Cocaine, Poverty, and Chocolate: Alternative Development in Peru s former drug capital. Robert Chun

Cocaine, Poverty, and Chocolate: Alternative Development in Peru s former drug capital Robert Chun Professors William Durham and Julia Novy-Hildesley Conservation and Development Dilemmas in the Amazon - Fall Quarter 2013 October 14 th, 2013

For the past thirty years, a region of Peru known as San Martín has captivated the international development community. San Martín was once the world s most notorious supplier of cocaine. At its height in the 1980s, San Martín maintained 30,000 hectares of coca and sheltered multiple narco-terrorist organizations, including the notorious Sendero Luminoso. i But the immense wealth of the cocaine trade never touched those farmers who produced the coca leaf. For decades, the region was marred by violence, reined over by terrorists, and strangled by poverty. Since that time, the region has been by every account transformed by an international program known as alternative development. The goal of alternative development, as defined by the United Nations Office on Drugs and Crime, is to give farmers an economically viable, legal alternative to growing coca bush, opium poppy or cannabis plant. ii The idea was first tested in the Chapare region of Bolivia, and in the late eighties, it was expanded to San Martín in Peru and Bota Caucana in Columbia. iii It was adopted by the United Nations as an official drug-fighting tool in June 1998. iv San Martín exemplifies how the Peruvian drug trade has become so deeply connected with human development and conservation. Promotion of conservation at the expense of the drug trade will fail, as will ending coca leaf production at the expense of human development. Just as sustainability in Rabben s Brazil's Indians and the Onslaught of Civilization mandates the inclusion of both cultural and natural ecosystems, any solution to San Martín must be similarly comprehensive. The hypotheses tested by this paper will be threefold. It will contend that alternative development is 1) economically beneficial for San Martín, 2) environmentally sound (as measured by pollution and deforestation), and 3) replicable in other regions of Peru (specifically the Madre de Dios region). These hypotheses will be tested by a review of the current literature,

as well as original research (an interview with a non-governmental organization (NGO) operating in the region). But the paper will first give important historical context through which the evidence may be better understood. The San Martin Story San Martín is located in the upper Peruvian Amazon rainforest. Until recently, San Martín was a region defined by poverty, low agricultural productivity, and political volatility. Photo 1 Personal photo of an aerial view of the Amazon River in Madre de Dios, Peru The high levels of poverty can be traced to a large immigration of poor families from Cajamarca an area known for its dense and impoverished population in the 1960s. v As late as 2000, the poverty rate was 70% while Peru s national average was only 50%. vi The low productivity stems from the region s reliance on basic slash-and-burn techniques, which promote erosion and deforestation. vii

Photo 2 Personal photo of a slashed field currently burning in Madre de Dios, Peru Prior to the 1970s, San Martin rarely received much attention outside of Peru. But once the coca industry took root in the mid-1970s, the region s rise was swift. viii In the 1980s, narcoterrorist organizations began to expand cultivation of coca within the region. These groups included the infamous Sendero Lumniso and the Movimiento Revolucionario Tupac Amaru. ix During this decade, San Martín reached 30,000 hectares of coca production the most in Peru, which produced the most coca of any country in the world. x Alternative development arrived in San Martín in the early nineties. During this period, the government began to systematically eradicate coca bushes in San Martín. For the first time, substitute crops like cacao, palm, and coffee were grown in substantial quantities. The first NGOs and government organizations arrived to ease the transition from coca to other crops. These groups come with similar goals but different approaches. The U.S. Agency for International Development (USAID) emphasized social services and markets. In contrast, the

United Nations worked to organize farmers into groups that could have more price leverage. Peru s national drug council (DEVIDA) endeavored to emphasize environmental sustainability. Today, many organizations are active in San Martin, and they continue the mission of giving farmers viable alternatives to coca. Many have integrated programs that teach best practices, connect farmers to better markets, and certify farmers with labels. To understand the role of a typical NGO, consider Soluciones Prácticas, which has worked with about 300 smallscale producers since 2006. xi The project has three goals. First, Soluciones Prácticas teaches sustainable agriculture practices to limit the cycle of desertification (the process of ruining fertile land, then moving to a new plot). Second, it strengthens communities and the rule of law by mapping stakeholders and improving communication between producer organizations and local governments. Third, Soluciones Prácticas promotes higher prices by enrolling farmers in cooperatives and fair-trade certification programs. Soluciones Prácticas has seen great success. Nearly three hundred farms have obtained fairtrade certification, and two hundred have achieved organic certification. xii Farmers have adopted better pruning techniques, which have increased cacao productivity from 350 to 500 kilograms per year. xiii Under Soluciones Prácticas s leadership, cacao producers incomes have increased by 7%, and coffee producers incomes have increased 34%. xiv Similar results have been achieved by other NGOs such as Technoserve, which has increased cacao productivity by 28% over the course of two years. xv There are many other partners in the alternative development process. USAID is a major funder of NGOs similar to Soluciones Prácticas. Technoserve, for example, obtains about 50% of its funding from USAID, while the rest is provided by the PIMCO Foundation. xvi Furthermore, NGOs like Soluciones Prácticas and Technoserve rarely work alone. They combine resources

