The Organic Business Guide

Developing sustainable value

chains with smallholders
by Bo van Elzakker and Frank Eyhorn
 The Organic Business Guide
Developing sustainable value chains
with smallholders

by Bo van Elzakker (Agro Eco Louis Bolk Institute, The Netherlands, www.louisbolk.org)

and Frank Eyhorn (Helvetas Organic & Fair Trade Competence Centre, Switzerland,
www.organicandfair.org)

©IFOAM and collaborating organisations (Helvetas, Agro Eco Louis Bolk Institute, ICCO, UNEP) 2010
Published in Germany by IFOAM.

In cooperation with:

Helvetas - Swiss Association for International Cooperation

Agro Eco - Louis Bolk Institute

ICCO - Dutch Interchurch Organisation for Development Co-operation

UNEP - United Nations Environment Programme

© IFOAM and collaborating organisations (Helvetas, Agro Eco Louis Bolk Institute, ICCO, UNEP) 2010

English language editing: Sheila Taylor (Kulika, Uganda)

Layout: Catherine Reynolds, IFOAM

All of the statements and recommendations in this book have been compiled by the authors and contributors according to their best know-

ledge. However, the possibility of mistakes cannot be ruled out entirely. Therefore, the editors and authors are not subject to any obligation

and make no guarantee whatsoever regarding any of the statements etc. in this work; neither do they accept responsibility or liability for any

possible mistakes contained therein.

The opinions expressed in this publication do not necessarily represent an IFOAM approved position.

This publication is available for free download via the IFOAM web shop at www.ifoam.org/bookstore. Practitioners have the possibility to contri-

bute to the online-version of this guide by editing the wikibook at www.wikibooks.org. The tools in the Annex are available in electronic format

from www.organicandfair.org -> Publications.

Any reproduction in full or part of this publication is encouraged, but must identify the title of the publication and IFOAM as the publisher.

Bo van Elzakker, Frank Eyhorn (2010): The Organic Business Guide. Developing sustainable value chains with smallholders. 1st edition. IFOAM

ISBN: 978-3-940946-73-7

Cover Photos (clockwise from top left): cotton storage in Kyrgyzstan (source: Helvetas), Feria Agroecologica in Costa Rica (source: Ecomercados),

export (source: Gebana), and pineapple processing in Benin (source: Helvetas).

Table of Contents
List of Figures iii
List of Tables iii
Acknowledgements iv
Foreword v
Abbreviations vi
Definitions vii
1 Introduction to the guide 1
1.1 What can you expect from this guide? 1
1.2 Who is this guide for? 2
1.3 Entrepreneurial or developmental perspective? 3
1.4 How to use the guide 4
2 Organic production and Fair Trade 6
2.1 What is organic production? 6
2.2 What is Fair Trade? 7
2.3 Why is organic production an interesting business? 9
2.4 The difference from normal agri-business 12
2.5 Different sorts of standards and certification 14
3 Starting from the market 16
3.1 What is the organic market?  16
3.2 Clients first!  19
3.3 Matching supply and demand  21
3.4 Relevance of local and regional markets 22
3.5 Building on your competitive advantages  25
4 Developing organic value chains 27
4.1 What is an organic value chain? 27
4.2 Who plays which role in a value chain? 28
4.3 Building partnerships along the chain 30
4.4 Gender issues in organic value chains 33
5 Designing the organic production system 38
5.1 What type of organic farming? 38
5.2 Managing the conversion to organic farming 41
5.3 Challenges in organic production 43
6 Planning and managing your business 47
6.1 Developing a business strategy and plan 47
6.2 Setting up your operation 49
6.3 Developing the business step by step 52
6.4 Financial planning and management 55
6.5 Financing your organic business  61
6.6 Keeping the business going 64
6.7 Management structures and capacity 67
7 Organising producers for the market 70
7.1 Producer organisation versus company set-up 70
7.2 Involving farmers 72
7.3 Building up an extension system  74
7.4 Staff development 77
7.5 Handling pricing, premiums and payments for farmers 79
8 Certification and Internal Control Systems 83
8.1 Certification options  83
8.2 Developing an internal control system  86
8.3 Traceability and data management 91
8.4 Maintaining certification 93

i
9 From field to market 96
9.1 The importance and value of quality 96
9.2 Getting quality produce from the farmers 97
9.3 Transport and storage of raw material 100
9.4 Processing and value addition 101
9.5 Exporting 103
10 Marketing 108
10.1 Marketing strategy 108
10.2 The 4 Ps  110
10.3 Building and maintaining client relations 113
10.4 What assistance and support can I get in marketing? 116
11 Moving up 118
11.1 Scaling up 118
11.2 Having an impact  119
11.3 Constant learning and improving 121
11.4 National and international networks  122
12 What role for facilitators, Governments and donors? 124
12.1 Facilitating the development of organic value chains  124
12.2 Creating a conducive environment for organic businesses 125
12.3 What role for donors and development agencies?  127
Annexes
A1 Useful references and websites 131
A2 Value chain facilitation 135
A2.1 Consultancy for developing organic value chains 135
A2.2 Donors and development agencies supporting organic value chains 136
A3 Business planning 137
A3.1 Outline of a business plan for an organic business 137
A3.2 Production planning tool - example 139
A3.3 Examples of cost price calculations 139
A3.4 Financing institutions providing loans for organic and Fair Trade businesses 141
A4 Organisational set-up and processes 142
A4.1 Roles and responsibilities in extension and ICS 142
A4.2 Job description for Field Officer - example 143
A4.3 Content of an Operating Manual 145
A4.4 Annual operational plan  146
A4.5 Checklist: What you may need for an organic business 147
A5 Certification and ICS 148
A5.1 Overview of important organic standards and labels 148
A5.2 Sustainability and industry standards that can be combined with organics 149
A5.3 Farmer agreement - example 150
A5.4 Internal regulations – example  151
A5.5 List of non-conformities and sanctions – example  152
A6 Marketing tools 154
A6.1 Product description sheet - example of cotton from Burkina Faso 154
A6.2 Contract between seller and buyer - example 155
Purchase Contract 08/2009 155
A7 General tools 156
A7.1 Typical pitfalls, and how to avoid them 156
A7.2 Checklist: What makes a successful organic business 157
Index 158

ii
List of Figures
Figure 1: The organic business in the value chain. 2
Figure 2: Flow chart of typical steps to set up an organic business 5
Figure 3: Economic and non-economic benefits of organic production 11
Figure 4: Increasing sustainability in commodity production and trade 14
Figure 5: Steps to identify the right product portfolio for your business 20
Figure 6: Characteristics of local, regional and global markets for organic products  22
Figure 7: Typical value chain of agricultural commodities 27
Figure 8: Example of a value chain map for organic cotton, from inputs to consumption 29
Figure 9: Downstream integration of processing, packing and exporting 31
Figure 10: SWOT-Analysis of the organic business idea 48
Figure 11: Example of an organisational structure of an organic business.  51
Figure 12: Specialisation versus diversification of an organic business 55
Figure 13: Break even of costs and revenues; new investment 59
Figure 14: Monthly liquidity of an organic vegetable business (example) 60
Figure 15: Typical set-up of an organic producer organisation 71
Figure 16: Set-up and roles within the extension and internal control system 75
Figure 17: Pricing according to the FLO system 80
Figure 18: The structure of an internal control system and its relation to the external certifier 87
Figure 19: People involved in an ICS, their roles, and the key tools they use 88
Figure 20: Functions of a central database in an organic business 91
Figure 21: Example of the 4Ps for marketing of organic-Fair Trade cotton from Africa 110
Figure 22: Pricing strategies matrix 111

List of Tables
Table 1: Core elements of an organic business, and their respective functions  50
Table 2: Phases in developing an organic business 54
Table 3: Cost price calculation with different volumes 57
Table 4: Example of a profit and loss calculation 58
Table 5: Example of a sensitivity analysis  59
Table 6: Example of a cash flow calculation 61
Table 7: Possible risks involved in running an organic business, and measures to mitigate these risks 66
Table 8: Advantages (+) and disadvantages (-) of a producer organisation versus a company 70
Table 9: Processes of an ICS, responsible people and documents needed 89
Table 10: Approved farmers list with delivered produce vs. harvest estimates 90
Table 11: Extract of a producer database 92

iii
Acknowledgements
The following people substantially contributed to the guide by writing parts of the text, contributing
case studies or reviewing draft versions:

•• Alastair Taylor (Agro Eco Louis Bolk Institute – Eastern Africa, Uganda) - review
•• André Vording, Angelica Senders, Lisette van Benthum, Rob Witte (ICCO, The
Netherlands) - concept, content, review
•• Fabio Sagliocca (Claro Fair Trade, Switzerland) - photos
•• Ghidey Gebremedhin Debessu (Tigray Agricultural Marketing Promotion Agency,
Ethiopia) - content, examples
•• Gideon Adeoye (Nigerian Organic Agriculture Network NOAN, Nigeria) - content,
examples
•• Gunnar Rundgren (Grolink, Sweden) - review
•• Joachim Weber (Agri and Co-operative Training and Consultancy Services, Kenya) -
content, examples
•• Kees van den Berg (Oikocredit, Netherlands) - micro-finance aspects
•• Lazare Yombi (Helvetas Burkina Faso) - ICS documents
•• María Durán (Ecomercados, Nicaragua) - photos
•• Martina Meckel, Louise Luttikholt (Fairtrade Labelling Organizations International) - Fair
Trade aspects, photos
•• Mirjam Güntert, Adrian Wiedmer (Gebana AG, Switzerland) - photos and tools
•• Mohammed Suleman Khan (Chetna Organic Farmers Association, India) - content,
examples
•• Paul van den Berge (FiBL, Switzerland) -review
•• Peter Lendi (Erboristi Lendi SA, Switzerland) - review
•• Peter Schmidt, Jens Soth (Helvetas, Switzerland) - content, review
•• Prachanda Man Shresta (Helvetas Nepal) - extension and ICS documents
•• Rhiannon Pyburn (KIT - Royal Tropical Institute, The Netherlands) - gender aspects
•• Robert Berlin, Lionnel Giron (Intercooperation, Switzerland) - review
•• Simon Ferrigno (Consultant, UK) - review
•• Steven de Vries Reilingh (Rabobank, The Netherlands) - financial aspects

This guide was produced with support of:

•• ICCO - Dutch Interchurch Organisation for Development Co-operation
•• SECO - Swiss State Secretariat for Economic Affairs
•• SIDA - Swedish International Development Cooperation Agency
•• UNEP - United Nations Environment Program

iv
Foreword
What does organic mean for you? This question makes most people think, triggers emotions, and
sparks the imagination. Seeing products branded as organic, the consumer expects a high level of
ethics and integrity. It is clear for most consumers that organic may cost an extra price. At the same
time it is also clear that the claims are expected to be true. Products ought to be of high quality, healthy
and tasty; moreover, provisions should be made for animal welfare, the protection of biodiversity and
a decent living for smallholders.

Organic developed into an internationally known and recognized philosophy of production and trade
that is based on the organic principles of ecology, health, fairness and care, as articulated by IFOAM.
Producers and consumers alike want sustainable systems in place that provide real solutions to global
challenges such as hunger, loss of biodiversity, soil depletion and climate change. This only works if
all stakeholders along the value chain are fairly treated and able to be competitive.

Smallholder farmers in low and middle income countries are at the core of IFOAM’s attention. While
they are the most important source for tropical organic products, they are also the group most
vulnerable to poverty and malnutrition due to unsustainable practices. Organic is an opportunity
for them. However, opportunities may fail if they are not properly managed and if they cannot be
aligned with demand. Setting up an organic business is ambitious and requires skills. On the other
hand, organic production is a successful model for millions of smallholders, who, taken together, are
responsible for billions of dollars of consumer turnover around the world.

The recommendations and case studies in this guide are built upon a wealth of practical experience
and in-depth research, and came out of a broad participation process. We are grateful to all those who
committed to passing on their knowledge and hope to encourage and assist all those who strive for
improvement or even dare to venture into organic businesses with smallholders in low and middle
income countries.

We wish you good luck and prosperity!

Organically Yours,

Markus Arbenz

Executive Director, IFOAM

v
Abbreviations

AELBI Agro Eco - Louis Bolk Institute

BDS Business Development Services
CAD Cash Against Documents
CB Certification body
CIF Carrier, insurance, freight
CFR Cost and Freight
FLO Fair trade Labelling Organisations
FOB Free on board
GMO Genetically modified organism
GPS Geographic Positioning System
ha Hectare
HACCP Hazard Analysis and Critical Control Point
ICS Internal Control System
IFOAM International Federation of Organic Agricultural Movements
ISO International Organisation for Standardisation
JAS Japanese Agricultural Standards
NGO Non Governmental Organisation
NOP National Organic Programme (US)
OFT Organic & Fair Trade
PO Producer organisation
PGS Participatory Guarantee System
SPS Sanitary and Phytosanitary
Method to analyze Strengths, Weaknesses, Opportunities and
SWOT
Threats
USP Unique Selling Point

vi
Definitions

Associated crop Crops grown along with a main crop in the same field.

Break even point The moment when revenues start to exceed operational costs.

Bulking Collection of raw material from several individual farms.

Business plan Documented strategy to develop an idea into a viable business.

Cash flow Movement of cash into or out of a business over a specified period of time, determining the liquidity of a company.

A third-party confirmation that a certain product or process complies with a set of requirements defined in
Certification
regulations or standards.

A marketing cooperative of producers engaged in bulking and selling of products, possibly including processing and
Cooperative
exporting and provision of inputs.

A business of an individual entrepreneur or a shareholding; can include farmers or farmer organisations as

Company
shareholders.

Competitive advantage Attribute or combination of attributes that allows a business to outperform its competitors.

Contingency An additional amount or percentage added to any cash flow item in order to cover unforeseen costs.

Conversion The process of changing from conventional to organic production.

Cost price Actual total costs per unit of output of a product; excluding the profit margin.

Depreciation Spread of cost of an asset (equipment, building, vehicle etc.) over its useful life.

Development agency NGO or government organisation that supports development in low and middle income countries.

An individual who possesses an enterprise and assumes significant responsibility for the inherent risks and for the
Entrepreneur
outcome.

Exporter A company or a cooperative engaged in exporting products.

Any activity used to make tasks easier for others. Facilitation of value chains refers to supporting coordination and
Facilitation
communication among value chain operators.

Fair Trade is an organized market-based approach that aims to help producers in developing countries by paying
Fair Trade
them a higher price as well as enforcing social and environmental standards.

Gross margin Difference between revenues and production costs (excluding overhead costs or own labour costs).

Inputs Material used for agricultural production, such as seeds, fertilizers and pest management materials.

Marketing plan Documented strategy to promote and market the produce.

Operator A person or business directly involved in producing, buying, processing or selling of a product.

An agricultural production system that relies on natural means like crop rotation, compost, biological pest control,
Organic agriculture and mechanical cultivation to maintain soil fertility and control pests, excluding the use of synthetic fertilizers and
synthetic pesticides, plant growth regulators, livestock feed additives, and genetically modified organisms.

Organic business Commercial operations of a specific entity involved in the production, processing or trade of organic products.

A farming system that does not use chemical inputs, but does not actively work on maintaining soil fertility (e.g.
Organic by default
through application of organic manures, crop rotation).

Organic project An initiative to set-up an organic business; with a defined start and end of the intervention.

Cyclical fluctuations of supply and prices; high prices leading to an increase in production, leading to oversupply,
Pig cycles
leading to drop in prices, leading to a decrease in supply etc.

Premium A charge paid in addition to normal (market) prices, for higher quality, organic production or Fair Trade.

Rotation crop A crop grown in sequence with the main crop in the same field.

Smallholder A farm of small size which mainly relies on family labour.

Supply chain The system that moves a product from supplier to customers, emphasizing the perspective of sourcing.

Transaction certificate Certificate stating that a certain shipment and volume originates from certified organic production.

A chain of activities through which the product gains in value on its down stream journey from production to final
Value chain
consumption.

vii
viii
1 Introduction to the guide
Sales of organic products are steadily increasing, and so is organic production in low and middle
income countries. For good reason: for farmers it is an opportunity to improve their livelihoods and
at the same time manage their land in a more sustainable way. It enables them to access promising
local and international markets and to gain a better income.

There are many successful examples of how this potential can be turned into a sound business in
which all stakeholders benefit. However, there are also less successful cases where it was found
difficult to seize - and to maintain - a market. Some of them have struggled for a long time to become
independent from external support. The main objective of this guide is to increase the success rate
among organic farming initiatives in low and middle income countries.

1.1 What can you expect from this guide?

This guide should help those actively engaged in setting up or in managing organic businesses with
smallholders, to do a better job, and thus to be more successful. They should know what they are
getting into, be well prepared, and able to keep an overview once they are involved in an organic
business. We purposely use the term “organic business”, as we strongly believe that organic production
initiatives, even if they focus on improving the livelihoods of smallholders, can only grow and survive
if they are economically viable.

In the guide you can expect to find the practical know-how and essential information you need to
be familiar with in order to set up, manage and expand an organic business. By spending some time
reading (parts of) the guide, you will:
•• get a succinct but full overview of the main aspects and issues involved, including
management principles needed in all businesses;
•• receive practical guidance on how to structure and manage an organic business;
•• learn about successful examples and the key factors that made them a success;
•• learn about pitfalls so that they can be avoided;
•• become familiar with systems and tools that can help you to be effective and efficient;
•• get to know the most relevant information and linkages that help you to orient yourself
further in this field

This guide was developed in a participatory process involving people who are active and experienced
in managing or supporting organic businesses in Asia, Africa and Latin America. For the first step,
the content identified by the editorial team was tested and expanded in an international workshop
involving more than 30 practitioners. On this basis, and drawing from years of their own practical
experience, the authors developed a first draft of the guide. Documents and websites on related
topics served as sources of inspiration, and are referenced where useful for the reader. Drafts of the
guide were reviewed by entrepreneurs, consultants and development experts active in this field.

Practitioners have the possibility to contribute to the online-version of this guide by editing the
wikibook at www.wikibooks.org.

1
1.2 Who is this guide for?

The guide is primarily written for people who are directly involved in the set-up or management of
an organic business that involves smallholders in low and middle income countries. These can be
individual entrepreneurs, senior staff of companies, but also the management of producer
cooperatives marketing organic products. In this guide, when we use ‘you’ we address this type of
people (Figure 1).

Figure 1: The organic business in the value chain.

Secondly, the guide should be useful for those who facilitate the development of such businesses. These
can be NGOs focusing on sustainable development and income generation of rural communities,
or consultants and business development services. Thirdly, the guide should help donors, financial
service providers and government agencies active or interested in this field to better understand the
particularities of organic businesses and to provide the right support to the right initiatives. Chapter
12 specifically addresses organisations that facilitate and support the development of organic
businesses.

The focus of the guide is on organic businesses and where this is possible, organic in combination with
Fair Trade. However, it is not about Fair Trade in conventional farming. The following examples from
Africa, Asia and Latin America provide an idea of some of the different types of organic businesses:
•• Pineapple processing and export in Uganda: An individual entrepreneur, who
contracts 200 farmers producing organic pineapple, exports fresh pineapples and runs a
solar based drying plant. He sells the fresh pineapple to Europe and sometimes to Kenya,
and the dried fruit to Europe and on local urban markets.
•• Cocoa production in the Dominican Republic: A Fair Trade-certified cooperative
consisting of 180 producer associations which involve a total of approximately 10,000
farmers, most of them certified organic. The cooperative runs fermentation facilities and
exports directly to Europe and the US. Fruits and vegetables intercropped in the cocoa are
sold in the local market.
•• Cotton and pulses in India: A farmer co-owned company that involves 5,000 cotton
farmers who hold the majority of shares. The marketing company was set up in order to
improve the livelihoods of smallholders by increasing efficiencies, lowering input costs and
raising incomes through organic and Fair Trade certification. It established commercial
partnerships with the local processing industry, and with textile brands abroad. Pulses and
other rotation crops are currently sold in the local market.

2
1.3 Entrepreneurial or developmental perspective?

Organic businesses may be developed by entrepreneurs who use their own funds or take up loans,
or by producer organisations that use the shares or fees of their members. They may receive support
from locally available funds for private sector development, or from development agencies. The
approaches of these different actors, however, are often quite different. First of all, an entrepreneur
needs to ensure that s/he will make a profit, meaning that revenues are higher than costs after an as
short as possible initial phase. As entrepreneurs are using their own money, they are usually more
sensitive about avoiding risk. They particularly need to be sure that their investments pay off, and
that no one else reaps their benefits. At the same time entrepreneurs can also be opportunistic in the
sense that they can easily change business focus from one product to another one, and in that way
abandon groups of farmers.

Producer organisations have a longer term perspective with the wellbeing of their members in mind.
They are not focused on profits; they are focused on getting their members a better deal.

Examples of entrepreneur thinking

•• How do I become profitable in a short time?
•• What is the minimum I have to do, and what extra if I want to do a really good job?
•• What is the cost; can someone else pay for it?
•• What are the risks, and how can I reduce them?
•• How can I avoid farmers turning against me?

Development agencies are most concerned about the impact the organic initiative has on poverty
reduction and on sustainable development of disadvantaged communities. They need to ensure that
small farmers benefit, and that important cross-cutting issues such as gender equity and HIV/AIDS
are given due attention. Unfortunately, many support programmes follow a project logic, and some
businesses collapse at the end of that period as they are not yet self-financing. In some cases they
have become addicted to donor support, and programmes are then extended for a long period.

Examples of development agency thinking

•• How can we achieve development goals?
•• How do we ensure that small farmers benefit?
•• How does this integrate cross cutting issues (gender, social inclusion, HIV/AIDS etc.)?
•• How can we make sure that public money is spent in a responsible way?
•• How can we ensure that the objectives of the project are achieved?

A far-sighted entrepreneur will understand that his or her organic and certainly Fair Trade business
will only succeed in the long run if the farmers benefit too. A far-sighted development agency as well
as a farmer cooperative, on the other hand, will understand that farmers will only benefit if the
production and marketing of their products is handled in a professional and competitive way so that
it makes money. This guide is written for all of them.

3
In general it is a lot easier for existing companies and cooperatives to convert (part of) their business
to organics rather than for companies and cooperatives to be started up for the purpose of going into
organic business. However, in an existing business, it is necessary to separate the organic unit from
the conventional one. Setting up a new business, developing an organic product line, or starting up
organic processing are all very challenging tasks, certainly in a three year period; a good business
person knows when and where to ask for assistance. Many entrepreneurs are reluctant to ask for
help because of the paperwork involved or because they have to expose their figures. This is an
unnecessary obstacle to the growth of their business (see chapter 4.4).

1.4 How to use the guide

You could read this guide from beginning to the end, thus covering all relevant aspects of an organic
business; more probably, however, the guide will serve you as a reference manual which you can
consult when searching for information or guidance on a topic that is relevant for your work at that
time. In the back there is an Index that will help you to easily locate the topic of your interest. In
addition to a table of contents, there is a flow chart of the typical steps involved in setting up an
organic business (Figure 2). For each step, reference is made to the chapters where you can find the
relevant information.

4
 Steps Chapters

Get familiar with the topic 2.1-2.4, 4.1

Overview on market and requirements 3.1-3.4
Define your product offer 3.2, 3.5
Check interest of possible buyers 3.2, 10.3
Understand certification options 2.5, 8.1
Identify conversion needs at farm level 5.1-5.3
Define the scope and objectives of your business 4.2, 6.3, 11.2
Define your organisational set-up 6.2, 7.1, 4.4
Identify the right field staff 7.3, 7.4
Identify suitable partners and allies 4.2, 4.3, 11.4
Identify suitable support 4.3, 10.4, 12.1
Preparation

Analyze the feasibility of your business idea 6.4

Develop a business strategy and plan 6.1, 6.3
Financial planning, cash flow requirements 6.4, 6.5
Setting up your business 6.2
Setting up the extension system 7.3
Information and training of farmers 7.2, 5.1-5.3
Define prices, premiums, payments 7.5
Dealing with gender issues 4.4
Choice of certification body 8.1
Developing and maintaining the ICS 8.2, 8.3
Product quality management 9.1-9.3
Identify buyers, visit trade fairs 10.1-10.3
Implementation

Meet the requirements of the clients 10.2

First business with clients 9.5
Checking the cost price 6.4
Checking customer satisfaction 10.3
Expansion to an optimum 6.3, 6.4, 11.1
Building loyalty with the farmers 7.2
Building a relationship with buyers 10.3
Crop and product diversification 5.1, 6.3
Developing local and regional markets 3.4
Adding processing steps 9.4
Consolidation

Additional certifications 2.5

Revising the ICS 8.4
Developing your organisation 6.7, 11.3
Work towards a conducive business environment 11.4, 12.3
Figure 2: Flow chart of typical steps to set up an organic business, with reference to the respective
chapters in the guide.

5
2 Organic production and Fair Trade
In the following chapter you will find a summary of what you need to know about organic farming
and Fair Trade, and what you can expect from entering this type of business. It also provides you with
an overview of the different standards and certification options for organic farming, Fair Trade and
related sustainability initiatives.

2.1 What is organic production?

The most simple understanding of organic farming is “No chemical pesticides + No chemical fertilisers
+ Certification = Premium Price”. While this may be a useful formula to begin with, organic farming
is really much more than this. Where farmers do nothing about soil fertility or pest problems you
do not have a sustainable business. You may start with an ‘organic by default’ situation but pretty
quickly you need to move into an active organic farming approach.

At this point you are then looking at a sustainable agricultural production system that builds on
ecological processes without using chemical inputs or genetically modified organisms, in order to
produce safe and high-quality food. IFOAM, the International Federation of Organic Agriculture
Movements, defines organic agriculture as follows1:

“Organic agriculture is a production system that sustains the health of soils,

ecosystems and people. It relies on ecological processes, biodiversity and cycles
adapted to local conditions, rather than the use of inputs with adverse effects.
Organic agriculture combines tradition, innovation and science to benefit the
shared environment and promote fair relationships and a good quality of life for
all involved.”

What the design of organic production systems means in practice, and what challenges need to be
addressed, is described in detail in chapter 5.

Standards and their enforcement

Since the 1990s, organic production and trade has evolved into a whole industry
of its own. In order to protect producers and consumers from fraudulent claims,
the need arose to regulate the use of the organic label. In a participatory ongoing
process, the international organic movement has defined organic agriculture in
a set of principles and standards2. These form the basis for many regulations
at international (Codex Alimentarius), national (e.g. the US NOP, the Japanese
JAS or the Indian NOS) and regional level (EU-Regulation), as well as for private
labels (Soil Association, Naturland, BIO SUISSE etc.).

There are organic standards for plant production, animal husbandry but also for
wild collected products. Organic standards not only address primary agricultural
production, but also include rules for processing and labelling. There are also
rules for keeping organic products separate from conventional ones, to avoid
contamination or mixing. All these rules and regulations are just the minimum

1 www.ifoam.org/growing_organic/definitions/doa/index.html
2 www.ifoam.org/about_ifoam/standards/norms.html

6
requirements. It does no harm to go beyond the minimum; a lot of buyers and certainly the consumers
will appreciate that!

Inspection and certification by an independent third-party ensure that products labelled organic really
fulfil the requirements of the standard. For businesses that want to sell their products as organic in
international markets, certification as per the respective standard is a must. In a situation where
the product of a large number of smallholders is marketed, group certification systems based on
an Internal Control System (ICS) are used (see chapter 8.1). Participatory guarantee systems (PGS)
have evolved as an alternative to formal certification in situations where producers sell directly to
consumers, in local markets3. While in most markets there are national logos that are free to use, the
use of a specific certification body allows the use of their private logo as well (e.g. Soil Association in
the UK or Naturland in Germany). This can have certain advantages when marketing the produce.

2.2 What is Fair Trade?

The term “Fair Trade” usually refers to trading partnerships between producers in developing countries
and market partners in consuming countries. It is based on conditions that enable producers to
improve their livelihoods. A trade relationship does not necessarily need to be certified in order to be
fair, but certification provides third-party independence which ensures the integrity of the trading
relationship, also for communication to consumers.

There are several Fair Trade standards and labels in the market. The most widely used Fair Trade
standard and certification system is the one under the Fairtrade Labelling Organization International
FLO.4 The FLO standards address social, socio-economic and environmental aspects. They combine
minimum requirements that need to be met before certification (see box), and progress requirements
that require gradual improvement over a period of time. The FLO pricing system is explained in
chapter 7.5.

When market prices fall below the Fairtrade minimum price, this can be a financial burden for
buyers, and sometimes may even restrict access to certain markets. However the whole point of
Fairtrade is to provide producers with a safety net for exactly those situations. As different minimum
prices are defined for different regions, there is also a certain risk that those with high prices are not
competitive in the Fairtrade market.

3 www.ifoam.org/about_ifoam/standards/pgs.html
4 www.fairtrade.net/standards.html

7
In addition to the generic standards that apply to all products, product specific standards need to be
fulfilled. These are defined for an increasing range of products, but not yet for all.5 FLO certification
is therefore currently not open to all products, but only those included in the FLO standards. The
Fairtrade audit verifies compliance with the standard concerning the functioning of the producer
organisation (including the handling of the Fairtrade premium), environmental and labour aspects
and the commercial activities, like the payment and administration of the Fairtrade Minimum Price.

The main minimum criteria of FLO:

•• Small producers need to be organized in a democratic, participatory and transparent way
•• The buyer and the producer organisation or company enter into a (preferably long-term)
relationship with a formal buying agreement
•• The buyer guarantees paying producers at least the minimum price defined by FLO based
on the calculated cost of sustainable production
•• If market prices are higher than the guaranteed minimum price, the market price must be
paid; for organic products an additional organic premium is paid (see chapter 7.5)
•• In addition to the payment of the product, the buyer pays a Fairtrade premium that the
producer organisation uses for achieving its development objectives; this is administered
democratically either by cooperative members or a joint body of management and
workers
•• Basic environmental standards need to be observed (e.g. no use of the most hazardous
agro-chemicals, no GMOs) for certification, with progressively stricter requirements
over time. The development approach also includes encouragement towards organic
conversion
•• Core labour standards need to be observed (e.g. no forced or child labour, freedom of
association, safe working conditions, payment of minimum wages etc.)

www.fairtrade.net

Fair trade certification

FLO standards and certification are designed to strengthen the position of smallholders organized
into cooperatives as well as workers in plantations. Contracted farmers selling to a company can
increasingly participate in FLO Fairtrade and the opening up to a broader variety of producer setups
is under investigation.

Costs for FLO producer certification are usually covered by the producer organisation or the exporter.
The FLO Producer Certification Fund offers a grant to small producer organisations, who are applying
for Fair Trade certification but lack sufficient financial resources to pay the certification fee. Brands
and retailers who want to use the FLO Fairtrade label pay a license fee to the national label initiative
of the respective market (e.g. TransFair in Germany, Max Havelaar in France, Switzerland and the
Netherlands, Fair trade Foundation in the UK). The national label initiative in turn raises awareness
amongst consumers about Fairtrade and Fairtrade products. In many consuming countries, the FLO
label has reached very high consumer recognition, e.g. 86% in the UK.

5 FLO certification for non-agricultural products, such as forest products, rubber and seafood are under exploration.

8
Some buyers, however, prefer to work with alternative Fair Trade certification systems such as those
developed by organic certifiers like IMO (see box), Soil Association and Ecocert6. These systems
are more flexible concerning the definition of minimum prices, cover a wider range of agricultural
products, and do not involve a licence fee. However, they are also not as well-known in the market as
the FLO label.

Fair for Life

In 2006, IMO introduced “Fair for Life” in order to complement existing Fair Trade certification
systems. The programme builds on key social and Fair Trade standards such as the ILO conventions,
SA 8000, FLO standards and the social criteria of IFOAM. All agricultural operations including
smallholder groups, plantations and contract production, manufacturing and trading companies
worldwide that practice social responsibility and fair-trade can be certified.

Fair for Life certification confirms that price setting negotiations are transparent, that a Fair Trade
premium for social development of the concerned communities is paid, and that workers enjoy fair
and safe working conditions. The actual minimum price and Fair Trade premium is to be negotiated
between the seller and the buyer. Some people in the Fair Trade movement, however, criticize that
leaving this negotiation to players with unequal power does not guarantee prices that are fair and
that cover the cost of sustainable production.

The Fair for Life certification programme is available for products and countries not (yet) covered
by FLO. It covers all steps along the supply chain, and allows for certification of multi-ingredient
products. Ingredients certified by FLO are accepted as being equivalent. A rating system for social and
Fair Trade performance enables operators to demonstrate gradual improvement and achievements.

www.fairforlife.net

FLO aims at improving the position of the weakest part of the supply chain - farmers and labourers
- through market access and a premium for communal investments. Adding more value and bargaining
power through processing and exporting can be an avenue of empowerment. Some small producer
organisations, however, lack the management capacity to handle commercial activities and the use of
the Fair Trade premium. It is therefore essential for them to get support in their organisational
development and in acquiring the necessary management skills.

The FLO Producer Services and Relations Unit (PSR) offers producer organisations assistance in
different fields, such as offering guidance on certification requirements, helping producers to gain
access to new markets and facilitating relationships with buyers. Locally based Liaison Officers
support PSR’s work by providing training for producer organizations and facilitating input into
the pricing process. Furthermore, FLO has elaborated training manuals for Fairtrade producers on
different relevant topics.

2.3 Why is organic production an interesting business?

Consumers have an interest in organic production mainly for environmental and health reasons. They
are increasingly concerned about the social and ecological production conditions of the products they

6 Soil Association Ethical Trade at www.soilassociation.org and Ecocert Fair trade www.ecocert.com/-EFT-.html

9
buy. Development agencies support it because they see it as a way to reduce poverty (see chapter
12). Organics can also be an interesting business opportunity, both for entrepreneurs as well as for
farmers.

From an entrepreneur’s point of view

Business people may be attracted to the organic sector because they hear that there is a growing
market that offers premium prices and therefore higher margins. Some think that the products they
deal with are already organic and just need to be certified, and so it could be an easy way to make
more profit. Others are involved because they sympathise with the goals of organic farming: with
helping farmers, and doing something good for the environment. Some like the exclusivity of it:
they like the image, they like to stand out from the crowd, and to be part of a People - Planet – Profit
market. In such fairly small specialty markets, you would have relatively few competitors, and you
could probably meet most of them every year during Biofach7.

In organic trade there are less intermediaries and so more direct contact with buyers. These buyers
like to know you, like to visit your project,
for reasons of integrity but also to be sure of
their supplies over the years. Some buyers are
interested in developing you as a supplier, and
are therefore interested in discussing with you
how to improve and expand your business.
Over time you can become a preferred supplier
which gives you a chance to develop longer term
business relationships that give some security.

Some of the buyers are development oriented,

they like to know and help the farmers. This
sometimes leads to situations where besides
Sonya Mwadime of Biofresh (Uganda) Ltd promoting
her produce at Biofach (Source: AELBI) doing business with you they offer to provide
support to the farming communities. They
might be able to organise trade finance for pre-
financing the harvest. Some may even assist you in getting help from outside, doing a joint project
with donor funding. This can help you in your standing with the farmers, and their loyalty towards
you.

As a premium price is usually paid, there is potentially a larger margin and hence more financial
flexibility. However, there are also extra costs to contend with. If you can do it well, and can cope with
the requirements, an organic business can offer more opportunities to make profit than conventional
business. Additionally, there are some specialised funds to finance organic and Fair Trade businesses
(see chapter 6.5).

From a farmer’s point of view

Every farmer needs to decide individually whether organic farming is the right way to manage his or
her farm. From a farmer’s point of view, organic farming has some important potential advantages
(Figure 3). Initially, few farmers believe that through organic farming they can achieve good yields.

7 The largest international trade fair for organic products, see www.biofach.de

10
Many fear that by not using chemicals, yields will go down, or pests will destroy the crop - which is a
true risk. Yields in conventional smallholder farms are often rather low, and soil fertility declining.
When switching to more intensive and better managed organic production methods, farmers often
managed to stabilize and even increase yields.8 Improvements in access to inputs, credit and know-
how that usually goes along with an organic farming initiative play an important role in this. In
addition, organic farming systems tend to be more diverse than conventional ones, resulting in more
agro-ecological and economic stability.

Figure 3: Economic and non-economic benefits of organic

production, as compared to conventional production.

Farmers usually find the possibility of getting a premium price very attractive. Even when conversion
to organic means some uncertainty in the first years, and more work, the premium compensates for
that. By becoming certified, farmers can make more money on the same size of farm. This can be
important in a situation where population pressure is high. For farmer groups, the guaranteed
minimum price in the Fair Trade system is an important reason to go for Fair Trade certification
when that is possible. This premium offers an opportunity to improve their livelihood as well as
getting a better farm gate price.

What appeals to a lot of farmers, is the fact that

they won’t need expensive, ‘unnatural’ external
inputs. This is also a financial matter - many
of them have had experiences with inputs on
credit schemes, which might have cost them
1/3 of their income. Since prices for synthetic
nitrogen fertilizers are tied to the crude oil price,
it is likely that production costs in conventional
farming will continue to increase. In organic
production you usually need less money to
buy inputs - provided appropriate training and
technical advice on how to produce organically is
available. Women especially find it easier to grow Organic cotton farmer in Kyrgyzstan
their own organic cash crops and to earn their (Source: Helvetas)

8 Pretty, J., 2005. The Earthscan Reader in Sustainable Agriculture. Earthscan, London. Nemes, N., 2009. Comparative Analyses of
Organic and Non-Organic Farming Systems: A critical assessment of farm profitability. FAO Rome. ftp://ftp.fao.org/docrep/fao/011/
ak355e/ak355e00.pdf

11
own income. Lower production costs also reduce the financial risk involved, especially in situations
where climatic conditions frequently cause crop losses.

Most farmers appreciate that organic production is better for their soils, but the benefits for water
quality and bio-diversity are usually of less immediate importance for them. In many cases, there
is also a health concern involved in the decision to convert. There are plenty of farmers who have
experienced negative impacts from working with pesticides, like headaches and nausea. They know
that pesticides are poisons and when they have an alternative to do without them then it is not
a difficult choice. Many farmers know about natural alternatives and as these are considered less
harmful, they prefer to work with those. Some farmers (especially women) can see the benefit that
by not using pesticides, you are able to grow food crops safely in between the cash crops, like yams in
coffee or beans in cotton, which improves food security. There is no more risk of food poisoning, and
no pesticides need to be kept in the house.

It is true that a lot of farmers like organic and Fair Trade initiatives because of the assistance
given. Organic farming initiatives usually provide some training, visits by extension officers, and
sometimes inputs. They support farmers in forming groups and thus help strengthen their position
in the market. Besides the premium this is the other big motivating factor. One should however not
underestimate the extra effort that it requires to become a good organic farmer. It is important to be
careful not to raise expectations too much; don’t create the impression that organic farming is easy.

2.4 The difference from normal agri-business

An organic business shares many features of any other agri-business. You need to manage production
in an efficient way, you need to be competitive and professional, and you need to keep your figures and
risks under control. Nevertheless, there are a couple of aspects that are specific to organic businesses.
It is important to be aware of these.

Changes in primary production

At farmer level, the main differences from conventional agri-businesses are the following:
•• The producer base is a fixed group of farmers who are certified organic and possibly also
Fair Trade. You can only buy from the approved farmers, and from no one else. This means
that you depend on them, and vice versa.
•• You should to start in an area of the country that is suitable for organic production, not in
areas where the crop is heavily attacked by pests and diseases.
•• There might be some technical problems with pest and diseases, soil fertility, nutrient
management and alternative inputs that need to be solved.
•• The farmers need to be informed about what it means to be an organic farmer, about what
they are not allowed to use, and they need to be trained/guided in how to become good
organic farmers. This training is a prerequisite for certification.
•• The farmers need to be organised; you have to set up an internal control system to allow
for group certification.
•• The farms and the farmer groups need to be certified by an approved certification body.
Once you are there you need to maintain certification.

For all this you need field staff: extension agents who double as internal inspectors and information
carriers, and are also active in quality control (see chapter 7.4). Employing field staff is common in

12
producer cooperatives, but not a normal role for most entrepreneurs, who may reside in the capital
and delegate the buying to middlemen. An organic business must be closely involved with the primary
production.

Different buying, storage, packaging requirements

The fact that you need to buy each year from the same farmers and will need very good record-
keeping of the quantities bought often means that the buying system will change. In many cases, the
traditional middle men cannot cope with these changes and have to be replaced by buying agents and
store keepers who are directly employed by you. You can only be certified if there is a high level of
transparency. You may get questions that require you to trace back a certain shipment to the farmers.

