Appendix 13 ~ Longitudinal impact study of candela

Appendix 13

Table of Contents Background of the study .................................................................................................................... 2 Overview of the Amazon nut production in Peru ............................................................................... 3 Historical background of Candela ....................................................................................................... 4 Impact of Shared Interest’s support on the business and financial performance of Candela ........... 5 Social, Environmental and Gender Implications of Shared Interest’s support to Candela ................ 9 Conclusion ......................................................................................................................................... 13

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Background of the study Candela Peru (Candela) is a brand name when it comes to Brazil nuts production and processing in Peru. For over 25 years, the organisation has been working closely with Brazil nut producers and supporting them to step up the quality of their produce, promote access to market and improve their livelihood through the implementation of various sustainable development projects. In fact Candela, as an alternative trade organisation, processes and transforms sustainable natural products for the generation of value in the poorest regions of Peru. They are an active member of the International Federation of Alternative Traders, whose activities are run based on the principles and values of fair trade.

Candela is one of the oldest customers of Shared Interest. Since 2001, they have been receiving various forms of financial support from Shared Interest in their bid to fulfil their mission of being a “leader organisation in the development of ethical markets for natural organic high quality products aimed at strengthening the value chains of Amazonian and Andean production by empowering the capacities of rural producers, making sustainable use of their native ecosystem”. They had, over the years, benefited from three different types of financial products from Shared Interest, namely Commercial Order Export Credit (COEC), Term Loans (TL) and Stock Facilities (SF). All these facilities have contributed to the growth and sustainability of the organisation and impacted positively on the livelihood of Brazil nuts producers and harvesters, their families and communities. However, no specific study has been carried out yet to explore or measure the actual impact of this level of support to Candela. It is, therefore, against this background that Shared Interest has initiated the present study to evaluate the impact of each piece of lending provided to Candela for the past 15 years.

The study is built on the theoretical framework that stipulates that improved access to finance promotes business growth and leads to poverty reduction. There is ample empirical evidence in the literature showing a strong and causal relationship between availability of finance and business growth, profitability and sustainability, which in turn lead to job creation and increase in income. Based on this theoretical construct, we have formulated some fundamental questions to guide our research activity. These are: 

How has Shared Interest’s financial support impacted the business and financial performance of Candela during the past 15 years?

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How have the various financial products of Shared Interest contributed to the growth and sustainability of Candela?

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What have been the social, environmental and gender implications of Shared Interest’s support to Candela?

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What difference have Shared Interest’s interventions through the loans made in the livelihood and living standards of producers and employees of Candela Peru?

Our methodology included a comprehensive review of existing documentations on Candela (proposals, annual reviews, financial reports, visit reports and annual reports), interviews, focus group discussions with producers and a survey. We had interviews with the General Manager of Candela and selected employees and producers as well as some key members of the community. We then carried out content analysis of the interview transcripts using both inductive and deductive approaches. The results of the interview analysis were triangulated with findings from the survey and those from the review of the available documents.

The findings clearly suggested that Shared Interest’s support to Candela had played a pivotal role in the growth and sustainability of the organisation. It was also evident from the results that many lives have been transformed through our interventions. The findings support the theory that improved access to finance contributes to poverty reduction.

Overview of the Amazon nut production in Peru The Amazon nut known internationally as Brazil nut is a South American tree that grows naturally in the Amazon basin's tropical rainforest. It is a large towering canopy tree which can grow up to 165 feet and may live for centuries. The tree's commercially harvested edible seeds are also known as the Brazil nuts. Each tree produces an average of 250 coconuts, which fall naturally to the ground in the rainy season and are collected, processed and sold primarily on the international market. Each coconut contains between 15 and 20 shelled nuts and the production of each tree is estimated at 70 kg of nuts in shell. Peru is the world’s third largest exporter of Brazil nuts after Bolivia and Brazil.

