Colleen HsiaJournal #1
My main task for this project will be to figure out how to export Kampot peppers from Cambodia, with the intent of using profits from this venture to fund secondary school operations. These peppers had long been used in exquisite gourmet cuisines, but demand quickly declined with the smothering reign of the Khmer Rouge. In turn, farmers abandoned their plantations and tore down the precious vines that the pepper plants grew on. Generations of pepper farmers were displaced, nearly resulting in the death of this precious spice.
My first task was to figure out what would be required, should we go down the path of opening our own pepper plantation to grow the crops ourselves. After meeting with a few energy companies (necessary to power the plantation by diesel generator or solar power), it became clear that the capital outlay required for installing a water pump and digging a well and retention pond, in addition to the careful care demanded by these delicate crops, we could not possibly even imagine growing these peppers on our own. We then went about investigating how we could buy them. We traveled to Kampot, a province four hours outside of the country capital of Phnom Penh.
The Kampot peppers are sold by the farmers for $5/kg who have spent the past few years organizing themselves into a cooperative to share best practices and bring power back to the farmers. These efforts resulted in a crop yield of 12 tons in 2009, a number which is 40% higher than last year. The farmers have an agreement with a number of buyers who have most favored nation clauses, granting them some ability to monitor and match the prices as well. Together, these organizations work to control market supply and to set prices. These mechanisms proved effective in recent months, where due to economic conditions, the pepper crop simply did not sell. Out of the 12 tons produced, only one ton was sold – to one of the buyers’ who works most closely with the farmers’ cooperative.
FarmLink is a French-owned effort that aspires to build up the reputation of the Kampot pepper again in a number of ways. First, it’s worked with the farmers to apply for Geographic Indication status, which will effectively grant an international trademark to the Kampot pepper and prevent imitation crops from being exported out of Vietnam. Second, FarmLink has tried to sell the pepper mostly to high-end buyers and restaurants in Europe to prop up both the reputation and the price floor for this spice. In addition, FarmLink actually tries to teach the farmers how to do institute hygiene and quality control, and these days it is attempting to certify the product as organic – such a task requires 3 years of records indicating that no artificial fertilizers were put into the ground. It was obvious that FarmLink’s participation in this agreement was pivotal to the farmers’ livelihood. Finally, FarmLink provides it own grueling quality control standards, using humidity gauges and inspection by peppercorn to ensure that what it sells to customers is top notch. In a show of solidarity, during poor sales due to the economic downturn, FarmLink appeared as the association’s only buyer, even despite its own inability to sell the peppers downstream.
After meeting with both the farmers and FarmLink and working through some numbers in our heads, it occurred to my team that the way to sell this product would be through some sort of distribution channel marked by exclusivity. With my team’s connections, it made sense to focus upon our strengths and connections in the U.S., instead of what had originally been on the table, which was learning how to grow and tend to crops on our own. The thought was that we could purchase from FarmLink to ensure quality and hygiene control, and then we could set up as a distributor in the U.S. with first mover advantage. While there were a limited number of small scale competitors, all were targeting the low-end pepper and pepper mill market. It was doubtful that they might have the resources or the idea of targeting the high-end segment.
We quickly came up with a list of spice distributors and potential restaurants who might be interested in this sort of product – namely high-end French institutions and restaurants specializing in molecular gastronomy, where aromatics and strong concentrated flavors are in high demand. We thought that we could use the social purpose as a hook, and the reel in the customers with the distinctive flavor and reputation of the Kampot peppers. We thought of reaching out to contacts within FoodNetwork, Bravo, Gourmet Magazine, and Bon Appetit. Additionally, we discussed promoting the pepper through exclusive events such as the Aspen Food and Wine Festival. We then embarked upon writing a business plan that we would later present to potential investors and sources of development grants.
Journal #2
Most of my time, in the past few weeks, has been spent preparing for a presentation with the World Bank. We plan to present to them with ideas from a business plan for our for-profit arm and seek feedback as to whether we qualify for a series of grants targeting exporters of Cambodian goods. I should clarify that the meeting itself did not require a full blown business plan, but it felt that in order to touch on all key strengths, concerns, competitors and logistics, we would have to write something very close to a full plan in order to be fully prepared. I dedicated a substantial chunk of my time towards this task. The logistics were complex, but not impossible. We were fortunate in that the U.S. doesn’t have a tariff on whole peppercorns, and that FarmLink had already successfully exported into the U.S. on a small scale. This meant that the FDA had already done a first pass (usually 50%) to sample the goods. Any additional shipments into the U.S. would not be subject to such scrutiny – the amount of the good sampled would fall with each additional shipment.