The organic product must be kept separately and identified as organic in a clean store which should
not be fumigated against storage pests. There are some specific requirements for packaging and
correct labelling: these are covered in detail in chapter 9. While the additional requirements in
buying, storage and packaging are likely to cause additional costs, they also provide opportunities for
improving quality and increasing efficiency.

Different markets, different exposure

In organic markets quality often is an even more important issue than in conventional markets. As
organic products command a premium price in the market, consumers and buyers expect a high
quality product. Often the organic premium is for the combination of being certified and for having a
good quality product. It is a market in which you are responsible for your product, and the business is
not over the moment you have been paid. This sense of responsibility needs to be instilled into staff
at all levels: you are responsible for your supply base.

Being involved in organic production will give you a certain exposure: people will enquire about
what you are doing. Many people will visit you because you are in an organic project: scientists who
want to study your project, an assortment of potential and hoax buyers, farmers who want to join
in, authorities that want a share, and students who want to do an internship. Inspectors from the
certification body who need to see your premises and your records at any time of the year can also
come, announced or unannounced!

Different business models

Getting into an organic business may confront you with new challenges, but also new opportunities:
•• It might be possible to interest a buyer in an early stage, to let them participate in
the project so that they become a co-owner. Such joint ventures are some of the most
successful businesses.
•• Some buyers are ready to support you in overcoming hurdles and managing risks, so that
you grow the business together. However, not everyone is prepared to do this.
•• An organic project is more complex than running a normal buying and selling operation.
You need to be pretty good at dealing with farmers, the certification body, and the buyers,
and thus it requires a higher management capacity.
•• You must be interested in getting to know other people who are active in this field.
You need to be good at communication, and you should possess open-mindedness, a
willingness to learn, to improve, and to go a long way. You don’t need to possess these
virtues from the beginning, but you should be willing to take this route.

13
2.5 Different sorts of standards and certification

There are specific standards and certification schemes for particular types of organic production or
related fields that are not covered in the broader organic regulations, such as wild collection, textiles,
cosmetics etc. These are ‘regulated’ in private or industry standards. An overview on the main organic
standards and labels is provided in Annex A5.1.

Sustainability standards
Besides organic and Fair Trade, there are a number of other sustainability initiatives and quality
management options, some with, and some without formal certification (see overview in Annex
A5.2). Coffee producers, for example, have also the option of working with Rainforest Alliance, Utz
Certified, 4C (Common Code for the Coffee Community) or with private programmes like Starbucks,
Sara Lee and Coffee Partners. In cotton, options include the Better Cotton Initiative (BCI) and Cotton
made in Africa (CmiA).

Most of the sustainability initiatives do not go as far as organic and Fair Trade concerning sustainable
production practices and social standards. Nevertheless, they are an improvement from the common
conventional practices (Figure 4). They can be a stepping stone on the way to organic production and
Fair Trade.

Figure 4: Increasing sustainability in commodity production and trade

Not all certification, however, necessarily means that farmers benefit. In some of the sustainability
initiatives, farmers do not improve their practices that much, and do not receive a better price and
income. Some of the standards, especially those that are not certified, are not always implemented
on the ground. They look nice on paper but have little effect in practice.

Even with organic and Fair Trade certification it should not be taken for granted that you comply
with all possible social and environmental criteria. In order to stay in business, organic and Fair

14
Trade initiatives need to seriously address issues like fair payment for seasonal labour, control of
soil erosion and sustainable water use (see chapter 5.3). Consumers, development agencies and civil
society organisations will hold you accountable - rightly so.

Industry standards
For certain products, processing areas and markets, it may make sense to combine organic certification
with mainstream certification schemes like Global-GAP9 (good agricultural practice, particularly for
fresh food production) or SA 800010 (social accountability, particularly in manufacturing industries).
The Certification Guide of FAO provides a comprehensive overview on the different options11.

In any case, products and their packaging need to comply with the food regulation of the importing
country12. Their requirements include standards for hygiene, limits for contamination levels,
restrictions on certain technologies and inputs like methyl bromide for fumigation (see chapter 9.4).

9 www.globalgap.org
10 www.sa-intl.org
11 www.fao.org/ES/ESC/en/15/262/highlight_269.html
12 E.g. EU regulation on organic production and labelling www.cbi.eu/marketinfo/cbi/docs/eu_legislation_organic_production_and_
labelling

15
3 Starting from the market
In the past there have been too many supply driven organic production initiatives. Many times
production has taken place, only to find there is not yet a market, or that there is strong competition
from cheaper suppliers. It is important that any new venture is demand driven. This chapter is an
introduction to that demand, the market.

3.1 What is the organic market?

The main organic markets are in the US and the European Union; the Japanese market is much
smaller. Emerging economies like India and China are big exporters, but as yet are small consumers
of organic products. Brazil and South Africa have better developed local markets for organic products,
especially in their cities. However, these countries import very little; the consumption is mainly
based on local production. Whereas the US and European Union are big producers, they are also big
importers of organic products. Some of these products need to come from tropical countries, like
coffee, tea and tropical fruits. But most organic imports are due to the fact that increase in national
production is not sufficient to match market growth. In most European countries and in the US, the
number of organic farms is presently not growing very much. Especially European farmers find it
difficult to compete with imports. This is a chance for developing country producers.

Market trends
In 2007, approximately 1.2 m organic farms cultivated 32.2 m ha organically managed land
worldwide.13 The global market volume for organic food & drink sales that year is estimated at 46
billion US$.14 The market has tripled in value over eight years. In 2009 there is only a limited slowing
down of growth due to the global recession. Some companies have suffered but structural long-term
growth is expected to continue spurred on by the interest in more sustainable production.

The volume of organic imports from developing countries is growing steadily. This is true for the big
commodities like coffee, cocoa, cotton, tea and cereals, but also for fruits and fruit juices, vegetables,
oil seeds and aromatic plants. With large retailers expanding their organic product lines, another
important tendency is the demand for larger volumes per supplier (see box).

Market demand for products in conversion to organic production is rather limited. Most clients clearly
prefer organic products to in-conversion products. In-conversion fresh produce is more marketable
than storable products or ingredients destined for the processing industry. Products which are in
short supply in full organic quality are sometimes sourced in in-conversion quality, albeit with a
lower price-premium.

13 The World of Organic Agriculture 2009, orgprints.org/15575/3/willer-kilcher-2009-1-26.pdf

14 Organic Monitor: www.organicmonitor.com

16
 Meeting the big demand

One year, a number of aspiring fruit drying operators from two African countries came back from
Biofach excited about the high demand they had encountered for dried pineapple. They all tried
to keep to themselves where the buyer came from but after a while it turned out to be one single
German importer. Each individual drier produced only a fraction of the 10 tons per month that
the German buyer wanted. Nevertheless, all of them wanted to be the supplier for this client,
and they all wanted to buy the product from the others at a low price. This went on for two years
without resolution. In the third year, a food processing company from another country announced
that they are going to switch from canned pineapple to dried pineapple because they had found
a solid buyer for a good quantity. It turned out that they too had spoken with the same German
importer whose demand had still not been filled. If the fruit drying operators had pooled their
output together, they might have been able to reach the required volume.

Market channels
Organic products are sold in various types of outlets:
in supermarkets, in specialised shops, in open markets,
in direct deliveries to clients, and on farms. The market
is supplied by a myriad of importers, wholesalers,
processors, packers and distributors. The tendency is that
an increasing share of organic food is marketed through
supermarkets. You can make a distinction between
organic retailers who only work with organic products,
and companies that have organic products alongside
conventional products.

There are now organic versions of most food products.

A supermarket like Tesco in the UK has above 1,000
organic product items; Coop in Switzerland has around
2,000, including textiles. The most popular of these
amongst consumers are the fresh foods, like fruits and
vegetables, bread and dairy. There is also a wide variety
of processed foods. Processing is almost always done
where the market is. The food processing industry may
therefore be another interesting market channel for your Supermarket shelf with organic products
business. (Source: Coop Switzerland)

When you start in organics, you will start at the bottom

of the market. You will probably do business with companies that buy all kinds of products. They in
their turn sell to wholesalers or processors. In time you might be able to move up into the supply
chain, selling directly to processors or retailers. Also a processor is usually interested in cutting out
the importer, but only when convinced that you are a reliable supplier of good, consistent quality
produce in the required quantities.

17
What price can you expect?
When prospecting for markets, most businesses are looking for attractive prices. However, doing
business is much more than achieving the best possible price. In the organic sector, and certainly in
the Fair Trade sector, you need to have a wider perspective (see chapter 3.5). What the market means
for you depends to a large extent on who your buyer is. Looking for a market means finding the
buyer(s) that fit you, and the other way around. Buyer and seller should fit together.

Generally speaking, prices for organic products relate to world market prices. Market prices for
organic products fluctuate with the change in supply and demand. There is no fixed organic premium
in the market. On average, you can expect a 5-15% organic premium for storable produce, and 10-
25% organic premium for fresh produce. At times of oversupply it can come close to zero, while at
times of shortage or for speciality products it can be as high as 50%. On the other hand, price setting
for value added, or semi-manufactured products is not affected very much by international prices;
it is dominated by the specific organic market. The general tendency is for the organic premiums to
go down. Remember, the organic premium often includes the quality premium. This is what you get
when selling the product - what you pay to the farmer is a different issue (see chapter 7.5).

Relevance of the fair trade market

With a turnover of 2.9 billion Euro in 2008, the market for Fair Trade products is approx. 10 times
smaller than for organic products. However, growth of this market segment has been faster than
in organics. Only a limited number of products are currently available as Fair Trade, whereas nearly
every food product nowadays has an organic version. About 30-40 % of all Fair Trade products are
also certified organic. The Fair Trade organic market is a subset of the organic one, i.e. the Fair Trade
certification is usually added to an existing
organic product. The big difference is the
guaranteed minimum price in Fair Trade. While
Fair Trade certification usually improves your
market position, the minimum price may also
limit your market, as the product becomes more
expensive.

Usually, only a part of the production from Fair

Trade certified producers can be sold under
Fair Trade conditions. The remaining is sold in
the conventional market. If your production is
certified organic, you are normally able to sell A shopping basket with Fairtrade organic products
most of your product as organic, as long as the (Source: Transfair Germany)
quality is fine.

As an organic supplier you have to realise that most of your consumers expect you to be also somewhat
Fair Trade. As a result many of the buyers of organic products also want them to be certified Fair
Trade. If your organic buyers indicate that they want Fair Trade, make sure that they know what it
means (see chapter 2.2), and that they are ready to pay the minimum price plus a Fair Trade premium.
In general it is advisable to follow Fair Trade principles within your business, and use that in your

18
negotiations with your buyers, whether you get formally certified or not. Working towards Fair Trade
already makes your business more attractive to farmers as well as to clients.

3.2 Clients first!

There are two types of clients: your buyers and the final consumers. In your discussions with your
buyers you will talk about the consumers and about what they want. It is thus important that you
know some basics about the people that are going to buy your product, or a processed product that
contains your ingredient.15

In the business, the buyers represent the consumers. They are supposed to know their markets, the
consumers, and they will claim to do so. It is very difficult to argue with buyers whether or not they
have their facts right. It is best to accept that demand dictates the market. So when your buyer says
that the market wants a different variety or different packaging, don’t argue. When they say that
consumers want lighter coloured dried pineapple, don’t argue. It is different for products that are
blended. The market for coffee does not change that much, and there is little to change from your
side as long as the quality is good. In the field of processed and retail packed products it is prudent to
expect changes in demand about every year.

Knowing your market

There are various sources of information on organic markets that will provide you with an overview
(see Annex A1, Markets and marketing). It is also a good idea to visit online supermarket stores
that sell organic products, and screen newspaper pages in target markets for articles on organic
consumption. Despite all this publicly available information you may still find it quite difficult to
understand what is in it for you. The overall organic market for dried fruits may be growing for
example, but does it mean that you, with your specific product, quality, volumes and the price you
can offer, are able to capture a share of this growing market? By carefully considering the products
and services you can deliver, you can get a feeling for your potential in the market. It is very difficult
to find good, real information without having a product and being in the market.

From markets to products

Maybe you do not yet have a clearly defined product, or you are thinking of ways to diversify your
product portfolio. You may have a range of options that you theoretically could produce, but you are
not sure what would be the best option. In this situation you should start by checking which organic
products are in demand, and then consider technical feasibility, profitability and competitiveness
(Figure 5).

Out of the products which you could produce from a technical point of view (climatic conditions,
farming system, know-how), for which of these does an organic market exist that offers both
interesting prices and has good future prospects? Even if a demand exists for certain products, can
you meet the market requirements for quality, volumes, timing of the supply (especially for fresh
produce) and packaging (in case of processed or retail packed products)?

15 For information on organic consumer profiles in North America, see www.ota.com/organic/mt/consumer.html

19
Once you have identified products that fulfil all these criteria, check whether their production would
be profitable for you and for the involved farmers, considering realistic production costs and prices
(see chapter 6.4). In order to be able to sell your product in the end, you need to be able to compete
with others who offer the same product. Can you compete on price, on quality, or on another type of
added value (see chapter 3.5)? Are you ready to offer discount prices or other contract terms that are
attractive for buyers?

Figure 5: Steps to identify the right product portfolio for your business

From markets to products - Nepal organic coffee

The organic and Fair Trade coffee market is highly competitive, with the coffee on offer exceeding
the actual demand. Nepali producers, with their comparatively high production costs and small
volumes are not able to compete in the general organic or Fair Trade coffee market. However,
there is an increasing demand for single-origin speciality coffees. Buyers have already indicated
interest in high-altitude shade grown Arabica coffee from Nepal, and small volumes have been sold
to Europe and Japan. With the image of a beautiful country and pristine environment, particularly
well-known for its famous Himalaya mountain ranges, Nepal offers interesting options from a
promotional perspective. The organic coffee producer organisations in Nepal therefore decided to
focus on the speciality coffee market, with adequate quality management and branding. As it will
take some time to increase production volumes to a level where they will be of interest to the larger
brands offering speciality coffees, the initial focus is on specialized organic or Fair Trade shops.
The producer organisations make sure that only coffee of top quality is exported, while the second
grade is marketed in Nepali supermarkets, targeting upper-class consumers and expatriates.

As the rising awareness of the health benefits of organic food has induced momentum in organic
vegetable production in Nepal, the coffee producer organisation could make use of a new market
opportunity: they are planning to promote organic fertiliser based on coffee husks - a by-product
of their coffee processing activities. In this way, the producer organisation hopes to be able to gain
additional revenue. This would enable them to cover part of the overhead costs through the sales
of the fertiliser, so that they are more flexible in coffee price negotiations.

20
Suitable methods to systematically conduct value chain and market feasibility studies before engaging
in production are the Rapid Market Appraisal16 and the Participatory Market Chain Approach17. This
approach is particularly suited in situations where local and regional markets are targeted, or produce
is sold to local exporters.

3.3 Matching supply and demand

Too many projects have been set up where it was not at all clear that there would be a demand for
the products. It is, however, very difficult to be sure of demand when you do not have much to show.
Nevertheless it is important to get a feel of the potential market, for example, by interviewing a
number of traders during a trade show. At this stage it is very important to be realistic about your
predictions of when and what quantity of production will become available. You should maintain
those contacts, for example by sending them half yearly updates on your progress, or samples before
the certified product becomes available. You can send a conventional sample as long as it is of the
quality that you expect to be produced in the future in the organic project. Your questions in that
situation could be: “What do you think of the quality of the sample, what would you be willing to pay
for this kind of product and what kind of volumes are you thinking about?”

At the same time it is important that you have realistic data on your own production, in terms of
farmers who are willing to participate, the acreage they have, the normal yield, and their sales in the
last few years. In many cases, farmers, extension agents, authorities and everybody else tends to be
over optimistic. If there is one thing potential buyers are very tired of, it is wrong estimates. The
recommendation is that you start small (but still big enough to fill a container), plan conservatively,
and take limited risks. Once this is successful and you know the market better, then expand (see
chapter 6.3).

Adapting to the demand

While you may not be too sure about your offer, demand is not stable either. Organic markets are
as prone to the typical “pig cycles” of mismatching supply and demand, as markets for conventional
agricultural commodities are. Forget about one market for all your produce, in which you sell the same
volume of the same product every year. It is better to be prepared for demand that could stagnate but
could also increase. You may want to do a certain volume on fixed contracts and another part ‘as the
market develops’. For this you will need different type of buyers, and different products you can rely
on. You may have long term relationships with some buyers, with fixed purchase and sales contracts.
For the remaining part of the production you can try to find new clients, or sell in the open market.
Of the first part you need to be certain, with the second part you can speculate to some extent.

In many internationally traded commodities demand never seems to match supply (see box in
chapter 11.1, Scaling up organic cotton production in West-Africa). It is obvious that when supply is
low, prices are high, and vice versa. Particularly in smaller but growing markets, the relation of supply
and demand may change rapidly. Prices may be high one year, but when another major producing
country starts to harvest, then the prices drop sharply.

16 Helvetas, 2004. Clients First! A Rapid Market Appraisal Tool Kit. www.helvetas.org/wEnglish/competencies/documented_
experiences/doc_resources.asp?navid=16
17 Bernet, Thomas (ed.), 2006. Participatory Market Chain Approach. www.papandina.org/fileadmin/PMCA/User-Guide.pdf

21
There are a number of ways to build up a buffer:
•• Build strong relationships with different types of buyers that cater to different retail
markets and processing industries
•• Sell your product in different countries on two different continents
•• Sell part of your product right after harvest but have the facility to store part for six
months
•• Always have a fall back market for your products in local and regional markets
•• Grade your products and use the different qualities for different market channels (e.g. first
grade fruits for fresh export, second grade for drying, remaining for juice)
•• Find a market for by-products (e.g. for cotton seeds, cactus leaves)
•• Diversify your production (see chapter 6.3)

3.4 Relevance of local and regional markets

There are differences between local rural markets, regional urban markets (in the same or in
neighbouring countries) and global markets for organic products (Figure 6). In the rural markets of
most developing countries, organic products do not fetch a price premium, but quality sells. These
markets are especially relevant to organic farmers who sell part of their rotation crops locally. Urban
regional markets in some countries offer the potential of good prices for organic products, particularly
for fresh produce of high quality. For many developing countries, export markets still provide the
most promising opportunity for obtaining a reasonably high price. However, requirements in terms
of logistics, quality management and formal certification are also the highest here. In addition, you
need to be able to compete with other countries that produce the same product. A pure export focus
with only one product is therefore risky. In many cases it is a better strategy to sell different products
in different markets (local, regional and global ones).

Figure 6: Characteristics of local, regional and global markets for organic products

22
Companies involved in export often do not, or do not like to operate in local or regional markets. The
local market is often a different range of products from the export market. Sometimes there is an
overlap though, like in the case of mangos in Mali, where dried mangos are going for export (some
to the local market, see box), first-grade fresh mangos are mainly sold in regional markets (some are
exported), and the remainder goes for juice sold in regional urban markets. In Uganda, pineapples
can be exported fresh or dried to Europe, while some truckloads of fresh pineapples are sold to the
juice market in Kenya. For honey producers in Tanzania it turned out to be more profitable to sell to
the Kenyan market rather then to export to Europe.

Promoting dried organic mangos in Mali

“Here in Mali, we are producing organic and conventional mangos. Part of the organic mango is
dried for export. For this, we need to ensure that only organic mangos enter the drying process.
Initially, we only produced dried mango chips, but then some buyers expressed interest in discs,
which are more difficult to cut. Today, we offer both types of dried mangos, so that the client has
the choice.

We also started to promote dried mangos in the local market so that our own people can benefit
from this healthy product, and also to reduce dependency on exports. However, people were not
used to consuming dried mangos, so we first needed to make the product known. At different
occasions we offered people product samples to taste, and most people were surprised about how
good it tasted. However, they usually found the price too high. We had to explain to them that
several mangos are needed to prepare dried mangos for one package. Only after having understood
this, customers accepted the price and bought the product. To introduce a new product, you really
need to make efforts to sensitize consumers.”

-Rafiatou Diawara, Helvetas Mali

Characteristics of local and regional markets

In each country there are a limited number of consumers willing to pay more for organic products,
mainly because of health reasons but also taste. The local market for organic products is often based
on interest from middle to upper class people, and expatriates. These local markets typically start
with products such as fruit and vegetables. With
some promotional activities to raise consumer
awareness, this type of market can grown
significantly.

In India, for example, organic pulses and cereals

fetch a better price in local markets because
consumers value the quality and taste. In Laos,
a traditional aromatic rice variety produced
by the organic farmers of a specific region has
successfully been introduced in urban markets.
In Zambia, organic farmers sell part of their
produce in local farmers’ markets or to urban
supermarkets, while in Uganda box schemes Organic farmer market in Costa Rica
(Source: Ecomercados)
have been organised that supply individual

23
households. In many cities in low and middle income countries, organic farmers’ markets have been
established. Typical examples are the “Eco Ferias” in Latin America.18 Different producers come
together to market their (organic) produce directly to consumers. This is especially suitable if you
have a variety of products, but of smaller volumes.

There are many more successful examples of developing local markets for organic products. With
increasing consumer awareness and rising incomes, the potential of local and regional markets for
organic products is clearly increasing. Organic businesses should therefore think early about how to
capture this opportunity.19

Whereas your initial interest may be in exports of one specific product, it is important to assist
the farmers with marketing their other crops as well. This is especially true in the case of annual
crops grown in rotation with the main crop. It is also a way of keeping the money turning over, the
trucks rolling and your staff busy. Some traders of conventional agricultural produce offer attractive
conditions to organised groups of organic farmers, as they appreciate the extension and quality
control system and that logistics are already organised.

For processed products it is almost a must to try them on the local market and compete with imports
before launching them in the export market. If you want to use the local market as a stepping stone
towards exports you can target local supermarket chains. Their requirements are often similar to
those of the export market. They usually want some sort of formal certification or labelling. Another
demanding customer is the hospitality industry: restaurants and hotels. They are also strict on
quality, delivery and reliability of supply.

How to gain a market share in a conventional market

The onion market in Burkina Faso is dominated by imported conventional onion from the EU.
This is the case although onions are produced locally, using organic methods (not certified yet).
The locally produced onions have a competitive disadvantage in that they are more expensive then
the cheap onions imported from the EU. In this situation, the following options seem promising in
order to gain a share for the organically produced onions in the local market:
•• promote organic products among urban consumers and shops
•• distinguish the product from conventional onion through packaging and labelling
•• emphasize the advantages of the organic local onion (taste, shelf life, benefit for
farmers)
•• in order to penetrate the market, sell at a competitive price for the start-up period
•• look for another new market segment (i.e. differentiate), e.g. dried onion

(Result of a group discussion in an organic value chain workshop)

18 E.g. www.agrosolidaria.org
19 Although based on experience from Europe, the “Guide to successful organic marketing initiatives” provides useful
guidance on how producer organisations can develop local and regional markets. https://www.fibl-shop.org/shop/show.
php?sprache=EN&art=1338

24
3.5 Building on your competitive advantages

Even if the market demand for a certain product is growing, you can not take it for granted that
you will secure your share in this market. Competition between different producers and different
countries supplying organic products is increasing. It is therefore a good exercise to regularly evaluate
how you compare with your competitors. You should not only consider the product and the price, but
also what it is like for the buyer doing business with you.

What could your competitive advantage be?

Do you have a unique product that no-one else has? Suppliers often think overly positively about
their own product but it is quite rare that someone has something really unique. Nevertheless, there
are ways to stand out from your competitors. Your competitive advantage could for example be:
•• Clear and reliable product specification: Do you actually know your product, have
you analysed it; did you ask your buyers for their analyses? Do you have a formal product
specification? Have you asked your buyers for your competitors’ specifications?
•• Reliable and consistent quality: Is your product of consistently good quality? Even
the fact that you might check your product yourself for aflatoxin, microorganisms or oil
content can be seen as a good company attribute!
•• Additional certifications: You can express your awareness around quality issues
by exploring what extra certification or quality management systems may help you
in developing your business. Would the buyer like you to use the ISO, GAP or HACCP
system? Ask them.
•• Flexibility in volumes: Are you willing to supply 200 kg to try? Can you supply one
container less, or two containers more at short notice? Can you supply larger volumes next
year?
•• Logistics: How fast can you deliver? Can you rely on the container line you use and
ensure that there are no delays in the port? Can you deliver during a period when a major
competitor can not? Do you have good storage facilities and can you ship throughout the
year?
•• The story behind the product: Can you prove that your production has a positive
social and environmental impact (see chapter 11.2)? Can you provide suitable information
and visual material about your production?

Competing on price?
You should be sceptical about a low price being your main competitive advantage. Organic trade is not
about the lowest price, and both buyers and sellers should be wary if the other party talks only about
low prices. Discussion should be about remunerative prices, i.e. a price that you deserve but also allows
other stakeholders of the value chain to make some money. If you are able to defend your calculations,
then use this as a tool to demonstrate the minimum price required (see chapter 6.4). Most businesses
do not want to disclose their cost structure, but what is there to worry about confidentiality? You make
a much better impression by being able to show your calculations and then ‘on the spot’ adjust the farm
gate prices if there is a change in exchange rate, or a smaller or bigger order.

25
 It’s not only about price

“Price is only one aspect when deciding whether or not to buy from a specific supplier. Volumes
for sale and availability of the product are of course important as well. The next thing then is the
question of whether the supplier is able to handle the export bureaucracy and paper work, and
the necessary logistics. Can the supplier ensure that the product is properly packed and shipped,
or does he rely on sub-contractors? Having proper quality management in production, processing
and exporting is key. Quality specifications indicated in the technical sheets need to be taken very
seriously - they are binding.

Probably the most important aspect, however, is the service provided by the supplier. Do I get
precise and honest answers without delay? Can I rely on the promises of the supplier, and does he
tell me when something I asked for is not feasible? If problems come up, does he work with me to
find a solution?”

-Peter Lendi, importer of organic spices, herbs and oil seeds

Nevertheless, price is an important aspect in any commercial transaction. If your prices are
considerably higher than those of competitors, you will find it difficult to find a buyer. Some countries
benefit from free trade agreements or preferential treatment conditions with importing countries.20
This can be an important factor in competing with other producing countries.

Summary of recommendations
•• Inform yourself about the requirements and trends in different markets, including the
expectations of the final consumer.
•• Plan your business based on realistic price expectations - in the long term, you should be
able to run it with a 10-15% organic premium.
•• Before entering into production, check whether you can meet market requirements
(quality, volumes, packaging, logistics) and whether you can compete with others while
still making a profit.
•• Get in touch with the market at an early stage; check quality requirements based on
samples of your products.
•• Be realistic with your plans; start small, get into the market, expand step by step.
•• Diversify your markets and think of a fall back market in order to cope with fluctuations
in market demand.
•• Arrange for marketing of part of your production in local and regional markets, and help
farmers to sell their rotation crops locally.
•• Develop your competitive advantage beyond offering an attractive price. Focus on
quality, flexibility, service and a unique story.

20 E.g. the EU’s Generalised System of Preferences, ec.europa.eu/trade/wider-agenda/development/generalised-system-of-

preferences
and the US’ African Growth and Opportunity Act, www.agoa.gov

26
4 Developing organic value chains
An organic business can only function if it is part of one or several supply chains that link production
and consumption. This chapter will help you to define your role in an organic value chain and how to
collaborate efficiently with other stakeholders.

4.1 What is an organic value chain?

A value chain consists of all the actors involved in the production, processing, trading and selling of
a specific product (Figure 7). It is more or less the same as a supply chain, with the difference that the
term supply chain implies that the perspective is from a buyer sourcing raw materials, while the value
chain puts more focus on the value added at each step, and on the collaboration between the different
value chain actors. The value chain operates in a certain context or business environment, and relies
on different types of services (financial services, certification services, technical advice etc.).

Quite a lot of work has been done on how to facilitate and manage effectively both value chains in
general and agricultural value chains in developing countries in particular. Some useful references are
provided in Annex A1 Value chain facilitation.

Different products, different value chains

Different agricultural products and their value chains have different characteristics. Perishable
products like fresh fruits and vegetables, for example, require more sophisticated logistics and efforts
in timing than non-perishable products like rice or sesame. Bulk commodities like cotton and coffee
need a certain scale of production (i.e. larger farmer groups) in order to break even, while production
of high-value niche products like medicinal plants can be viable at a much smaller scale.

From a development perspective, different value chains may have different socio-economic impacts.
Crops which require high initial investment, like fruits or tea, are likely to exclude marginal farmers.
Some products particularly benefit women, like shea or lemon grass (see chapter 4.4).

Figure 7: Typical value chain of agricultural commodities

27
4.2 Who plays which role in a value chain?

Organic businesses want to bring organic products to promising markets. In doing this, they depend
on a number of other players directly involved in their value chain: input suppliers, farmers, store
keepers, transporters, processors, traders, retailers21. The value chain will only function well if each
chain actor does a good job in playing his/her role, thus adding real value to the product, and if each
actor can do this in a profitable way. Both in organic and Fair Trade value chains there are usually
fewer intermediaries, because of the transparency and traceability requirement. As traceability and
integrity of the organic products need to be ensured, suppliers and processors cannot be replaced
that easily. All chain actors need to know their role and cooperate well in order to succeed. It requires
that all are committed to a long-term perspective.

One of the most important factors for the smooth and efficient functioning of a value chain is
that each actor involved plays a role that suits his/her capacities and structure s/he is operating
in. A farmer organisation may expand its activities from organising farmers to bulking and first-
level processing, but is it also able to develop markets and pursue commercial contacts with buyers
abroad? Local processors may perform well when subcontracted by a company or cooperative to do
a job, but may find it difficult to purchase and sell raw materials at their own risk. An NGO may be
good at training farmers and setting up extension services, but may be less experienced in advising
a commercial business.

Finding a role that fits you

There is no general rule on who should - or should not - take up a specific function, but there is a
tendency that organic businesses try to do more than they actually can manage. Before absorbing a
new role, it is therefore wise to thoroughly and honestly check the following points:
•• Do you have the necessary technical know-how?
•• Do you have sufficient professional experience and managerial skills?
•• If not, are you ready to employ professional staff who have these experiences and skills?
•• Are you sufficiently familiar and connected with the target markets?
•• Does the new role result in conflicting interests that could affect effective
implementation?
•• Are you able to react quickly and take business-minded decisions?
•• Do you have access to the necessary capital for investment and trade finance?
•• Can you take the risks involved in playing this role?
•• Do you have the necessary checks and balances to handle large amounts of money?
•• Are you sufficiently service oriented?
•• Do you have the necessary communication skills (language!) and connections?

Often there is a “lead agency” that mobilises the value chain and ensures that all required chain links
are in place. In organic value chains, this can be the producer organisation, the processing company
or the exporter.

21 The particular role of government is dealt with in Chapter 11.

28
Value chain supporters
Besides the actors directly involved in the chain, there are a number of stakeholders supporting the
set-up or functioning of the value chain (see example in Figure 8). Typical supporting functions that
are needed for an organic value chain are:
•• business development and consultancy services
•• financial services (micro-credit, investment, trade finance)
•• certification services (organic and possibly also Fair Trade)
•• farm extension and advisory services (preferably integrated in the chain)
•• transportation and storage services
•• sales agents and brokers

Drawing a value chain map like the one in Figure 8 is very useful in order to get an overview of the
stakeholders involved to clarify the role of each one, and to distinguish clearly between value chain
actors and supporters. The distinction is quite simple: chain actors own the product at a certain time
(they produce, process, buy or sell), while supporters don’t.

Figure 8: Example of a value chain map for organic cotton, from inputs to consumption

Development NGOs and donors can facilitate the initial development of an organic business or
value chain, withdrawing once these can function independently. They usually work in projects of a
given duration. As they thus only play a temporary role, development NGOs should be careful with
taking on a role that is crucial for the functioning of the value chain (see chapter 12.1). They should
particularly refrain from engaging in buying and selling.

29
The role of local governments and facilitators in creating an enabling environment for the development
of organic value chains is dealt with in chapter 12.2.

4.3 Building partnerships along the chain

The organic value chain - and thus your business - will only function well if all stakeholders involved
cooperate. Partnerships between the different stakeholders therefore play an important role.

Partnerships between farmers and businesses

The relationship between the farmers
who produce the product and the
entity that buys it from them - be it
a company or their own marketing
cooperative - is of crucial importance.
For the export company this is
not always a natural thing. Many
entrepreneurs do not really know what
is going on in the countryside. An
entrepreneur who has turned organic
needs to learn and understand the
plight of the farmers: this is a sensitive
relationship. Farmers have plenty of
stories of how they were ripped off by Meeting of an organic farmer group with representatives of their
traders or their cooperatives, receiving cooperative, Burkina Faso (Source: Helvetas)
promises, but none of them were
kept. Many farmers will be wary of yet
another great project.

In an organic business, where substantial time and effort is needed to convert from conventional to organic
farming, it is of particular importance to develop a trustful and loyal relationship with the farmers. How this
can be done is dealt with in detail in chapter 7.2.

Partnerships between businesses and clients

Equally important is the relationship between the seller (the cooperative or company) and the buyer
(importer, processor or retailer). In many cases there is distrust between them. There are cases where
trade finance disappears, or delivered produce is not paid for. As a seller, you have to choose between
speculation on the spot market and developing business relationships where benefits and risks are
shared; or finding a balance between these two (see chapter 10.1).

Building a trade relationship is a whole lot more than agreeing on a price (see box). In chapter 10.3
you find detailed recommendations on how to successfully build - and maintain - client relations.

30
 Doing business together

In country X, exporter Z insisted on getting at least the cost price, which he had calculated at US$
0.42. Buyer D offered only US$ 0.37/kg, but also wanted to support the organic initiative in several
ways. He wanted to donate 5 cents of the retail price of each product sold to a fund supporting the
project. He also thought that he could find funds for buying new motorcycles for the field officers.
He wanted to start an information campaign in Europe about the organic initiative, and visit it
with representatives of an important customer of his, an American retailer. Apart from buying all
that was in stock, D wanted to order 250 tons of the produce for next season.

For that the project needed to expand. D was willing to provide the working capital to pay for the
field staff during the season. Based on a realistic crop estimate, he could free up trade finance, so
that the exporter could pay the farmers the full price cash in hand the moment they delivered. D
wanted to take the product directly after harvest, so no storage costs and risks, and limited costs
of capital (interest). He would pay 95% FOB and the remaining 5% following a quality check upon
arrival.

Still, Z insisted on getting the cost price, and refused the offer. In the end the business did not
happen, and Z was still sitting on the product by the time the next harvest came in, and he did not
have the trade finance to buy it from the farmers.

The vertically integrated supply chain

Vertical integration means becoming part of, or engaging yourself, in operations that are upstream or
downstream of your present core business. A producer cooperative may for example start processing
and marketing the produce of their farmers (Figure 9), or an exporter may directly contract farmers
and provide them with farm inputs. Vertical integration has the advantage that routes get shorter
(avoiding middle-men), controlling quality and traceability becomes easier, and management systems
can cover a larger part of the chain.

In the ideal case this leads to higher transparency and efficiency. On the other hand, the risk
increases, too. An entity that tries to take care of everything may not be able to manage each step in
an appropriate and professional way (see chapter 6.2). A trader may not be very good in organising
agricultural extension, and a farmer organisation may find it difficult to manage sales and cash flows.
Taking up more functions also means absorbing more financial risk.

Figure 9: Downstream integration of processing, packing and exporting

31
A natural move over time for an organic project is to progress from being a supplier to a general
trader, or to becoming a preferred supplier of a processing company or a retailer producing with
advanced contracts (thus being part of a vertically integrated supply chain), and perhaps to being an
exporter of semi-processed products selling to different clients.

Collaboration with service providers

For part of your operations such as transport and processing it may be more efficient to use
commercial service providers rather than developing these capacities within your own organisation.
If this involves handling the product (e.g. transport, storage, cleaning, processing), you need to make
sure that appropriate measures are taken to avoid contamination and co-mingling of the organic
product. In order to ensure traceability of the product flow, these services need to be covered by
the internal control or quality management system (see chapter 9.3 and 9.4). You may also think of
outsourcing agricultural extension and internal control to a service provider - a private business or an
NGO - or to involve the official agricultural extension service. If you do so, make sure the provided
service really matches with the needs of the farmers concerning organic production (see chapter 7.3).

Certification and financial service providers

Unless the main client insists on a specific certification body, organic businesses can usually chose
from a range of certification agencies operating in their country. Criteria to select your certification
body can be: price, recognition in the market, or reliability and commitment to quality (see chapter
8.1). It usually pays off to stick to one certification body for a period of time and to work jointly on
improving the internal control system. If the certification body knows and trusts your business, they
can do their job more efficiently, which may result in less cost and troubles. If there is one thing to
compare notes with fellow organic businesses in your country on, it is about how the different CBs
perform.

Most probably you will require credit to finance investments, perhaps for working capital during
the season, and for trade finance. Your relation with financial service providers will thus play a
crucial role in your business. Select a bank that understands your plans and requirements, and offers
suitable services at reasonable conditions. If you can not find such a service provider locally, you may
want to check the programmes that some of the international banks have specifically designed to
support organic and Fair Trade initiatives. For more guidance on how to finance your business, see
chapter 6.5. In any case, to build trust with your financial service provider you will need to present a
convincing business case (see chapter 6.1).

Dealing with local authorities

When starting an organic business, you need to develop a relationship with local authorities. At the
very least you should inform them about the initiative, and ensure that they cooperate and do not
block your activities. It is quite normal that local politicians will take a keen interest in your venture.
Once they understand the potential benefit that the initiative can have for the local population, they
may even decide to support it.

Local politicians and officials, however, sometimes try to “adopt” a project. If it goes well, they may
want to be credited for having brought it to the district. Be very careful, however, with getting into
a dependency situation. Officials may change after the elections, and you may have to build up your
relationships once more. If they are against you, they can make things difficult for your business.

32
Lack of good governance as well as a lack of local infrastructure like feeder roads, electricity and water
supply can be severe obstacles to developing your business. You are hopefully not the only one in
your region trying to set up an agri-business, and it may be a good idea to identify points of common
interest with fellow entrepreneurs in order to get things done at district level.

As a successful and respected business, the authorities should actually be keen to hear from you about
your worries, and see how they can be of service (i.e. being part of the enabling environment, see
chapter 12.2). If they are not, you may need to get together with like-minded individuals, companies
and organisations and lobby together for better business conditions. This can involve
•• lobbying against policies that make the development of organic businesses difficult (e.g.
mass spraying programmes, mandatory fumigation in ports)
•• lobbying for supportive policies (like start-up support, research, promotion, subsidies for
fertilisers to include organic fertilisers)
•• lobbying for organic agriculture to be included in the national agricultural policy, or in a
food security or poverty reduction strategy

Competent technical support?

There are a number of NGOs, development agencies and consultancies engaged in facilitating the
development of organic value chains. Earlier, many of the development-oriented organisations have
tended to focus solely on strengthening the position of farmers. Nowadays, most have changed
their approach; they support the development of viable value chains in which different actors act
responsibly and make a profit.

Assisting producer cooperatives and local entrepreneurs to become viable organic businesses and
linking them into a fair arrangement with clients are challenging processes. There are local and
international consultancies specialised in this field who offer their assistance (see Annex A2.1).

4.4 Gender issues in organic value chains

Do organic production and processing inherently empower women or shift gender relations within
households, in farmer cooperatives and processing facilities? Probably not. So why raise this issue in
a book for organic businesses and service providers? Why work towards the empowerment of women
within an organic business?

Attention to gender dynamics and impact is far more than a

fall-back to a misty-eyed view that organic agriculture is an
idyllic alternative to conventional mainstream agriculture.
Besides the developmental reasoning for addressing gender
issues, and the motivation to appease donors or particular
segments of consumers, there is a compelling economic
and efficiency-based case to make. Engaging women and
recognising the whole family’s efforts on smallholdings has an
efficiency value as well as allowing the full costs and benefits
of organic production and processing to be made visible. This
should appeal to the social entrepreneur22 – to businesses
Members of a woman group cultivating
organic rice in Mali (Source: Helvetas)
22 See www.ashoka.org

33
that are concerned about efficiency and mobilising human capacities to the maximum in order to
build up the chain that they depend on.

This short chapter approaches gender in the organic sector from these two angles: the developmental
perspective directed primarily towards service providers and supporters, and the economic case. It
explores some of the challenges and possibilities for positive change for women through involvement
in the organic sector.

Gender relations in agricultural value chains

Some gender, power and inclusion issues are common to a particular country or commodity context
while others are specific to organic chains. For example, organic production often demands more
labour than conventional, such as for weeding. This ‘extra’ workload is usually borne by the family,
especially the women. Increases in labour are in addition to ‘normal’ workloads in the field and in the
home.