with existing cooperatives, like ACOPAGRO (an organization of 2,000 cacao farmers) and Oro Verde (an organization of 970 coffee farmers). xvii Modern alternative development is alive and well in Peru. By most accounts, it has resulted in the effective elimination of coca production from the region. With this background, the three hypotheses will be tested against available data to better understand the success and cost of alternative development. Hypothesis 1: Is alternative development economically successful? To judge the effects of alternative development on the San Martín region, one must examine economic indicators beyond the results of a few NGOs. If anything, these economic indicators show even more dramatic progress. Figure 1 illustrates the growth of the agricultural sector in five regions in Peru from 2001-2009. Figure 1 - Growth of the Agricultural Sector: 2001-2009 xviii 80% 36% 8% 9% 15% Huanuco Pasco Junin Cajamarca San Martin Especially when compared with surrounding regions (Huánuco is the southern neighbor of San Martín), San Martín economic growth has been spectacular. Population growth has also been highly varied, but on average, it appears be consistent with other regions in Peru. xix Even more inspiring has been the dramatic fall in poverty rates. The percent of the San Martín

population in poverty has fallen to 31%, down from 70% in 2000. Peru s overall rate has fallen to the same figure (31%), down from 50% in 2000. Figure 2 illustrates overall poverty levels in Peru in 2001, 2005, and 2010. The darker colors indicate higher levels of poverty, and the lighter colors indicate lower levels. Figure 2 Poverty rate by region: 2001, 2005, and 2010 xx While poverty has decreased in Peru as a whole, San Martin has made far more progress than any of its bordering neighbors. By examining both an economic indicator (agricultural growth) and a human indicator (poverty), we can be more confident that increased economic growth is benefiting all levels of society. Indeed, by all accounts, San Martín has become an economic engine of Peru. Hypothesis 1 seems almost certainly true.

Photo 3 Personal photo of an impoverished squatter camp in Madre de Dios, Peru Hypothesis 2: Is alternative development environmentally sound? Coca, while profitable, is a deeply destructive plant. Among its many unfortunate properties, the plant is highly erosive. Coca is most ideally grown on steep (at least 45 degree) slopes that encourage good drainage. xxi The crop also requires intensive weeding after each harvest, which can involve removing the top 15 centimeters of soil. xxii Based on land use studies of the San Martín region, experts estimate that coca alone is responsible for 10 percent of the total accumulated deforestation in the twentieth century in the Peruvian Amazon. xxiii

Photo 4 Personal photo of recently burned field note lack of anti-erosive undergrowth The processing of coca into cocaine is also environmentally destructive. In order to extract the alkaloids found in 120 kg of coca, workers use 18 liters of kerosene and 10 liters of sulfuric acid. xxiv For cleaning and processing, an additional 11 liters of acetone and 11 liters of toluene is required for every kilogram of basic paste. xxv These chemicals are then dumped in the Huallaga river basin, where they pollute the water used for drinking, cooking, and cleaning. xxvi

Photo 5 Personal photo of river basin polluted by gold mining chemicals In light of coca s destructive properties, a shift towards virtually any other crop would be an improvement. Cacao, for example, is a shade crop that can be grown through agroforestry, which both prevents erosion and maintains biodiversity. xxvii These more sustainable, legal crops (such as coffee, cacao, palm oil, maize, cotton, and rice) now occupy 235 thousand hectares in San Martín. xxviii Meanwhile, Illegal coca production has been reduced to a mere 321 hectares. xxix Unfortunately, it is unclear whether or not these new crops have stopped the onslaught of deforestation. Figure 4 illustrates the persistent rise of cultivated land from 2001 to 2010.