Brazil nuts production in Peru is located in the south-eastern department of Madre de Diós where nut extraction takes place on hundreds of small-holder concessions operating under long term Government agreements. The Amazon nut forests cover an area of 2,638,163.97 hectares representing 30% of the department total surface area. In Madre de Diós, approximately 28,000 people depend directly or indirectly on the Brazil nut trade and this accounts for 2/3 of their annual income.

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The Peruvian Government is the official owner of all Brazil nut trees and provides a 40-year concession to individuals with the exclusive rights to harvest the nuts found in a predetermined location. Traditionally, Brazil nut extraction in Peru was carried out informally, with harvesters going into the forest without any Government intervention or regulation. In the 1990s, the government progressively started to actively regulate the sector. The harvester must present a management plan within the current system of concessions for non-wood forest products in order to obtain a concession for Brazil nut extraction. Brazil nut concessions are privately managed conservation areas that allow harvesters and their families to make an income from the forest without destroying its ecological balance. Brazil nut harvesters sell the nuts to local shelling factories, which pack and export the product overseas. This extractive activity provides more than half the yearly income for thousands of families in the Amazon and protects several million acres of forest from deforestation. Brazil nuts are a natural link to conservation, since the trees only produce in a healthy rainforest ecosystem. In Peru, areas of forest with dense stands of Brazil nut trees are known as

castaĂąales.

Brazil nut businesses are micro-enterprises owned generally by one person who works in the harvesting process and who contracts family and/or non-family labour. The number of employees during any given season ranges from one to seven, with an average of approximately four. The enterprises carry out the complete harvesting process up to drying the peeled nuts, and then sell to intermediaries or directly to processing/export companies.

Generally, the Brazil nut production chain has four components: production; collection (cleaning paths between trees, gathering the fruit, opening the fruit and transporting them to the camp); processing (drying and soaking, peeling the nuts, drying the peeled nuts) and commercialization.

Brazil nuts are mainly traded as kernels and used primarily as food ingredient in the confectionery business, bakery and health food. The oil is used locally as cooking oil, for lubrication and lighting of lamps.

Historical background of Candela Candela Peru is an acronym for “Comercio Alternativo de productos No traditionales y Desarrollo para Latino America Peru� which means Alternative Trade and Development of Non-Traditional Products for Latin America Peru. It is a non for profit organisation founded in 1989 with the primary aim of aligning the economic goals of the business with the social and environmental goals. In other words, Candela was founded on the values and principles of 4

fair trade and their main focus was to implement an alternative business model that would strengthen the value chain of the amazon nuts and contribute to poverty reduction in the poorest regions of Peru. The pioneers of the organisation were inspired by the movement of Alternative Trade Organisation (ATO) which had emerged in Europe at the time.

In the early 1990s, Candela set out to promote their product lines including handcrafts, amazon nuts and pecans. They were supported by the MacArthur Foundation and Conservation International to purchase a land in Madre de Dios, the region with highest concentration of amazon nuts production activities.

In early 2000, the business was faced with serious financial constraints due to a sharp decline in the international price of nuts. This situation had led Candela to reduce their operations to the processing and marketing of only Brazil nuts. With the focus on Brazil nuts, Candela had developed niche markets such as the organic market and value-added products such as amazon nut oil. In 2002, they began the process of professionalization of the amazon value chain which saw the creation of the Association of Harvesters of Organic Amazon Nuts of Peru (RONAP).

In 2004, Candela with their commitment to the promotion of fair trade within the Amazon nut value chain spearheaded the move for the creation of an oilseed category in the FLO system. As a result of their efforts, Candela and RONAP became the very first processor and producer group of amazon nuts respectively to be certified with the label FLO worldwide.

In 2014, Candela celebrated their silver anniversary to mark 25 years of hard work and dedication to the promotion of fair trade, the conservation of biodiversity and improving living conditions of producers and harvesters of the amazon nuts in the poorest regions of Peru. In the past two years, Candela has been focussing on strengthening working relationships with the Amazonian indigenous producers in the marginal areas of the northeast part of the country including the associate producers in the highlands by developing new products based on Peru’s biodiversity.