That said an often cited positive impact of participation in organic production and processing is that
there are increases in family income and health. Yet constraints to the full participation of women
in farm level activities, benefits, and decision making are important to note so that they can be
adequately addressed. Women have a critical role in farming, as a workforce in charge of hoeing,
sowing, weeding, harvesting, but often also as the family member responsible for food production
and preparation. Female involvement in any organic production initiative is thus vital, though often
disappointing, overlooked or marginalised.

Transforming the role of women in organic value chains

How can gender issues be approached in organic value chains? Can (and should) participation
in the organic chain contribute to women’s empowerment and shifting power relations? What
transformative role is expected of organic or Fair Trade certification?

A key issue is the assurance that auditors, producer organisations and processing plants are at the
very minimum not worsening the position of women or being blind to the impact of participation in
the organic sector.

While it is perhaps unrealistic and overly idealistic to imagine that organic production, processing and
certification will radically change gender relations for the better, or have a significant impact on the
position of women within a given societal context, it is reasonable to work towards gender awareness
and a positive impact. There are limits given that organic production and processing operate within
a larger societal context, which may not support shifts in gender relations. What impact can organic
systems have in this setting?

Towards the empowerment of women in the organic initiative

Development agencies and other stakeholders in the organic sector often have developmental
objectives driving their support. They play an important role in triggering the transformative power
of organic agriculture. But how can these and other initiators (companies, cooperatives) work towards
gender equity?  There are several levels at which gender issues can be addressed:
1. Household and community level: access to land and employment, division of labour (usually the
less valued tasks are reserved for women), social constraints on women’s mobility

34
 2. Producer support level: access to support schemes, participation in trainings (including training on
business and leadership skills)
3. Institutional level: access to financial services (possibly hindered by having no land or
property in her name), women to have opportunities in leadership positions, participation
of women in planning and decision-making
4. Policy level: legislation for cooperatives, labour rights (including equal pay, maternity leave,
childcare facilities) and creating standards that compel producers and processors to meet basic
gender criteria23

Starting points for managing gender issues responsibly

The approaches mentioned above aim to empower women in the long term. There are several ways in
which you can contribute to empowerment of women in your organic business:

Capacity Development: Women need to be able to attend training for organic

production methods, processing techniques and commercial know-how, as well
as leadership and organisational development sessions. Experience demonstrates
that little transfer of information occurs
from a man attending training on to his
wife. In some cases, women are even
unaware after a number of years of
certification that their farm is organic!
This is particularly impressive when we
consider that much of the work related to
organic production – planting, weeding,
harvesting, marketing – is done by
women. It not only represents inequity Women group in Sierra Leone planning their
between men and women, but creates a activities (Source: AELBI)
weak link in an organic system. How can
the system be robust if the people doing
much of the work in an operation are unfamiliar with the essence of that system?
From a business perspective, this presents a risk. By building capacities of both
men and women, quality can be better ensured.

Appropriate timing: Organise meetings and trainings in a way that they fit the
rhythm of women’s responsibilities. For example, a women’s training may require
child care support or may need to be in the evening, after the evening meal is
served – or at another convenient time.

Extension and ICS staff: Female field staff are needed not only as role models, but
because they will better be able to engage with the women in a producer organisation
and women in the fields. As women are doing a disproportionate amount of the
work related to production, their perspectives are absolutely critical to the good

23 E.g. MayaCert in Guatemala, www.mayacert.com

35
 functioning of the system. Organic businesses and producer organisations should
therefore employ female field staff. Especially in more traditional contexts, female
staff members communicate differently with women in the village than male field
officers, and may well be perceived as more approachable by women.24

Women’s groups: Often women in a village or in a processing facility talk to each

other, share ideas and compare experiences. Creating and supporting women’s
groups can strengthen this exchange. Allowing women’s groups to define the
issues that they want to address, and monitor the company’s or cooperative’s
development on these issues is a positive way of triggering participation and
loyalty. Communication can only strengthen the organic system.

Leadership: Often it is assumed that gender issues are better addressed within
organic agriculture than conventional. In many cases, women are indeed initiators
or a driving force behind organic initiatives. To strengthen this, women also need
to be in leadership positions within a producer organisation or agri-business. This
requires building leadership and management skills among women.

Registration as an Organic Farming Couple: Women should be co-registered

alongside their husbands as an organic farming couple. This empowers the women
to exert influence over their husbands to take farming more seriously. And it
allows women to be aware of the income derived from organic and how it is spent
or allocated.

Women-only activities: In some cases, it may make sense to have women-only

value chains in order to preserve the integrity of women’s roles in that chain, avoid
exploitation and provide opportunities
otherwise unavailable. This happens for
some commodities for some of the links in
the chain in an unplanned manner, where
certain activities are reserved for women.
For example, women collecting shea
nuts, while the men in the community
produce cotton and sesame, or women
drying mangoes. However, a women-only
Woman processing shea nuts in Burkina Faso.
chain (or link in the chain) can also be (Source: Helvetas)
intentional. Some innovative companies
are experimenting with women-only
chains.25 The idea is to build up capacity and leadership amongst women at each
step in the process.

24 See Grolink/Agro Eco, 2008. Gender Learning and Sharing. www.grolink.se/epopa/Publications/GenderProjectEndReport.pdf

25 For example Zameen in India, see www.zameen.org.

36
Addressing gender issues in value chains, and specifically, organic value chains is a bustling area of
change at the moment.26 If you want to learn more about gender issues in organic agriculture and in
value chains, consult the references in Annex A1.

Summary of recommendations
•• Get a clear idea on who plays which role in and around a value chain, e.g. by drawing a
value chain map.
•• Ensure that the different stakeholders involved in an organic value chain each play a role
that really suits them.
•• Temporary facilitators like development NGOs should not take up tasks that are
permanently needed, and should especially refrain from buying and selling the produce.
•• Invest in building trustful and loyal long-term partnerships with producers and buyers.
•• Take care to integrate only those upstream or downstream processes into your business
that you are able to manage well.
•• If you outsource any services, make sure that product integrity is guaranteed and that
the providers really match with the needs of your business.
•• Carefully select certification and financial service providers that understand your
requirements and that offer suitable conditions.
•• Make sure that local authorities have a supportive attitude towards your business,
without getting dependent on them.
•• Encourage participation of women in the organic business. Ensure that women can
participate in capacity building activities and that they can take up positions within the
organisation (as extension staff, board members etc.).

26 See www.genderinvaluechains.ning.com

37
5 Designing the organic production system
The basis of your business is the farmers, and their production. You depend on the way that they
farm. This chapter describes what organic farming means in practice and what you need to consider
to be sure that the farmers become, and continue to be, good organic farmers.

5.1 What type of organic farming?

Some organic businesses start from the idea that farmers in their area already use only a little or
no chemical inputs, because these are not available or not affordable to them. If their farms were
certified organic, the rationale goes, they could at least get a better price for their products, without
changing much in their way of farming. On closer inspection, however, one may realise that the
farmers do not use fertilisers and pesticides for the simple reason that it would not pay off. The
money they could get from possibly increased yields would hardly cover the costs of the inputs, and
there is a risk that they will lose more money or become indebted in case the crop fails. Maybe the
remoteness of their location makes inputs very expensive, or they lack access to markets where their
products fetch a reasonable price - or both. By not using external inputs farmers thus act in a risk
avoiding and economically rational way.

Once farmers get a better price for their produce, which is likely when they are certified organic
or Fair Trade, the situation changes. The use of fertilisers and pesticides to increase yields could -
theoretically - become profitable. The temptation to use these inputs therefore increases with the
price they get for their crop. Introducing Fair Trade prices in conventional farming can thus result
in a higher use of fertilisers and pesticides. In organic farming, farmers get the organic premium
precisely because they are not using agrochemicals. They need to find organic ways to increase and
maintain their yields. An “organic by default” approach, without training farmers on how to improve
their (organic) farming practices, is thus not very likely to succeed in the long run. Even if farmers
can be stopped from using chemical inputs, without proper organic management yields are likely to
remain low.

Sustainable farming systems

Compliance with organic standards does not automatically imply that the production is sustainable.
Without proper organic management that takes care of improving soil fertility and eco-system
stability, an “organic by default” production is not sustainable. Innumerable examples have shown that
well-managed organic farming systems can deliver reasonably high yields without depleting natural
resources27. In some low production contexts, a low-input-low-effort strategy may be appropriate,
but in most situations organic farming means more intensive farming (in the sense of active soil
fertility management and pest management, application of manures etc.). This requires that farmers
get appropriate training and technical advice on how to do productive organic farming.

27 See Pretty, J. (ed), 2005. The Earthscan Reader in Sustainable Agriculture, Earthscan, London. Nemes, N., 2009. Comparative
Analyses of Organic and Non-Organic Farming Systems: A critical assessment of farm profitability. FAO Rome. ftp://ftp.fao.org/
docrep/fao/011/ak355e/ak355e00.pdf

38
Although an organic business may start from an “organic by default” situation, within two to three
years it is crucial to shift to active sustainable organic farming. Otherwise organic certification will
make poor farmers only a little less poor, and only for a while. Introducing modern organic farming
methods can improve the overall performance of a smallholder farm. This is of concern for the
company or cooperative organising the
farmers for marketing their produce. If
yields per farmer are low, you need to
organise more farmers for a certain
production volume. This incurs higher
costs for extension, internal control,
certification, transport, etc. than when
fewer farmers with higher productivity
are involved. If the premium is the sole
motivation for farmers to shift to organic
production, they may easily drop out once
premiums go down.

Proper farming practices and specifically Agro-forestry system with coffee, pepper, coconut and fruit
soil fertility and nutrient management trees in India (Source: Helvetas)
are also crucial to achieve good product
quality - which is a key success factor for
being and remaining competitive in the
market. It is better to base your business on skilled organic farmers that have good yields of food and
cash crops - farms with a future! - rather than pursuing an “organic by default” approach.

Commodity approach versus crop diversity

Many organic farming initiatives start with a focus on one commodity or value chain. This seems
logical from a specialisation point of view – having a focus on being efficient, knowing the production
technology, the business, the market (see chapter 6.3). On the other hand, there are several reasons
why organic projects should think of crop diversification from the beginning:

•• Crop rotation and intercropping are important strategies in an organic farming

system to keep soils fertile and prevent pest populations from building up.

•• Crop diversity helps farmers to reduce risk - if one crop fails or market prices
drop, other crops can compensate for the loss.

•• Crop diversity is an important factor in improving food security.

•• If the business can sell several crops, the overhead cost share (for extension,
certification, management etc.) for each crop is reduced, making the products
more competitive in the market.

Even if the project is built around one lead crop, it is therefore important to include suitable rotation
or associated crops that can ideally be marketed as organic. The same extension system that was
primarily built to support farmers in growing their organic cotton or cocoa in a good way could also
cover the production of maize, cassava or chillies.

39
 Organic farming in Mali

Mobiom - the umbrella organisation of organic farming cooperatives in Mali - was mainly set up
to organise the production of organic cotton. They soon realized that there is some demand for
organic sesame and shea nuts - crops which were already grown by most of their farmers. Mobiom
hence included these crops in the extension activities in order to improve their yields and quality,
and to ensure that they can be certified organic. They found a buyer for the sesame who locally
cleans the harvest and exports it for processing into sesame oil. In order to be able to sell not only
shea nuts but also shea butter, they built a small shea butter processing plant. Today, sesame and
shea contribute about one third of Mobiom’s turnover. Without this diversification, the costs of
extension and certification per unit of produced cotton would be too high to be cost competitive in
the market. In 2009, when there was an oversupply of organic cotton in global markets, Mobiom
decided to temporarily reduce the cotton area and to shift some of this area to the production of
sesame and fonio, a traditional cereal for which there is high demand in the domestic market. A
next step will be to promote a leguminous crop like peanuts or beans grown in rotation with cotton
and sesame, which will help to improve soil fertility and thus yields.

Ways to good organic farming

How exactly do you do good organic farming? Each crop and farming system has its own peculiarities
when it comes to organic production methods; nevertheless, there are some common features of
good organic farming systems that can serve as a checklist:
•• Crop diversity in time (crop rotation) or space (intercropping), involving leguminous
plants
•• Use of sufficient volumes of organic manure such as farm yard manure, compost or green
manure, ideally produced on the farm itself
•• Integration of animal husbandry in the farming system
•• Recycling of all kinds of biomass and crop residues, instead of burning it
•• Careful soil cultivation that does not lead to soil erosion and that preserves soil moisture
•• Preventive measures to manage pests, diseases and weeds
•• The absence of any synthetic fertilizers, pesticides, growth regulators and GMO

There are several guides and manuals that can help you to set up good organic farming systems.
IFOAM has published a series of training manuals that cover organic production in the tropics in a
comprehensive way28. Practical guides on the production of specific crops are available for free at the
IFOAM Training platform29. The United Nations Environmental Program UNEP is developing an
e-learning course on organic farming.30

Access to know-how alone, however, does not make good farming. It is crucial that the know-how is
transferred to the farmer in an appropriate and effective way. The extension system of the organic
initiative needs to ensure that the know-how is applied in practice. How this can be done is covered

28 www.ifoam.org/growing_organic/7_training/t_materials/6_gen_publications/gen_publications_main.php
29 www.ifoam.org/growing_organic/7_training/t_materials/training_materials_main_page.html
30 Check www.unep-unctad.org/cbtf -> Organic agriculture

40
in detail in chapter 7.3. The implementation of certain organic farming practices can also form a part
of the agreement that the farmer signs with the cooperative or company.

Wild collection
A quite different market segment is that of wild collection. This includes herbs, spices, nuts and
mushrooms collected from forests, uncultivated land and pastures. It includes non-timber forest
products (NTFPs) and medicinal plants. If wild collection meets certain sustainability and social
standards, it can be certified organic and Fair Trade. There are also specific standards for wild
collection.31 There is a growing market for these products in the body care, cosmetics and natural
medicine industry.32

Wild collection is a rather informal and unregulated sector, involving many collectors who often
belong to the most marginalised sections of society. Linking collectors to organic and Fair Trade
markets therefore has the potential to help the poorest of the poor, but organising them for reliable
quality collection is not usually an easy task. Traditional or careless collecting practices may overexploit
plant populations, especially when roots are collected. In many cases, collectors lack training on how
to harvest in a way that ensures that this wild production continues. It is therefore important that
collectors and buyers comply with sustainable harvesting rates. As it may involve large groups of
collectors who harvest sometimes small quantities, it is quite a task to develop a not too expensive
and still effective Internal Control System. Experience shows that wild collection is easier to manage
when it is a side activity of an organic producer group that is already organised for certified organic
farming.

5.2 Managing the conversion to organic farming

At the beginning of a new organic production initiative, one of the important challenges is to
motivate farmers to convert their farms to organic management. They will like the organic premium
for not using chemicals. They will nod when you talk about the benefits for soil fertility, health and
environment, but those may not be their own priority. The advantage of lower input costs is a better
motivating factor. They will have to put in some work to improve their system and to maintain soil
fertility, and therefore will have to change their way of farming. The main question for the farmers
will be whether the conversion is economically viable, in the short and in the long term. A comparison
of estimated gross margins for each rotation crop provides a first idea whether the conversion to
organic makes sense from agronomic point of view.33 Be careful not to be too optimistic with the
organic yield and price that you may achieve.

When farmers start from an “organic by default” situation, the issue is usually to proof that additional
labour input and the move to a more intensive production system are profitable. Often the soil is
exhausted and needs application of organic manure. Perennial crops may need pruning or re-planting,
while with annual crops soil cultivation, weed control, and sometimes seed quality are issues. Measures
like better mulching, including leguminous plants and use of some natural pesticides quickly lead to
better yields. That makes it difficult to explain to the farmers that a more productive system uses

31 E.g. FairWild certification, see www.fairwild.org

32 See IFOAM/ITC, 2007. Overview of World Production and Marketing of Organic Wild Collected Products. www.intracen.org/
Organics
33 A simple tool to calculate gross margins is available from www.organicandfair.org/oftcc/Publications/Publications.php

41
more nutrients, and that there is a need to bring in additional manure. Working on sustainable soil
fertility and nutrient management is the biggest challenge for any organic farmer, bigger than the
challenge of crop protection.

During the conversion period, technical advice should support farmers to adapt their farming system.
Bottlenecks like the availability of organic manures or equipment to transport them, and leguminous
crops in the rotation, need to be addressed (see chapter 5.3). There is usually a fear of pest and disease
outbreaks but that very seldom happens. Much of this work with farmers takes place in groups, in
guided discussions, assisted by field officers.

Coping with initial drop in yields

When farmers convert from intensive conventional farming in which fertilizers and pesticides are
frequently used, yields are initially likely to be lower, at least during the first 2-3 years of the conversion
process. Soils need time to re-build fertility, diverse agro-ecosystems need to be established, and
farmers need to gain know-how and experiment with organic farming methods. An initial investment
in soil fertility and nutrient management, e.g. by applying organic manure from outside the farm, can
help to reduce or even avoid a drop in yields. Over time, yields usually increase in organic farming
systems. Whether they are eventually lower than, on par with or even higher than in the conventional
system depends on the intensity of the production system.

When there (initially) is a drop in yields, this is a severe obstacle to conversion, especially for
resource-poor farmers. During the conversion period usually no or only a small organic premium can
be obtained. There is not much of a market for in-conversion products. Some organic businesses,
however, already pay farmers an organic price premium in the first two years of conversion, when
that money is needed most urgently, to account for the loss in yield and to motivate farmers to
continue. As Fair Trade certification does not require a conversion period, Fair Trade arrangements
can be a way to get higher prices to farmers in the first years, if they are already organised, and
provided that there is a Fair Trade market for the product in question.

Better prices can also be achieved when the initiative leads to ‘immediate’ improved product quality
(see chapter 9.1) or more efficient market access. However, it is better to budget for paying a small
premium and see it as an investment, rather than bank on immediate better prices. The early
availability of an organic premium is a stimulus to pay more attention to farming.

Reducing the conversion period

For organic certification, the conversion period is between one and three years. Most standards
require that crops have been under organic management and monitored by a certification body before
the harvest can be sold as “organic”.34 If there is sufficient proof that no prohibited inputs have been
used on a specific plot for at least two years, the certification agency can reduce the conversion period
to one year after the start of organic management. Some certification bodies consider the starting
point of the organic management the moment farmers register with a project or company, others
from the time farmers sign a contract, again others from the first inspection. In any case, adherence
to organic standards needs to be monitored also during the conversion period (field staff needs to be
in place). Many certification bodies require two inspections before the first certification, one at the
beginning of the cropping cycle and one before the first harvest.

34 According to the EU regulation, for annual crops a conversion period of two years prior to sowing is required; see Article 36 in eur-
lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2008:250:0001:0084:EN:PDF

42
Choosing plots that have not received fertilisers or pesticides for some years has the advantage that
the production can sometimes be certified organic from the first harvest onwards. However, these
plots often are not very fertile (and were therefore left fallow), or are located far away from the farm.
Clearing virgin forest land is definitely not an option in organic farming. Initiatives pursuing a quick-
conversion strategy risk ending up with comparatively low yields, which cause high extension and
certification costs per unit produced. Farmers may then drop out if yields continue to decline. It
therefore pays off in the long term to engage in real conversion of formerly conventionally farmed
land and not stay with a do-nothing scenario.

Success factors in the conversion process

Getting ready:
•• Adequate training in organic agriculture and organic production methods
•• Develop strategies to cope with initial drop in yields and higher labour requirement
•• Competent and timely advice on organic crop management
•• Regular exchanges with experienced organic farmers (role models)
Adapting the production system:
•• Try out organic technologies on small plots to gain experience
•• Identify suitable crop rotation and intercrops
•• Ensure sufficient input of organic manure (if necessary from outside the farm) or other
materials (like oil cakes)

Gradual conversion
Organic farming initiatives should think about whether they want to create opportunities for farmers
to convert gradually to organic farming, enabling them to reduce the risk involved in conversion. New
farmers could, for example, be encouraged to try out organic methods on part of their land before
registering with the project. Although this will prolong the period until the farm can be certified
organic, it might be more feasible and sustainable than converting in one single step. However, keep
in mind that handling conventional, in-conversion and organic qualities of the same crop may be
quite a challenge for your buying system.

5.3 Challenges in organic production

Organic production may face a number of challenges that need to be addressed. As outlined above,
achieving sustainability of the farming system and a satisfying yield level is not always easy.
Conversion to organic farming usually requires extra effort, and so working around the availability
and distribution of labour can also be difficult.

Access to farm inputs and equipments

Organic production initiatives need to ensure that farmers get access to appropriate production
inputs like seeds, pest management items and fertilisers that are permitted in organic production.
It can be difficult for farmers to obtain seeds that are untreated and of varieties suitable for organic
production. For soil fertility management, sufficient application of organic matter is crucial, especially

43
for achieving satisfying yields and good product quality. Many organic businesses therefore organise
the required inputs on behalf of their farmers, or support them in producing the inputs on-farm.

Input supply requires that efficient and reliable logistics are in place, ensuring that farmers receive
the inputs in time and at an affordable price. However, it is not sufficient for farmers to have access
to inputs - they also need to know how to use them in the most efficient way. Extension services
therefore need to train and advise farmers on when and how to apply the respective inputs. It should
not be simplistic and top-down; farmers should be encouraged to experiment, to find out what is best
for their situation (see chapter 7.3, Extension approaches that work).

Farmers may also need specific equipment for successful organic production, like sprayers for
biopesticides, carts to transport organic manure, or
infrastructure to produce good quality compost. The
company or cooperative can help them to get suitable
equipment and building materials by bulking orders
or stimulating local manufacturing.

Organised supply of inputs and equipment, however,

may keep farmers from trying out new techniques
on their own. Support should thus be designed in a
way that farmers still have options from which they
Transport of organic manure with donkey cart in
can choose, and should stimulate rather than hinder Mali (Source: Helvetas)
innovation.

Financial services for farmers

Costs for inputs in organic farming may be lower than in conventional farming, but many farmers
nevertheless find it difficult to pay for inputs at the beginning of the cropping season. Some organic
businesses therefore provide inputs on a loan basis. They deduct the value of the input at the time
when the farmers deliver the product. Problems may arise when farmers sell their crop to someone
else, or use the inputs on their food crop. When the cash crop fails for whatever reason and there
is little income to deduct from, the farmer may become indebted. If the input supply is subsidised,
farmers may not realise their real costs, which can lead to an inefficient use of the input. In short,
input provision is a minefield, whether in organic or conventional agriculture.

Another frequently used system is where organic business or projects provide micro-credit to farmers
for buying inputs, seeds, equipment or animals, or for paying hired labour. Handling a credit scheme
yourself, however, is a complex and risky matter. It is better to invite existing micro-credit schemes
which will appreciate that the farmers are already organised and under some management because
of the organic venture.35 The organic business may become involved in linking farmers with micro-
credit schemes, and negotiate favourable conditions for them.

The organic business can promote saving, for example by paying the farmers into a bank account, or
by stimulating the formation of saving groups. Micro-credit schemes and saving groups can also help
prevent farmers from selling part of their crop on the open market due to immediate cash needs (see
also chapter 7.5). The farmers are able to take out a little credit instead.

35 Links to micro-finance institutions are provided at www.mixmarket.org/networks and www.microfinancegateway.org.

44
Managing co-existence with conventional farming
Ideally, all farmers in a village decide to convert to organic production. In situations where organic
farms are located amidst conventional farms that use pesticides, fertilisers or GMO (genetically
modified organisms), the organic farming initiative needs to take precautionary measures to avoid
contamination from neighbouring farms. Contamination can be in the form of surface irrigation
water passing through conventional fields and thus potentially carrying fertilisers or pesticides,
wind drift from spraying pesticides, or pollen carried by wind or insects from genetically modified
organisms to organic crops. According to organic regulations, operators need to ensure that there
is no contamination. They leave it to the certification agencies to determine whether the risk is
sufficiently well managed.

Different certifiers handle this in different ways. Most require that irrigation water shall not have
passed through conventional farm land on which
fertilisers have been used. In order to prevent
contamination from the drift of pesticide sprays,
usually buffer zones of some metres are required.
However, selling off part of the crop as non-organic
is a painful exercise. It is better to work with a buffer
crop or hedge. Agreements with neighbours or
within communities for not spraying the areas
adjacent to organic plots, or only when wind is away
from organic land are also options to solve the
problem. In regions where governments organise Buffer crop of maize between organic and
mass spraying of specific crops, solutions need to be conventional fields in India (Source: Helvetas)
sought with the local authorities (see chapter 4.3).

Co-existence with GMO?

When it comes to preventing contamination from GMOs, things become more complex. It is a
requirement of organic regulations, based on consumer preferences, that organic products are free
from GMOs. However, there are no clear and homogeneous rules yet on how to prevent pollen from
a genetically modified crop getting in contact with an organic one. Each crop has different pollination
characteristics - they may be open pollinated (e.g. alfalfa) or self-pollinating (e.g. beans, tomatoes), or
pollen can be carried by wind (e.g. maize) or insects (e.g. cotton).

For crops in which the seeds are commercialised (e.g. cereals and pulses), there is an immediate risk
that the harvest itself is already contaminated, whereas for crops in which leaves or fibres are used,
the foreign genes will only appear in the harvest of the next generation when farmer’s own seed is
used. Reasonable minimum distances therefore depend on the crop and on whether farmer-saved
seeds are used for the next crop.

Analytical tests to check for the presence of specific genes in seeds or plant material are highly
sensitive. Operators run the risk of getting ‘de-certified’ if GMO contamination is detected in the
field or in the final product. Contamination with GMO material can also happen during transport or
processing. A lot of research still needs to be done. Coordination amongst certifiers on how to handle
the matter in a reasonable and uniform way is a necessity. Increasingly now, slight contamination is
accepted, as long as it is deemed accidental.

45
Summary of recommendations
•• Ensure that good organic farming practices are applied. An "organic by default approach" is
neither sustainable nor profitable in the long term.
•• Even if the business is built around one main crop, take care that rotation crops and
intercrops are also covered by the extension system and that they find a good market.
•• Get inspiration from existing guides and manuals on organic production, and ensure that
the know-how is applied in practice.
•• Address bottlenecks in organic production and find ways to support farmers' incomes
during the conversion period.
•• Motivate and train farmers in sustainable soil fertility management, especially when
starting on soils of low fertility.
•• Assist the farmers in trying organic methods on part of their land before fully converting,
even if this prolongs the time until the certified produce is available.
•• Ensure that farmers have access to appropriate inputs and equipment. Stimulate
experimentation with locally available materials.
•• Take care with providing inputs or equipment on credit and with handling micro-credit;
rather link farmers with existing micro-credit schemes and encourage saving among
farmers.
•• With your certification agency, identify suitable measures that enable co-existence with
conventional farming.

46
6 Planning and managing your business
In the end, the success of any organic production initiative depends on whether you are able to run
it as a sound and profitable business. Some entrepreneurs get a long way working on intuition, but
sooner or later everyone needs to think through their business in an organised way; have a strategy, a
plan, an organisation, proper financial management etc. In this chapter you will find some guidance
and tools for developing the most crucial aspects of a business strategy and plan. They will help you
to make better decisions concerning the set-up of your business, to defend your sales prices when
negotiating with buyers, to apply for investment and trade finance, to monitor the performance of
your business and to adjust it to a changing market demand.

6.1 Developing a business strategy and plan

Some entrepreneurs and producer organisations are scared by the term business plan – they are
afraid of a big, theoretical and inflexible thing. Everyone knows successful entrepreneurs who never
prepared a business plan, but succeeded because they had the strategy and figures in their head.
There are also experiences with projects which had a 100 page business plan written for them by
a hired expert, but completely failed because the plan was not realistic, or not understood and not
internalised. Developing a business plan is crucial for an organisation in which more than one person
is involved, such as a producer organisation. It will help the organisation plan its activities in order
to generate a better income for the involved producers. Once the business has started it will help you
monitor the progress and profitability of the business and to adjust your planning where necessary;
in short it will help you to get and keep your business on track.

A business strategy
Any business needs to have a fairly clear idea how it wants to develop. Whether you call this a business
plan or not, and to what level of detail you develop these ideas depends on the size of the business,
whether you have investors or a management body to answer to, or on the need to convince banks or
donors that your business case is viable. If you have an existing business and want to start an organic
unit or expand your production capacity a feasibility study, cost price calculation or adaptation of
your existing business plan might be sufficient.

The minimum you need in terms of a business strategy is to have fairly well thought through ideas
on the following points:
•• What is your core business (products, processing, trade)?
•• What is your market, who are your competitors and how can you compete with them?
•• How do you organise your business (legal and organisational structure, who does what)?
•• What will be the size of the operation (number of farmers, production volumes), and what
growth do you envisage over time?
•• What are the estimated costs and revenues over some years, and when will you break
even?
•• What price do you need to get for your product(s) to cover your costs, and to make a
reasonable profit reflecting the risks you take?

47
 •• What finance do you need to start your business, and where will you get it from?
•• How will you manage your cash flow, and how do you propose to bridge possible
shortages of cash at certain times?
•• What marketing activities do you need to take up, and what resources do you need for
this (see chapter 10.1)?
•• What risks are involved in doing this business, and how can you reduce them?
•• What happens when you miss the projections you made; what is your plan B?

Preparing a business plan

The extent to which the business plan is written out largely depends on the requirements of the
agency providing the finance. If you want to apply for a loan, investment or other external finance,
a fully-fledged business plan is clearly needed. You need to convince the bank or investor that your
business idea is viable and that the investment will result in a profitable, sustainable business. In
this case it won’t be sufficient for you alone to be convinced; the case needs to be properly presented
and documented so that it convinces others. In addition, a business plan is a valuable planning and
strategy development tool that will help you to be successful in doing business.

A good starting point for a business plan is to conduct a SWOT-Analysis of your business idea (Figure
10). In this process you do not only analyse the strengths, weaknesses, opportunities and threats of
your current business, but also take into consideration the situation in the market (preferences,
trends), the position of competitors, and the prevailing business environment (legal framework,
services). Strengths can be used to capture opportunities, while weaknesses may pose threats to your
business idea.

Figure 10: SWOT-Analysis of the organic business idea

48
Starting from the SWOT-Analysis, you can develop the business plan step by step. An outline of a
simple business plan for an organic business is provided in Annex A3.1. Sources that provide general
guidance on business planning are listed in Annex A1, Business planning and management.

A business plan is not of much use if it is not understood by the people who are supposed to implement
it. Developing a business plan needs to be a participatory process which helps those involved to gain
an in-depth understanding of the business case and its challenges. They will then know almost ‘off
by heart’ what the direction is for the next few years. The process of developing the plan happens in
loops of brainstorming, analysing, structuring, testing, revising; it is more important than the final
document itself.

Successful businesses do think through their plans themselves. It may be a good idea to involve an
external expert in developing the business plan, to get an outside view of your business model as
well. Make sure that you keep ownership of the process, and that you understand each aspect of the
plan - especially the financial ones!

A business plan is not only a feasibility check and a way to plan your business, it is also a management
tool which helps you to focus on the most important aspects, to keep the core figures under control,
and to help you adapt to the ever changing business environment. A business plan is also not a one-off
exercise put in the drawer once the bank or the donor is convinced. You should live by it, implement
it, periodically update the core figures at least, especially those concerning production volumes, costs
and revenues, and check that it is still viable. Dare to adjust projections downwards if that will give
you a more viable business case. Especially when one of your key drivers behind the business turns
out not to be feasible, it is important to adjust your business case, inform your investors or financiers
and discuss possible solutions.

6.2 Setting up your operation

This sub-chapter deals with what you need in order to start an organic business, or to convert an
existing product line to organics. It also covers how you organise the different elements, and who
plays which role.

Elements of the organic business

An organic business consists of several core elements that are interlinked with each other (Table
1). Obviously, first of all you need farmers from whom you will buy. Ideally, the farmers are not
only producers but are also involved in post-harvest operations, in bringing the product together
(bulking), and in ensuring the organic integrity and the quality of the production. Farmers need to
be partners in your business - depending on the set-up of the business they can even be owners or
shareholders of the business (see chapter 7.2).

The field staff is in charge of training the farmers on organic farming methods, and provides technical
advice as per the farmers’ needs. It encourages experimentation and supports farmers to exchange
information among themselves. Extension is closely linked to the Internal Control System (ICS),
which is a requirement for organic certification of smallholder groups. The ICS is a tool to manage the
integrity of the organic production and ensures traceability during buying. The ICS can also be used
to monitor and improve the quality of production (see chapter 8.2).

49
 Element Functions

• Active organic agricultural production

Farms • Participation in extension, ICS and quality management
• Responsible for organic integrity
• Awareness, training of farmers, information sharing
Extension system • Technical advice, experimentation with farmers
• Develop extension tools, incentives
• Internal control -> managing group certification
Internal control
• Separation, traceability
system
• Quality management in primary production
• Providing inputs to farmers (optional)
• Organising trade finance
Trade • Buying raw material from farmers
• Logistics, storage
• Selling / marketing the produce
• Cleaning, grading
• First level processing (e.g. drying, grinding, pulping)
Processing • Further processing (optional)
• Quality management in processing
• Packaging
• Accounting
• Data management
Administration
• Contract management
• Human resource development
• Strategic development
Management • Financial management
• Representation, networking
Table 1: Core elements of an organic business, and their respective functions

The core of an organic business is the buying of raw materials from approved farmers on the one
side, and the selling on of that product after some cleaning, processing and packaging on the other.
In addition to dealing with the product, some businesses also provide inputs to the farmers, such as
seeds, natural fertilizers or tarpaulins for drying (see chapter 5.3). The buying and selling activities
include securing trade finance, logistics and storage.

Most organic businesses also engage in some kind of processing of the raw product as delivered by
the farmers (see chapter 9.4). This may range from simple cleaning and grading, up to the production
of finished products such as juices or honey in jars. Proper quality management at this level is crucial
for being successful. Processing also includes the packaging of the product into units for sale (bales,
bags, containers, boxes etc.).

The activities and transactions within the above mentioned business elements require a certain level
of administration and management. An organic business requires a higher level of management than
in a conventional agri-business of the same type and size. There is a lot more to manage and a lot less
space to fiddle as there is an annual inspection (including of the books) for certification. You need
to ensure that finances are properly managed and that production and sales figures are correct and
available on time.

50
Running an organic business is almost never a one-man/woman show. You need to have a certain
number of staff that will need to be managed (recruitment, employment contracts, training,
incentives, etc.). “Human Resource Management” may seem to be a big term for small businesses,
but it is not only about hiring and firing people. The quality of the staff determines the success of the
enterprise, whether it is a cooperative or a private company (see chapter 7.4).

The management has responsibility to ensure that the system works, the plan is implemented and
is also responsible for the enterprise’s strategic development. The management also represents
the business to the outside world, and develops linkages and alliances with other stakeholders (see
chapter 6.7).

In Annex A4.5 you will find a detailed checklist of what resources you might need for an organic
business. It should help you not to forget any important elements. If an existing business develops
an organic product line, many of these are of course already in place.

How do you organise your business?

How you organise the different elements of your business depends on the size and scope of your
operation - the smaller it is, the less organisational units you may require. However, even if one
person is in charge of several functions, it is still advisable to have a clear idea of the different
organisational units. Extension and ICS may be organised in one unit, and similarly processing and
trade (unless processing is a major activity of your business). The organisational chart (Figure 11)
provides an overview on how the key functions of the business are typically arranged.

Figure 11: Example of an organisational structure of an organic business. Specific functions like
processing and trade could also be outsourced.

Keep it as slim and simple as possible! In a small start-up, combine functions rather than hiring too
many staff. The director, for example, can also manage accounts and marketing, and another person
can be in charge of production and processing. Once the business grows you may hire additional
personnel who take over specific functions.

51
Defining roles and responsibilities
For the smooth functioning of your business it is important that each person involved has a clear
idea on his/her roles and responsibilities. Ideally, each person working in the company has a job
description (or terms of reference) that clearly defines the duties and competencies needed (see
texample in Annex A4.2).

Once the business gets bigger and more complex, it can be useful to document the main structures and
processes in an operating or quality management manual. The manual describes how the business is
structured and organised, who has which responsibilities, and how the main processes (production,
extension, internal control, processing, trade etc.) are done. The text part of the operating manual
refers to separate documents such as organisational charts, job descriptions, internal regulations etc.
An example of a Table of Contents of a typical operating manual is provided in Annex A4.3.

Most certifiers will require that the procedures of the internal control system are clearly defined and
documented. This can be done in a separate ICS manual, or integrated in the operating manual or
the quality management manual. As the ICS usually involves documents such as forms, standards,
checklists etc. which are updated from time to time, the manual helps to keep an overview of the
different documents and versions that are in use (see chapter 8.2).

Preparing the operating manual helps you to think through the different aspects of your business,
to identify ways of making it more efficient, and to keep an overview of the complex operations. The
operating manual makes it easy for outsiders (e.g. the certification body or the bank) to get a clear
idea on how you function. It also helps you to make new staff familiar with how your business works.
Developing the operating manual and keeping it up to date may require time, but it also helps you to
save time - and money!

6.3 Developing the business step by step

This sub-chapter should assist you to identify and plan the necessary actions and investments in a
timely way, so that you achieve the envisaged quantity and quality of products for sales.

What scale of production?

Defining the envisaged scale of the production is a crucial first step in planning the business. The
scale of the production will determine the resources you require. Start small enough to be able to
manage the operation and the financial risk involved, but large enough to reach sizable volumes in a
reasonable time span. What volumes have you dealt with before? Is that kind of volume or twice that
size the maximum that you can manage for the time being? In other words, is your plan realistic?
Make sure that you do not produce or buy more than you can sell, but enough that you can satisfy the
minimum volume of your first client.

Do you envisage reaching a scale that involves 50, 500 or 5,000 farmers? Are you planning for 10,
100 or 1,000 tons of production per year? How many staff do you need to employ, and how much
capital do you have to invest? What is the time span? Of course, the different parameters are closely
interrelated. Make a plan for the next 3-5 years in which you estimate the number of farmers and
their expected production (based on average acreage and yields). The planning tool in Annex A3.2 can
help you to plan these figures.

52
As reality is always different from the best prediction, it is wise to calculate an optimistic and a
pessimistic scenario as well as what you actually expect to happen. This production plan is the basis
for calculating costs, revenues and the break even point (see chapter 6.4). You need to revise it every
year, inserting the actual volumes and costs incurred.

Minimum economy of scale

Assume that you achieve a 15% export premium on a good quality, certified organic product. With
an export volume of US$ 400,000 that means that you get US$ 60,000 above the normal value of
the product. All the extra costs that you need to make to get certified, to find the market, etc. should
be subtracted. In the case where: you need half of that money to pay the farmers a higher price than
other local buyers, certification costs US$ 6,000 a year, your field staff costs US$ 7,500, the extra
measures to keep the organic product separate from conventional US$ 3,500 and participation in
the Biofach costs US$ 6,000 a year, you are left with a U$ 7,000 extra profit.

For a commodity like cotton or sesame, such an export value may be attained with, for example, a
volume of 250 tons of the product. If each farmer on average produces 500 kilos and the capture
rate is 50%, you will need to work with more than 1,000 farmers.

The time needed to set up an organic business

If you are not yet in business and start from scratch, expect to take 5-6 years for your organic business
to be fully established. Even if you are converting an existing business to organic, or developing an
organic division in a company, it will take usually 3-4 years until it is running smoothly. However,
most investors and entrepreneurs expect their business to break even within three years. Introducing
a new production method, crop or processing technology again requires considerable time, maybe 3
to 5 years, because most people involved need time to become familiar with the change, which usually
happens through a trial and error process. Don’t forget that the farmers also need to become familiar
with the organic way of managing a farm, and need to trust that you will market their produce year
after year. While they are having their first trial field experiences, you have to have made plans for
the organisational structures.

Phases in developing the business

It is advisable to start small and fairly focused. Once you are able to handle a business on a small
scale and if the market responds well, you can grow and/or diversify by adding components such as
additional processing levels or other products. If you try to develop everything at the same time and
on a large scale, you are very likely to fail. Growing rapidly because many farmers are eager to join can
easily lead to a situation in which quality management and marketing are no longer ensured. Make
a realistic plan for a period of 3 years to reach a first break-even point (it may actually become 4 or
5 years…). Only once you have reached this point, go for a next step of growth and diversification,
which requires new investment. Most businesses go through phases of starting up, consolidation,
expansion, and diversification (Table 2). This means that there is a continuous development.