Hecares of land Figure 4 - Area of cultivated land in San Martín: 2001-2010 500,000 450,000 400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Hectares of land 251,721 252,948 256,369 309,193 340,005 330,461 344,008 398,311 427,980 445,339 Overall, land use has increased by 77% from 2001 to 2010. Recall that the region s agricultural sector grew 80% from 2001-2009. The similarity is striking. Exceptional population growth could explain both statistics, but San Martín s population has grown roughly as fast as other regions. So we are forced to consider a disturbing conclusion. Many have assumed that alternative development has achieved its economic growth by making existing plots more efficient. But what if it had the side-effect of encouraging farmers to expand their plots of land? If this is the case, the majority of economic growth from alternative development may derive from expansion of cultivated land, rather than more sustainable use of existing land. This bodes very poorly for alternative development s role in preventing deforestation. Hypothesis 3: Is alternative development replicable? The short answer is yes but not with NGOs and international aid alone. Replication necessitates investment in social infrastructure at a cost that the Peruvian government is unlikely to pay in the near future.

To help better understand the role of government in San Martín s success, it is useful to compare the region with a test case. The best comparison for San Martín is its southern neighbor, Huánuco. Because of its geographic proximity to San Martín, the two regions share many of the same cultural and agricultural traits. However, the two regions have met very different fates. The explanation for this difference will be crucial to understanding the difficulty of replicating the San Martín story. Throughout the late eighties and nineties, South American countries were engaged in a battle with drug cartels. One of the turning points in this war was the Columbian capture of the Medellin drug cartel one of the world s largest and most notorious drug traffickers. According to the United Nations Office on Drugs and Crime, between the mid-eighties and the capture of the Medellin Cartel, coca prices fell by 96% because of the drop in demand. xxx Initially, coca production in both San Martín and Huánuco fell dramatically. Figure 5 illustrates the drop in both regions. Figure 5 - Hectares of coca production in Huánuco and San Martín: 1992-2000 xxxi 50,000 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 1992 1993 1994 1995 1996 1997 1998 1999 2000 Huánuco San Martín

But after this drop in production, the similarities between Huánuco and San Martín ended. In the mid-1990s, San Martín began to benefit from a wealth of resources devoted to its alternative development. Meanwhile, Huánuco remained ignored by its government and international NGOs. As a proxy for overall government attention, consider the amount of government coca eradication in both regions. Figures 6 and 7 illustrate the government s coca eradication in both San Martín and Huánuco respectively. Figure 6 Coca eradication in San Martín: 1992-2010 xxxii Figure 7 Coca eradication in Huánuco: 1992-2010 xxxiii During the nineties, San Martín benefited from a large coca eradication program. But, as the United Nations Office on Drugs and Crime states, very little eradication takes place [in Huánuco], mainly due to lack of political will of regional and local authorities. xxxiv Again, consider the level of coca eradication as a proxy for overall government attention.

These different levels of government attentiveness set the stage for dramatically different results when the coca market roared back. In 2000, a large coca boom, driven by Mexican cartels, came to Peru. xxxv Figure 8 illustrates the coca production levels in San Martín and Huánuco during this time. Figure 8 Coca production in Huánuco and San Martín: 2001-2010 xxxvi 20,000 15,000 10,000 5,000 Huánuco San Martín 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 As illustrated, San Martín continued to decrease coca production for many years after 2001. However, Huánuco increased its coca production by 53% between 2001 and 2008. As explained earlier, the international development community has settled on government and civil infrastructure as the differentiating factor. The United Nations Office on Drugs and Crime pays special attention to the role of public resources in its report on San Martín. One of the key institutions in these results was the San Martín Regional Government, allowing the creation of the adequate institutional framework and the accumulation of sufficient political will to conduct alternative development activities. xxxvii A NGO leader in San Martín was more emphatic about the role of government. This author interviewed Victor Ganoza, the Chief of Party for Technoserve, in September 2013. According to Ganoza, many farmers individually wanted to switch from coca to coffee or cacao. xxxviii These farmers faced stigma from their communities and danger from cartels. But without law

enforcement, farmers were defenseless against retaliation by the cartels if they dared stop production. And in the absence of better options, coca s high profitability (higher than that of coffee or cacao) made it an appealing choice. xxxix In San Martín The only reason people switched was because everyone the government, the international community, the farmers was working towards the same goal. xl Ganoza said that increased government presence was especially critical. If there wasn t this new infrastructure, we could never have shifted them. There has to be healthcare, policy, education. You need all of it. xli In other words, coca is a multi-faceted problem. All solutions must be applied together; if applied individually, each will fail. While Ganoza s conclusion is profound, its implications for replication are daunting. Comprehensive solutions as was applied in San Martín require immense resources, especially from the government. As a top target in the international drug war, the reason San Martín received government attention is clear. But the reasons why other regions especially those without major coca production would receive equal government attention is unclear. Figure 9 illustrates coca production in various parts of Peru. Figure 9 Hectares of coca cultivation by region: 2001-2007 xlii

