Ecological Rural Development in Costa Rica
By John C. Ickis, Juliano Flores and Catalina Ickis
William Camacho worked as a laborer in a biological research station near the village of Las Horquetas, Costa Rica, when he learned from a visiting scientist of the possibility of breeding butterfly pupae for export (just as a moth caterpillar spins a cocoon, a butterfly caterpillar spins a pupa, or pupae in the plural). With the guidance of a technical manual that he obtained from his employers, he began the laborious tasks of cultivating feed plants, attracting butterflies, gathering the eggs, raising the caterpillars, and eventually harvesting the pupae which he sold to a small local business, Costa Rica Entomological Supply.
He was soon selling as many as 600 pupae per week at a price of $1.60 per unit. That was twelve years ago, and today William has a thriving business that not only sells pupae but also includes a butterfly farm and a zoological park. In the past three years alone, William has received visits from some forty groups of tourists and researchers from all over the world.
Apart from breeding 18 to 20 different species of butterflies, William also has land turtles, three different species of frogs, fish, tepescuinles, toucans, pericos, guajipales and an infinite number of insects. A true lover of nature and entrepreneur, William has introduced the idea of exporting insects in addition to the butterflies. “This business is not for everyone,” he cautions, because it requires 7-day work weeks and a genuine passion for nature. But with the work come rewards. These combined businesses bring him an income of around twenty times what he earned as a rural laborer, transforming the life of his family and bringing unimagined opportunities for his children.
Throughout Costa Rica, the lives of farm workers and the rural unemployed have been transformed by the rise of a new business opportunity, the export of pupae to butterfly exhibitors in North America and Europe. Instead of earning minimum wages, these workers have become entrepreneurs. The Costa Rican butterfly business has indirectly resulted in greater school attendance, improved health standards, and a new sense of community pride that can be seen in the butterfly murals that adorn schools and health clinics in the village of La Guácima.
Another striking example can be found in San Ramón, an hour´s drive west from the capital city of San José. Here, Luis Alberto Chavarria and his nephew Sergio Hidalgo Chavarria breed the spectacular blue morpho butterfly, which they have been selling to the Costa Rica Entomological Supply for more than fifteen years. Before entering the butterfly business, they both worked on a cattle ranch, earning the minimum wage, around $200 per month at that time. While this was much higher than Costa Rica´s impoverished neighbors, it was still inadequate to provide for their families, so when a visiting biologist mentioned the butterfly opportunity, Luis Alberto and Sergio immediately became interested. “We got him to teach us almost everything there is to know about butterflies,” Sergio recalled. Now, they are not only successful breeders of cocoons, but are also one of the main suppliers of butterfly souvenirs in the country. Two nonprofit organizations, the Fundación Neotrópica and the Tropical Zone, make monthly orders to Luis and Sergio for the sale of framed butterflies to tourists visiting Costa Rica and for export.
The Costa Rican butterfly business began more than twenty years ago when a Peace Corps volunteer, Joris Brinckerhoff, happened by chance to meet a retired entomologist, also from the United States, who gave him the idea. Joris had been looking for a business opportunity that would allow him to stay in Costa Rica and to engage in an activity that would contribute to the economy while not damaging the environment. The breeding of butterfly pupae for export seemed ideal, as it would generate export earnings which were at that time concentrated in a few traditional products such as coffee, bananas, sugar, and beef. Moreover, the business required very little investment and no highly skilled labor. He was also inspired by reading E.F. Schumacher’s Small is Beautiful, which describes how small businesses can make a big difference without harming the environment. With his Peace Corps allowance, the sale of a car in the United States, and a loan from his family, he built a few butterfly reproduction cages on borrowed property and founded the Costa Rica Entomological Supply. More popularly known as CRES, the company became the first commercial exporter of butterfly pupae in Latin America.
The new venture did not immediately prosper. Joris underestimated the difficulty of exporting a new product from a country known for its slow-moving government bureaucracy. It took nearly a year of visiting and cajoling to get a Ministry of Agriculture inspection and an export permit, only to learn that he had to pay a $2.00 “wildlife export” tax on each of his pupae, which the overseas exhibitors were buying for $2.40. It was almost another year before he convinced the government that the tax should be levied not on each pupa, but on each fifty-unit container. The first exports began in the mid-1980s but orders quickly fell as the winter months approached, since exhibitors close rather than heat their enclosures.
It was then that Joris´ Portugal-born wife, Maria Sabido, suggested that they might build a butterfly enclosure since the tourism industry in Costa Rica was beginning to gain momentum. Since the more affluent ecology-conscious tourists visit Costa Rica during the winter months, this new business would help to even out the seasonality of the pupa exports. Joris and Maria bought a few acres of land in La Guácima, a village near Alajuela, Costa Rica’s second largest city, and The Butterfly Farm was born.