53
 Phase Main activities Results

•• Develop the idea into a real

plan
•• Convince friends and donors to •• Farmers motivated
Starting up finance •• Certification achieved
•• Organise production, set-up •• First exports realised
the business
•• Develop market linkages
•• Same farmers, but more
production •• Efficient structures
•• Streamline operations •• Good staff
Consolidation •• Solidify business relations •• All costs covered
•• Optimise cost price •• Reliable market links
•• Trade finance structurally •• Limited risk
organised
•• More farmers, same products •• Economy of scale
•• Invest in growth of quality of •• A profitable business
product
Expansion •• Re-investment of
•• Professionalisation of profit
management, delegation of
functions
•• Same or other farmers, new
products
•• Fixed costs borne by
•• Invest in diversification of several products
Diversification
markets
•• Risks are spread
•• Value addition and processing
activities
Table 2: Phases in developing an organic business

Diversification or specialisation?
Being successful in a specific business field requires a certain degree of expertise and thus specialisation.
You need to know the specific production and processing technology to achieve high quality, and
you need to know the specific market for the product. Most businesses therefore focus on one or
few products. It rarely happens that, for example, an organic coffee business also includes vanilla in
their portfolio, or that cotton businesses also deal with cereals and pulses, even though these crops
combine very well in the field. Some companies feel better off dealing with only one product.

On the other hand, diversification helps farmers to improve the farming system (rotation), to
enhance food security and to reduce production risks (see chapter 5.1). It allows businesses to
spread certification and management costs over different products, and reduces their vulnerability
to market fluctuations. Diversified business operations allow more flexibility when reacting to

54
the changing business environment. Diversification, however, also has its limits. Developing new
crops and markets requires new investments and specific know-how. There is a risk that it distracts
management capacity from the core business, and that you get into fields which are just not your
“cup of tea”.

Organic businesses should therefore weigh carefully the pros and cons of taking up diversification
options or focusing on the existing product portfolio (Figure 12).

An alternative is to collaborate with other companies that deal with some of the other products. An
organisation of cotton producers in Burkina Faso, for example, collaborates for the quality control,
collection, processing and marketing of shea nuts with a local company specialised in shea butter
processing.

Figure 12: Specialisation versus diversification of an organic business

6.4 Financial planning and management

Finance is one of the most important elements in any business activity. Although it is usually not the
most favourite aspect people like to deal with, financial planning and management is not something
you should leave to an accountant. If you have a solid financial plan then a major part of the business
planning process is done. Financial planning is the financial translation of the detailed activities and
their financial requirement. It makes you aware of all the costs involved and allows assessment of
whether and when your business will break even. It helps you to keep finances under control and
avoid running out of cash.

Your business needs to compete on price with others who can produce the same product and quality.
You therefore need to operate your business in a cost efficient way, and to produce good quality for
a low price of production. In order to assess and monitor your price competitiveness you need good
insight in your total costs. Even if you are an existing enterprise that adds on an organic business line
or replaces an existing activity, you need to calculate all costs of production and of doing business.

55
Types of costs
You can divide your costs into variable and fixed costs:

Variable costs are expenditure that varies with the production volume. Variable
costs increase when production increases, and fall when it decreases. Examples of
variable costs include the purchase of raw materials, packaging, or labour directly
involved in processing. For instance if for the production of 10 litres of pineapple
juice you need 10 pineapples and 10 bottles, then for the production of 1000 litres
of pineapple juice you need 1000 pineapples and 1000 bottles. The costs of the
inputs go up in direct proportion to the volume of production.

Fixed costs are expenses that do not vary depending on your production volume.
Examples of fixed costs are rent of premises, certification fees, depreciation costs
of equipment, salaries of extension staff and management etc. Whether your
production is 10 tons of cotton or 100 tons of cotton that year, the rent for the
building you are hiring will be the same. In the case of pineapple juice; the machine
you use for producing the juice will cost the same in depreciation whether you
produce 100 litres or 10,000 litres.

Your variable costs go up gradually, while your fixed costs increase or decrease
in steps, for example when you change your office building, buy new equipment
or hire additional staff. Costs for extension, ICS and certification are semi-fixed/
semi-variable costs; they are not directly linked with the output, but increase to
some extent when more farmers are included. When the fixed costs are relatively
high, it is especially important to look for maximum use of what those fixed costs
stand for.

Cost price calculation

The cost price is the total of all variable and fixed costs divided by the number of produced units (e.g.
per kg cocoa beans or per litre of sesame oil). Initially, when production volumes are still small, the
cost price per unit is high. With growing volumes that support fixed costs, economies of scale bring
your cost price down (Table 3). Examples of cost price calculations are given in Annex A3.3.

It is especially important when you are planning a new business that you calculate the cost price. It
is of course much easier for an existing business, involved in the conventional business of the same
product, to work out the extra costs that come with the organic project.

During the planning phase, exact costs are not usually known and therefore need to be estimated.
There are often costs which are not sufficiently anticipated; especially for logistics. It is therefore wise
to include a certain contingency in your cash flow planning, and to build up sufficient reserves. It is
very important to keep close track of what the real costs are and redo the calculation as soon as the
first season is over. Businesses should update their cost price calculation every year, and it becomes
a tool to improve the efficiency of the operation.

56
 Volumes (kg) Year 1 Year 2 Year 3

Production volume (raw material) 50’000 120’000 250’000

Production volume (final product) 40’000 96’000 200’000

Cost price (EUR per kg)      

Purchase of raw material from farmers (incl. premiums) 1.00 1.00 1.00
Bulking and transport of raw material 0.10 0.07 0.04
Turnout factor final product per raw material input 80% 80% 80%
Raw material cost per final product output 1.38 1.33 1.30
- Revenues from second quality output or by-products -0.08 -0.08 -0.08
Cleaning, processing and packaging 0.18 0.14 0.13
Personnel cost (salaries, travel of extension staff etc.) 0.50 0.31 0.20
Certification cost 0.13 0.06 0.04
Marketing cost 0.13 0.06 0.04
Office cost (rent, material, electricity, phone etc.) 0.10 0.05 0.03
Depreciation of equipment 0.05 0.02 0.02
External services (e.g. auditing, consultancy) 0.08 0.03 0.02
Financial cost for loans (including trade loans) 0.08 0.05 0.04

Total cost price (EUR/kg) 2.53 1.99 1.72

Sales price 1.80 1.80 1.80

Margin -0.73 -0.19 0.08

Table 3: Cost price calculation with different volumes (generic example)

Sales margins
The sales margin is the difference between cost price and sales price. Each type of business has its
own margin. The higher the investment and the risk, the higher the margin needs to be. Margins
on processed products are usually higher than on raw materials. The margin is not simply profit in
the sense of money put in somebody’s pocket; it is a safety net that helps a business to survive in
bad times, and it is needed if a business is to grow. In organic value chains in developing countries a
margin of 10-30% is quite common. This margin can not be expected in the first year, but only when
the business is consolidated.

Breaking even
The break even point is the level of production and sales where total revenue of sales is equal or above
total costs (variable and fixed). After determination of variable costs, fixed costs and selling price,
you can easily determine the break even point of your operation. If you want to estimate the volume
needed to reach break-even you can use the following formula:

Total fixed cost / (sales price per unit – variable cost per unit) = break-even volume

You should calculate the expected costs and revenues over a period of time to assess the profitability
of your business (Table 4).
57
In organic businesses you have a conversion period. Usually you cannot sell the product as certified
organic during the first one or two years. At the same time you have all the costs of putting field staff
in place, an ICS, certification, and you probably have to pay the farmers some premium to motivate
them. This means that the first two years are almost always a period in which you make a loss.

Profit and loss calculation Year 1 Year 2 Year 3

Cost

Purchase of raw material from farmers (incl. premiums) 50’000 120’000 250’000
Bulking and transport of raw material 5’000 8’000 10’000
Cleaning, processing and packaging 7’000 13’000 25’000
Personnel cost (salaries, travel of extension staff etc.) 20’000 30’000 40’000
Certification cost 5’000 6’000 7’000
Marketing cost 5’000 6’000 7’000
Office cost (rent, material, electricity, phone etc.) 4’000 5’000 6’000
Depreciation of equipment 2’000 2’000 3’000
External services (e.g. auditing, consultancy) 3’000 3’000 4’000
Financial cost for loans (including trade loans) 3’000 5’000 7’000
Taxes 0 0 2’000
Total cost ($) 104’000 198’000 361’000

Revenues 

Revenue from sales of main product 72’000 172’800 360’000

Revenue from sales of second grade or by-product 3’000 7’200 15’000
Interests on bank account 200 300 500
Total revenues ($) 75’200 180’300 375’500
Profit / loss ($) -28’800 -17’700 14’500
Table 4: Example of a profit and loss calculation

Once you are able to sell certified organic product, the situation looks better. However, often you will
have expanded from the initial producer base to a larger one, which requires additional resources for
extension, ICS and certification. First time marketing costs may also be higher than in a consolidated
situation. In the third or fourth year, when you are able to sell larger volumes of your product as
certified organic you should be approaching the break even point. Most organic businesses turn
profitable within 3-5 years. The length of the conversion period, the complexity and the overall size
of the business are the major determining factors (see chapter 6.3, The time needed to set up an
organic business).

In the following years you try to make the business more efficient, by optimising your cost price and
marketing approach. This is when you start earning money. However, when reaching the initial break
even point, you should already start thinking of adding another product or investing in scaling up
your operation (Figure 13).

58
 Figure 13: Break even of costs and revenues; new investment

Sensitivity analyses
Cost calculations are normally based on real costs (existing business) or assumptions (start-up
business). It is good also to analyse what happens when one or more of the factors changes considerably.
This could be positive or negative changes. Typical changes are fluctuations in the currency exchange
rate, but also higher or lower yields or changing market demand. A shortage of the crop may increase
local prices above what you have planned to be the organic premium price. Increases in cost of diesel
and energy have surprised many businesses in the recent past, so if you want to reduce your risks,
you need to make a sensitivity analysis. This means that besides the normal case you calculate a best
and worse case scenario. Table 5 provides an example of a sensitivity analysis.

Factor Normal case Best case Worst case

Yield + 10% - 20%

Exchange rate Cedi/EUR +10% - 10%
Transport cost - 5% + 20%
Marketing cost - 5% + 20%
Result cost price 0.86 0.75 0.99
Sales price 1.03 1.05 1.00
Profit/loss 0.17 0.30 0.01
Profit % 17% 29% 1%
Table 5: Example of a sensitivity analysis

It is unlikely that all these factors will change for the better or the worse at the same time. You can
also calculate worst and best case scenarios for each single factor.

59
Cash flow management
For any business activity it is important to plan your financial needs in order not to have a working
capital shortage at a crucial time in your production or trade process, which would block your business
activities. Throughout the year there are significant changes in cash flow. The best way to get insight
into your financial needs is by planning your incoming and outgoing cash flow on a monthly basis
(Table 6). You have to pay your office staff and the field officers on a monthly basis. Some organic
businesses provide their farmers with inputs, like seeds and organic fertiliser at the start of the
season. It can be quite an investment and it may take 10 months before that money comes back on
to your bank account. You normally need most cash to pay the producers upon delivery, while you
will only receive payments from your clients quite some time later. You will need to bridge the period
between expenditures and revenues, for which you require extra working capital. By planning your
cash flow on a monthly basis you can determine how much ‘foreign’ capital you need, and for how
long. As money is expensive (interest) the smaller that amount and the shorter you need it for, the
better.

Cash flow predictions, like the one provided in Table 6, are also used to request a trade loan from a
bank (see chapter 6.5).

A cash flow plan deals with incoming and outgoing payments and not with revenues and costs. For
instance depreciation of a car is a cost but not an actual payment. It will therefore not appear on
your cash flow planning, but will appear on your profit & loss account. When planning your cash
flow always ask yourself if the items you are budgeting lead to an actual change in your cash or bank
position in that month.

Figure 14 shows the liquidity situation of an organic vegetable production unit prior to getting
external finance. They export during part of the year with weekly shipments. This means that the
money comes back fairly regularly and the liquidity requirement is not high. Nevertheless, they need
financing for their cash flow for the first 6 months.

Figure 14: Monthly liquidity of an organic vegetable business

(example)

60
Month
1 2 3 4 5 6 7 8 9 10 11 12

Cash position at the

40’000 35’700 31’900 26’100 22’100 78’300 13’500 15’200 17’900 11’600 57’600 78’800
start

Operational cash flow

Incoming payments
          300’000 150’000  
from buyer A
Incoming payments
            20’000
from buyer B

Other income                       500

Total in 0 0 0 0 0 0 0 0 0 300’000 150’000 20’500

Purchase of raw
      60’000 160’000 80’000      
material
Bulking and
      1’000 3’000 1’000      
transport
Cleaning, processing,
      20’000 10’000 2’500    
packaging

Office cost 800 300 300 500 300 300 800 300 300 500 300 300

Personnel cost 3’500 3’500 3’500 3’500 3’500 3’500 3’500 3’500 3’500 3’500 3’500 6’500

Certification cost         7’500      

External services     2’000       1’000         2’000

Total out 4’300 3’800 5’800 4’000 3’800 64’800 188’300 102’300 6’300 4’000 3’800 8’800
CP before external
35’700 31’900 26’100 22’100 18’300 13’500 -174’800 -87’100 11’600 307’600 203’800 90’500
finance

Financial cash flow

Loans from bank         60’000   190’000 105’000        

Total in 0 0 0 0 60’000 0 190’000 105’000 0 0 0 0

Repayment of loans
                  250’000 125’000  
and interest

Total out 0 0 0 0 0 0 0 0 0 250’000 125’000 0

Total cash flow

Total monthly cash

-4’300 -3’800 -5’800 -4’000 56’200 -64’800 1’700 2’700 -6’300 46’000 21’200 11’700
flow
Cash position at the
35’700 31’900 26’100 22’100 78’300 13’500 15’200 17’900 11’600 57’600 78’800 90’500
end

Table 6: Example of a cash flow calculation

6.5 Financing your organic business

There are not many companies that have sufficient working capital on their own to completely finance
their business by themselves. Some people say that the success of a good entrepreneur depends on
how good a banker s/he is.

A producer organisation or enterprise will need capital generally for the following purposes:
•• Investments (buildings, trucks, motor bikes, furniture, computers, processing equipment
etc.)
•• Working capital (payment of personnel, running cost of the business, inputs)
•• Trade finance for buying of harvest
•• Capital to overcome start-up losses

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There a many different ways to attract or generate capital for these purposes, and most businesses
use a mix of them. Possible sources of finance are:
•• equity (own capital)
•• loans from family and friends
•• product provided on credit by the farmers
•• advance payment by your client
•• loan from a financial institution
•• grants

Equity (own capital)

Your own capital is the most dependable source of capital because you have full control over it and
there are no costs attached to it. There are different ways of generating equity:

Financial reserves built up through profits from previous seasons. These have
to be well guarded until the funds are needed.

Member equity: Most cooperatives ask their members to pay a fee when becoming
a member. It can be in the form of product. This fee will be registered in the name
of the member depositing it as equity of the cooperative. The membership entitles
him/her to a share in the profit of the cooperative, unless the general assembly
decides to keep the money in the cooperative. Profit can be paid out based on the
value of the share, or based on the volume of product that the member delivered
to the cooperative. Proper provisions need to be in place in case a member dies, or
wishes to leave. The advantage of member equity is that it creates commitment
of the producers towards their cooperative. It will also mean that they will want
influence in the decision making in the cooperative.

Share capital: If you are not a cooperative but an enterprise you can look for
external investors willing to invest in your company. By issuing shares to them
in exchange for their investment you give them part of the ownership in your
company. Usually you have to convince them through a business plan. There
should be rules on profit sharing among the shareholders, and about the influence
that share holders can have in the company strategy or management. Investors can
have a positive influence on your company, as they are often seasoned business
people. Another example is the main importer of your product. There are even
funds stimulating this, like the Private Sector Investment Programme in the
Netherlands36. There are also venture capitalists who wish to invest in promising
businesses in the so-called emerging markets37, and financing institutions focusing
on sustainable investments.

Loans from family or friends

Many entrepreneurs have family abroad, or friends who have done well. For smaller amounts it is
quite common to obtain a loan from family or friends, especially one that is paid back fairly quickly,
with a profit. These are often informal loans that are not even put on paper. When it concerns larger
sums of money, it is very likely that the person will want to have guarantees. They may become
a shareholder in the company, so that the loan turns into equity. Whether family or friend, the
relationship may come under stress when things do not go as planned, or when the lender wants his/

36 www.evd.nl/business/programmes/programmaint_psi.asp?land=psi
37 See for example www.bidnetwork.org/page/97620, www.responsability.com

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her money back while you still need it. It is up to you how much risk you want to take to sacrifice
friendly relations for your business purposes.

Product provided by farmers on credit

The biggest bottleneck in financing is the one of trade finance, needed to buy the product from the
farmers, until you get paid by your buyer. In some cases it is a matter of six weeks before the payment
comes in, in other cases this takes 3-4 months. Businesses therefore may try to ask the farmers to
provide their produce on credit, in exchange for a document stating the quantity delivered. This type
of credit system often goes wrong and most farmers prefer to sell cash in hand to the best possible
buyer. Asking the farmers to deliver their produce without immediate payment is a situation that
you should try to avoid.

Advance payment by clients

Certainly in more advanced relationships the buyer is often willing to pre-finance part of the
trade contract. It can be part of the sales agreement and of the price negotiation. For them it is an
assurance that they will get the product. They may be able to get trade finance for a much lower
interest rate than you would need to pay. The condition for this is that the buyer trusts you. This
trust is usually built over the years; it won’t happen in the first year. While the buyer may trust
you, his/her accountant or bank will still insist on maximum guarantees. This usually starts with
an exclusive trade agreement - otherwise you might be buying the product with his/her money and
selling it to a competitor.

It might also mean that an external agency must be contracted to monitor how much product is in
your warehouse. There may even be a construction with a kind of bonded warehouse. This means that
all product that you bring in is registered and additional funds are paid out based on that collateral,
and product can only leave the warehouse in a sealed container with the buyer as addressee. The
moment that the container leaves, the real payment is effected by your bank. Then the money is
really yours.

These contracts are usually made for a specific amount of produce and with a tight time schedule.
Once that contract is fulfilled you are free to sell the remainder to any other party. Be aware that
such pre-finance might limit you in your freedom to sell to other buyers. It might however be a good
solution if banks consider your business as too risky to provide a loan, or if attracting pre-finance
from your buyer is a lot cheaper then a bank loan. Always check the different options that are open
to you, and compare the pro’s and con’s of each option.

Loan from a financial institution

Taking a loan from a financial institution has a cost, and bears some risk. You need to pay interest
and possibly pledge collateral. If the loan is taken in foreign currency, there also is the risk that the
exchange rate changes to your disadvantage. Start-up businesses usually only get part of the required
finance; the banks will always ask you to provide a significant part of the total sum required yourself.
No one is going to put their money in your business if you do not invest yourself.

One can distinguish two types of loans: trade finance and investment finance.
•• Trade Finance: A short-term working capital loan (usually 4 to 8 months), mainly
used for buying the raw product from the producers. In order to become eligible for

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 trade finance you usually need a contract or a letter of intent of a buyer of your product.
The buyer of the product has to be trustworthy enough for the financial institution as
well, as often the loan is repaid through the buyer to the bank.
•• Bank Overdraft Facility: Once you have built a good relationship with your local
bank it might also be possible to negotiate a short-term overdraft facility on your bank
account. An overdraft facility is to be used only for short term capital needs.
•• Long term loans: For long term investments, such as machinery, a building or a
truck, or to cover start-up losses, a long term loan is needed since you will need more
than one season to recover the costs of the investment. In order to become eligible for a
long term loan, a financial institution will look at your business plan, your financial and
sales track record, possible collateral, and your equity/debt ratio etc.

For start up producer organisations or enterprises it is difficult to access external loans because of
the lack of a long term relationship with a client, the absence of a financial or trade track record, the
absence of collateral or other securities and the absence of equity. A guarantor could be the solution
in this case. A third party who really believes in the future of your organisation or enterprise and who
is financially healthy itself can partially diminish the risk for the lender, by issuing for instance a 50%
guarantee to the loan.

Check with local banks and micro-finance institutions whether they can offer you credit for
your organic business on reasonable conditions. If they can not, it is a good idea to also consider
international financing institutions specialized in providing trade finance or long-term loans to
organic and Fair Trade businesses (see list in Annex A3.4).

Grants
The last possible source of finance is a grant by a third party, such as development organisations or
government economic development schemes. A grant could be given in the form of a seed capital
grant. A seed capital grant will be integrated in the balance sheet of your organisation as donated
equity. The advantage of a seed capital grant is that it improves your equity position through which
access to external capital in the future becomes more feasible. There are also schemes that provide
grants within a public-private development partnership, or assign a grant for the capacity building of
your staff (see chapter 12.3 and Annex A2.2).

The issuing of grants to start up companies is a last resort, because they may distort competition with
market actors. Grants do not necessarily stimulate commitment of the grant receiver. In general, it
is advisable to use your own funds and being cost efficient by ensuring good financial management.
However, especially in a situation where a new business supports smallholders who otherwise have
little chance in a market economy, grants can be justified.

6.6 Keeping the business going

Keeping an overview
An organic business rapidly becomes complex and so it is not always easy to keep a good overview.
The management needs to know how key business parameters evolve in order to be able to take the
right decisions. A reliable accounting system clearly is a must. Regular staff meetings help to keep
everyone up to date, and to decide about how to deal with upcoming problems in a team spirit.

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Keeping an overview also means knowing where the business actually stands concerning its key
figures. It means being able to answer questions like: What acreage is under organic cultivation this
year, and what is the expected production? How many farmers have already been inspected by the
ICS, and how many were excluded from the project due to non-compliance with the standards? How
much produce has already been sold, and how much is still in stock? What volume of seeds is required
for the next season, and how much money to purchase the harvest from the farmers?

As your production is spread over hundreds or thousands of farmers, answering these questions
usually requires summing up the respective figures of each farm. A database will help you to handle
production and ICS figures in an effective and transparent way (see chapter 8.3). Similarly, your
processing and sales figures should be entered in some kind of database. An Excel file can do the job
until the business reaches a certain size and complexity that a more sophisticated system is required.

The database also helps you to calculate and monitor key indicators of your business such as average
yields, the ratio between extension staff and farmers, the realised margin between buying and selling,
or the additional income generated at the level of the farmer.

Operational planning
In an organic business, many activities that are interlinked need to be orchestrated over the year.
Farmers need to be registered and trained at the beginning of the season, harvest estimates need
to be done at certain points of time, internal inspections need to be completed before the harvests
start, logistics need to be arranged etc. Operational plans (see example in Annex A4.4) in which
the different activities are listed with their respective period of implementation help you not to
miss an important activity, and to plan activities that are interdependent. It is also a useful tool for
monitoring and steering.

Annual review of plans versus realisation

You may plan your business with utmost care and sincerity, but reality almost always turns out
differently. It is therefore important to compare your plan with the actual results at the end of each
season, and to analyse the differences. This is true for production and sales figures, but also for the
overall budget. Get the real expenditure out of your book-keeping, and adapt the budget for the next
season accordingly.

Check real cost prices at the end of the season and see what costs you did not budget correctly.
Analyse cost drivers and identify ways to save costs. However, there are also points where it does not
pay off to cut costs: quality management and quality certification services, postponing payments or
premiums to farmers, payment of field staff etc.

Annual reviews also help you to optimise the performance of your business. It is a good idea to
involve your team in this exercise, for example by discussing jointly the strengths and weaknesses
observed during the last season. Evaluate how you could possibly become more efficient. Develop
strategies on how to earn more, and how to reach the optimum size for your business.

Managing risks
Running an organic business involves certain operational, financial and market risks (Table 7). Doing
business means taking risks; knowing and managing risks. Realistic planning is needed, which takes
into consideration that effective volumes may turn out to be lower, costs higher and markets less

65
responsive than one had hoped. Table 7 outlines some ways in which these risks can be mitigated to
some extent. A simple rule of thumb says: The higher the risk you take, the higher margin you need
to obtain.

Possible risks Measures to mitigate the risk

Operational risks

Weather conditions or pests affect Provide technical solutions to farmers; calculate with careful scenarios; deal in different
crop yields crops at a time.
Farmers sell their production to other Offer farmers an attractive price and pay immediately; build loyalty by involving the
buyers farmers in your business. Try to understand how the other buyers are competing with
you, and whether it is temporary or permanent.
Theft Rent a store with a proper door and lock; have it guarded.

Quality deterioration during storage Chose suitable storage facilities, keep the place clean, dry and windows meshed. Monitor
(insect infestation, moulds etc.) pests with traps. Regularly take product samples and check them.
Product getting wet, dirty, or damaged Use a reliable transport service. Make sure that the truck is clean, that nothing else
during transportation is loaded up. Tell them you must be informed immediately in case of an accident or
breakdown.
Product getting damaged or lost Make sure that the container is well loaded (take photos). Make sure that the shipment is
during export shipment sufficiently insured by the importer (if FOB conditions) or by yourself (if CIF conditions).

Financial risks

Payments to farmers disappear on the Handle payments via bank accounts; involve farmer organisations in handling the
way payments to farmers.
Margins are not sufficient to cover Increase efficiency, reduce production costs per unit. Calculate with leeway for unforeseen
operational costs costs and sufficient target margins.
No loans can be obtained to maintain Organise trade loans in time; agree with farmers and clients when payments are to be
cash flow made.
The buyer does not pay, or pays less Know and trust your client (track record); work with FOB, Letters of Credit, CAD with
after having received the product your preferred bank. Send correct samples, have a good agreement on handling discounts.

Market risks

Demand for the product slows down, Check-out market trends before entering into contracts; diversify your business. Look
no buyer can be found into local-regional markets, look into storing.
Clients do not honour the contracts Build strong partnerships; negotiate solid contracts; arrange for alternatives, even with
and do not buy the committed volume the buyer who did not buy.
Competitors offer the product at lower Continuously work on reducing production costs and improving quality. Be more reliable
price or better quality than the competition. When it is structural, shift focus, diversify.

Sudden increase in local price Communicate with your buyers in good time. Decide together whether to sit it out or
cancel the contract.

Sales prices for the product decrease Pay farmers in two instalments (see chapter 7.5); the second payment depending on the
realised sales price.

Fluctuations in exchange rate Negotiate sales prices in local currency or in a relatively staple currency (e.g. EUR); sell
“back to back” (see next paragraph).

Table 7: Possible risks involved in running an organic business, and measures to mitigate these risks.

Price risk management

Most entrepreneurs have orders or contracts fixed before the season starts. Within the order, the
price can either be fixed or kept open. You may want to be sure that you are in the business for a

66
certain volume, but if you have fixed the price far ahead of the actual buying, both can gain or lose
from movements in the market or the exchange rate.

Some entrepreneurs seem to wait for the best possible price; they are in fact speculators. Very seldom
do they actually get the best possible price and often they don’t stay long in the market. They may not
only harm the producers they buy from, but also disturb the wider organic market for the respective
product. It is a much better policy to be content with a fair reward for your effort; you won’t get this
by taking great risks.

Entrepreneurs have to estimate the price they will buy at, and the price they will sell at. Local and
world market situations change and exchange rates fluctuate too. This can be positive or negative; it
is a risk. The risk is limited if you sell ‘back to back’. This means that you only buy for a certain farm
gate price when you have a contract in your pocket for a certain sales price. The order is to buy 200
tons, possibly 250, and buyer and seller are in weekly contact, discuss and agree what will be the best
time to fulfil the order. You ‘lock’ the price, the next week you buy.
However, most businesses dealing with non-perishable products do not only sell during the har-
vesting season. You have to buy produce that you keep in stock for delivery later in the year. You
can either go “short” (you have contracts to deliver for more than you possess), or go “long” (you
have more in stock than you have sold). It is very dangerous to commit yourself to sell more than
you have in stock; you may even lose your buyers. On the other hand, if you want to expand, and
you expect more orders to come in you may decide to go long. In both cases you are playing with
fire! One major strategy for limiting your risk is to limit the volume by which you are long or short.

6.7 Management structures and capacity

Organic enterprises often start as a very small structure, possibly even as a one-man or one-woman
show. Even when hiring staff, many entrepreneurs stick to taking all the decisions themselves. Pro-
ducer cooperatives on the other side tend to involve a large number of people in decision making.
This can block the development of the business. In both cases, the top management needs to be
willing to delegate responsibility to ‘middle management’. Whether an entrepreneur or a coopera-
tive governing body is able to delegate responsibilities will determine whether the business moves
from small to medium size.

Efficient management structures

Management structures need to be designed in such a way that decisions can be taken in an informed
and timely way, and at the same time ensure that the people involved in the business feel that their
views are taken into consideration. Farmer cooperatives tend to keep a lot of decision power with
the general assembly and the board of directors they elect. Decisions sometimes need to be taken in
a very short time in order to make use of an opportunity, or to avoid failing to meet a contract. The
executive director and the sales manager therefore need to have sufficient mandate to decide on most
operational matters. When every decision, every bank draft needs to be signed by a hoard of people,
it does not reflect well on your coop.

On the other side the management structure needs to ensure that the executive forces report back
to the governing body in a transparent and accountable way. The governing body needs to ensure
that the business is managed in line with its core principles, and that there is no fraud or corruption
involved.

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Professional management
Being professional means being both honest and trustworthy. Commit only to what you can live
up to, and stick to your commitments. The market is small; you will be surprised by how much
information is exchanged between traders who are in competition with each. When assisting existing
businesses in looking for new markets it is not uncommon to hear ‘Oh no, not that one, thanks!” or
similar. It is very difficult to turn such an image around.

Criteria for successful entrepreneurs or managers in organic business:

•• Open minded, flexible, determined
•• Able to listen, willing to learn
•• Good in keeping an overview of the finances
•• Good communicators
•• Sense the market, react to changing requirements, innovative
•• Good business managers, organisers

Your clients expect you to be professional. That means that you have to have, or move towards having,
a good administration, a functioning membership or shareholder system, checks and balances in
place, accounts annually audited by a reputable organisation, and goods delivered on time at the
same quality as the sample.

The professionalism of your business should also be reflected in the way you present yourself: your
printed materials and website, your business communication, and the way you interact with clients.

Developing management capacity

Running a business requires a set of skills and abilities that can not easily be developed on your
own. An executive director of an organic business needs to have an entrepreneurial mind set and the
ability to sell, but at the same time needs to be able to understand the situation of the farmers. He or
she needs to be able to handle and understand budgets and business figures, but also to recruit and
guide staff, and interact with the outside world.

When the business expands, new management capacities are needed. Running a small family business
requires different skills and experiences from running a company involving thousands of farmers.
Make sure you develop these capacities whilst growing the business, or hire the right staff with the
necessary experience, and delegate tasks.

There are various ways to build and improve your management capacities and these of your staff:
•• Attend management training
•• Get coached by an experienced person
•• Make use of business development services
•• Exchange with peers in other companies
•• Exposure to other businesses, participation in networks
•• Self-reflective “learning by doing”

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Summary of recommendations
•• Even if you do not write a fully-fledged business plan, you need to have fairly clear ideas
on the main elements of your business strategy (organisation, scale, markets, costs and
revenues, finance etc.).
•• If you get assistance in writing a business plan, make sure that you and your team
understand and support what is written in it. The process of developing a business plan
is usually more important than the document itself.
•• Keep the organisational structure of your business slim, simple and efficient. Define
clear responsibilities for the main processes, and write them down.
•• Start small and focused enough to be able to manage the operation and the financial risk
involved, but large enough to reach sizable volumes in a reasonable time span.
•• Plan your business in phases; expand and diversify after having reached a first break-
even point.
•• As a certain degree of specialisation is needed in order to be successful, carefully weigh
the advantages and disadvantages of diversifying your business.
•• Calculate expected costs and revenues over a period of time in order to assess whether
your business can eventually break even.
•• Make sure that you do not temporarily run out of money during the course of the year.
Plan your cash flow in advance, and organise finance in time, if needed.
•• Make sure that you have reliable and up to date figures at hand that provide you an
overview of the core aspects of your business.
•• At the end of the season or year, check the effective results with the plans. Analyse cost
drivers and evaluate how your business can become more efficient.
•• Limit your entrepreneurial risk by buying from farmers only at a certain farm-gate price
if you have the respective sales contracts for most of this volume.
•• Make sure that the people in charge of managing your business have the necessary skills
and experience.

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7 Organising producers for the market
Traditionally, producers are organised in cooperatives or farmer groups in order to negotiate better
prices, like having a union. In organic value chains, farmers are organised for extension, certification
and marketing. This helps to make the supply chain more efficient, which in the end is better for all
parties.

7.1 Producer organisation versus company set-up

Producers can be organised in different ways in relation to the unit that is marketing their products.
They can form a cooperative or a similar type of producer organisation that takes the raw material from
the individual members and looks after the marketing. They can also be organised and contracted by
a company or trade house which buys and sells the product. Both set-ups have their advantages and
disadvantages (Table 8). A third option is that farmers participate as shareholders in a company (see
chapter 7.2).

Producer organisation Company

+ owned by farmers! - do farmers really benefit?

+ avoiding “middle men“! - high transaction costs?
+ coherence, loyalty of farmers! - adherence of farmers?
- im-balanced focus on farmers‘ interest? + business orientation -> competitiveness!
- sufficient management skills? + professional management!
- “slow and heavy“? + “quick and flexible“!
Table 8: Advantages (+) and disadvantages (-) of a producer organisation versus a
company set-up

Producer cooperatives
A producer cooperative is a marketing organisation that is owned by the farmers who are the
members of the cooperative (Figure 15).38 The management and staff hired by the cooperative
organise production, extension, the internal control system and sales, and possibly also processing
of the product. As the cooperative is the owner
of the certificates, it is free to sell to whichever
buyer it wants. The advantages of a producer-
based set-up are that farmers are involved in
decision making (via the general assembly and
their representatives in the board of directors)
and that the profits of the operation belong to
them. Equally, in case of losses farmers risk
getting paid less than what had been planned.
Meeting of coffee producers at Cooperativa Agraria Cafetalera
La Florida in Peru (Source: Cooperativa La Florida)

38 Examples of organic producer cooperatives are Greennet in Thailand (www.greennet.or.th), El Ceibo in Bolivia (www.elceibo.org)
and La Florida in Peru (www.lafloridaperu.com).

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 Figure 15: Typical set-up of an organic producer organisation

As it is their own organisation, farmers could be expected to adhere to the rules and to sell their
produce to the cooperative only. This is not always the case. Many cooperatives lack management
skills and entrepreneurial spirit. Due to the cooperative structure, decision making may be slow. In
addition, there is a tendency that imbalanced focus is given to farmers’ interests, especially when it
comes to pricing, which can put the profitability and competitiveness of the operation at risk. Quality
differentiated pricing is not always possible as farmers expect the cooperative to take all produce for
the same price. Inefficiently managed cooperatives can be quite expensive intermediaries through
which farmers may earn less than when selling to private buyers. There is also a risk that farmers do
not really have a say in their cooperative, because board members may not represent their interests.
Not all board members always understand how the business works.

Company relating to producers through a contract farming basis

In this set-up of an organic business, the company contracts farmers for the supply of raw material.39
It organises input supply, extension, ICS, first level processing and sales. As the company holds the
organic certificate, the farmers can sell their produce
as organic to that company only. As the company feels
that they take all the risks, they also take the profit.
Any commercial enterprise will have a strong risk
reduction strategy. What that means for the farmers is
that the company will buy the produce for as little
premium as they can get away with. They may be
willing to share some of the profits after the business
is done to build loyalty among the farmers, but this is
the exception rather than the rule. As a result, farmers Ibero (Uganda) Ltd. manager with field team at
their buying store. (Source: AELBI - East Africa)
often sell a significant part to other buyers (at least the

39 Examples of companies contracting organic producers are bioRe India (www.bioreindia.com), Aratex Organica in Paraguay (www.
aratex.com.py), Yiriwa in Mali (www.yiriwa.com) and Ibero (Uganda) Ltd. (www.ibero.co.ug).

71
low quality part). They may also try to link up with other companies that can offer a better price as
they did not have to invest in the development of the farmers.

The advantages of a company set-up are that the entire operation is strongly focused on competitiveness
and profitability. The owners therefore have an interest in hiring a professional director and staff,
and decisions are usually taken in a quick and flexible way. Of course there are also examples of
companies that are not efficient, competitive or profitable. They usually do not stay in business for
very long.

Which structure to choose?

Because of the traditional stand off between farmers and buyers, it is necessary to look for new ways
of cooperating. Unfortunately, there are still too many mutual apprehensions between entrepreneurs
and companies on the one side, and farmer organisations and development agencies on the other
side. Many development agencies and farmer organisations have a very exclusive focus on the
farmers. Rather than encouraging collaboration with entrepreneurs and companies, they feel that
farmer organisations should do everything from production to exporting. That is a very challenging
task.

On the other hand, companies tend to focus too much on their own profit rather than on paying
farmers a good price. As their main business is to trade, they may not be very familiar with agricultural
production. Organising farmers, training and guiding them in organic methods, and building internal
control systems which involve farmers is alien to many entrepreneurs.

It is therefore a question as to whether one should engage both in farming and in the export business.
These are two very different worlds, and require quite different sets of skills and mind sets. Doing
everything at the same time - organising production, getting certified, improving quality, processing,
financing, exporting etc. - may just be too much. A reasonable division of tasks could be that the
producer organisation is in charge of production, extension, ICS and bulking, and then sells the raw
material to a company that covers trade finance, packaging, marketing and export. Certain functions
like the provision of inputs, quality management and first-level grading can also be initially covered
by the company, and then transferred to the farmer organisation. A crucial question is whether the
company or the producer organisation holds the certificate (see chapter 8.1).

Whatever set-up you chose, make sure that:

•• the management is professional and experienced
•• financial matters are managed in a professional way
•• the overall responsibility for the ICS is clearly defined
•• skilled staff is in charge of sales and marketing

7.2 Involving farmers

Whether you are a company or a cooperative, the farmers are your production base. You need to
invest in them, you want them to sell to you, and you depend on them. Consider yourself close to
being married with “your” farmers. It is important that there is a strong trust relationship between
your business and the associated farmers. In this relationship, both sides have certain rights and
duties.

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Building ownership and trust
A top-down approach is not likely to work with farmers; a partnership approach has better prospects.
If farmers feel that it is also “their” business and that they have a stake in the success (or failure) of
the operation, they are more likely to collaborate than if they are mere raw material suppliers. Think
about how you can involve farmers in designing the business - for example by regularly consulting
with farmer representatives or by involving them in the governing body (for producer cooperatives
this is anyway a must). Think about how the management of the business can stay in touch with the
farmers, and about how part of the profits can be shared.

Building trust and loyalty with farmers requires:

•• timely and transparent information on prices and market developments etc.
•• honouring agreements concerning purchases, prices and payments
•• transparency; open-book calculation of profits and margins
•• tangible impacts and benefits for farmers

Farmers as shareholders?
If you are a private company, you may consider the option of involving farmers as share holders. The
company operates as a privately owned profit-oriented entity, but farmers or farmers’ organisations
hold part of the shares. They can participate in decision making in the annual meeting of shareholders
and through their representatives in the board of directors, thus ensuring that farmers’ interests are
taken into consideration. They participate in profits - and losses - of the company as per the value
of their shares. The shares in the company may act as collateral when getting loans, for example for
building collection stores. Profits are shared in the form of dividends.

As the farmers are co-owners of the company, they are more likely to be loyal than if compared to a
pure contract farming set-up. Despite these advantages, there is also a risk that the participation of
farmers in strategic decision making may interfere with the business interests of the company. It is
not always easy to find the right balance between paying farmers a high price and being competitive
in the market. There are relatively few examples of this type of set-up, in organic40 as well as in
conventional business41.

Collaborating with farmers

There are different types of farmers, and you should be careful to associate with the ones who fit
with your business. Working with larger and wealthier farmers may make it easier for you to start,
as they are more likely to try out new things, and organising them is easier than with smaller and
poorer farmers. However, the “early adopters” are usually also the first ones to break off and go their
own way. By working with the poorest of the farming community you can make a real impact on
their livelihoods, but it can also mean that you are working with the weakest farmers in terms of
productivity, which may affect the profitability of your business.

One approach is to work on a community base - a village or existing farmer group - and leave it to
the group to decide about whom they include. Clusters of 10-20 farms/families who trust each other

40 Examples of organic farmer co-owned businesses are Zameen (www.zameen.org) and AgroFair (www.agrofair.nl).
41 See Koning, Maurits de et al., 2009. Farmers as Shareholders - A close look at recent experience. www.kitpublishers.nl/smartsite.
shtml?&id=33740&ItemID=2764&ch=FAB

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seem to work well. However, this can lead to social exclusion of certain marginalised communities.
Discuss this issue with the concerned farmers, and find ways together in which the different sections
of the farming community can participate. In many cases, traditional leaders (elders) or lead farmers
are suitable entry points to win the hearts and minds of entire groups of farmers. On the other
hand there is a risk that the leaders become too domineering, or start to pursue their own interests
through the organic business.

