Seventeenth century historian Thomas Fuller once stated, “We never know the worth of water ‘til the well is dry.” The same could be said today about global supply chains. For years we have taken for granted the ability to buy components and finished goods from around the world – without any thought about the factories, container ships, dock workers and trucks involved in the process. This is no longer the case. “Pandemic-related product shortages, from computer chips to construction materials, were supposed to be resolved by now. Instead, the world has gained a lesson in the ripple effects of disruption.” 1 The cost of shipping via container was $6,000 to $7,000 pre-pandemic. It is now $26,000.
Companies both large and small are being forced to adapt. While some countries benefited from government support programs that are now tapering off, others lacked the resources to launch them. In countries like Ecuador, the impact of market forces and reduced bank lending have been especially hard on small businesses.
One of our partners’ clients in Ecuador, Austrofood, has shown tremendous resilience and innovation, and has successfully pursued both commercial and social impact goals throughout the pandemic. Austrofood was founded 12 years ago in northern Ecuador by Santiago and Francisco Peña. With backgrounds in distribution logistics and exporting flowers, the brothers began by purchasing land called Las Esmereldas, which had an ideal growing season for the guanabana (soursop) fruit. They selected the region both for the ideal climate and the opportunity to create a positive impact through stable employment for the local community.
At first, things were quite primitive and challenging. When they planted the first trees ten years ago, they had to travel by horseback to visit the farm. Today, they have 120 hectares, employ 80 people on the farm (in addition to another 80 people at the production plant in Quito) and can travel by car on paved roads to the farm. About one-third of the staff are women.
When Austrofood first began its operations, people were not used to having steady jobs and it was rare for women to have paid employment, meaning they were dependent on men. When Austrofood hired their first workers, they didn’t show up on the second day because they didn’t understand that they had been offered work on an ongoing basis. These workers also didn’t understand what a paid vacation was. Santiago explained, “At first the employees didn’t understand the concept, or feel they deserved paid vacation. The staff said things like, ‘I want to keep my job. Please don’t fire me.’ At the beginning they didn’t even know they deserved vacation. Work at Astrofood has made a huge difference to women in the community. If the father of their child leaves them, they can still maintain their household. Beyond the salary, we give them a uniform, a meal, and a sense of security.”
When the trees started producing fruit after four years, Austrofood began by selling fresh fruit to local markets. Santiago explained, “Getting fresh fruit to customers in larger cities was too challenging for us to manage ourselves at the beginning, so we looked to distributors. As we anticipated, we encountered problems working with middlemen. They complained, ‘It’s too green, or too ripe.’ And they offered us low prices. We decided to invest in processing the fruit ourselves so that we had more control over sales and could sell directly to commercial clients and keep more of the profits for our company. At the beginning we could produce enough for one truck. Soon we were able to produce enough for ten trucks a day. Fresh fruit is perishable and seasonal. To supply fruit in the off season, we had to freeze it. We also began to offer fruit pulp to commercial clients. This process extended the shelf life and allowed us to supply customers year-round when their production needed it.”
“We built a lot of trust with our customers. At the beginning we didn’t build our brand. We learned we need a lot of things to sell to the big industries, so we started the work to obtain internationally recognized certifications such as USDA Organic, U Kosher, BMP, and BRC Food. That’s the grown-up world for us. It took us some time to get the certifications, but after some years we were recognized as one of the best providers.”
A few years later, Austrofood decided to begin selling internationally. They knew they needed new packaging and a brand that would appeal to international customers, so they created the ‘WanaBana’ brand. To facilitate production and distribution, they bought a machine to make fruit in pouches so that the fruit maintained its purity and had a shelf life of a year and a half. The company has also branched out into multiple fruit products. It buys the raw material from other producers. Pouches are the primary product sold for export, but the company also sells fresh and frozen fruit, and is starting to sell juices and smoothies locally.
At the end of 2019, Austrofood started to sell into the US market. Last year was an awful year for the US expansion, but the company is optimistic about 2021 and beyond. Santiago explained, “We had a lot of distributors and brokers interested, but no one was willing to take the risk. At least in Ecuador we were considered ‘essential’ and could continue some of our operations. We worked a lot in 2020 and were able to keep all our staff. We had to cut some expenses and at the beginning began to work in shifts. We had been hoping to double sales in 2020, but we didn’t achieve that goal. Sales were about the same as in 2019, so a disappointment but not a disaster.”
Santiago sees things starting to move again in 2021 and is enthusiastic about the future. The company has closed new deals with Spanish and German supermarket chains. According to Santiago, “Our team has put in hard work, and we have high hopes for 2021 and beyond.”
AGC’s partner started financing Austrofood’s invoices about two years ago. Reliable access to working capital has been key to expanding their business into new markets, so they knew they could cover bills for raw materials, staff and processing expenses. Santiago explained, “We discount about 20% of our invoices. As we grow and need more clients, we need to move faster. The ability to discount invoices gives us the confidence to continue to grow. We hadn’t used factoring before. It seemed tricky and complicated, so we were reluctant to use the product. With AGC’s partner, we know we can call them and they will help us. As many have said: you can’t predict anything during this pandemic.” Fortunately for companies like Austrofood, they have local financing partners they can depend on.
1 The World Is Still Short of Everything. Get Used to It. New York Times, September 7, 2021. https://www.nytimes.com/2021/08/30/business/supply-chain-shortages.html?smid=em-share