mr043 - research protocol for the guatemala country study

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Research Protocol for theGuatemala Country Study

AMAP BDS Component A: Clients and MarketsAccelerated Micro Enterprise Advancement Project

microREPORT #43

September 2005

This publication was produced for review by the United States Agency for InternationalDevelopment. It was prepared by Elizabeth Dunn (ACDI/VOCA), David Bloom (HarvardUniversity), Phillip Church (DevTech Systems), and Shand Evans (The Louis Berger Group)under the Accelerated Microenterprise Advancement Project Business Development ServicesKnowledge and Practice Task Order.

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Accelerated Microenterprise Advancement Project (AMAP) is a four-year

contracting facility that USAID/Washington and Missions can use to acquiretechnical services to design, implement, or evaluate microenterprisedevelopment, which is an important tool for economic growth and povertyalleviation.

For more information on AMAP and related publications, please visitwww.microLINKS.org.

Accelerated Microenterprise Advancement ProjectContract Number: GEG-I-00-02-00016-00Task Order: Knowledge and Practice

Contractor: ACDI/VOCAOlaf Kula, Program ManagerTel: (202) 879-0213E-mail: [email protected]

Dr. Elizabeth Dunn is a development economist working in firm andhousehold-level decision making, enterprise growth, income generation, impactassessment, and the design and implementation of field-based researchcombining quantitative and qualitative data.

Dr. David Bloom is the Clarence James Gamble Professor of Economics and

Demography and Chair of the Department of Population and InternationalHealth in the School of Public Health at Harvard University.

Dr. Phillip Church is a Senior Economist at DevTech Systems, Inc., currentlyparticipating in a USAID-sponsored research on ways micro-enterpriseentrepreneurs can enhance benefits from participation in commodity-basedvalue chains.

Shand Evans is an Economist at The Louis Berger Group, Inc., currently incharge of all Louis Bergers technical work and planning for the AMAP BDSKnowledge and Practice Task Order.

ACDI/VOCA is a private, non-profit international development organizationbased in Washington, DC.

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Table of Contents

Preface................................................................................................................... ............... ........iv

List of Abbreviations.................................................................................................................. ...v

I. INTRODUCTION............................................................................................. .............. .............1

II. RESEARCH HYPOTHESIS................................................................................................ ........1

A. Enhancing Interfirm Cooperation and Coordination........................................... ................1

B. Encouraging Business Upgrading Among MSEs.......................................... ................ .....1

C. Conceptual Definitions................................................................................... ............... .....2

III. RESEARCH CONTEXT...................................................................................................... .......4

A. Guatemalan Textile Handicrafts Value Chain................................................. ............... .....4

B. Guatemalan Horticulture Value Chain................................................................ ................7

IV. DATA COLLECTION........................................................................................ ................ .......12

A. Buyer Firm Survey.................................................................................. ................ .........12

B. Producer Firm Survey................................................................................. ............... ......14

V. PLAN FOR DATA ANALYSIS.............................................................................................. .....18

VI. STEPS IN IMPLEMENTING THE SURVEY........................................................... ................ .19

Reference List......................................................................................................... ................ ....20

Appendices

A. Detailed Research Hypothesis............................................................................. ............23

B. Buyer Firm Questionnaire ......................................................................... ............... .......26C. Producer Firm Questionnaire Horticulture.......................................................... ...........40

Tables

1. Sample Frames for Buyer Firms in Textile Handicrafts................................... ................ .........122. Sample Frames for Buyer Firms in Horticulture.................................................. ............... ......13

3. Number of Waves and Referrals for Each Sector.............................................. ................ ......154. Number of Waves and Referrals for Each Sector (Pilot Test)................................................ ...16

Figures

1. Textile Handicrafts Value Chain Map.................................................................................... ....212. Horticulture Value Chain Map...................................................................... ................. ...........22

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PREFACE

This document describes the research plan for the Guatemala Country Study, which was

conducted under AMAP BDS K&P Component A (Clients and Markets). It was written primarily asan internal document for the purpose of planning and coordinating the methods used by themembers of the research team, both in the US and in Guatemala. It is being published in order tomake available as much detailed documentation on the research methods as possible. Everyeffort has been made to retroactively revise the protocol to reflect last minute adjustments madein the field. However, if any discrepancies remain between this document and the final report onthe findings of the Guatemala Country Study, then the final report should be consideredauthoritative.

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LIST OF ABBREVIATIONS

AGEXPRONT Asociacin Gremial de Exportadores de Productos No

Tradicionales

AMAP Accelerated Microenterprise Advancement Project

EPA United States Environmental Protection Agency

EU European Union

FDA United States Food and Drug Administration

GAP Generally Accepted Agricultural Practices

MSE Micro and Small Enterprises

PIPAA Programa Integral de Proteccin Agrcola y Ambiental

RDS Respondent Driven Sampling

SPS Sanitary and Phyto-sanitary Standards

USAID United States Agency for International Development

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RESEARCH PROTOCOLAMAP COMPONENT A COUNTRY STUDY

GUATEMALA

I. INTRODUCTION

Many USAID programs have the two-fold objective of achieving improvedeconomic growth, while at the sametime reducing poverty. One strategyfor promoting broad-based economicgrowth is to harness the growthpotential of large numbers of microand small enterprises (MSEs) andintegrate them into productive valuechains. The overall vision for the

AMAP BDS Knowledge and Practiceproject is to promote the developmentof MSEs and to increase theirparticipation in productive economicsectors at the local, national, regional,and/or global levels: AMAP BDS isabout creating wealth in poorcommunities and promoting economicgrowth by sustainably linking largenumbers of MSEs into productivevalue chains.

The focus of Component A is to

develop a better understanding of theways that MSEs are integrated intovalue chains and the effects of thisintegration on both MSEs and valuechains. The outcome of this researchwill be important in developing astrategy to more effectively link MSEsinto productive value chains. Theprimary focus of the research is todevelop a better understanding of thefollowing: 1) the factors influencingMSE owners decisions to participatein value chains and upgrade theirbusinesses in ways that enhance theircompetitiveness, and 2) therelationships between MSEs andother firms in the value chain, and theeffect of these relationships on thestructure and competitiveness of thevalue chain.

This focus has been translated into aset of research hypotheses, which are

presented in section II. In addition tocontributing to knowledge about theintegration of MSEs into value chains,the research under Component A willalso help to advance methodologicalapproaches to data collection andanalysis, by developing and testing asampling approach for reaching hardto locate populations. This samplingapproach is discussed in more detaillater in this document.

II. RESEARCH HYPOTHESES

There are three groups of hypothesesto be tested in the field research. Thefirst group relates to enhancingvertical relationships between firms atdifferent levels in the value chain. Thesecond group relates to enhancinghorizontal relationships between firmsat the same level of the value chain.The third group relates to ways toencourage business upgrading among

MSEs operating in the value chain. Abasic statement of these researchhypotheses is provided below. A moredetailed version of the hypotheses isincluded in appendix A. Conceptualdefinitions of the terms and variablesused in the hypotheses are providedat the end of this section. Additionaldefinitions that are specific to eachvalue chain are provided in section III.

A. ENHANCING INTERFIRMCOOPERATION ANDCOORDINATION

1. Vertical Relationships

A.1. Risk in vertical relationshipscan be reduced bystrengthening governance.

A.2. Trust in vertical relationshipscan be increased byimproving information.

A.3. Lead firms will be more willingto form vertical relationshipswith MSEs if the transactioncosts can be reduced.

2. Horizontal Relationships

A.4. MSE owners will be more

willing to form horizontarelationships if the transactioncosts can be reduced.

A.5. Trust in horizontarelationships can beincreased throughorganizational innovation andimprovements in humancapital.

A.6. Social capital plays animportant role in the

successful formation ohorizontal relationshipsbetween MSEs.

B. ENCOURAGING BUSINESSUPGRADING AMONG MSES

B.1. MSE owners base theiupgrading decisions on theiassessment of the expectedreturns and risks toupgrading.

B.2. Upgrading can beencouraged by strengtheningthe linkages between firms.

B.3. Lack of information is a criticabottleneck to upgrading.

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C. CONCEPTUAL DEFINITIONS

Buyer Firms (Buyers): Firms thatbuy the product for resale, includingfirms that buy the product from MSEproducers. Buyer firms may resellthe product in national and/orinternational markets. These firmsmay also participate in activities atother levels of the value chain,including supplying raw materials andproduction.

Expected Return: Projected returns(profits) under conditions of uncertainty; calculated as the sum of

the returns from each possibleoutcome multiplied by the probabilitythat each outcome will occur (i.e., thesum of the weighted returns fromeach possible outcome).