As some of the farmers who join the initiative may leave after some time, it is advisable to start with
a somewhat larger producer base than what is required for the planned production. On the other
side, farmer groups usually want to keep all their members in, even the less well performing ones. In
order to achieve good product quality and to keep the operation efficient, however, you may need to
be able to exclude non-performing farmers. Set clear and transparent conditions at the beginning of
the cooperation period, and explain them to the farmers.

Another issue is the spatial distribution of the farmers. If they are spread over too large an area, or
located too far away from the processing factory or transport infrastructure, high transaction costs
may jeopardise the profitability of your business. Having clusters of farmers in the same location is
particularly important for organising extension and internal control in an efficient way. Although
connections are getting better (e.g. via cell phone), if the producers are several hours away from the
office, you need competent field supervisors who are able to make decisions on their own.

Predators or just … competitors

There is always a risk that once you have organised and trained the farmers, competitors will come
in and take over. You may have invested in a group, provided them with equipment and training, and
still the group may break away. It is not very efficient to contract all the farmers in a region, thinking
that it will prevent them selling to your competitor. A contract does not say very much if you don’t
actually buy all their products for a sufficiently high price. In the end, the only way to avoid farmers
switching to a competitor is by being a better buyer, and by building loyalty with the farmers, e.g.
by making them shareholders of the company. Diversification into more crops might also help, as
farmers see the advantage of being able to sell a larger part of their production through you.

7.3 Building up an extension system

An organic business needs to have some sort of extension system in place, and it needs to be
performing sufficiently well to achieve the desired results. Running an extension system costs money
(for salaries, transport, equipment etc.), but also brings benefits. This sub-chapter provides some
practical advice on how to develop and manage an effective and efficient extension system.

Roles and functions of the extension system

The extension system ensures that farmers are able to produce in a way that is complying with
the organic standards, and at the same time achieve good yields and products of high quality. The
extension staff provides the link between the company or cooperative and the individual farmer.

The extension system in an organic farming initiative is usually closely linked to, but not identical
with the internal control system (see Figure 16): while the extension staff trains and advises the
farmer to produce in the best possible (organic) way, the internal inspector has the responsibility to

74
control whether the farmer sticks to the organic standards (see chapter 8.2). If staff fulfil both
functions, it is advisable that they do the internal inspection of farmer groups in a different location
from their work as extension officers.

Figure 16: Set-up and roles within the extension and internal control
system of an organic business. In practice the roles may be divided during
part of the year only.

Many organic projects involve farmers in the extension and internal control system. These are group
leaders or farmers who are particularly well versed with organic farming practices, and who are ready
to support their fellow farmers by providing advice or assistance in filling in the forms. The service
can either be delivered on a voluntary basis or for a small payment. These lead farmers are trained
and supervised by the extension staff of the project.

For smooth functioning of the extension and internal control system it is important that each person
involved has a clear idea of his or her role. Roles and responsibilities are defined in the job description
of each position (see examples in Annex A4.1and A4.2). They form part of the operating manual or
quality management manual.

Extension approaches that work

It is obvious that top-down, class-room type
lecturing is not a very suitable approach to building
practical know-how among farmers. Nor do farmers
read much in the way of manuals or technical
leaflets. Training farmers therefore needs to be very
practical, involving illustrations, demonstration
of the proposed methods, and experimentation.
Simple but appropriate extension material, prepared
in a language and style understood by the farmers
can support this process. Illustrated posters or An extension worker in Tanzania advising farmers
calendars, for example, are more suitable than plain on organic peanut cultivation. (Source: AELBI)
text.
75
 Key elements of successful extension
•• apply practical, interactive training methods
•• use illustrations rather than text
•• focus on what problems farmers are actually facing, not on what you want to teach
•• facilitate farmer-to-farmer exchange
•• "seeing is believing" - organize visits to pilot farms or model farms
•• stimulate experimenting with innovative ideas
•• get inspiration from suitable guide books and from exchange with other initiatives

The content of training and technical advice should match the needs and interests of the farmers,
male and female. It is not of much use to repeat trainings on compost production and the preparation
of botanical pesticides if the main challenges for the farmers are related to crop diseases, weed
management or irrigation. Try to find out why farmers are not applying the proposed methods,
identify the underlying obstacles, and encourage them to develop solutions that can work.

Extension is not limited to training farmers and providing technical advice. Extension also means
mobilising resources that are lying with the farmers: their traditional knowledge, their ability to
experiment and observe, and their interest to share their know-how and experience with fellow
farmers. Farms of successful members that use innovative and good organic agricultural practices
may serve as an example for other farmers (pilot farms). Farmers are more liable to try out techniques
that they see are working at fellow member’s farms, than techniques propagated by the extension
officer. Methods like farmer field schools42 and participatory technology development43 can easily be
adopted for organic extension. It is not the scientist, not the field officer, but the farmer who is the
best researcher.

Financing extension
Extension services involve costs, which either are paid by the farmers themselves, by public funds
or by the organic business.44 It is obviously rather difficult to convince farmers to pay for extension
services, even if they will benefit from an organic premium. Most organic businesses therefore will
need to cover these costs from their sales margin. In both cases, you want to make sure that the
services are cost efficient and useful.

Systems that work with result-based payments pay a part of their staff’s salary depending on the
achieved output.45 This can be linked to an annual assessment of the training and advisory services
by the farmers. Being assessed by those who are supposed to benefit from the service can make the
extension system more accountable.

42 www.farmerfieldschool.info
43 CIP-UPWARD/IDRC, 2005. Participatory Research and Development for Sustainable Agriculture and Natural Resources
Management: A Sourcebook. www.idrc.ca
44 Agridea, 2002. Innovative Approaches to Financing Extension for Agriculture and Natural Resource Management. Conceptual
considerations and analysis of experience.www.agridea-international.ch
45 Helvetas, 2005. You Pay for What you Get. From budget financing to result based payments. www.helvetas.org

76
Outsourcing extension services?
Some organic production initiatives involve official agricultural advisory services which are funded
by the government. This can be an efficient and cheap way of organising extension - why should it
only be the conventional farmers that benefit from these services? This only works providing that
the quality of the extension and the conveyed contents are appropriate. In many cases, the official
agricultural extension services are strongly linked to conventional farming practices and inputs.

It is quite a change to switch from promoting ‘modern’ agrochemicals to nurturing farmer

experimentation and using locally available ‘dirty’ materials like manure. Some agricultural extension
officers clearly have difficulty telling another story. In some countries, organic businesses have given
up employing former agricultural extension workers and prefer to employ young, untarnished college
graduates as field agents instead. Keep in mind that, if you outsource extension and internal control,
you have fewer opportunities to take corrective measures than if they are under your direct control.

7.4 Staff development

The most critical factor in any plan is that the right people are in place: the people who will make
it happen. You need people who are competent and committed, and who can take and handle
responsibilities. This is particularly true for your field staff. An organic business comes with a whole
set of extra tasks. It is therefore important to get the right field staff, prepare them well for their
tasks, and motivate them to stay with your business.

Recruiting field staff

Your field staff needs to be able to closely interact with the farmers, to understand their problems
and assist them in finding solutions. This requires practical people, ideally with an agricultural
background. On the other hand your field staff needs to be good at working with figures and forms,
understand manuals and writing reports. The ideal extension staff member is also a good facilitator
who stimulates farmers to try out new things and who creates opportunities for farmer-to-farmer
exchange.

When recruiting field staff try to get candidates who speak the language of the concerned farming
communities. Take care not to exclude certain ethnic minorities because your field staff does not
speak their language, or does not like to interact with them for social reasons. In order to encourage
participation of women in the organic business, strive to have a gender balanced extension team.

The more challenging the project, the larger the distance to cover and the worse the roads are, the
better your field staff needs to be; but also the fewer the people to choose from, as most capable
people probably take up jobs that are less strenuous and better paid. Don’t think that your field staff
is cheaper in remote areas - on the contrary: their training and the incentives need to be better.

Training of field staff

It is very rare that you are able to hire field personnel who are already experienced in organic farming.
In most cases, you will need to train them. The training should not be limited to your focus crop, but
cover the entire farm which needs to be managed in an organic way. There are a couple of training

77
manuals that you can adapt and use for this purpose.46 In addition to technical agronomic know-how,
field staff also needs to be trained on extension methods.47

HIV/Aids

Don’t think that this has nothing to do with your business. Your staff and your farmers could get
infected with this disease. No need to say that your staff or your farmers suffering from this disease
will seriously hamper the development of the business. It therefore makes perfect business sense
to deal with this issue, to make your staff aware of HIV/Aids and to sensitize the farmers before it
becomes a real problem for your business. In many countries there are funds and institutions that
can help you with training material for awareness creation, and with formulating a workplace policy
(see www.ilo.org/aids).

Start with a thorough and systematic training of all new staff, and also ensure that they continuously
update their know-how. If you provide experienced staff the opportunity to become experts in a
specific field, they are more likely to stay with you. At a certain size, the organisation should have
sufficient capacity of its own to train new staff. Do not remain dependent on development agencies
or service providers for training.

Motivating your field staff to stay

Besides the producers, your field staff will become one of the most valuable assets of your business.
They know the farmers and their problems; they know how the business functions and what needs
to be done to make it a success. It therefore can be a disaster for an organic business if field staff
members leave. A particularly bad situation is when your staff members leave you in order to start a
competing business for themselves.

However, it is also quite natural that people will look for new opportunities. Therefore, it pays off
to think early on about how you can provide experienced staff with the opportunities to take up
additional responsibilities within the organisation. Exposure visits to other organic businesses or
attendance at external training programmes are important incentives for staff to stay.

Ways to motivate your staff to stay

•• Pay competitive salaries that match the tasks
•• Provide opportunities for training and exposure
•• Involve your staff in decision making
•• Provide opportunities to grow and develop within the business
•• Let your staff participate in the success of the business (via shares, or a bonus system)

46 See IFOAM training platform, www.ifoam.org/training

47 See www.agridea-international.ch

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7.5 Handling pricing, premiums and payments for farmers

Whether you are a company or a cooperative, the relationship between you and the farmers associated
with your business first of all is a commercial one. It is based on a transfer of goods against payments.
The way prices are set and payments are handled will be crucial for the success of this relationship.

Defining the price for the producer

The price that the company or cooperative pays to the individual farmer for the organic raw product
should be high enough to cover the production costs the farmer encounters (variable and fixed costs),
and to enable the farmer to make a reasonable profit that ensures a decent living. This is the basic
idea of the Fair Trade concept, but should also be applied in organics. The price paid to the farmer is
one of the main factors in the cost price calculation of the final product (see chapter 6.4). If the price
is too high, the final product may not be competitive in the market.

At the time of harvest, you may not yet know the price you will receive from your buyers for the final
product. This makes it difficult to define the price that you pay to the farmers. Even if you have a
clear idea of your cost price, and have signed contracts with buyers who are ready to pay at least this
price, you may not be able to sell the entire production at this price. In addition, costs may turn out
higher than expected, and exchange rates may change to your disadvantage. Committing a certain
price to the farmers is part of your entrepreneurial risk. You therefore need to be careful with offering
farmers a high price at the beginning of the season that can ruin you when frame conditions change
- especially if your sales are not yet fully covered by sales contracts.

On the other hand, if the price you offer to farmers is too low, they may leave the programme and sell
to someone else. Sometimes, local market prices may temporarily rise to a level beyond the price you
offer, so that farmers prefer to sell in the open market. It is therefore important to define a price that
is attractive to farmers and that allows some flexibility to increase it in case the market prices rise.
Alternatively, be prepared to lose some volume by not following the (temporarily higher) local price.

It is most important that prices are set in a clear and transparent way, and that you communicate this
well to the farmers you work with. Nowadays farmers understand that prices fluctuate. Try to find
out who else is buying locally, and how to best address local price fluctuations. Explain the buying
mechanism to the farmers, including the quality differential (see chapter 9.2).

Side-selling
You can not - and should not try to - force farmers to sell their products to your business or cooperative;
but there are ways to motivate them to sell to you instead of selling to other buyers (see box). You can,
for example, try to tie farmers to your business by offering good services (pre-financing, immediate
payment on delivery, attractive premiums etc.), but farmers may still sell to the buyer who offers
the highest price at the time of harvest. It can be difficult to convince the farmers that a long term
engagement with a buyer who regularly pays adequate prices including in years of low price-levels,
is better than a buyer who pays a high price once but disastrously low ones in the following years.
But it is worth trying! If the “capture rate” is low, you have invested in extension and ICS without the
likelihood of recovering these costs from your sales margin.

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 How to motivate farmers to sell to you?
•• Offer them contracts with attractive conditions
•• Commit to paying a price that is higher than the local market price
•• If local prices go up, increase your price offer and communicate this to the farmers in
time
•• Pay cash against delivery
•• Support linkages with micro-credit schemes and encourage saving, so that farmers do
not need to sell produce for urgent cash needs
•• Make provisions to buy small volumes at village level even before the main purchase
activities start

Pricing based on the FLO system

If the produce is certified “Fair Trade” in line with the FLO system, the FLO minimum price and Fair
Trade premium need to be taken into consideration. These are defined for specific products and
regions.48 If market prices are higher than the Fair Trade price, the market price shall be paid (Figure
17). In addition to this price, the producer group receives a Fair Trade premium that shall be used to
improve their social, economic and environmental conditions.

Figure 17: Pricing according to the FLO system

Be careful that you are sufficiently covered by Fair Trade sales contracts, so that you can pay the
farmers both the Fair Trade minimum price and the organic premium. In the beginning it is difficult
to explain to farmers that for any produce for which you do not get a Fair Trade buyer, you can only
pay an organic price. It may also not be accepted in Fair Trade certification for all products and
situations.

48 See www.fairtrade.net

80
It is often overlooked but important to note that the FLO minimum price usually defines what
the producer organisation needs to get (“ex works producer organisation” or “farm gate producer
organisation”), and not the price for the individual farmer. This means that the FLO minimum price
includes the costs of all activities necessary to produce the certified organic & Fair Trade product.
This includes costs of extension, ICS, certification, bulking and - if done by the producer organisation
- cleaning, grading and packaging. The producer organisation can deduct these costs from the Fair
Trade minimum price and pay the remainder to the farmer.

Defining and handling premiums for farmers

The premium is what you pay to farmers in addition to the normal market price. There are three
types of premiums relevant in this context: the organic premium, the Fair Trade premium and the
premium for high product quality.

The premium you pay to the farmer is often similar to the premium you fetch in the market. If you
expect an organic premium of 15% on the exports, it is usually safe to pay the farmers 15% on the
farm gate price. That is, when you have a sufficiently large operation. If you deal with in-conversion
products, it is a good idea to pay farmers a certain (but lower, e.g. 5-10%) premium during the first
two years of conversion. This provides farmers with an incentive to engage in and stick to organic
production. If you manage to achieve a better product quality through your extension and internal
control system, you in turn should be able to get this premium even when selling the in-conversion
produce in the conventional market.

If you follow the FLO Fairtrade system, your clients need to pay the Fairtrade premium. The full
Fairtrade premium needs to be used for community projects decided by a body representing the
producers. If the Fair Trade premium is managed at the level of individual primary cooperatives, the
central producer cooperative needs to distribute the Fairtrade premium to the primary cooperatives
according to the product volume they produced.

It is a good idea to pay farmers a premium for better product quality. This will motivate them to
engage in quality management and deliver products of high quality, which in turn allows you to
obtain a better price in the market (see chapter 9.2).

Handling payments to farmers

The exact price you can get in the market, and
the volume you can sell as Fair Trade, are not
usually known at the time of buying the produce.
Therefore it may be a good idea to pay farmers in
two instalments:
•• 1st payment: the minimum price you offer
farmers for their organic produce (needs to
be at least as high as local market prices);
•• 2nd payment: premiums for organic, Fair
Trade and quality, depending on actual Purchase of organic Fairtrade cotton in a village in
sales. Burkina Faso (Source: Helvetas)

81
Most organic businesses open up buying stations in the villages. You can also delegate the bulking of
the crop to a village level farmers organisation. In some set-ups, farmers are required to deliver their
production in groups to a larger buying store or warehouse.

Whatever the construction, it is important that the buying staff is properly instructed, that the
weighing scales have been calibrated in the presence of some farmers, and that the approved farmers
have received an ID card and a buying record. In most organic businesses, farmers are paid cash in
hand upon delivery, which involves certain risks. Make sure that payments are done in a transparent
and traceable way, and investigate any allegation of cheating by your buying staff. Where possible,
payments into the farmers’ bank accounts are even better, as it reduces the risk of carrying money.
Obviously, these bank transfers also need to be done promptly.

Summary of recommendations
•• Producer cooperatives should be careful with handling business activities that go beyond
their management capacity. Companies should ensure that farmer interests are taken
care of and that they can participate in decision making.
•• In order to build trust and loyalty with your producer base, communicate transparently,
honour agreements and ensure that farmers benefit.
•• When selecting farmers for participating in your business, ensure that the different
groups of the farming community can participate, and that they are geographically not
too dispersed.
•• Define clear roles within the extension and internal control system and make sure that
the services are delivered according to the needs of the farmers.
•• Make sure that the right people are in the right positions. Provide suitable incentives so
that qualified staff members are motivated to stay with your business.
•• Set farm-gate prices in a way that they are high enough to motivate farmers to sell to
you, without jeopardising the profitability of your business.
•• If you are not sure whether you can sell all your produce with the expected organic and
possibly Fair Trade premium, agree with farmers that part of the premium is paid at a
(defined) later point of time.

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8 Certification and Internal Control Systems
For organic businesses, achieving and maintaining certification is one of the most difficult aspects to
master. It requires a level of organisation, communication and transparency that not everybody can
provide. In this chapter you will find practical guidance on how to achieve and maintain certification
based on an internal control system (ICS).

8.1 Certification options

In most of the larger markets for organic products - Europe, North America, Japan, Brazil, South
Africa, China, India - labelling agricultural products as “organic” requires certification from an
approved certification body (CB). Certification needs to be renewed on an annual basis and needs to
also cover all processing and trading steps involved up to the sale of the product.

Organic certification ensures that the product is truly produced in compliance with organic standards.
It builds trust between the buyer and the producer, and also protects the genuine producer from
unfair competition. The organic integrity of your products is a pre-condition for gaining access to
organic markets.

Some buyers offer to pay for the certificate, on the condition that they have the ownership of the
certificate. Although this may be tempting as it saves costs, it also leads to a strong dependency
on this specific buyer. In most cases organic businesses are better off if they own the certificate
themselves, and are flexible in whom they sell to.

What certification do you need?

Think early on about what your target markets are. If you want to sell to the European
Union, you will require certification according to the EU organic regulation; if you want
to sell to the United States, you need to be NOP-certified, and for Japan JAS-certification
is necessary.49 For local organic markets, the standards and regulations of the respective
country apply - if available. Although the most important official regulations have similar
requirements, there are also some aspects which are specific. The NOP regulation,
for instance, requires that producers have a production plan, and allows retrospective
recognition of conversion.

In addition to the public organic regulations which are mandatory, in some markets
voluntary private standards and labels play an important role. Private labels like Soil
Association in the UK, Naturland in Germany or the BIO SUISSE bud-label (“Knospe”),
for example, may be more popular than the respective official regulations and logos.
Supermarkets and brands sometimes have their own company label and standards,
which go beyond organic regulations. If you want to be able to cater to different markets
and labels, make sure that you meet all the different requirements.50

49 For the respective links see Annex A5.1.

50 For a comprehensive comparison of the requirements of the different standards, see organicrules.org/view/EU

83
Some buyers may have additional requirements concerning production, social and food safety
standards, or they want a combination of organic and other certifications, such as Fair Trade,
Rainforest Alliance or Global-GAP (see chapter 2.5 and Annex A5.2).

Organic and other certifications may be a pre-condition to marketing your products, but they are
no guarantee for finding a buyer. As certification involves certain costs, make sure you only go for
additional certifications when you have buyers.

How to choose the right certification body?

In most situations you can choose between certification bodies. Due to global competition, prices
are very competitive, which you can use to bargain for a lower quote. However, cheap certification
usually comes with a mediocre service. It is much better for your business if you insist on high quality
inspection and certification, even if this is more expensive. Your certifier can help you establish real
organic farming, good quality management, traceability and product integrity. Going for the cheapest
offer may turn out to be more expensive in the end. There is a risk that farmers won’t take the
standards very seriously. It may also happen that a certifier who quoted a cheap price for a minimum
product may later demand additional inspections or tests for which you need to pay. Make sure that
everything is included in the offer - costs for travel, hotel, accommodation, residue analyses, second
inspections, transaction certificates etc. Provide clear terms of reference when inviting offers from
different certification bodies. Criteria for selection between different offers include:
•• recognition of the certification body in the target markets (ask potential buyers)
•• range of certifications offered (EU organic, NOP, JAS, GlobalGAP etc.)
•• local office; working with experienced local inspectors who speak the language
•• service orientation; time required for processing files (track record)
•• costs for travel, inspection, certification, transaction certificates

If your attitude is to go for quality instead of the cheapest possible certification, you will attract a
better class of buyers who are willing to pay better prices. These are the buyers who want to build
partnerships with reliable suppliers; they are not interested in shopping around every year for
the cheapest raw material around. Therefore, think carefully how you want to position yourself in
the market. Ask other organic businesses in your countries as well as potential buyers about their
experience with different certifiers.

If available, chose a local certification body that is approved for certifying according to the standards
you require.51 The European Union maintains a list of recognized CBs52. Some countries like Costa
Rica and India are recognized by the EU as having standards, certification and accreditation in place
that are equivalent to those of the European Union. In these cases, the organic certificates of your
local certification body can be used for imports into the EU. There are also international certification
bodies that recognise certificates of a local certifier.

51 A directory of organic certification bodies is available from www.organicstandard.com/directory.html

52 ec.europa.eu/agriculture/ofis_public/index.cfm

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 13 steps to certification
1. Create awareness among producers
2. Decide together to go for O or OFT production
3. Producers commit themselves to follow O or OFT rules
4. Training on production rules
5. Training on producer organisation (in case of OFT)
6. Training on documentation requirements
7. Formalization of ICS, registration
8. Contracting of producers
9. Application for external inspection
10. Internal annual inspection, compilation of findings, corrective action when needed
11. First external inspection
12. Complying with the corrective action requests
13. Second external inspection; certification

If no internationally accredited local certification exists - which is still the case for most developing
countries - chose an international certification body that is working with local inspectors. This
reduces travel costs, and makes it more likely that
the inspector knows the local context and speaks
the language of the farmers.

Certification contracts can be renewed - or

cancelled - on an annual basis. Changing the
certification body frequently does not reflect
well on you. It may raise concerns about your
credibility in the same way that changing your
auditing company often would. It does not pay to
change the certifier after they have detected non-
compliances. Be aware that certification bodies
An internal inspector visiting the cotton field of an
organic farmer in Kyrgyzstan (Source: Helvetas) are obliged to exchange information about you
when you switch certifier.

Managing certification costs

Costs for certification consist of costs for travel and accommodation of the inspector, fees for
the inspection (depending on the number of days required), a certification fee (depending on the
different standards you want to be certified against, e.g. EU and NOP), as well as the eventual costs
of transaction certificates.

Organic standards require that each farm must be inspected at least once per year. However, physical
inspection of each smallholder farm by an external agency – whether by a local or an international
certifier – would involve considerable costs. To reduce these costs and thus to facilitate certification of
smallholders, most certification schemes have provisions for group certification based on an internal
control system (ICS, see chapter 8.2).

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Although high certification costs are frequently cited as a major obstacle for smallholders to convert
to organic farming, they are usually much lower than the costs for the extension and internal control
system (salaries, transport, equipment etc.). Both costs can be reduced by setting up efficient
systems. The more efficiently the extension system works, and the better the ICS performs, the less
staff members are needed and the faster an external certifier can do the inspections. Another way to
reduce per-unit certification costs is to include several crops under the same ICS and certificate, so
that the additional organic premium can contribute to cover these costs (see box).

Big trees to support organic cotton

In Burkina Faso a cotton project included shea trees and sesame in their organic certification. As
these crops are growing on the already certified and monitored area of the operator no conversion
period and little additional costs were required. All the required production data could be collected
during regular internal inspection visits. The data collected was submitted to the certification
agency before external inspection. During the inspection these data were verified and then the
crops were included in the certificate. The additional cost of including the crops in the certificate
was about 1,000 Euro while the additional turnover now including shea nuts sold as organic,
increased by more than 70,000 Euro.

There is no doubt that certification is costly even with an ICS, and even if several crops are covered
under the same certificate. On the other hand, it opens up access to interesting markets. To be
viable, the additional value generated through certification needs to be bigger than the costs of
certification. This requires a certain scale of production: getting 1000 farmers certified under an
ICS does not cost much more than getting 100 farmers certified. You will require more staff for
extension and ICS if there are more farmers to be covered, but you can gain in efficiency. After 3-4
years, certification costs should not account for more than 2-3% of the export price, while the cost
of field staff for extension and ICS may cost 4-6% in an efficient project.
Costs of Fair Trade certification by FLO-Cert depend on the type of organisation, its size (number of
members) and the number and volume of certified products.53 FLO International has created a fund
from which small farmers’ organizations can receive a subsidy of up to 75% for their initial Fair Trade
certification.54

8.2 Developing an internal control system

In an ICS, a central body (e.g. the cooperative or the processor) ensures and verifies that all individual
farmers comply with the respective standards. Each farmer needs to sign a contract with the
organisation in which they declare their commitment to following the specific internal regulations of
the project (see examples in Annex A5.3 and A5.4). The ICS operator maintains files of all producers
and inspects each member at least once a year. Risks which might jeopardise the organic integrity of
the product need to de identified at all levels of production, transport, storing, and processing. The
internal control procedures need to focus on these specific risks.

53 See www.flo-cert.net/flo-cert/main.php?id=13
54 See www.fairtrade.net/producer_certification_fund.html?&L=title%3DOpens

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Internal inspectors need to inspect the farms at least once a year. Additional inspections - announced
or un-announced - can be conducted. An internal approval committee or an approval officer deals
with non-compliances according to set procedures and sanctions, and decides whether a specific farm
can be approved for certification.

In this setting, the external certifier inspects the functioning of the ICS based on its documentation
and physical re-inspection of a certain percentage of the farms. The re-inspection rate depends on the
size of the group and on the performance of the ICS. Overall, the ICS and the external certification
need to cover all trade and processing steps implemented by the project (Figure 18).

Figure 18: The structure of an internal control system and its relation to the
external certifier (adopted from IFOAM).

For a detailed description of group certification and guidelines to develop an ICS, refer to the
IFOAM tool ‘Smallholder Group Certification’55. IFOAM also provides a training curriculum with
transparencies to train project staff on ICS. Therefore, the following chapters explain the aspects that
need further attention from a business perspective.

Key questions in building up an internal control system

•• What structure will the ICS of the project have? How will it be managed?
•• Who will develop the documents for the ICS? How?
•• How will the project involve the farmers in the ICS?
•• Who will decide internally about approval of farms and about sanctions?
•• How will inspections be organised (by whom, how often, separation from advice)?
•• How will you ensure that internal inspections are effective and reliable?
•• What measures will you implement to ensure traceability?

55 See shop.ifoam.org/bookstore

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Structures and roles in the ICS

The ICS is closely interlinked with the extension system (see chapter 7.3). It is important that you set
up a lean and efficient extension and internal control system in which all staff have clearly defined
roles (Figure 19). An example on how the roles and responsibilities of each actor can be defined in
detail is given in Annex A4.1.

Figure 19: People involved in an ICS, their roles, and the key tools they use

ICS processes and forms

The main processes that are relevant for the ICS are the registration and training of the farmers, the
documentation of farm and field data, the internal inspection of the farm including estimation of
the expected harvest, and the maintenance of traceability during bulking of the produce. The person
responsible for the ICS needs to supervise the work of the internal inspectors and check traceability
in processing, storage and sales. Table 9 lists these processes, defines the responsible persons and
indicates the required forms.

The procedures and forms are documented in an ICS manual or within the overall operating or
quality management manual.56 This helps you to develop a clear idea on roles and responsibilities of
the involved staff, and to have all relevant documents in one place. It also allows new staff and the
certifying body to understand how your system functions. There are various sample ICS documents
available.57 It is recommended though that you engage an experienced local consultant in the design
of your ICS. In most countries fellow organic business people can give you a recommendation. The
consultant may also train your staff in implementing the ICS.

56 E.g. Operating manual of Mobiom in Mali (available in the tools section on www.organiccotton.org) or ICS manual of ALCODE in
Uganda, www.grolink.se/epopa/Publications/ALCODE-ICS-Mar07.pdf
57 See the IFOAM Training Kit for ICS for Group Certification, shop.ifoam.org/bookstore

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 Process Responsible person Form / documents

Farmer agreement, internal

Contracting farmers Extension officer
regulations
Training farmers on organics Extension officer Farmer diary, internal regulations
Document profile data of farms, draw
Extension officer Participatory mapping exercise
maps, measure fields
Technical advice visits and monitoring of
Extension officer Farmer diary, farmer register
farms
Internal inspection of farm and harvest
Internal inspector Inspection report: farm
estimates
Data processing Documentation Officer Database, farmers files complete
Inspection reports, approved
Approval decisions for farms Approval committee
farmers list
Bulking of products from individual Buying agent w or w/o Farmers’ ID, Approved farmers list
farmers the extension officer with harvest estimates
Head of ICS / field Completed inspection reports,
Supervise internal inspection activities
supervisor register of re-inspected farms
Head of ICS / field
Consolidation of records, check traceability
supervisor / store Register of product flow in/out
in processing, storage and sales manager
Table 9: Processes of an ICS, responsible people and documents needed

Dealing with non-compliance

Thorough selection and training of the farmers and a well functioning internal control system
are crucial to ensure farmers’ compliance with organic standards. However, even with the most
sophisticated inspection system it is impossible to have 100% control. At least of equal importance
is the trust relationship between the farmers and the project. Farmers should understand that if
just one of them violates the standards, the certification of the entire project could be at stake. If
farmers have a strong feeling of responsibility, mutual social control among the farmers can become
an effective way key for guaranteeing the organic integrity of the project.

Still, in every project there will be some farmers who - purposely or by mistake – violate the organic
standards. If these violations are not detected and sanctioned by the internal control system, but
only come out during the external inspection or when checking for residues on the final product,
the project risks losing its organic certification. To reduce this risk, projects might consider creating
incentives for farmers themselves to admit to the application of prohibited inputs, for example by
giving them the chance to re-join the project after passing through the conversion period again.

If a farmer is found to have violated the standards, the project needs to apply clearly defined sanctions
(see the example of a sanction catalogue in Annex A5.5). This may start with refusal of their produce
for one year right up to removal of that farmer from the organic group. There is normally an Approval
Committee that decides on these issues. It is important to inform and discuss the results with farmer
representatives to avoid the same thing happening again.

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Ensuring traceability
One of the most critical risks jeopardising the organic product integrity is that produce from farms
that are not covered by the ICS enter the organic product flow. When organic products fetch a price
which is considerably higher than the conventional market price, some farmers and produce buyers
may be especially tempted to deliver product from conventional producers. In order to ensure that
this does not happen, it is compulsory to make a harvest estimate of each individual farm.58 For this
it is important to verify the field size indicated by the farmer (with measuring tape, GPS or Google
Earth). When farmers deliver their production to the company or cooperative, the quantity delivered
is checked with the estimated harvest volume (Table 10).

Code Farmer Crop Expected Expected Delivered Diff. Comment

name surface yield harvest produce %
(ha) (kg/ha) (kg) (kg)

A-123 XXX 0.8 600 480 510 6% ok

A-234 YYY 0.6 500 300 460 53% keep aside, check!
Table 10: Approved farmers list with delivered produce vs. harvest estimates

It is equally important to keep track of the volumes of organic products during transporting,
processing, storing and selling. Establish a system of weighing and written records and receipts at
each level, and cross-check the totals.

Training field staff on the ICS

Once you developed the basic elements of the ICS, your field staff needs to be trained on how
to implement the system. The ICS manual (or the respective chapters in the operating or quality
management manual) provides the basis for this training. You need to pay particular attention to
providing a thorough on-the-job training to the internal inspectors. They not only need to be able to fill
in the forms in a way that reflects the reality in the field, but also to focus on the critical control points
and to ask the right questions during the
inspections. Besides the initial training, all
staff require an annual refresher. In most
countries the national organic movement
can connect you with experienced
consultants who can help you in this.

Too often, ICS activities start late in the

year, and inspections and farm visits are
done in a hurry. Too many farms are then
inspected in one day, or forms are even
filled in without visiting the farms and
Training of field staff in Tanzania
fields. Allowing this to happen is short
(Source: AELBI) sighted, as it jeopardises your certification,

58 For a procedure how harvest estimates and traceability checks can be done in cotton production, see www.organiccotton.org ->
Library -> Tools

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and is also not really of assistance to the farmers. On the other hand, there also is a danger that the
staff are too slow, wanting to do a ‘too good’ job. This means that it will take them too much time,
which causes high costs. On the other hand they may create a write up that is how it should be, rather
than how it is on the ground, in order to please the management and the certifier. Good training and
supervision of the field staff needs to address these aspects in an appropriate way. You need to have
a really good field supervisor.

8.3 Traceability and data management

Managing a business that involves several hundreds or thousands of individual farmers who need to
be monitored also means handling a large amount of data. For each farm, you need to collect and
update various types of data: information about the farms (details of the farmer, landholdings etc.),
their production (field size under each crop you are dealing with, estimated and real harvests), the
inputs you provided, the inspections, the payments etc. In addition to the field level data, you need
to handle data at central level, like staff data, client data, and data concerning stocks, processing and
sales (Figure 20).

Figure 20: Functions of a central database in an organic business; arrows

indicating flow of information

Having these data available is not only a necessity for certification - it is also crucial for managing
your business. You need to be able to plan the extension and ICS operations, the purchase of inputs
and the transport and processing of the produce. Based on these data you will manage your cash flow,
and you will know how much production you can offer and when it is available in the market. It may
start with a bundle of hand-written tables, some excel sheets or perhaps a real database system.

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A database has the following functions:
•• Keeping an updated list of approved farmers to hand at any time
•• Collecting and centralising field data (e.g. production details of each farm)
•• Calculating totals and averages (e.g. total expected harvest or average yield)
•• Keeping track of extension and ICS activities (e.g. participation in trainings, completed/
pending inspections etc.)
•• Feeding processed information back to the field (e.g. lists of approved farmers)
•• Handling personal data (addresses of producers, staff, clients etc.)

Developing a database for your business

Before you start developing a database, think carefully about which data you really need to manage
at central level. It is easy to prepare a database with all kinds of fields for data entry, but collecting
and updating this data is time consuming and costly. Therefore, you should restrict the data to the
absolute minimum. You may, for example, be tempted to collect the numbers of farm animals of all
farmers in your database, in order to get an idea of how much manure is available. Keeping these data
up to date, however, is a Herculean task. You might be better off with collecting this information in a
survey on just a representative sample of farms.

The simplest form of a computer-supported database is an excel sheet in which all essential data of
each farmer are entered into a table (see Table 11).

Farmer Farmer Year of Village Total Surface Last Inspec- Status

Code Name joining land crop A date of tion
(ha) (ha) training date

   

   

Table 11: Extract of a producer database

The disadvantage of Excel is that the data records are difficult to handle when the business grows
and farmers produce several crops. A database system like Access allows storage of data in a way that
you can easily:
•• enter data via simple forms
•• interlink different levels of data
•• access extracts of data for specific years, crops, regions etc.
•• create summary reports
•• export specific data in a simple format (e.g. as form or excel file)

As this is a specialist area, consult with other organic projects on which system they use and whose
services they use to set up and maintain the system, including training your staff to use it properly.

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Managing data
The most sophisticated database is of no use if the data contained are incomplete, incorrect or not up
to date. Managing the database therefore involves checks and cross checks. The person responsible
for data management should periodically check whether the data of the current year are entered
completely. Furthermore, s/he should check whether the entered data are realistic, e.g. by simple
sorting and cross-calculations. Ideally, this also involves spot-checks on randomly selected farms.

Collecting data is equally of not much use if the results are not available at the right time at the
level where they are needed. The decisions of the approval committee and the harvest estimates,
for example, need to be available in the villages when the product is collected from the farmers -
otherwise they are of no use. It is therefore important that you think about how to transfer data from
the field to the centre, and back.

Make sure that the right persons have access to the database. As the database may contain some
sensitive producer data, take appropriate measures to ensure confidentiality.

8.4 Maintaining certification

Being certified is not a one-time thing, but an ongoing process. While achieving the first certification
is a big effort, the challenge of maintaining certification should not be ignored. Losing your organic
certification is the worst thing that can happen to you, as you can not sell your production with an
organic premium, but still have to bear all the additional costs (including those for certification!).

As the farmers are expected to comply with the standards throughout the year, the surveillance by
the ICS should also be active throughout the year. It is not enough for someone to fill in the forms
and do a skimpy internal inspection shortly before the external inspector arrives. The ICS needs to
start its operations before the season starts (registering and training new farmers on ICS, updating
farmer files etc.) and needs to continuously monitor the ongoing activities up to the time of harvest.
Some CBs insist that you employ field staff on fixed contracts to be sure that they are active the whole
year round. The person who is responsible for the ICS makes an annual plan of activities. The internal
inspection usually takes three of the twelve months of the year and is finished one month before the
harvest starts (see example of an annual operational plan in Annex A4.4).

Checking the system

It is not sufficient to set up an ICS and to hire and train field staff. You also need to make sure that
they really do their jobs, and that the collected information is correct. Collecting reliable information
in the field is a tiresome process, and field staff may be tempted to fill in approximate figures,
possibly even without visiting the farms. To prevent this, a system of cross-checks through the
person responsible for the ICS should be introduced. S/he should re-visit a randomly selected sample
of 2-5% of the farms at certain critical moments during the season (e.g. after farmer registration is
completed, before harvests start), and cross-check the registered information. Regular supervision
of field staff also helps identify bottlenecks and shortcomings, and thus contributes to continuous
improvement of the effectiveness and efficiency of the system. In the end this helps in saving time
and money.

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ICS and quality management
Having a system in place which is in continuous contact with the farmers can be turned into THE
big competitive advantage of an organic business. The ICS allows inclusion of quality management
aspects without much additional effort. You can integrate measures that improve product quality
during production, harvesting and post-harvest handling in the internal regulations, and verify their
implementation through the internal inspections (i.e. include them in the inspection report). The
most important quality management measures are usually to keep the product free of contamination
and to sort out produce of lower quality (see chapter 9.2).

Managing growth
It is particularly challenging to maintain quality of the ICS in situations of fast growth of the
business. Including large numbers of new farmers requires hiring new field staff, which in turn need
to be trained and supervised by the Field Supervisor. Although growth is necessary in order to reach
economies of scale (see chapter 6.4), it increases the burden for the initial team - and costs additional
money. In the end, growth which is too fast may jeopardize certification, as quality of the internal
control measures go down. To avoid this, make sure that your staff is well prepared to manage the
growth, and keep the speed of it within reasonable limits.

Revising the ICS system

It is advisable to revise the ICS including the manual after the annual external inspection and before
the start of the new season. External inspections usually result in some corrective action requests
or conditions and recommendations from the certifier. These need to be incorporated in the ICS for
the next season. It is a good idea to combine this external review with an internal review, in which
the concerned ICS staff are involved. A simple method of doing this is to conduct an analysis of
strengths, weaknesses, opportunities and threats (SWOT-Analysis). During a meeting, ask the ICS
team to list the strengths and weaknesses they observed in the ICS during the previous season. Ask
them which opportunities they see to improve the effectiveness and efficiency of the ICS, and which
threats they see for its functioning in the next season. Based on this analysis, you can then define
appropriate methods to improve the system.

Take care that all staff (including the buying agents) are aware of the changes you decide. If necessary,
conduct refresher trainings with the staff. Also make sure that the farmers are properly informed on
changes they need to be aware of.

Be careful with introducing new forms whenever a new aspect is taken into consideration. It might
take a bit more time to think how the aspect can be integrated in the present set of forms and
processes, but this pays off as you gain efficiency. Many ICS tend to get big and heavy over the course
of the years, making it difficult to handle the data. It therefore is advisable to conduct a larger review
of the ICS forms and processes every five years. Keeping it lean and simple is the most important
principle in managing an ICS. Otherwise there is a risk that the ICS becomes inefficient - and too
costly!

