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LIBRARY
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This is to certify that the
thesis entitled

An Integrated Assessment of the Dry Bean Subsector in
Central America

presented by

Lourdes Raquel Martinez

has been accepted towards fulfillment
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AN INTEGRATED ASSESSMENT OF THE DRY BEAN SUBSECTOR IN
CENTRAL AMERICA

by

Lourdes Raquel Martinez

A THESIS

Submitted to
Michigan State University
In partial fulfillment of the requirements
for the degreeoof

MASTER OF SCIENCE

Department of Agricultural Economics

2003

ABSTRACT
AN INTEGRATED ASSESSMENT OF THE DRY BEAN SUBSECTOR IN
CENTRAL AMERICA
By

Lourdes Raquel Martinez

Beans are strategically important to assure food security in Central America.
However, Central American countries face several challenges that must be addressed in
order to promote a sustainable growth of the bean subsector, such as (i) relatively low-
yields of bean production, (ii) growing necessity to import beans to meet consumers
demand, (iii) high transaction costs and information asymmetry that limit the access of
producers to urban markets, and (v) the growing consolidation of urban food retailers that

is changing the way bean are bought and sold .

To address these challenges, interviews with key informants were conducted in
Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua and secondary data were
collected to document the situation in the region, and assess options for increasing the

competitiveness of the subsector in the future.

Research programs in Central America need to pay special attention to improving
bean yields in the region. Improving yield will also increase their competitiveness and
reduce their dependence on bean imports from outside the region. Also, more research is
needed to find ways of distributing improve seed varieties to small farmers, as well as
information that will reduce farmer’s transaction cost. Finally, researchers need to

address the growing consolidation of the food retail sector and its effect on bean markets.

 

DEDICATION

To
my sister Carmen

Thanks for being my strength.

iii

AKNOWLEDGMENTS

I would like to give special thanks to my major professor and thesis advisor, Dr.
Richard Bemsten, for supporting my research and myself. His time and effort devoted to

revise my drafts made possible for me to finish my Master’s.

Thanks to my committee members, Dr. Mywish Maredia, Dr. Irvin Widders, and
Dr. Thomas Reardon. Also, very special thanks to faculty and staff in the Department of
Agricultural Economics, for their solidarity and patience. Specially, to Dr. Eric Crawford

for his attention.

To the BEAN/COWPEA Collaborative Research Support Program (Grant No.
DAN-G-SS—86-OOOO8-OO) for funding my research in Central America. Also, the
Bean/Cowpea representatives in Central America that helped me out during my research:
Dr. Anna Bonilla, Lic. Lesbia Rizzo, Ing. Carlos A. Perez, Ing. Abelardo Viana, Ing. Juan

Carlos Rosas.

To my colleagues in Cook Hall for making my experience in East Lansing and

Michigan State University so enjoyable.

Thanks to my family and friends, to the people in Central America, and last, but

not least, to the Almighty.

iv

TABLE OF CONTENTS

 

LIST OF TABLES ..................................................................................................... viii
LIST OF FIGURES ...................................................................................................... x
CHAPTER ONE ........................................................................................................... 1
INTRODUCTION ......................................................................................................... 1
1.1 Background ............................................................................................................. l
1.2 Problem Statement .................................................................................................. 2
1.3 Justification for Studying the Dry Bean Subsector in Central America ........... 4
1.4 Objectives of the Study ........................................................................................... 5
1.4.1 Specific Objectives ............................................................................................ 6
1.5 Methodology ............................................................................................................ 6
1.5.1 Central American Bean Subsector overview. .................................................... 6
1.5.2 Data Collection Strategy .................................................................................. 10
1.5.3 Research instruments ....................................................................................... 10
1.6 Organization of the thesis ..................................................................................... 12
CHAPTER TWO ........................................................................................................ 14
BEANS IN CENTRAL AMERICAN CONTEXT ................................................... 14
2.1 Demand Characteristics ....................................................................................... 14
2.1.1 Nutritional Value of Beans .............................................................................. 14
2.1.2 Per Capita Bean Consumption ......................................................................... 14
2.1.3 Consumer’s Preferences ................................................................................... 16
2.1.4 Beans in the Diets of Central American Consumers ....................................... 17
2.1.5 Consumer Preference for Bean Brands and Processed Products ..................... 18
2.2 Domestic Supply Characteristics ......................................................................... 21
2.2.1 Dry Beans in Central America ......................................................................... 21
2.2.2 Major Market Classes Grown .......................................................................... 23
2.2.3 Seasonality of Bean Production. ...................................................................... 24
2.2.4 Trends in Planted Area, Yields, and Production .............................................. 25
2.2.4.1 Trends in Bean Planted Area .................................................................... 25
2.2.4.2 Trends in Bean Production ........................................................................ 27
2.2.4.3 Trends in Yields ........................................................................................ 30
2.3 Research, Adoption of Improved Bean Varieties, and Government Support
for Bean Production .................................................................................................... 32
2.3.1 Research ........................................................................................................... 32
2.3.1.1 International Center for Tropical Agriculture (CIAT, ) ............................ 33
2.3.1.2 Regional Cooperation Program of Dry Bean for Central America, Mexico
and the Caribbean. ................................................................................................ 34
2.3.1.3 The Bean/Cowpea Collaborative Research Support Project (CRSP) ....... 35
2.3.1.4 National Research Programs ..................................................................... 36
2.3.2 Varietal Adoption ............................................................................................. 41

2.3.3 Government Assistance ................................................................................... 41

2.3.3.1 Seed Multiplication and Distribution ........................................................ 41
2.3.3.2 Extension Support to Bean Farmers ......................................................... 44
2.3.3.3 Access to Credit for Bean Production ....................................................... 46

2.4 Bean Packaging and Processing in Central America ........................................ 47
2.4.1 Bean Packaging Industry ................................................................................. 47
2.4.1.1 Brands ....................................................................................................... 48
2.4.1.2 Supply Source ........................................................................................... 50
2.4.1.3 Contracts ................................................................................................... 53
2.4.1.4 Infrastructure ............................................................................................. 53
2.4.2 Bean Processors ............................................................................................... 54
2.4.2.1 Brands ....................................................................................................... 56
2.4.2.2 Supply Source ........................................................................................... 57
2.4.2.3 Contracts ................................................................................................... 57
2.4.2.4 Infrastructure ............................................................................................. 58
2.4.3 Quality Standards in the Dry Bean Industry. ................................................... 59
2.5 Domestic Bean Marketing Channels ................................................................... 62
2.5.1 Bean Marketing Participants ............................................................................ 62
2.5.1 Intermediaries .............................................................................................. 65
2.5.2 Wholesalers .................................................................................................. 66
2.5.3 Bean Packers ................................................................................................ 67
2.5.4 Bean Processors ........................................................................................... 68
2.5.5 Supermarkets ................................................................................................ 70
2.5.2 Future Evolution of the Bean Market Channel ................................................ 72
2.6 Regional Trend in Dry Beans Imports and Exports .......................................... 73
2.6.1 Dry Bean Imports ............................................................................................. 73
2.6.1.1 Volume of Bean Imports ........................................................................... 73
2.6.1.2 Source of Bean Imports ............................................................................ 76
2.6.2 Dry Bean Exports ............................................................................................. 77
2.6.2.1 Volume of Dry Bean Exports ................................................................... 77
2.6.2.2 Destination of Bean Exports ..................................................................... 79
CHAPTER III ............................................................................................................. 81
COMPETITIVENESS OF BEAN SUBSECTOR IN CENTRAL AMERICA ..... 81
3.1 Price Analysis ........................................................................................................ 81
3.1.1 Variation of Bean Prices in Central America. ................................................. 81
3.1.2 Bean Prices ....................................................................................................... 81
3.1.3 Price Seasonality. ............................................................................................. 83
3.2.4 Marketing Margins ........................................................................................... 86
3.2 International Prices .............................................................................................. 89
3.3 Trading in Central America ................................................................................ 94
3.3.1 Trade Framework in Central America ............................................................. 94
3.3.2 Tariff Policy in Central America ..................................................................... 96
3.3.3 Non-tariff Barriers ........................................................................................... 98

vi

3.3.4 Requirements for Exporting to Central American Countries .......................... 98

3.3.4.1 Sanitary and Phytosanitary Certificate ...................................................... 99
3.3.4.2 Import License for the Food Industry ....................................................... 99
3.3.4.3 Other Transactions Costs ........................................................................ 100
3.3.5 Supermarkets Requirements in Central America ........................................... 101
3.3.6 Barriers to Entering the US. Market ............................................................. 104
3.3.6.1 Tariff and Non-tariff Barriers ................................................................. 104
3.3.6.2 Food Laws, Regulations and Grade standards ........................................ 105
3.3.6.3 Supermarkets Requirements ................................................................... 106

3.7 Export Promotions .............................................................................................. 107
CHAPTER FOUR ..................................................................................................... 110
SUMMARY AND CONCLUSIONS ....................................................................... 110
4.1 Summary .............................................................................................................. 110
4.1.1 Beans in Central America .............................................................................. 110
4.2 Policy Recommendations .................................................................................... 117
4.2.] Policy Recommendation to Support Agricultural Production ....................... 117
4.2.1.1 Continuing Varietal Research ................................................................ 118
4.2.1.2 Implementing New Mechanism to Evaluate New Bean Varieties ......... 119
4.2.1.3 Improving the Seed Distribution Systems ............................................. 119
4.2.2 Policy Recommendation to Support Bean Marketing ................................... 120
4.2.2.1 Promoting of Strategic Alliances with Food Retailers ........................... 121
4.2.2.2 Disseminating Private Grade Standards ................................................. 121
4.2.2.3 Exploring Alternative Niche Markets ..................................................... 122

4.3 Limitation of the Study and Future Research .................................................. 123
APPENDIX A ............................................................................................................ 125
LIST OF REFERENCES ......................................................................................... 133

vii

Table 1.1

Table 2.1

Table 2.2

Table 2.3

Table 2.4

Table 2.5

Table 2.6

Table 2.7

Table 2.8

Table 2.9

Table 2.10

Table 2.11

Table 2.12

Table 2.13

Table 2.14

Table 2.15

Table 2.16

Table 2.17

LIST OF TABLES

Summary of Key Informant Interviews, Central America, 2002. . 11

Trends in Per Capita Bean Consumption,
Central America 1990-2000 ............................................... 15

Primary Consumer’s Bean Preference, Central America .............. 18

Number of Different Bean Brands in Major Supermarket Chains,

Central America, July, 2002 .............................................. 19
Number of Brands Sold in Major Supermarkets by Type of
Preparation, Central America, July, 2002 ................................ 20
Canned and Bagged Beans Price Range,

Central America, July 2002 .............................................. 21
Average Total Crop. Basic Grains and Bean Area Planted,

Central America, 1990-2000 .............................................. 22
Bean Production by Market Class, Central America, 2002 ........... 23
Seasonal Production of Bean, Central America, 2002 ................ 25
Trends in Area Planted, Central America, 1990-2001 ................. 27
Trends in Bean Production, Central America, 1990-2001 ............. 29

Average Trend in Dry Bean Yield from 1990-1992 to 1999-2001
Central America ............................................................. 31

Bean Research Breeding Objective, Central America 1980-2002. . . . 33
CIAT-related Lines Released, Central America 1978-1997 ........... 35
Institutions Conducting Bean Research, Central America, 2002. ....37
Improved Varieties Released in Central America, 1990-2002 ........ 40

Number of Value-added Firms Interviewed,
Central America, 2002 ...................................................... 47

Number of Private and Commercial Labels of Bagged Beans Sold

viii

Table 2.18

Table 2.19

Table 2.20

Table 2.21

Table 2.22

Table 2.23

Table 2.24

Table 2.25

Table 2.26

Table 2.27

Table 3.1

Table 3.2

Table 3.3

Table 3.4

Table 3.5

Table 3.6

in Major Supermarket Chains in City Capitals, Central America,

July, 2002 .................................................................... 50
Canning Industry Market Share, Guatemala, 1999 ..................... 55
Bean Processors by Country of Origin and International Links,

Central America, 2002 ................................................... 56
Beans Grade Standards, Costa Rica, 2002 ............................... 6O
Beans Grade Standards, Central America, 2002 ..................... 61

Bean Processing Industry Quality Standards, Guatemala, 1999 .. .. 62

Bean Processors, by Country of Origin and International Link,
Central America, July 2002 ................................................ 69

Trends in Dry Bean Imports, Central America 1994-2001. ........... 74

Source of Beans by Country of Origin, Central America, 2001 ...... 76

Dry Bean Exports, Central America, 1994-2001 ....................... 78
Destination of Beans by Country, Central America, 2001 ............. 79
Beans Price Seasonality, Central America, 1998-2002 ................. 84
Red Beans Marketing Margins, Central America, July, 2002 ......... 87

Black Beans Marketing Margins, Central America, July, 2002 ....... 87

Estimated Cost of Importing Black Beans from Michigan to

Guatemala, July to September 2002 ...................................... 90
Estimated Cost of Importing Black Beans from Argentina to

Guatemala, July to September, 2002 .................................... 92
National Sanitary Information Offices in Central America ........... 99

ix

Figure 1.1
Figure 1.2

Figure 2.1

Figure 2.2

Figure 2.3
Figure 2.4
Figure 2.5
Figure 2.6
Figure 2.7
Figure 2.8

Figure 2.9

Figure 2.10

Figure 2.11

Figure 3.1

Figure 3.2

Figure 3.3

Figure 3.4

Figure 3.5

LIST OF FIGURES

Geographical Location of Central America, The Americas, 2002.... 8

Field Research Countries, Central America, July 2002 ................ . 9
Per Capita Bean Consumption, Central America 1990-1992

to 1999-2000 ................................................................. 15
Seasonality of Bean Production, by Month,

Central America, 2002 ...................................................... 24
Average Share of Planted Area, Central America, 1990-2001 ........ 25

Trend in Planted Area by Country, Central America, 1990-2001... 26

Average Share of Production, Central America 1990-2001 . ........ 28
Trends in Bean Production, Central America, 1990-2001 ............ 29
Yield Index, Central America, 1990-2001 ............................... 31
Dry Bean Marketing Channel, Central America ........................ 64
Average Share of Imports in Bean Supply,

Central America, 1999-2001 ............................................... 75
Share of Annual Bean Imports, Central America, 1999-2001 ...... 75

Average Share of Bean Exports, Central America, 1999-2001 ....... 78

Black Bean Nominal Wholesale Prices, Costa Rica and

Guatemala,1997-200 ........................................................ 82
Red Bean Nominal Wholesale Prices. El Salvador, Honduras,

and Nicaragua, 1997-2002 ................................................. 83
Red Beans Seasonal Price Variation, El Salvador,

Honduras and Nicaragua. 1997-2002 ................................... 85
Black Beans Seasonal Price Variation, Costa Rica

and Guatemala,1997-2002 ................................................. 86

Average Quarterly Black Bean Dealer Prices in Guatemala

Figure 3.6

Figure 3.7

 

and the US with and without Tariffs, 1997-2002 ..................... 91

Average Quarterly Black Bean Dealer Prices in Guatemala
and Argentina, with and without Tariffs, 1997-2002 .................. 94

Average Quarterly Small Red Bean Dealer Prices in Honduras,
Nicaragua and Argentina, with and without Tariffs, 1997-2002. . .. 93

xi

CHAPTER ONE

INTRODUCTION

1.1 Background

During the early-19905, Central American countries began to implement policy
changes designated to promote social development and economic growth. Nevertheless,
social and economic disparities continue to exist. Widespread poverty and inequality in
income distribution remain unsolved problems, especially in the rural areas where

agriculture is the major economic activity (USAID, 2002).

Since the late-19905, the performance of the regions’ agricultural sector has not
been encouraging. Central America has been hit by a dramatic decline in the price of their
major export commodity prices (e.g., coffee, bananas, palm oil, and citrus), which has
reduced the rate of economic growth in Honduras, Nicaragua, Guatemala —-countries that
still depend largely on the agricultural sector as a source of revenues --and to a lesser

extend in Costa Rica and El Salvador (USAID, 2002).

A major factor that influences the poor performance of agriculture is the region’s
vulnerability to natural disasters. Adversities such as Hurricane Mitch in 1998 and the
earthquakes in El Salvador in 2001 had terrible consequences that are still observable.
This situation has increased food insecurity among rural poor in the region. According to
the United State Agency for International Development (USAID) over 52 percent of the
Central American inhabitants (approximately 14 million people) are poor and chronically

food insecure.

Beans are strategically important to assure food security in the region. They are a
basic component in the diet of the people of Central America, and are also the main
source of vegetable protein for a large share of the population--especially the poor.
Moreover, beans are an important source of income for many small farmers. Thus, it is

necessary to give special attention to assessing the economic possibilities for this crop.

The bean subsector has been the target of reforms in Central America, including
the gradual elimination of marketing parastatals, diminishing government support to
agricultural research and extension, and progressive movement towards an integrated
Central American free trade zone. (Martel et 41., 2000). Nevertheless, Costa Rica, El
Salvador, Guatemala, Honduras and Nicaragua are still unable to compete in the

international bean market due to low productivity.

In addition, there is growing concern that global integration will lead to increased
availability of lower price and better quality beans in the region and that growing imports
will soon replace local production, leading to the further impoverishment of rural areas.
Central American countries have retained tariff protection for staple crops, including
beans. However, this has not stopped the flood of bean imports into these markets.
Furthermore, it remains questionable whether or not tariff protection is a good strategy to

increase the competitiveness of local bean production.
1.2 Problem Statement

Central American countries face several constraints that must be relaxed in order
to expand bean production. In these countries, the cost of producing beans is very high,

compared to the US, Canada and Argentina, where big and efficiently-equipped farms

Ix)

achieve economy of scale and thereby deliver their product to regional markets at a price
that is lower than the price of domestically grown beans (CORECA, 1999b).
Furthermore, in recent years relatively low-yields and frequent natural disasters (i.e.,
hurricanes, floods, drought) have made it impossible for these countries to satisfy their

local demand, which has required them to import beans to meet consumers demand.

In addition to the availability of new technology to overcome production
constraints, the flow information between producers, marketers, extension workers, and
researchers regarding consumers demand for specific quality characteristics plays an
important role in assuring the success of bean-improvement programs. Given the
characteristic of bean trade (i.e., many actors are involved before the commodity reaches
the final consumer), high transaction costs and information asymmetry increase the price
that consumers pay and decrease small farmers’ share of the price differential. (Minten er
al., 2000). Hence, there is a need to improve the flow of information among stakeholders

in the bean subsector.

Despite a rapid expansion in the bean processing industry, producers in these
countries may not be benefiting from this growth. A study carried out in Guatemala
found that domestic bean canners utilize very little locally-grown beans in their value-
added products. due to the high cost of locally-produced beans, compared to the low cost

of importing and processing broken beans from the U.S.(Estrada-Valle, 2001).

Finally. the rise of the retail system (e. g., supermarket chains) in Central America
is changing the way that agricultural commodities are bought and sold. Thus, due to the
consolidation and concentration of the retail system, small farmers may be increasingly

unable to compete in the market in the future (Alvarado er al., 2002).

1.3 Justification for Studying the Dry Bean Subsector in Central America

To date, few studies have documented the characteristics of the bean subsector in
Central America. In 1999 the Inter-American Institute for Cooperation in Agriculture
(IICA) and the Regional Council for Agricultural Cooperation (CORECA) prepared the
document “Global Markets of Bean and its Links to the Central American Markets”
(CORECA, 1999b). This study presented recent country-level information about the
world bean markets and its influence on Central American markets. According to this
paper, because of production problems, countries like Guatemala and Costa Rica have
had to buy beans from third markets in order to supply their domestic requirements.
These countries source the major portion of their bean imports from Argentina, the US,
and Canada. The study suggested that an important factor that explains the preference for
bean from outside the region is that in Central America the prices of domestically-
produced small red and black bean are generally higher than the world market price. One
factor that explains this situation is that production has not increased as rapidly as
demand in the region. Furthermore, the study reported that in Central America, beans are
almost exclusively produced by small farmers, who have limited access to production
credit and extension services, apply limited amounts of cash inputs (e.g., fertilizer,
insecticide), and consequently achieve relatively low yields. For most producers, their
major objective is to assure their household consumption requirements, and if they have a
surplus, they sell it in the market. Thus, increasing productivity is essential to reduce

production costs and retail prices (CORECA, 1999b).

Furthermore, Martel, Bemsten and, Weber reported that market links (i. e., many

farmers preferred to grow traditional varieties because they commanded a premium price

in the market) were an important constraint to the adoption of new varieties in Honduras
(Martel et al., 2000; Martel er al., 1994). Thus, the competitiveness of the bean subsector
is also highly dependent on plant breeders’ ability to adjust to new demands (e.g., develop

varieties that meet consumer preferences).

While the CORECA study focused on the general situation of imports and
exports, it lacked detailed information about regional bean markets and did not assess
opportunities for Central American producers to export. Additionally, the subsector
studies by Martel et al., and Estrada-Valle only focused on Honduras and Guatemala

respectively, rather than on Central American as an integrated region.

Given the lack of systematized, accurate, and integrated information about the
bean subsector in the region (including trading opportunities in the region and the
region’s potential for exporting to foreign markets), there is a need to analyze constraints
and opportunities for increasing the supply of and demand for beans in Central American,

and strategies that can help to increase the region’s level of competitiveness.

1.4 Objectives of the Study

The general objective of this study is to document the status of the bean subsector
in Central America, including constraint to and opportunities for increasing its
competitiveness. The basic question facing these countries is whether or not they will be
able to compete in local and international bean market to deliver beans at internationally
competitive prices and of the quality and market classes that are demanded by processors

and consumers.

1.4.1 Specific Objectives

The specific objective of this study are:

a) To provide an overview of the structure of bean production, marketing and

processing in Central America
b) To identify constraints facing bean farmers, traders, and processors, and

c) To identify policies that are needed to relax these constraints, in order to
strengthen the competitiveness of the region’s bean subsector, and thereby reduce

rural poverty

Unless ways can be found to increase the competitiveness of regional bean
subsector, countries in Central America will experience significant negative social and
economic impacts, especially since these countries are facing the challenge of adjusting

to new open markets (e.g., Central American Free Trade Agreement; CAFTA).
1.5 Methodology
1.5.1 Central American Bean Subsector overview.

This thesis utilizes a rapid appraisal methodology to document the current status
of the dry bean subsector in Central America, including the structure of the subsector, key
constraints that must be relaxed to improve its performance, and policy changes needed

to overcome these constraints.

The subsector approach was used because it frames “the search for opportunities

to improve the performance of the system, as well as to take advantage of unexploited

and under exploited opportunities to tap new markets, generate significantly higher levels

of output, and improve food system efficiency” (Holtzman, 1986).