Governance: The patterns of verticalrelationships between firms in a valuechain, which are characterized by a)the level of control that one firmexercises over another and b) the flowof information between firms. Thethree general types of governance, in

order of increasing strength, are thefollowing:

1. Market relationships: arms-lengthtransactions with little informationexchange between firms.

2. Network relationships: some firmsin the chain exert a degree ofinfluence or control over theoperations of other firms,information flows between firmsare more extensive, and supplierssupply products according to

buyers specifications.3. Hierarchical relationships: value-added functions are verticallyintegrated under the ownership ofa single firm.

Horizontal Relationships: Marketand non-market interactions betweenfirms operating at the same level ofthe value chain.

Input Suppliers: Firms that provideraw materials and inputs used inproduction.

Lead Firms: Firms that play centralroles in the value chain and areinvolved in a significant percentage oftotal sector sales. Because of theirmarket share, they have an effectiveinfluence on governance patternswithin the value chain.

MSE Producers: Firms that producethe product and have fewer than 25full-time and part-time employees.Producers in the handicrafts sectorare weavers and tend to beindigenous women living in rural areas(although men also weave on the foot

loom). Producers in horticulture arefarmers and tend to be men living inrural areas (although other familymembers assist with cultivation). Forthe purpose of this study, MSEsproducers need to be either currentlyproducing the product(handicrafts/horticulture), or haveproduced and sold the product in thepast six months to be included in thesurvey.

Risk: A loss or the chance of a loss.

Suppliers: Firms that sell the productto other firms.

Social capital: The institutions,relationships, attitudes, and valuesthat govern interactions amongpeople; norms and networks thatfacilitate collective action. A high levelof social capital is generally seen as apositive asset, since it can lead tomore productive communities throughhigher levels of trust and shared

information, lower transaction costs,and greater networking. However, it ispossible for social capital to divide acommunity and exclude outsidegroups.

Trust: Willingness to expose oneselfto risk in a business agreement withanother person or firm (confianza).

Transaction Costs: Non-price costsassociated with a transactionincluding the costs of gatheringinformation, the costs of negotiating acontract, and the costs of enforcingthe terms of a contract.

Upgrading: Innovation that increasesvalue added. There are five specificcategories of upgrading:

1. Process upgrading: increasingefficiency (more output for samelevel of inputs).

2. Product upgrading: improvingproduct quality.

3. Functional upgrading: moving to anew level in the value chain.

4. Inter-chain upgrading: moving to anew marketing channel in the

value chain.5. Inter-sectoral upgrading: moving

to a different subsector or valuechain.

Value Chain: Describes the full rangeof activities that are required to bring aproduct from its conception to its enduse and beyond, including activitiessuch as design, productionmarketing, distribution, and support tothe final consumer. The activities thacomprise a value chain can be

contained within a single firm odivided among different firms. Valuechain activities can be containedwithin a single geographical locationor spread over wider areas. Globavalue chains are divided amongmultiple firms and spread across wideswaths of geographic space, hencethe term global value chain.

Vertical Relationships: Market andnon-market interactions between firmsoperating at different levels of the

value chain.

Wholesalers: Firms that do noproduce the product and do not sell tothe final consumer. In the most direccase, these firms buy from MSEproducers and sell to retailersExamples include exportersdistributors, brokers, andintermediaries.

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III. RESEARCH CONTEXT

Guatemala has been selected as thefirst country in which to launch theAMAP Component A field study work.It has a population of a little over 14million people, making it one of themost populous of the CentralAmerican countries. The agriculturalsector accounts for about one-fourthof GDP, two-thirds of exports, and halfof the labor force. While GDP percapita is US$ 4,100, income isdistributed unequally, with 75 percentof the population below the povertyline.

Two value chains were selected forthe research in Guatemala: textilehandicrafts and horticulture. Thesevalue chains were selected becauseof the large numbers of MSEs that areengaged in those sectors andbecause of their global relevance.Currently, at least 700,000Guatemalans operate as MSEweavers in the handicrafts sector.Similarly, an estimated 250,000 MSEswork as producers in the horticulture

sector. Information about how MSEscontribute to and benefit from thesevalue chains will be broadly applicablein other countries, since handicraftsand small-scale agriculture aresignificant sources of income for low-income households around the world.

The survey research focuses on thebarriers and opportunities for growthfor MSEs in these two sectors,specifically looking at the potential forMSE upgrading. The survey research

also looks at the effects of socialcapital and trust, information, and riskpreferences on business relationshipsand decisions to upgrade. Preliminaryqualitative research has providedconsiderable background informationon the handicrafts and horticulturevalue chains, the firms in these twovalue chains, and how the firms relateto each other. Some of this

background information is presentedin this section, including value chainmaps for each sector and adiscussion of upgrading opportunities,vertical relationships and horizontalrelationships. In addition, a set ofcontext-specific definitions is providedfor each value chain.

A. GUATEMALAN TEXTILEHANDICRAFTS VALUE CHAIN

1. Value Chain Map

The value chain map for Guatemalantextile handicrafts (figure 1) indicatesthe four basic levels of the valuechain: 1) input supply, 2) production,3) wholesale, and 4) retail. Micro andsmall enterprises are the predominant

type of firm at the production levels:virtually all of the estimated 700,000to 900,000 producers in the valuechain are MSEs. Most of the artisan-brokers at the wholesale level are alsoMSEs, as are many of the retailers inthe popular and tourist markets.

The value chain has three mainmarket channels, as indicated at theretail level (at the top of the map). Fortwo of the market channels, theretailing of textile handicrafts occurs

within Guatemala, in 1) exclusiveshops and 2) popular and touristmarkets. There are approximately 30exclusive shops, mostly concentratedin Antigua. Their main customers areupper and upper-middle classGuatemalans, but they also sell towell-to-do tourists from CentralAmerica, the U.S., Europe, andJapan. These shops offer high-qualityproducts, often based on exclusivedesigns created personally by theshop owner.

The popular and tourist marketscomprise the second domestic retailchannel. This market channelincludes traditional market places,small shops, and street vendors.There are several thousand firms inthe popular and tourist marketscategory, and the majority of thesefirms are MSEs. In some cases,

weavers self-market their ownproducts through this channel. Inmany cases, the shop or market stalowner sells some self-producedhandicrafts alongside productspurchased from other artisans. Largeshops sell products made from manydifferent producers.

In the third market channel, textilehandicrafts are exported and sold inretail outlets internationally. There aretwo types of exporters. First, thereare approximately 100 full-timeexporters who reside in GuatemalaThese resident exporters sell theiproducts to foreign importers. Thesecond type of exporter is thetraveler-exporter who lives outside othe country, but comes to Guatemala

one or more times a year to purchasehandicrafts and ship them back homeSome traveler-exporters buy inventoryto stock their own stores, while otherssell the handicrafts to retail outletsand small stores.

There are several different ways thathe production and retail levels of thevalue chain can be linked. One way isfor exporters and domestic retailers topurchase products directly from theweavers who produce them

However, when a larger volume oproduct is involved, the exporter oretailer usually works through sometype of intermediary at the wholesalelevel. As indicated in the value chainmap, there are two types ointermediaries operating at thewholesale level: 1) artisan-brokerswho are MSE owners, and 2) leadersof producer groups, who representheir members operating at theproduction level.

2. Upgrading Opportunities

a. Process Upgrading

Low labor productivity, defined interms of the output of woven cloth perunit of labor input, is a majoconstraint on the globacompetitiveness of the value chainThe technology for the back-strap

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loom is very labor intensive, producingapproximately an 18-20 inch length ofwoven cloth in the typical workday offive to six hours. There are two typesof process upgrading that canincrease labor productivity:

1. Moving from the back-strap loom(telar de cintura) to the foot loom(telar de pie), which can increaselabor productivity but has severalother implications.

2. Reducing the density (textura)and or complexity of the weave onthe back-strap loom.

The incentives for moving from theback-strap to the foot loom are that a)men can become involved in weaving;

b) wider pieces of cloth (e.g., fortablecloths and bedspreads) can beproduced; and c) more cloth can beproduced per hour of labor input. Thedisincentives for moving from theback-strap to the foot loom are that a)the foot loom requires a large initialcapital investment; b) it takes up alarge space, which may not beavailable in the dwelling; c) it is notmobile, so it can not be combined withother activities in different locations; d)the technique is not well-known in allareas, so training may be required; e)women are not considered strongenough and/or big enough to utilizethe maximum width capacity of theloom; f) some of the most intricatedesigns can not be produced on thefoot loom.

It is unclear whether moving to thefoot loom is a good long-term strategyfor improving the globalcompetitiveness of the value chain.Although foot-loomed products can beproduced more cheaply (due to less

labor input), they are still not cheaperthan similar fabrics produced in India,China, and Indonesia. Guatemalaslong-run competitive advantage maybe based on the more intricateproducts created on the back-straploom, or on the combination of high-cost products created on the back-

strap loom with lower cost, foot-loomed products.

b. Product Upgrading

Product upgrading in the context ofweaving refers primarily to changes incolors and designs that are aresponse to changing global fashionand taste. In addition, productupgrading can occur at the assemblystage in terms of the type of finishedproduct made from the woven cloth(e.g., new styles of purses in womensaccessories).