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Summary of recommendations
•• Think early on about what your target markets are in order to decide what certification
you need
•• Insist on quality certification services rather than going for the cheapest option
•• In order to reduce certification costs, try to increase the efficiency of your ICS and cover
several commercial crops under one certificate
•• Set up lean extension and ICS structures and clearly define roles and responsibilities for
all involved
•• Define clear processes and practical forms; make sure that they are applied
•• Set clear internal standards, and define and apply effective sanctions in case of non-
conformity
•• Use harvest estimates and receipts to check traceability of the organic produce
•• Train ICS staff "on the job" and ensure timely implementation of internal controls
•• Keep all production and ICS data up to date in a well managed database
•• Ensure close monitoring of the ICS and revise it periodically, without making it too
heavy
•• Exchange experiences and tools with fellow organic projects in the region

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9 From field to market
Setting up proper and certifiable organic production is one thing, it is another however to ensure
that you get good quality raw material from the farmers, and to maintain or even increase the quality
of the product on its way to the market. This chapter explains how you can achieve this during
procuring, transport, storage, processing and export. It provides you with practical examples and
recommendations.

9.1 The importance and value of quality

There is no market for low quality organic products. As buyers and consumers are paying more for
the product they do not expect it only to be certified organic, but also to be of good quality. On the
export market, quality is often a main concern of the buyers. Clients simply want to receive what they
have ordered, and what they are paying for. Understanding what quality means, having a system in
place to manage quality, and continuously trying to improve on quality all result in a better market
position. Producers and clients do not always have the same understanding of quality (see box). It is
therefore advisable to check with your clients what exactly they require in terms of product quality.

Talking about quality

Buyers always emphasize the importance of product quality, and suppliers always claim that their
product is of good quality. Are they really talking about the same thing? Does good quality mean
grade A, low acidity, high purity, or absence of microorganisms?

Perhaps the quality of the product is better than what is usually available in the country of origin,
but still inferior to what is available in the international market?

It certainly helps if suppliers can provide reliable and measurable quality parameters, and can say
precisely what minimum quality specifications they require.

Not only quality per se is of importance for clients, but also consistency of quality. You should be able
to notice any differences in your product over the years. Consistency does not depend only on you
but on many factors. You should nevertheless work on achieving consistency and be able to explain
what you do and what effects it has on the end product. Be aware that quality standards may change
drastically with technologies evolving (e.g. trash rate reduction due to optical detection of impurities).

Quality pays!
As quality can often be improved with some simple measures (see chapter 9.2), this can be an
immediate reward at the very start of the organic conversion. You may not yet be getting an organic
premium, but you may already get a better price because of better quality. In Uganda, a trader who
used to buy wet and unfermented cocoa was surprised that he could get almost 30% more for properly
fermented and dried cocoa.

Once the product is certified, the premium paid to the farmers covers both the fact that it is organic
and that it is of good quality. As a principle, many organic traders buy first quality product from the
farmers only. Second grade produce has then to be sold in conventional markets.

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Supplying good quality is not difficult, and it is a necessity. At the same time it is an opportunity -
quality pays! Therefore, take it seriously, and don’t disappoint your buyers on product quality.

The ‘invisibles’

Even if your product looks and tastes good, it may be rejected because it is contaminated with
microorganisms or toxins. Salmonella and E. coli are microorganisms that are usually linked to
unhygienic conditions in post-harvest handling. Tiny moulds that grow in humid conditions on
various products can produce aflatoxin and ochratoxin. The cadmium content in cocoa grown on
certain volcanic soils can be so high that the beans need to be blended with beans from other
origins to make sure that the cadmium content is not above a daily permissible intake level.

These problems with contaminations are not specific to organic production. Quality management
is an issue during all stages of production. If contamination is detected, your clients may reject
entire containers due to the strict regulations of the importing country. In the case of aflatoxin
contamination in sesame or peanuts, the batch of rejected produce may still be used for oil
extraction, but the cake not for animal consumption. It always is a shock to the exporter when
shipments are rejected, and it leads to an important loss of income.

Proper quality management in farming, post-harvest handling and storage avoids most problems
of contamination. However, more and more analyses are being done, and more and more problems
coming up that catch the producers unaware.

Quality management systems

The Internal Control System (see chapter 8.2) is a good platform through which to address quality
aspects. Whether you need a formal Quality Management System is another question. It depends
on how often the product category you are dealing with is confronted with quality problems. This
appears to be an increasingly common issue. Turkish farmers had a problem believing that there
could be aflatoxin in their figs; African traders thought the buyers just wanted to reduce prices when
they were complaining about salmonella in sesame; nobody cared about food safety in coffee (it is
roasted anyway) until ochratoxin was found.

In most developing countries there is little formal training on quality management systems in
agriculture. However, they are increasingly common in the field of food processing. When you are
processing organic food products, your buyers may ask whether you have a HACCP system in place
(Hazard Analysis and Critical Control Point59). Based on an analysis of food safety hazards in your
operation, you need to define a monitoring system and corrective measures for your critical control
points.

9.2 Getting quality produce from the farmers

You may think that high quality produce can only come from commercial farms. However, experience
shows that smallholder farmers in developing countries can produce large quantities of good quality
raw materials for competitive prices, meeting various certification and quality requirements. Quite

59 See www.haccpalliance.org

97
a number of companies even prefer smallholder production over industrial farming because of the
better quality.

Pre-conditions for quality production by smallholders include:

•• Some initial external assistance in the field of quality management;
•• Training of the field officers who in their turn work with the farmers to translate market
requirements into practice;
•• Training and instruction of all other persons in the chain on how to handle the product;
•• A price incentive to reward good quality (quality based pricing).

The farming side

In many cases it is actually fairly easy for field officers to work with farmers on improving product
quality. It is mainly an issue of care and extra effort. Weather conditions are probably the most
important disturbing factor - and people cutting corners in quality management!

The characteristics of proper organic farming are already dealt with in chapter 5. Good organic
farming practices like selecting suitable varieties, adequate fertilisation and irrigation, appropriate
crop rotation and weed management etc. not only determine productivity, but also size, flavour
and shelf life of the product. Excessive nitrogen fertilisation, for example, may result in low product
quality. On the other hand, there are only very few crops that do well without any fertilisation (e.g.
the cactus fruit).

In organic farming it is more difficult to control the damage that pests and diseases can do to the
product. For fruits especially there is a low tolerance level in the market for insect damage and
(hidden) diseases. An example is the mango fruit that should be free from fruit fly and anthracnose
(a fungal disease). Fruits that do not fulfil the quality requirements for fresh export may still find a
market in pulping, juicing or drying, but at a lower price. Preventive measures like pruning of the tree
to allow aeration and removal of fallen fruit may therefore be worth the effort as they result in more
mangos of export quality.

Quality aspects in harvesting

A bigger and more immediate improvement of quality can be achieved through proper harvesting.
Harvesting when the product is ripe is an obvious necessity. A typical example is that coffee berries
should be picked when they are red. A lack of timely and regular picking costs dearly in terms of
quality and price. Once the coffee cherries are pulped you cannot see what the taste will be - you can
only taste it. With other products, like pineapples, the ripeness can be easily seen through the change
of the colour, or the sweetness can be measured with a brix refractometer. The Northern markets
only take certain (middle) sizes of fruit. When going for sea freight these are often harvested a bit
earlier as they continue to ripen until they have cooled down. The smaller and larger sizes should be
left for a few more days to reach maturity, and should only then be picked for the local fresh market,
for juicing or for drying.

In the case of fresh fruits and vegetables especially, (organic or not organic) there can be problems
with basic hygiene during harvesting and product handling. Do the harvesters and packers wash
their hands before they start their shift? Where do they relieve themselves? Do they stay away from
work when they have stomach problems? Markets increasingly demand the nearby presence of

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toilets, running water, soap and clean towels to provide for some minimum hygiene. The presence
of these facilities is of direct interest, and is the responsibility of the buyer. This can easily merge
with community development programmes. The community will benefit from the presence of a new
borehole for drinking and washing while the buyer benefits in terms of better hygiene and safer
product. It therefore is in the interest of the buyer to make potable water available.

Separating different qualities

An important quality management measure is to sort out produce of lower quality. In cotton, for
example, farmers should keep infested and immature bolls in a separate bag while picking. Once the
different qualities get mixed, it is a big job to get the inferior quality out of the batch. Mixing good with
inferior quality never pays off! Care also needs to be taken not to contaminate the product by using
unclean containers or bags for harvesting.

Post-harvest handling on farms

For some products after harvest operations like drying, sorting and fermentation are done on farm,
before the product is collected or brought to a store house. Not all farmers will have the skills, patience,
or labour available, to handle these processes with the necessary care to get a top quality product. In
the case of cocoa fermentation and drying in Uganda, for example, there are few farmers who manage
to process all their cocoa to the top grade.

Lack of hygiene and particularly the presence of free roaming chickens and goats can severely affect
product quality. It is already a great improvement to dry the coffee, cocoa or sesame on tarpaulins
instead of on the soil. As long as the tarpaulins
are not used for other purposes it keeps the
product clean and free from bad smells. It
also helps to collect the product quickly when
the rain comes. The whole effort though is
useless if chickens or goats enter the scene.
But there are also other factors that can affect
product quality during on-farm handling.
Farmers in parts of Cameroon that are known
for their extremely high rainfall, for example,
dry their cocoa on thatched drying platforms
that are heated by burning wood under them.
Drying sesame on an organic farm in Uganda
(Source: AELBI) Subsequently, Cameroon cocoa is infamous
for its smoky odour, and taste.

These examples illustrate that post-harvest handling on farms can strongly affect product quality
and thus the price that you get in the market. Problems with quality are sometimes the motivation
to take on-farm post harvest processes away from the farmers. Examples are central coffee pulperies,
cocoa fermentation units or shea butter processing units, which allow control of quality throughout
the process. In that case the farmer delivers raw materials only, has less work in processing (and so
also his wife), and usually earns a better income due to the improved quality. However, it means that
value addition is taken away from the farm to people who need to be paid salaries, to factories that
need a sizeable investment, and if the management is not good, it may actually mean a loss of income
for the farmer.

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On-farm storage?
Most smallholder farmers do not have much storage space, and usually no proper facilities. There are
numerous factors that can affect product quality during on-farm storage:
•• Are clean bags or baskets used for storage?
•• Are the storage facilities clean, and free of bad odours and smoke?
•• Are chemicals used indoors to control insects? (DDT is especially a problem)
•• Are the products kept sufficiently dry, and off the ground?
•• Can insects, farm animals or children enter the storage?

In short, if you want to be sure of a quality product, there is a lot of awareness to be raised, a lot
to clean up, and a lot to be inspected by the field officers. Storage at farm level should therefore be
avoided as far as possible. Ideally, the produce should be transferred from field to a well-managed
central storage facility.

Quality has its price!

When farmers and middlemen are not being rewarded for better quality, the quality of the product
tends to be low, and degenerates over time. This is almost always the case in situations where farmers
get paid one price, regardless of humidity, impurities, or size. That means that often substantial
improvements can be made, and must be made when developing the organic business; but it only
comes with a better price for better quality.

Better quality, and price, is usually achieved through extra care and an extra effort. Many farmers,
however, do not care too much about the quality of their product, as it is going to be mixed with that
of colleagues during collection. You can change this by conducting a quality check at the moment
when each individual farmer delivers the produce. Produce that does not fulfil the requirements has
to be refused, even when it comes from the village chief, or a farmer to whom money was loaned.
You can imagine the scene when refusing the product at intake, but it is a worthwhile process to
go through, as quality pays. Once the price goes a bit higher, then more can be demanded from the
farmer. Some buyers or collection stores manage a parallel system. They buy the best quality organic
product for a better price. Produce of inferior quality is bought as conventional and henceforth kept
separately.

9.3 Transport and storage of raw material

Soon after harvest, farmers usually deliver their produce to a collection store. This can be their own
primary society store at village level, the central store of their cooperative, or the store of the buyer.
Whatever the arrangement, this is a critical point in the effort to secure quality and to do transparent
business. What can go wrong during transport between the farm and the collection store and during
storage is often ignored.

Quality management in transport

It may be difficult for the farmer to bring their produce to the collection store. If organic collection
stores are not widespread and not always open, it might keep farmers from going the extra mile, and
they sell the product around the corner for a lower price. When they make the journey, bags may
break, or it may rain. They may collectively hire a pickup with other farmers and various things can

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happen that may compromise the quality and integrity of the product. Making delivery easy is often
a critical factor in getting the organic product, and getting it in good condition. The arrangement of
proper storage facilities at village level and
a pick up that goes around to collect the
product from there may cost something,
but is usually worth the effort.

In some cases, intermediary traders are

used to collect the produce from the
farmers. However, not all of them are
willing to comply with the traceability
and quality requirements of an organic
business. They are often used to a less
documented and more flexible system.
They may not want to keep such a detailed Transport of cashew at Coopercaju, Brazil
administration, and they may not want (Source: Claro)
their books to be scrutinised by organic
inspectors. Lack of traceability and quality management in the buying system obviously can have
far reaching effects on the business. It is therefore important for the organic enterprise to keep this
process in its own hands.

Proper storage management

Once the product is brought to the collection store, the storage conditions are much more controllable.
Although some products may have specific requirements, the following aspects need to be in place in
order to maintain traceability and quality during storage of organic products:
•• maintain clean and dry storage facilities
•• keep windows meshed to prevent pests from entering
•• check quality before taking the product into the store
•• proper documentation of incoming and outgoing lots
•• proper packaging of the goods into clean bags, bins or containers
•• sufficient labelling of each bag or container in local language and English, indicating status
(organic, in-conversion) and origin (farmer or farmer group)
•• keep bags off the ground and away from walls to avoid formation of moulds
•• regular monitoring for storage pests (insects, mice); use of traps if needed
•• regular sampling and testing of the produce

Make sure that all staff working in the storage have received sufficient training and clear instructions.
It is a good idea to describe the processes in a simple manual which serves as a reference document
for the storage manager.

9.4 Processing and value addition

Value addition does not necessarily mean investment in processing facilities. As explained in the
previous chapters, improving quality is an effective and relatively cheap way of creating higher value.
Adding certification is another way of adding value (see chapter 2.5). Still, through simple processes

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like cleaning, grading, fermentation and drying, or more complex processes like extraction, ginning,
pulping or canning, you can add considerable value to your product, and thus get a higher price.

Preparing a product before selling

Farmers deliver a so-called farmer clean product. In most cases the product still needs to be cleaned,
graded, and sometimes blended. Providing a cleaner product, (for example sesame with 99.9% purity
instead of 99.5%), or grading to the wishes of the clients, are other ways of value addition. For dry
products like cereals and pulses, this can be done with simple equipment like sieving and winnowing
machines. Other products may require de-husking (e.g. sunflower seeds), de-hulling (e.g. coffee
parchment) or milling (e.g. rice) before the product can be sold.

The pulping of coffee, the fermentation of cocoa beans

or the curing of vanilla beans are quite a different type of
processing. There are numerous factors in these processes
that determine the quality of the product, and it requires
quite a lot of skill and experience to master them. Curing
vanilla beans takes at least 7 weeks during which the
beans - quite a lot of capital! - need to be guarded closely
in a dedicated store.

More sophisticated equipment is needed when for example

oilseeds, cereals, pulses or nuts require CO2 fumigation
to guarantee a storage life of six months without insect
infestation. It becomes even more complicated when the
buyer wants the product to be aflatoxin screened (using
UV light), or when it has to be run through a Sortex (optical
detection of impurities or inferior product). Whereas
there are fairly cheap solutions for starters, professional
equipment quickly becomes sizeable investments, which
need large volumes to become profitable.
Fermentation of cocoa at Cooperativa El
Ceibo, Bolivia (Source: Claro) It is not usually necessary to own such facilities. Some
of this equipment is available for rent for the weeks that
you need them, or you can mandate a sub-contractor who
runs them on a commercial base. If facilities are used that normally process conventional products,
you need to make sure that they are cleaned beforehand in order to avoid contamination of your
organic product.

Further processing
It is true that by processing agricultural raw material, more value addition and employment is
generated in the country. That fact that labour costs are low, however, is not a guarantee that the
product is competitive. Local conventional industries are often not better and cheaper than in the
rest of the world. When not competitive in the conventional sector, why would you be successful in
the organic sector? In addition, with increasing globalisation the demands of the market seem to
change faster than ever before. Product composition or at least packaging requirements and labels
seem to change every year. The market wants the pineapple chunks in their own juice in ring pull cans

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one year and the next in glass jars. Don’t be surprised if your buyer wants a more yellow pineapple,
or the pineapple in passion fruit juice.

It is often underestimated how complicated it is to start a processing operation by farmer organisations

and entrepreneurs alike. Processing is a business that is quite different from primary production or
exporting raw materials. Organising farmers for
organic production, improving quality, achieving
and maintaining certification, developing
markets for raw materials are already considerable
challenges. Only when these aspects are mastered
and running well, should one consider investing
further into processing. When processing requires
other ingredients (certified organic inputs like
sugar), or if the buyer wants you to use their
packaging and you have to import it, it becomes Preparing organic bananas for drying in Brazil
(Source: Gebana)
obvious that processing is not too easy.

Despite these cautionary remarks, processing (part of) the raw material one or two steps further
can still be a worthwhile investment for your business. Besides adding value to your product, it also
allows you to diversify your market, and to cater to local and regional markets as well. Extracting oil
from sesame or sunflower, or butter from cocoa beans or shea nuts, is comparatively easy and does
not require huge investment. Another obvious choice for local processing is fruit drying, for which
there are some very successful organic examples.60 However, even with computerised hybrid solar
driers for this, it is quite a challenge to obtain a high quality product throughout the year.

Although each type of processing has its own particularities, there are some principles to be considered
that are valid for all of them:
•• Make a feasibility study before you decide to invest
•• Check with clients and experts in order to identify the right equipment
•• Chose a location which has the necessary infrastructure (roads, electricity, water etc.)
and which is located reasonably close to the producers
•• Design the facilities in a way that work flows can be optimised and expansion is possible
•• Make sure that the people who are in charge of managing the operation have the
necessary technical know-how
•• Ensure that proper hygiene is maintained (training of staff!) and that appropriate
facilities are in place (toilets, fly screens etc.)

What seems to improve the chances of success is a close cooperation between local cooperatives or
companies and buyers in the North. This helps in getting financing, in developing the right equipment
and product, and in securing at least one market. Some very good examples exist of such cooperation
that has even led on to new, innovative products.

9.5 Exporting

Exporting agricultural products is a risky business that requires experience and good management.
It ranges from preparation for shipment of the goods to handling of payments. There is plenty

60 E.g. Burkinature in Burkina Faso, burkinature.ifrance.com and BioFresh in Uganda, www.biofreshltd.com

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of general information available on how to organize exports61. In this chapter, you will find some
additional guidance specifically for exporting organic products.

Preparation for shipment

There are many examples where the organic quality is jeopardised because of storage and transport
conditions during shipment, even when the product is in export packaging. One source of risk is
the packaging material. Export bags need
to be made of suitable material that does
not contaminate the produce. There have
been problems because jute bags from
Bangladesh were laced with pesticides,
to keep the bags themselves in good
condition. Wooden pallets on which the
bags are loaded may have been treated
too.

In many ports, the prevailing rules demand

that agricultural produce is routinely
fumigated whether it is necessary or not.
Loading containers on a ship in Paranagua, Brazil
This obviously cannot be done for organic (Source: Gebana)
products, so that you need to get an
exception to the rule. Make sure that the
containers used for shipment are clean and suitable for your type of product. Goods like coffee and
cocoa are transported in ventilated containers. When the adjacent containers are fumigated some of
it may still enter the organic container. Some of these problems can be avoided if you work with the
better and more expensive container lines and discuss this before the exports take place. If you opt
for the cheaper ones, it may be more difficult to predict what arrives on the other side. As mentioned
before, the overseas customer values the quality and reliability of the product more than that it is a
cheap price.

Packaging requirements
Any order should come with a packaging requirement or specification. Considering that the packaging
may affect product quality and also can be an important cost factor it is important to be aware of
these requirements. The dimensions, material and construction of the container need to be described
clearly. Not following these specifications may lead to costly claims when cartons arrive crushed and
product damaged. In the case of bulk packaging, the ease of handling at the receiving end but also the
cost for used package waste disposal are important factors for the buyer. One should not only take
into consideration the requirements of the client but also the specific conditions of the packaging
method and transport itself. Packaging fruits on farm, wet from washing, transport over a 30 km
potholed road, palletizing and containerising in the open air (rain) is different from bringing the
fruits in harvest crates to a pack house which is in the port area.

61 See for example the CBI Export Planner, A comprehensive guide for prospective exporters in developing countries, cbi.nl/
marketinfo/cbi/?action=showDetails&id=55&via=pub, the Organic Exchange Export Logistics Guide, www.organicexchange.org/
Documents/farmer_expo2.pdf, and specific information on exporting to the EU, export-help.cec.eu.int, and to the US, www.aphis.
usda.gov/ppq/preclearance

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Prices of packaging materials vary enormously with the number you order and getting some harmony
in packaging requirements can save you a lot of money. That is a good reason why entrepreneurs in
the same category of product should cooperate, and bulk
their orders from the package manufacturer. Ideally you can
get price quotations from different locally or regionally
based packaging manufacturers. When you tell them what
the product is and the market, they can advise you on the
options. For retail packed products it is not unusual to
import or receive the packaging materials and labels from
the country or company you are selling to. The cartons in
which the empty glass jars arrive might be re-used for
exporting the end product, when you think of it.

Packaging a retail product is more prone to changes in buyer Packaging organic dates for export in
preferences than packaging bulk. You would not be the first Tunesia (Source: Gebana)
entrepreneur who orders a container of a certain type of
packaging to realise half a year later that demands shift and
you are stuck with it. A change in packaging often comes with a change in packaging equipment.
Switching from glass jars to ring pull cans is quite an investment. Changing from stapled, paper lined
12.5 kg corrugated cartons to 10 kg glued, polyethylene bag lined cartons might be less of a problem.

The International Trade Centre62 has various on-line publications on the topic, even a special email
address for enquiries63.

The beetle in the bottle

A European importer of organic essential oils started sourcing organic peppermint oil from a new
supplier. The oil which he received was of excellent quality, but to his horror he discovered a dead
beetle in one of the aluminium containers. Unthinkable! What would have happened if his customer
had received this container with the beetle! The supplier could not explain the presence of the beetle,
and thought the importer was making up the story in order to reduce the price. During the next visit
of the importer at his supplier, they had a look at the place where the empty containers were stored.
The storage place was kept clean, but the containers were stored without their lids - an ideal place for
insects to hide! The supplier reacted promptly and cleaned and closed all empty containers.

Labelling requirements
The way a retail-packed product is labelled is subject to specific regulations, in your country but above all in
the countries where the product is marketed. The European Union has specific food labelling regulations64.
You need to confirm the labelling requirements with your buyer. It will include, at mimimum:
•• The name of the product
•• The list of ingredients, starting with the biggest, ending with the smallest volume

62 www.intracen.org
63 [email protected]
64 ec.europa.eu/food/food/labellingnutrition/foodlabelling/comm_legisl_en.htm

105
 •• Net quantity
•• Date of minimum durability, or ‘use by’ date
•• Storage conditions like ‘keep dry’, or ‘keep refrigerated’
•• The name and address of the manufacturer, or packager
•• Particulars of the place of origin, e.g. ‘Product of Vietnam’

It is prohibited to try to mislead the consumer. No qualities should be suggested of the product that
are not true or not unique to your product.

For your own purposes, and often demanded by the certifier, you will have to indicate a batch number,
or date of packaging, to allow for traceability. As product handling is more and more automated
during further handling, most buyers will ask you, or provide you with bar codes.

Sanitary and phytosanitary requirements

Food safety scares have led to sanitary and phytosanitary (SPS) requirements. The EU market appears
to be more open than the US market when it comes to allowing imports from developing countries,
especially fresh produce. The US are particularly famous for their phytosanitary requirements. You
should consult relevant websites65 and are advised to get specialised help when you want to enter the
North-American market. The various requirements are often seen as barriers to trade. This has led
the World Trade Organisation (WTO) to develop an SPS agreement. Consult the SPS Information
Management System website for more information66.

Payment terms
Payments from clients to suppliers, that is from importers to exporters, can be a tricky issue. When
selling goods in the international markets, there are various risks for both the exporter (the seller)
and the importer (the buyer). You want to be sure that you get the payment for the shipped goods, and
your client wants to be sure to get the product quality he has ordered. Payment terms and conditions
therefore need to be negotiated carefully, and fixed in the sales contracts. Payment procedures in
international trade are in most cases related to Incoterms.67 Incoterms are delivery terms such as FCA
(Free Carrier), FOB (Free on Board), CIF (Cost, Insurance and Freight) and CFR (Cost and Freight).
Each Incoterm has its own risks and responsibilities. If payment terms are related to Incoterms,
payment is triggered at the moment the goods have been delivered as specified in the sales contract.

If you are not sure that a client will pay, you can demand a bill of exchange or a letter of credit before
shipping the goods. A letter of credit is a guarantee from the bank of the buyer which states that it
will pay if all conditions in the related sales contract have been met. You still run the risk that your
client may claim that the quality is not up to the agreed specifications. You may therefore prefer to
agree on a “cash against document” (CAD) arrangement, meaning that once the container is delivered
into the harbour, the buyer has to pay cash in exchange for the shipping documents, before receiving
the goods. If the buyer does not pay, you can sell the goods to somebody else.

65 www.aphis.usda.gov/ppq/preclearance
66 spsims.wto.org
67 See www.iccwbo.org/incoterms

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On the other hand it is obvious that the buyer wants to have some sort of security to receive the real
product s/he has paid for, and not to end up with a container of material s/he can not use or sell. A
reasonable way to do justice to both sides is for example to agree with your buyer that 80% of the
product is paid “cash against documents”, and the remaining 20% within 30 days of delivery, after
analysis of the goods.

It is quite usual for the buyer to have made his decision based on a sample of the product that you
provided. Very often, a non-representative sample is sent which means that the buyer expects
something better than s/he actually receives. This can lead to discounting or even refusal of the
shipment. You must send a representative sample and keep part of that sample for yourself. If there
is little mutual trust, you or the buyer can demand that the port agency or a surveyor such as SGS or
Control Union takes the sample, and even supervises the loading and unloading of the container, to
avoid endless discussions about discounts later on. This is particularly relevant if you cover the costs
of shipment and insurance (CIF).

Summary of recommendations
•• Make use of the ICS to ensure that the produce is of high and consistent quality. Ensure
good quality management during harvesting and post-harvest handling.
•• Conduct quality checks when farmers deliver their produce. Pay a higher price for
produce of high quality.
•• Arrange for proper storage facilities and for suitable collection of the produce at village
level. Ensure that traceability is guaranteed during buying, transport and storing.
•• Engage in processing only to a degree that you are able to handle. Simple processes like
cleaning, grading and fermenting can immediately add considerable value to a product,
without involving large investments and risks.
•• Before setting up a processing unit, check whether it makes a viable business case and
whether the output can meet the requirements of the market.
•• Make sure that the packaging material and containers used for shipment are clean and
suitable for your type of product.
•• In order to ensure that you receive your payment for shipped goods, make certain
that reasonable payment terms are defined in the sales contracts. Send representative
samples to your clients before shipment.

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10 Marketing
Throughout this guide a number of characteristics of organic markets have been given, especially in
chapter 3. This chapter is about marketing: how to get your products to the market, and how to get
somebody to buy your products. Some entrepreneurs have a natural gift for marketing, others find
it difficult. A lot has been written elsewhere about the marketing of agricultural products in general
and in some cases about organic marketing in particular.68 This chapter provides you with the basic
know-how needed for successful marketing of organic products.

10.1 Marketing strategy

Until the end of the 1990s, there was a shortage of supply of most organic products. Any supplier
could find a place in the international market. Nowadays it is a buyer’s market, there is a lot on offer,
products are coming in from many different countries, and buyers can pick and choose. Newcomers
try to find their place by being cheaper. While that is usually the way to start the business, cheap
organic production usually comes with quality and integrity problems. You may start at the bottom
of the market but as soon as possible you move up by building a track record of accomplished deals,
learning and improving along the way.

Spot market versus fixed buyers

Some organic businesses sell to one buyer. The majority however sells to a number of buyers, into quite
different markets. When you supply to a fixed buyer every year, you are part of an integrated supply chain.
You may still sell part of your goods on the spot market: this last one is more for speculators. Often organic
businesses start on the ‘spot’ market, and over time find some fixed buyers. How you do your marketing
obviously differs depending on the market that you are addressing.

Quick deal or long-term trade relationship?

The Tigray Agricultural Marketing Promotion Agency (TAMPA) supported onion producers in Northern
Ethiopia establish links with a wholesaler from a major town in the district. A contract between the
wholesaler and the farmers group was signed while the production was at planting stage. The agreed
price was 2.20 birr (0.22 dollar) per kilogram. At the time of harvesting, another trader from the region
promised the farmers he would buy their onions at 2.40 birr (0.24 dollar) per kg, and they terminated the
previous contract. However, he did not respect the agreement, and finally the farmers had to sell their
onions at the local market at 1.20 birr (0.12 dollar) per kg. The farmers therefore lost a lot compared to
the price offered by the wholesaler who had wanted to establish a long-term trade relationship.

-Ghidey Gebremedhin Debessu, TAMPA, Ethiopia

68 E.g. EPOPA, 2006. Organic Exporter Guide. Hands-on help for exports from Africa. www.grolink.se/epopa/Publications/
EPOPA%20Organic%20Exporter%20Guide%2006.pdf;
FiBL, 2004. A Guide to successful organic marketing initiatives.
https://www.fibl-shop.org/shop/show.php?sprache=EN&art=1338

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Developing a marketing plan
It is not necessary to write out a big plan but it is important to think through a number of areas
where you must make some choices, and then that becomes your marketing plan or strategy. The
marketing plan is part of your business plan (see chapter 6.1). When you review it a few years later
you will appreciate it and will realise how much has changed. Typically, a marketing plan includes the
following steps:
1. Market overview – trends, market segments, target markets
2. Competitive review
3. Strengths, weaknesses, opportunities and threats
4. Sales goals & marketing objectives
5. Strategies
6. Marketing budget
7. Timing

Joint marketing of cotton from West Africa

In order to reach a strong market position you can also chose to form strategic partnerships with
other producer organisations or businesses. During a workshop on organic and Fair Trade value
chain development, several participants involved in the production and marketing of organic cotton
from West-Africa discussed together how a strategic partnership concerning joint marketing could
strengthen their market position.

Sensitising the customer on the competitive advantages of organic cotton from Africa is a costly
activity which can also require marketing activities in the target countries. As all West-African organic
cotton producing organisations and their supporting partners have this same goal, they could easily
design a joint strategy and then share the costs of the execution of their marketing strategy.

Other joint marketing-related activities could be:

•• pooling the volumes of organic cotton on offer
•• developing a joint data-base on potential clients
•• jointly communicating with potential clients on available quantity and quality
•• establishing a joint trading house for West-African organic cotton
•• joint capacity building of the marketing specialists of the individual organisations
•• jointly developing marketing tools such as websites, brochures, etc.
•• joint participation in trade fairs.

There is a lot of general information about making marketing plans on the internet. Some of it is
not so relevant to the context of an organic agriculture business. In some cases information is
promised for free, but very soon you are triggered into buying something. Nevertheless it is a good
idea to surf on the internet to get inspiration for developing the content of a marketing plan.69

69 Useful websites are for example www.knowthis.com/principles-of-marketing-tutorials and www.quickmba.com/marketing/plan

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10.2 The 4 Ps

A helpful exercise in order to develop your marketing strategy is to think in the 4 Ps.70 These are
Product, Price, Place and Promotion. An example is given below.

Figure 21: Example of the 4Ps for marketing of organic-Fair Trade cotton from Africa

Product
Do you know your product details: the variety, the specification, what exactly you are selling and how it
compares with that of your competitors? How are you doing your shipping, what are the payment terms
that you are proposing? Is there a story behind the product (e.g. the impact on the farmers’ livelihoods)?
Also, have you asked the various buyers precisely what they are looking for? Can you supply that?

If you are a coffee exporter, it may be fairly easy to determine whether there is a market for your
coffee, organic and/or Fair Trade, as most origins are well known to most traders. For many products
however, the market depends very much on what your product exactly is. Many buyers will insist
on seeing and testing a sample before they can say whether it is a product they might be interested
in. Send them a representative sample and always ask them for the results of their analyses; there is
much to learn from these.

Price
The way you price your product gives it a certain position in the market. Prices of organic products
are subject to supply and demand. For many commodities the conventional world market price is
taken as a reference, with a certain fixed or percentage premium added, for example 15%. That is still

70 For a detailed description, see www.netmba.com/marketing/mix

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just an idea of the price; throughout the year prices will vary to some extent. In times of temporary
shortage especially, prices can shoot up. If there is an oversupply or glut, prices can even fall to
conventional levels.

There are 4 types of pricing strategies (Figure 22):

•• Penetration Pricing: The price is set artificially low in order to gain market share. Once
this is achieved, the price is increased.
•• Economy Pricing: This is a no frills low price. The cost of marketing is kept at a
minimum. You use the cheapest certification body. You offer a product and that’s it, no
questions asked.
•• Price Skimming: You can charge a high price because you have a substantial competitive
advantage, or because there is a shortage in the market. However, the high price is not
sustainable, it actually attracts new competitors into the market, and the price inevitably
falls due to increased supply.
•• Premium Pricing: You use a high price because there is uniqueness about the product or
service you offer. This approach is used where a substantial competitive advantage exists.
Such high prices are charged for example for specialty coffees.

Figure 22: Pricing strategies matrix (Source: www.

marketingteacher.com)

You will normally agree on a price in US $, sometimes in EUR. At the time when you set the price
the calculation may be correct. However, payment date may be 2 or 3 months away. If you agree on
a price before you buy from the farmers you have to be particularly aware of the risks you run with
the exchange rate and the farm gate price. An example of how the profitability of the business can
completely change is given in chapter 6.4 (sensitivity analyses).

To reduce these risks the two parties can agree on a price setting mechanism, which possibly also
involves the farmers (associations). You reduce the risk but at the same time you increase the
opportunity to get the best possible price.

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Place
Most businesses like to sell themselves. In some sectors you have the choice to supply to an agent, a
distributor. Examples are weekly consignments of fresh fruit sent to Europe by sea freight. Nobody
really knows what the market situation is in two to three weeks time when the fruits arrive at
the market. As it is a perishable product you are at the buyer’s mercy. In such a case it might be
advantageous to work with a commission agent, who knows the market inside out and is always able
to sell the fruit for the best possible price. You cannot deal with that from say Ghana, Cameroon or
Costa Rica.

Another example is with shea oil or butter. If you want to supply the cosmetics market you have
to deliver relatively small volumes, perhaps 1500 kgs. When supplying from West Africa, you have
to ship such a small volume by air freight. The alternative is to ship a sea container and have stock
somewhere in Europe from where the product is distributed from. Such distributors often become
partners in your business. The same happens with spices.

There are some efforts going on to promote internet based trading platforms.71 In organic businesses
where quality and integrity is of more importance than in the regular trade, this interest is limited. For
business in developing countries where it is already difficult to do normal business, selling products
over the internet adds yet another dimension. However, it is an interesting platform to see what is
around. You can always place your product on such a website and see what serious and not so serious
offers come in. If it becomes serious there will be personal contacts made.

Promotion
The most important way of promoting your product, your company, is through communication with
your clients. This is the Achilles heel or weak point for many start-up businesses that often feel
somewhat insecure; you have to be able to present yourself, you have to communicate well.

You can start with compiling information for a company brochure, with the history and location of
the project, the production base, what has been achieved by the project over time, what the plans
are for the future, and ending with product information like product specification, volumes, harvest
season, and packaging options.72 The next step is to formulate your unique selling proposition, USP.
You come up with the reason why your products stand out: are they better, cheaper, or targeted to
a specific market niche? The particular mix of core benefits of your products is the basis for the
promotion of your products; that is what you are selling. If your product does not stand out, then
your service needs to make the difference. Stress that element. Are you better at delivery times,
payment terms, and answering the phone than your competitors? For further information, see “Your
Image Builder”73.

You could print this information as a nice brochure but you first should think through where you
would distribute this brochure. If you don’t intend to go to trade shows there is little use in having
such a brochure. Another option is to prepare product description sheets for each product you have
on offer, which still can include information on the initiative on its back (see the example in Annex

71 One example is www.greentrade.net

72 For examples of brochures, see www.grolink.se/epopa/Publications/index.htm#Brochures
73 SIPPO/CBI, 2003. Your Image Builder. www.sippo.ch/internet/osec/en/home/import/publications/sippo_and_partner.html

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A6.1). You need this kind of information at hand whenever someone contacts you or somebody else
from your company. Your people need to all tell the same story.

The same type of information is often placed on a company web site. While a lot of people take
pride in having a website, its usefulness in terms of promotion is often limited, if the website is not
easily found by an internet search, or the content is not updated. However, a well maintained and
well linked website can be a useful tool to promote your products. In some countries, the national
movement or association has an internet platform where all members can present their products.
Whatever medium you chose, you have to refresh the information at least once a year.

10.3 Building and maintaining client relations

Personal contact is of primary importance in organic marketing, more so than in general trade. For a
business relationship to become more than a one-off deal you need to build a personal rapport with
your buyers. Whereas in conventional trade your product usually goes into an anonymous supply,
this is not the case in organics. Buyers, retailers and even consumers want to know where the product
comes from.

When you are new in the organic business you may be at a loss to know how to get your first contacts.
The GreenTrade website may put you in contact with potential buyers.74 The catalogues of past
trade shows are also good sources of information. Ask a friend who visits a show to bring a spare
copy of the catalogue. In some cases like the Biofach, these catalogues are on-line. The Chamber of
Commerce, Export Board or foreign embassies often have databases with requests. You may want to
talk with someone about your ideas. Another entry point could be local organic conferences where
the organisers have invited some international speakers. They may not be in your line of business but
they may still give you some advice and contacts. However, there is no better place to meet potential
buyers than at an international trade fair.

Participating in trade fairs

To keep your commercial relationships up to date, it is best to meet your main buyers every year.
Unless you have the funds to visit them one by one, or for inviting them one by one to visit your
place, there is no better way for doing this than at a trade fair. There are a number of specifically
organic trade fairs, there are international and regional organic trade fairs, and increasingly you will
find organic suppliers also exhibiting at general trade fairs.

Trade fairs are a good place to let buyers know that you are in the market: to show yourself, to see
what others are offering, to compare yourself with the competition. It is a good place to meet your
(prospective) buyers, and to understand their requirements. It is an excellent place to see and discuss
how the market moves so that you can adapt yourself in time. Very often important orders are agreed
on. Some of your buyers may invite you to visit their premises before or after a trade show. It can be a very
worthwhile investment. A few weeks after the trade fair you should use all this information to evaluate
your business and - if necessary - to adapt your marketing strategy.

74 www.greentrade.net

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The main organic trade fairs
•• The oldest and biggest organic trade show is Biofach75 in Nuremberg, Germany, in
February each year. Biofach is so successful that it has spread to other countries like the
US, Japan, China, India and Brazil.
•• The All Things Organic show76 in Chicago is the main event for the US and Canada. It is
organised by the Organic Trade Association77, the organic business association in North
America.
•• In the UK, the main show is the Natural and Organic Food Expo78. As the name indicates
it is both for certified organic products and for natural products. That includes food
supplements.
•• In Dubai there is the Middle East Natural and Organic Products Expo (MENOPE)79, which
would give you a glimpse of the Middle East market.
•• The European Fair Trade Fair is a new exhibition specifically for Fair Trade products, so far
held in France80. This is interesting if your organic products are also certified Fair Trade.

There are many more national shows where local producers and buyers meet, but also buyers come
from abroad looking for goods to import. These are not usually as interesting for exporters from
developing countries to visit or exhibit at.

For the local or regional market you should look for local or national trade shows. Quite often the
organic associations will have a booth there. This may help you in developing your national or regional
business. Do not forget: you can export your product as certified organic but it may be a lot easier to
sell volumes of good quality product as conventional in the local market.

How to get to international trade fairs

You can choose to go as a visitor, or you can have your own stall. There is quite
a difference. The first is sufficient if you just want to look around, or you already
know your buyers. If you are not yet known you may have to make the investment
of exhibiting. That is, for many, fairly expensive but it is also a hassle to organise.
There are a number of agencies that have programmes to support you going there.
Sometimes this is part of a wider activity to assist you improving your business.
Examples are CBI81, SIPPO82 and CDE83. In some countries, the Export Promotion Board has such
schemes, too.