In each of the selected countries (Costa Rica, El Salvador, Guatemala, Honduras,
and Nicaragua) (Figure 1.1 and 1.2), basic subsector information and data were collected
from key informants in order to document supply and demand side (i.e., status, trends and

causes).

In order to understand the supply side, data were collected on historical annual
and seasonal bean prices; area planted, yields, and production; availability of modern
technologies (e.g. seed of improved varieties, inputs); imports and exports (e. g., market
classes, volumes, prices, origins, destinations, and traders’ sources of market
information); government policy that have had an impact on production (e. g., extension,
subsidized credit, input subsidies, seed production/distribution) and trade (e. g., output
subsidies, taxes); and other economic variables that affect local producer’s
competitiveness. The supply analysis documents the interrelated elements required to
understand current production levels and their variability over time. For example, the
level of supply during different periods affects seasonal variation in prices, and also the
availability of dry bean in the region. Variation in bean stocks over the years may
indicate producers reactions to government policies, technological change, prevailing

institutional environment, and alternative institutional arrangements (Holtzman, 1986).

Figure 1.1 Geographical Location of Central America, The Americas, 2002.

North
America

 

(I entl‘al 1:33
America " - -

South
America

 

Figure 1.2 Field Research Countries, Central America, July 2002.

Guatemala

   

El Salvador

‘5‘. '
Costa \, 4:; 1?
QR <2.“L < {r}

In order to understand the demand side, data were collected on consumers’ bean
preferences (e.g., market classes and other quality attributes), trends in per capita
consumption of beans and value-added bean products, bean sales by location (e. g., open
market, bagged in supermarket), and the current demand by supermarket chains (e.g.,
types and volume of bean and bean-based value-added products sold, market classes,
source of stocks) which are increasingly becoming important buyers of dry beans and

value-added bean products.

The goal of this rapid appraisal was to use secondary data and information

collected from key informants to describe the structure of the Central American dry bean

The goal of this rapid appraisal was to use secondary data and information
collected from key informants to describe the structure of the Central American dry bean
subsector, identify constraints to increasing its competitiveness, and ultimately to identify

critical points of intervention to alleviate these constraints.
1.5.2 Data Collection Strategy

As a first step, bean experts in each country were interviewed in order to explain
the objectives of the study and to ask for their assistance in identifying key informants.
Subsequently, appointments were made with key informants from governmental

agencies and private firms.

The geographic area for the rapid appraisals included five Central American
countries. Central American capital cities were selected (Figure 1.2), since most of the
bean production is marketed in these cities, and this is where the main government

offices and processors, supermarkets, importers and exporters are located.

The key informants were selected from among members of the following six
groups: 1) wholesalers in city capitals (e. g., importers, exporters, retailers), 2) packaging
firms, 3) processing firms, 4) supermarket managers, 5) government officials, and 6) bean

scientists.
1.5.3 Research instruments

The study was implemented by interviewing key participants in the bean
subsector, especially individuals involved in marketing. Five interview guides were

designed prior to initiating the field work. In addition to the interview guide, firm

10

managers were asked to provide statistical data about their operations and government

officials were asked to share statistical information collected by their agencies.

The set of research instruments included interview guides for wholesalers and
retailers, importers and/or exporters, bean packers, bean processors, supermarket

managers, government officials, and bean breeders and scientists.

A total of 57 interviews were conducted in Central America. Table 1.1 presents
the summary of interviews by country. The personal interviews with key informants were
conducted during July 2002. The interview process took one week in each country, and

started in Costa Rica, followed by Nicaragua, El Salvador, Guatemala and Honduras.

Table 1.1 Summary of Key Informant Interviews, Central America, 2002

 

 

 

 

 

 

 

 

Interview Costa Ric S alftidor Guatemala! Honduras Nicaragua
Wholesalers, importers and/or
exporters 2 3 1 2 1
Bean packers 5 2 l 4 1
Bean processors 2 2 2 1 O
Supermarket managers 2 2 2 l 1
Government officials 2 1 2 l 3
Bean breeders and researchers“ 2 1 3 3 2
Total 15 11 ll 12 8

 

 

 

 

 

 

 

*Including market researcher specialists.

11

 

1.6 Organization of the thesis

This thesis is organized into four chapters. Following the introduction, Chapter
Two describes the Central American Context. Section one describes the demand
characteristics, trends in per capita bean consumption, market class preferred in each
country, and the importance of beans in the diet of Central American consumers. Section
two presents each country’s domestic supply characteristics, including major crops
grown, preferred bean market classes, seasonality of bean production, and trends in area,
production, and yields. Section three describes the institutions responsible for developing
and releasing improved bean varieties (e.g., research institutions and national research
programs), multiplying and distributing improved varieties, providing extension support,
and extending credit. Also, a brief description of the major international agricultural
research groups currently working in Central America. Section four describes the value-
added industries (i. e., packaging and processing industry) in each country, including the
number of bean packers and processors, and their product brands, bean supply source,
contracting structure with supplier, and infrastructure utilized. Also, information
describing the quality standards of the bean industry was obtained for each country.
Section five presents an overview of the bean marketing channels in each country (e. g.,
flow of beans from the farm gate to the market) and describes each stage in the marketing
channel. Finally, section six describes recent trends in each country’s bean exports and

imports, including the volume and major source of bean imports and exports.

Chapter Three analyzes the competitiveness of the bean subsector in Central
America. Section one presents a price analysis, including bean prices in each country,

price seasonality, marketing margins between wholesale, central market price, and value-

12

added products. Section two assesses the competitiveness of Central American bean
versus the main exporters to the region. Section three describes the barriers to trade in the
region, including the structure of regulations in each country and the barriers to entry to
the main markets. Finally, section four describes the export promotions and opportunities

in each country.

Chapter Four presents the conclusion, including the summary of findings, policy

implications, limitations to this research, and recommendations for future research.

13

CHAPTER TWO
BEANS IN CENTRAL AMERICAN CONTEXT
2.] Demand Characteristics

2.1.1 Nutritional Value of Beans

Beans are an important source of protein and iron, as well as a good source of
dietary fiber and complex carbohydrates. Thus, beans make an important contribution to
human nutrition, especially for poor consumers. A single serving (1 cup=l72 grams) of
beans provides at least one-half the USDA-recommended daily allowance of folic acid (B
vitamin, especially important for pregnant women), 25-30 percent of the daily
recommended iron levels, 25 percent of the daily requirements of magnesium and copper,

15 percent of potassium and zinc, and 8.86 percent of protein (USDA, 2003).

2.1.2 Per Capita Bean Consumption

During the period 1990-1992 to 1999-2001, per capita bean consumption
increased in Costa Rica, El Salvador and Nicaragua, decreasing in Guatemala and
Honduras (Figure 2.1). In the 19903 and beginning of 20005, per capita'consumption in
Nicaragua grew (especially since 1997) at an annual change of 7.2%, with a total change
of 74.6%, representing the biggest increase in the region. Similarly, Costa Rica (0.4%)
and El Salvador (2.4%) grew slightly their annual per capita consumption. In contrast,
Guatemala and Honduras decreased their annual bean consumption by -6.2% and -2.8%
respectively. By the beginning of the 20003, per capita annual bean consumption was
highest in Nicaragua (24.7 Kg), followed by El Salvador (13.48 Kg), Costa Rica (11.28

Kg), Honduras (9.81 Kg) and Guatemala (7.19 Kg) (Table 2.1).

14

Table 2.1 Trends in Per Capita Bean Consumption, Central America 1990-2001

 

 

 

 

 

 

 

 

 

 

 

 

 

Country Per capita Consumption " Chan e
1990.1 992‘ 1999-2001‘ Annual Total
Costa Rica 10.97 11.28 0.4% 2.8%]
131 Salvador 11.13 13.48 2.4%] 21.1%]
Guatemala 12.03 7.19 45.2%] 40.3%
Honduras 12.37 9.81 28%] 20.6%]
Nicaraguab 14.17 24.73 7.2%] 74.6%]
]Central America 12.10 14.29] 2.1%] 18.1%]

 

 

“ Kilograms per person per year, three-year-average.

Source:

b Based on data obtained from (ECLAC, 2001)

‘ Based on data from and the US Census Bureau, International Program Center (Bureau,
2003)

Figure 2.1 Per Capita Bean Consumption, Central America 1990-1992 to 1999-2001

 

 

 

28
24
20
16
12

8

4

 

 

Costa Rica El Salvador Guatemala Honduras Nicaragua

 

13 1990-1992 I 1999-2001

 

 

Source: Based on; Table 2.1

15

 

2.1.3 Consumer’s Preferences

Central American consumers are concerned about quality characteristics, such as
freshness, cooking time (ready-to-use), nutritional characteristics, appearance of grain
(e.g., shiny, homogenous in size), and specific color characteristics (e.g., light red).
Currently throughout the region, packed beans are sold cleaned, graded, and the company
guarantees freshness of the product.

The freshness of bean is associated it with beans cooking time. In Costa Rica, the
minimum acceptable cooking time (specified in legal standards) is 90 minutes, when
boiling beans in a normal saucepan (i.e., not a pressure cooker). In other countries
cooking time is not an obligatory grade standard for beans. However, according to key
informants, it is increasingly recognized as an important quality factor, especially by the
value-added industry.

Appearance characteristics (e. g., small red, light red) are more important in
countries where people eat red beans (e.g., El Salvador, Honduras and Nicaragua).
However, in Costa Rica, the brightness of the grain is important not only for physical
appearance, but also because it is associated with shorter cooking time. According to Dr.
Jim Kelly, this characteristic is believed to reduce the cooking time of beansl (Kelly,

2003)

Despite high and medium level income consumers willingness to pay a premium
for these quality characteristics, low-income consumers give high priority to price when
making their buying decisions. While Central American supermarkets sell a variety of

processed bean products, in different product presentations and preparations, the price

 

' Personal communication with Dr. Kelly, Michigan State University, 2003.

16

differential is still a major factor that limits the consumption of these products among

Central Americans.

2.1.4 Beans in the Diets of Central American Consumers

Beans are highly attached to dietary habits of both rural and urban populations in
Central America. Beans are consumed cooked whole or mashed and also fried, after first
making a paste to which oil is added (i. e., refried beans). Color and preparations
preferences differ along Central American countries (Table 2.2 and 2.3).

Major preparations vary from country-to-country. In Costa Rica, the most popular
bean dish is called “Gallo Pinto”, a combination of whole black beans and rice. Bean
soup, made with black beans, some vegetables, and eggs is also consumed. In El
Salvador, people consume rice and red beans, which when "wedded" together is referred
to as “casamiento” (marriage). In addition they eat refried beans at breakfast and lunch
time. In Guatemala, while consumers mainly eat refried bean, a mixed salad with black
beans is also very accepted. In Honduras, the main bean preparation is whole beans.
However, when beans are left over after the first day, people eat them as refried beans.
Finally, in Nicaragua rice and beans mixed together is the main daily dish, which is

similar to “gallo pinto ” in Costa Rica, but made with red beans.

17

Table 2.2 Primary Consumer’s Bean Preference, Central America

 

 

 

 

 

 

 

Varietal Characteristics
Country
Market Class Color Variation Size
. Black Small,
Costa Rica (Red 1) Does not matter homogeneous
El Salvador Red Light red Small
Guatemala Black Does not matter Does not matter
. . Small in certain
Honduras (3:12: 2) ngh 2:251? most areas. Medium
' size is acceptable
Nicaragua Red Light red Smalls-geedrum

 

 

 

 

 

 

' Preferred by Costa Rican neighboring Nicaragua, and by Nicaraguans living in urban areas.
2 Preferred by consumers neighboring Guatemala.

3 Dark red beans are acceptable, but are price discounted by about 10%. However, according
to key informants in Nicaragua this margin can reach 40% during harvest season.

Source: Based on information provided by key informants during the field work, 2002.

2.1.5 Consumer Preference for Bean Brands and Processed Products

During the field research, data collected from major supermarket chains in Central
America’s capital cities indicated the they sold 67 different brands of value-added
products (i. e. , bagged2 and processed beans) (Appendix A). Throughout the region,
numerous brands were sold in plastic bags (i. e., dry beans), cans, and a flexible pack3

presentation. In each country, the number of different brands of beans in plastic bags

 

2 Beans packed in plastic bags are considered to be value-added products because they have been cleaned
and graded for size and color uniformity.

3 Flexible pack refers to a retort packaging or retort pouch packaging, a process in which the product is
pasteurized at high temperatures within the package. This packaging is best described as a flexible can, and
the product inside has the texture of canned food . The only flexible pack found was the brand “Naturas”,
an Uniliver product. According to the manager of this company, Unilever markets its brand throughout
Central America.

Farm, D. It F. 2003, Description of Packaging Terms, Available:
[http://www.ducktrap.com/news_ssfaq.htrnl] (August 29th).

18

ranged from 6-15, while the number of canned presentations ranged from 4-12. (Table

2.3).

Table 2.3 Number of Different Bean Brands Sold in Major Supermarket Chains,
Central America, July, 2002 ’

 

 

 

 

 

 

 

 

 

Plastic Flexible
Country Bags Cans Pack
Costa Rica 15 12 01)
El Salvador 6 8 1
Guatemala 6 7 0b
Honduras 9 4 0"
Nicaragua 8 1 1 0b

 

 

 

' This list represents products bought at major supermarkets chains during the research.
However, it is not an exhaustive list of products sold in these countries.

l’Not collected during the field work.

Source: Based on data collected during the field work, 2002.

Cooking beans takes a lot of time, which is substantially reduced by using
processed products. The most common value-added preparations in the region are refi'ied
beans and whole beans with other ingredients (e. g., vegetables, pork, sausage) (Table
2.4). These products are accepted because of the convenience that they provide (i. e. ,
women in urban areas have less time for cooking), as well as their flavor and nutritional
quality.

However, according to supermarket managers, valued-added products such as
canned beans or flexible packs do not represent an important percentage of sales. This
observation is confirmed by a study carried out by the University of Costa Rica, which
found that Costa Rican consumers mainly purchase canned beans as a snack food, for

parties, or outdoor activities (Rodriguez Castillo, 2002). Based on supermarket manager’s

opinions, and informal interviews this is similar in other countries in the region.

19

Table 2.4 Number of Bean Products Sold in Major Supermarkets by Type of
Preparation, Central America, July, 2002 '

 

 

 

 

 

 

 

 

Country
bigger; Costa E1 Guatemala Honduras Nicara ua Total
p Rica Salvador g

Canned whole bean 3 0 2 1 2 8
(With soup)
Canned whole bean
plus other
ingredients (e. g., 2 4 2 2 5 15
pork, sausage)
Canned Refiied 10 8 4 l 4 27
beans
Dehydrated 0 1 0 0 0 1
Flexible Pack 0 l 0 1 O 2
Total 15 14 8 5 11 53

 

 

 

 

 

 

 

 

 

' This list includes same brand with different products preparations.
Source: Based on data collected during the fieldwork, 2002.

It is likely that the demand for canned and flexi-pack products is limited by their
relatively high cost. Compared to beans in a plastic bag, the price of canned beans had
price average of US$ 2.49 per kg compared to US$1.25 per kg for bagged beans. Bagged
beans price ranged from US$ 0.75 per kg to US$ 3.88 per kg, whereas canned beans

ranged from US$ 0.46 per kg to USS 6.48 per kg (Table 2.5)“.

 

’ The price range include different types of preparations (e. g., beans with pork, refried beans). Hence, the
big range of prices.

20

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table 2.5 Canned and Bagged Beans Price Range, Central America, July 2002 8.
Canned Beans
Counny N 1’ Mean Minimum Maximum Std. Deviation
Costa Rica 15 2.50 1.75 4.30 0.58
El Salvador 12 2.66 0.46 6.48 1.7
Guatemala 8 2.26 1.59 3.32 0.70
Honduras 4 2.44] 0.53 5.43 2.10
Total 39 2.49] 0.46 6.48 1.21
Ba ed Beans
Costa Rica 24 1.07 0.94 1.18 0.05
El Salvador 8 1.49 0.87 3.88 0.99
Guatemala 13 1.55 1.20 2.11 0.31
Honduras 9 1.39 0.80 2.37 0.42
Nicaragua 8 0.88 0.75 0.95 0.08
Total 62 1.25 0.75 3.88 0.47
‘ Price in US$/kg in July 2002. .

b Table 2.5 presents the total number of canned and bagged beans bought, which include
different sizes of products, brands and preparations. Table 2.4 presents different types of
preparation, including flexible pack and dehydrated. Table 2.3 presents only the brands.

Source: Based on data collected during the field work, 2002.

2.2 Domestic Supply Characteristics

2.2.1 Dry Beans in Central America

The structure of basic grains (i. e., corn, rice, and beans) production in Costa Rica,
El Salvador, Guatemala, Honduras, and Nicaragua are very similar. In Central America,
basic grains are primarily grown by small-scale farmers, who do not specialize and lack
access to purchased inputs (e. g., fertilizer, herbicide). Regionally, more than 50% of

farms are smaller than 20 ha with more than 20% of farms being less than 5 ha (CIAT,

2001)

Among Central American countries the share of the area planted to basic grains
varies greatly, ranging from 79% in Nicaragua, 56% in Honduras, 51% in Guatemala,

48% in El Salvador and 29% in Costa Rica (Table 2.6). However, adverse climatic

21

conditions in the region frequently affect the harvested area. In some years farmers loose

their entire crop, which both leaves them without sufficient food to meet their family’s

basic needs and reduces their income.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table 2.6 Average Total Crop, Basic Grains and Bean Area Planted, Central
America, 1990-2000
Country Annual Crop Basic Grains 0 Dry Bean
Area " Ha % Ha %

Costa Rica 438.45 128.30 29.26 46.99 10.72
El Salvador 786.55 378.80 48.16 74.99 9.53
Guatemala 1,503.73 763.03 50.74 132.39 8.80
Honduras 945.82 527.93 55.82 91.61 9.69
Nicaragua 673.55 531.70 78.94 155.38 23.07
Total 4,348.09 2,329.77 53.58 501.36 11.53

' 1,000 ha

b The category ‘basic grains’ includes rice, corn and bean.

Source: Based on data obtained from Costa Rica: (Mercanet, 2003); El Salvador:
(MAG, 2001); Guatemala: (UPIE, 2002); Honduras: (Cotty et al. , 2002); Nicaragua:
(BCN, 2003)

Throughout Central America, beans are the second most important “basic grain”
for human consumption. Beans account for approximately 12% of Central America’s
total crop area. However, the bean area varies by country (ECLAC, 2001)-- ranging from
approximately 23% of the basic grain area in Nicaragua, to 11% in Costa Rica, 10% in
Honduras, and 9% in El Salvador and Guatemala (Table 2.6). Most farmers grow maize

and beans to guarantee food security and these crops are also their main source of

income.

As is the case for other basic grains, farmers in Central America plant dry bean
primarily as a semi-subsistence crop. In general, hillside production accounts for around
80% of the area planted to beans, where farms are dispersed, often on land of limited

fertility (CIAT, 2001).

22

2.2.2 Major Market Classes Grown

While black and small red beans are the dominant market classes grown in
Central America, variations with respect to consumption pattern determine the market
classes grown in each country. Nicaragua, Honduras, and El Salvador produce and
consume mostly small red bean types, whereas Guatemala and Costa Rica mostly
produce and consume black beans (Table 2.7). However, even in countries with a strong
preferences for small red or black beans, other market classes are grown. For example, in
some areas of Honduras and El Salvador close to the border with Guatemala, farmers

prefer to grow black beans, and in some areas of Costa Rica farmers grow small red bean.

 

 

 

 

 

 

Table 2.7 Bean Production by Market Class, Central America, 2002
Country Black Beans Red Beans
Costa Rica 70% 30%
El Salvador 20% 80%
Guatemala 80% 20%
Honduras 20% 80%
Nicaragua 20% 80%

 

 

 

 

 

Source: www.northarvestbean.org and interviews with key informants, July, 2002.

Market class preferences serve to make some countries vulnerable to imports
from outside the region, while they constitute barrier in other countries. For example, due
to the availability of inexpensive black beans from the US. and Argentina, which are
good substitutes for local black beans, imports are replacing local production in Costa
Rica and Guatemala. On the other hand, because consumers in El Salvador, Honduras

and Nicaragua prefer small red beans and there exist no good substitutes from outside the

23

region, these countries only import beans when there is a shortage of small red

throughout Central America (CORECA, 1999b).
2.2.3 Seasonality of Bean Production.

The harvest season depends on the climatologic characteristic of each country . In
general there are two major harvest seasons. The first season (primera), begins in
July/August and continues through September/October. The second harvest (postrera)
which is the most important in terms of volume produced in most countries, begins in
November and continues through January. With inigation, a third crop (apante) of beans
is harvest in Guatemala, Honduras, and Nicaragua (Figure 2.2).

Central 2002.

2.2 of Bean

     
  
 

     

Month

C
(“my Jul Oct Nov Dec Jan Feb Mar

Rica
Salvador

I irst harvest
‘llllllill Second harvest
' ird harvest
Source: Based on data from (CORECA, 1999b)
The relative importance of each season varies by country. For example, in Costa
Rica, El Salvador, and Honduras, the postrera accounts for 90%, 80%, and 55% of

annual production respectively. In contrast, in Guatemala the primera is the main harvest

season (50%). While in Nicaragua the apante is the most important season (45%), the

24

first (23%) and second (35%) seasons account for a large share of annual production

(Table 2.8).

Table 2.8 Seasonal Production of Bean, Central America, 2002

 

 

 

 

 

 

 

Country Harvest season a
First Second Third
Costa Rica 10 90 0
El Salvador 15 80 5
Guatemala 50 3O 20
Honduras 35 55 10
Nicaragua 20 35 45

 

 

 

 

 

 

" Percentage of production by season
Source: Based on data from (CORECA, 1999b) and Ministry of Agriculture of Costa
Rica, El Salvador, Guatemala, Honduras, Nicaragua
2.2.4 Trends in Planted Area, Yields, and Production
2.2.4.1 Trends in Bean Planted Area
During the period 1990-2001, an estimated 501,360 ha were planted to beans. Of

this total, Nicaragua accounted for the largest share (32%), followed by Guatemala

(26%), Honduras (18%), El Salvador (15%), and Costa Rica (9%) (Figure 2.3).

Figure 2.3 Average Share of Panted Area, Central America 1990-2001

Costa Rica
9% El Salvador
1 5%

 

   
  

Nicaragua
32%

Guatemala

Honduras 26%
18%

 

 

 

Source: Costa Rica: (Mercanet, 2003); El Salvador: (MAG, 2001); Guatemala: (UPIE,
2002); Honduras: (Cotty et al., 2002) and (INE, 2002); Nicaragua: (BCN, 2003)

25

The trend in area planted (1990-1992 to 1999-2001) differed among these
countries. While El Salvador and Guatemala showed a more constant trend in planted
area, Honduras, Costa Rica and Nicaragua presented variable trends, especially after

1995 (Figure 2.4).