Information flows are very thick inthe export channel. Importers tell

exporters exactly what they want,sometimes sending their owndesigners to Guatemala to work withthe exporter in developing theproduct. Thus, information on globaltastes and preferences iscommunicated directly by importers,who specify what they want when theyplace their orders with exporters.Exporters usually work throughartisan-brokers to transmit this colorand design information to weavers.

There are high transaction costsrelated to conveying information onnew designs. These transaction costsare associated with reducing the riskthat a product might not match thebuyers specifications on design orquality. Information on new designs isusually provided visually (in two orthree dimensions) and includes one ormore face-to-face meetings. In orderto avoid costly production mistakeswith new designs, actors in the valuechain often begin the process by

developing prototypes (muestras).Several rounds of productdevelopment may be necessarybefore the producers are ready tocreate the product in the exact waythe buyer wants. Products or designsthat are purchased repeatedly areusually assigned a code or uniquename that facilitates futurecommunication about orders.

In the export market channelexporters control product quality inseveral ways:

1. Specifying the exact colors anddesigns to be produced, oftenworking with samples andprototypes (as described above).

2. Providing the raw materials (i.e.export-quality dyed threads) to theproducers. This embeddedservice is typically provided by theartisan-broker. The exporteprovides the artisan-broker with acash advance worth 50 percent ofthe value of the order, and theartisan-broker uses the cashadvance to buy export-qualitythread in the correct colors.

3. Limiting the size of orders withnew suppliers until the suppliedemonstrates an acceptable leveof quality.

4. Inspecting for quality at everylevel of the value chain.

Information flows are also thick in theexclusive shops market channel and asimilar process for quality control isalso followed. However, in thischannel, the product is usuallydesigned by the store owner

Production may also be organized inhouse, representing verticaintegration of the production andretailing functions.

c. Functional Upgrading

There are two main ways that MSEscan engage in functional upgradingwithin the value chain:

1. Moving from being a produceonly to being an artisan-broker

Even more generally, a producerexperiences functional upgradingas soon as he/she begins to selproducts produced by otheweavers.

2. Moving from being an artisanbroker to being an exporter. Bothexporters and artisan-brokers arekeenly aware of the potential tha

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exists for artisan-brokers toengage in functional upgrading.

In general, all three of the marketingchannels in the value chain offer thepossibility of functional upgrading inthe sense of moving from sellingproducts through an intermediary todirect marketing of products to thefinal consumer, the exclusive storeowner, the exporter, or even theimporter.

d. Inter-Chain Upgrading

It appears that many producers sell inmore than one of the marketchannels, although the exactpercentage is unknown. This alsoappears to be the case with the

artisan-brokers, many of whom workboth as intermediaries in the exportmarket channel and as direct marketvendors in the popular marketschannel. Rather than specializing inone market channel, producers andartisan-brokers seek to exploit theadvantages and manage the risks thatare inherent in each channel. Forexample, unit prices are higher andcash flow is more predictable (steady)in the popular channel, but the volumeof sales can be much higher in the

export channel.

3. Vertical Relationships

a. Governance

Governance patterns vary, even at thesame level of the value chain. Themost predictable of the relationships isbetween exporters and artisan-brokers, which tend to evolve towarda network relationship. The followinggovernance patterns were observed:

1. Between importers and exportersHierarchical, network, andmarket. A single exporter mayhave a balanced relationship withone or more importers and marketrelationships with others.

2. Between exporters and artisan-brokersNetwork and market.

Mature relationships are typicallycharacterized by a close,balanced type of networkgovernance. Captiverelationships are rare, andconsidered undesirable by bothparties. Relationships usuallybegin as market relationships (seebelow).

3. Between artisan-brokers andproducersNetwork and market.

Relationships connecting artisan-brokers and exporters typically followa predictable evolutionary pattern.They begin as market relationships,with initial transactions being limited inscale. The initial meeting often occurswhen the exporter enters the popularstore or market stall operated by the

artisan-broker. As the artisan-brokerdemonstrates good performance, interms of quality and on-time delivery,the buyer comes to trust the seller,and a balanced, network-type ofgovernance relationship emerges overtime, facilitating larger volume orders.

b. Coordination and Cooperation

Vertical coordination and cooperationbetween firms in the value chainappears to function fairly well. The

most interesting aspect of verticalcoordination is the unique role of theartisan-broker, who serves as a bridgebetween producers and exporters.The artisan-broker facilitatescommunication and successfulcommercial relationships betweenpeople of different social classes,languages/cultures, and educationlevels. In terms of social capital, theartisan-broker enjoys several types ofsocial capital: linking social capitalwith exporters, bridging social capital

with producers from different villagesand ethnic groups, and bonding socialcapital with producers from the samevillage and ethnic group as theartisan-broker.

Producers typically lack informationabout levels of the value chain abovethe initial point at which they sell theirproducts. For example, it is common

for a weaver to sell to an artisanbroker without knowing which markechannel the product will eventuallyenter. Lack of information aboumarket channels prevents producersfrom creating aggressive and effectivemarketing strategies. In addition, thislack of information can lead toinaccurate ideas about how the valuechain functions and mistrust of otheactors in the value chain (e.g.mistaken idea that the transporcompany had become an intermediaryand was stealing all the customers).

4. Horizontal Relationships

While some producer groups (i.e.cooperatives, associations, andother types of producer groups) are

functioning effectively, horizontarelationships between producers havea wide-spread reputation for beingproblematic and characterized byfraudulent, opportunistic, and rentseeking behavior. These problemsoccur even when group membersshare the same ethnicity and live inclose proximity to each other (i.e.even when they share bonding sociacapital).

The anecdotal evidence from the FFR

indicates that there are major trusissues associated with producegroups. Apparently, leaders oproducer groups commonly try to takeadvantage of the fact that they haveaccess to information that othemembers of the group do not have(i.e., there is asymmetric informationwithin the group). Examples of waysthat leaders have taken advantage oasymmetric information include thefollowing:

1. Withholding information abouorders from the group, and thencontracting with individuaweavers outside the group. In thisway, the leader is able to receivepersonal financial gain by servingas an artisan-broker, while themembers of the group do noreceive any income from theorder.

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2. Receiving payment for the orderin dollars, converting the currency,then deceiving group membersabout the exchange rate received.In this way, the leader pockets thedifference between the actual andreported exchange rate.

3. Paying group members a piecerate that is less than the piecerate paid by the buyer. In thisway, the leader pockets thedifference between the actual andreported piece rate.

4. Pocketing funds that are providedfor the social benefit and/ordevelopment of the groupmembers (e.g., education funds).

In deciding to commit to a group,producers must weigh the potential

benefits from participation against thepotential risks. There are severalpotential benefits of belonging to aproducer group:

1. Being represented by leaders withhigher levels of human capital, interms of literacy, numeracy, andability to speak Spanish.

2. Ability to accept larger orders.This opens up the possibility ofworking with exporters, who wouldnot work with individual weavers.

3. Access to better communicationinfrastructure. The group canafford a telephone, fax, or internetconnection, which individualmembers would not normallyhave.

4. Ability to hire a professionalmanager, if the group has enoughbusiness to support it.

5. Ability to solicit and receivetraining, technical assistance, andother services from donors andnon-profit organizations

supporting the sector.

A handful of exporters and exclusivestore owners have experimented withinnovative approaches for workingwith producer groups. For example,one store owner insists that differentrepresentatives of the group comeeach time to receive new orders andlearn how to produce new products.

5. Definitions Specific to TextileHandicrafts

Artisan-Broker: Intermediaryoperating at the wholesale level of thetextile handicrafts value chain.Usually an MSE owner with technicalknowledge of weaving whocoordinates the work of multipleweavers to respond to orders from athird-party buyer. An artisan-brokermay also operate a store or marketstall in the popular and tourist market.

Back-Strap Loom: Pre-Columbiantechnique for weaving in which the

warp of the loom is stretched betweena fixed support (i.e., tree, post) and astrap that wraps behind the weaversback. The weaver leans forward orbackward to control the level oftension on the loom. The width of theloom can vary from just a few incheswide to approximately a meter inwidth. In Guatemala, back-straplooms are used exclusively byfemales. (telar de cintura, telar de

palitos)

Design: Elements of weavingincluding colors, color combinations,types of threads used, patterns andrepresentations (figuras, dibujos),spacing of patterns, texture of thecloth, width of the cloth, etc. Designalso refers to different ways tocombine woven cloth with othermaterials such as zippers, buttons,leather, etc. to make finishedproducts.