For established companies it is a regular activity to visit trade shows, but it is quite a step for a start
up company. For African exporters there is an Africa Pavilion84 at the Biofach. It is organised centrally
but each country or region has a local coordinator who supports exporters and visitors to organise a

75 www.biofach.de
76 www.organicexpo.com
77 www.ota.com
78 www.naturalproducts.co.uk
79 www.biztradeshows.com/natural-organic-expo
80 www.salon-europeen-commerce-equitable.org/en
81 www.cbi.eu
82 www.sippo.ch
83 www.cde.eu
84 www.organicafricapavilion.com

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country stand. Exporters from other continents depend on their export board to organise a country
stand. These agencies help you to prepare for such a trade show, and advise on the flyer or poster
to make, and on what samples to take. They can give you a list of potential buyers who also exhibit.
This is always done by cost-sharing: inevitably you’ll have to pay part of the costs yourself, even if it
is only the flight.

If you go to a trade fair the SIPPO manual ‘From contacts to contracts’ is a very good guide to help you
get the most out of your participation.85 Do not forget that it is one thing to make a good presentation
during the trade show but that the ‘proof of the pudding’ comes after it. You should plan to follow-up
on what was discussed during the meetings, send reminder letters, etc. Only then it is an investment
that will pay off.

Maintaining client relations

Communication is key in maintaining client relations. In international trade, this primarily happens
through email. Be very serious about how you handle your e-mailing. Respond to e-mails within a
week at the latest. Otherwise you will create the impression that you are not in business. Telephoning
may be the main communication at home, but
international calls are often still prohibitively
expensive. Skype (Voice Over Internet) offers
some cheap or free opportunities and is
increasingly used.86

If you are in the field or abroad, and so not

available to buyers, delegate communication
tasks to someone else. You can still keep in touch
by phone with your staff if there are queries over
how they should reply. With some businesses it is
only the director that is allowed to communicate A farmer cooperative in Bolivia meets a client for
with clients. This does not give a good impression fairtrade organic cocoa (Source: Claro)
as no one wants to work with a company that
hinges on one person only (see also chapter 6.7,
management capacity).

You have to respond to enquiries from potential buyers. Some of these will not be serious interests;
they are just to find out what your offer is. There is no harm though in checking back with them a
few months later. It is more important that you follow up clients with whom you have done business
before. Get their feedback - are they satisfied with your product and service, what could be improved
the next time? In case of an unhappy customer, do not hide. Do not think up excuses but try to come
up with solutions.

It is most important that you are reliable. It is a big mistake to promise to deliver if you can’t. Do not
forget that your buyers all communicate with each other, tell stories but also buy from each other.
How do you want to be remembered when they talk about you? Do you want them to say ‘Ah, that
is a good one’, or do you want them to say ‘Oh no, not that one’? Some exporters don’t want to tell
anyone with whom they have done business and for how long and what their experiences were. There

85 www.sippo.ch/internet/osec/en/home/import/publications/sippo_and_partner.html
86 Available for free download from www.skype.org

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are exporters who have supplied about every buyer, but every time it was a one-off. If you can show
that you fulfilled your contracts for three years with a certain buyer, and that you never failed on a
contract, then you are in a good position for finding a better market.

Why do buyers stick to you?

Having a couple of loyal buyers is one of the most important success factors for your business. Below
you can find a list of reasons why buyers may stick to you:
•• You deliver the desired products and volumes; you have consistent quality, year after year.
•• You follow up professionally on complaints about quality. You ask for evidence, you
investigate, you explain, you learn from it.
•• You can be easily reached. You respond seriously, even to difficult issues. When you are not
there, there is somebody else in your organisation who can respond.
•• You have clear information on how far you can go with your prices, and you explain why
you cannot reduce further. You know your numbers and you know the alternatives.
•• You are willing to listen to your buyer’s problems. You don’t tell stories or have excuses all
the time.
•• You inform them about problems at your end if they do the same with you. You act like a
partner.
•• You can keep a secret or two (so that they tell you more…).
•• When you promise something, you keep to it. You are reliable and trustworthy.
•• You can deal with their competitors, but are open about it instead of denying it, or giving
them a feeling that you are cheating them.
•• You are willing and capable to adjust, improve, and expand.

10.4 What assistance and support can I get in marketing?

In most countries there is an Export Promotion Board. They may have information; they may have
a programme where you can get support, like visiting international trade fairs. There may be donor-
financed Private Sector Development programmes that have a market development component. See
for example what USAid87 is doing in your country.

The Dutch Centre for Promotion of Imports, CBI88 has an Export Coaching programme in the field of
natural ingredients for food, pharmaceuticals and cosmetics. Organic fits under that, and exporters
from 30 countries can apply. Upon pre-selection, you are visited by an expert who makes an audit
to see how ready you are. This leads to an action plan, and you can get assistance from experts
who visit but also correspond with you. You can participate in the EXPRO seminar, which includes a
familiarisation study of the supply chain on the importer’s side. At the end of the seminar you write
up an export marketing plan. You then start preparing for participation in a major trade show, such
as Biofach. Participation in the show is for three years. It is subsidised but you are expected to take
over the costs increasingly.

87 www.usaid.gov/our_work/economic_growth_and_trade
88 www.cbi.eu

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SIPPO is the Swiss Import Promotion Programme89. It has the facility to support producers in
participating in selected trade fairs: again Biofach is one of them. The SIPPO homepage has a range
of publications on export-import related topics.

If you are also Fair Trade certified you may benefit from support provided by local coordinators
of the Fair Trade movement. Various organisations support their producers’ organisations. The
international Fair Trade Labelling Organisation (FLO)90 has regional coordinators on the ground that
support new and existing producers to improve their business. Also Twin Trade91 in the UK has a
partnership programme.

Summary of recommendations
•• Think through the main points relevant for successful marketing of your products (target
markets, competitiveness, marketing strategies and budget etc.).
•• Decide how to position your product in the market (product specification, price,
distribution channels, and promotion).
•• Find out the exact specifications of your product; if necessary get it tested for quality
parameters. Be clear on how your product compares with that of your competitors.
•• When agreeing a price with a client, be aware of possible fluctuations in local market
prices (farmers may sell in the open market) and in exchange rates.
•• Check out options for selling to agents or wholesalers who know the market and might be
able to keep stocks at central locations.
•• Prepare yourself for interaction with clients in a professional way. Present your business
and offer in a suitable way (e.g. brochure, web site), and make sure that the provided
information is up to date.
•• In order to get in touch with potential buyers and to get to know the market, participate
in international trade fairs specialising in organic products - either as a visitor or an
exhibitor. Good preparation and follow-up are crucial for making a successful trade fair
visit.
•• Ensure prompt and reliable communication with your clients. Get their feedback, and try
to find solutions in case they have complaints.

89 www.sippo.ch
90 www.fairtrade.net/what_we_do
91 www.twin.org.uk/PPP

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11 Moving up
Once your business is set-up and going well, you will probably think about the next step to take
in order to expand, improve, and consolidate. This chapter takes up a couple of topics that are
worth considering at this stage. It is about reaching out in scale and depth (impact), and the need to
constantly change and adapt. It ends with some reflections and guidance concerning the role of your
business in a national and international context.

11.1 Scaling up

Donors usually limit their support for the development of value chains to an initial phase in which the
costs are still high as outreach is limited and research and extension are rather intensive. In the first
years, the “cost of intervention per farmer” is high. Once the field staff and the farmers find out what
works, the first farmers are certified and a market has been reached, more farmers can join in, and
costs per farmer should go down substantially. Economies of scale kick in (see chapter 6.4). Buyers
normally want larger volumes once they are satisfied with your quality. It is therefore important to
develop a scalable approach, and to think and work in phases of developing your business. You might
start with 200 farmers, and your plan is that 6 years later there will be 1000 involved.

Scalability
In some value chains it is easy to scale up as long as there is a growing demand for the product and
enough farmers who are interested in becoming part of the initiative. Other chains are small and will
remain small. In this case high initial start up costs may not be justified. As all business needs to start
from market demand, the trend in this demand is a critical factor in scalability. If market demand
increases too fast for production to keep up with it, one might lose buyers as they go elsewhere. There
is an extreme example where a group of farmers in Uganda got a trial shipment of pre-packed dried
fruit together. Two weeks after arrival in Europe, the customer sent a message that he wanted 3 times
more, immediately, as the product was selling very well. This kind of jump in demand is difficult to
respond to, and may even lead to the end of the business relationship (as it did in this case).

Scaling up organic cotton production in West-Africa

In 2002, Helvetas (Swiss Association for International Cooperation) started supporting cotton
farmers in Mali to convert to organic production and to access Fair Trade markets in Europe.
Within four years, the initiative that had started with some 200 farmers grew into a producer
organisation with almost 2,000 members. New organic cotton initiatives were subsequently started
in Burkina Faso, Senegal and Benin. By 2008, in response to strong market demand, the number
of organic cotton producers in these initiatives had grown to 13'000. Besides cotton, the producer
organisations also started dealing with sesame, shea and other crops. Quick expansion of organic
cotton production in Asia and a slow-down in global demand due to the economic crisis lead to an
oversupply of organic cotton in 2009. As the crisis also affected some of the buyers of the West
African cotton, the producer organisations decided to halt expansion until the market situation
relaxes. Farmers were encouraged to reduce their cotton area to some extent, and to grow sesame,
peanuts and fonio instead, for which market prospects were better. In the end, the crisis stimulated
efforts to diversify production and markets, to increase efficiency and thus reduce the cost price,
and to intensify local processing and value addition.

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On the other hand, if market demand halts, growth of production may stall as well. This was observed
in organic cotton projects in West-Africa in 2009, where expansion was temporarily halted as a result
of oversupply at global level (see box). This reiterates the point that a business should preferably not
be dependant on one product or one market alone. As a last resort there should also be a conventional
market. Have an emergency market in mind all the time.

A group of organic pineapple growers in West-Africa started processing pineapples and had to
consolidate their production process and increase their market first before they could include more
farmers. In general it is good to have a certain buffer: that there are farmers waiting to sell to you,
or that there are mechanisms to buy more or less from the farmers. That means that you, or the
farmers, need to have alternative (local) markets in times of lower demand.

Adapting to scale
When your business has grown significantly, it is likely that you will need to revise some of your
structures and processes and adapt them to the new scale of operations. You will probably need to
redefine roles and responsibilities within the organisation and may need to hire additional people to
whom you can delegate tasks that you are not able to handle all by yourself any longer.

An extension system that covers 5,000 farmers needs to have more sophisticated management
processes than one for 200 farmers. In order to realise lower costs per new farmer reached, less staff
intensive methods need to be developed, e.g. by involving farmer leaders who train other farmers.
For specific new target groups or for a new product, however, higher capacity building costs could be
temporarily justified.

Another issue in scalability is the internal control system: the bigger the group of producers gets, the
more developed the ICS has to be. At some time you may need to revise and re-organize the whole
system. That is perfectly normal when business grows.

11.2 Having an impact

As a mature organic business you not only want to see good figures in your books, but you also want
to be sure that what you are doing benefits the farmers, the environment, and the country. You
probably also want to let others know, so that they buy your product or support your work in some
way. Some donor agencies insist on monitoring the impact of their support. But how can you find out
the actual impact of your work?

Measuring impact
Impact in this context refers to the change in the economic, social and environmental situation of the
involved farming communities that is induced by the organic business. It goes beyond the increase
of income; it also looks at how the additional income is distributed and spent, and how the overall
livelihood situation changes (see box).

A first approximation to assess the economic impact is to consider proxy indicators that can be
easily observed, e.g. the change in the number of farm animals, motorbikes or brick houses. You
can do this more systematically by conducting a baseline study before the first marketing season,
and comparing with the changes after a couple of years. However, there can be various reasons for

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these changes, many of which are not related to your intervention (general economic development,
climatic conditions etc.). These should be identified. Another approach to assess the impact of the
organic business is to compare organic farmers with a similar group of conventional farmers. For this
one needs to select representative samples of organic and conventional farms located in the same
area and to collect the most relevant impact data. It is better to focus on a limited set of data which
can be easily collected, rather than getting lost in surveys that are too complex.

Before you get engaged in impact assessments, it is a good idea to get familiar with the basic concepts92,
and to have a look at some examples93.

Typical impact indicators

•• crop shares in cultivated land
•• crop yields
•• gross margins of crops (revenues minus input costs)
•• work load and distribution
•• household revenue and its utilisation
•• soil fertility (e.g. organic carbon content)
•• health and nutrition status
•• change in gender relations
•• ability to cope with risks

Getting to know your impact

You can use this kind of methodology yourself to monitor direct economic impact. Your field staff
should be able to conduct a survey among samples of organic and conventional farmers in a period
of the year in which they are not so busy. Ideally, you involve the farmers in keeping simple records
on input costs, yields and revenues,
which they are usually able to do with
some assistance of your field staff. More
sophisticated assessments, for example
of gender equity, health or vulnerability,
require more expertise and should be left
to specialists.

With a bit of luck you can find an

external agency that will do the impact
assessment for you, with or without your
field agents being involved, for free or
for a little money. This could be thesis A researcher interviews an organic farmer for an impact study
students from a national or foreign in India (Source: Helvetas)

92 Useful websites on impact assessment in general are www.iaia.org, and for environmental and social impact in particular www.
isealalliance.org (Standards Tools ->Assessing Impacts)
93 Examples of impact studies in organic farming are available on the following web sites: www.epopa.info; www.organicandfair.org;
www.fibl.org

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university, or consultants mandated by the organisations that support you. You then get an
independent report, which is more credible.

There is always a lot to learn from such a study; it is another way of looking at what you are doing.
Often such studies indicate ways that you can improve your impact, and provide you with suggestions
on how to consolidate and expand your business. They may also show weaknesses, and be critical.
Don’t take that personally - there should always be something to improve!

11.3 Constant learning and improving

Any business can only become successful when you constantly observe your performance, learn from
positive as well as negative experiences, and know how to adapt yourself to the changing environment
- the local environment as well as the market.

Performance indicators
What do you measure as an indicator of success? Is it the volume of products sold, or how much is
in your bank account at the end of the year? There are other performance indicators that are worth
taking a closer look at:
•• Real cost price at the end of the season compared with calculated cost price beforehand
•• Cost of field staff per farmer and per product output
•• Quantity of product sold per farmer
•• Isolated costs per unit of output (certification, logistics, management, marketing,
financing costs)
•• Increase of income for your business as well as for the average farmer
•• Accuracy of your risk assessment, and how you addressed these risks
•• Number of non-compliances identified during inspection
•• Number of farmers wanting to join the initiative
•• Staff turnover
•• Complaints from clients

Continuous improvement
As you would expect, there are certain techniques developed for periodically assessing your business
performance. One of them is called the PDCA cycle, which stands for Plan-Do-Control-Act.94 It means
that you plan your activities, you implement them, you measure (control) and then you act on what
you have found.

It is important to involve your team in evaluating the performance of your business, as they may be
aware of problems you might overlook. If they are involved in the analysis, it is more likely that they
will implement the necessary corrective measures. You can do exercises like asking yourself and your
team the following questions:
•• How organic are the farmers we work with? How sustainable is their farming system? Are
they reliable suppliers; how loyal are they to our business; how loyal are we to them?

94 en.wikipedia.org/wiki/PDCA

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 •• Do we have a proper book keeping and data management system; do we get the
information that we need to optimise the business?
•• Where did we gain and where did we lose business opportunities? How do our clients
perceive us, and what could we do to improve client relations?
•• How did the environment in which we operate change, and how about the markets which
we are targeting? What did we do to respond to these changes?

You will see that it is very worthwhile to do this kind of self-assessment, and you will probably detect
some points to help you improve your internal business performance. Only continuous improvement
and adaptation will keep you in business in the long term.

11.4 National and international networks

Most business people - organic or not - start up their ventures on their own. Many think that
involvement of others may create dependencies and make you vulnerable. On the other hand, there
is a lot to gain from collaboration with other businesses and initiatives that have similar goals.

Collaboration at national level

The development of an organic sector in your country also benefits your business. Of course you run
your business on your own, but it is better to communicate, coordinate and perhaps even cooperate
with fellow initiatives. In a number of countries there are national movements or NGOs with the
specific purpose of facilitating the development of the organic sector. By being a member, you support
this development and also keep in touch with likeminded individuals.

There can be benefits on the political level (see chapter 4.3) as well as on the business level. Exchanging
information about suppliers of inputs, certification bodies or other service providers easily pays off.
In some cases trainings are organised on a national level, like certification updates, or on maintaining
your ICS. Some national organic movements organize round tables where stakeholders of a specific
sub-sector come together to coordinate their activities. Others receive donor funding for trade related
activities, like organising a stall in national and international fairs, or developing local markets.

Doing things together may be difficult at times, but should bring benefits in the end. Even if you
think that the national movement is NGO-driven and thus not your style, it may still contribute to a
more suitable environment for your business. It is therefore still worthwhile to be a member, a quiet
but supportive member, or an active member when you can. Basically, the more you give, the more
you will get out of it.

A better bargain

Pineapple exporters in Ghana are known for their ferocious competition, yet, there are some common
interests. It was found that the price that exporters paid for the same pineapple cartons differed by
200%. As the cost of packaging is about the same as for the fruits that go in it, pooling of the carton
orders quickly paid off. Finally they decided to cooperate.

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What can you expect from international networks?
On an even larger scale there are international networks for organic agriculture and Fair Trade. The
most relevant international networks for organic businesses and Fair Trade are:
•• IFOAM - International Federation of Organic Agriculture Movements (www.ifoam.org)
•• Organic Exchange - a business network of the organic fibre and textile industry (www.
organicexchange.org)
•• FLO - Fair trade Labelling Organisations (www.fairtrade.net)
•• WFTO - World Fair Trade Organization (www.wfto.com)

These organisations provide information and produce publications on organics and Fair Trade, and
links to other businesses and organisations (directories). They organise meetings and conferences
where you can learn more about specific topics and make useful contacts. They all have newsletters
that keep you informed about new developments in the sector. Last but not least they lobby for
an enabling policy environment, and have their own projects to support initiatives in developing
countries. By becoming a member of one of these organisations, you become member of a global
community. You get access to information and networks, and you can actively participate in shaping
the development of the sector.

Another option is to join a community of practice formed around your field of interest. A community
of practice is an internet-based platform on which practitioners exchange know-how and discuss
topics of joint interest. An example is the Global Organic Cotton Community Platform (www.
organiccotton.org).

Summary of recommendations
•• Develop a scalable approach, and work in phases of developing your business.
•• Do not depend on one product and one market alone, as your growth plan may
otherwise be disrupted by fluctuations in market demand.
•• Keep flexible to react to the market and think of alternative markets in times of lower
demand.
•• When your business has grown substantially, adapt your structures and processes to the
new scale.
•• Assess the impact of your work by monitoring changes of economic, social and
environmental indicators over time, and by comparing "your" farmers with similar
conventional ones.
•• Review the performance of your business in regular intervals with the help of
meaningful performance indicators and suitable methods (like PDCA).
•• Involve your team in a self-assessment of your business, and address identified points to
improve business performance.
•• Collaborate with likeminded businesses and organisations to jointly develop the organic
sector in your country.
•• Join international networks and communities of practice in order to get access to
information and know-how.

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12 What role for facilitators, Governments and donors?
As stated in the beginning, the guide is primarily written for people directly involved in organic
businesses. This last chapter addresses organisations that support the development of organic
businesses and value chains. These can be NGOs, development agencies, local governments and
donors.

12.1 Facilitating the development of organic value chains

Typical facilitators of organic value chains are development NGOs and business development
programmes. Their role is usually a temporary one, needed until the point of time when an organic
business is economically and institutionally viable and the value chain is functioning well. If some
kind of facilitation is needed permanently, it should be offered by a service provider and should be
paid for by the chain actors (see chapter 4.2).

What role for facilitators?

The role of the facilitator is to develop and strengthen the capacities of chain actors and service
providers, and to help them overcome hurdles and bottlenecks. In a situation where organic
production and marketing are entirely new, the facilitator can also make information accessible,
stimulate innovation, and support interested chain actors in building the necessary capacities.

One important function of value chain facilitation is to link suitable stakeholders (producer
organisations, processors, buyers, certification agencies, finance) and to ensure that they mutually
communicate their requirements and coordinate their activities. The facilitator needs to make sure
that all stakeholders are heard, and mediates between the different interests of the chain actors.
Doing this in a way that is accepted by all stakeholders is much easier for a neutral organisation than
for a value chain actor.

The following activities are suitable to facilitate the development of organic businesses and value
chains:
•• Convening information events in which interested stakeholders can learn about the basic
aspects of this business (production systems, certification, markets), and the available
support;
•• Providing organic businesses with initial links to suitable value chain partners (e.g.
processors, traders) and service providers (e.g. business development services, financial
service providers);
•• Organising workshops in which value chain actors can learn about how to set-up an
organic business;
•• Organising periodic round tables at which the different stakeholders of a value chain
coordinate their activities and discuss how to address challenges jointly;
•• Coaching value chain actors on implementing their role, and stimulate the development
of the required capacities (participation in trainings, exchange workshops, exposure visits
etc.);
•• Lobbying to create a more enabling environment for organic value chains (see chapter
12.2).

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What should be avoided?
There are a number of activities that facilitators should be very careful not to get engaged in (see box
“common pitfalls”). Facilitation implies that you do not get directly involved in the value chain - you
do not produce, buy, sell, or provide services that are permanently needed. If an NGO or government
programme that is designed to last only for a few years takes up core functions of a value chain, the
entire chain is likely to collapse once the support ends. A competent agricultural advisory service and
an internal control system, for example, are essential for the functioning of an organic production
initiative. These services should therefore not be provided by a development project. However, the
facilitator can support the initial development of the necessary capacities by helping the actors to
design suitable systems and tools, and to recruit and train the necessary staff.

Common pitfalls in facilitating organic value chains

•• Taking up or subsidising core functions of the value chain such as operating the extension
and internal control system, or conducting marketing activities.
•• Being biased towards some actors, e.g. exclusively promoting farmer's interests.
•• Motivating actors to cover more functions than they are able to manage.
•• Putting people in place who do not have the required experience and skills, including
foreign ‘experts’.
•• Focusing only on one product, ignoring the importance of rotation crops or the farm
system.
•• Focusing only on one (export) market, ignoring the importance of product and market
diversification.
•• Narrowly focusing on certification aspects, neglecting the need to address quality issues or
field problems like pest management.
•• Neglecting the aspect of scale (break even!) and scalability (impact!).
•• Missing important aspects influencing the value chain (e.g. government policies,
competitive disadvantages).
•• Hanging on to the pilot phase; lacking a clear exit strategy.

Often, development projects are too ambitious, i.e. one wants to do too much in a too short a time
period. Farmer groups or business have to take on more than they can handle, and are left to their
own devices at a too early stage. This may result in failures which frustrate producers,
entrepreneurs and donors alike.95

12.2 Creating a conducive environment for organic businesses

The success of an organic value chain initiative depends to a considerable extent on the business
environment in which it operates. Do government policies further or hinder organic production?
Are legal provisions in place that will enable private businesses to enforce contracts and to prosecute
fraudulent practices? Can agriculture-based businesses get access to credit? Do agricultural research

95 See also Lusby, F. 2006. Useful Principles for Adopting a Market Development Approach for Enterprise Development
Organisations. In: International Journal of Emerging Markets Vol. 1, No. 4.

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and extension services cater to the needs of organic farmers? In many countries, the answer to most
of these questions is “only to some extent” or “not really”.

Working towards an enabling environment

Some aspects of the business environment of a specific country cause obstacles to agro-businesses
in general. Weaknesses in transport infrastructure, financial services and legal systems affect
many types of businesses, and are not easily changed. However, there are some aspects that cause
obstacles specifically to organic businesses. Pesticide application schemes, compulsory fumigation of
agricultural goods for export, fertiliser subsidies and the promotion of GMOs are typical examples.

For identifying these obstacles, it is important to consult with and listen to the practitioners involved
in organic value chains. In the case of Uganda, the organic export sector came together after realising
that the plan of the Ministry of Health to spray farmers’ huts with DDT to control malaria was
seriously jeopardising their business (many farmers store produce in their huts). Guided by the
national organic movement (NOGAMU) they convinced the government that in the organic areas
less hazardous insecticides would be sprayed.

In many countries, there are either national or international schemes to support the development of
agri-businesses. Often they include cost sharing arrangements for setting up processing or storage
facilities, or export promotion programmes. Organic businesses should be able to benefit from these
schemes as well. Transparent and proactive information about the existence of these schemes, for
example via the organic agriculture movement of the country, is a first step in this.

Organic agriculture policies

In most countries with an organic sector, NGOs and private businesses were the early drivers.
Increasingly, governments are taking an interest in the development of this sector. Governments
that want to create an enabling environment for organic businesses could formulate an organic
agriculture policy. The book “Best Practices for Organic Policy” published by UNEP and UNCTAD
provides comprehensive guidance for formulating suitable policies96. Suitable elements of an organic
sector policy are:
•• Informing farmers and companies about organic agriculture
•• Support the set-up of organic extension services and internal control systems
•• Promote recycling of agricultural waste
•• Promote consumer education and awareness on organic agriculture
•• Collect and publish data on organic production and markets
•• Develop national standards and regulations to foster the domestic market
•• Facilitate development of the domestic market; encourage public procurement of organic
products
•• Support export promotion activities, e.g. participation in trade fairs
•• Establish organic research and seed breeding programmes
•• Include organic agriculture in the curricula of schools and universities

96 www.unep.ch/etb/publications/UNCTAD_DITC_TED_2007_3.pdf

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When developing organic policies, it is important that the different stakeholders can contribute their
views. It is a good idea to establish a permanent body for consultations between government, civil
society and private sector.

Equally important as having an organic policy is that other policies are coherent with and not
contradictory to it. Once organic agriculture is included in national policies, funds need to be made
available to implement them.

12.3 What role for donors and development agencies?

Various donors and development agencies support organic initiatives in low and middle-income
countries.97 They want to be sure that their support is effective in producing the desired impact. They
also should be concerned that the initiatives grow into a viable business that can continue without
donor funding.

Reasons to support the development of organic businesses

Supporting organic initiatives addresses agriculture, environment, economic development and trade
in one go. Aspects like biodiversity and climate change can easily be added to an organic project.
Anybody can become an organic farmer but organic farming seems to be particularly fitting for
smallholders. Besides the well-known advantages of organic production - the avoidance of potentially
harmful agro-chemicals and the higher price for producers - there are some aspects that should be of
particular interest for donors and development agencies:

•• As organic farming usually requires more labour, and people are needed in extension,
internal control and value addition, organic initiatives offer an opportunity to create
employment in rural areas.
•• Organic markets not only offer a better price; they are usually a safer place for
smallholders to be in than anonymous bulk markets where they have to compete with
large-scale mechanised producers.
•• The fact that organic farming does not need much money for inputs makes it easier for
women to produce cash-crops and thus to earn some extra income. If organic initiatives
take gender aspects into consideration from the beginning, women can really benefit (see
chapter 4.4).
•• Organic and Fair Trade certification require that farmers are organised in groups. This
helps strengthen their position within the value chain (negotiation power!) and makes it
easier to address social and environmental issues. The farmer organisations can facilitate
access to know-how, credit and political influence.
•• Because of the traceability requirement in organic supply chains, it is easier to measure
the impact of an intervention. From the ICS documents one can learn how many farmers
produced how much, and can calculate the additional income generated. One can show
value for money.

97 A list of major donors and development agencies that are currently engaged in supporting the development of organic value
chains and businesses is provided in Annex A2.2

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By supporting the development of organic value chains that link smallholders to markets, donors and
development agencies can contribute to more sustainable resource management, better livelihoods
of the involved farmers and workers, and more employment and value generation in the producing
country.

Making sure that support is effective

Not all organic initiatives, however, automatically result in viable value chains that can run on
their own once the support ends. In some cases, donor intervention may even hinder promising
organic businesses from flourishing, as it can hamper emerging entrepreneurial thinking, subsidise
competition, and distort the market. The long-term effect of the intervention largely depends on
how the support programme is designed.

If the aim is to establish value chains and businesses that sooner rather than later run on their
own, donors and development organisations should select carefully the partners who have the
potential to achieve this goal. Their contributions should be designed in a way that they stimulate
and reward entrepreneurial thinking (if it is not already there). In allocating financial support, they
should therefore follow a similar procedure as a bank would do: carefully check whether the envisaged
business model has real potential to become profitable within a reasonable time span, define the
grant amount based on a business plan, and set clear conditions to be fulfilled. Conditions should
include that progress in implementation is monitored and documented, and that other funding
sources are openly declared.

In order to make sure that the business aspects are taken seriously, the donor should insist that the
grantee invests at least some of their own capital, or organises a loan from a bank. It is a good idea to
provide part of the contribution as a loan that is to be paid back once the break-even point is reached.
This is particularly true for funds used for investing in processing infrastructure. Working with loans
rather than grants also helps reduce distorting effects on competition. Donors can also change the
due amount into shares issued to the farmers.

Instead of subsidising specific components like extension services or certification fees, donors should
preferably pay a diminishing contribution to cover the expected loss until the business breaks even
(see chapter 6.4). If core functions of the operation are subsidised, it will be difficult to integrate their
costs into the product price once the subsidy stops (see box).

Nevertheless, the ultimate goal of supporting an organic initiative, next to improving the income
of the producers and their households, is the financial sustainability of the producer organisation
or company. All funds should therefore be used in a business-like manner, and be efficient and cost
effective. Dependency on donor funding should be avoided among value chain actors. Financial
instruments for financing value chain actors should stimulate entrepreneurship, responsibility,
ownership and financial sustainability. Examples are loans, guarantees and share capital (see chapter
6.5). However, a producer organisation or a social enterprise will need a strong financial base
(sufficient equity) in order to qualify for external investments and loans. Donation of seed capital
and investments into shares are suitable mechanisms to create sufficient equity.

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 Subsidies?

No doubt: an organic business needs financial means to start-up, improve or enlarge its operations. If
prospects for making profit are good enough, private businesses are likely to invest their money. Most
probably, such businesses would choose to work with some large farms rather than with hundreds
of smallholders in remote areas. Where poverty alleviation and inclusion of disadvantaged groups of
society is an inherent goal of an initiative, investment of public funds is justified.

Nevertheless, the ultimate goal of supporting an organic initiative, next to improving the income of the
producers and their households, is the financial sustainability of the producer organisation or company.
All funds should therefore be used in a business-like manner, and be efficient and cost effective.
Dependency on donor funding should be avoided among value chain actors. Financial instruments
for financing value chain actors should stimulate entrepreneurship, responsibility, ownership and
financial sustainability. Examples are loans, guarantees and share capital (see chapter 6.5). However,
a producer organisation or a social enterprise will need a strong financial base (sufficient equity) in
order to qualify for external investments and loans. Donation of seed capital and investments into
shares are suitable mechanisms to create sufficient equity.

Exit strategy
Development agencies need to have a clear exit strategy for their support to organic initiatives. They
need to communicate clearly to the partners in which way and for how long they are going to support
them. The exit strategy needs to ensure that by the end of the project intervention businesses are
established that are institutionally and economically sustainable. The support should therefore not
only be limited to funding part of the operational costs and investments, but also to ensuring that
necessary capacities and skills are developed, that the entire value chain is functioning well, and that
an enabling environment is created. Some level of donor coordination is needed to avoid donors
coming in where others go out because of lack of progress (see box).

Donor darlings

There are some producer organisations but also private businesses that continue to attract donor
funding. In some cases there are different donors assisting at the same time. “Milking donors” may
be one way of doing business, but it does not reflect well on the capacity of a business to earn its
own money. It does not make a business a trustworthy commercial partner, and it certainly does not
stimulate entrepreneurial thinking if funds are too easily available. Although the development impact
of organic businesses may justify that such funds are used to start them, businesses should be very
careful not to become dependent on donor funding for their survival.

For the sustainability of the value chain it is important that businesses have access to local service
providers. Donors come and go, foreign experts come and go, but a local service provider stays -
provided they get sufficient business from users that are willing to pay for it.

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Summary of recommendations
•• In order to develop a new organic value chain, facilitators should provide information,
enable communication between stakeholders and support them in overcoming hurdles
and bottlenecks.
•• Facilitators should not take up or subsidise core functions of the value chain, and should
not be biased towards a specific actor.
•• Governments that want to support the development of organic businesses should
involve stakeholders in identifying the main obstacles. They need to ensure that organic
initiatives also have access to general programmes that support agri-businesses and
exports.
•• Policies to support the organic sector should comprehensively address the different
aspects that make an environment conducive to sustainable businesses (access to
information, consumer awareness, suitable regulations, start-up support, market
development etc.).
•• Development agencies need to select carefully the partners who have potential to
become viable businesses. They need to take care that their support stimulates
entrepreneurial thinking rather than hindering it.
•• A clear exit strategy is needed that ensures that supported initiatives are institutionally
and economically sustainable by the end of the project.

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Annexes

A1 Useful references and websites

Organic agriculture
Organisations and websites
•• IFOAM - International Federation of Organic Agriculture Movements: Comprehensive
information, principles and standards, member directory, list of professionals,
publications, media, training platform etc. www.ifoam.org
•• ISOFAR - International Society of Organic Agriculture Research: Research publications and
events. www.isofar.org
•• Organic world: Statistics and news. www.organic-world.net
•• Organics at FAO - Food and Agriculture Organisation: Publications, country data, glossary,
bibliographic references, web links, link to research institutions, events etc. www.fao.org/
organicag
•• Organics at ITC - International Trade Centre: Business directories, news, publications
www.intracen.org/organics
•• Naturland: Organic cultivation guildines for various crops. www.naturland.de/
publications.html
•• ILEIA - Centre for Information on Low External Input and Sustainable Agriculture:
Library, information, news. ileia.leisa.info
•• UNEP-UNCTAD: Capacity building on organic agriculture. www.unep-unctad.org/cbtf ->
Organic agriculture
Publications
•• FAO (2007): Organic Agriculture and Food Security
ftp://ftp.fao.org/docrep/fao/meeting/012/ah952e.pdf
•• FiBL/ITC (2007): Organic Farming and Climate Change
•• https://www.fibl-shop.org/shop/pdf/mb-1500-climate-change.pdf
•• IFOAM Training manuals on organic agriculture in the tropics
www.ifoam.org -> Growing Organic -> Training Platform
•• Pretty, J., 2005. The Earthscan Reader in Sustainable Agriculture. Earthscan, London.
•• Nemes, N., 2009. Comparative Analyses of Organic and Non-Organic Farming Systems:
A critical assessment of farm profitability. FAO Rome. ftp://ftp.fao.org/docrep/fao/011/
ak355e/ak355e00.pdf

Organic certification
Publications
•• Standards and regulations: see Annex A5.1
•• EPOPA/CTA/FAO, 2006: Regulations, standards and certification for agricultural exports.
www.fao.org/docrep/010/a0791e/a0791e00.HTM
•• FAO Manuals on Certification for agricultural exports. www.fao.org/ES/ESC/en/15/262/
highlight_269.html

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 •• IFOAM Internal Control Systems for Group Certification – Training Kit for Producer.
www.ifoam.org -> Growing Organic -> Training Platform
•• ICS tools on www.organicandfair.org -> Publications and www.organiccotton.org -> Library
•• IFOAM/IOIA, 2000. International Organic Inspection Manual. shop.ifoam.org
•• The Organic Standard: Monthly journal on organic certification topics. www.
organicstandard.com
•• The Organic Certification Directory. www.organicstandard.com/directory.html

Fair Trade
Organisations and websites
•• FLO - Fairtrade Labelling Organizations International: Standards, products, producers,
resources, news. www.fairtrade.net
•• Fair Trade Institute: Online collection of Fair Trade research publications.
www.fairtrade-institute.org
•• World Fair Trade Organization. www.wfto.com
•• Fair for Life. www.fairforlife.net
•• Ecocert Fair Trade. www.ecocert.com/-EFT-.html
•• Soil Association Ethical Trade. www.soilassociation.org

Value chain facilitation

Organisations and websites
•• GTZ ValueLinks (www.value-links.de/manual/distributor.html)
•• KIT Value chains for development (smartsite.kit.nl/smartsite.shtml?ch=FAB&id=12505)
•• SDC Markets4Poor (www.markets4poor.org/publication)
Publications
•• UNEP/UNCTAD, 2008. Best practices for Organic Policy. What developing country
governments can do to promote the organic sector.

Agricultural extension
Organisations and websites
•• Agridea. www.agridea-international.ch
•• Global Farmer Field School. www.farmerfieldschool.info
Publications
•• Agridea, 2002. Innovative Approaches to Financing Extension for Agriculture and Natural
Resource Management. Conceptual considerations and analysis of experience.
www.agridea-international.ch
•• CIP-UPWARD/IDRC, 2005. Participatory Research and Development for Sustainable
Agriculture and Natural Resources Management: A Sourcebook. www.idrc.ca
•• Helvetas, 2005. You Pay for What You Get. From budget financing to result based
payments. www.helvetas.org

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Gender issues in value chains
Organisations and websites
•• Agri-ProFocus Gender in Value Chains Learning Group. genderinvaluechains.ning.com
Publications
•• EPOPA Gender Learning and Sharing; Project end report. www.grolink.se/epopa/
Publications/GenderProjectEndReport.pdf
•• Farnworth, Cathy & Jessica Hutchings, 2009. Organic Agriculture and Womens’
Empowerment. IFOAM. www.ifoam.org ->Growing organic ->Arguments for Organic
->Social Justice
•• IFOAM Training Module on Gender in Organic Agriculture.
www.ifoam.org ->Growing Organic ->Training Platform
•• Pyburn & Verhart (forthcoming). Strategies for Addressing Gender in Certified Coffee
Chains. KIT, Amsterdam.

Business planning and management

Organisations and websites
•• BizPlanIt’s Virtual Business Plan. www.bizplanit.com/vplan.html
•• ICA - International Cooperatives Association. www.ica.coop/al-ica
•• FAO/ILO. Cooperatives and Producers’ Organisations. www.fao-ilo.org/fao-ilo-coop
•• ILO - International Labour Organisation. Publications related to agricultural cooperatives
www.ilo.org/empent/WorkingUnits/lang--en/WCMS_DOC_ENT_DPT_COO_EN/index.
htm
•• Agromisia/CTA, 2006: Starting a cooperative. Farmer-controlled economic initiatives.
www.agromisa.org/agrodoks/Agromisa-AD-38-E.pdf
•• Financing institutions: see Annex A3.4
•• Micro-finance: www.microfinancegateway.org
Publications
•• Agromisa / CTA, 2010. Entering the Organic Export Market, A practical guide for farmers’
organisations. www.agromisa.org. People living in a country which is part of the ACP group
(African, Caribbean, and Pacific states) can request the document free-of-charge through
[email protected].
•• Berdegué, J.A., E. Biénabe and L. Peppelenbos, 2008. Keys to Inclusion of Small-scale
Producers in Dynamic Markets. IIED London.
•• FAO, 1998. Agricultural Cooperative Development. A manual for trainers. ftp://ftp.fao.
org/docrep/fao/005/X0475E/X0475E00.pdf
•• FAO, 2009. Business management for small-scale agri-industries. www.fao.org/
docrep/011/i0499e/i0499e00.htm
•• Koning, M. de, van Steenhuijsen Piters, B., 2009. Farmers as Shareholders; A close look at
recent experience. KIT, Amsterdam.
www.kitpublishers.nl/smartsite.shtml?&id=33740&ItemID=2764&ch=FAB
•• MATCOM Cooperative Training Manuals, available from [email protected].