Figure 2.4 Trend in Planted Area by Country, Central America, 1990-2001

I

 

 

240 a

200

I60 4‘

LOOOFLA
5
<3

00
O

 

-. rmlfiu -LF 2

A
O

- 7, .‘N‘ .‘—'/4_\.‘.—+““\. l :

 

o -._.~m_e._ ._--.---_._~. “me

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

"O _. Costa Rica +El Salvador +Guatemala -X- Honduras +Nicaragua

 

Source: Based on data obtained fromCosta Rica: (Mercanet, 2003); El Salvador: (MAG,
2001); Guatemala: (UPIE, 2002); Honduras: (Cotty et al., 2002) and (INE, 2002); Nicaragua:
(BCN, 2003)

In Costa Rica, the planted area has declined at a rate of -8.8% annually, which
represents a -56% decline over the decade. In contrast, Nicaragua has greatly increased
its planted area since 1990. Increasing at a rate of 8.7% annually, the total planted area
increased by 111% over the decade (Table 2.9). Costa Rica and Nicaragua represent
extreme situations in the region. First, Nicaragua is more suitable for bean production,
has three harvest seasons, and also has lower labor costs. In contrast, Costa Rica mostly
produces beans during one season (90% of domestic supply in the second season) and

labor costs are higher than in other Central American countries.

26

In the case of Honduras, natural disasters-especially Hurricane Mitch in 1998 and
severe drought seasons after that--were largely responsible for its decline in area planted,
which averaged -2.3% annually and -19% over the decade. For El Salvador and
Guatemala, trend in area planted was less dramatic. In El Salvador, area planted grew
slightly, with an increase of 0.7% annually and a total change of 6%. In contrast,

Guatemala experienced a negative rate of growth of -0.9% annually, for a total decline of

 

 

 

 

 

 

 

 

-8% (Table 2.9).
Table 2.9 Trends in Area Planted, Central America, 1990-2001
Average " Change 6
C t
0"" 'y 1990 -1992 1999-2001 Annual Total

Costa Rica 65.47 28.51 -8.8% -56%
El Salvador 72.79 77.19 0.7% 6%
Guatemala 138.03 126.76 -0.9% -8%
Honduras 97.17 78.59 -2.3% -19%
Nicaragua 99.83 210.93 8.7% 1 1 1%
Central America 473.29 521.97 1.1% 10%

 

 

 

 

 

 

 

' Area in 1000 HA
b To calculate annual change the 1990-92 average was considered the beginning period
an the 1999-2000 average was considered the ending period. Thus, the annual rate of

growth is estimated over a 9-year period.
Source: Based on data obtained from Costa Rica: (Mercanet, 2003); El Salvador:

(MAG, 2001); Guatemala: (UPIE, 2002); Honduras: (Cotty et al., 2002) and (INE, 2002);
Nicaragua: (BCN, 2003)

2.2.4.2 Trends in Bean Production

(LC-.‘f n’ ’41. IL,

The largest bean producers in the region are Nicaragua, Nicaragua, and Honduras,

which accounted for with 30%, 27% and 20% of total volume produced, respectively, in

the period 1990-2001 (Figure 2.5).

27

Figure 2.5 Average Share of Production, Central America 1990-2001

 

Nicaragua
28%

Honduras
20%

 

Costa Rica

7%

v .
.....

  

Guatemala
27%

El Salvador
1 8%

 

Source: Based on information from Costa Rica: (Mercanet, 2003); El Salvador: (MAG,
2001); Guatemala: (UPIE, 2002); Honduras: (Cotty et al., 2002); Nicaragua: (BCN,

2003)

During the 1990s, trends in bean production varied greatly among countries in the
region (Figure 2.6). From 1990-1992 to 1999-2001, Nicaragua more that doubled its
production of beans5 (171%). As a result, Nicaragua’s share of regional bean production
increased dramatically from 17% in 1990-1992 to 41% in 1999-2001. Similarly, in El
Salvador bean production increased by 11%, at an annual rate of 1.2%. In contrast, during

the 1990s bean production declined in Costa Rica (-52%), Guatemala (-18%), and

Honduras (-21%) (Table 2.10).

 

5 While Nicaragua mainly produces small red beans, currently, it is also producing black beans for the

Costa Rican market.

28

 

Figure 2.6 Trends in Bean Production, Central America, 1990-2001

 

 

200

1,000 MT

 

 

 

 

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

-A- Costa Rica —l-- El Salvador + Guatemah + Honduras -*- Nicaragua

 

 

 

Source: Based on data obtained from Costa Rica: (Mercanet, 2003); El Salvador:
(MAG, 2001); Guatemala: (UPIE, 2002); Honduras: (Cotty et al., 2002); Nicaragua:
(BCN, 2003)

Table 2.10 Trends in Bean Production, Central America, 1990-2001.

 

 

 

 

 

 

 

 

 

 

 

 

C0101”? Average " Change
I 990 -1992 1999-2001 Annual b Total
Costa Rica 34.38 16.45 -7.9% -52%
El Salvador 60.62 67.63 1.22% l 1.6%
Guatemala 106.67 87.36 -2.2% -18%
Honduras 73 .65 58.05 -2.6% -21%
Nicaragua 58.03 157.45 11.7% 171%
Central America 333.36 386.94 1.7% 16%

 

 

 

‘ Average production in 1000 Metric Tons

b To calculate annual change it was considered beginning period the average 1990-1992,
the ending period the average 1999-2001, and annual rate of growth over the 9-year
period.

Source: Based on data obtained from Costa Rica: (Mercanet, 2003); El Salvador:
(MAG, 2001); Guatemala: (UPIE, 2002); Honduras: (Cotty et al., 2002); Nicaragua:
(BCN, 2003)

29

Bean production is highly dependent on weather conditions. In Honduras, bean
production has been especially variable, due to the fact that in the 19905 Honduras was
hit by numerous disasters (e. g. hurricanes, droughts). Consequently, according to the
projections of the National Basic Grains Survey (2000), it will be difficult for Honduras
to regain its high level of production in the near future (INE, 2002). On the other hand,
bean production in Nicaragua showed a high increase in production, especially after

1997, presumably for the incentive to supply neighboring countries, such as Costa Rica.
2.2.4.3 Trends in Yields

Yields in Central American countries are relatively low (regional average 0.727
mt/ha) compared to the US, Canada, and Argentina where yields average 1.8 to 2 mt/ha.
Various conditions affect productivity, including climatic conditions and poor farmers’
limited use of inputs such as fertilizer and improved seed varieties.

Over the past decade, for the region as a whole, yields6 increased at an annual rate
of 0.5%, up from 694 kg/ha in 1990-92 to 727 kg/ha in 1999-2001 (Table 2.11). In 1999-
2001, yields were highest in El Salvador (877 kg/ha), followed by Nicaragua (746 kg/ha),
Honduras (739 kg/ha), Guatemala (689 kg/ha), and Costa Rica (583 kg/ha). During the
decade, yields increased most rapidly in Nicaragua (2.8%) annually, followed by Costa
Rica (1.2%) and El Salvador (0.6%). In contrast, yields declined in Guatemala (-1.2%)

and Honduras (-0.3%).

 

6 Yields represent the mean of national average.

30

Table 2.11 Average Trend in Dry Bean Yield from 1990-1992 to 1999-2001

 

 

 

 

 

 

 

 

Central America.
Avera e " Chan e
com” 1990 -92 7999-2001 Annual” 8 Total
Costa Rica 526 583 1.2% 10.8%
El Salvador 834 877 0.6% 5.1%
Guatemala 770 689 -1.2% -10.5%
Honduras 756 739 -0.3% -2.2%
Nicaragg 583 746 2.8% 27.9%
Central America 694 727 0.5% 4.7%

 

 

 

 

 

 

 

‘ yield Kg/Ha.
b To calculate annual change see table 2.9
Source: Calculated from tables 2.3 and 2.4

During the 1990s, yields in Central America greatly fluctuated from year-to-year
(Figure 2.7). In most years, yields in El Salvador were higher than the regional average7
while yields in Costa Rica were consistently below the region’s average yield. In

contrast, yields in Honduras were the most variable, compared to the region’s annual

average.

Figure 2.7 Yield Index, Central America, 1990-2001

 

 

 

 

 

 

 

 

 

1.50

1.00

5

1,

.5

0.50.....4.4.4+........,.
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

—9—Costa Rica +El Salvador +Guatemala +Honduras +Nicaragua

 

‘ Yield index calculated for each year. Mean regional yield over 1990-2001=1.0
Source: Based on table 2.11

 

7 Figure 2.7 presents the yield index, calculated by dividing each country’s yield by the average yield in
Central America for the respected years.

31

2.3 Research, Adoption of Improved Bean Varieties, and Government Support for

Bean Production

2.3.1 Research

In Central America, bean research is conducted by government institutions and
universities. Most of these institutions work closely with the Center for Tropical
Agriculture (CIAT, ), the Regional Cooperation Program of Dry Bean for Central
America, Mexico and the Caribbean (PROFRIJOL), and the Bean/Cowpea Collaborative

Research Support Project (B/C CRSP).

Since the 1980s, breeders have focused on developing varieties that are resistant
to numerous production constraints, which vary by production season and agro-
ecological zone (Table 2.12). For example, breeders have given priority to developing
varieties resistant/tolerant to bean golden yellow mosaic and “Apion” for northern
Central America (Guatemala, El Salvador, Honduras), web blight for southern Central
America (Nicaragua, Costa Rica), anthracnose and angular leaf spot for the rather cool
areas (Guatemalan High Plateau, and certain areas of Costa Rica), heat tolerance for
production in the Pacific lowlands (i.e., areas <500 m), and general problems in the

region (e. g. , common bacterial blight and rust) (Voysest, 2001).

32

Table 2.12 Bean Research Breeding Objective, Central America 1980-2002

 

 

 

 

 

 

 

 

 

 

 

Attribute Ranking
Resistant to diseases 1
Productivity (high yield) 2
Resistant to insects 3
Resistant to High Temperature 4
Early maturity 5
Quality of grain (physical appearance) 6
Resistant to drought 7

 

Source: Based on the investigation of (V iana, 2003)

In addition, for small red beans in recent years, breeders have focused on the
development of varieties with quality characteristics that consumers demand (e. g., lighted
color, small size grain). As a result, two new varieties “Amadeus” and “Carrizalito”,
developed by Zamorano, are similar in color to the color preferred by consumers (Rosas
et al., 2002). However, since they were only released in 2002, their consumer’s
acceptance is still unknown. This greater focus on color characteristic is especially
important since, according to a study funded by B/C CRSP, in the early-1990s Honduran

farmers received 16% less for red bean varieties with dark color (Martel et al. , 1994).

Despite the importance of bean breeding research, since the early 1990 there has
been a significant decline in the breeding intensity in Central America, especially with

respect to the number of breeders in national programs (Johnson et al. , 2003).

2.3.1.1 International Center for Tropical Agriculture (CIAT, )

In the mid-1970s, scientists at the International Center for Tropical Agriculture

(CIAT, ) initiated an intensive breeding program to develop new varieties that provided

33

farmers with advantages in terms of “genetic resistance to combinations of widespread
diseases, principally common bacterial blight, bean common mosaic, bean golden
mosaic, anthracnose, and angular leaf spot” (CIAT, 2001). Furthermore, CIAT has given
priority to developing varieties that produced high yields under drought and low soil
fertility (especially low phosphorus), and with early maturity to enable farmers to more

easily fit beans into their complex cropping systems.

CIAT and the national programs in Central America generally work as partners to
develop improved varieties (Johnson et al., 2003). During the past 10 years, regional
scientists have exchanged 18,444 lines (gerrnplasm). Of this total, 7,861 lines came from
CIAT and 11,433 lines were developed by regional scientist in collaboration with the
Regional Cooperation Program of Dry Bean for Central America, Mexico and the

Caribbean (PROFRIJOL).

Since 1970, Central American countries have released 28 improved beans
varieties in association with CIAT-PROFRIJOL (Johnson et al., 2003). According to
CIAT, between 1970 and 1998, these improved varieties have increased yields by
approximately 268 kg/ha, representing an increase in yields by approximately 23%.
However, this estimate appears to be inconsistent with secondary data on trends in

national average yields during the 19908.

2.3.1.2 Regional Cooperation Program of Dry Bean for Central America, Mexico

and the Caribbean.

PROFRIJOL is a scientific network that operated for more than 20 years, until it

was disbanded in 2003, with technical support from CIAT and financial support from the

34

Swiss Agency for Development and Cooperation (SDC). PROFRIJOL coordinated bean
research in Central America and the Caribbean and some extension-related initiatives

(e. g., artisan seed program). In addition to working with the national research institution

in each country, PROF RIJ OL collaborated with universities and NGOs (V iana, 1998).

PROFRIJOL provided support to national research institutions to carry out
research to develop improved varieties, evaluate the acceptability of new varieties and
integrated crop management systems, and evaluate socio-economic constraints that bean
framers face. During 1978-1997, almost all of the improved bean varieties released in

Central America contained CIAT- PROFRIJOL breeding materials (Table 2.13).

Table 2.13 CIAT-related Lines Released in Central America, 1978-1997 ’

 

 

 

 

 

 

 

 

 

 

 

Country Total Released Released thru CIA T-PROFRIJOL network
Number %

El Salvador 6 4 67

Guatemala 15 1 1 73

Honduras 3 8 100

 

 

" The term ‘CIAT-related’ refers to a variety that was release by a national program, but
had significant input from CIAT.
Source: (Viana, 1998).

2.3.1.3 The Bean/Cowpea Collaborative Research Support Project (CRSP)

The Bean Cowpea Collaborative Research Support Program (B/C CRSP),
established in 1980 with funding from USAID, supports collaborative research between
bean scientists in the US, and developing countries, and funds graduate training for

Latin American and Caribbean bean scientists.

35

Over the past 20 years, the B/C CRSP has collaborated with scientists throughout
Latin America and the Caribbean. In 2002, the Bean/Cowpea CRSP began a new five-
year grant entitled, “A Regional Partnership to Enhance Bean/Cowpea Consumption and
Production: A Value Chain Strategy”. In addition to enhancing the productivity and
quality of bean varieties, the B/C CRSP conducts research to stimulate economic grth
by the developing new market opportunities for dry bean grain and value-added products.

(CRSP, 2003)

In implementing its research, the Bean/Cowpea CRSP follows a regional
approach. Currently, the B/C CRSP funds collaborative research and training in three
Central American countries (Honduras, Costa Rica, and Nicaragua). However, research
finding are disseminated throughout the region via regional research networks and

personal contacts among scientists (Bemsten, 2002).
2.3.1.4 National Research Programs

In most Central American countries, bean research is carried out by the
government (Table 2.14). However, in some countries universities have a strong research

program, especially in Honduras and Costa Rica.

36

Table 2.14 Institutions ConductingBean Research, Central America, 2002.
Country Agency / Organization Responsible

Research and Agricultural Technology Transfer Program (PITT A
F rijol):

0 Ministry of Agriculture and Livestock. (MAG)

Costa Rica 0 University of Costa Rica (U CR)

National University (UNA)

National Council of Production (CNP)

National Seed Office (ONQ

El Salvador Agriculture and Forestry Research Center (CENTA)

 

 

 

 

Guatemala Institute for Agricultural Science and Technology (ICTA)

 

Agriculture Science and Technology Department (DICTA)

Honduras Pan American School of Agriculture (BAP)

 

Nicaragua Nicaraguan Institute for Agricultural Technology (INTA)
Source: (V iana, 1998)

 

 

 

 

In Costa Rica, the bean research is conducted under the Program of Agricultural
Research and Technology Transfer-Bean. (P177 A Frijol), which for 24 years has
coordinated research among the Ministry of Agriculture and Livestock (MAG), the
University of Costa Rica (UCR), the National University (UNA), the National Council of
Production (CNP), and the National Seed Office (ONS). While these institutions have
different bean research foci, their main objective is to increase the productivity of bean
cultivars and increase farmers’ access to certified seed in order to increase their supply of
bean for their own consumption and to generate income for the household (SEPSA, 2002,

Zalazar, 2002 .80).

In El Salvador, the National Center for Agricultural and Forestry Technology
Transfer (CENTA) is in charge of the scientific development in agriculture, forestry and

livestock . CENTA is responsible for implementing the National Basic Grain Program, in

37

which the main objective is to develop and facilitate the adoption of improved crop

varieties, including beans. (CENTA, 2003b)

In Guatemala, since the 19708 agricultural research has bean conducted mainly by
the Institute of Science and Agricultural Technology (ICTA), a semi-autonomous central
governmental-financed agency with close links to the US. Agency for International
Development (USAID, ), International Maize and Wheat Improvement Center
(CIMMYT), CIAT, PROFRIJOL, and other research and development organizations.
With respect to beans, ICTA focuses on breeding and releasing disease-resistant varieties,

as well as developing higher-yielding bean varieties (Estrada-Valle, 2001).

In Honduras, currently bean breeding is primarily conducted by the Programa de
Investigacion en Frijol in the Department of Agronomy at the Escuela Agricola Pan-
Americana (Zamorano), while the National Bean Program (DICTA) has a regulatory
mandate, and conducts some breeding activities. Zamorano has focused its breeding
efforts on identifying sources of resistance to BGYMV, a major production constraint in
Honduran valleys, and developing varieties with improved heat-tolerance, drought

tolerance and desired color characteristics (e.g. , light red) (Mather et al. , 2002)

In Nicaragua, the Nicaraguan Institute for Agricultural Technology (INTA) is
responsible for the development of foundation seed. INTA evaluates its promising lines,
promotes and disseminates its new releases among producers, and works with
cooperatives of seed producers to multiply and distribute its improved varieties to farmers

(Piccione et al., 2002).

38

During the period 1990-2002, regional research institutions have released 22
improved varieties (Table 2.15). In the specific case of red bean varieties, some of the
varieties have the same line, but with different name in each country. For example,
breeders at Zamorano (Honduras) released the line EAP 9510-77, with the name
“Amadeus-77”, the same line in El Salvador is known as “CENT A San Andres”, and in
Nicaragua as “INTA rojo”. Similarly, the line MD 30-75--also released by Zamorano in
Honduras--in Honduras is called “Tio Canela 75”, in el Salvador “CENTA Costeno”, and

in Nicaragua as “INTA Canela”.

39

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table 2.15 Improved Varieties Released in Central America, 1990-2002
Market . Year of
Country Name Class Lure release
Costa Rica Chirripo Rojo Red Dor 489 1996
Bribri Red MD 2324 1996
Guaymi Black MUS 106 1995
Maleku Red RAB 572 1995
El Salvador CENTA San Andres Red EAP 9510-77 2002
CENTA 2000 Red MD 30-75 2000
Rojo Salvadoreno 1 Red Dor 482 1997
CENTA Costeno Red Dor 585 1993
Dor 582 Red Dor 582 1993
CENTA Cuscatleco Red Dor 364 1990
Guatemala ICTA Ligero Black --- 1998
ICTA Santa Gertrudis Black Dor 446 1996
ICTA Chapina Black JU-90-4 1996
ICTA Hunapu Black CH 89-2 1996
ICTA Altense Black CH 89-10 1996
ICTA Texel Black CH 89-30 1991
Honduras Carrizalito Red EAP 9510-1 2002
Amadeus-77 Red EAP 9510-77 2002
Tio Canela 75 Red MD 30-75 1997
DICTA 113 Red DICTA 113 1996
DICTA 122 Red DICTA 122 1996
Don Silvio Red Dor 482 1993
Dorado Red Dor 364 1990
Nicaragua INT A Rojo Red EAP 9510-77 2002
INTA Cardenas Black Dor 500 2002
INTA Nueva Guinea Black Dor 390 2002
INTA Canela Red MD 30-75 2001
Dor 364 Red Dor 364 1996
Compania Red RAB 463 1996
INTA Esteli Red CM 12214-25 1990
Esteli 90A Red CNIGB 1-90 1990
Esteli 90B Red CNIGB 2-90 1990
Esteli 150 Red CNIGB 3-90 1990

 

 

 

 

 

 

Source: Based on PROFRIJOL database and personal communication with bean breeders

in each country.

40

 

2.3.2 Varietal Adoption

National bean research programs in Central America have produced a broad range
of technology and improved germplasm. Despite these successes, bean yields remain
relatively low8 due to a variety of factors including low soil fertility, hillsides cultivation,

diseases, and erratic weather conditions (e. g., frequent hurricanes, drought).

In addition, in most countries, farmer adoption of available technology is
constrained by limited access to extension, credit and weak seed multiplication and
distribution systems. For example, according to key informants, only 6% and 5% of the
bean area is planted to certified seed in Nicaragua and Guatemala, respectively. However
a much larger percent of farmers plant recycled (i.e., grain from the previous harvest)
seed of improved varieties. For example, in El Salvador, according to a 1996 study by the
Ministry of Agriculture, CENTA, and PROFRIJOL, approximately 20% of the bean area
was planted to recycled seed of improved varieties and in Honduras 45% of the bean area
in the main production areas was planted to recycled seed of improved varieties in 2000

(Mather et al., 2002)

2.3.3 Government Assistance

2.3.3.1 Seed Multiplication and Distribution

The distribution of improved seed varieties to small farmers remains a persistent
problem in Central America. This situation is critical, since farmers-adoption of
improved varieties that are resistant to biotic and abiotic stresses is key to increasing

productivity. While other purchased inputs (e. g., fertilizers, insecticides) are available in

 

8 See Table 2.11

41

rural stores, and in some instances traders provide these inputs to farmers on “credit”,

private companies seldom sell improved bean seed.

In Central America, seed multiplication and distribution is usually done by a
government institution in cooperation with universities and/or NGOs. For example, in
Costa Rica, basic seed is produced at UCR’s experimental station “Fabio Baudrit
Moreno”. Then, UCR distributes this seed to members of a farmers association
(ASOPRO), which produces certified seed under the supervision of UCR. Once the seed
is certified, it is distributed by ASOPRO’s members to other members (Araya Villalobos,
2003 .45). On the other hand, the only institution that sells certified seed directly to

farmers is the National Council of Production (CNP).

In El Salvador, scientists at the Basic Seed Unit--a technical office under
CENTA--are responsible for producing foundation seed of improved varieties and
certified seed. CENTA certifies the quality of the seed it produces and distributes it to
private seed distributors and farmers. In addition, CENTA assists farmer groups to

multiply improved varieties.