Alto Huallaga is a good approximation for San Martín, as is Inambari-Tambopata for Madre de Dios. In 2007, Alto Huallaga produced six times as much coca as Inambari- Tambopata. If government resources are devoted to areas with the highest coca production, it seems unlikely that Madre de Dios will see increased attention in the near future. Review of hypotheses Recall that this paper set out to test three separate hypotheses. The contentions were that alternative development is 1) economically beneficial for San Martín, 2) environmentally sound (as measured by pollution and deforestation), and 3) replicable in other regions of Peru (specifically the Madre de Dios region). Each will be addressed in turn. The economic data is clear: San Martín has grown faster and richer than any of its surrounding neighbors. The success can be seen with microeconomic indicators (incomes of participants in various NGO programs), as well as macroeconomic metrics (economic growth). NGOs have successfully connected farmers with better-paying markets and educated producers on best practices. Poverty has seen a sharp decline. The agricultural sector in particular has seen astronomical growth. Moreover, it has done so almost entirely with legal (and more sustainable) crops like coffee and cacao. The economic lens produces a hopeful, inspiring portrait of a once devastated region. The hypothesis that alternative development is economically beneficial for the region is almost certainly true. The data on environmental benefits yields a much less hopeful picture. Economic growth has climbed quickly, but land usage rates have followed. Indeed, both figures rose by about 80% between 2001 and 2010. One possible explanation is that farmers, emboldened by better practices and markets, now have the capital necessary to expand their operations. If this is the case, it is unlikely that alternative development has prevented much deforestation indeed, it may have contributed to it. On the other hand, coca a deeply destructive plant to grow and

process has been effectively eradicated. Coca s elimination has removed coca s erosive and polluting effect, which is no small achievement. While further study is required to come to definitive conclusions, the data indicates that alternative development is unlikely to be an effective conservation tool. Hypothesis 2 is more likely false than true. Comparing Hypothesis 3 with the data yields the most interesting and complicated conclusion. Based on statistical comparisons with neighboring regions and narrative testimony, any hopes for replication depend on the government s commitment to social infrastructure. Without this backbone of law and social mobility, efforts by communities and NGOs are unlikely to succeed. For better or worse, government funds appear to flow to regions with the most involvement in the drug trade (such as San Martín). Areas that attract little international attention such as Madre de Dios are likely low priorities for government funding. Because replication requires such a comprehensive effort by public and private actors, the San Martín success story will probably not be shared with other regions for years to come. It is worth spending a moment to consider why government infrastructure is so critical. Problems as deeply-rooted as coca cultivation require complex solutions. Drug production has long provided economic structure to communities like San Martín. No organization public or private, wealthy or poor can simply sever an institution as important as coca cultivation. Coca s roots have given structure to the community they may poison it with violence, but they also feed it with income. To remove such deep-set social maladies, one must slowly replace coca s roots with civil society, education, and law. To ignore this fact is to doom the endeavor to fail and watch the hated problem bloom again, stronger than ever before. Neither NGOs nor international aid can fill these civil voids. That task belongs to the government alone.

Conclusion Thirty years has yielded immense progress in San Martín. Around the world, the region s success has been termed the Miracle of San Martín. But the truth is far more humble. Alternative development in San Martín is a story of a deeply complicated problem matched with an unusually comprehensive and well-funded solution. Organizations that wish to replicate the San Martín miracle should take note of all costs in both financial resources and unchecked environmental damage. As is so often the case, the international development community is left with an imperfect solution to a deeply complicated problem. If nothing else, San Martín affirms the lessons of Conservation and Development Dilemmas in the Amazon. That is, all problems important enough to solve are complex and resilient. This has been seen time and time again, in case studies and anthropological accounts. Few have been able to match complex problems with robust solutions and even organizations as large as the World Bank have stumbled trying. San Martín is clearly an imperfect solution, but against the backdrop of so many failures, it should give hope to those who dare to try.