Exporters: Firms selling textile

handicrafts to buyers outside ofGuatemala.

Foot Loom: Weaving techniqueintroduced by the Spanish in whichthe warp is attached to a large woodand metal structure and foot pedalsare used to mechanically lift and lowerthe warp. The foot loom can producemuch wider fabrics than the back-

strap loom, but it can not produce thesame complicated brocades. Themajority of weavers using the fooloom are men, although women alsouse the foot loom, also known as thetreadle loom or floor loom. (telarde pie)

Textile Handicrafts: Products madeby weaving on a loom, by crochet, orby embroidery. Also includesproducts that combine these handmade items with other materials.

Traveler-Exporter: An exporter whoresides overseas but visits Guatemalaone or more times a year to purchasehandicrafts and ship them back home.

B. GUATEMALAN HORTICULTURE

VALUE CHAIN

1. Value Chain Map

The value chain map for Guatemalanhorticulture (figure 2) indicates thefour basic levels of the value chain: 1)input supply, 2) production, 3wholesale, and 4) retail. Micro andsmall enterprises are the predominantype of firm at the production levelVirtually all of the estimated 250,000producers in the value chain are

MSEs. Most of the intermediaries athe wholesale level are also MSEs, asare many of the retailers in the wemarkets.

The value chain has two main markechannels, as indicated at the retailevel (at the top of the value chainmap). For one of the markechannels, the retailing of horticulturecrops occurs within Guatemala andCentral America (principally ESalvador, Honduras, and Nicaragua)

At the retail level, Guatemalan andCentral American consumers may buyhorticultural products in 1) wemarkets; 2) supermarkets; and/or 3) inhotels, restaurants, and institutions(e.g., schools, hospitals). Theproducts may reach the retail levethrough regional distributors, throughintermediaries, or through direct self-marketing by producers.

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In the second market channel,horticultural products are exportedand sold in retail outlets in the US andEurope. Exporters may sell to eitherUS/EU distributors or US/EU brokers.Exporters may buy their products fromintermediaries or they may buy theproducts directly from producers.

In both of the market channels, thereare several different ways that theproduction and retail levels of thevalue chain can be linked. One way isfor exporters (in the US/EU channel)and retailers (in the Guatemalan/CAchannel) to purchase horticulturalproducts directly from producers.However, any of these buyer firmsmay also obtain horticultural products

from intermediaries. From thepreliminary field research, it appearsthat buyers in both market channelsare trying to move away from workingwith intermediaries in order to buy themajority of the product directly fromproducers. This stems from increasedemphasis on meeting phyto-sanitarystandards.

2. Increasing Sanitary and Phyto-Sanitary (SPS) Standards

The foremost issue to emerge duringthe preliminary fieldwork is thepressure to increase sanitary andphyto-sanitary (SPS) standards andall of the effects this has on the valuechain. The SPS standards are muchhigher in the US/EU market channel1,but there is also increasing pressureto raise SPS standards in Guatemalanand Central American channels.Improvements in horticulture productsto meet increasing SPS standards

1 Products exported to the US must complywith United States (Federal DrugAdministration (FDA) and Environmental

Protection Agency (EPA) minimum standards.Products exported to Europe must comply withEUREPGAP European Union GeneralAgricultural Practices standards. In addition,

some US/EU buyers require additionalstandards and certifications that surpass theselegal minimums.

represent an important type of productupgrading.

While exporters have no choice but tocomply with the higher US/EUstandards, regional distributors andsupermarkets have more flexibility.Nevertheless, some supermarketchains are making a concerted effortto stay ahead of the curve by raisingstandards above the localrequirements. They are doing this bycreating their own quality controldepartments, their own certificationprograms, and by voluntarilysubmitting to commercial certificationprograms that are also used byexporters. Some supermarkets offertwo tiers of fresh fruits and vegetablesin its supermarketsbranded and

unbrandedwith the brandedproducts costing significantly more.

Many of the effects on the value chainstem from the fact that SPScompliance is not something thatbuyers can observe directly by lookingat the product. Unlike size, shape,blemish, color, or maturity of theproduct, the healthfulness and safetyof a vegetable is a kind of quality thatyou cant see. In addition tolaboratory testing, an important way to

verify adequate SPS standards isthrough participation in the variouscertification programs.

Within the Guatemalan horticulturesector, the most common nationalcertification program is ProgramaIntegral de Proteccin Agrcola yAmbiental (PIPAA), which isadministered by the GuatemalanAsociacin Gremial de Exportadoresde Productos No-Tradicionales(AGEXPRONT) and supported by the

Guatemalan Ministry of Agriculture.The PIPAA program, like othercertification programs, is based onGood Agricultural Practices (GAP)and Good Manufacturing Practices.2

2 For more information on PIPAA, see

www.pipaa.com. For more information on

Good Agricultural Practices and GoodManufacturing Practices, seewww.jifsan.umd.edu/gaps.html/.

Exporters, distributors, andsupermarkets employ personnel inboth technical assistance (agronomyand quality control departments whoare responsible for working withproducers and with packing planworkers to meet PSS. Traceabilityand record-keeping requirementsassociated with PSS certificationcreate a paper trail documentingpractices at every stage of theproduction and packaging process.

3. Upgrading Opportunities

a. Process Upgrading

There are four categories of processupgrading that are relevant in thehorticulture value chain. These fou

categories of process upgrading relateto 1) cultivation techniques, 2) post-harvest management, 3) infrastructureimprovements; and 4) information andcommunication technology.

Process Upgrading in CultivationTechniques. Improved cultivationtechniques can take several forms: New cultivation practices, such as

better planting densities and moreappropriate timing and applicationrates for fertilizers, pesticides

etc., in order to increase cropyields.

Planting of improved and well

adapted hybrid varieties toincrease crop yields3.

Planting seedlings (pilonesinstead of seeds in order toshorten the length of theproduction cycle.

Using integrated pesmanagement, instead of routinelyapplying agrochemicals on a

3Since there is no varietal protection for snow peas and sugar snap peas in Guatemalafarmers have the option of buying cheapeseeds collected from previous crop harvestsrather than buying certified seeds. Thi

reduces the incentive for seed suppliers tooffer improved varieties of snow peas andsugar snap peas.

7
http://www.pipaa.com/http://www.pipaa.com/http://www.jifsan.umd.edu/gaps.html/http://www.pipaa.com/http://www.jifsan.umd.edu/gaps.html/


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scheduled basis, in order toreduce input costs.

Process Upgrading in Post-HarvestManagement. Because manyhorticulture crops are highlyperishable, the percentage of theharvest (or shipment) lost to spoilageis closely related to the speed andcare with which the vegetables arehandled after harvest. In general,there is a very narrow windowbetween harvest and fresh sale orprocessing. For example, vegetablesmay be harvested in the early morningand delivered to regional distributors,where they are reloaded on trucks thesame day and delivered to retailbuyers in El Salvador early the nextmorning. Similarly, broccoli harvested

in the early morning in Sacatepequezor Chimaltenango is delivered to oneof many small rural collection centers,from which it is trucked to a freezingplant in Guatemala City the same day.

Several innovations in post-harvestmanagement can be observed: Regional distributors rely on cold

chain transport to reduce therejection rate from their retailbuyers. This requires heavyinvestment in refrigerated trucks.

Some buyers now require theirsuppliers to deliver products instandard plastic cartons (cajas).This standardization not onlysaves transfer time and easesstacking and lifting at the deliverysite, it also reduces the number oftimes that the vegetables arehandled, thus cutting down onmechanical damage to theproduct.

Some crops require specialhandling. For example, Brussels

sprouts need to be laid out on adrying shelf for 24 hours beforebeing piled into boxes andtransported. Otherwise, theproduct can rot from excessivemoisture.

Process Upgrading in Infrastructure.

Irrigation . Affordable irrigation

systems are needed to extend thegrowing season, since seasonalityrelated to rainfall patterns plays amajor role in constrainingproductivity. During the January

to May period, there is insufficientrainfall to maintain full production.

Collection Centers . There are

hundreds of small collectioncenters, which are the sites whereproducers deliver products toexporters. Infrastructure at manyof these collection centers is poor,adding to handling costs andincreasing product rejection rates.The majority of rural collectioncenters do not comply with FDArecommendations.

Transportation . The poor qualityof roads and transportationinfrastructure adds to transportcosts and increases transit time,which leads to greater losses fromspoilage.

Process Upgrading in Information andCommunication Technology. Cellulartelephones represent a revolution inrural communication, where land linesare either expensive or unavailable.Cell phones are used to check market

prices, place orders, and coordinatedeliveries. Even many producers,some of whom are illiterate, have cellphones. Among producers, producerrepresentatives are the most likely tohave cell phones.