Impact of Shared Interest’s support on the business and financial performance of Candela The success story of Candela cannot be told without reference to Shared Interest. This was confirmed by Lupe Lanao, the General Manager of Candela in an interview during our 5

visit in August 2016. Lupe noted that Shared Interest has played a fundamental role in the growth and expansion of the organisation and this cannot be overlooked if one is to draw a realistic picture of growth history of Candela.

Since their inception in 1989, Candela has seen a steady growth in their business until the year 2000 when they were hit hard by the sudden decline in the world prices of the Brazil nuts, leading to heavy loss for the business. This situation had left Candela without any cash flow to continue their business operations. The business was on the verge of collapse and the livelihoods of many producers and employees were being threatened. Candela was in a dire need of a working capital to salvage their business and pull out of the crisis.

Their sales had dropped from USD 613,057 in 2000 to USD 143,492 in 2001, a clear indication that all were not well with the business. During that period, Shared Interest had given Candela a Commercial Order Export Credit (COEC) to enable them to pre-finance the Brazil nuts harvest and meet their orders. This intervention had resulted in the increase of their sales from USD 143,492 in to USD 737,498 in 2002 and ever since sales has been on the increase as Shared Interest has continued to support the operations of the business through various financial products. That is why Candela recognises Shared Interest as strong pillar in the growth and sustainability of their business. As a matter of fact, Shared Interest had increased the COEC issued to Candela by 300% in 2004, thereby providing the latter with adequate financial resources to boost their sales from USD 991,664 in 2004 to USD 1,530,339 in 2005.

In 2007, there was a perceived need for Candela to upgrade the machinery in their processing unit at Madre de Dios so as to improve upon the efficiency of the production process. Shared Interest had understood this need and issued a term loan to Candela to enable them to undertake the required infrastructure upgrade at the factory. With this facility, Candela had procured equipment such drying oven, pneumatic elevator and a cauldron. They had also established a steaming unit and a drying room at their processing plant. This intervention had transformed the entire production process and had augmented the capacity of the processing plant by 33% and increased output from12,000 to 16,000 barrels. In addition, the upgrade of the processing plant had made the nut shelling process more efficient leading to improved quality. It had also reduced drastically fuel and electricity consumption at the factory following the installation of new and more energy efficient equipment. The main impacts have been a significant drop in cost of production, improvement in the cash flow of the business and increase in sales. The efficient management of the production process had also resulted in a significant rise in gross profit 6

and gross profit margin from USD 587,240 and 32% in 2007 to USD 1,004,179 and 47% respectively. With the improvement in cash flow, Candela had stepped up the volume of nuts purchased from their producers, leading to an increase in their sales from USD 1,850,678 in 2007 to USD 2,154,306 in 2008.

One other factor that had accounted for the increase in sales in 2008 was the issuance of another Term Loan to Candela by Shared Interest. The facility had increased the working capital of the business and enabled them to purchase higher volumes of raw materials leading to increase in sales. This Term Loan had made it possible for Candela to prefinance harvest activities whilst awaiting contracts from their buyers. This fin ancing arrangement had worked well for Candela and has enhanced their ability to make timely deliveries to their buyers. This has won them the trust of many of their buyers who had continued to increase their orders resulting in the rapid growth of the business.

Candela had not been making optimum use of their COEC facility due to the fact that, they have been receiving orders after the harvest activities were completed. Instead of the COEC facility, they had rather expressed the need for a revolving working capital to support and sustain the nut harvest and processing operations. In response, Shared Interest in 2009 granted them a Stock Facility (SF) to ensure that they always had a line of credit for their harvests. This had enabled Candela to maintain a relatively high level of sales during the subsequent years.

