The Guano Era : Case study of a wasted opportunity

 From the years 1840’s to 1870’s, Peru held a huge economic opportunity, owning a monopoly on a very high value and demanded product which is guano. What everyone of us wouldn’t consider as more than bird’ poop, was actually used as a fertilizer for agriculture all around the world back in the days. 

Here is a golden bench. 

The Peruvian State was originally the owner of guano’s deposits, and found investors to bring the capitals to exploit this opportunity. President Castilla then set up the consignment system, which consisted in allowing private actors to exploit the guano in exchange of a pourcentage between 30% and 45% of the sale, after the sale. 

During those years, the Peruvian State achieved to reimburse a lot of its tremendous debts and to develop its infrastructure of transportation but mainly around the objective of the commercialization of guano. 

Even though the Guano became the primary source of tax revenue for the State, it appears that Peru didn’t get the best of it, firstly after the rise of the prices unanticipated by the government who signed fixed prices contracts with private exploitant, and then because the consignment system didn’t fit the State needs for an immediate cash flow in order to reimburse its debts. 

That is what will push the Prado government to contract with the french financer Auguste Dreyfus. This contract put an end to the consignment system, and gives Dreyfus the right on every exportation of guano in exchange of an advanced payment from the financier. 

Unfortunately, when the international need for guano decreases after the discovery of other means of fertilization, Dreyfus refuses to pay the Peruvian government and soon won’t reconduct this contract. 

This situation highlights the mismanagement of this opportunity from the Peruvian State. First, the peruvian state didn’t really get the best price out of it anytime they needed it, and this is mainly because of the urgent need for cash from the State. Indeed, the money raised by this activity directly went to the reimbursement of the country’s debt, and to develop infrastructure for its own exploitation, missing the opportunity to diversify its income through diversified investment or to develop the public sector. Therefore the wealth guano brought to the country did not runoff well to the people, not seeing any benefits from it, not to mention the terrible living conditions of the workers. In addition to that, the government based its revenue nearly only on the exploitation of guano, which makes the state vulnerable and subject to any kind of decrease of prices or demand. This phenomenon will later be called the Dutch Disease, and is an example of what a country shouldn’t do in order to develop itself sustainably. In the same way, it is very well known for companies to not rely on a single customer nor supplier. It is the same for a country, since, like for the Dutch Disease, relying on a single actor makes the State vulnerable, in case of the departure of this customer or else. And it is exactly what will happen with Dreyfus. 

In other words, the guano era can be considered a wasted opportunity.