To be successful, an intermediaryneeds a cell phone to check pricesand receive orders. Intermediariesrely on cell phones to check prices inthe major wholesale markets severaltimes a day. They also rely on cell

phones to receive orders fromexporters for spot market purchasesto be made later that same day.Retail-level firms in theGuatemalan/Central American marketchannel also place their orders withsuppliers (intermediaries orproducers) over the telephone.Orders for fresh vegetables from

retail-level firms are usually placed fosame-day or next-day delivery.

Some of the larger buyers use moreadvanced information technologyMajor exporters may maintaincomputerized records of theicontracts with producers, detailsabout deliveries, in-kind credibalances, and payment schedules. Aleast one of Guatemalan/CentraAmerican supermarket chain asks itssuppliers (producers andintermediaries) to enter all deliveryinformation on a centralized computesystem and receive payments throughelectronic banking.

b. Product Upgrading

Product Upgrading Related to SPSStandards. The higher SPS standardsrepresent a type of product upgradingsince they result in a product that issafer and healthier for the consumerIncreasing phyto-sanitary standardswere discussed in some detail in theprevious section. Certification is anindicator that SPS standards arebeing followed. Ironically, this producupgrade sometimes represents aprocess downgrade in the sense thathe most effective agrochemicals may

be prohibited from use, even thoughthere are no equally effectivealternatives (e.g., the use ofungicides Bravo 50 and Tamaron onsnow peas).

Product Upgrading Related toAppearance and Quality. Each crophas appearance and quality standardsrelated to size, color, shape, level odamage, number of worms, etcMany of these standards are specifiedin forward contracts between

producers and buyers. Buyers oftenuse visual aids (e.g., posters, slides)to communicate these standards toproducers.

Product Upgrading Related toProcessing and Packaging. One othe ways that producers and buyersadd value is by processing thehorticulture crops. The mos

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important of these upgrades is tofreeze the product in order to extendfreshness and transportability. Oncethe product is frozen, much of the riskassociated with product perishability iseliminated. Other product upgradesassociated with processing include 1)recutting products, especially broccoli,to produce a standard size (recorte)and 2) creating and packagingproduct combinations and mixtures,especially combinations of broccoli,snow peas, and the mini-vegetables.

Another important way to add value isthrough packaging the products ratherthan selling them in bulk. Forexample, fresh vegetables can bepackaged in trays and sealed inplastic before export. One of the best

ways to add value to fresh horticultureproducts, as well as extend their shelflife, is to seal small amounts ofwashed and trimmed vegetables, orvegetable blends, in microwaveablebags. The retailers or distributorslabel can then be affixed to thepackage, which is ready for retail sale.This type of packaging is usually onlydone when there is an existingagreement with the final retailer.

c. Functional Upgrading

As with the handicrafts value chain,the elimination of an intermediaryeither above or below on the valuechainis a stepping stone tofunctional upgrading and higherprofits. With the increasing SPSstandards, many exporters prefer toeliminate the intermediary and workdirectly with producers. This alsoappears to be the trend with regionaldistributors and supermarkets. Byworking directly with producers, it is

easier for exporters, distributors, andregional retailers to certify the originand safety of the product.

An important side effect of lead firmsworking directly with producers is that,in many cases, lead firms areencouraging producers to improvetheir business practices. Many leadfirms insist that their suppliers be

formally registered with the taxsystem, so that the lead firm candeclare its payments to supplierswhen calculating the value-added tax.Some lead firms reduce thetransaction costs of working withnumerous producers by computerizingtheir record-keeping of orders anddeliveries. In this way, even ruralproducers may become familiar withentering their sales data into the leadfirms computer system. Other leadfirms require that suppliers maintainbank accounts to receive paymentsthrough electronic funds transfer. Allof these improved business practiceshelp to expand the capabilities forMSE producers and place them in abetter position to take advantage offuture upgrading opportunities.

Other types of functional upgradingthat were observed in the horticulturevalue chain include the following:

Intermediaries upgrading bybecoming either exporters ordistributors.

MSE producers upgrading bybecoming producer grouprepresentatives, responsible forcoordinating orders and inputs fora group of producers working with

a single buyer. Producer grouprepresentatives receivecompensation from the buyer fortheir efforts, usually based on thevolume of product delivered bythe individuals in the group.

Exporters preferring to sell toUS/EU distributors and working toeliminate sales to US/EU brokers.

d. Inter-Chain Upgrading

Scope for inter-chain upgrading is

limited by the differences in SPSstandards between the two channels.However, some of the Guatemalanand Central American supermarketsappear to be positioning themselvesfor more challenging regionalstandards in the future. Anotherdifference between the two marketchannels is the predominance of wet

markets in the Guatemalan andCentral America channel. Howevertypical wet market consumers inGuatemala and Central America donot seem to have as high a demandfor horticulture crops as consumers inthe US and Europe.

4. Governance and VerticalRelationships

Meeting or surpassing SPS standardshave several effects on governancewithin the value chain. Governancepatterns between buyers andproducers are moving away frommarket and weak network governancetoward stronger network andhierarchical governance. This isbecause exporters, distributors, and

retailers seek to provide assurance tothemselves and their own buyers thathe products were produced inaccordance with SPS standards.

As described in the previous sectionexporters, distributors, andsupermarkets are actively reducingtheir reliance on intermediaries infavor of contracting directly withproducers. Even though this mayincrease coordination costs byrequiring them to work with a larger

number of suppliers, it provides betteassurance of compliance with SPSstandards.4 Lead firms often provideon-site quality control and inspectionsat production and collection sites.

a. Forward Contracts

It is common for producers to signforward contracts with lead firmsThese forward contracts specifyseveral variables:

the area of land to be plantedunder the contract (and, byinference, how much product wilbe delivered)

the quality standards againswhich the base price for theproduct will be established

4 Buyers and sellers also seek to eliminateintermediaries as a way to secure better prices

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the planting dates and/or therange of dates when the productwill be delivered (mosthorticultural crops are plantedover a several-week period sothat they can be harvested in a

series of successive cuttings) the list of approved chemicals that

can be used on the crop the price to be paid for the

product, either fixed or pegged towholesale market prices

As part of the contract, lead firmsusually provide inputs (seeds,seedlings, and agrochemicals) toproducers, as well as technicalassistance. The producers repay thein-kind credit for inputs using the

proceeds from the first harvests.Because of this credit, and also toensure predictable and reliableproduct flows to lead firms and theirprocessing plants, producers usuallymust agree to sell 100 percent of theirharvests to the lead firm at the time ofsigning the forward contract.

b. Role of Intermediaries in the ValueChain

Even though lead firms prefer toarrange most of their supplies underforward contracts signed directly withproducers, there is still a critical rolefor intermediaries to play in thewholesale and spot markets forhorticultural crops. Intermediariesserve as a back-up resource to leadfirms by providing the extra suppliesthat exporters and distributors need tocomplete orders. In other words, leadfirms may receive the bulk of theirsupplies directly from producers, butthey still turn to intermediaries to fill inthe gaps and sudden shortfalls.

Intermediaries are usually MSEs, andthey often have paid employees.They operate the main wholesalemarkets for horticulture crops, andthey also organize regional spotmarkets for the major crops.Intermediaries may work with a set ofaffiliated producers, providing in-kind

credit for inputs under informalforward contracts with these affiliatedproducers. Unlike lead firms,intermediaries are usually unable todocument that SPS standards weremet during crop production. However,intermediaries are aware of the USEPA approved agrochemical list, andthey discourage affiliated producersfrom using banned chemicals.

5. Risks and Expected Returns

As with weaving, the cultivation ofhorticulture crops is usually not theonly economic activity in thehousehold economic portfolio, but isone of several economic activities. Ingeneral, producers of horticulturecrops also cultivate the traditional corn

and bean agricultural subsistence plot(milpa). In addition, it is common forproducers to cultivate other (non-horticultural) crops, which householdmembers sell in local wet markets.

It is usually men who manage thecultivation of horticultural crops,although other household memberswill assist with planting, weeding, andharvesting. Up to a certain scale ofcultivation, these seasonal tasks willbe performed by household members

on a non-paid basis. When theproducer has a larger area of land(several manzanas) planted tohorticulture crops, he may hire non-household members to assist withcultivation.

There are several types of risksassociated with the production andmarketing of horticulture crops.These have a strong influence on thestructure and functioning of the valuechain. There are four main categories

of risk:

1. Price and market risks. Prices formost of the horticulture crops arevolatile and can sometimes fall tovery low levels. Producers preferto have a fixed purchase price intheir forward contracts. Similarly,exporters prefer to sell to US/EUdistributors, who pay a fixed price,

rather than US/EU brokers, whoreceive the product onconsignment.

2. Climate and production risk. Themain risk affecting productionlevels is uneven andunpredictable rainfall. Very fewproducers have irrigation systemsto mitigate this risk. Cropproduction can also be reducedby pest and disease infestation. Asudden infestation can motivate aproducer to take a chance on abanned agrochemical rather thanlose most of the harvest.

