperatives?
Conventional bananas have been grown in northern Peru since the 1970s but over the last few years, given increased demand, climate and various crop characteristics, organic bananas have become an increasingly popular crop in the region. Also, because the vast majority of banana farmers own very small pieces of property, strong cooperatives in the region have also helped drive the growth of the industry. It’s estimated that 80 percent of small-scale banana farmers in Piura, for example, belong to producer organizations like cooperatives. On average, each of these organizations aggregates the products of 250 to 300 members and directly employs 100 to 150 fruit pickers.
Root Capital’s FAS team helps bring early-stage businesses like these banana cooperatives into the game. Quite simply, without FAS it’s unlikely these businesses would be able to access credit. Root Capital has focused on banana cooperatives in northern Peru because the region boasts a cluster of small-scale producers and early-stage cooperatives that are trapped in the “missing middle,” meaning they are often unable to qualify for either microfinancing or credit from conventional commercial banks. Today there are 23 cooperatives in the region that aggregate the products of about 5,000 producers—the majority of whom own less than one hectare of land.
What does FAS offer these early-stage businesses? Why is financial literacy important?
Root Capital’s FAS program provides workshops and trainings in basic accounting, internal controls, cost structure and cash flow management to banana clients in northern Peru. Why are these things important? Since 2000, many banana associations in the region have focused heavily on marketing and product export, oftentimes allowing management practices to fall by the wayside. Root Capital’s FAS team has been working with clients to implement accounting improvements and help them understand costs. Furthermore, in order to grow and ensure the quality requirements the market demands, the organizations need to be able to invest in infrastructure like equipment, packaging centers and cold-storage facilities. Investing in these things requires a certain level of comfort with making investment projections and financial decisions, which FAS trainings help them do.
Agricultural businesses, like cooperatives and producer associations, are often the economic engines of rural communities. Do you see these young banana enterprises bringing economic growth and social impact to communities in northern Peru?
Before the cooperatives were formed, local banana producers had to sell their products to intermediaries at super-low prices. Now these banana associations are facilitating direct, fair trade export with international buyers, thereby giving their members access to stable and competitive market prices as well as technical advice. The cooperatives also often provide credit for fertilizers and other materials that boost farmer productivity. Today most producers have motorized transport, whereas just a few years ago they had to rely on bicycles to sell their product. It’s clear that the cooperatives have brought the region both economic growth and social empowerment.
What kind of progress/success have banana associations experienced since they began working with Root Capital’s FAS program?
Two of the eight banana associations that we’ve been working with have already been converted into lending clients after demonstrating their creditworthiness, which is very rewarding. Another product of the FAS trainings is that some associations are revising their cost structure, making adjustments and improvements to streamline their business—ultimately translating into more money in the hands of farmers.
How will FAS work with these banana clients to ensure their continued growth well into the future?
Over the last few months, we’ve seen that the leaders of these cooperatives have very valuable experience and skills in the technical and production side of things, but there are still weaknesses in their administrative and financial management. We can continue to add value here.
Ultimately, my vision is for Root Capital to be a strategic partner in the industry. We will continue to support these banana clients and others with trainings that will enable them to become smarter, more efficient and competitive businesses.