The original plan at the outset had been to sell Kampot peppers, and the profit margins were ridiculous. We’d seen that it was possible to sell the peppers in European retail markets at nearly $60/kg, after purchasing from FarmLink at $12/kg; they purchased from farmers at $5/kg and charged $7/kg for quality control and relationship maintenance.
But no matter how hard I tried, the computations quickly showed that the volumes required in effort to generate sufficient revenues for our secondary school needs were simply unavailable. We were bound on both the supply and the demand side, given that there had only been 12 tons of peppers produced this year and the farmers were unlikely to produce more without proven demand. We weren’t yet sure of how much demand we could generate without conducting a more detailed survey on the ground, and that would mean bringing pepper samples to the U.S. and meeting with restaurants and spice distributors. I also became concerned that we would be risking much capital on the success of one product, and although it was a compelling one with much potential, the concentration risk seemed increasingly high. I set out to find complementary products for our business.
I recalled that we’d met with a solar energy company outside of Phnom Penh called Kamworks, and that they were producing a solar lantern for rural Cambodian families to replace the use of dangerous kerosene lamps. The design was simple, yet elegant; it went on to win several design awards. The cost of the lantern was quite low, and its functionality allowed it to provide light all night at very little cost. Since Kamworks was unable to sell to families in rural areas without some proof of concept, it introduced a rental program, where families could rent the lantern at 300 riels (7 cents) a day. I got in contact with Kamworks and asked whether they might be interested in distributing to the U.S. They had not yet thought about the concept and were very receptive.
The idea was that here too, there was a sparsely occupied market, namely the outdoors community in the U.S., that suffered from a plethora of non-functioning, overpriced products. I’d purchased my share of poorly built Coleman lanterns and solar powered chargers, and none seemed to provide the simple solution of providing dependable light at low cost and little hassle. Another potential market was home improvement/gardening, where such low maintenance and low-cost lights could be in demand. The audience that we were trying to reach suddenly opened up from gourmet restaurants and social consumers to the average person who enjoyed gardening and/or the outdoors.
The proposal that we will present to the World Bank involves setting up a distribution company that would export locally produced Cambodian products to niche corners in U.S. markets. Using these two products as examples of how we could use unique marketing expertise and targeting to promote sales, we’ll seek to get feedback on how to improve our business plan and execution strategies.
Journal #3
Cambodia is consistently rated as one of the most corrupt countries in the world, which makes sense given that it is also one of the worst places to start a business. Tasks that would take days in the U.S. seem to drag on for months. The only way to expedite anything seems to be hiring “fixers” or paying onerous fees to move things along. Any organization with a strict “zero corruption tolerance” stance seems to just get caught up in the legalities of the system for as long as they can bear. Corruption has become so rampant that it is simply an accepted norm – an expedition fee that is known as public information.
All of this has made me question the true definition of corruption. If I pay an extra $100 to get my US passport expedited, this doesn’t seem to be corrupt. If I pay a lawyer to fight my traffic ticket, he just talks to the prosecutor for a few minutes and the points and fines are removed from my record - this too, is not considered corrupt.
So in a country where the officials are underpaid and there are a million people trying to get things done, is paying an expedition fee corrupt? Or is it merely considered corrupt because this particular service doesn’t come with a price tag marked on it?
Meanwhile, it’s come to my attention that a number of nonprofits and charity groups will use a substantial portion of donations to pay for internal operations. The best charities are most efficient with how they use their funds, and the top tier will often have operational costs taken care of by board members, making all future contributions direct channels into improving the actual program activities of the organization. And what happens to charity groups that spend the majority of donated funds on operational activities? If donors are deceived into believing that their funds are going toward one cause, when in fact they are being spent on airline tickets and dinners to solicit new donors, is this activity corrupt? Where does this badly needed oversight come from, and where does the line in the sand get drawn?
The more I step foot into the world of development, the more these lines seem to blur. Perhaps it can only be left to us, as responsible world citizens and human beings, to answer to our consciences and distinguish between what is right and what is wrong.
