Inclusive trade between rural and urban areas in Honduras

"The consumer is always the smartest of the class" says Abner Zuniga. We are sitting at the table with two gentlemen from the supermarket chain La Colonia in Tegucigalpa, Honduras. He goes on passionately: “Only the consumer knows exactly what price he wants to pay for which products: every time the consumer goes shopping, he evaluates whether this price is commensurate with the guarantee on food safety, the taste, the shape, and the texture.”

Miguel Arita, responsible for the purchase of vegetables nods affirmatively. “It is only consumers who decide whether they want to pay this price for a product from Honduras. Do they opt for quality and food safety or do they prefer an imported product?"

La Colonia and the Consorcio Agrocomercial have a long history of profitable and inclusive businesses behind them. About 800 farmers benefit from this partnership and the supermarket chain can satisfy the consumers’ demand for safe, quality and local vegetables. Nowadays, 90% of the vegetables La Colonia puts on its shelves are purchased from Honduran farmers.

"With a growth of 5 to 6 stores per year, La Colonia is therefore looking for producers who are able to keep up the pace in the long term. As family farmers, we can only achieve this through a solid plan of action! The Consorcio would like to design that plan." Says Cesar Maradiaga, manager of the Consorcio Agrocomercial de Honduras.

The journey to ensure this successful and inspiring collaboration has not been easy. The main obstacles have been overcome through the involvement and collaboration of several chain actors, laying the foundations for an inclusive business model where risks and profits are equitably shared between the actors involved. What have been and what will be the future challenges?

In the development of business partnerships, farmer and companies face problems that are interlinked:

• Rejection of products: Formal markets as supermarkets have stricter requirements than informal markets. This used to result in a high proportion of products rejected. At La Colonia, for example, up to 40 percent of the fruit and vegetable supplies were rejected because of quality problems.

• Instability in the supply: Short-term contracts with the formal markets, fierce competition among the many SMEs selling similar products, uneven demand for vegetables during the year, and non-compliance of contracts by the buyer, delayed payment by the supermarket (1-2 months after the sale was made) cause uncertainty and a shortage of working capital for the suppliers.

• Lack of investments: Investing in family farming today appears to be a major risk for banks.

In 2011, the international NGO Rikolto, together with the Consorcio, started a pilot project to support the farmers in strengthening their production capacities, collection and post-harvest processes (with specific attention to quality and volumes, to meet the requirements of formal markets), collective marketing strategies, and general advice in business, management and administration. Moreover, La Colonia employed five technical experts, whose full-time job is to visit farmers' organisations and guide them towards more efficient and higher quality production processes. The implementation of this highly effective production process led to the reduction of the vegetables rejection rate from 40% to 5%.

Such an increase in quality obviously also requires investment. A third partner in this unique collaboration was found in FICOHSA, a credit ban that supplied 60% of the necessary investment. As a bank, it is first and foremost looking for a profitable and reliable investment. A collaboration between the supermarket and the Consorcio achieved the confidence threshold of the bank. Moreover, this cooperation with a financial institution also acts as a safety latch. Suppose either La Colonia or the Consorcio would want to sink the ship for whatever reason, FICAHSO will not let that happen.

A fixed price range was agreed, which stabilized prices and income. "In the formal market, the price the producer receives for his product easily increases by 100 to 200 percent" Maradiaga confirms us."A stable price benefits consumer, the supermarket and the Honduran producer".

Rikolto is working with the city council to develop a platform to stabilise the prices that producers receive. Today, no authority outside the market has any control over this. The collaboration between the Consorcio and La Colonia shows how things can be done differently.

The challenge of food safety is also to be tackled at the city level. How? Through a better logistical approach and possibly also by providing storage facilities in the city.

A third challenge for the city is the diet of its inhabitants. "Honduras occupies the second place in Latin America when it comes to unhealthy food", Guzman emphasizes. "With this urban platform we also want to tackle that issue in the coming years."

The future may have more in store for the Consorcio Agrocomercial. In neighbouring Nicaragua, a special cooperation was established between an alliance of 4 farmers' organisations and Subway. The alliance supplies fresh vegetables to 24 sandwich shops across the country. Because of the enthusiasm of both Subway in Nicaragua and La Colonia in Honduras, discussions are underway between the Consorcio Agrocomercial, Rikolto and Subway in Honduras to inaugurate a possible cooperation in the future.

Moreover, a collective brand name for the products of the Consorcio was created and registered: El Agricultor. The formal market represents a big opportunity to market their vegetables and increase the visibility of the new brand. Every Friday and Saturday for example, in Tegucigalpa’s market Feria del Agricultor, producers from the various regions of Honduras come to the capital to sell their vegetables, fruit, meat and fish to the city dwellers building a bridge between the city and the countryside.

The inclusion of women and young people are two big challenges. The machismo is still strong in Latin America: it is not always easy for women to play a role in the management of a farmers' organisation. Moreover, young people are turning their backs to agriculture: big challenges, lack of investments, elderly vegetable companies make this job less attractive.

The Subway sandwich chain that we mentioned before is currently in talks with the women's group. They are particularly interested in an innovative agricultural technique: Hydroponics.

In 2019 Rikolto decided to start 4 pilots of hydroponics. A strategic partnership was established between Rikolto, the Consorcio Agrocomercial and the Luxembourg-based company, ADA, specialized in microfinance, which provided the necessary start-up capital.

With the pilots' experience, the partnership was able to participate in Eurosan Innova, an initiative that will enable it to extend the systems to more farmers with funds from the European Union and the Government of Honduras.

The Consorcio Agrocomercial still faces a number of challenges internally too. "We are writing a success story. That much is certain" says Cesar Maradiaga. "But hubris is punished!" The self-sufficiency of the Consorcio is one of the greatest challenges the farmers' organisations will continue to face in the coming years. A solid management structure and smooth administrative operation will soon have to be established. Today, a large part of the financing of the Consorcio’s workforce still comes from the NGO Rikolto. In order to be fully independent, a solid financial plan is desperately needed.

Annabell Guzman looks at the future positively. "There will always be challenges on the road", she nods, "but this is really a success story." 9 out of 10 enterprises in Honduras fail within three years, but the Consorcio Agrocomercial de Honduras will be celebrating its tenth anniversary soon.