In Guatemala, ICTA produces foundation seed, which is multiplied by ICTA and
five small registered seed producers. In addition, the government has tried to promote
artisan seed production. Also, seed is distributed by NGOs, such as the “F undacion para

la Innovacion Tecnologica, A gropecuaria y F orestal” (FUNDIT).

In Honduras, Zamorano produces foundation seed, which is multiplied by
Zamorano, DICTA, and NGOs. In addition, Hondugenet (a private company) uses
certified seed to produce commercial seed. Improved bean seed is disseminated through a

variety of channels. Zamorano sells certified seed and Hondugenet sells commercial seed

42

directly to farrners--primarily large commercial farmers. In addition, various NGOs buy
certified seed from Zamorano and distribute it to participants in their projects or use it to
support the development of farmer seed banks. While DICTA supports an artisan seed
program, this program is relatively small in scale. Finally, government development
projects purchase seed from Zamorano for distribution to project participants. (Mather et

al.2002)

In Nicaragua, INTA produces foundation seed in a effort to promote technological
change in areas that have a favorable environment for bean production. In 2000, the
Ministry of Agriculture, Livestock and Forestry (MAGF OR) launched the program
“Libra x Libra ” for basic grains, which covered 124 municipalities classified as “zone of
low climatic risks”. Under this program 72,499 bean farmers received seed coupons
which enabled them to plant a total of 376 mt of certified bean seed. It is expected that
this program will enable small producers to significantly increase their yields. In regions
not covered by the program, INTA currently assists 6 cooperatives of producers to
multiply and sell certified seeds. However. the commercialization of bean seed remains
problematic, due to the limited financial capabilities of small seed producers, the limited
financial capacity of small farmers to buy certified seed, the lack of knowledge regarding
the benefits of improved varieties, and the resistance to change from the use of traditional

varieties with low yieldingg.

 

9 Personal communication with Aurelio Llano. principal bean breeder, INTA, 2002.

43

2.3.3.2 Extension Support to Bean Farmers

In some Central American countries, the government is promoting decentralized
extension services which they believe will be closer to the client, and will relax
governmental budgetary constraints (Bonnal, 2003). For example, Costa Rica,
Guatemala, and Honduras have replaced the traditional extension service with a joint
program between the'main governmental research institution and private institutions
(e. g., universities, NGO). On the other hand, El Salvador and Nicaragua have maintained

the traditional centralized extension programs.

In Costa Rica, research institutions under “PITT/1 Frijol”l0 are also in charge of
providing extension support to bean producers. For example, UCR’s experimental station
“Fabio Baudrit Moreno” works with producer associations to multiply improve varieties.
In addition, UCR also provides some marketing and management support to farmers.
This initiative has helped several farmer associations to establish agreements with
retailers to supply them with the volume and quality of beans that they demand (Araya-

Villalobos el al. , 2003).

In Guatemala, the Ministry of Agriculture (MAGA) supports extension through
the Networks for Sustainable Development (RADEAS). MAGA provides funding to
RADEAS, which distribute these resources among its member organizations who
contract with local firms for technical assistance. This new way of providing extension
support has facilitated the production and distribution of improved seed varieties,

especially to small farmers. (Estrada-Valle, 2001)

 

'0 See Table 2.8

44

In Honduras, NGOs, using primarily international resources, provide small
farmers training and other services. Several of these NGOs. have been leaders in
deve10ping innovative, farmer participatory, research and extension methodologies and
low-cost agricultural technologies. Currently, an estimated of 70 NGOs support
agricultural programs that reach about 15 percent of the country's producers (Adriance,

1997)

In El Salvador, CENTA is the main institution in charged of assisting small
producers, especially farmers dedicated to basic grains (CENTA, 2003a). CENTA
provides technical assistance in areas such as crop, water and post-harvest management,
processing and diversification of agricultural production, and environmental
conservationism. While its main office is located close to San Salvador, CENTA has 25
field offices located in different rural areas. Also, CENTA is the only public institution

that support small bean producers. However, its coverage is limited (Pleitez, 2002).

In Nicaragua, INTA is the main public institution responsible for providing
extension services. (Piccione et al., 2002). However, in the late nineties, less then 15% of
farm households made use of extension services, and only one-half of these farmers were
served by INTA. In many instances. there exists no effective linkages among scientists at
Universities, INTA and NGOs which provide extension and training (Piccione et al.,

2002)

According to Bonnal, in several countries in Latin America, with more and better
coordinated funding, private institutions have proved to effectively complement
government extension programs by serving farmers and making important contributions

to technology transfer and dissemination (Bonnal, 2003).

45

2.3.3.3 Access to Credit for Bean Production.

Throughout the region, small bean producers have difficulties obtaining
agricultural credit from “formal” financial institutions. Several characteristics make beans
unattractive for financing due to price volatility (which is greatly influenced by year-to-
year variability in production) and the risk associated with production (which is
considerably affected by hurricanes, droughts, etc). Another constraint is high transaction
costs for lenders and producers, due to the geographic dispersion of producers and the

small amount of money lent to each farmer.

Also, the requirements to get a loan are often difficult for a small producer to
meet. For example, formal lenders often require farmers to provide a land title to secure a
loan. However, in Central America a high proportion of small farmers do not own their
lands (Falck et al., 1999). For example, according to Estrada-Valle (2001) in Guatemala
around 61% of farms are cultivated by farmers who do not have land titles. Therefore,
dry bean production is most frequently financed by intermediaries. Farmers who have
received loans must sell their products to these traders, who give the farmers a discounted

price for their beans.

Finally, while commercial or public development banks do not serve the financial
needs of small farmers, a growing number of programs and projects provide credit to
small farmers. Generally, these programs also provide technical assistance and
managerial training. However, their coverage is limited, given that they focus on certain

production activities and in certain regions. (Clemens et al., 1997)

46

2.4 Bean Packaging and Processing in Central America

Activities that add value to beans in Central America include: a) cleaning and
packaging dry beans in plastic bags and b) transforming dry beans into canned, flexible
beans, powder, or frozen bean products. During fieldwork, staff of several bean
packaging/processing firms were interviewed in each country (Table 2.16). While this
study does not cover the whole bean packaging/processing industry in Central America,
data collected from the selected firms provides an overview of the current status of the

value-added industry in the region.

Key informant reported that throughout the region, the major packaging firms are
usually local business, without international links. In contrast, firms that process beans

(canned and flexible pack) have links to multinational firms in the US. and Europe.

Table 2.16 Number of Value-added Firms Interviewed, Central America, 2002.

 

 

 

 

 

 

 

 

 

 

Costa El
Activity Rica Salvador Guatemala Honduras Nicaragua Total
Bean Bagging 6 2 2 6 2 18
Bean Processing ‘ 2 2 2 1 0 7

 

 

' This category includes canned and flexible packed beans
Source: Field Research, July, 2002

2.4.1 Bean Packaging Industry

Although most consumers in Central America still buy unpackaged dry bean at
traditional markets, in urban areas consumers are increasingly demanding quality
characteristics that have created an incentive for the bean packaging industry to expand.

According to key informant in Costa Rica, there are approximately 17 packaging

47

companies located around the capital city, San Jose. Four of these firms have the biggest
market share. In El Salvador, four firms--which are located in the proximities of San
Salvador--dominated the market in terms of volume purchase (two of these firms
currently export to the U.S.”). In Guatemala, there are approximately 30 packaging firms
located in Guatemala City. In Honduras, there are approximately six bean packers, with
four large firms located in Tegucigalpalz. Nicaragua has approximately six packaging
firms that bag beans, all of which are located in Managua (Table 2.16).

Most packers in Central America have been working in the bean business for a
long time. However, prior to the early 19905 these firms only bulked beans in large bags.
Most of these firms started to add value (e. g. grade, clean) in the 19905, so this activity

can be considered relatively new.

According to interviews with vendors in central markets in the capitals of
Guatemala and Honduras and key informants in Nicaragua and El Salvador, these firms
have a long history of importing beans. However, in the early 19905 they expanded their
importing/exporting from outside the region. Typically, these firms pack beans and other

products, especially basic grains.
2.4.1.1 Brands

Packaging firms typically market two different types of brands. When a company
packs and sell their own brands it is known as a commercial brand. However, when a
firm packs for another firm, which sells the product under its label, it is called a private

label. Packaging for a retailer is growing rapidly, particularly in Costa Rica, Guatemala

 

” Managers of these two companies where interviewed in July 2002
'2 San Pedro Sula, Honduras other big urban area, was not visited.

48

and Nicaragua, where some stores only sell their private labels. In Honduras, a buying
manager for one of the stores of the supermarket chain “La Colonia” in Tegucigalpa,
reported that it has successfully implemented a private label.

Some companies packs more than one brand, which differ with respect to quality.
This practice is especially common in the case of small red beans, where light red
varieties are always considered to be first class and are more expensive. In the case of
black bean, brands are differentiated by whether or not the beans are shiny, or whether
the grain is homogenous in size. Nevertheless, according to supermarket managers,
consumers are very price sensitive. Hence, price is the most important consideration for
consumers.

During the fieldwork phase of this study, supermarkets owned by major chains in
each country were visited to document the brands that they sold. Table 2.17 presents the
numbers of private and commercial brands sold by the major supermarkets chain in the
capital of these countries. While this is not an exhaustive list, these data indicate the
number of brands sold in each country, given that bagged beans are sold almost

exclusively by specialized stores (e. g, supermarkets, auto-service shops).

49

Table 2.17 Number of Private and Commercial Labels of Bagged Beans Sold
in Major Supermarket Chains in City Capitals, Central America,

 

 

 

 

 

 

 

 

July, 2002
Private Commercial Total
Costa Rica 2 l 7 8 15
El Salvador 3 0 6 6
Guatemala 4 3 3 6
Honduras 2 0 9 9
Nicaragua 3 4 4 8
Total 14 14 30 44

 

 

 

 

 

 

 

Source: Field research, July, 2002.

The fact that private labels are growing rapidly may imply that concentration in
this sector is growing, with big companies with contracts to bag beans for major
supermarkets chain becoming dominant in the packaging sector. This is highly likely,
considering the growing consolidation of supermarkets in Central America and the
decreasing market share of sales by other types of stores (e. g., pulperias, central markets)

(Reardon et al., 2002 and Alvarado, 2002 .23)
2.4.1.2 Supply Source

The harvest season in each country determines when the packers source their
supply from local producers and when they import beans. Each country and each region
has its own harvest season. Thus, the local supply varies over the year in each Central

American country”. As a result, prices are lowest at harvest and highest just prior to the

 

'3 See Chapter 2 for a chart that shows each countries harvest season and the percentage of production in
each season

50

beginning of the next harvest. Hence, packers typically import beans during the months

when local prices are at their highest level.

In all countries, the packers interviewed reported that local intermediary, trader or
transporters were their primary suppliers. Packers also reported buying directly from
large bean framers or from producer associations. For example, in Costa Rica, a producer

”'4 is the main supplier for Hortifruti SA,

association called “Centro Agricola Cantonales
a company in charge of distribution for the supermarket chain “Central American Retail
Holdings Company” (CARI-1C0). This producer association, with 100 to 350 member
farmers who grow in different production regions, collects the harvested crop in each
region of the country and transports it to the city capital where the beans are cleaned,
graded, packed and distributed to the supermarket chain. Similarly, in Nicaragua 200

producers have formed an association which supplies a large packer, Union dc Negocios

SA (AGRONEXA).

Many bean packers in Central America also source bean from regional
intermediaries. Companies that import beans from outside the region (e.g., the US,
Argentina, Canada) rely on a network of contacts to facilitate these transactions. For
example, packers that are part of international chains have a division that looks for the
desired quality characteristics and imports directly from big farmers or exporters in the
country of origin. Usually these packers have access to the logistic required to insure that

the imported beans will meet the firms’ quality standards.

All Central American countries also have a commodity exchange. In order to

participate, there are several legal requirements that sellers must meet (e. g, firms must be

 

14 For example, Hortifruti Costa Rica buys from the Centro Agricola Cantonal of the Huertar Norte region.

51

registered, pay taxes, agreed with standards). Although an increasing volume of beans are
sold through these exchanges, these transactions account for only a small share of the
bean marketed in Central America. However, commodity markets have contributed to
establishing grade standards for bean transactions, which have been adopted by many

bean traders in Central America.

Packers reported that it is very difficult to buy directly from small farmers. Small
producers cannot provide a sufficient volume, which is a crucial requirement of these
firms. Also, ofien small farmers cannot meet packer’s quality standards (e. g., content of
foreign organic matter, insects, humidity). In the case of small red beans, packers also
require homogeneity in color, a standards that small farmers have difficulty meeting.
Finally, packers reported that lack of organization among producers is also a barrier to

trading directly with them.

While packers reported that price is the main criteria they use to decide from
where to import beans, they also consider whether importers offer the quality
characteristics demanded (e. g., color, humidity, cooking time). Sometimes, packers learn
about sources of imports from exporters from countries like the US, who visit the
packers to promote their product. In addition, some packers identify potential importing

source by visiting a country (e.g., Argentina).

Few packers reported receiving any assistance from their government or a NGO

to gain access to international markets. However, several commercial and governmental

52

intemet sites provide information about companies that want to export and import

beans”.

2.4.1.3 Contracts

In Central America contracting is not a common way to conduct business,
especially among bean traders. Contracts only work when the supplier is a legally
established firm that can be held legally responsible for failing to meet the term of the
transaction. While some farmer cooperatives and associations have arrangements to
supply beans, their structure is not sufficiently well developed to contract with packers

(e. g., weak management, free rider problem).

Most packers reported that they transact business using “informal arrangements”
(verbal communication) to negotiate the volume and quality of beans to be purchased,
while the price is finalized at delivery, after the buyer has examined the product.
Although these transactions occur without “formal” contracts, traders have a strong
incentive to meet these informal standards since the penalty for not complying with the

requirement is loosing a client in a very competitive market.

2.4.1.4 Infrastructure

Most of the bean packers in Central America are very small businesses. Typically,

these firms are located in the capital city’s central market, often in small rooms, and

 

‘5 Costa Rica: http://www.mercanet.cnp.go.cr/. El Salvador: http://www.agronegocios.gob.sv/. Guatemala:
httpz/lwww.agexpront.com/espa/directory.htm . Honduras: http://www.hondurasinfo.hn/esp/main/home.asp
Nicaragua: http://www.cetrex.com.ni/

53

almost working in the street”. However, big packers reported having two storage

facilities, one where they grade and pack beans, and another in the main production area.

Packers store beans for up to four months, after which the quality deteriorates
(e.g., cooking time increases). Also, long term storage is unprofitable for these firms,
since it would tie up their working capital. Regarding distribution, typically, packers have
their own vehicles, but large packers also contract with other companies to distribute their

products.
2.4.2 Bean Processors

Some Central American bean processors have processed food products for more
than 30 years. However, most of these companies introduced their bean processing line in
the 19905. Also in the 19905. the biggest firms entered into alliances with multinational
processors from the US. and Europe to produce and market their products in Central
America.

There are approximately 10 large canning companies in Central America”. Of
this total 7 are located in Guatemala and 3 are in Costa Rica. Guatemalan brands are the
most widely sold brands in Central American countries. Alimentos Kern de Guatemala,
with its brand “Ducal”, commands an estimated 80% market share in Guatemala (1999)
(Table 2.18). This company, a multinational jointly owned by Riviana Foods, Inc. of
Houston, Texas and Guatemalans also exports its products to the US. Mahler, a

Guatemalan company, has a 7% market share, and Agro-Industrias Lo-Zano, has a 5.1%

 

‘6 This was confirmed in Honduras and Guatemala by visiting several firms. In El Salvador and Nicaragua,
this was confirmed by key informant interviews. In Costa Rica packaging firms are more developed.

'7 These firms are considered large because of their relative prescense of their products in supermarket
shelves and because there were exporting their products at the time of the field research.

54

market share. However, key informants from supermarkets pointed out that a fourth
company, Del Monte (U .S. owned), is rapidly gaining market shares in Central America
(PRONACOM, 1999). In Costa Rica, there approximately two big processing firms
(Calderon, 2001b; Calderon, 2001a). Alimer SA, a family-own company which is
currently expanding their market share in Costa Rica and exporting to other Central
American and Caribbean countries, and “Del T ropico”, a firm part of Unilever Central
America. While in El Salvador Industrias Lya and Idustrias Garmol, two family-own
companies visited reported canning beans, they were not selling beans in main
supermarkets in San Salvador. In Honduras and Nicaragua there were not reported any

canning firm.

Table 2.18 Canning Industry Market Share, Guatemala, 1999.

 

 

 

 

 

 

 

 

 

 

 

Share in the Production Total
Firm Brand Local for the Local Production
Market Market MT
(%) (Va)
Alimentos Kern de Guatemala Ducal 80.7 86.22 5,625
Malher Sucesores y Cia. SA Malher 7 7.48 1,200
Agro Industrias LoZano Lo-Zano 5.1 5.45 278
Alimentos Maravilla SA Del Monte 0.8 0.85 44

 

Source: (PRONACOM, 1999)

In the case of the flexible pack”, only one company «Unilever Central America
with the brand “Naturas”-- produces this product. While other products, such as powder
or fiozen beans are sold in some Central American countries, they were not studied

during the field phase of this research because they are not widely consumed.

 

" See footnote 3 for definition of flexible pack.

55

The region’s main processing firms have international links with European (e. g.,
United Kingdom and the Netherlands) and US. multinational firms (Table 2.19). Two
processors, Empaques Agroindustriales and Empresas Integradas, can beans for the
supermarket chain CARHCO, which is a jointly owned by Guatemalans, Costa Ricans
and the Royal Ahold, Inc., based in the Netherlands. In addition, Conservas del Valle and
Alimentos Naturas, are both owned by Unilever, Inc. Finally, Alimentos Maravilla and

Alimentos Kern de Guatemala have links with US. companies.

Table 2.19 Bean Processors Located in Central America by Country of Origin and
International Links, Central America, 2002

 

 

 

 

 

 

 

 

 

 

 

 

Name of Processor Country of Brand International Lrnk
Orlgtn Name Company Country
Conservas del Valle Costa Rica Cinta Azul Unilever UK/Netherlands
Alimentos Maravilla Guatemala Del Monte 12:1 Monte FOOdS U.S.
. . Guatemala! Guatemala/Costa
Empaques Agrorndustrrales Costa Rica Sabemas CARHCO Ric a/Netherlan dst
. Guatemala/Costa
Empresas Integradas Guatemala Suh CARHCO Ri ,1 1e therlan dSl
Alimentos Kern de Guatemala Guatemala Ducal Riviana Foods Inc. US.
Alimentos Natura Honduras Naturas Unilever UK/Netherlands

 

 

 

Source: Data collected from main supermarkets during the field research. July 2002

2.4.2.1 Brands

While most bean-processing firms have their own commercial brand, some of
these firms have introduced canning for other companies as a new activity. For example,
in Guatemala two companies currently can for CARHCO and for exports to the US.

market. Also, in Costa Rica and El Salvador, two processors can private labels.

56

2.4.2.2 Supply Source

Processors’ main suppliers depend on the market class of bean. For black beans,
processors’ main source is the U.S.--due to price and transaction cost considerations. For
example, processors interviewed in Guatemala and Costa Rica agreed that it is easy to
engage in business with US. shippers. First, processors place their order, the US. shipper
delivers the product in 20 cubic feet containers, and guarantees the quality characteristics

demanded. However, when processors source locally, they buy from an intermediary.

For small red beans, processors also consider quality characteristics. Although the
product is to be processed, interviewees reported that there are still certain characteristics
that need to be satisfied (e. g., cooking time, humidity, dirty, price, and color). Also,

processors always prefer red beans that are homogeneous in color.

According to processors, the main supply problems in Central America are
insufficient production and that the supply is highly variable over the year, which is
aggravated for the fact that production is still artisan (i. e., difficult to engage in
contracted business). In addition, inadequate storage facilities conditions at the farm and
intermediary levels affects the freshness of beans. Consequently, cooking time is longer,
which increases processing costs. Also, the lack of a good grading systems complicates
bean trade. Finally, the uncertainty with respect to prices when dealing with regional or

local intermediaries make importing beans more attractive to processing firms.

2.4.2.3 Contracts

Processors utilize contracts when purchasing beans from US. suppliers and some

producer organizations in the region. However, contract are not used when purchasing

57

from local producers. According to some processors, trading firms must be willing to
establish both quality characteristics and prices when the contract is negotiated. However,

many producers are unwilling to agree to a price prior to delivery.

In some instances, companies have tried to provide inputs and credit to growers in
order to secure a reliable supply of beans. However, these efforts have been unsuccessful.
According to key informants in Guatemala and Honduras, firms need to contract beans at
a fixed price, but producers are not legally required to sell their production to the
contracting firm (even though it has provided inputs). Thus, if offered a better price,
producers sell to intermediaries. However, it may be a good deal to know bean prices in

advance, information with respect to price offered by processing firms was not obtained.

2.4.2.4 Infrastructure

Most of the processing firms interviewed, reported having two facilities, one
where they clean, grade and process beans and another building for storage. In addition,
some big firms have a bulk storage facility (for dry bean grain) in the main production
region of the country.

Regarding productivity of processing firms, it is relatively high. However,
managers in Costa Rica and El Salvador reported that they were behind in capacity
utilized, compared to Guatemala, where the industry is concentrated, and processing

firms operate at 30% to 70% of their total capacity (PRONACOM, 1999).

Most big processing firms have a specific division that is responsible for finding

the right product, locally, regionally or from outside Central America. Also, their

58

marketing department is in charge of distributing their processed beans throughout the

region.
2.4.3 Quality Standards in the Dry Bean Industry.

Grade standards provide the structure necessary for transactions, by defining
commodities and differentiating goods, providing means of transferring information, and
specifying the terms of a transaction. Two factors establish the existence of standards,
first the necessity of sorting and classifying goods, and second, the need to communicate

information about the characteristics of a specific product (Stems et al. , 2002).

Since the ratification of the Central American General Treaty of Integration
(19705), Central America and Panama have tried to agree on a grade standard for basic
grains. However, since these norms were initially established as rules for commercial
operations between national marketing institutions, only parastatals were obligated to
follow them. Subsequently, the Central American Office of Economic Integration
(SIECA) wrote the “Central American Unified Classification Norms for Basic Grains”
(Normas Uniformes Centroamericanas de CIasificacio'n Comercial de 105 Granos
Bdsicos), standards which were approved by the Coordination Committee for Marketing
and Prices (CCMEP) in April 1988. However, these norms were developed without

information from the demand side (consumers) (Lizarazo, 1997).

