Quinoa Case Study
Another example of how understanding the market opens the door to opportunities that others miss is the work that I did with U. S. Agency International Development (USAID) and the Peruvian Alti Plano (high plain) and the quinoa industry. In 2001, USAID hired me to support the development of the Alti Plano region of Peru and specifically to focus on the quinoa industry to provide the rural, often subsistent level producers in the highlands of Peru a market for their product – quinoa. In that area the agricultural production opportunities are limited due to natural conditions. At this altitude few crops can be produced, the two most common ones are potatoes and quinoa. These two crops were the key to the success of the Incan civilization prior to Pizarro’s conquest of the Inca’s in 1532. The Inca’s had stockpiled these crops along the Inca Trail, which helped Pizarro’s Conquistadors survive by raiding the storage of “surplus” dehydrated potatoes and quinoa.

Unfortunately for the Peruvians the industry, potatoes found their home around the world and despite the potato being indigenous to Peru, the Peruvian potato industry is not a factor in the global potato production. Quinoa is a high protein product (10 – 18%) and a great amino acid balance. Based upon the amino acid balance it can be a replacement for dairy products in the diet. Despite these highly beneficial characteristics quinoa, had limited popularity outside of the region in 2001. Up to that time it was primarily known as a non-glutenous product consumed by celiac’s (those with gluten allergies) and other health conscious consumers looking to decrease their gluten consumption. Prior to our efforts with quinoa it had not entered the mainstream market with limited consumer knowledge of its benefits.

Quinoa, unlike the potato, did not find its way around the world as a crop and consumed item because the best quinoa, with high protein and great amino acid balance, is produced above 5,000 feet in elevation in the Andes. This high altitude combined many environmental factors including solar units (amount of sunshine received) with cold nights and cool sunny days. Quinoa produced at lower altitudes and away from the equator have lower levels of protein and lack many of the nutritional benefits of quinoa grown at the high altitudes of Peru and Bolivia.

In 2000 and 2001 I visited the Alti Plano and the quinoa that I saw was no different than product seen by dozens of earlier consultants and agriculturalist who were often sent with the same task as I was to help the locals identify a market for their product. For years the government of Peru, development agencies and businessmen and women had been challenged with the task of identify markets for quinoa and use it to provide the indigenous farmer on the Alti Plano with increased income opportunities. Prior to 2001 most of the quinoa produced in Peru were sustainable families producing sufficient product to meet their family needs and selling surplus product on the market. With the limited exporters there were no production contracts and all buyers purchased product on a spot basis.

By understanding the market (consumer demand) I was able to identify a different opportunity than others had seen prior to my visit. Based upon my knowledge of the market and my entrepreneurial experience I was able to identify, quantify and put into motion the development of an industry that converted a rare variety of quinoa to a business that in 2016 was estimated to generate more than $160 million USD in global sales. In fact, our efforts brought quinoa to a high profile to have the United Nations designate 2013 as the International Year of Quinoa.

When visiting an indigenous farmer on the altiplano I was presented with a seed variety that a local woman had discovered on her farm as a mutation from the standard variety of quinoa. Traditional quinoa has a bland, non-descript, color (like that of a blond file folder). The mutant variety that was presented to me by the Incan lady was a mahogany red in color. With this variety I saw an opportunity to meet a demand in the culinary industry (restaurants) for a unique, highly nutritious, product that due to its mahogany color was different from anything else they could put on the plate. With this new variety of quinoa, a chef could replace bland colored and standard starch (potato, couscous, rice) with a healthy red substitute possessing a flavor profile they could work with to develop a signature dish.

Developing this opportunity was not without its risk. One of the challenges that we faced was the risk involved with the subsistent farmers producing an unknown variety, with unknown yields, and an unknown market. To a farmer that depends upon the surplus of their crop (beyond their own consumption) with a failure in yield or market resulting in a failure in the family ability to sustain themselves until the next harvest the risk was unbearable to accept. If the farmer planted the limited seed on their limited land and applied their limited resources to its production and it failed, they would fail at feeding their family. In Peru there were limited social safety nets to catch them, so failure was not an option and would be life threatening (see my other book it is all about the hammock due out in the fall of 2021!). To move the opportunity, forward something needed to be implemented to minimize the risk to the farmers.