3. Perishability of the productDelivery and sales of freshhorticultural products must berealized rapidly to prevent lossesPoor transportation and storage

infrastructure limit effective postharvest management. Lead firmsthat have the ability to freeze theproducts have more flexibility inthe timing of deliveries.

4. Non-compliance with SPSstandards. Products are usuallyexported in containers. If evenone producer uses a bannedagrochemical, and it is detectedthen the entire container can berejected.

6. Definitions Specific toHorticulture

Brokers: Firms that operate at thewholesale level in the US and EUThese firms receive products onconsignment. They resell theproducts at the wholesale level (e.g.to distributors) or at the retail level.

Certification: An internal or externavalidation process indicating thaspecific practices are being followed

with respect to SPS standardsorganic production practicesbioterrorism security measures, etcAn important example is PIPAA.

Distributors: Medium and large firmsthat, as a sole or main business, selto retail-level firms, includingsupermarkets, hotels, restaurantsand institutions within Guatemala and

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occasionally with neighboring CentralAmerican countries.

Exporters: Firms that, as a sole ormain business, sell to non-retailbuyers outside of Guatemala.

Horticulture Crops: Cropsassociated with snow peas in terms ofproduction zones, general productiontechniques, and market similarities.The horticulture crops included in thisdefinition are snow peas, sugar snappeas, English peas, green beans,French beans, yellow wax beans,baby carrots, baby squash, baby corn,broccoli, cauliflower, cabbage,Brussels sprouts, lettuce, and celery.

Intermediaries: Firms that are

MSEs, operate within Guatemala andCentral America at the wholesalelevel, and do not sell outside ofCentral America. These firms sell toexporters, distributors, and retailers.They may deliver the product to thebuyer or sell from wholesale markets,such as the Central de Mayoreo(CENMA, in Guatemala) and LaTiendona (in El Salvador).Intermediaries often buy directly fromproducers; in this situation, they aresometimes referred to as coyotes.

Sanitary and Phyto-Sanitary (SPS)Standards: Requirements andpreferences related to protecting thehealth and safety of the consumer.These include the absence of harmfulchemical residues and microbiologicalcontaminants (e.g., E. coli).

Wet markets: The main retailalternative to the supermarket inGuatemala and Central Americasometimes referred to as local or

traditional markets. According tosome informants, more than 72% ofretail purchases of fresh fruits andvegetables in Guatemala are made inwet markets.

Wholesale market: Local markets inwhich intermediaries sell products to,distributors, exporters, and/or otherintermediaries. (Final consumers may

shop at wholesale markets, but thelargest volume of sales is at thewholesale level.) The most importantGuatemalan wholesale market forhorticultural crops is CENMA inGuatemala City. Another wholesalemarket in Guatemala City is at LaTerminal. In El Salvador, the mainwholesale market is La Tiendona. Inaddition to these large markets,specialized wholesale markets forspecific crops operate in the mostfertile horticultural zones inSacatepequez and Chimaltenango.An example is the wholesale marketon the streets of Sumpango onMonday, Wednesday, and Fridayevenings from 6-8:30 pm.

IV. DATA COLLECTION

A. BUYER FIRM SURVEY

1. Purpose and Content

The buyer firm survey collectedquantitative data from buyer firms ineach value chain. The respondentswere largely firm owners or high-levelmanagers of firms from several buyercategories. Buyers are usually deeplyengaged in the sector, often acting as

intermediaries between producers andretailers, and they may even beinvolved at many different levels in thevalue chain. Some buyers, such asexporters, are larger firms and have avantage point that offers a birds-eyeview of the sector. The primaryobjectives of the buyer firm survey are1) to generate a broad picture of thevalue chain, 2) to test hypotheses A.1-A.3, 3) to provide a means to cross-check responses from the producersurvey, and 4) to gather referrals for

the initial participants (seeds) of theproducer survey.

The buyer firm questionnaire isprovided in appendix B. Thequestions in the buyer survey focuson hypotheses A.1-A.3, which dealwith vertical relationships betweenthese firms and MSEs. The questionscover governance structures,

upgrading, trust, transaction costsshared information, and social capitalThe buyer firm interviews ranged from45 to 60 minutes in length.

There were 58 horticulture buyers and74 textile handicraft buyersinterviewed for the study. Whereappropriate, buyers were selectedrandomly from lists based onAGEXPRONTs membership rostersas well as information gathered in thequalitative phase. Where no listscould be compiled, buyers wereselected through referrals or by usingrandom walk approaches in specificphysical market locations. Wherenumbers of buyers were small (e.g.supermarket chains) efforts weremade to interview all buyers in the

category. Unlike the produceinterviews, no incentives were offeredfor participation in the buyer firmsurvey.

2. Construction of Sample Framesfor Buyers

As can be seen in the attached valuechain maps, MSE producers in textilehandicrafts and high-value horticulturesell their products to several differentypes of buyers. There are four types

of buyers for textile handicrafts andfive types of buyers for horticultureproducts. Tables 1 and 2 list each ofthese categories of buyer firms. Thecolumns in the tables are organizedas follows:

1. Type of buyercorresponds tothe names used on the valuechain maps.

2. Level of the value chain at whichthe buyer operates.

3. Approximate total number o

buyers of that type in thepopulation.

4. Number of buyers of that typeincluded in the buyer sample.

5. Basic approach for constructing asample frame for that type obuyer.

6. Detailed description of theapproach for constructing the

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sample frame and selecting thesample for that type of buyer.

Construction of the sample frames forbuyers in both value chains beganwith AGEXPRONT member lists.5

The AGEXPRONT lists were goodstarting points for several of the buyerfirm categories, but were incomplete.The extra time spent working with key

5 AGEXPRONTs Handicrafts Commissionhas a member list with approximately 90

members, though not all of them work intextiles. There are three types of members: 1)exporting firms (45% of members); 2)

producer groups (40% of members); and 3)

development organizations (15% of members)All members of the Handicrafts Commissionare supposed to have a strong interest in

promoting the export of handicrafts, so they

would all be part of the international marketchannel. This list is kept up-to-date andincludes full contact information.

informants to complete the listsimproved the validity (coverage) of thesample frames. Key informantsassisted in completing the lists duringthe preliminary field investigation.

In the cases of the popular marketsand artisan-brokers in handicrafts,and the intermediaries in horticulture,there were no existing lists to use as astarting point in constructing sampleframes. Instead, tables 1 and 2describe an approach that relied on a

combination of referrals and randomwalk sampling to generate randomsamples of buyer firms in thesecategories. The tables provide detailsabout the approach for constructingbuyer firm sample frames.

3. The Sampling Approach

There are two importanconsiderations driving the samplingapproach. First, with 75 buyers fromthe handicrafts value chain and 58buyers from the horticulture valuechain, there were enough buyers inthe sample to potentially providestatistically significant results. Almosall categories of buyer firms wereincluded in the sample, thus providinginformation about buyers in eachcategory.

The primary advantage of thisapproach is that it allowed theselection of a random sample of buyefirms from each category, so that wecan argue that the sample isrepresentative of each category. Thepossible exceptions would be thesample of artisan-brokers in

12

Table 1: Sample Frames for Buyer Firms in Textile Handicrafts

Type of Buyer Buyer Level

Population(approx.)

SampleSize

SampleFrame

Detailed Approach for ConstructingSample Frame

Exporters Wholesale 50 18 Randomselectionfrom list

Began with member list of AGEXPRONT Handi-crafts Commission members and worked withAGEXPRONT staff to eliminate non-exporters andidentify additional exporters (non-members of thecommission). Vetted the list with two additionalinformants (exporters) to identify additionalexporters. Selected random sample from the finallist.

Artisan-Brokers

(Note: Many arealso MSEs)

Wholesale unknown 19 Referral Since, artisan-brokers sell to all three of the other types of buyers (exporters, popular shops andexclusive shops), when interviewing each of theother types of buyers, they were asked for a givennumber of referrals (3) of artisan-brokers, asdetermined by the desired sample size.

Markets &Popular Shops

(Note: Many arealso producers whoare self-marketing)

Retail unknown 20 1. Selectionof largestmarkets in

study area2. Randomwalk

Determined 5 largest markets/groups of popularshops in the study area (Guatemala: MercadoCentral, Aurora, and Zone 9; Antigua; and

Panajachel). Determined sample size (20).Determined number of participants per market byweighting number of shops/stalls per total numberof shops/stalls in all 5 marketsMercado Central(5); Aurora (2); Zone 9 (2); Antigua (5); andPanajachel (6). Selected sample via random walk.

Exclusive Shops Retail 30 18 Randomselectionfrom list

Begin with current member list of AGEXPRONTHandicrafts Commission and worked withAGEXPRONT staff to identify other exclusive shopsto add that are not members of the commission.Vetted the list with two additional key informants(exclusive shop owners) and asked them to identifyadditional exclusive shops. Took random samplefrom the final list.