With the creation of commodity markets (private organizations) in Central
America, the focus shifted to establishing norms that could facilitate business between
brokers. The objective was to create a common quality standards for all Central American

countries. The private sector’s most important achievement has been that brokers now

59

acknowledge a systematized body of rules that defines what are considered to be defects,
and carries out analyses using the same methods, analytical proportions, assays
methodologies, and laboratory equipment. Thus, at least at the commodity market level,
there exist standards which are similar to the US. dry bean standards, and those prepared
by the Center for Technical Research of Grain and Seed, Zamorano, with FAO technical

support (Lizarazo, 2003).

However, Costa Rica is the only Central American country where the grade
standard for beans is legally enforceable. In 1999, Decree Number 29557 established the
minimum quality standards for all transactions related to dry beans (Table 2.20). The
most important quality characteristic is cooking time. Since supermarkets usually sell
beans that are only grade 1, packers tend to only buy this grade of beans. Other
characteristics that bean traders must meet include characteristics related to humidity,

color contrasting, and broken and half beans (Table 2.21).

Table 2.20 Beans Grade Standards, Costa Rica, 2002.

 

 

 

 

 

 

 

 

 

 

 

 

 

Maximum Tolerance
Characteristic Grade

. 1 , 2

umidity (%) 15 (a1) 15 (i1)
Cooking time (Minutes) 90 (+5%) 120 (+5%)
Impurity ‘ 0.5 2
Contrasting grain ‘ 1 3
Damagggrain (total) ' 1 3
Broken grain ‘ 0.5 0.75
ilalf grain ‘ 0.5 3
Insect infested ‘ not acceptable not acceptable
Other grains ‘ 0 0.5

 

 

 

 

' Maximum tolerance as a percent of mass.
Source: Decree 29557 — Costa Rica.

60

Table 2.21 Beans Grade Standards, Central America, 2002 a

 

 

 

 

 

 

 

 

 

 

 

Maximum Tolerance
Grade 1
Characteristics El Salvador Guatemala Nicarggua

Humidity (%) 13 -14 12 -14 13 - 14
Impurity (%) 0.5 1 1
Broken and half grain (%) 0.5 1 1
Damaged grain (%) 1 4
Grain damaged by insects (%) 1
Cooking time (MIN) 90 90

 

 

 

 

’ The information with respect to quality characteristics in Honduras was not available

during the field research.
Source: BOLPROE El Salvador, BAGSA Nicaragua, BOLPROMER Guatemala

In other Central American countries, although the standards which were set up
either by the commodity exchange market or by private firms are not legally enforceable,
they are used by major firms. For example, in Nicaragua, the firm Hortifi'uti Nicaragua
SA has adopted the IICA standards for its basic grains transaction. In El Salvador, the
commodity market (Bolsa de Productos Agropecuarios. BOLPROE) gives brokers the
grade specification for dry beans that are demanded for an specific transaction (IICA,
1994). While grade standards vary from country-to-country, with respect to the maximum
for impurities (Table 2.21), all countries agree on ‘maximum cooking time’ and the

maximum percentage of humidity (14%).

In the case of the processing industry (e. g., canning), the standards, which they
have adopted for buying their products, are similar with respect to the whole grain
standards (Table 2.22). In fact, the Guatemalan dry bean grades and standards are
followed throughout Central America’s processing sector, since Guatemala is the country

with the main processing firms in the region.

61

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table 2.22 Bean Processing Industry Quality Standards, Guatemala, 1999 a.
Characteristics Tolerance
Aspect
Size Uniform in the range of 9-12 mm.
Whole ' clean, free of hmnidi , color black
Appearance 8mm, uniform 0’
Analysis
Color. Black
Odor. Characteristic
Taste Characteristic
Impurity Free of Impurities
Humidity % 12% to 14 %.
Size 9 mm — 12 mm.
Cooking Time Max. 1.5 Hrs.
Classification % 90% Min. of good dry bean
Primary package Plastic Bag with approximate weigh of 100 pounds

 

 

 

‘ Black bean quality standards established by the dry bean processing industry for

purchasing local bean.
Source: Based on (PRONACOM, 1999)

2.5 Domestic Bean Marketing Channels

2.5.1 Bean Marketing Participants

Bean marketing channels are similar among Central American countries (Figure
2.8). Marketing begins with the producers--usually small-scale farmers who sell their
surplus after each harvest. Farmers sell their production either in the rural retail system
(e. g., “ferias”, open market, rural stores), or to intermediaries. Once beans arrive at urban

markets, they are marketed through the food retailer system, which can be classified into

four groups (Reardon et al. , 2002):

1) small full-service stores (comer store, ‘

2) traditional markets (central markets);

62

‘pulperias”);

 

3) small self-service stores (smaller than supermarkets); and
4) Supermarkets, either independent stores or chains.

In the past, consumers largely purchased beans from traditional markets or small
full-service stores. However, small self-service stores and supermarkets are becoming an

increasingly important players in the bean market.

63

Figure 2.7 Dry Bean Marketing Channel, Central America.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dry Bean Producers
l V L
Rural Market, Intermediaries Producer’s
“Feria”, Rural Associations
Supermarket
. l.
Wholesalers Non-traditional
Intermediaries
l l l v
Food Processors Packaging
; Firms
> Distributors
v i i i i v
Exports Traditional Traditional Supermarkets
Market Market
Vendors Vendors

 

 

 

 

 

 

Source: Field research, July 200219

 

'9 This diagram is based on previous works by Estrada-Valle for Guatemala, Martel for Honduras,
information presented at the Conference on Regional Commercialization of Agricultural Products in El
Salvador, and continued by field work carried for this study.

Espinoza, N. 1999, ' nfonne del Taller. Conclusion Etapa ', in Estudio Regional sabre Comercializacion
de Productos Agricolas en America Central, Proyecto Lempira Sur. GCP/02 1/NET/ HON, San Salvador,

El Salvador.)

64

2.5.1 Intermediaries

Intermediaries can be classify into three groups: a) the traditional intermediary,
who buys beans from producers and then sell them to wholesalers or processors, b) the
non-traditional intermediary (Alvarado et al., 2002), characterized by their commitment
to satisfy the demand of supermarkets chains or other big retailers, and who are linked to
supermarket chains, and c) the broker, who works directly with the commodity exchange

market.

Traditional intermediaries play a key role in marketing beans. First, they are the
main supply source for processors and packers. According to key informants, the
intermediary enters isolated areas to gather production, and has facilities to storage
production. Some intermediaries have their own retail store where they provide producers
with inputs (e.g., seed, herbicides). In some situations, they provide financial assistance
to producers when they are not able to get credit from the banking system, and cash
advance for bean production in these countries. However, intermediaries are not always
reliable in term of quality delivered (e.g.. clean, homogenous product). Generally, the
traditional intermediary does not require the farmer to grade or clean the product. This is
an advantage to the trader, since it allows him to pay the farmer a lower price. However,
intermediaries grade beans before selling to processors and packers, which allow them to
obtain better prices.

The non-traditional intermediary is represented by the procurement office of

either supermarket chains or big processing firms. These units, typically a division of

 

Espinoza, N. 1999, 'lnfonne del Taller. Conclusion Etapa I‘, in Estudio Regional sobre Comerciall‘zacion
de Productos A gricolas en America Central, Proyecto Lempira Sur. GCP/OZl/NET/ HON, San Salvador,
El Salvador.)

65

either a national or international chain, work closely with retailers to assure a sufficient,
high quality, and constant supply of beans during the year. In addition, these units are in
charge of importing beans for the chain. In most cases, they establish a quality standard

for the product that coincides with the standard of the retail chain.

The growing consolidation of the retail system in Central America has driven the
success of these non-traditional intermediaries. Several studies with respect to the retail
sector in Latin America (Reardon et al., 2002) and Costa Rica (Alvarado et al, 2002),
suggest that this new way of marketing bean may dominate the market in the near future.
While the consolidation of supermarket chains has been mostly observed in urban areas,
in rural Central America, where 20 to 35% of food sales are controlled by supermarkets
(Vorley et al., 2002), these supermarkets are mainly independent stores owned by

traditional intermediaries.

2.5.2 Wholesalers

Wholesalers buy production from traditional intermediaries and distribute beans
to smaller stores, or other distributors in the central market. Traditional wholesaler sell
beans by kilo or pound, sometimes without prior cleaning or grading. However, some
wholesalers add value to beans by cleaning, grading and bagging the product to get better

prices from their buyers.

Among the wholesalers, the non-traditional intermediaries are playing an
increasingly important role, since non-traditional intermediaries are the wholesalers for
supermarkets and other retail stores. On behalf of the supermarket, they procure beans

directly from farmers, farmers associations (e.g., Centro Agricola Cantonales in Costa

66

Rica) or other intermediaries, and distribute beans to supermarkets or other smaller

retailers.

Major supermarket managers in Central American capitals confirmed that with
respect to bean and basic grains, the tendency is to engage in business with non-
traditional intermediaries. During the field phase of this research, supermarket managers
estimated that supermarkets obtained about one-half of packed beans from traditional

wholesalers, and one-half from the procurement office of the supermarket.
2.5.3 Bean Packers

In urban areas, bean packers purchase beans from intermediaries and clean, grade,
pack, and redistribute to supermarkets, market vendors, small stores (e.g., pulperias) and
sometimes to hotel and restaurants. Increasingly, packers are bagging beans for
supermarkets chains, which tend to sell their own private label.

According to manager of packaging firm interviewed, the growing consolidation
of retailers has affected them in several ways. First, supermarkets are becoming important
buyers in the food system. This characteristic gives them power to decide payment terms
(e. g, it takes between 30 to 45 days for a packer to get paid by a supermarket). Second,
since packers do not contract with retailers, if the supermarket does not sell their product,
they have the right to remove bean products from the shelf and charge the cost to the
packer. Third, the cost of entry to sell beans in supermarkets is high. Supermarkets
require vendors to pay a fee to secure shelf space, expect them to promote their bean
products, and superrnarket’s payment for product supplied are often delayed. During the

research, it was found that some packers interviewed were unable to sell in supermarkets,

67

so their only alternative was to sell bean to small stores (pulperias), to hotels and

restaurants or in other cities besides the capital city.

On the other hand, there are advantages to selling to supermarkets. The volume
traded is high and the cash flow is faster (i. e. the product moves faster in the supermarket
shelf). Moreover, companies that pack for supermarkets usually sell a large volume for
which they are paid a percentage commission and gain access to shelf space in the
supermarket. Data collected on bean sold in major supermarkets in Central America
indicated that approximately 30% of packed beans were sold as private brands and 70%

were sold as commercial brands.

2.5.4 Bean Processors

In Central America, approximately 15 firms process bean into different products
(e.g., refried beans, powder). Of this number, 10 firms are the main processing firms and
are located in Guatemala (7), followed by Costa Rica (2), and Honduras (1). The biggest
processors are multinationals, which produce mainly canned beans and usually sell their
products through supermarkets in Central America, although some firms export to the
US. (Table 2.23).

While the introduction of supermarkets” private label for canned beans has
affected the processing industry, since Central American consumers have a relatively
strong brand preference, the relative impact of new competition has been less critical for
brands already positioned and with widespread acceptance in the market (e. g. Naturas, or

Del Monte which are highly demanded brands). Moreover, in order to maintain their

68

share in the market, established firms have introduced new products (e. g. beans with

sausage, beans with vegetables) that are accepted by consumers in Central America.

Table 2.23 Bean Processors, by Country of Origin and International Link, Central

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

America, July 2002 a
Product
Processor Presentation International Link

osta Rica
Alimer can No International link
Conservas del Valle SA can Unilever UK/Netherlands
Industrias Sanso SA can 0 International link
[El Salvador
Grupo Coscafe wder No International link
Garmol can No International link
Industrias LYA SA can No International link
lGuatemala
Agroindustrias Lozano SA can No International link
Alisa de Guatemala can No International link
Alimentos Maravilla can Del Monte USA
Empaques Agroindustriales can CARHCO

alher Sucerores y CIA ban No International link
Empacadora Toledo can No International link
Empresas Integradas can CARHCO
Alimentos Kern de Guatemala can [Ducal USA

onduras

limentos Natura Iflexible pack [Unilever UK/Netherlands

 

' The list represent products that are produced in Central America and are sold in main
supermarkets in each city capital. While it is not an exhaustive list, it includes the main locally-
produced value-added products sold in these countries. In addition, supermarkets sell imported
brands.
Source: Key informant interviews, July, 2002.

In contrast, the prospect for increasing sales via exports is less promising.
Processors interviewed in Central America said that it is difficult to export to the US,
Canada and Europe. Since there are already a large number of brands in the market in

these countries, these branded products impose high barriers to entry for products fi'om

Central America. On the other hand, in certain places like New Jersey, Southern

69

California, Miami, Chicago where there is a large concentration of Hispanics and the
preference for beans from Central America is strong, there exists a market niche to sell

processed bean products (Batres-Marquez et al. , 2001)

According to processors interviewed, the main obstacle to increasing sales in the
Central American market is the consumers’ preferences. Central Americans do not
usually buy canned or processed bean and these products are more expensive that bagged
beanszo. However, changes in demographic (e. g., working women have less time for
cooking), increased income, and economies of scale of big processing firms (i.e.,
reduction of prices) will (in the long run) increase the demand for processed bean

products.
2.5.5 Supermarkets

In Central America, consumers have traditionally bought dry beans at central
markets and at “pulperias”. However, since the mid-19905 the supermarkets’ share in the
food retail system has grown rapidly, as supermarkets have focused on consolidating
their supply chain and they developing ways to use information about consumers (e.g.
quality characteristics of beans) to identify strategies for marketing bean products and to

increase their market power.

Reardon et al. reported that supermarkets’ share of the retail food sales ranges
from 75% in Costa Rica, 37% in El Salvador, 35% in Guatemala, 42% in Honduras, and
15-20% in Nicaragua (Reardon et al., 2002). While this study did not specifically analyze

bean sales, it is likely that with the raise of supermarkets in Central America, the way

 

20 Chapter 3, Table 3.2 and 3.3

70

consumers buy beans, and how supermarkets procure their supplies is changing and will

continue to change in the future.

In order to increase sales to middle and lower income consumers, supermarkets
recognize the necessity to reduce the cost of some basic foods for these consumers, who
account for the majority of the region’s population. In order to do so, supermarkets have
introduced their own “private labels”. This strategy has not only helped supermarkets to
increase the number of consumers buying their product, but has also differentiated
supermarkets from their closer competitors and introduced a new way to interact with

their suppliers (Alvarado et al., 2002).

According to Alvarado, the advantage of having a private label is to reduce
marketing and advertising costs, which can lower the price of beans, and increase sales.
According to the data collected from the major supermarkets in each capital city, the
price of private labels are 5% to 12% cheaper than commercial brands. Given that beans

are a staple and thus, a very price sensitive product, this represents a big differential.

Furthermore, when many value-added firms (e. g., packers and processors) saw a
decline in the sales of their own brands, they become “maquiladoras”21 of the
supermarkets--since the volume that big retailers sell in their stores is an incentive to
engage in business with these chains. For example, in Honduras, one bean packer
commented that before contracting to pack for a major supermarket chain, his firm would

sell around 4.6 mt per month, but this volume increased to 104 mt a month in four years.

 

2' Maquiladora comes from the Spanish word maquilar meaning to perform a task for another company.

71

2.5.2 Future Evolution of the Bean Market Channel

In Central America, intermediaries and wholesalers are still major players in the
marketing channel for beans, and many consumers still purchase beans in the central
market and small store. However, the rapidly growth and concentration in the retail

system are influencing how beans are sold and where consumers buy beans.

In 1999, Gereffi defined the commodity chain framework as the range of
activities that involves the design, production and marketing of a product. It distinguishes
two distinct types of economic networks: “producer-driven” and “buyer-driven”
commodity chains (Gereffi, 1999). In 2002, Sheldon et al. adapted that theory to the food

marketing channel.

Producer-driven chains are those in which large, usually trans-national,
manufacturers play the central roles in coordinating production networks. The buyer-
driven chains are those in which large retailers increasingly play a leading part in the
marketing chain. An important characteristic of the buyer-driven chain is the retailer’s
understanding of consumer’s demand, in terms of quality and prices. The management of
these firms is also distinguished by the control that retailers have at the point of
marketing and their coordination with suppliers up-stream to source commodities
(Gereffi, 1999). This framework principally identifies the existence of a vertically-
relationship among actors in the marketing channel, which implies that traditional access
to commodity markets will increasingly be more contractual and thus, less accessible to
small-scale suppliers. Also, the commodity chain framework suggests that changes in

relative prices will not necessarily solve the access problem for small bean producers.

72

Basically, the commodity chain framework provides insights to what should be
expected to occur in the medium or short run whit respect to some marketing channels,
and especially the food marketing channel. In the future, food traders and producers will
need to develop both formal and informal contacts with firms in the vertical chain in
order to gain access to the retail stage of the food chain. Moreover, they will need to
identify the quality requirements for meeting the demands of retail buyers (Sheldon et al. ,

2003)

2.6 Regional Trend in Dry Beans Imports and Exports

2.6.1 Dry Bean Imports

2.6.1.1 Volume of Bean Imports

In recent years, the region has become increasingly dependent on bean imports to
meet consumer demands. During 1994-1996 to 1999-2001 period, the region’s annual
rate of growth in imports averaged 18% per annun, with a total increase of 127% (Table
2.24). In terms of volume, the region’s imports increased from an annual average of
22,293 rnt to 50,586 mt. However, the import trend varied greatly from country-to-
country. During the period, Guatemala’s bean imports increased at an annual rate of 28%,

followed by Costa Rica (24%), Nicaragua (16%), El Salvador (15%) and Honduras (9%).

73

Table 2.24 Trends in Dry Bean Injiorts, Central America 1994-2001.

 

 

 

 

 

 

 

 

 

Country Annual Average 8 b Change Supply

1994 4996 1999-2001 Annual Total Equivalent ‘
Costa Rica 8,786 25,372 24% 189%] 61 .4%
El Salvador 7,284 14,928 15% 105%] 18.8%
Guatemala 1,428 4,849 28% 240%L 5.5%
Honduras 1 ,91 8 2,966 9% 55%] 5.9%
Nicaraga 2,877 5,953 16% 107%] 4.0%
Central America 22,293 50,586 18% 127% 1 1.7%

 

 

 

 

 

 

 

 

a Metric tons.
b The data that Central American countries provide to SEC do not include trade generated

by assembler activities (i. e., bean imports in sacks rather than containers) because such
data were not reported by Guatemala, Honduras and Nicaragua.

° Imports as a proportion of total bean supply in the period 1999-2001.
Source: Based on information from (SIECA, 2003)

Similarly, bean imports as a share of national supplied varied among countries. In
the period 1999-2001, in Costa Rica bean imports represented 61.4% of internal bean
supplyzz, followed by El Salvador (18.8%), Guatemala (5.5%), Honduras (5.9%) and
Nicaragua (4%) (Figure 2.9).

In the same period, Costa Rica accounted for almost one-half (48%) of the
region’s total annual imports, followed by El Salvador (27%), Nicaragua (11%),
Guatemala (9%), and Honduras (5%) (Figure 2.10). Key informants reported that natural
Iirnitations (e. g., poor soil quality for growing beans in Costa Rica, shortage of land in El
Salvador) contributed to making Costa Rica and El Salvador net importers. In contrast,
while Honduras and Nicaragua are the main bean producers in the region, due to weather

conditions (e. g., hurricane Mitch in 1998, and severe drought in 2000) shortage in

production has forced them to periodically import.

 

22 The internal bean supply for the period 1999-2001was calculated using the total production plus imports
minus exports.

74

Figure 2.9 Average Share of Imports in Bean Supply, Central America, 1999-2001.

 

 

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%

0%

 

Costa Rica El Salvador Guatemala Honduras Nicaragua ]

glmpprti W. 13 Production 1

 

Source: Based on information from (SIECA, 2003)

Figure 2.10 Share of Annual Bean Imports, Central America, 1999-2001.

 

Honduras Nicaragua
Guatemala _ 5% 1 1%

9%

  

El Salvador ’1 I
28%

Costa Rica
47%

 

Source: Based on information from (SIECA, 2003)

75

2.6.1.2 Source of Bean Imports

The source of bean imports primarily depends on the availability of the desired
market class and the price. In 2001, Costa Rica sourced beans from Argentina (39%),
Nicaragua (22%), Guatemala (19%),and the US. (13%); El Salvador sourced mainly
from Nicaragua (62%), and Honduras (32%); Guatemala sourced from the US. (59%)
and Canada (39%); Honduras sourced 99% of its imports primarily from Nicaragua; and

Nicaragua sourced 94% of its bean imports from the US. (Table 2.25).

Table 2.25 Source of Beans by Country of Origin, Central America, 2001 '

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

C2223; 0f Costa Rica El Salvador Guatemala Honduras Nicaragua
Costa Rica N/A 1.9%] -- <1 %1 --
Guatemala 188% 4.6%] N/A - -~
Honduras 1.5%] 31.5%] -- N/ --
Nicaragua 22.2%] 61 .6%l -4 98.8‘V N/A
Argentina 38.8%] -- 2.3%] -- 2.6%]
Canada 5.9%] -- 38.8%] <1%. 3.8%]
United States 12.9%] <1%] 58.9%] <1%] 93.6%]

 

' Percentage of total import volume for year 2001.
Source: Based on data from (SIECA, 2003)

Most Central American countries tend to source from within the region. However,
the availability of cheaper beans from countries like Argentina and the US, has
influenced importers growing preference to source from these countries. Typically,
trading with the US, Argentina, and Canada begins in April, when the region’s harvest
stock reaches its lowest level, and when local prices are highest, and continues until

approximately December each year23 .

 

2’ Argentina’s main harvest season is April-July, while the harvest season in the US. and Canada is during
September-October.

76

In order to reduce the rate of growth in imports from outside the region, Central
American countries have imposed import tariffs on beans (i.e., average 30% in the
region) sourced from outside the region. However, key informants reported that this
measure has not accomplished its objective of reducing imports and promoting
production in the region. According to importers interviewed, beans are mainly imported
when there are shortages in production in the region. Thus, the tariff affects mainly

consumers, who have to pay more for bean grain and value-added products.
2.6.2 Dry Bean Exports
2.6.2.1 Volume of Dry Bean Exports

Despite annual deficit in the bean supply, Central American countries export
within the region and to niche markets in developed countries (CORECA, 1999b). During
the period 1994-1996, the region exported 6,293 mt annually. Over the period 1994-96 to
1999-2001 Central America’s bean exports decreased at an average annual rate of -0.5%,
representing a total change of -3% (6,138 mt). However, trends in exports varied greatly
by country. During the same period, Honduras and Guatemala showed the greatest
increased in bean exports at an annual rate of 54% and 52%, respectively. In contrast,
Costa Rica decreased its annual export by -46%, representing a total change of -2,038%
(Table 2.26). By the end of the decade, the region’s main exporters were Nicaragua
(42%) and Honduras (35%). However, Guatemala (11%), El Salvador (10%), and Costa

Rica (2%)24 also exported limited quantities of beans (Figure 2.11).