Works Cited The Alternative Development Model in San Martin: A Case Study on Local Economic Development Executive Summary. Publication. United Nations Office on Drugs and Crime, n.d. Web. 13 Oct. 2013. Cabieses, Hugo. The miracle of San Martín and Symptoms of alternative Development in Peru. Issue brief no. 34. Transnational Institute, Dec. 2010. Web. 13 Oct. 2013. Dourojeanni, M. Environmental Impact of Coca Cultivation and Cocaine Production in the Amazon Region of Peru. Issue brief no. 2. N.p.: United Nations Office on Drugs and Crime, 1992. Web. 13 Oct. 2013. Estela, Manuel. "El Modelo De Desarrollo Alternative De San Martin." SlideShare. United Nations Office on Drugs and Crime, Sept. 2011. Web. 13 Oct. 2013. Ganoza, Victor. Online interview. 9 Sept. 2013. Rice, Robert A., and Russell Greenberg. "Cacao Cultivation and the Conservation of Biological Diversity." AMBIO: A Journal of the Human Environment 29.3 (2000): 167. Print. Torres, Juan, and Carlos Frias. Innovative Mountain Adaption: A Case Study in Agroforestry s Economic, Environmental and Social Benefits. Publication. Evidence and Lessons from Latin America, n.d. Web. 13 Oct. 2013.

i The Alternative Development Model in San Martin: A Case Study on Local Economic Development Executive Summary. Publication. United Nations Office on Drugs and Crime, n.d. Web. 13 Oct. 2013. ii Ibid. iii Ibid. iv Ibid. v Torres, Juan, and Carlos Frias. Innovative Mountain Adaption: A Case Study in Agroforestry s Economic, Environmental and Social Benefits. Publication. Evidence and Lessons from Latin America, n.d. Web. 13 Oct. 2013. vi The Alternative Development Model in San Martin: A Case Study on Local Economic Development Executive Summary. Publication. United Nations Office on Drugs and Crime, n.d. Web. 13 Oct. 2013. vii Torres, Juan, and Carlos Frias. Innovative Mountain Adaption: A Case Study in Agroforestry s Economic, Environmental and Social Benefits. Publication. Evidence and Lessons from Latin America, n.d. Web. 13 Oct. 2013. viii Ibid. ix Ibid. x Ibid. xi Torres, Juan, and Carlos Frias. Innovative Mountain Adaption: A Case Study in Agroforestry s Economic, Environmental and Social Benefits. Publication. Evidence and Lessons from Latin America, n.d. Web. 13 Oct. 2013. xii Ibid. xiii Ibid. xiv Ibid. xv Ganoza, Victor. Online interview. 9 Sept. 2013. xvi Ibid. xvii The Alternative Development Model in San Martin: A Case Study on Local Economic Development Executive Summary. Publication. United Nations Office on Drugs and Crime, n.d. Web. 13 Oct. 2013. xviii Ibid. xix Estela, Manuel. "El Modelo De Desarrollo Alternative De San Martin." SlideShare. United Nations Office on Drugs and Crime, Sept. 2011. Web. 13 Oct. 2013. xx Ibid. xxi Dourojeanni, M. Environmental Impact of Coca Cultivation and Cocaine Production in the Amazon Region of Peru. Issue brief no. 2. N.p.: United Nations Office on Drugs and Crime, 1992. Web. 13 Oct. 2013. xxii Ibid. xxiii Ibid. xxiv Ibid. xxv Ibid. xxvi Ibid. xxvii Rice, Robert A., and Russell Greenberg. "Cacao Cultivation and the Conservation of Biological Diversity." AMBIO: A Journal of the Human Environment 29.3 (2000): 167. Print. xxviii Cabieses, Hugo. The miracle of San Martín and Symptoms of alternative Development in Peru. Issue brief no. 34. Transnational Institute, Dec. 2010. Web. 13 Oct. 2013. xxix Ibid. xxx The Alternative Development Model in San Martin: A Case Study on Local Economic Development Executive Summary. Publication. United Nations Office on Drugs and Crime, n.d. Web. 13 Oct. 2013. xxxi Estela, Manuel. "El Modelo De Desarrollo Alternative De San Martin." SlideShare. United Nations Office on Drugs and Crime, Sept. 2011. Web. 13 Oct. 2013. xxxii Ibid. xxxiii Ibid. xxxiv The Alternative Development Model in San Martin: A Case Study on Local Economic Development Executive Summary. Publication. United Nations Office on Drugs and Crime, n.d. Web. 13 Oct. 2013. xxxv Ibid.

xxxvi Estela, Manuel. "El Modelo De Desarrollo Alternative De San Martin." SlideShare. United Nations Office on Drugs and Crime, Sept. 2011. Web. 13 Oct. 2013. xxxvii The Alternative Development Model in San Martin: A Case Study on Local Economic Development Executive Summary. Publication. United Nations Office on Drugs and Crime, n.d. Web. 13 Oct. 2013. xxxviii Ganoza, Victor. Online interview. 9 Sept. 2013. xxxix Ibid. xl Ibid. xli Ibid. xlii Estela, Manuel. "El Modelo De Desarrollo Alternative De San Martin." SlideShare. United Nations Office on Drugs and Crime, Sept. 2011. Web. 13 Oct. 2013.