In 2010, Candela in their bid to further improve quality and efficiency of the production process had requested for another Term Loan to purchase and install some machinery at their processing plant. The facility was granted and they were able to procure a packing machine, a metal detector and an oil extractor. The packing machine was used for automatic packaging of nuts into polythene, the metal detector for the detection of harmful metals in all products and the oil extractor for the manufacturing and processing of products with higher margins. The introduction of these machines had led to a great improvement in product quality and contributed to a tremendous increase in sales from USD 2,130,766 in 2009 to 2,839,657 in 2010 and to 3,990,916 in 2011. The organisation had, however, experienced a decline in sales in 2012 due to a relative fall in the price of the nuts and a drop in buyer orders which was explained by the fact that most of these buyers had piled up a lot of stocks in 2011. This was a short lived decline as Candela a year thereafter had to contend with very high demands for the nuts, which necessitated additional working capital to satisfy the market. Giving this development, Shared Interest had converted Candela’s Export Credit and COEC into a Stock Facility to boost their 7

working capital so as to enable them to increase their intake of the Brazil nuts to meet the growing demand. This arrangement had worked perfectly for Candela as they were able to increase their sales from USD 2,688,152 in 2012 to USD 4,101,952 in 2013 representing over 50% growth rate. The demand for Candela’s products had, ever since, been on the rise with multiple orders coming from a wide range of buyers from Europe and the United States. This underscores the critical role played by Shared Interest in Candela’s business growth and sustainability.

Due to the rapid growth in demand, Candela had reached their production capacity limit of 300,000 kg of unpeeled nuts in 2014 and needed major infrastructure improvements to sustain their business operations. Though the production process had been improved in previous years, there had still been some bottlenecks and inefficiencies that limited the production capacity of the processing unit resulting in high production costs. In the light of this, Candela had requested for another Term Loan from Shared Interest to finance their expansion and technology upgrade project. The facility was approved and Candela started the construction of a new processing plant in Madre de Dios to expand their overall processing capacity and step up efficiency. This new plant is expected to further improve the quality of their products, reduce the cost and time of production and allow for the processing of higher volumes of nuts for increased sales and profitability. This means the Brazil nuts will be sourced from more nut gatherers and thereby increasing the number of people being impacted by our interventions.

Again in 2014, Candela accessed a COEC facility to finance a number of Brazil nut contracts, which made it possible for them to further increase their sales from USD 4,101,952 in 2013 to USD 4,756,141 in 2014. A slight decrease was, however, observed in 2015 due to market price volatility. Graph 1 presents variations in sales from the year 2000 to 2015.

Graph 1: Sales’ growth from 2000 to 2015

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5,000,000 4,500,000 4,000,000

Sales value in USD

3,500,000 3,000,000 2,500,000 2,000,000 1,500,000 1,000,000 500,000 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Social, Environmental and Gender Implications of Shared Interest’s support to Candela For over 15 years, Shared Interest has constantly supported Candela by responding promptly to their financial needs. This level of support has contributed tremendously to the growth, profitability and sustainability of the organisation. The rapid expansion of the business and the improvement in revenue stream have enabled Candela to initiate several programmes with great social outcomes. They have facilitated access to market for small producers, farmers and harvesters, enhancing their productive and organizational capacity for a sustainable management of resources and increased income.

The Brazil nut trade drives a large part of the economic life of the people of Madre de Dios Region by injecting cash into the local economy. Unlike the other preponderant commercial activities such as timber and gold, Brazil nuts are one of the few resources 9

that remain under the control of the poor people. It has become the principal factor that prevents the poorer members of the population from becoming even more impoverished.