 

2’ According to key informants, Costa Rica re-exports its excess supply from imports to countries in the
region.

77

Table 2.26 Bean Central 1994-2001

   
  

       

Share of
COM"? 1994 -1996

1.1
3

Central America
a in ons.
Source: Based on data from (SIECA, 2003)

 

Figure 2.11 Average Share of Bean Exports, Central America, 1999-2001

Costa Rica_ El Salvador

2% 10% Guatemala

Nicaragua 1‘!

0
42 A, Honduras

35%

 

Source: Based on data from (SIECA, 2003)

Key informants reported that many times exports and imports to neighboring
countries are often not reported. Hence, these data are not included in official statistics
database. This information was confirmed during the field work by visiting Guatemala’s
central market, where traders were selling beans from southern Mexico (e.g., Chiapas).
Also in Honduras, key informants reported that some producers (e. g., the department of

Lempira) sell production directly to El Salvador without going through customs. This

78

problem of non-recorded trade may explain the apparent inconsistency between
production and import/export data. For example, Honduras and Nicaragua export data do
not coincide with production patterns. During the period when Honduras recorded a
growing export trend, production decreased by -21%25. On the other hand, in Nicaragua,
data indicated an increasing trends in production, but a decreasing export trend (Table

2.26).
2.6.2.2 Destination of Bean Exports

In 2001, the main export destination were countries within the region. In 2001,
Costa Rica exported mainly to El Salvador (67%) and the US (33%); Guatemala to Costa
Rica (74%) and El Salvador (26%); Honduras exported mainly to El Salvador (97%); and
Nicaragua exported to El Salvador (48%), Honduras (27%) and Costa Rica (23%).

However, El Salvador’s main market was the US (87%) (Table 2.27).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Table 2.27 Destination of Beans by Country, Central America, 2001 '
15:33:33: Costa Rica El Salvador Guatemala Honduras Nicaragua
Costa Rica N/A - 74.0%] 1.4%] 23.4%.
El Salvador 67.5‘V N/A 25.9%] 96.6%] 48.2%]
Guatemala -- 10.5%] N/A 0.2%] --
Honduras -- 2.3%] -4 N/ 27.4%
Nicaragua -- 0.5%] -- 1.6%] N/A
United States 32.5%] 86.6%] <1%] <1%] <1%]
Canada -- <1°/o] -- -- <1%]

 

 

 

 

 

 

‘ Percentage of total export volume for year 2001.
Source: Based on data from (SIECA, 2003)

According to exporters interviewed, exports opporttmities have increased in

recent years due to the growing number of ethnic food restaurants in developed countries

 

2’ See Table 2.10

79

(e. g. Canada, the US. and EurOpe). For example, in the US, exporter’s main target is the
Salvadorian population, well known for having a strong preference for the small red bean
grown in Central America (Batres-Marquez et al., 2001). Key informants in El Salvador,
Honduras and Nicaragua reported that small red beans are typically exported from
Nicaragua and Honduras to El Salvador where they are packed and then shipped to the
US. Also, in Honduras, an exporter reported having a contract to provided five
containers (approximately 105 mt) a month to an American company. However, at the
time of the interview the company was already struggling to fillfill the contract.
According to key informants, exports remain low --equal only to 1.46% (Table 2.26) of
the average annual regional production in the period 1999-2001 due to insufficient

production.

80

CHAPTER III
COMPETITIVENESS OF BEAN SUBSECTOR IN CENTRAL AMERICA
3.1 Price Analysis

3.1.] Variation of Bean Prices in Central America.

The objective of analyzing price variation over the year (i.e., seasonality) and in a
period of time (i.e., trend) is to identify regularities in price behavior (Tomek et al.,
1990). Price variations observed in the region are the result of changes associated with
seasonal and irregular factors (e.g., natural disasters). While seasonal changes are
common in bean prices, price trends are the result of factors that may be related to the

competitiveness of agricultural products.
3.1.2 Bean Prices

In order to describe the trend of bean prices, nominal wholesale prices in US.
dollars were compared”. In Costa Rica and Guatemala, the relevant prices are the
wholesale prices of black beans, and in Nicaragua, Honduras and El Salvador the relevant
prices are the small red bean wholesale prices. This analysis did not require deflating
prices, since the prices were converted to a unique currency (i. e., the US. dollar) and the

objective of the analysis is to compare competitiveness among these countries.

During the six-year period (1997-2002), wholesale prices have varied by country
and market class. While bean prices in Guatemala were highly unstable, they tended to

greatly decrease after 1999, showing an increase in 2001, and finally, reaching their

 

26 For example, for each country the local wholesale price in July 1997 was converted to a US dollars
price for July 1997.

81

lowest point again by the end of 2002. In contrast, Costa Rica showed a more linear trend
in 1997, with a great increase in 1998, followed by a decreasing tendency until the first-
half of 2001, and increasing rapidly by the end of 2001 (Figure 3.1). Interestingly,
although Costa Rica imports a substantial share (60.7%) of total bean supply, wholesale

prices have been higher than any other international competitor.

Figure 3.1 Black Bean Nominal Wholesale Prices. Costa Rica and Guatemala, 1997-
2002

 

 

l .400

]
1,200 -r#~ - K

]
l 000 ,_ ,_ Qx g T 'F++ i
’ T— y" I": '+ + l
\ - +‘I’+ -
' 3*: . #031 if i
I ' ’ +1

 

 

 

USS/mt

 

 

 

 

 

 

' . rr. .VrtTItT—fi rrrrrrr
[\‘500 0005 0‘6 -- —' N
oaaaaaaaiqagcaqsa‘o
sieszeszaszsszesze
H V)" (II—0 Cl)" U)“ U)“ Cl)

l —1— Costa Rica -A- Guatemala

Source: Base on data from CORECA (CORECA, 2003)

In Honduras, Nicaragua, and El Salvador, red bean prices have varied greatly over
the period 1997-2002. Although prices have been highly volatile, wholesale prices have
tended to decline over the past five years. Much of the variation was due to natural
conditions (e. g, hurricane Mitch in 1998 and a severe drought in 2000) which caused a

shortage in bean production and an increase of regional bean prices. Furthermore,

82

following these crises donations and bean imports from outside the region poured into

these countries, causing a excess in supply and a decrease in prices. (Figure 3.2).

Figure 3.2 Red Bean Nominal Wholesale Prices, El Salvador, Honduras, and
Nicaragua, 1997-2002

 

 

 

 

1.800 .
I

] 1,600 $2 ;
1 1,400 a—— — ’
x .

\ x x ]

1,200 - ]

 

 

 

USS/mt

to x ,
1,000-é)?“ * X it; Xx x K S
l. *JW '

‘\ \ X

 

 

 

 

 

 

x
I: 800 W? \lp-xxam' xx 1
. ‘ . \
600 - - .. -f ,i, ]
i KL X? X xvi i
w 32 E 1 ]
400 - - - - . L . E
h h I‘ co oo 00 a 8 - —- — N N N I
gaitsitisiisisiisi
-<>- El Salvador -*- Honduras -X - Nicaragua

 

 

 

Source: Base on data from CORECA(CORECA, 2003)

3.1.3 Price Seasonality.

The price of agricultural products are affected by seasonality in production (e. g,
climatic seasonality, due to weather factors and the biological growth process of plants)
and seasonality in demand (e.g., factors such as holidays) (Tomek et al. , 1990). However,
seasonality in demand is not a factor that causes price variation in the region because

beans are consumed on a daily basis in Central America.

83

In each country, seasonality in production influenced the seasonal highs and
lows”. During the period 1997-2002, in Costa Rica and Guatemala, the price reached its
lowest in March, and highest in July. In contrast, in El Salvador, the seasonal low
occurred in September and the seasonal high in June. In Honduras and Nicaragua, the
seasonal low occurred in December, while the seasonal high was in June.

During the same period, the average seasonal low price ranged from USS/mt
826.22 in Costa Rica to USS 626.22 mt in Honduras, and the average seasonal high
ranged from USS 980.92 mt in El Salvador, to USS 824.28 mt in Guatemala. The
variation between seasonal high and low was greatest in El Salvador (28%), followed by

Honduras (27%), Nicaragua (19%), Guatemala (17%), and Costa Rica (7%) (Table 3.1).

Table 3.1 Beans Price Seasonality, Central America, 1997-2002

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

C Market Seasonal Low Seasonal HigL Percent
ountry . . . a . .
Class Month Price Month Price Variation
Costa Rica Black March 826.22 July 890.18 7%
Guatemala Black March 685.69 July 824.28 17%
El Salvador Red December 710.50 June 980.92 28%
Honduras Red September 626.22 July 860.89 27%
Nicaragua Red December 767.16 June 952.65 19%
' Price in USS/mt

Source: Base on data from CORECA (CORECA, 2003)

The observed seasonal price pattern was due to the fact that around 80% of the
regional production is concentrated between January to August (CORECA, 1999a). This
seasonality creates a series of problems, mainly because of the lack of storage facilities
and the cost associated with storage, which induces farmers to sell their production soon
after harvest. Thus, due to the excess supply of beans in the second half of each year,

prices decline quickly. As expected, red bean prices in El Salvador, Honduras and

 

’7 See Chapter 2 for a discussion of the seasonality in production.

84

Nicaragua, begin to decline after mid-year, and increase after September. The price
variation is especially noticeable for red beans, presumably due to the absence of good

substitutes from outside the region (Figure 3.3).

Figure 3.3 Red Beans Seasonal Price Variation, El Salvador, Honduras and
Nicaragua. 1997-2002.

 

 

i

] 1000

900 4.4—-_.-..-_~_-. _ WA
800 ~——— in ~ J‘& [A

 

 

 

 

 

 

 

 

. fix " 2.."

”E

33’

i D 700 b ‘- ~—--
600 ~----~~-— -------—~ -—---»44H—_m -.__-_ -2-__¢_- ___--_
500

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec i

--0— El Salvador + Honduras —X- Nicaragua

 

Source: Base on data from CORECA (CORECA, 2003)-M

In contrast, in Costa Rica, where the demand is mainly for black beans, good
substitutes from outside the region are available, and imports account for 61.4% of total
bean consumption, the price variation is less dramatic during the year. However, in
Guatemala, which has the same demand characteristic as Costa Rica, but imports
significantly lees quantity of beans, prices decrease from January to June, and increased

from July through August, and decline from September through March (Figure 3.4).

85

Figure 3.4 Black Beans Seasonal Price Variation, Costa Rica and Guatemala, 1997-

 

 

 

 

 

 

 

 

 

 

 

 

2002
IT F
1000 ]
I
. 900 t _‘ - g
F 800 X f‘k ]
1 E M l
.‘e. ' '\ l
‘8 700 VA/ ‘
. ]
f 600 > - ~-——- ----- J
l
500 . . A j 1

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 1

-)K- Costa Rica —I— Guatemala

Source: Base on data from CORECA (CORECA, 2003)

 

3.2.4 Marketing Margins

The marketing chain is a sequence of stages involved in transferring a product
from the farm to the consumer (Shepherd, 1993). Various factors influence marketing
margins. Sometimes an increase in marketing costs is believed to be due to an increase in
profits by traders. However, total margins greatly depend on the length of the marketing
chain and the extent to which the product is stored or processed. Also, if there is no
profits in the marketing channel for an specific product, the tendency would be for the
trader to abandon the product (Shepherd, 1993).

For the present analysis, marketing margins were estimated by comparing the
wholesale price to the central market and retail price of bagged beans sold in major
supermarkets in July, 2002. The data showed that red bean wholesale prices ranged from

USS 0.60 Kg in Nicaragua to USS 0.94 Kg in Costa Rica. The central market price (i. e.,

86

the price of raw beans with no value added) ranged from USS 0.72 Kg in Honduras to
USS 1.11 Kg in Guatemala. Retail prices, which mainly reflects value-added products
(e.g., bagged beans) ranged from USS 0.88 Kg in Nicaragua to USS 1.68 Kg in

Guatemala (Table 3.2).

Black bean prices28 ranged from USS 0.96 Kg at the wholesale level, to USS 1.07
Kg at the retail level in Costa Rica. In Guatemala, the price ranged from USS 0.88 at the

wholesale level to USS 1.31 Kg at the retail level (Table 3.3).

Table 3.2 Red Beans Marketing Margins, Central America, July, 2002

 

 

 

 

 

 

 

Wholesale " Central Market " Retail 5" I d
Country Price Price Index Price Index n%ex
USS/Kg USS/Kg % vngg %
Costa Rica 0.94 0.99 5.3% 1.07 8.8% 13.8%
El Salvador 0.71 0.83 16.9% 1.18 42.1% 66.1%
Guatemala 0.87 1.11 27.5% 1.68 51.3% 93.1%
Honduras 0.63 0.72 14.2% 1.39 93 .0% 120.6%
Nicaragua 0.60 0.74 23 .3% 0.88 18.9% 46.6%

 

 

 

 

 

 

 

 

 

Source:
' Based on prices from CORECA’ Price Information System (CORECA, 2003).

b Retail bean data form field research.
° Prices of bagged beans in major supermarkets in city capitals

Table 3.3 Black Beans Marketing Margins, Central America, July, 2002

 

 

 

 

 

 

Wholesale " Central Market ‘ Retail “c I d
Country Price Price Index Price Index nyex
USS/lg USS/Kg % USS/Kg % °
Costa Rica 0.96 1.08 12.5% 1.07 -0.9% 11.4%
Guatemala 0.88 1.08 22.7% 1.31 21.2% 48.8%

 

 

 

 

 

 

 

Source:
' Based on prices from CORECA’ Price Information System (CORECA, 2003).

b Retail bean data form field research.
° Prices of bagged beans in major supermarkets in city capitals

 

2' Black beans prices were only available for Costa Rica and Guatemala only

87

 

With the exception of Nicaragua, the greatest price difference (percentage) was
observed between the wholesale and the retail price (i.e., value-added price). In Costa
Rica, where beans are sold mainly in supermarkets and the concentration of supermarkets
is higher than in any other Central American country, the markup for red beans was 8.8%
and supermarkets sold black beans at a lower price than the central market (-0.9%). In
Guatemala, the markup for red beans was 51 .3%, and 21.2% for black beans. (Tables 3.2

and 3.4).

In the case of El Salvador, Honduras and Nicaragua, the lack of clear standards,
especially with respect to color of bean and size, and the fact that the food retail system is
not as develop as in other Central American countries, may be reflected in prices”. The
biggest difference in price was observed in Honduras, where the difference between the
central market price and the retail sector price was 93%, and between central market and
retail 120.6%. This situation may reflect the fact that the marketing channel is not well
coordinated, and that the retail sector is not as well developed in Honduras than in the
rest of Central America. An exceptional case is presented in Nicaragua--with a small
retail sector and but rapidly growing-the index between wholesale price and central
market price, and between the wholesale price and the retail price were 23.3% and 46.6%
respectively. In contrast, in El Salvador the index between wholesale prices and central
market (16.9%), and between wholesale price and retail prices (66.1%) were considerably

lower than in the Honduras. However, higher than Nicaragua. (Table 3.2).

 

29 The retail price represents the average of the red bean and light red bean. However, according to the
CORECA database, the red bean price is for ‘light red and small size beans”.

88

3.2 International Prices

The international prices most relevant for assessing the competitiveness of black
and red beans in Central America are Argentinean and US. prices. While there are good
substitute for black beans outside the region, no country outside the region produces a
good substitutes for small red bean (CORECA, 1999a). Although consumer preference
reduce the demand for imported red beans, these countries still import since local

production is insufficient to satisfy local demand.

Central American countries apply different tariff on bean imports from outside the
region, ranging from 20% to 30%. In order to analyze the impact of this tariff, prices of
bean from the US. and Argentina were compared with the bean price in the region’s
major producing countries--Guatemala for black beans, and Honduras and Nicaragua for
red beans.

For black bean in Guatemala, over the period 1997-2002, competitiveness was
assessed by comparing the monthly wholesale price of locally-produced beans to the US.
dealer price (i. e., F.O.B price), including transport costs to Central America, and
excluding and including tariff.

Transport costs were estimated using 2002 data provided by the Cooperative
Elevator Co. Pigeon, Michigan (Table 3.4). While the cooperative was only able to
provide estimated costs for export to Costa Rica, these data are used as a proxy for export
costs to Guatemala since ocean transport does not vary greatly between Central American
destinations. Transport costs (including insurance) total USS 79.60 mt (Table 3.4). These

costs were added to the monthly U .S. bean price to estimate the cost of exporting black

89

beans to Guatemala City. In addition, a 30% tariff is added to these costs to estimate the

total cost of beans imported from Michigan.

Table 3.4 Estimated Cost of Importing Black Beans from Michigan to Guatemala,
July to September 2002

 

 

 

 

 

 

 

 

 

Description of Costs wiggs'fggff
[Bean Cost 619.06
Freight, insurance and other costs 79.60
Tariff 185.70
Total Cost 884.3
Source: Based on data from (Letrimex, 2003); (Air Parcel Express, 2003) and (Eisengruber,

2003)

During the period 1997-2002, The competitiveness of Guatemalan prices varied
compared to US prices (Figure 3.5). When including the tariff, from the third quarter of
1998 to the third quarter of 2001, US prices where similar to Guatemalan prices.
However, after the third quarter of 2001, US prices where significantly higher (with
tariffs). In contrast, when excluding the tariff, during the six-year period, US prices were

significantly lower than Guatemalan prices.

90

 

 

 

 

 

Figure 3.5 Average Quarterly Black Bean Dealer Prices in Guatemala and the US.
with and without Tariffs, 1997-2002
1.600
] i
‘ 1,200 ‘ 1 AN ]
l 5 800 -_ ‘ a -_ ‘ l ’ A
l S 0 ° ‘0' . A ‘ 1/ V \\\g l
400 ° ' ° ' ' .

 

 

 

 

]

I" IN 00 co 0 O — -- N N
a a a 8 8 8: 2 § 8 s s s t
'7 '— "' — —' — (:1 N N N N N l
l
—a—Cr.latermla —0— US. —A— US. with Tariff ]

 

Source: Based on data from CORECA (CORECA, 2003) and USDA (USDA, 2003)
A more appropriate price to assessing the competitiveness of Guatemalan beans

are the Argentinean price. In the third quarter of 2002, Central American importers could

source Argentinean black beans at a substantially lower price than Michigan beans.

Argentinean beans (F .O.B) were priced at USS 393.33 mt (Table 3.5), compared to USS

800.25 mt for Guatemalan beans, and USS 619.06 mt for Michigan beans. In recent

years, the Argentinean bean price has been greatly affected by the devaluation of the peso

against the dollar. Thus, current competitiveness of beans from Argentina is partly due to

the volatility of the peso, rather than farm productivity (Figure 3.6)

91

Table 3.5 Estimated Cost of Importing Black Beans from Argentina
to Guatemala, July to September, 2002

 

 

 

 

 

 

 

Description of Costs W£g$£zgfi
Bean Cost 393.33
reight, insurance and other costs 124.25
Tariff 118.00
Total Cost 635.58]

 

 

Source: Base on information provided by Alcomex S.A, Argentina (Louzano, 2003)

Figure 3.6 Average Quarterly Black Bean Dealer Prices in Guatemala and Argentina,
with and without Tariffs, 1997-2002

 

 

1,600

 

1,200

 

 

 

 

 

 

§§§§§§§§§§§§§§§§§§§§
""éa'é‘és'é‘ééé‘ééé‘éa'é

+ Guatemala -0- Argentina + Argentina with Tariff

 

 

 

Source: Base on data from CORECA(CORECA, 2003) and Ministry of Agriculture,
Argentina (Secretaria de Agricultura, 2003)

92

For red beans in Honduras and Nicaragua, competitiveness was assessed by
comparing the monthly wholesale price of locally-produced beans to the US price of
small red beans”. During the period 1997-2002, bean prices were compared excluding
and including tariff. Transportation costs and tariff rate were assumed to be the same as
in the black bean analysis, which were used as a proxy for export costs to Nicaragua and

Honduras.

For Nicaragua, since the second quarter of 1997 until approximately the third
quarter of 2000, Nicaraguan prices were higher than US. prices with the tariff. However,
after 2000 prices in Nicaragua declined to substantially below the US. prices. For
Honduras, relative prices were variable between the second quarter of 1998 until the first
quarter of 2000. However, after 2000, bean prices in Honduras were lower, compared to
the US. prices with tariffs (Figure 3.6). Without the tariffs Honduran bean prices were

mostly below US. prices during the period 1997 to 2002.

 

3° While U.S. red beans are not perfect substitutes for Central American small red beans, this is the market
class which is most similar to Central America small reds.

93

 

Figure 3.7 Average Quarterly Small Red Bean Dealer Prices in Honduras,
Nicaragua and Argentina, with and without Tariffs, 1997-2002

 

 

 

 

 

 

 

 

 

1600
1200+ . V. ~——.——-——~-r——- —————_ —~—-w Am—w _
u I n I
.. "L “l ' I
g 800 ‘. __v [A __ l
3 BL- M. \{9 ~ ' \ .
. " if“ "" I a 5
400+— ~w—fi—m w
0 a . . - .
§s§§§§§§__§§§§§§§§§§§§§%
“=Ez-=éé—=52*=EZ'=Eé-='Eé
+ Honduras —0- Nicaragua -X- U . S. + US. with Tariff

Source: Base on data from CORECA (CORECA, 2003) and USDA (USDA, 2003)

 

 

The fact that Central American countries have maintained tariff on bean imports
from outside the region have made them somewhat competitive at the regional level.
However, Central American countries greatly depends on bean imports, which in seasons

of shortage in production affects prices that consumers have to pay for bean products.

3.3 Trading in Central America

3.3.1 Trade Framework in Central America

Both international and regional agreements regulate agricultural trade in Central

America. Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua have been

94

 

members of the World Trade Organization (WTO, ) since 1995. With respect to the
agricultural sector, two WTO treaties apply to regional and inter-regional trading: a) The
General Agreement on Agriculture, and b) the Sanitary and Phytosanitary Standards

(WTO, 1998).

The General Agreement on Agriculture (GAA) establishes tariff rates. However,
these provisions differ. among Central American countries, mainly due to differences in
their agricultural structures. Therefore, the ideal of tariff uniformity has not been
achieved. Sanitary and Phytosanitary Standards (SPS) establish the terms and definitions
of the general SPS that are applied in agricultural trade. However, Central American
countries have mainly utilized the SP8 to establish non-tariff barrier to trade (Gonzalez-

Velazquez etal., 2000).

