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The healing power of a cash crop

Palm oil has become a starting point for social and economic growth in San Alberto, a region struck hard by guerrilla activity in Colombia. The growing industry has transformed the local rural workers into suppliers of a complex production chain. Colombia is the top Latin American exporter of palm oil and the fourth-largest in the world.

The business model of this palm crop story, which can be easily replicated with other crops and in other violent zones, was presented recently at IDB Headquarters by Luis Lizarralde, an expert in commercial regulation and corporate negotiations. The model was implemented, he explained, by the Colombian company Indupalma, which has been involved in the extraction and commercialization of palm oil since 1961.

The model is based upon the creation of work cooperatives for production and marketing of the palm crop, involving the government, the private sector, affiliated work cooperatives, rural workers' associations and the financial sector.

The work cooperatives are created to generate direct employment for rural workers, who provide labor and sell the fruit, becoming providers for the company that actually processes the palm oil. Rural workers acquire the land for farming and machinery with the technical and logistic support of the same company and financing from the private sector and the state through Finagro, Colombia’s fund for agricultural financing.

Finagro, with lines of credit to promote agriculture, arranges the resources so that banks can grant loans and fund the fiduciaries that administer the resources of the crop projects and take the land as a guarantee. On the other hand, the company negotiates for credit with the finance sector and repays the debt out of the proceeds of the sales of the fruit, in addition to paying the peasants as contractors on the project.

The company, as project operator, also guarantees the purchase of the crop, offers training to those who provide it, studies trends in the oil market and sells palm seedlings.

Today, the cooperatives supply 78% of the agricultural work that Indupalma requires, while the company takes charge of the administrative and operational tasks required by the farming operations. For the rural workers, creation of the cooperatives has meant a source of stable jobs supported by the company’s contracts, an expectation of becoming property owners, major participation and decision making in local projects, the elimination of illiteracy, better life conditions and social security against the guerrillas, according to Lizarralde.

The model saved Indupalma from the deep financial and labor crisis that it suffered in the middle of last decade, as a result of the region’s instability after several years of siege by the guerrillas. The low productivity of workers in this violent environment has been transformed into a desire among the workers for improvement, independence and entrepreneurship, so that they can become landlords and owners of palm crops, manage their cooperatives and increase their productivity.

Currently, about 8,300 people benefit from the projects, creating a center of economic development in the region that generates needs  for housing, education, health and public services, according to Lizarralde. The development has involved the hiring of agrarian services from the cooperatives managed by the rural workers; the capitalization of the cooperatives through the acquisition of fixed capital, machinery and lease contracts for the land (with the option to buy) for the employees; and land property and oil crop transfers. To achieve this business model, Indupalma has begun to devote itself also to investment banking services to structure, design and promote the agrobusinesses involving palm oil and related crops.

“This model demonstrates that it is possible to move projects forward that benefit all the sectors of the society through public and private alliances, in addition to allowing access to property to those who lack the economic resources to acquire it,” Lizarralde said.

What’s more, the model has led to the improvement of living conditions, a more peaceful environment, and the construction of social capital.

Lizarralde added that there are increasing opportunities in this field as demand for biofuels production, which requires vegetable or animal oil, increases.

The promotion of palm oil crops applying the Indupalma model becomes more important with the national interest in producing biofuels, noted Lizarralde. He  emphasized that the current Colombian national production of raw palm oil mostly supplies the soap, detergent and cosmetics industries. Last year, the annual production was 700,000 tons, approximately 500,000 of which went to these industries, with approximately 200,000 tons exported.

Indupalma received an IDB loan for US$1,230,000 in 1964 for palm cultivation.