A study carried out by the Natural Resources Institute of the University of Greenwich on the economic viability of Brazil nut trading in Peru revealed that Candela was the only organisation that offers credit facilities to their producers with the most favourable terms and conditions. In 2014, Candela spent USD 425,123.89 to prefinance producers’ harvest activities. This was made possible with the financial support from Shared Interest. The reverse of this is that without Shared Interest’s support, Candela would not be able to prefinance harvest activities and many nut harvesters would have been denied of their source of income and livelihood. This shows how critical Shared Interest’s support has been to the livelihood of the Brazil nut producers. In a series of interviews held with some of the nut producers, it came up strongly that without the financial support from Candela, they wouldn’t have been able to undertake the collection of the nuts, which remains their only source of livelihood. They pointed out that for several years, Candela has supported them with a line of credit which they have been accessing every season for their harvest operations.

Candela have been working with fair trade organisations and certification bodies to ensure fair prices for producers. They have a Project and Community Relations department tasked with the responsibility of creating new opportunities for small producers and native communities and to improve their living conditions. They believe that “economic development must be accompanied by human development, capacity building and access to basic services.” It is for this reason that Candela, apart from providing access to markets for their producers, had also set up projects aimed at improving their standard of living and enhancing their health conditions. These projects are carried out in partnership with development organisations that share the same vision with Candela. The projects are mostly concentrated in the Madre de Dios Region where the Brazil nut harvesters are located.

Candela has provided water and drainage system to a number of indigenous communities of Brazil nut gatherers in Madre de Dios. In 2013 for instance, they had implemented a Water, Sanitation and Hygiene (WASH) programme in partnership with one of their clients, Body Shop. The main objective of the programme was to provide access to potable water for two indigenous villages namely Boca Pariamanu and Palma Real, both located in the Madre de Dios Region. In the Boca Pariamanu village, Candela has installed a piped water collection, storage and distribution system. In addition, they have provided a private bathroom with shower and a sink each to a total of 20 households in the community.

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Furthermore, Candela has provided a water pumping and collection system through a nonelectrical waterwheel. This system has benefited a total of 56 households in the village of Palma Real. These interventions have resulted in increased access to potable water and improvement in hygiene and sanitation in the beneficiary communities.

One other key project undertaken by Candela to improve the livelihood of Brazil nut harvesters in the Madre de Dios Region was the “development of ungurahui (Oenocarpus bataua) oil value chain. Ungurahui is an Amazonian palm tree whose fruit produces oil used in the cosmetic industry. This project was initiated in 2014 in the native village of Tres Islas and its main objective was to provide additional source of income to Brazil nut harvesters.

Candela in partnership with Fondo de las Americas (FONDAM) - the Americas Fund of Peru - has established a semi-industrial plant for the processing of the ungurahui oil. In addition, members of the community were trained in the techniques for climbing the palm tree and for exploiting the ungurahui fruits sustainably. Candela has also partnered the Palm Growers Association San Juan (PALSAMAD) to set up a pilot processing unit for the dry ungurahui pulp. All these interventions have led to the increase in the income of Brazil nut producers and thereby impacting positively their livelihood.

Each year, Candela carries out a health campaign to provide primary health services to Brazil nut harvesters and workers in their Madre de Dios processing plant. For example, in 2014, a total of 79 harvesters and workers benefited from health services during the campaign.

The social interventions of Candela were not limited only to the Madre de Dios Region.

They had been working with the indigenous cooperatives and associations of producers in the Amazon Northern Departments where the highest poverty levels are recorded. Th ey had supported small producers in the region to obtain organic certification and to adopt best production and standardisation practices. This has helped them to access markets for the Amazonian vegetable oils and to make good income to enhance their live lihood.

Candela continues to reinforce their presence in the region, creating new opportunities for economic and social development.

All employees of Candela are on payroll. They all have an insurance policy and benefit from social protection schemes. Candela ensures that workers are paid overtime if they work for extra hours. They normally provide employment to the relatives of the Brazil nut harvesters thereby providing their households with extra income. Candela pays salaries 11

consistent with national regulations and ILO conventions. They also ensure that salaries are at least 40% higher than the national minimum wage. Candela believes in staff capacity building. They stated that “empowering people is the basis for development of any organisation and society”. For this reason, they have taken steps to provide regular training to their workers in a systematic and organised manner. In 2014 for instance, they have built the capacity of their staff in areas such as strategic planning, organic certification, waste management, good manufacturing practices, sanitation standards and hygiene, health and safety among others.