At the regional level, the 1993 Guatemala Protocol (which modified the 1960
General Integration Treaty) created the Central American Free Trade Agreement
(CAFTA), organism that regulates trading among these countries. This protocol
establishes that every member has to assure free interregional trade, institute a common
external tariff and coordinate external negotiations. The technical and administrative
institution that regulates trading is the Central American Regional Integration Office

(SIECA) (Gonzalez-Velazquez et al., 2000).

With the establishment of the Central American Office for Economic Integration
(SIECA), Central American countries have sought to create a unique set of regulations to
facilitate trading procedures (e. g., import/export licenses). However, as mentioned
previously, each country has its own agricultural legislation which establishes country-

specific requirements for import and export. In some countries, the existence of two

95

different laws on the same matter creates confusion, inconveniences, and additional costs
to exporters and importers, especially when country-specific regulations impose
additional steps to get permissions to import/export or to obtain licenses (Gonzalez-

Velazquez et al. , 2000).

Central American countries have also negotiated unilateral Free Trade
Agreements (FTA). These FTAs (e. g, FTA Mexico-Nicaragua, FTA El Salvador-USA)
have been useful in facilitating integration with countries outside of the region. However,
they have not promoted real integration of the region as a commercial block. The main
problem remains that each country sought to use FTA to attract foreign investment and
modernize trade system, without improving domestic conditions to achieve the desired

objective“.
3.3.2 Tariff Policy in Central America

Central America has an common external tariff known as the Central American
Tarifl System (SAC). However, each country applies SAC according to how it believes
SAC will affect certain products. Tariffs usually range from 1 to 15 percent, levied on the
Cost, Insurance, and Freight (CIF) value. Under the SAC, current duties are generally up
to 5 percent for raw materials, 5 to 10 percent for intermediate goods, and up to 15
percent for finished goods (Underwood, 2003). However, agricultural products remain
highly protected from imports from outside the region. Included in this group are beans,

on which a 20% to 40% tariff is levied.

 

3 ' For example, Nicaragua opened a quota with Mexico to provide 4,000 mt of beans from April to August.
Due to the fact that Nicaragua has not been able to fulfill its commitment, Mexico may close this quota. In
Guatemala, the promotion of foreign direct investment has opened firms dedicated to processing bean.
However, these firms do not buy local beans.

96

During the period 1995-9932, most of Central American countries imposed highly
variable external tariffs on beans. For example, Costa Rica has applied an exception
mechanism to cover the deficit in its supply of bean. In May 1999, when stocks were
especially low, it applied the special agricultural safeguard (Salvaguardia Especial
Agricola) (SEG) for imports of black bean, which reduced the tariff to 10%. Costa Rica
typically maintains a 30% tariff during the shortage of production, which is increase to
45% during the harvest season. In Honduras, the tariff ranged from 20% in 1995, to 5%
in 1996, and 10% from 1997 to 1999. During 1999, the tariff was reduced to 1% for three
weeks, due to the situation after Hurricane Mitch. While Guatemala maintained a tariff of
20% during 1995, 1996, and 1997, the tariff was reduced temporarily to 0% in 1998 and
1999, due to an emergency situation in the region. In contrast, El Salvador and Nicaragua
were the only countries whose bean tariff remained stable (20%) during the period 1995-
1999 (CORECA, 1999a). After 1999, most of the countries in the region have maintained
the same structure of tariff (20% to 30%), for imports from outside the region and 0% for
imports between the five countries (SIECA, 2003). However, in May 2001 Nicaragua
revised its tariffs and taxes imposed on imports, increasing tariffs on finished goods from
10 percent to 15 percent, and modifying the regular import duty (DAI) on selected

agricultural and consumer products, including beans.

In addition to imposing varying tariffs from year-to-year, countries differ with
respect to how tariffs are estimated. Costa Rica, El Salvador, Guatemala, and Honduras
assess tariffs and taxes on the F.O.B value, whereas, in Nicaragua, tariffs and taxes are

based upon a “reference price” determined by customs at the time of entry inspection. In

 

32 By year 1995 all five countries had joined the WTO.

97

 

practice, the reference price is usually higher than the invoiced price (F.O.B)

(Underwood, 2003).
3.3.3 Non-tariff Barriers

According to the WTO, non-tariff barriers (NTB) are technical regulations and
standards, import licensing, rules for the valuation of goods at customs, preshipment
inspection, checks of imports, rules of origin, and all measures that can create
unnecessary obstacles to trading (WTO, 1998) In Central America, NTB are primarily
administrative steps rather than technical regulations that the custom office requires
importers to follow in order to obtain import permits. Because the process to obtain the
permit is slow in many of these countries, these NTB are considered real barriers to

regional trading.

Prior to shipment, these restrictions require certain documents or stamps from
government offices that are in charge of human, animal and plant health. Meeting these
requirements generally takes more than 3 days for processing, which increases exporting
firm’s costs, and thus, increases the final price for consumers. In many cases, sanitary and
phytosanitary standards (SPS) are applied as NTB to protect national production from

external competition (Gonzalez-Velazquez et al. , 2000).
3.3.4 Requirements for Exporting to Central American Countries

Firms wishing to export/import food products must meet a variety of

requirements, which constitute transaction cost to trading. In order to import food

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products (processed and raw products) into Central American countries, two types of

documents are required:

a) Phytosanitary and Zoosanitary certificate, for vegetable and animal products,
b) Import license for the food industry
3.3.4.1 Sanitary and Phytosanitary Certificate

This document must be obtained from authorities in the exporting country (Table
3.6). In some countries, obtaining this certificate takes around 10 minutes” and it costs

approximately $30 per shipment”.

Table 3.6 National Sanitary Information Offices in Central America
Country Office

Costa Rica Ministry of Agriculture and Livestock

0 Center for Sanitary and Phytosanitary Information
El Salvador Ministry of Agriculture and Livestock

0 Vegetable Sanitary Office

 

 

 

 

 

 

Guatemala Ministry of Agriculture, Livestock and Food.

0 Office of Policy and Strategic Information, UPIE
Honduras Agriculture Secretary

0 Office of Planning and Evaluation, UPEG
Nicaragua Ministry of Foment, Industry and Commerce

 

 

 

- Office of Technology, Normalization and Measurement

 

Source: (WTO, 1998)

3.3.4.2 Import License for the Food Industry

In order to import food products, the importing company must be registered as a

food company and register what products it intends to import. In addition, the firm has to

 

’3 In some instances it can take up to 4 hours to get the SPS certificate.
3‘ Price in year 2000

99

register in the country in which the product originates. In 2000, the cost of registration
ranged from zero to $500 per document, and it was obtained in about 4 hours to 15 days.
According to Gonzales-Velazques, in some extreme cases food companies have had to
deal with more bureaucracy that made the process of obtaining an import license ranges

from 15 minutes to 7 month (Gonzalez-Velazquez eta1., 2000).
3.3.4.3 Other Transactions Costs

All items for human consumption must be labeled in Spanish (Underwood, 2003).
Pre-shipment inspections are not required for merchandise exports to any of the Central
American countries. However, at the arriving port custom officers randomly inspect bean
containers, for which importers are charged. Additional costs that exporters/importers
incur (e.g., trading certificates, labeling norms, packaging, patents, laboratory analysis,
sample of the product, literature, hotel, food and work hours of the agents) all increases
the cost of trading. Key informants reported that the cost of conforming to the existing
procedures and the time require to deal with the bureaucracy of government offices
represent invisible costs of trading, which are incorporated to the final price that

consumers pay for imported products.

Despite the complexity and bureaucracy of custom procedures”, Central
American countries have made certain improvements. In Costa Rica many custom
documentations are now processed electronically and Costa Rica has established a “one

stop import and export window”. In Guatemala and Nicaragua, some firms are linked

 

35 For example, in Costa Rica bean containers are inspected at Limon Port (approximately 200 km from San
Jose), where a sample is taken and then shipped to the capital city, San Jose. Once the sample is analyzed
and the bean cargo does not have any problem, authorization is sent back to Limon Port and the shipment is
released from customs.

100

electronically to the custom office to expedite authorization for releasing goods. In El
Salvador, an electronic dispatch system links the importer to the central Customs Service,
which enables the importer to present and process documents from the firm ’5 location

(Underwood, 2003).
3.3.5 Supermarkets Requirements in Central America

The expansion of the retail system can be considered a major opportunity to sell
value-added products, since supermarkets are the main seller of value-added products in
Central America. However, the growing consolidation of the retail system in the region
has become a threat to local bean traders, due to the requirements that sellers must meet
in order to secure shelf space for their products. While these requirements are usually

unwritten, they define the ways in which trading is done.

The main characteristics associated with trading with supermarkets are the
presence of a distributor who facilitate the transaction, the absence of contracts, and the
specific requirements of supermarkets (e. g., product price, quality characteristics,
promotions, brand name, and slotting fee). Supermarket managers interviewed during the
field research indicated that while their stores almost always sourced value-added
products from distributors, in a few cases they buy directly from the producer (e. g.,
Naturas” products). In each country, the number of bean value-added distributors ranged
from 7 to 10; and according to the stores’ managers, they have been working for many
years with the same distributors. However, because of transaction costs, supermarkets
have tended to reduce the number of distributors to the minimum possible in order to

reduce the price for consumers.

101

In general, although supermarkets do not contract with distributors, they negotiate
deliveries with large distributors whose brand is already positioned in the market, hence
demanded by consumers. Nonetheless, in the late-19903 supermarkets in Central America
began to contract with bean packers to pack beans under the supermarket brand (i. e.,
private brands). Supermarkets saw this as a way to gain more control over characteristics
demanded by consumers -- the most important low prices and quality characteristics (e. g.,
color). In fact, today some supermarket chains only sell their own private label (e. g., the

supermarket chain CARHCO sells only its private brand of bagged beans).

According to supermarket managers, distributors (or interested parties) who want

to sell bean products in the store should consider the following requirements:

a) Price of the product: provide a competitive price for the bean product, so the
supermarket can offer consumers attractive prices and earn as profit a good share of the
retail price (i.e., procurement price minus retail price). Another factor related to price is
the turnover of the product (i.e., how fast the product sell and need to be replaced) -- the

lower the price, the quicker the product will sell.

b) Quality characteristics: many supermarkets in Central America have their own quality
standards for dry beans“. In general, the main quality characteristic is the freshness of the
product (i.e., cooking time). Also, the product must be free of impurities (e.g., clay
residues, insects) and homogeneous in color. A new characteristic that has become

increasingly important is whether or not the product is ready-to-use (i. e., processed).

 

36 For example, in 2002 the supermarket CARHCO in Nicaragua was only buying beans of the variety
Esteli 90.

102

 

c) Promotions: distributors are responsible for all aspects of promotion (e.g., sample
promotions, special sales). Since presentation of products is important to attract

consumers, the supermarkets specify standards for product presentations.

d) Brand name: consumers prefer well-known brands, which for dry bean is usually
associated with quality characteristics. However, in the past five years, a large number of
new brands of processed products have entered the markets, especially after the
ratification of F TAs. (e. g., El Salvador- the US. in 2001). While processed producst still
account for a only small share of value-added bean products sold in supermarkets,
consumers interested in processed products look for specific brands (e. g., Ducal, Mahler,
Del Monte). Also, famous brands typically offer several products in addition to beans
(e. g, the brands mentioned before have a range of products, from canned fruits to

seasoning products), which increases their market visibility among consumers.

e) Slotting fee”: firms have to pay a fee to the supermarket in order to have their
products placed on a supermarket’s shelf. The fee depends on the brand and the
purchasing agreement (i. e., arrangement with the supplier). However, this is a standard

business practice in all supermarkets.

Finally, in order for a supermarket to sell a new value-added bean product (e. g.,

canned or bagged beans), another brand needs to leave the supermarket shelve. Due to the

 

37 “The slotting fee is a one-time advance payment made by manufactures to retailers in return for
accepting their product. According to retailers, this fee is charged to offset the costs associated with
entering new product information into the computer system, stocking a new item in the warehouse, and
placing it on the store shelve. However, in many situations it is considered as an anticompetitive trade
practice"

Park, J. L. 2001, 'Supennarket product selection incovered: mflufacturer momotions and the cha_n_n_e_l
intennediagf, International Food and Agribusiness Management Review, vol. I, no. 4, pp. 1 19-131.

103

tendency of supermarkets to reduce the number of value-added bean brands, new brands

face extremely high barriers to market entry.
3.3.6 Barriers to Entering the US. Market
3.3.6.1 Tariff and Non-tariff Barriers

Trade barriers imposed by the US. are very important because the US. is the
main market for food products from Central America”. In the specific case of beans, the
US. is an attractive market, considering that Hispanics living in the US. have a strong

preference for beans grown in Central America.

While the US. imposes an average tariff of 5.4% on all types of products (e. g.,
agricultural and non-agricultural), it maintains important restriction over certain products,
such us food products. The tariff regime is characterized by tariff groups and tariff
escalation. The groups that have the highest tariffs are agricultural commodities and
value-added food products. The average tariff is 5.9% for agricultural products, and
13.3% for processed food products39 (Scandizzo, 2002). Tariff escalation refers to tariffs
that increases with the level of value added to the product. Tariff escalation applies
particularly to agriculture products, where tariffs range from 3% for raw materials, 4%

for semi-processed products, and 11% for processed products (WTO, I998).

The US. also applies unilateral commercial retaliation and many different forms

of non-tariff barriers. Non-tariff barriers include a variety of commercial practices such

 

 

38 Total exports to US. represents 45% of the total Central American exports.

Arauz, A. 2002, ALCA y Tratados de Libre Comercio--Oportunidades y Retos para la lntegracion

C entroamericana.. Fundacion Friedrich Ebert de Nicaragua, Managua, Nicaragua.

39 The maximum tariff rates are 173% and 350% for agriculture and food products respectively. Currently,
tariffs for beans are far below these limits, but tariffs can be increased in the event of excess U.S. supplies.

 

104

as import quotas, antidumping measures, export subsidies, licenses, labeling
requirements, and technical certificates. Approximately, 75% of all agricultural products

exported to the US. worldwide are affected by some non-tariff barrier (Scandizzo, 2002).

However, beans and bean value-added products do not face the same strict tariff
and non-tariff restriction as some other products. For example, dry beans from Central
America are assessed a tariff of 0.1 USS per kilogram from May to August, and from
September to April beans enter tariff free (Pastore-Vazquez, 2003). According to traders,
bean products face few restrictions, except for the food safety standards imposed by the

US. government and the food industry.
3.3.6.2 Food Laws, Regulations and Grade standards

The food rules and regulations are the main barriers that foreign firms face in
order to access the US. market. US. laws with respect to food safety are very strict,
especially those related to human safety. In the US, four federal agencies administer
food laws and regulations: a) the Animal and Plant Health Inspection Center (APHIS), b)
the Environment Protection Agency (EPA), c) the Food and Drug Administration (FDA),

and d) the USDA Office for Food Safety and Inspection Service (13518)“.

For raw beans, importers require exporters to meet quality specification on
foreign matter content (e. g, dirt, glass, rock, and clay-correlates), cracked seed coats,
split beans, and contrasting classes (Stems et al., 2002). While foreign matter, especially
cleanliness, is the most important food safety concern, cracked seed coats (e. g., broken

bean skins) and split beans are important factors that contribute to the integrity of the

 

40Web pages: APHIS http://www.aphis.usda.gov/ ; EPA: http://www.epa.gov/; FDA: http://www.fda.gov/;
F SIS: http://www.fsis.usda.gov/

105

 

 

bean during the canning process. Finally, contrasting classes41 and color are important for
appearance and the color of the bean may be an indicator of flavor (e. g., off-color beans

may be off-flavor) (Stems et al., 2002).

Also, the US bean value-added industry applies specific grade standard for
processed beans. These standards are based on four characteristics: yield (i. e., amount of
beans to fill a can), integrity (i.e., appearance, cleanliness), flavor, and color (specific to

each market class).
3.3.6.3 Supermarkets Requirements

Since the food manufacturing and retailing sector in the United States are very
concentrated, its vertical structure may be characterized as an oligopoly. In 1998, four
firms accounted for an average of 74% of food retail sales across the top 100 US. cities,
and a 58% share across major US. regions. This concentration limits market access to the
products of firms from other countries that are attempting to become more involved in

activities beyond the production of raw materials. (Sheldon et al. , 2003)

To introduce a new product into the US. market, the distributor of a new product
must present to the retail buyer various information that is critical to its acceptance
decision“. First the distributor must submit a written application and a sales presentation,
which must include information about the product’s characteristics, suggested shelf
locations, suggested retail price and profit projections, special cash allowances, product

handling methods, and the planned advertising program. Additionally, samples of the

 

" Contrasting classes means the amount of a different class of dry beans in a load (e. g., the percentage of
black beans allowed in a load of navy beans).
‘2 The US. case is presented because it is the main market for Central American bean products.

106

 

 

 

new item are generally left with the retail representative (Park, 2001). Finally, if the

product is accepted for sale, U.S. some retailers charge a slotting fee.

Distributor’s promotional offering significantly affects the product selection
decision of supermarket channel intermediaries. According to a study carry out by Park,
retailers value targeted direct mail promotions, shipper displays, coupons, and in-store
demonstrations and sampling. (Park, 2001). Hence, distributors seeking to improve their
chances of product selection need to consider using the above described promotions in

their marketing campaign.

Consequently, key informants reported that rather than targeting major
supermarket chains, they export bean products to distributors who market to ethnic

groceries in the US. cities with a high concentration of Hispanics.
3.7 Export Promotions

While some Central American governments provide exporters incentive to
promote exports, these initiative have not been very aggressive due to the limited
financial resources of these countries. Historically, export supports have been in the form
of tax revenues reductions, export bonuses, tariff reductions for imported materials
destined for export, dividend tax reductions, special exchange rates, and allowing a
percentage of production to be sold locally43 (Scandizzo, 2002). Nevertheless, some
Central American governments have promoted exports, especially to the US“. For

example, in 2003 the government of El Salvador launched an initiative to link importers

 

‘3 Production of maquilas or assemblers are destined for exports only.
‘4 Estudio de Mercado de Productos Etnicos en Estadors Unidos. C aso de Estudio: F rijol Rojo
Salvadoreno. Pastore-Vazquez, 2003. In Costa Rica, MERCANET. www.mercanet.cnp.gov

107

 

 

 

from the US. with food exporter in El Salvador. Drawing on a study on small red bean
demand in the US, the goal is to promote food products among the Salvadorians living
in the US. Also, the government of Costa Rica has established a trading office in Miami
(for all type of exports/imports) to promote exports to the US. However, most firm
managers reported that they were not using any special export promotions for exporting
beans“, and most of these managers were not aware that governmental and private firms
had created web pages that provided information (free of charge) on requirements to

export (or import)“.

Despite all of the barriers to exporting food products, as discussed previously, the
managers interviewed (who were exporting at the time of the field research) confirmed
that there were few obstacles to exporting bean products, especially within the region,
where tariff on bean products and transportation costs are low. Regarding the US.
market, exporters agreed that the main obstacle to expanding exports is the insufficient
supply of bean in the region which leads to high prices. For example, in Honduras, one
exporter had a contract to export five containers of small red bean per month to the US.

However, he reported being unable to fulfill the contract.

Finally, in order to maintain and expand trade, Central American countries still
need to address some problems related to food safety regulations, such as an insufficient
national-level commitment to establishing uniform regulation to protect food, and
deficiencies in the laws and regulations (Lopez-Garcia, 2003). Moreover, Central

American governments and firms should commit to producing beans and bean products

 

‘5 In El Salvador and Guatemala, two canners reported using special treatment in the form of tax reduction.
46 El Salvador: www.e|salvadortrade.com.sv/ . Costa Rica: www.infoagro.go.cr/negociaciones/exporta.htm
Nicaragua: http://www.cetrex.com.ni/ Guatemala: http://www.export.com.gt/ Honduras:
http://www.hondurasinfo.hn/

108

with better technology (e. g, production with improved seed to gain better yields, quality
and safety control of food in every stage of production), investing in human resource
formation (e. g., food scientists, business specialists), and promoting institutional
development (e.g., strengthen agencies that administer food laws, enforcement of

contracts) (Arauz, 2002).

109

 

A

 

~.
_d-l .‘

CHAPTER FOUR
SUMMARY AND CONCLUSIONS
4.1 Summary

4.1.1 Beans in Central America

Beans are strategically important to assuring food security in the region. They are
a basic component in the diet of Central Americans, a main source of vegetable protein
for a large share of the population, and an important source of income for many small
farmers. However, bean consumption patterns are changing in the region. During the
period 1990-1992 to 1999-2001, per capita bean consumption increased in Costa Rica, El
Salvador, and Nicaragua, but decreased in Guatemala and Honduras. By the beginning of
the 20005, per capita annual bean consumption was highest in Nicaragua (24.7 Kg),
followed by El Salvador (13.5 kg), Costa Rica (11.3 kg), Honduras (9.8 kg) and

Guatemala (7.2 kg).

In Central America, common beans are primarily grown by small-scale farmers,
characterized by a lack of specialization and access to purchased inputs. Throughout
Central America, beans are the second most important “basic grain” for human
consumption. Beans account for approximately 12% of Central Americans total crop
area. However, the bean area varies by country--ranging from approximately 26% of the
basic grain area in Nicaragua to 10% in Costa Rica, and 9% in El Salvador, Honduras,

and Guatemala.

Variations with respect to consumption pattern determine the market classes

grown in each country. Nicaragua, Honduras, and El Salvador mostly produce and

110

 

 

 

consume small red bean, whereas Guatemala and Costa Rica mostly produce and

consume black bean.

During 1990-2001, an estimated 501,360 ha were planted to beans. Of this total,
Nicaragua accounted for the largest share (32%), followed by Guatemala (26%),
Honduras (18%), El Salvador (15%), and Costa Rica (9%). The trend in area planted
(1990-1992 to 1999-2001) differed among these countries. In Costa Rica, during the
19905, the planted area declined at a rate of -8.8% annually, which represents a -56%
decline over the decade. Similarly, in Honduras, the planted area declined by -2.3%
annually (-19% over the decade) and in Guatemala by -0.9% annually ( -8% over the
decade). In contrast, Nicaragua has greatly increase its planted area since 1990, especially
after 1998. Increasing at a rate of 8.7% annually, the planted area has increased by 111%
over the decade. Also, in El Salvador, area planted grew slightly, with an increase of

0.7% annually and a total change of 6%.