Maria took up the challenge of designing and building The Butterfly Farm. The result was an enclosed greenhouse of nearly 840 square yards with 500 different varieties of plants and butterflies, trails and a waterfall. With this diversification, the business began to improve. Local travel agencies began to send tourist groups for daily tours. The Butterfly Farm opened a gift shop and a restaurant. Opportunities for CRES were also growing as the world butterfly market was becoming more attractive and new exhibits were opening in the United States.
The problem was no longer a lack of demand for butterfly pupae, but a limited production capacity. To meet the growing demand, CRES began to buy pupae from former employees who had opened breeding facilities. As exhibitors began demanding ever greater varieties of butterfly species, Joris went beyond La Guácima to seek breeders in Costa Rica´s many diverse microclimates. Today, CRES offers more than 70 species of butterfly pupae in any given week and works with about 100 breeders all over Costa Rica. Though still a small business, it has become one of the world’s largest exporters, shipping more than 400,000 pupae a year to exhibitors in North America and Europe.
When Joris began working with independent breeders, he had two concerns. One was to maintain the quality of their product, defined by the percentage of “emergings” from pupa to butterfly and by lack of defects, diseases and viruses. The age of pupae at the time of delivery is also critical, since exhibitors are not interested in receiving butterflies that have already emerged. Joris regularly holds workshops with the breeders to discuss quality issues, and they can be temporarily suspended if failing to live up to CRES’s quality standards.
The second concern was to maintain high prices to quality breeders for both practical and altruistic motives. As new competitors entered the butterly export business and the supply of pupae began to surpass the demand, it was important to ensure the breeders’ loyalty and to prevent price wars. In the late 1990s, competing exporters began offering low prices for pupae that CRES was unable to purchase for lack of orders. Joris met with the breeders and explained that this undercutting would flood the market, reducing prices for all pupae. He proposed a “gentleman’s agreement” in which the breeders would agree to sell exclusively to CRES and in return would receive first priority and the highest prices. He also introduced a “Plan B” by which they could sell to anyone but would agree not to sell at a price lower than that established by CRES. All seventy breeders who supplied CRES at that time signed the agreement, but in the face of aggressive pricing tactics pursued by competing exporters, which included cash purchases at 25 cents for pupae that CRES was unable to buy, prices collapsed in 2003. Despite a strong increase in total export volume from Costa Rica, total revenues from exports fell by more than ten percent. CRES continued to pay the highest prices to breeders, at least 25% more than the nearest competitor, but world market prices for pupae fell from $2.40 in 1985 to around $1.60 in 2003.
Joris responded by attempting to differentiate his product, widening the variety of species, a demand CRES could meet through its extensive network of breeders from diverse Costa Rican microclimates. He has also introduced a policy of guaranteeing to his customers that 100 percent of the butterflies will emerge, or that he will instantly replace them. To back this up, CRES has begun to ship a third more pupae than the number ordered, in effect reducing its price by nearly a third since nearly all butterflies emerge. This has meant that CRES has had to reduce the price it pays to the breeders, but since it has also increased the amount purchased, the breeders’ total income level is maintained, and they are less likely to dump excess cocoons on the market at 25 cents. “Protecting the breeders’ income is an important part of the CRES mission,” Joris affirms.
Thus, what began as a business strategy by CRES to outsource the breeding of butterfly pupae and create competitive advantage through a sourcing network that offers unmatched diversity of species, has become a social enterprise in which CRES and the breeders are partners in wealth creation and social development.
Beyond transforming the lives of over one hundred low-income rural families, CRES and The Butterfly Farm has changed the landscape of its community in La Guacima de Alajuela. Brightly colored murals of butterflies adorn the walls of schools and shops throughout the village, and in 2005, the municipality of Alajuela officially designated La Guacima as “La comunidad de las mariposas” or The Butterfly Community. The idea for the murals came from a visit by Joris to Bordano, Italy, whose walls are also adorned by brightly painted butterflies. Joris has now organized an annual contest for local artists with cash awards.
In April 2005 the city of Alajuela signed a sister city accord with the Italian towns of Montegrotto Terme and Bordano, motivated by the heritage of butterflies that is common to all three cities. In June 2006, another sister city accord was signed with the German town of Bendorf-Sayn. What began as a backyard experiment over twenty years ago has symbolically united Costa Rica with Italy and Germany, through the magic of butterflies.
John C. Ickis is a graduate of Harvard Business School (MBA, DBA) and professor of business administration at INCAE Business School in Alajuela, Costa Rica. He has published in The Harvard Business Review, World Development, and The Journal of Business Research.
Juliano Flores, Peruvian, is Project Coordinator at INCAE for the Social Enterprise Knowledge Network and coauthor of chapters in Effective Management of Social Enterprises (Harvard University Press) and Business Solutions for the Global Poor: Creating Social and Economic Value (Jossey-Bass, forthcoming).
Catalina Ickis, born in Costa Rica and currently a student at Bates College, conducted field research on the butterfly industry in Costa Rica as a summer intern at INCAE Business School.