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handicrafts and, to some extent, theintermediaries in horticulture.Unfortunately, there is no feasible wayto construct a reliable list of thesefirms and, with the exception of thehorticulture wholesale markets, thegeographic dispersal of these firmsmakes it infeasible to conduct arandom walk sampling procedure.Therefore, a referral method was theonly alternative.

A disadvantage of the approach is thattwo types of buyer firms in horticultureare not included: 1) Guatemalanhotels, restaurants, and institutionsand 2) wet markets. Both of thesebuyer categories operate at the retaillevel. They were excluded because

they are geographically dispersed,and it would be hard to construct validsample frames. In addition, the salesof horticulture products in wet marketsmay not be very extensive, sincethese products are not traditionallypopular with local consumers.

A second major consideration drivingthe sampling approach is that, byinterviewing almost all of thecategories of buyers, it was possibleto elicit referrals for producersoperating in every channel of the twovalue chains. Thus, the initial seedsfor the Respondent Driven Sample(RDS) include producers referred fromevery category of buyer. With initialseeds from all buyer categories, it ispossible for the producer sample toconverge to a sample that isrepresentative of all producers in thevalue chain.

4. Pilot Test

The questionnaire and referral

process were pilot tested and revised,based on the results, of the pilot test.AFTER the buyer firm sample frameswere constructed and AFTER therandom samples had been selected.In this way, the pilot test could beconducted on buyer firms that wereselected as part of the sampling

process. This procedure protected theintegrity of the random sample.

Four buyers from the handicraftsvalue chain were interviewed for thepilot test: one firm from each of thebuyer categories. Three firms in thehorticulture value chain wereinterviewed: one exporter and twointermediaries.

The pilot test provided information onhow well the questions are structuredand how well the referral processworks. It also yielded information onthe expected length of the interviewsand whether it would be necessary todelete any questions to shorten theinterview. Additional information

about how the pilot test wasstructured and evaluated is providedin section B.4 below.

B. PRODUCER FIRM SURVEY

1. Purpose and Content

13

Table 2: Sample Frames for Buyer Firms in Horticulture Products

Type of BuyerBuyerLevel

Population(approx.)

SampleSize

SampleFrame

Detailed Approach for ConstructingSample Frame

Exporters Wholesale 25-30 18 List

Began with a contact list developed during

qualitative study, which was compared to currentmember lists of AGEXPRONT Frozen Vegetableand Snow Pea Commissions to add new firms.Worked with AGEXPRONT staff to eliminate non-exporters and identify exporters who were notmembers of the two commissions. Vetted the listwith two informants (exporters) and asked them toidentify any additional exporters. Interviewed allon the list who were available and willing toparticipate in the survey.

Intermediaries

(Note: Some ofthese are also

MSEs)

Wholesale 350 30Random

walk

Conducted a random-walk procedure in thehorticulture sections of the two major wholesalemarkets in Guatemala City (Centro de Mayoreoand La Terminal).

Guatemalan

Distributors Wholesale 4-6 7 List Followed same procedure as for exporters.

Supermarkets Retail 5 3 List Followed the same procedure as for exporters.

Wet Markets Retail unknown 0 None Omitted from sample.


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The producer survey focused onquantitative data collected fromproducers in each value chain. Therespondents were owners or principaldecision makers of MSE producerfirms in the handicrafts andhorticulture sectors. The majorsections of the questionnaire coverfinance and credit, labor and capital,competition and trade, risk aversionand discount rate, businessdevelopment support awareness anddemand, social capital, value chaingovernance and upgrading, anddemographic information. Whilecertain questions are more qualitativein nature, such as describing whatobstacles might be interfering withbusiness or whether access to creditis easy or hard, for the most part the

survey focused on collectingquantitative data that were enteredinto a database for future statisticalanalysis as the foundation of theAMAP research into the behavior ofMSEs and their potential for growth.

The producer survey gathered datafor testing all the hypotheses, lookingat vertical relationships from theperspective of producers, problems inestablishing horizontal relationshipsthat have high levels of trust and low

transaction costs, and opportunitiesfor MSE upgrading. As data from theproducer survey compose the majorityof the data collected, every effort wasmade to assure that the survey bebroad and collected as muchinformation as possible. The producerfirm questionnaire is provided asappendix C.

2. General Discussion ofRespondent Driven Sampling (RDS)

a. Statistical Properties

Respondent Driven Sampling (RDS)is a relatively new sampling methodbuilt on snowball, or chain-referralsampling. Unlike other referralsampling methods, however, RDS hasthe potential to lead to results withknown statistical properties. Thispotential has been acknowledged in

the literature on the study of hiddenpopulations, though RDS has notbeen replicated enough to gainbroader acceptance.6

The basic methodology is to start withan initial set of seeds, which are givenan incentive to be interviewed, andthen given an additional incentive torecruit other respondents to also beinterviewed, who are also then givenincentive to recruit more respondents.This process proceeds to apredetermined number of waves.Using 1) the self-reported degree, orpersonal network size in this casethe number of other discrete MSEbusinesses involved in the relevantsub-sector known by the respondent,and 2) the recruitment pattern of

referrals linking respondents to whoreferred them, it is possible to makeestimates about the population thatare unbiased and establishrepresentativeness.7

While it has been asserted that typesof chain-referral procedures arebiased based on the initial choices ofseeds, it can be shown statisticallythat the choice of seeds does notmatter. Recruitment can be modeledas a regular Markov process, with a

respondent selecting other respondents with certaincharacteristics with specificprobabilities in a memory-lessprocess. Thus, as the recruitmentprocess continues, an equilibrium mixof recruits will eventually be attainedthat is independent of thecharacteristics of the initial seeds.The set of subjects generated by RDSwill further approach the equilibriumdistribution at a rapid (geometric) rate,and the better the initial seeds

approximate the equilibriumdistribution, the faster the sample willapproach that equilibrium.

One general concern worthaddressing is that groups have astrong tendency to recruit from within

6Semaan et al. 2002.7Heckathorn and Salganik 2004, pp. 5-14.

the group, termed inbreeding. Thusthe extent to which members of anygiven group will be sampled dependson three factors the size of thegroup, its tendency toward inbreedingand the strength of inbreeding in othegroups. If all groups inbreeding termsare equal then, an RDS sample wouldyield an unbiased sample because theprobability of sampling an individuawould be related only to the size ofthe group that the individual belongedto. This of course may not be thecase in reality; however, even whenthis assumption is violated, it hasbeen shown that RDS can beexpected to produce good crosssections.8 In theory, also, thereshould be a positive relation amonginbreeding terms; high inbreeding (o

a strong tendency to favor the grouptends to encourage more inbreeding(for other groups to adopt thabehavior) whereas weak inbreedingdiscourages high inbreeding.

In the case where social networks donot cross at all and referrals thus donot cover both populations, foinstance in cases of geographicisolation, it is possible to partition thesample into two or more sub-samplesand each system will reach their own

equilibrium distribution.

b. Previous Applications

As noted before, RDS has not beenused extensively in the researchcommunity despite its potential toyield representative results. Relevansurveys in the US have studiedalcoholism in mission Indians9, jazzmusicians10, injection drug users11

and cocaine and crack users12. Workon jazz musicians has been especially

statistically rigorous, anddemonstrates the statistical validity oRDS in estimating populationcharacteristics and network sizes

8 Ibid.9Ehlers et al. 2004.10Heckathorn and Jeffri 2001.11Heckathorn et al. 2002.12Rees 2004.

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RDS hasalso beenapplied

internationally in Kenya studying thesocial network for health interventionsamong scavenging street children13.In this case, RDS was cited as anefficient and effective way to collectdata.

While the research base is notextensive and none of these studiesreach the scale of the AMAP project,there are some examples of work onwhich to draw. Moreover, theGuatemala field research provided anopportunity to advance the field ofresearch and work to establish a newresearch tool for studying hard-to-reach populations. This will beespecially useful as a research tool indeveloping countries, where evensimple populations, such as small

businesses, may be hard to locatedue to the extent of the informaleconomy as well as poor communication and transportationinfrastructure.

3. Implementation of RDS Samplingin this Study

a. Initial Seeds

At the conclusion of their interviews,buyer respondents were asked to

provide referrals to producers withwhom they either had businessoperations or whom they knew aboutthrough other relationships. Buyerswere instructed to provide referrals ofcurrently active MSE producers in therelevant value chain. The number ofreferrals was larger than the actual

13Ayuku et al. 2003.

number of initial seeds needed, whichwere ten in each value chain.

Initial seeds were selected on thebasis of two criteria: 1) the type ofbuyer making the referral and 2)geographic location.

