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rangements is explained by the benefits that stakeholders receive Trading in an informal environment can be risky for farmers who for trading informally. Smallholder farmers feel they can easily find may face problems such as delayed or no payment for volumes debuyers and change when they are not satisfied with the milk price livered and for processors when their suppliers, either farmers or offered, rather than negotiating better conditions with their clients. collectors, change frequently, and may deliver poor quality milk, Similarly, processors prefer to avoid having a contract with a price sometimes adulterated, that they cannot control without any formal fixed in advance so they can adjust the price they offer to farmers milk analysis system. The absence of effective legislation regardaccording to the changing price offered by processors or markets. ing product origin and technical transformation also contributes to This situation generates a particular type of interaction between this current situation (Aubron, 2007). Moreover, the sanitary and E. Fuentes Navarro et al./Agricultural Systems 132 (2015) 145–156 155 health issues are frequently found as critical in these contexts. 5. Conclusions Delgado and Maurtua (2003) reported that 97.4% of artisanal fresh cheese evaluated in Lima was found unfit for human consumption Farmers and processors in the study area use diverse strategies due to high microbiological contamination, especially Escherichia to compensate for the lack of more formal arrangements. Large- and coli and Staphylococcus aureus. These high levels indicate potential medium-scale farmers achieve the highest profits and could invest contamination of products throughout the chain, from raw mate- more in improving their dairy farms. They deliver the majority of rials and processing to distribution. their milk to processors from the formal sector, although their profits could be higher by selling to informal ones. Trust in formal companies and security of milk purchase throughout the year are more

4.4. Policy implications for developing the Peruvian dairy sector important for them than higher prices. However, they may deliver a small part of their milk to informal collectors/processors when Peruvian government policies regarding the dairy sector have not they estimate that prices offered by the formal sector are too low.

been constant over the last decades. In the 1980s, the Govern- Small-scale farmers are constrained by the lack of land and forage ment controlled wholesale and retail prices and managed import availability for improving cow productivity and reducing their proquotas in order to encourage the development of the national dairy duction costs. These difficulties in securing their production results sector to replace imports with local milk while keeping low con- in an unstable situation, where (i) they probably will take the opsumer prices for dairy products. Unfortunately, that decision strongly portunity to change milk buyer if a collector offers more money or impacted on dairy farmers (Bernet, 1998). In the beginning of the (ii) they will probably decide to quit the dairy sector if they find a 1990s, the Peruvian Government decided to protect its national job. Developing farmers’ associations could enable these farmers market from cheap imports. Similar decisions have been made by to negotiate better milk prices, to have access to communal land other countries such as Morocco and Tunisia, which has led to large or to buy cheaper forage and concentrates in group. For the moment, investments in the local dairy production and allowed small-scale dairy production provides to these farmers a source of employfarmers to be involved in this sector (Sraïri et al., 2013). The tariffs ment and a small portion of the total family income.

and price band system for dairy product imports was imple- A positive consequence of the simultaneous presence of the mented in 1993 and benefited the national dairy sector for many formal and the informal sectors in the area is the inclusion of smallyears. However, it was removed to favor trade with the Andean Com- holders in the dairy sector without making big investments.

munity of Nations and the United States, and completely abolished Nevertheless, this co-existence also provides fragility to the whole in 2008. sector. Formal processors and informal ones compete for milk supply Nowadays, the Peruvian government promotes the local dairy when the demand for fresh cheese increases in Lima, while formal sector mainly through developing social feeding programs like Qali processors show lower profits per liter of milk. On the other hand, Warma. However, it is not currently involved in providing support the lack of product differentiation makes informal processors deor any direct subsidy either to the local dairy production (credit or pendent on general market demand which most of the time means inputs) or to the dairy industry; even when contracts between credit lower prices and profits. Under this constrained context, formal and institutions and milk processors have proven to be very cost- informal processors need to identify possible new opportunities in effective in the Andes (Bernet et al., 2002). Farmers in the Mantaro the dairy sector.

Valley usually demand technical and economic support from the The lack of State control has led to the production of poor sanGovernment. However they are not so optimistic about the real in- itary quality dairy products by the informal processors as a result volvement of the state in the region (Trivelli et al., 2006). Only a of unhygienic production conditions. However, reducing the activifew public organizations are present in the area like Sierra ties of the informal sector through implementing public quality Exportadora and Junin Regional Government, but these play a limited regulations could cause some social difficulties since many conrole in promoting innovation and are not sufficient to boost the dairy sumers would not be able to find the products they like at an sector (Ortiz et al., 2013). Consequently, farmers and processors are affordable price. Hence, public interventions at processor level have exclusively dependent on their own profits to invest in their busi- to be deeply analyzed before implementation. Otherwise, strict regness. This situation could hinder the possible expansion of the sector ulation in the dairy sector could result in very high entry costs and increase smallholder farmers’ economic vulnerability. The loose causing formal processors to move outside of the market creating control of the informal sector may be seen as a way for the State a parallel system.

to reduce economic pressure on the dairy stakeholders, to reduce the unemployment rate in the area and to keep pace with rising

food demands from the capital. Acknowledgements

Despite this lack of economic support available to farmers and processors, active State intervention in the Andean dairy sector is The authors would like to acknowledge the EU’s AgTraIin (Agsuggested (Bernet et al., 2001) in order to alleviate poverty in the ricultural Transformation by Innovation) Erasmus Mundus area (Kristjanson et al., 2007) and to improve the performance of programme and the TFESSD (Trust Fund for Environmentally & Sothe informal sector while recognizing the risk of exclusion when cially Sustainable Development) of the World Bank for financially intervening with new forms of regulations and governance (Vorley, supporting this research. They are also grateful to the two anonyFor instance, local and national public institutions could: (i) mous reviewers for helping them to significantly improve this paper support the establishment of farmers’ associations, to strengthen text.

the smallholder farmers’ bargaining power; (ii) improve service supply such as credit and farming advice to smallholder farmers;

(iii) support the informal dairy sector to improve its practices and References incomes through differentiation and promotion of its artisanal products; (iv) provide incentives to the stakeholders in the formal sector Amorim, P., Meyr, H., Almeder, C., Almada-Lobo, B., 2013. Managing perishability in production-distribution planning: a discussion and review. Flex. Serv. Manuf.

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