Journal of Commerce / February 25, 1999
By Larry Luxner
LIMA -- Peru is the world's largest supplier of coca leaves for cocaine production -- but few people know much about Peruvian cocoa.
Like many peruanos, the U.S. Agency for International Development (AID) wishes that were the other way around. Over a five-year period, the taxpayer-funded agency is promoting a mammoth $107 million program to help the Peruvian government eliminate coca production and encourage the cultivation of coffee, cocoa and other crops.
Furthermore, with world cocoa prices on the rise, Peru "is uniquely positioned to dramatically increase cocoa production and take advantage" of the trend, suggests the American Cocoa Research Institute (ACRI), which is based in McLean, Va.
"Chocolate manufacturers believe Peru can replace Ecuadorean-flavored chocolate, an industry devastated by El Nino," said ACRI consultant B.K. Matlick. "They need to have an alternative, and it's an excellent opportunity for Peru."
Mr. Matlick, interviewed during a recent visit to Lima, says that due to insects and various fungal and viral diseases, the world chocolate industry is running out of places to plant cocoa. Particularly prized is the "arriba" variety of cocoa -- which has a unique flavor and is found mainly in Latin America. Flavored cocoa comprises only 2% of world production but commands a 30-50% premium over the much more common bulk variety.
Traditionally, Ecuador has been a chief source of flavored cocoa, but last year's El Nino devastated that country's cocoa crop. Neighboring Peru, on the other hand, never fully exploited its flavored cocoa potential because of the proliferation of Shining Path terrorist activity and the lucrative coca trade.
Now, however, with coca prices on their way down and cocoa prices up -- not to mention a recently signed peace accord with Ecuador -- things may be looking up for Peru.
"The United States is supporting Peru's efforts to permanently move out of coca," says Michael Maxey, director of AID's Alternative Development Office in Lima. "Our objective is to support the Peruvian government's National Alternative Development Plan and its overall goal of reducing current coca cultivation by 50% in the next five years."
The Mississippi native, who has lived in Peru for the last two years and worked for AID since 1981, says that out of $59 million authorized by Congress, $15 million has been spent so far; the expenditure rate has doubled in the last six months, and is expected to level off at $30 million a year during fiscal 1999.
As part of its $2.8 million program to boost production and processing, AID offers training, credits and grants to 4,000 small cocoa farmers in three regions across Peru: the Apurimac River Valley (4,000 hectares); Upper Huallaga (1,500 hectares) and Jaen (600 hectares). Total annual production potential by the end of Year 3 of the program is 10,980 metric tons -- an 85% jump over 1997 national coca production.
While tourists find the area spectacular, the region -- home to three million out of Peru's 24 million inhabitants -- contains some of South America's poorest people. The region's per-capita GDP is less than 25% of the national average, while infant mortality is almost double the national average, and chronic malnutrition affects up to 75% of all children.
Until now, the region's poverty made the cultivation of coca far more lucrative than anything else. As a result, Peru has become the largest supplier of coca leaf for cocaine production in the world. In 1997, it supplied enough coca leaf to produce 325 metric tons of cocaine hydrochloride -- equivalent to 49% of the world's cocaine hydrochloride potential (followed by Bolivia, with 27%, and Colombia, with 24%).
But thanks to an interdiction strategy being pursued jointly by the U.S. government and Peruvian President Alberto Fujimori, the price of coca leaf has fallen well below $17.50 per arroba (25 pounds) -- the break-even point under which it no longer pays to grow the stuff.
"For over two years, the price farmers receive for their coca leaf has been below the cost of production," said Mr. Maxey. "Coupled with interdiction is an alternative development program aimed at restoring local authority, increasing licit economic alternatives and improving basic and social infrastructure."
In this context, cocoa could be the ideal crop for Peru, because the farmer usually receives 70-75% of the farmgate price -- currently running $1,500-1,600 per ton -- compared to a low of $900 per ton in 1993.
Yet he adds that "Peru has two of the worst [cocoa] diseases, witches brew and manilia. You have to bring the tree down to three meters, a major pruning job. This cuts infection rate from 80% to 20%."
Peru has some 58,000 hectares of cocoa trees, according to Mr. Matlick, of which only 20,000 to 25,000 hectares are actively cultivated.
"We feel that if we can bring the yield up to 800 to 1,000 kilograms per hectare, we'll go from 15,000 tons a year to 30,000 tons," he said. "That's a jump of $120 million in revenue. Many farmers abandoned their cocoa trees when they started growing coca. These abandoned trees are still alive and need to be brought back into production quickly."