1. Type of buyer making the referral

In handicrafts, at least three initialseeds each from referrals by a)exporters and b) artisan-brokers, atleast two each from c) markets andpopular shops and d) exclusive shops.In horticulture, at least three initialseeds each from referrals by a)exporters and b) intermediaries; andat least two each from c) Guatemalandistributors and d) supermarkets.

2. Geographic location

In each value chain, the initial seedswere evenly divided over the researcharea, which includes the departmentsof Sacatepequez, Chimaltenango, andSolol.

(Note: An effort was also made toselect initial seeds from among the fullrange of MSE firm sizes, with moreinitial seeds coming from the most

common firm sizes in the list ofreferrals. However, buyer respondentscould not provide sufficiently accurateinformation on firm size to be able toapply this criterion with confidence.)

It was important to select a diverse setof initial seeds in order to accelerateconvergence on the equilibriumdistribution of producers. The final

distribution of initial seeds wasselected in consultation between theAMAP research team and the locaconsulting firm.

b. Number of Waves andRespondents

Six to seven waves with threereferrals for each respondent isrecommended in order to establishthe equilibrium distribution. The pilotest helped to clarify how long traveand interviews would take to estimatethe amount of time required to reachan overall equilibrium distribution. Thecurrent sampling plan, summarized inTable 3, reflects the target number owaves and interviews estimated tomaintain statistical integrity within the

time and resource limitations of thefield work.

The proposed sampling structure foeach sector began with 10 initiaseeds in each sector, for a total of 20initial seeds. In order to create areasonably unbiased andrepresentative sample, the fieldsurveys included seven waves ointerviews in each of the two sectorsThe total number of produceinterviews was 780, or 390 in each

sector.

c. Survey and Recruitment Incentives

Survey and recruitment incentives area powerful way of attractingrespondents and motivating them toprovide accurate referrals. By offeringrespondents an incentive toparticipate in the interview, response

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Table 3. Number of Waves and Referrals for Each Sector

Number ofWave

TotalRespondents in

Each Wave

Referrals Used perRespondent

Cumulative Numberof Respondents

1 10 2 102 20 2 30

3 40 2 704 80 1 1505 80 1 2306 80 1 3107 80 - 390


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rates should be higher. Further,offering referral incentives forrecruiting other respondents and forparticipation mitigates the problemof respondents being reluctant todivulge information about theirfriends. Respondent recruiting alsoharnesses peer pressure andapplies non-material rewards such apeer approval to increasecompliance. A friend or acquaintancewill have more sway with a potentialrespondent than a researcher.

An unskilled (male) day laborer inagriculture in the Solol area receivesQ20 per day, which is about $3.Female weavers in the same areamake about Q15 for a five to six hourworkday. Since interviewers traveled

to producers places of residence orwork, Q20 was deemed an adequateincentive to participate in the survey.Payments were made after successfulcompletion of the survey. In addition,each respondent was paid an extraQ15 bonus for providing threereferrals. The referred respondentwas also paid Q20 for completing aninterview and given an opportunity torefer other respondents for the nextwave as well.

d. Recruitment Logistics

Respondents were paid the incentiveupon completing the interview, andthen given an opportunity to earn areferral bonus by providing threepossible referrals of producers who fitthe interview criteria, which is anactively producing MSE in the textilehandicrafts or horticulture sector.Depending on the number of thewave, only one or two of the referralswere interviewed (see table 3 above)

to assure that the number of totalinterviews in a single wave was nottoo high and the final sample wasrepresentative.

The local survey firm providedenumerators with a random selectionmethod using a six sided die forimmediately prioritizing the threereferrals (i.e., ranking them first

priority, second priority, and thirdpriority). The enumerator wasinstructed, that once the referralswere ranked, to ask the respondent tobring the enumerator to meet the oneor two top priority referral(s). If the toppriority producer(s) could not befound, or did not agree to participatein the survey, then the next highestpriority referral was invited to

participate.

Referrals within one wave were all tobe completed before moving on tobegin the interviews in the next wave.For instance, in wave 1, if RespondentA is interviewed and refersRespondents B, C and D, and B andC are selected to be interviewed, thenboth B and C were to be interviewedbefore any of B and Cs referrals wereinterviewed.

In a many cases, the enumerator wasable to proceed immediately with thenext interview, provided these threeconditions are met: 1) all of theinterviews for the previous round havealready been completed; 2) theenumerator did not need to go withthe referring producer to meet asecond referral; and 3) the referringproducer was politely asked to leaveso that the referred producer could beinterviewed in private.

In summary, the procedure be

followed by enumerators was thefollowing:

1. Complete an interview and askthe respondent for three referrals.

2. Make the Q20 payment to therespondent for the interview andoffer an additional bonus of Q15for three referrals.

3. Prioritize the referrals based on arandom selection process.

4. Randomly select one or two of thereferrals, depending on the wavenumber for subsequeninterviewing.

5. Accompany the respondent tomeet the referrals and securetheir agreement to be interviewedthen or later.

In order to avoid repeat interviews ofthe same producer, survey teamswere assigned to work in specificgeographic areas, with no overlapbetween teams. A team onlyinterviewed producers in its assignedarea, and if a referral was for aproducer outside of its area, it relayedthe information to the relevant teamA member of this relevant team thenbrought the referring producer to thereferred producer. This process was

time-consuming, but it minimizedother problems that arise if producerstry to be interviewed more than onceby different enumerators.

4. Pilot Test

The producer survey pilot tesassessed the effectiveness of thequestionnaires as well as theexpediency of the RDS methodologyThe pilot test focused on just onegeographic area, and began with the

random selection of seed producersfrom the referrals collected during thebuyer pilot test. (See section IV.A.4above). The pilot buyer interviewsincluded the request for producereferrals. For each sector, the initiaseeds for the producers came fromtwo different buyer categories.

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Table 4. Number of Waves and Referrals for Each Sector (Pilot Test)

Number ofWave

Total Respondentsin Wave

Referrals Usedper Respondent

Cumulative Number ofRespondents

1 2 2 22 4 2 63 8 - 14


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Age

Gender

Education

Work experience

Language fluency

Personal income

Wealth

Sub-sector

Size of the firm

Geography

Some of these variables might beinterchangeable, for instance intesting the effect of higher personalincome on risk attitudes personalincome would no longer be a control.The full set of hypotheses are listed inappendix A, but include testing the

effects of social capital, personalincome, information, and transactioncosts on vertical and horizontalrelationships and on willingness andability to upgrade.The results will help in understandingbetter and quantifying the policyimplications for handicrafts andhorticulture in Guatemala. Forinstance, if we discover that if firmsparticipate in business associationsthey tend to be more willing to takerisks, have greater access to capital,

and subsequently grow faster, takinginto account other variables such assub-sector and geography, then wecould estimate that if a policy were toincrease membership in businessassociations by X percent, it wouldhave Y effect on growth.

In another scenario, we mightdiscover that MSEs are extremely riskaverse and discount the future heavily,and that this is a principal reason whythey do not pursue upgrading

opportunities. In this case, we mightneed to explore policies that not onlymake upgrading more feasible, butalso reduce perceived risk.

The data analysis process will beopen to feedback as it progresses,and there will be presentations ofpreliminary findings to solicitcomments leading to revisions before

the results are finalized. Werecognize that every hypothesisneeds to be tested, and that relevanceto USAID mission is the top priority.

VI. STEPS IN IMPLEMENTING THESURVEY

The data collection was carried out asa series of steps. These steps arelisted below.

Step 1: The AMAP research staff andGuatemalan survey team

Translated survey instruments

and survey guides;

Constructed buyer lists and

selected buyer respondentsamples from each of buyer firmcategories;

Trained field surveyors in

interview and samplingprocedures;

Supervised survey staff in pilot

testing both buyer firm andproducer firm survey instruments;

Revised and finalize instrumentsand sampling plans based on pilottests; and

Set up buyer firm interviewappointments for Step 2.

Step 2: The Guatemalan survey team

Conducted buyer firm interviews

in both sectors;

Set up accounts at a bank with

agencies in survey regions fromwhich field surveyors couldaccess funds to pay respondents

for interviews and referrals;

Made final revisions to producer

survey instrument and samplingplan based on responses frombuyer interviews and developed asample of seed MSE producers;and

Began database design using

final versions of the pilot testedsurvey instruments.

Step 3: The Guatemalan survey team

Conducted the producer firm

surveys beginning with seed firmsand including up to sixsubsequent waves, for a total o780 interviews (390 per sector);

Carried out spot checks to

validate the field survey workconcurrent with the survey;

Completed buyer survey coding

and data entry; and Began producer survey coding

and data entry.

Step 4: The Guatemalan survey team Concluded any outstanding

producer firm surveys;

Concluded survey form coding

and continue data entry;

Performe

mr043 - research protocol for the guatemala country study

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