The biggest bean producers (in terms of volume) in the region are Guatemala,
Nicaragua, Honduras, which accounted for an average of 28%, 27.6% and 19% of total
production in 1990-2001, respectively. Trends in bean production varied greatly among
countries in the region. During 1990-1992 to 1999-2001, bean production declined in
Costa Rica (-52%), Guatemala (-18%), and Honduras (~21%). In contrast, during the
decade, Nicaragua more that doubled its production of beans (171%) and El Salvador

increased its production by 11.6%.

Yields in Central American countries are relatively low compared to the US,
Canada, and Argentina, where yields average 1.8 to 2 mt/ha. Over the past decade, for the

region as a whole, yields increased at an annual rate of 0.5%, up from 694 to 727 kg/ha

Ill

 

 

from 1990-1992 to 1999-2001. In 1999-2001 yields were highest in El Salvador (877
kg/ha), followed by Nicaragua (746 kg/ha), Honduras (739 kg/ha), Guatemala (689
kg/ha), and Costa Rica (583 kg/ha). During the decade, yields increased most rapidly in
Nicaragua (2.8% per year), followed by Costa Rica (1.2% per year) and El Salvador
(0.6% per year). In contrast, yields declined in Guatemala (-1 .2% per year) and Honduras

(-0.3% per year).

In Central America, bean research is conducted by government institutions and
universities. Breeders have focused on developing varieties that are resistant to numerous
production constraints (including desease and drought), which vary by production season
and agro-ecological zone. In addition, for small red beans, breeders have focused on
develop varieties with quality characteristics that consumers demand (e. g., lighted color,

small size grain).

Since 1990, Central American countries have released 22 improved varieties.
Despite the achievements of bean scientists, during the 19903 funding for bean research

(and extension) declined substantially.

In Central America, seed multiplication and distribution is usually done by a
government institution in cooperation with universities and/or NGOs. While very few
farmers plant certified seed, recycled seed of improved varieties is planted throughout the
region. Thus, the multiplication and distribution of improved seed varieties to small
farmers remains a persistent problem in Central America. This situation is critical, since
farmers adoption of improved varieties that are resistant to biotic and abiotic stresses are

key to increasing productivity.

112

 

 

In the region, small bean producers have difficulties obtaining agricultural credit
from “formal” financial institutions. Several characteristics make beans unattracting to
finance, including the price volatility (which is greatly influenced by year-to-year
variability in production) and the risk associated with production (which is frequently
affected by hurricanes, droughts, etc). Another constraint is high transaction costs for
lenders and producers, due to the geographic dispersion of producers and the small

amount of money lent to each farmers.

Activities that add value to beans in Central America include: a) cleaning and
packaging dry beans in plastic bags and b) transforming raw beans into canned, flexible
pack, powder, or frozen bean products. In general, the packaging industry is most
developed in Costa Rica, but primarily targets the local market. In Guatemala, the
processing industry is well-developed, while the packaging industry is dominated by very
small units which in many cases are completely informal. In El Salvador, Nicaragua and
Honduras, the packaging industry is growing rapidly, driven by the incentive to sell to

local supermarkets and export to neighbor markets in the region.

There are approximately 10 large canning companies in Central America. Of this
total seven are located in Guatemala and three are in Costa Rica. However, Guatemalan
brands are the most widely sold brands in Central American countries. In the case of the
flexible pack, only one company based in Honduras produces this product. While other
products, such as powder or frozen beans are sold in some Central American countries,
they were not widely consumed. While most of bean-processing firms have their own
commercial brand, some of these firms have introduced canning for other companies as a

new activity.

113

 

 

 

Although consumers demand for processed products is limited, demographic
changes have influenced the preference for ready-to-use products (e. g., frozen, powdered,
canned). During the field research, data collected from major supermarket chains in
Central American capital cities indicated the they sold 67 different brands of value-added
products (i.e., bagged and processed beans). In each country, the number of different
brands of beans in plastic bags ranged from 6-15, while the number of canned brands
ranged from 4-12. A key reason for the limited demand for processed products is their
relatively high cost. Compared to beans in a plastic bag, the price of canned beans
averaged USS 2.49 per kg, compared to US$1.25 per kg for bagged beans. Bagged beans
price ranged from USS 0.75 per kg to USS 3.88 per kg, whereas canned beans ranged
from USS 0.46 per kg to USS 6.48 per kg. While low-income consumers give high
priority to price when making their buying decisions, high and medium level income

consumers are increasingly willing to pay a premium for quality characteristics.

Bean marketing channels are similar among Central American countries. The
marketing channel begins with the producers--usually small-scale farmers who sell their
surplus after each harvest. The second level is represented by the traditional intermediary,
who collects dry bean production from these small farmers. Once beans arrive at urban
markets, they are marketed through the food retailer system, which can be classified into
four groups: small full-service stores (comer store, “pulperias”); traditional markets
(central markets); small self-service stores (smaller than supermarkets); and
supermarkets, either independent stores or chains. While intermediaries and wholesalers
are major players in the marketing channel for beans and the central market and small

store remain the place where most consumers purchase beans, increasingly, concentration

114

 

 

 

in the Central American retail system is influencing how beans are sold and where

consumers buy beans.

In recent years, the region has become increasingly dependent on bean imports to
meet consumer demand. During 1994-1996 to 1999-2001, the region’s annual rate of
growth in imports averaged 18%, with a total increase of 127%. In the same period,
Guatemala’s bean imports increased at an annual rate of 28%, followed by Costa Rica

(24%), Nicaragua (16%), El Salvador (15%), and Honduras (9%).

Despite annual deficit in the bean supply, Central American countries export
beanswithin the region and to niche markets in developed countries. In the period 1999-
2001, the region’s main exporters were Nicaragua (42%) and Honduras (35%), although
Guatemala (11%), El Salvador (10%), and Costa Rica (2%) also exported beans.
According to exporters interviewed, exports opportunities outside the region have
increased in recent years due to the growing number of Central Americans living abroad

and ethnic food restaurants in developed countries (e.g., Canada, the US, and Europe).

Among countries the price difference between markets (wholesale t central. to
retail) varied greatly. The greatest markup from the wholesale to central market price was
observed in Nicaragua (23.3%), compared to 16.9% in El Salvador. The greates markup
in the central market to the retail price (i. e., value added price) was observed in Honduras
(93%) and Guatemala (51% for red beans, 21% for black beans) compared to only 8% in
Costa Rica.

To assess the competitiveness of regionally produced beans, the wholesale price
was compared to the FOB price of beans from outside the region, both with and without

the tariff (30%), and adding transportation costs from each country to the central market.

115

The case of Guatemala was used to assess the competitiveness of black beans, which
have good substitutes from outside the region. During the period 1997-2002, the
competitiveness of Guatemalan bean prices vis-a-vis US. prices, varied over time. From
the third quarter of 1998 to the third quarter of 2001, US prices with the tariff where
similar to Guatemalan prices. After the third quarter of 2001, US prices where
significantly higher with the tariffs. However, during the six-year period, US prices
without the tariff were significantly lower than Guatemalan prices. In the third quarter of
2002, Central American importers could source Argentinean black beans at a
substantially lower price than Michigan beans--largely due to the fact that in recent years,
the Argentinean bean price has been greatly affected by the devaluation of the peso
against the dollar. Thus, the current competitiveness of beans from Argentina is partly

due to the volatility of the peso, rather than farm productivity.

No country outside the region produces a good substitutes for small red bean.
Although consumer preference reduce the demand for imported red beans, countries
where consumers prefer red beans still import since local production is insufficient to
satisfy demand. For red beans in Honduras and Nicaragua (the region main producers),
since the second quarter of 1997 until approximately the third quarter of 2000,
Nicaraguan wholesale prices were higher than US. prices with the tariff. However, after
2000 prices in Nicaragua declined, to a level substantially below US. prices. In
Honduras, from the second quarter of 1998 until the first quarter of 2000 US. prices were
sometimes cheaper. However, after 2000, bean prices in Honduras were lower than the
US. prices with the tariffs, and during the period 1997 to 2002 Honduran bean prices

were mostly below US. prices without the tariff.

116

 

 

Central America has a common external tariff known as Central American Tariff
System (SAC). While regional product do not face tariffs, agricultural products remain
highly protected from import from outside the region. Included in this group are beans,
on which a 20% to 40% tariff is levied. The fact that Central American countries have
maintained tariff on bean imports from outside the region have made them somewhat
competitive at a regional level. However, since Central American countries greatly
depends on bean imports from outside the region when they experienced shortage in
production, the external tariff increases the prices that consumers have to pay for bean

products.

In Central America, non-tariff barriers are administrative steps that the custom
office requires importers to follow in order to obtain import permits. Because the process
to obtain the permit is slow in many countries, NTB are considered real barriers to
regional trade. In addition, the growing consolidation of the retail system in the region
has become a threat to bean distributors, due to the requirements that sellers must meet in
order to secure shelf space for their products. While these requirements are usually

unwritten, they define the ways in which trading is done.
4.2 Policy Recommendations
4.2.1 Policy Recommendation to Support Agricultural Production

This study documented the importance of bean in enabling small farmers to
achieve household food security. However, although yields increased slightly in the

majority of this countries during the 19905, area planted and total production declined

117

 

 

everywhere except in Nicaragua. Thus, the region is increasingly dependant on imports to

satisfy its demand of beans.

In order to maintain their competitiveness, Central American countries have
impose tariffs on beans imported from outside the region, ranging from 20 to 30%.
However, tariffs have failed to make the region self-sufficient in bean production and
imports have reduced the price that small farmers have received for beans. Finally, the
tariff has negatively impacted consumers of beans--especially the poor-- by increasing

the cost of bean products.

4.2.1.1 Continuing Varietal Research

While most small farmers in Central America have limited opportunities to
expand bean production to a commercial scale, they will continue to grow beans due to
the crop’s importance as a food staple and as a source of cash income. Currently, bean
yields in the region are very low--compared to yields in the US. and Argentina. To
remain competitive in an increasingly globalize market, farmers will require access to

higher-yielding varieties.

In Central America, biotic and abiotic stresses are the main constraint to
expanding production. In the 19903, bean scientists focused on breeding varieties
resistant or tolerant to these stresses. These efforts resulted in the released of over 20 new
varieties. However, in order to increase productivity there continues to be a great need for
research that focused on developing higher yielding varieties with traits that reduce the

risk associated with bean production.

118

 

 

 

 

4.2.1.2 Implementing New Mechanism to Evaluate New Bean Varieties

In Central America, currently the process of validation and release of new
varieties is carried our by bean scientist and public institutions, with little input from

private firms which are moist knowledgeable of consumer’s preferences.

During the 19905, the bean market experienced several structural changes,
including consolidation in the wholesale and retail market, an expanding export market
and increasing demand for value-added beans products, and growing consumer

preferences for beans of superior quality.

Thus, to insure that future varieties meet the quality preference of consumers,
there is a need to establish a mechanism to involve wholesalers, the processing industry,
retailers, and exporters in establishing quality characteristics and evaluating promising
lines prior to their release. As it is done in the US, Central Americans bean research
programs should establish “Dry Bean Councils”--which would include bean scientists
and representatives of the private sector--and involve these councils in identifying needed

quality characteristics and assessing the acceptability of new varieties.

4.2.1.3 Improving the Seed Distribution Systems

One of the main constraint that farmers face to expanding bean production is the
limited access to improved seed. Unless farmers have greater access to improved
varieties that are higher yielding and more resistant to biotic and abiotic stresses, bean
supply in the region will continue to be insufficient to meet the region’s demand and

compete with imports.

119

 

 

 

 

Drawing on lessons from the experience of Costa Rica and other countries in the
region, national programs need to place greater priority to developing sustainable seed
multiplication programs. For example, to relax the seed constraint in Costa Rica, the
University of Costa Rica (UCR) in collaboration with farmers has established a bean seed
production scheme. Similarly, public agencies in El Salvador and Nicaragua have worked

closely with farmers to multiply improved varieties.

Given the limited ad0ption of certified seed in the region, there is a need to
rigorously assess the strengths and weaknesses of existing seed schemes in order to

identify lessons that could be used to strengthen seed schemes throughout the region.

4.2.2 Policy Recommendation to Support Bean Marketing

During the 19905, countries in the region established projects to expand small
farmers’ access to relevant market information that would help them to obtain higher
prices for their bean and take advantage of opportunities and information related to
consumers preferences. In addition, governments, universities, international
organizations, and the private sector have attempted to establish a universal grade

standards in Central America for basic grains (including beans).

Despite the efforts of projects in all Central American countries to increase
farmers’ access to markets, there still exists a lack of coordination among producers,
processors, and retailers. Farmers continue to face a significant number of obstacles that
limit their access to basic market information (e. g., prices, market opportunities)
including the high cost of obtaining this information. In addition, the initiatives to

establish grade standards applicable in all countries has failed.

120

Finally, the growing consolidation of the food retail system and the packaging
industry have created new challenges for bean farmers to access urban markets. Today,
most retailers and packaging firms have their own private standards, which Central

American farmers are either unaware of or fail to complain.

4.2.2.1 Promoting of Strategic Alliances with Food Retailers

As a result of the trend towards concentration in the packaging and processing
industry and supermarkets, farmers need to establish strategic alliances with retailers and
intermediaries in order to gain access to these markets. Working together with
intermediaries and retailers will also help farmers to obtain basic information related to

consumer’s preferences (e. g, color characteristics, appearance of the grain).

In Central America, some countries have developed strategic alliances with food
retailers (e. g., melons in Honduras, vegetables in Guatemala) that have succeeded in
helping farmers gain access to retail markets. Similarly, in Costa Rica, producers’
associations have successfully strengthened coordination between bean farmers, scientists

and a retailer.

4.2.2.2 Disseminating Private Grade Standards

Due to the lack of dry bean public grade and standards, bean packers, processors,
and food retailers determine their own private standards. In Central America, the
intermediary or trader is the main transmitters of this type of information (especially with
respect to market class preferences) and is still the main supplier to packers, processors,

and retailers in urban areas. However, small farmers have limited access to information

121

 

about private standards, despite the fact that all Central American countries already have
marketing offices that are supposed to disseminate this kind of information to farmers
and traders in rural areas. Currently, most of the market information is available either in
the marketing office or posted on the intemet. However, bean producers and traders have
limited access to these offices (for the distance to rural areas) and in rural areas the access

to intemet services is highly difficult.

National bean programs or institutions providing support to bean research need to
implement ways of disseminating information, especially to small farmers. Using the
already existing infrastructure of official bean programs or NGO offices (e. g., telephones,
intemet access, fax, radio) farmers and traders in rural areas can access market
information with respect to standards required. Also, some countries have implemented
programs to disseminate information regarding market prices throughout local radio
stations. However, due to the cost of this type of program it is important to assess

whether or not farmers will benefit before implementing this alternative.

4.2.2.3 Exploring Alternative Niche Markets

Currently, exports to countries outside the region are limited by supply constrain
and market access. However, these markets have a potential to grow in the future,
especially in developed countries where the demand for ethnic food is growing rapidly.
Also, at the regional level, many consumers are willing to pay a premium for

differentiated products.

In the case of Central American beans, the small red bean known as “Rojo de

Seda" (red silk) is highly appreciated in the region and in the US. For example, in the

122

U.S. there is a company that sells the brand “Rojo Salvadoreno” beans, targeting the
Salvadorian community in the US. Drawing on the example of the “Rojo Salvadoreno”,
a potentially promising export strategy would be to for each country to establish farmers-
owned brands and target sales towards high-income consumers and consumers in

developed countries.

Farmer-owned brands are relatively rare and, until now, have only been
successful in developed countries (e. g, Bruenello de Montecino wine from Italy, Vidalia
onions in the US). Many requirements are necessary for the success of farmer-owned
brands, including producer control over the quantity supplied, and products need to be
based on some fixed and identifiable attribute (e. g., brand coming from a certain area).
Also, the scale of production must be sufficiently large to justify the costs of creating and

maintaining the differentiated image among consumers (Hayes et al., 2002).

4.3 Limitation of the Study and Future Research

The main limitation of this study is the short time spent in each country (one week
in each country), which limited the number of key informants interviewed. Also, analysis
of the secondary data (e. g, production, area planted and exports and imports) identified
inconsistencies which indicated that these data may be inaccurate--thereby making it
difficult to draw more specific conclusions with respect to trends in production and
potential for exporting. In addition, due to the limited availability to private sector
information related to retailers bean’s procurement (e. g, volume of dry bean and value-
added products over the years, and trends in bean procurement) it was impossible to

estimate the share of supermarkets and other retailers in bean sales.

123

T .

 

 

The following are some relevant questions that should be addressed in future

research:

 

o What mechanisms do Central American countries need to implement in order to
increase farmers’ access to seed of improved bean varieties?. What lessons can be
learned from the seed distribution experiences of countries in the region and
outside the region that are applicable to strengthen seed production and

distribution throughout the region?

 

o What strategy would Central American countries promote to enabling farmer’s

access to relevant market information?.

o How can Central American countries adapt regional experiences in other

agricultural sectors in order to increase bean farmers access to markets?

0 How is consolidation in the food sector affecting the demand for products and

how will this impact on bean farmers’ market access.

 

124

 

APPENDIX A

 

 

DATA COLLECTED FROM MAJOR SUPERMARKET CHAINS,
CENTRAL AMERICA, JULY, 2002.

 

125

 

,1 . 31 A
. .1 . m , .1

USS!
K9
2
2
1
251
2

. . A 1
. A, A . . . _ 9“
. . . e . . . . , . . ._ . . ._ . . . . .. . . . . ._ . . . . e .
. .

_ .

Retail
Price
(U35)

_.

ight

Weight W;
(In) Grams

arket

126

d

m

cw
Mm
mm
Wm
mm

Source

 

 

 

 

 

Two of Product Market
Preparation Package Class

111111111111111_1114l4l4l11 _ 111111n14l14l11.
.. .

__ L:

 

Country

 

Product Nhrket

d—Ld—L—‘d—AI—b—D—b—l—L—L
. | I
I

1.
1
.1.

2'.

1

1
._1_

1.

1
_ 1

1.

1

1

 

 

127

List of Codes

 

Country Country where the value-added product was purchased

 

Code Name Note
Costa Rica
El Salvador
Guatemala
Honduras
Nicaragua

 

 

 

 

 

 

 

 

 

U'ihCON-l

 

 

Package Package presentation of value-added products

 

Code Name Note
1 Plastic bag
Can

3 Retort pounch or flexible pack

 

 

 

 

 

 

 

 

 

Market Class Classification by color of the bean

 

Code Name Note
Black
Red

Silk Red Rojo de seda
Pinto
Pink

White
Mix Variety of market classes

 

 

 

 

 

 

 

 

 

 

VODUIAQJN—t

 

 

Source Mrhere the product was manufactured

 

Code Name Note

 

1 Local when it is the same country from which the product was bought

 

 

 

 

2 Imported different country from which the product was bought

 

128

 

 

List of Codes

 

Country of

Origin Refers to the label inscription where it says "made In country"

 

Code Name Note

 

Canada

 

Costa Rica

 

Guatemala

 

Honduras

 

Italy

 

Mexico

 

USA

 

 

mummwa—s

Local Same as country where the product was bought

 

 

 

Brand name

AA..SISI
As de Oro
Best Yet
Blandito
11's

Carolina
Chelito's
Cinta Azul
Del Monte
Del T '

lomatico
Don F " 1
Don Pedro
Dona Ana
Dona Maria
Ducal
El 1
El
E1 Cocinero
El Gallo Giro
El 2da
El Guerrero
El '
El N

OONGMAUJNc—n

NNNNNNNHHH—dQu—Ii—ou—nr—nu—nu—I
O\MAWN—OVOOO\IO\\IMAUN—O\O

 

129

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Code Brand Name (cont)
29 F Lijoles 2da
30 Frijoles rojos 2da
31 Frijosal
32 tha
33 Gustoso Premiun
34 Hanover
35 Heinz Vegetarian Beans
36 Hormel Chili with Beans
37 La Campana
38' La Colonia
39 La Costena
40 La Nacional
41 La Preferida
42 La Sierra
43 Los Productos de Mama
44 Los Sabrosos
45 Lo-Zano
46 Magico
47 Malher
48 Megasuper
49 Natura's
50 Old El Paso
51 Oto's Finest Brand
52 Petit
53 Price Smart
54 Rosarita
55 Sabemas
56 San Francisco
57 Santa Cruz
58 Stagg
59 Suli
60 Taco Bell
61 Tio Felipe
62 Toledo
63 Tonos
64 Van Camp's
65 Vitale
66 Zambrano
Code Manufacturer Company
1 Agroindustrias Lozano SA
2 Ailsa de Guatemala
3 Alimentos del Valle SA Unilever
4 Alimentos Maravilla
5 Alimer SA

 

 

130

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Code Manufacturer Company gout.)
6 Arrocera Costa Rica SA
7 Arrocera Gumarsal
8 Arrocera San Francisco
9 Beneficio de Arroz C ielito Lindo
10 Bepro-agro
ll Campbell's
12 Centro de Distribucion Comercial La Union
13 Cofam SA
14 COMACESA
15 Comercializadora de Granos de Nicaragua
16 Comercios de El Barreal SA
17 Conagra
18 Conagra Brands USA
19 Conservas del Valle SA
20 Dilosa
21 Domenico Vitale
22 El Bodegon
23 El Gallo Giro
24 El Guerrero
25 Empacadora Toledo
26 Empaques Agroindustriales
27 Empresasa Integradas
28 Faribault Foods INC
29 Fleming Companies INC
30 Goya Food INC
31 Grabacera
32 Granos Continentales SA
33 Grupo Coscafe
34 HJ Heinz Co
35 Hanover F oofs Corporation
36 Herdez SA
37 Hormel Foods
38 Industrias Sanso SA
39 Kraft Foods. Taco Bell
40 La Campana
41 La Costena
42 La maquila Lama SA
43 La Nacional
44 La Preferida SA
45 Libra Comercial
46 Malher Sucesores y Cia.
47 Pedro Oller SA
48 Price Smart
49 Procesadora J inca
50 Sabormex SA de Mexico
51 Stagg Foods INC

 

131

 

 

 

 

Code

Manufacturer company (cont)

 

52 Supermercados La Colonia

 

53 The Pillsbury Company

 

54 Van Camp's USA

 

 

55 Alimentos Kern de Guatemala

 

 

 

Supermarket

chain or single store from which the value-added product was bought

 

Code

Name

Note

 

CSU

 

Megasuper

 

Europa

 

La Despensa de Don Juan

 

Super Selecto

 

Paiz

 

Price Smart

 

Econosuper

 

\OOOQQMAWNfl

Super Operadora

 

.—
O

La Colonia

La Colonia Nicaragua and Honduras are not linked.

 

fl
#

Maxi Superrnercado

 

u—e
N

Pali

 

o—o
(A)

Union

 

 

A

 

La Colonia

 

 

132

 

 

 

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