Furthermore, Candela has an Organisational Health and Safety Management System that ensures the physical, mental and social well-being of their workers. They have a Joint Management Committee for Occupational Health and Safety that make policies and see to their implementation. Candela reported that in 2014, the incidence of health occurrences among their workers had declined by 74% compared to 2011 and by 25% compared to 2013. They attributed this to the organisation of regular trainings of staff on health and safety measures and hygiene and sanitation.

Another multiplier effect of Candela’s business and financial success has been the implementation of several initiatives geared towards the protection and sustainability of the environment. Apart from their membership of organisations and networks that promote the conservation of biodiversity, they hold a number of certifications that su pport their practices in the management of the environment. Candela is a member of the Union for Ethical Bio Trade (UEBT), a non-for-profit organisation that promotes the engagement of businesses in Bio Trade. At the local level, they are a member of the Instituto Peruano de Producto Naturales (IPPN) that is the Peruvian Institute of Natural Products. IPPN is also a non-for-profit organisation whose mission is the promotion of sustainable use and development of natural resources of the Peruvian biodiversity. Candela hold EU and USDA organic certifications in addition to HACCP, UEBT and NSF certifications. Holding these certifications is a clear indication that they adhere strictly to the international protocols, rules, conventions and standards governing the sustainable management of the environment. It is also worth mentioning that Candela’s ability to maintain all these certifications is evidential of the organisation’s sustainable growth which was largely supported by Shared Interest.

As part of their strategy for a sustainable management of the biodiversity in the region of Madre de Dios, Candela maintains detailed information on the wildlife and natural collection sites with geo-reference points and maps. This enables them to track any 12

potential impact of their activity on the various nut collection sites and to take precautionary actions to protect the environment. Since 2001, they have been implementing the United Nations Organic Programme aimed at training harvesters in the sustainable use of Amazon nut. The programme monitors and ensures compliance with the organic and bio trade principles at each stage of the production process, from the field to their Lima processing plant. Under this programme, over 200,000 hectares of forest have been certified and are being managed under Organic Standards.

From 2008, Candela has begun to perform systematic inspections of the Brazil nuts operations on the field as part of the implementation of their organic programme. This has yielded some positive results including the increase in the use of synthetic straps instead of the “misa”, a bark of a tree threatened by the Brazil nut collection activity. Formerly, most of the harvesters used the “misa” to tie bags to their body during nut collection.

Candela has also reported a 22% decrease in the number of Brazil nut harvesters who hunt in the Amazon forest. In 2014, Candela introduced an environmental protection and nature regeneration programme with the objective of preserving the tropical forests of the region. They have placed a safety mesh on young plants and geo-referenced them to ensure their protection. In addition, they have trained a total of 300 nut harvesters on sustainable natural resources exploitation, biodiversity conservation, natural regeneration and the core principles of organic certification. Since 2015, Candela has been measuring their environmental footprint and exploring sustainable ways of minimising the environmental impact of their operations.

The Brazil nut production is a natural link to biodiversity conservation since the trees only produce and proliferate in a well-preserved primary forest ecosystem. It is also viewed as a sustainable alternative to extractive forestry and mining activities.

Though Candela does not have a specific gender policy, they reported that they “guarantee equal pay for men and women” within the organisation. Over 70% of management positions within the organisation are occupied by women, an indication of their commitment to promote gender equality across all spheres of the business.

Conclusion The case of Candela is a clear reflection of how access to finance can grow and transform businesses and contribute to reduced levels of poverty. Shared Interest has played a 13

critical role in Candela’s growth and business success through the provision of sustainable financial services. The study, therefore, confirms the causal link between access to finance business growth and poverty reduction.

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