To move this risk to a level that was acceptable to the subsistence farmer it was important to get the buyer to commit to the product before it was produced. It is ideal for any company selling a product or service to get a commitment for their production and product before production or providing the service, but it is even more critical when failure is not an acceptable option. If the Peruvian farmers on the Alti Plano had a crop failure because they tried something new it is going to have a severe impact on them because their safety net, the level below that which they can fall if they fail, is much lower than in the USA, Europe, or other developed countries. Therefore, to get the producers to accept the risk they had to have some assurances that success was eminent. To accomplish this the farmers required a production contract, something that had never been done before for quinoa, or any other agricultural product produced on the Alti Plano.

Likewise, the buyer had risks associated with the costs of travel to Peru not knowing what they would find with the opportunity, and then if they committed to the program, they had time, funding and reputation at risk should the effort fail. At that time the development agency (USAID) felt that the risk of bringing down a buyer was not worth the cost. (USAID is always reviewing return on investment (ROI) but often not being experienced in business they don’t always have the necessary vision or tools to make an informed decision). So, to minimize the buyers’ risk, and advance my vision, I paid for the buyers’ trip to Peru. This risk from our side was possible because I had confidence in my assessment of the situation and committed my funds to get him to Peru to share my vision and advance the concept. I had done my own ROI analysis and determined that my risk (cost of his ticket) was justified by the possibility and probability of success.

By understanding the market, from all stakeholders’ perspective, I was able to get everyone to accept a level of risk that they felt comfortable with in this situation. The buyer when seeing the product and understanding the opportunity agreed to pay for 50% of the crop prior to production and the balance at the time of shipment. Rather than paying individual farmers, which would be a high risk, the buyer paid a Non-Governmental Organization (NGO) run by CARE and the Catholic Church. These organizations provided the buyer with confidence by their acting as an honesty broker providing a foundation and level of confidence that without which would otherwise have not been sufficient to minimize the buyers’ risk of sending funds to Peru for a crop that was not yet in the ground. The producers’ risk was minimized with the receipt of 50% of the crop value covered prior to production. With these risk mitigation factors everyone had an acceptable level of risk based upon their view of production risk and the market.

By understanding the market, and the buyers desire for something different, something that could make their dish stand out on the plate, I was able to identify and provide the opportunity that others had missed. With support of a US buyer committing to the harvest the local producers were able to multiply this seed to commercially viable quantities.

Interestingly, when the USAID project, managed by Chemonics International, did their final report on the project they stated “Consultancies have been less successful in identifying new markets. For example, a PRA consultant arranged for the President of Quinoa Corporation to visit Peru in 2001: after visiting the Puno Economic corridor, he decided to test the red Pasankalla variety of quinoa in the US food service industry and ordered 72 metric tons. Because that variety was close to extinction, it took several years for the local processor, El Altiplano SAC, to fill the order and demand has been sporadic since that time. In 2016 it is estimated that the red quinoa, which started with 1 kg of mutant – “near extinct” seed, was generating about $160 million US Dollars in export sales for Peru and Bolivia. This illustrates several things including the lack of vision and patience that is prevalent with those that look for low hanging fruit and immediate cures.

Unfortunately, as discussed above in the downstream examples, results, good and bad, are not immediately realized. By understanding the market and adjusting the risk reward ration we can have confidence in the long-term and with patience can wait for time, or distance, to pass so that results can be achieved. In this case those who started the activity, and those that followed, did not realize the benefits until after the USAID project had stopped measuring results. Though the results were not measured by USAID the objectives were achieved with results far exceeding everyone’s expectations.

What made the quinoa example a success was the fact that as time advanced everyone understood the market they were “selling to” and how something different could change the results in a significantly positive manner. Farmers are inherently patient, as all the crops that they produce are harvested – down the road – and therefore they must have confidence in their risk versus reward analysis and this is best done when they fully understand the market.