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Markets and marketing
Organisations and websites
•• For a list of the main organic trade fairs, see chapter 10.3
•• CBI - Centre for the Promotion of Imports. www.cbi.eu
•• Greentrade: Organic market place and exchange platform. www.greentrade.net
•• Organic Links: Market information and business directory. www.organic-market.info
•• Organic Market Place at ITC: Importers, exporters, fairs. www.intracen.org/organics/
market-place.htm
•• Organic Monitor: Organic market information. www.organicmonitor.com
•• Organic Trade Association: Business platform for North Amercia. www.ota.com
•• Ecomercados: Organic marketing initiative in Central America; business directory and
market information. www.ecomercados.org
•• EU Generalised System of Preferences,
ec.europa.eu/trade/wider-agenda/development/generalised-system-of-preferences
•• US African Growth and Opportunity Act, www.agoa.gov
•• Sanitary and Phytosanitary Measures. spsims.wto.org
•• SIPPO - Swiss Import Promotion Programme. www.sippo.ch
•• Marketing: www.knowthis.com/principles-of-marketing-tutorials, www.quickmba.com/
marketing/plan and www.netmba.com/marketing/mix
Publications
•• Agromisia/CTA, 2004: Marketing for small-scale producers. www.agromisa.org/agrodoks/
Agromisa-AD-26-E.pdf
•• Buley, M. et al, 1997. Exporting Organic Products; Marketing Handbook. GTZ, Eschborn
•• EPOPA, 2006. Organic Exporter Guide – hands-on help for organic exports from Africa.
www.ifoam.org
•• FiBL, 2004. A Guide to successful organic marketing initiatives.
https://www.fibl-shop.org/shop/show.php?sprache=EN&art=1338
•• IFOAM, 2004. Developing Local Marketing Initiatives. A Guide for Small and Medium
Enterprises. shop.ifoam.org/bookstore/product_info.php?cPath=64_22&products_id=452
•• ITC, 2007. Overview of World Production and Marketing of Organic Wild Collected
Products. www.intracen.org/organics
•• ITC, 2006. Marketing Manual and Web Directory for Organic Spices, Culinary Herbs and
Essential Oils. www.intracen.org/Organics/documents/marketing-manual.pdf
•• Organic Exchange, 2009: Export Logistics. An introductory guide to procedures.
www.organicexchange.org/Documents/farmer_expo2.pdf
•• CBI, 2004. Export Planner. A comprehensive guide for prospective exporters in developing
countries. cbi.nl/marketinfo/cbi/?action=showDetails&id=55&via=pub
•• SIPPO/CBI, 2003. Your Image Builder. www.sippo.ch/internet/osec/en/home/import/
publications/sippo_and_partner.html
•• SIPPO, 2008. From contacts to contracts. A guide to practice. www.sippo.ch/internet/osec/
en/home/import/publications/sippo_and_partner.html

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A2 Value chain facilitation
A2.1 Consultancy for developing organic value chains

Organizations Comments Further information

Consultancy companies and

IFOAM Forum of individuals with a common www.ifoam.org/about_ifoam/professional/
Consultants code of conduct supporting consultants.html
the organic movement
Database of business contacts
ITC platform for importers and exporters of www.intracen.org/dbms/organics/index.asp
organic products
UNEP List of resource persons www.unep.fr/scp/rpanel/members.htm
Providing trade related
development services,
UNIDO consultancy in agro-value www.unido.org/index.php?id=7395
chain development and a
value chain analysis tool kit
Consultancy in linking
AgroEco LB partners in organic food www.louisbolk.org
supply chains
Consultancy on all aspects
of organic agriculture and
Bioherb www.bioherb.de
essential oils, spices, herbs
and medicinal plants
Consultancy in market
FiBL www.fibl.org
development, certification
Supporting producers by
FLO producer support facilitating relationships with www.fairtrade.net/services_and_relations.
unit buyers and by helping to gain html
access to new markets
Support to organic initiatives
Greennet www.greennet.or.th
in East and South-East Asia
Assistance in development
Grolink projects, training, and www.grolink.se
marketing of organic products
Helvetas Organic & Supporting development of
Fair trade Competence organic and Fair Trade value www.organicandfair.org
Centre OFTCC chains
Consultancy services and
Intercooperation project implementation on www.intercooperation.org
organic value chains
Supporting farmers in
increasing their access to
Organic Exchange www.organicexchange.org
markets for organically grown
cotton and food crops
Support in building supply
Traidcraft chains and in developing www.traidcraft.co.uk
market access programms

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A2.2 Donors and development agencies supporting organic value chains
The following table lists important organisations that are or have been active in supporting organic
value chain projects. Please note that the list is not complete, and that priorities may change over
time.

Organisation Web link

AECF - Africa Enterprise Challenge Fund www.aecfafrica.org

BTC - Belgian Development Cooperation Agency www.btcctb.org
Danida, Denmark www.danidadevforum.um.dk
DED - German Development Service www.ded.de
GTZ - Deutsche Gesellschaft für Technische Zusammenarbeit,
www.gtz.de
Germany
Hivos - Humanist Institute for Development Cooperation, The
www.hivos.nl
Netherlands
ICCO - Interchurch Organisation for Development Cooperation, The
www.icco.nl
Netherlands
ITC - International Trade Centre www.intracen.org
Oxfam www.oxfam.org
Pro Invest (EU) www.proinvest-eu.org
SECO - Swiss State Secretariat for Economic Affairs www.seco.admin.ch
Shell Foundation www.shellfoundation.org
SIDA - Swedish International Development Cooperation Agency www.sida.se

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A3 Business planning
A3.1 Outline of a business plan for an organic business

Executive Summary
•• A very important part of your business plan, especially if you want to convince investors!
Provide on max. 2-3 pages a precise summary of the main aspects of your organic
business.
•• Cover at least the following: Scope of your business (production, processing, trade etc.),
description of products, certifications, target markets, organisational set-up, management
team, financing sources, finance requirements.
•• Keep it short; details on each of these points should be explained in the body of the
business plan. The executive summary is meant to give a short, to the point, overview of
your business, your financial needs and the unique selling points of your business.

Description of the company or organisation

•• Explain who you are (legal organisation) and what is your motivation for organic farming,
the envisaged development impact, your guiding principles in working with farmers etc.
•• Describe your business history; include historical data on volumes, turnover, number of
farmers and employees etc.
•• Outline how you are organized (organisational chart), especially how you involve farmers
in your business, how you are linked with processors, traders or service providers.
•• Describe the current status of your business and your future plans (growth, product
diversification, vertical integration).

Business environment
•• Describe the political, social and economic environment in which your business operates.
What are the main obstacles and threats for an organic business? What opportunities can
be used? What is the attitude of the government towards organic businesses; are there
supportive policies?
•• Describe the situation of other organic businesses operating in your country. Do they
collaborate or participate in networks?

Products and services

•• Describe the products you are planning to offer, the degree of processing, and the quality
specifications. Explain which certifications you envisage.
•• Analyze how your products compete in the market.
•• Describe the purpose of your products. Describe any specific features or benefits of your
products, i.e. the competitive advantage (or disadvantage) of your product.

Industry and value chain analysis

•• Describe the organic industry you are in (volumes, revenue, trends). Describe the
opportunities and threats of the industry to your company.
•• Describe the value chain(s) in which you are involved (value chain map). Analyse and
describe any bottle necks, critical links, opportunities and threats in the value chain.

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Marketing plan
•• Describe your target markets (at local, regional and international level) and the respective
clients (processing industry, wholesalers, retailers etc.). Indicate the market size and
average sales price of each target market.
•• Identify the trends of your target markets concerning market growth and preferences and
how these trends form an opportunity or threat for your business.
•• Outline how you will reach your target market (sales price, marketing activities, marketing
channels and material).

Competitive analysis
•• Identify your main competitors. Describe the strength and weaknesses of the competitors,
including product quality and sales price.
•• Clarify your competitive (dis)advantages.
•• Define the market share you envisage to achieve and motivate how you will achieve this.

Operations Plan
•• Describe the location of your office and production area, the facilities and equipment
needed. Indicate the planned number of associated farmers, production figures, number of
staff etc.
•• Describe the activities from input supply up to sales, including the arrangements for
bulking, storing, transporting and processing of the produce.
•• Describe the extension and internal control system, the system to manage information,
and the measures taken to ensure product quality.
•• Calculate the variable and fixed costs of the production (cost price).

Financial Plan
•• Demonstrate the feasibility of your business (break-even). Calculate and comment your
expected profit or loss over the next 3-5 years (including worst case - best case scenarios).
Include an income statement and balance sheet with the results of the past 3 years (for
existing businesses) and the planned results of the coming 3 to 5 years.
•• Calculate the expected cash flow and the need for (trade) finance for the first two years on
a monthly basis.
•• Describe the sources of funds (own capital, investments, loans, advance payments by
clients, grants), and how they are used.

Management Plan
•• Describe the management structures and how decisions are taken. Describe the profiles of
the individual members of the management team.
•• Describe the Advisory Board, the supporting organisation or the consultants assisting you.
•• Describe which competencies are still missing and how you plan to get them.

Risk analysis
•• Demonstrate your ability to understand potential problems that could occur to your
business. Explain how you plan to reduce and manage these risks.

138
A3.2 Production planning tool - example

Production figures Year 1 Year 2 Year 3 Year 4 Year 5

No. of farmers 200 400 550 700 800

No. of field officers 5 6 7 8 8

average area under product A (ha) 1.50 1.55 1.58 1.60 1.60

average yield product A (kg/ha) 1’000 1’100 1’150 1’200 1’220

% of product A delivered to project 80% 85% 88% 90% 90%

total volume product A (raw material) (t) 240’000 579’700 879’428 1’209’600 1’405’440

average area under product B (ha) 0.50 0.60 0.65 0.70 0.72

average yield product B (kg/ha) 600 700 750 780 800

% of product B delivered to project 60% 70% 80% 85% 90%

total volume product B (raw material) (t) 36’000 117’600 214’500 324’870 414’720

A3.3 Examples of cost price calculations

Example of organic pineapple processing

Volumes / conversion 15% chunks/slices, 10% crush, 20% juice from fresh fruit
1 ton = 2 222 tins = 370 cartons
13 770 tons = 30 600 tins = 5 100 cartons
100 ctn. = 210 kg solids 60 kg juice
Costs Need Price (Tsh) Tsh/100 ctn. US$/tin

Fresh pineapples (incl. premium) 1 167 85 /kg 99 195 0.128

Transport from field to factory 75 000 /ton 87 525 0.113

Labour 60 1 850 /mday 48 261 0.062

Diesel oil 30 1 200 /liter 15 652 0.020

Water & Electricity 30 000 13 043 0.022

Tins (easy open) 2 222 348 /piece 772 867 0.269

Labels 2 222 25 /piece 55 556 0.072

Boxes 100 200 /piece 20 000 0.026

Glue 100 25 /box 2 500 0.003

Misc. Expenses 50 000 0.064

Field organisation zie blad2 0.007

Transport from factory to port 450 000 /lorry 30 000 0.039

Certification costs 0.072

Total expenses per tin 0.895

Income from extra juice 197 361 /liter 71 046 0.091

Total cost per 450g tin 0.804

Sales price 0.978

profit/tin 0.174
total profit/container 5 331

139
Example of organic cotton fibre production

Volumes / conversion factor kilos

Kilos organic seed cotton 1’900’000

Kilos lint 42.0% 798’000

Kilos cotton seed 55.0% 1’045’000

Losses at ginning 3.0% 57’000

Lbs/kg conversion 0.4535

FCFA/Euro rate 655.96

USD/Euro, Mar 2008 1.55

Cost price (FOB) factor units FCFA total FCFA/ kg lint Euro/kg % of FOB

Inputs

Fertiliser (oilcake) 40 all csc rec. 25’080’000 31 0.05 3.9%

Hoes & machetes 1’750 2 1’750’000 2 0.00 0.3%

Input provision 26’830’000 34 0.05 4.2%

Conventional price 180.0 342’000’000 429 0.65 53.5%

Organic premium 38.9% 133’000’000 167 0.25 20.8%

Seed cotton cost 250.0 475’000’000 595 0.91 74.3%

Field staff 34’025’235 43 0.07 5.3%

Certification 6’559’600 8 0.01 1.0%

Village store fee 2.0% osc value 9’500’000 12 0.02 1.5%

Transport store-ginnery 12.0 kg osc 22’800’000 29 0.04 3.6%

Primary marketing 32’300’000 40 0.06 5.0%

Ginning costs 25.0 kg sc 47’500’000 60 0.09 7.4%

Cotton seed value -30 kg cs -31’350’000 -39 -0.06 -4.9%

Classification 500 bale (220 kg) 1’813’636 2 0.00 0.3%

Fibre analysis 20’000 sample 200’000 0 0.00 0.0%

Ginning & baling 18’163’636 23 0.03 2.8%

Warehousing 0.5 2 798’000 1 0.00 0.1%

Finance charges 0.8% 0 0 0 - 0.0%

Storage 798’000 1 0.00 0.1%

Transport to port 21.0 kg fibre 16’758’000 21 0.03 2.6%

Exporter 1.0% 5’838’519 7 0.01 0.9%

Taxes 0.5% 2’834’232 4 0.01 0.4%

Cotton fibre marketing 25’430’751 32 0.05 4.0%

Coordination 10’181’745 13 0.02 1.6%

Consultancy 10’364’168 13 0.02 1.6%

Coordination 20’545’913 26 0.04 3.2%

FOB 639’653’135 802 1.22 100%

140
A3.4 Financing institutions providing loans for organic and Fair Trade businesses

Name of the bank Services Web link

Trade finance loans to organic and Fair Trade producers

Triodos www.triodos.org
Microfinance
Microfinance
Loans
Oikocredit Guarantees www.oikocredit.org
Credit lines
Equity investments
SME finance microfinance
Fair Trade
ResponsAbility www.responsability.com
Finance of independent media
Private equity
Trade finance
Farm finance, Sustainable Agriculture Guarantee Fund
Rabobank www.rabobank.com
Infrastructure finance for food & agribusiness industries
Finance of clean technology / renewable energy
Trade finance and longer term loans for Fair Trade
producer groups www.shared-interest.
Shared Interest
Credit to Fair Trade buyers to provide advance payments com
to producers
Finance for micro-credit institutions and trade finance
Etimos www.etimos.it
for producer groups

141
A4 Organisational set-up and processes
A4.1 Roles and responsibilities in extension and ICS

Actors Responsibility of extension service Responsibility of ICSI

• Approval of list of non-conformities and

sanctions
• Approval of organic status of producers,
committee

based on recommendations in inspection

reports
• Decision on exclusion of producers due to
non-compliance with internal standards
Approval

• Handling appeals of producers against

decisions of the internal inspectors or ICS
manager
• Development, management and revision
of the extension system (curricula,
training material) • Development, management and revision of
• Training of extension staff on extension the ICS (procedures, forms etc.)
Head of extension / ICS

methodology • Training of extension staff on ICS aspects

• Coordination of participatory research • Update and analysis of central database
activities • Supervision of internal inspection
• Supervision of training activities, activities (including re-inspection of 1-2%
technical advice and exchange activities of the farms)
(including visits to at least 1-2% of the • Decision on sanctions for minor non-
farmers) compliances
• Coordination of input supply and
distribution
• Technical advice to lead farmers and • Supervision of the work of lead farmers
farmers • Registration of producers (farm
• Training of producers characteristics, location of plots, plot size)
• Visit to each farm at least twice per • Supervision of record keeping at farmer
group level
Field officer / internal

season
• Monitoring of implementation of • Transfer of data and information to the
recommended production practices head of ICS
• Identification of problems in the field, • Internal inspection of each farm (check
and developing appropriate solutions records, physical inspection of farm, yield
estimates)
inspector

• Facilitating the exchange between

farmers • Inspection of storage facilities
• Follow-up on the distribution of inputs • Supervision of buying the produce
and equipments • Cross-checking data of each farm
• Regular visit to farmers; technical advice
• Monitoring of implementation of • Support farmers in keeping records
Lead farmer

recommended production practices

• Registering farmers interested to join
• Identification of problems in the field,
and developing appropriate solutions • Transfer of data and information to the
field officer
• Facilitating the exchange between
farmers

142
A4.2 Job description for Field Officer - example

Team and responsibilities

The Field Officer (FO) functions in a team comprising of other Field Officers and a Documentation
Officer (DO), all managed by the Field Supervisor (FS). The FO reports to the Field Supervisor. The
team works from the field office. The FO attends monthly team meetings in the organic field office.
Progress and any problems are reported and a plan made how to solve them.

The FO is assigned to a certain area, a locality, a group of farmers for whom he/she is responsible.
The FO is expected to live in that area. The FO is not expected to be a farmer unless it is a model
farm. During the time of internal inspection (2 months of the year), the FO may be transferred to
the locality of a fellow FO.

The FO shall be a good representative of the exporter. This includes that the right information from
the exporter is communicated to the farmers, and that important information from the farmers is
fed back to the exporter (via the Field Supervisor). Good communication normally means through
contact farmers.

Assistance to farmers
The FO shall be responsible for correctly informing the farmers (men and women) of the standards
of organic production as laid down in the internal regulation. This means that regularly, awareness
and training workshops are held on demonstration farms, or otherwise. The FO shall assist the
farmers (men and women) in improving agricultural production in a sustainable organic way. This
may involve some experimentation on the demonstration farms or on individual farms. The strategy
for farm improvements is decided every year in the team. The FO is to implement that strategy. The
FO shall work with the farmers to produce predominantly Grade 1 produce; picked at the right time
in the right way, properly fermented, washed and dried.

Responsibilities within the ICS

The FO shall implement the Internal Control System as described in the ICS manual. This means that
the FO is responsible that for each farm under his/her responsibility
•• correct information is available, updated from the Farm Entrance Form
•• producer contracts are signed
•• a proper yield estimate is done prior to harvest
•• an annual internal inspection is done
•• non-compliances from the internal inspection are followed-up
•• areas for improvements indicated during the internal inspection are addressed
•• Corrective Action Requests from the certification body are implemented

The documents under the FO’s control are always kept dry and in a secure place. Documents gone
missing are reported instantly to the FS. The FO guards the organic integrity of the farmers under
his/her control. Failure to maintain organic status is a reason for summary dismissal.

143
Responsibilities during marketing
During marketing, the FO shall
•• communicate prices and buying times to the farmers
•• monitor prices paid by the competition and report to the FS
•• advise farmers on logistics (storage, delivery)
•• confirm the identity of delivering farmers
•• assist the buying agent in establishing the quality grade
•• address substandard quality
•• investigate suspicions of over delivery and contamination

Equipment
Every three years, the FO is given a bicycle as means of transport. The FO is responsible for
maintenance of the bicycle. Breakdown of the bicycle is not an acceptable excuse for work not done.
The FO is given gumboots and a cap to identify him/her as the internal inspector.

Targets
Every year specific targets are set by the FS (number of farmers, yield, new practices implemented,
ICS work done on time). When achieved, the FO receives a bonus.

Confidentiality
All documents are confidential and should not be shared with any person without the consent of the
Field Supervisor. Information requests from outsiders are forwarded to the FS. The FO shall assist
buyers and/or inspectors of the certification body when they are visiting the farmers. At that time,
the FO shall answer questions, share information, show documents etc. to facilitate the visit.

Further conditions
The Field Officer is not allowed to work for one year for another organic operator after termination
of his/her job, regardless who is to blame for the discontinuation of the employment.

Date:

Signature of FO Signature of Employer

144
A4.3 Content of an Operating Manual

1. Use and update of the manual 5. The Internal Control System (ICS)
-- Objectives, how to use, distri- -- Roles, processes and tools
bution -- Training of staff
-- Revision and up-dating of the -- Risk management
manual -- Documentation
2. The organic production and Fair Trade -- Internal inspection visits
system -- Internal approval procedure
-- The organic farming system, 6. Post-harvest operations
production methods -- Storage, bulking, transport
-- The Fair Trade system, han- -- Processing
dling of minimum price and -- Marketing, payments
premiums 7. Quality management and monitoring
3. Organisational set-up -- Data management
-- Organigramme, roles and re- -- Sampling, cross-checking
sponsibilities -- Product quality management
-- Selecting and organizing the -- Impact monitoring
producers -- Annexes
4. The extension system -- Reference documents
-- Roles, processes and tools -- Forms and templates
-- Training of staff
-- Training of farmers
-- Extension visits
-- Facilitating farmer-to-farmer
exchange
-- Supply of inputs

145
 Activity Responsible person Tool / form Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar

146
Identify groups and farmers; Meetings and group discussions,
Extension officer
inform about ICS preliminary assessment

Risk assessment Head of extension Risk assessment checklist

Application of individual members

Primary Coop Farmer’s application with signature
to primary cooperative
Farmer agreement, internal
Contracting farmers ICS manager
regulations

Training of ICS technicians ICS manager Training reference materials

Training farmers on ICS and Farmer diary, ICS formats, list of

Extension officer
organic production participants
Document profile data of farms, Farmer diary, base line information
A4.4 Annual operational plan

Facilitator
draw maps questionnaire, farmer register

Internal inspection of nursery Internal inspector Inspection report nursery

Monitoring and technical advice Farmer diary, farmer register (enter

Facilitator
visit to farms visits)

Internal inspection of farm Internal inspector Inspection report farm

Internal inspection of pulping

Internal inspector Inspection report pulping centre
centre
Supervise internal inspection Register of re-inspected farms /
ICS manager
activities pulping centres / nurseries
Approval decisions for farms, Approval committee / Inspection report, approved list of
pulping centres and nurseries ICS manager farmers
Fresh cherry delivery to pulping Register of fresh cherry delivery
Pulper operator
centre with harvest estimate
Delivery of parchment to
Marketing manager Register of dry parchment delivery
processing centre
Hulling of dry parchment,
Marketing manager Register of hulling activities
grading/sorting
Certification body / ICS List of approved farms / pulping
External inspection
manager centres / nurseries

Selling of green beans Marketing manager Register of sales

A4.5 Checklist: What you may need for an organic business

Category Details

• management
• accountant
Personnel • extension staff, internal inspectors
• marketing staff
• labour for processing, packaging, transport
• office buildings
Buildings (owned or on rent) • processing facilities
• storage facilities
• cleaning / sorting / grading equipment
Processing equipment • processing equipment and machinery
• packaging equipment
• motorbikes for field staff
Transport equipment
• trucks for transport of goods
• computers, internet equipment
IT & communication equipment • printer, copier etc.
• communication equipment
• scales to weigh goods
Other technical equipment
• GPS to position / measure fields
• input providers
• technical advisory services
• certification services
• business advisory services
External services
• transport services (if outsourced),
• processing services (if outsourced)
• auditing services
• financial services
• organic certificates
• Fair Trade certificates
Certificates / Permits • phytosanitary declaration
• (non) fumigation declaration
• export permits
• own capital (equity)
Finance • credits
• trade loans

147
A5 Certification and ICS
A5.1 Overview of important organic standards and labels

Standards / Comments Further information

labels

Official organic regulations

EU-organic Council Regulation (EC) No 834/2007

ec.europa.eu/agriculture/organic
regulation came into force on January 1, 2009
Production and labelling standards for
US-NOP www.ams.usda.gov/AMSv1.0/NOP
organic agricultural products in the USA
Standards for production and
Japan JAS processing of organic products in the www.maff.go.jp/e/jas/specific/organic.html
Japanese market

Private organic labels

German label for organic agricultural

production and processing, organic
Naturland aquaculture, textile production, www.naturland.de
cosmetics, forest management, bio +
fair
UK standards for organic production
and processing of food, but also of
Soil Association www.soilassociation.org
textiles and cosmetics, ethical trade
standard
Swiss bud Swiss label for organic food products,
www.bio-suisse.ch
(“Knospe”) known for prohibiting air freight
Biodynamic agriculture method,
requiring specific measures to
Demeter www.demeter.net
strengthen the life processes in soil and
foodstuffs

Product-specific organic standards

Global Organic
Covering the entire process from
Textile www.global-standard.org
(organic) fibre to finished product
Standard-GOTS
Cosmetics- A number of private initiatives have
www.cosmos-standard.org
COSMOS merged into one European standard

148
A5.2 Sustainability and industry standards that can be combined with organics

Standards / labels Comments Further information

Sustainability standards

Fair Trade Food, wine, flowers, sport balls www.fairtrade.net

Standard for wild-collected natural
FairWild www.fairwild.org
ingredients
Combination of social and fair-
FairForLife trade standards for agricultural, www.fairforlife.net
manufacturing and trading operations
Conserving biodiversity, standard for
Rainforest Alliance agricultural and forest products as well www.rainforest-alliance.org
as tourism
Coffee, cocoa and tea certification
Utz Certified www.utzcertified.org/
programs
CmiA - Cotton made in Enhancing competitiveness of African
www.cotton-made-in-africa.com
Africa cotton
Approach to minimize harmful impacts
in cotton production, no formal
BCI www.bettercotton.org
certification but self assessment and
learning exercise
Producers, trade, industry and civil
4C society work together for more www.4c-coffeeassociation.org
sustainability in the coffee sector

Quality and social standards

Key reference for Good Agricultural

Practices (G.A.P.), is a single integrated
supermarket standard with modular
GLOBALGAP www.globalgap.org
applications for different product
groups, mainly known in the fruit and
vegetables sector
Standard for improving working
conditions, based on international
SA 8000 www.sa-intl.org
human rights conventions. Was first
auditable social standard
Certification showing that agricultural
www.laborrights.org/stop-child-labor/
Child labour products are not produced by forced
child-labor-free-certification-initiative
labour or child labour
International Food Food safety standard used by many
www.food-care.info
Standard supermarkets in Germany and France
Food safety standard of the British www.brcglobalstandards.com/standards/
BRC Food Standard
Retail Consortium food
www.iso.org/iso/iso_catalogue/
ISO 9000 Quality management standard management_standards/iso_9000_
iso_14000.htm
Hazard Analysis & Critical Control
HACCP Point, a systematic preventive approach www.haccpalliance.org
used in the food industry

149
A5.3 Farmer agreement - example

Farmer’s Name :………………………………….Code No : ………………….. …..............

Total Land Area (ha) :……………………………Area under organic management:................

Village/Locality……………................................ District: ……………………………

XXX is a producer cooperative established for the benefit of small farmers producing organic
coffee. XXX provides its member farmers with the following services:
1. Coordination of the organic coffee production and quality management program.
2. Coordination of the supply of suitable planting material and equipment.
3. Training and technical advice on organic production practices and quality
management.
4. Organisational support to the organic coffee producer groups.
5. Arranging for organic certification based on an internal control system.
6. Purchase of coffee cherries from certified organic production through authorised
pulping centres.
7. Payment of a guaranteed minimum price and organic premium at time of delivery.
Prices and premiums will be announced at the beginning of each season.
8. Processing and marketing of the coffee in local and international markets.

The farmer declares:

1. I, the undersigned, accept to become/am a member of XXX and to participate in its
organic coffee production and quality management program.
2. I agree to follow the internal organic regulation (attached) as well as well as the quality
management guidelines specified by XXX.
3. I will not use synthetic pesticides, herbicides, fertilizers on any crop within my farm.
4. I will only use seeds and plant material that are approved by XXX and that are not
treated with synthetic pesticides.
5. I commit to supply only ripe and undamaged coffee cherries produced on my certified
organic fields. I will supply the fresh cherries to the pulper operator assigned by XXX.
6. I agree to follow the organic management training programme as organised by XXX.
7. In case I observe any violation of the organic regulation, I will report this to the
internal Inspector or a responsible person of XXX.
8. I understand that any violation of the organic regulation will lead to the exclusion
from the programme and refusal of the produce.
9. I will allow inspections by persons authorised by XXX and give access to all fields,
farm buildings and documents.

Date: Date:

Signature: Signature:

Farmer’s Name: Representative of XXX:

150
A5.4 Internal regulations – example

Topic Regulation

At farm level

1. Training and Attend introductory training on organic coffee production and ICS. Participate in at least 3 out of 5
meetings group meetings.

2. Documentation Keep farm diary up to date. Keep receipts of purchased inputs.

Fair treatment and payment of hired labour; no exploitative utilisation of children as labour
3. Hired labour
(schooling needs to be ensured).
4. No “parallel
No conventional coffee production in the entire farm managed by the signatory.
production”
Apply sufficient bedding material in sheds, maintain hygiene. No brutality against animals, no
5. Animal
preventive use of antibiotics, no growth hormones. Collect farm yard manure and protect it from
husbandry
rain and direct sun.
6. Biodiversity Encourage mixed cropping, integrate indigenous trees in the farm, protect natural habitats.
7. Management of No environmentally hazardous materials thrown in the fields (e.g. plastics, batteries); no use of night
wastes soil unless fully decomposed.

Management of organic plots

At least 3 years since the last application of chemical fertilizer or pesticides; otherwise product needs
8. History of plots
to be sold as in-conversion or conventional.
9. Organic
All crops in the organic plots need to be managed organically; no application of chemical inputs and
management of
use of GMO seeds (including intercrops of coffee).
entire plot
Sufficient distance (5m) or buffer zone (hedge etc. of min. 3m) to conventional plots that are treated
10. Isolation of
with pesticides. Ensure that no irrigation water from fields where chemical fertilizer or pesticides are
organic plots
applied enters the organic plot.
11. Soil and water Implement measures to prevent soil erosion, to increase infiltration and to preserve soil moisture
conservation (e.g. terracing, bunds, contour planting, cover crops, mulching).
Sufficient rotation of intercrops in young plantations; sufficient rotation among organic annual
12. Crop rotation
crops; at least one legume crop in three years.
13. Seedlings and Only seeds and seedlings originating from organic farms or nurseries to be used; if not available,
seeds conventional but untreated seeds and seedlings may be used.
Recycling of organic material through composting and/or mulching, no burning of crop residues.
14. Nutrient Use of organic manures prepared on the farm (e.g. FYM, compost, liquid fertilizer); no use of any
management chemical fertiliser. Use external fertilizers only if listed in Approved materials list or with permission
of internal inspector.
15. Management Use preventive measures in order to avoid strong infestations with pests and diseases (phyto-
of pests, sanitary measures, rotation and intercropping, use of repellents, traps); no use of chemical pesticides
diseases and or herbicides. Use pest management inputs only if listed in Approved materials list or with
weeds permission of internal inspector.

Coffee pruning and density

In coffee plantations, sufficient shade trees need to be planted (ideally 50% shading, min. 25%
16. Shade trees
shading).
17. Coffee pruning Regular pruning and de-topping of coffee trees; avoid dense population of trees which invites
and density diseases and affects quality of coffee (max. 125 trees/ropani).
Only supply ripe cherries which are not damaged; first and last coffee picking not delivered to
18. Harvest pulping centre. Use clean bags or vessels for picking; delivery of coffee cherries to the pulping centre
on the same day.

151
A5.5 List of non-conformities and sanctions – example

Sanctions and the levels of decisions

Gravities Sanctions Levels of

decisions

(A1): If non-conformity is admitted by the farmer : downgrading

of the farm and products and exclusion of the producer for the
ongoing year Approval
Very serious (A) (A2): If non-conformity is discovered : downgrading of the farm Committee
and products and exclusion of the producer for two years
(A3): In the event of using chemical (pesticides or fertilizers) to
treat plot: the plot is in conversion for two years

(B1): In the event of measures to be realised in the current

campaign: warning of the producer and state corrective measures Zone responsable
which have to be verified during an additional internal control. (inform
Severe (B)
(B2): In the event of measures to be realised in the following immediately the
season: Warning of the producer and state corrective measures; head of ICS)
then check their implementation during the next control.
(C1): Warning of the producer and state corrective measures,
Minor (C) then check their implementation during the next control. In the Internal inspector
case of recurrence: sanction B1

152
Non conformities according to internal standards / internal control

Control points Non-conformities Gravity Comments

If the producer is wrong, apply

Refuse to give access to the internal and/or
Acces A sanction A2. If not, re-schedule
external controller to the units.
the internal control.
Selling more product than was actually
Cheating A Sanction A2
produced on the certified plots.
Increasing the Increasing the weight of the product (e.g.
A Sanction A2
weight with water) before its marketing
In the event of deliberated
Corrective Corrective measures demanded in previous
A/B recurrence, increase the level of
measures inspection not implemented.
sanction.
Participation in No participation in trainings or meetings of
C Sanction C1
training/meetings the project without valid reason.
Documents (fiches parcelle et exploitation,
Documentation C Sanction C1
contrats etc.) not signed.
Conventional production in the same farm, Apply sanction B1, measures to
Organic farm B
without sufficient separation. ensure separation
Producer with the same product in organic
Parallel production A Sanction A2
and conventional.
Integration of
Insufficient livestock in the farm. C Sanction C1
livestock
Biodiversity Biodiversity not sufficiently considered. C Sanction C1
Management of
Presence of polluting wastes in the fields. C Sanction C1
waste
Untrue declaration on the history of farm/ According to the gravity, apply
History of plots A/B
plot or concerning activities done. Sanction A1, A3 or B1.
Growing cotton after cotton on the same
Rotation of crops B Sanction B2
plot.
Insufficient integration of leguminous plants
Rotation of crops C Sanction C1
in the rotation system.
Insufficient separation or buffer zone with
Isolation of plots C Sanction C1
conventional plots.
Marking of plots Insufficient marking of organic plots. C Sanction C1
Apply sanction B2 ; in case of
Preparation of soil Use of fire for “cleaning” the plot. B
recurrence: sanction A3
Sanction A3, without conversion
Seeds Use of seeds treated with chemicals. A
of plot
Seeds Use of GMO seeds A Sanction A2
Doubtful origin of the seeds and/or of
Seeds C Sanction C1
organic pesticides.
Fertilization Use of chemical fertilizers. A Sanction A3, with A1 or A2
Pest and disease
Use of chemical pesticides. A Sanction A3, with A1 or A2
management
Pest and disease
Use of a sprayer from a conventional farm. B Sanction B1
management
Pest and disease Presence of packing of chemical pesticides or If no chemicals were applied,
C
management fertilizers in the farm. Sanction C1
Use of non-recommended material for
Harvest C Sanction C1
collecting the harvest.
Storage of chemical pesticides or fertilizers in
Storage B Sanction B1
the farm.
Storage of organic products in the
Storage C Sanction C1
conventional storeroom.

153
A6 Marketing tools
A6.1 Product description sheet - example of cotton from Burkina Faso 1

Product Cotton fibre

(organic, Fair Trade)

Provenience Burkina Faso (West-Africa)

Supplier UNPCB - Union Nationale des Producteurs de Coton du Burkina

(Farmer cooperative, established 1998)

Product specification Fibre length: 27 - 32 mm

Micronnaire: 3.5 – 4.8
Packaging: bales of 210 kg (+/- 10 kg)

Certificates Organic: EU (since 2004) and NOP (since 2008), certification by Certisys (Belgium),
certificate holder: UNPCB
Fair Trade: FLO-Cert (since 2005), Certificate holder: UNPCB

Quantities for sale 2009: ca.950 tons; 2010: ca. 500 tons

Availability immediately (volumes in stock): 500 tons

2009 harvest: shipping from January 2010 onwards

Processing Ginning (saw gins) by Fasocoton and Sofitex

Quality management At farm level: Quality management in harvest and post-harvest handling, integrated
in extension and internal control system. Monitoring by trained technical staff of
UNPCB and lead farmers. Systematic GMO testing of seeds.
At ginning level: Quality control at delivery of raw cotton. Quality management
system of Fasocoton and Sofitex. Systematic GMO testing of cotton fibre.

Export / Shipping Export handling: UNPCB (since 2007, for EU and US markets)
Port of exportation: Abidjan (Ivory Coast) or other West-African port
Shipping containers: 20 or 40 feet, i.e. 10-12 tons or 20-24 tons
Treatment: none

Price setting Based on FLO minimum price for organic-Fair Trade seed cotton, incl. Fair Trade
premium.
Specific offers for cotton fibre (FOB shipping port) depend on volumes, quality and
pre-finance arrangements.

Contact UNPCB - Union Nationale des Producteurs de Coton du Burkina

M Georges Guebré (programme officer)
02 BP 1677, Bobo Dioulasso, Burkina Faso
Tel.: 00226 76 57 23 29
e-mail: [email protected]
web-site: www.unpcb.org

1 A template is available at www.organiccotton.org -> library -> Product description sheet template

154
A6.2 Contract between seller and buyer - example

Purchase Contract 08/2009

90 (ninety) tonnes (t) organic sesame, unhulled,
harvest 2009, oil content min. 50%

Seller: XXX
Address
Contact: (name, phone, e-mail)
Buyer: YYY
Address
Contact: (name, phone, e-mail)
Product specification:
Product: Sesame unhulled
Volume: 90t
Price: USD 1360 / tonne
Conditions: CIF Rotterdam
Quality: Purity: min. 99.5%
Humidity: max 7.0%
FFA: max 1.5%
oil content: min. 50.0%
Peroxide: max. 1.0
GMO free declaration
Organic certification: IMO, SKAL
Analysis: SGS quality analysis
Packing: 18t per container, in big bags of 25kg

Delivery: immediate shipment, ETA Rotterdam 20-09-09

____________________________ ____________________________

Date, Signature Date, Signature

Seller Buyer

155
A7 General tools
A7.1 Typical pitfalls, and how to avoid them

Typical pitfalls How to avoid them

Provide for easy marketing outlets, work on a better price,

The farmers are not selling to you - you fail to buy
agree on a risk reduction strategy with the buyers, built loyalty
the needed quantity from the farmers
with the farmers
You cannot buy because you have not organized
Plan and organise your cash flow in time and have a reliable
trade finance in time; you are running short of
mechanism for delivering the money to the villages
money to pay your staff
Be a good employer, pay them well, give them fixed contracts;
Critical staff leaves, e.g. for starting an organic
have clear statements on competition and confidentiality in
business for themselves
their contracts; have a deputy defined for all critical functions
Field officers doing a sloppy job in extension and Have a Field Supervisor who looks after them; set targets,
ICS; they are not following up on the Corrective provide incentives, ensure that the work remains interesting
Action Requests from the certification body for them
You do not get the certificates in time, or not at all Make sure that ICS activities are implemented in time, that
(e.g. because inspections are done too late, you did communication with the certifier is up to date, that bills are
not pay the fees in time etc.) paid
Shipped produce is refused by the customer, due to
Have an effective quality management; send representative
insufficient quality or contamination with pesticides
samples; check quality yourself before shipping
or GMO
The market changes even before you have yourself
Invest in multi-purpose products and diversification, be
organised; you are too slow, not flexible enough to
prepared to be flexible from the beginning
react
You are too protective of your business, you do not Share your problems with some friends; contract specialist
share your troubles with knowledgeable persons, you help for specific tasks, acquire the necessary skills to develop
struggle, you don’t develop your business

A7.2 Checklist: What makes a successful organic business

•• Your farmers are loyal to you. More farmers want to join. The farmers appreciate the support of
the field officers; both production and quality increase. The farmers have a farm with a future.
•• An organisation with head office, grading, processing and packing facilities, stores, field office
and buying stations is in place. Quality assurance has been developed. You work with the same,
reliable transport company year after year.
•• The company is well-managed, the staff is well trained, there is low staff rotation. The company
can always be reached by email, phone, and fax, and it responds rapidly. There are clear
arrangements for decision making when key staff members are travelling.
•• There is proper organic certification for the target markets. The contact with the certifier is
pleasant. There are only few corrective action requests after the annual inspection.
•• You have a sizeable volume of a number of products of a quality demanded in the market. Every three
years there is a new product. A unique selling proposition has been developed, one that is recognised
by your buyers and competitors. You improve your business by asking feedback from customers.
•• Every year the marketing plan is rehearsed and confirmed. A number of markets and buyers have
been tested. You operate in 2-3 different markets. Longer term agreements have been made with
2-3 selected buyers. You see each other every year. You have visited each other.
•• There are clear and efficient procedures on how to define prices (in buying and selling). There is
a consistent policy on handling price and exchange risks. The company is in touch with the latest
market and price developments.
•• A continuous analysis of costs and benefits shows that normally there is a 15-20% margin. This
margin is used to expand the business.
•• Your health and that of the family is well.

156
Index
Break-even 53, 57ff Management
47ff, 50f, 64f, 67ff, 121f,
157
Business models 13, 128
Margins 57, 65f
Business plan 47ff, 55, 137f
Market channels 17, 112
Buying 13, 43, 50, 63, 79, 81f
Marketing 70ff, 108ff, 116, 154f
Cash flow 60f, 63, 91
Networks 122f
Certification
body 7, 32, 83f Non-compliance 87, 89

Client relations 30, 113ff Operating manual 52, 145

Competition 19, 25f, 70f, 74, 110ff, 128 Operational planning 65, 146

Consumers 9, 19, 23f, 112f, 126 Organic certification 6, 32, 45, 83ff, 93, 148

Contamination 45, 97, 98, 100, 106 Organic market 13, 19, 16ff, 21

Conversion 11, 16, 41ff, 81, 106 Organic production 6, 12, 38ff, 97, 139

Cooperatives 2, 30, 62, 67, 70ff Organisational

structure 49ff, 67, 7ff, 88
Costs 11, 55ff, 59, 65, 81, 85f,
106, 139f Packaging 13, 101, 103, 104f

Co-existance 45 Participatory
guarantee systems 7
Data
management 91ff Partnerships 30, 63, 73

Diversification 39, 53f Payments 8, 60, 63, 76, 81f, 106

Entrepreneur 3, 10, 68, 71 Performance 39, 65, 121f

Evaluation 65, 119f, 121f Pig cycles 21

Export 16, 22ff, 103ff, 114f Post-harvest 99f

Extension 32, 49ff, 74ff, 77f, 88f Premium

8, 11, 18, 39ff, 80ff, 96,
110f
Fair for Life 9
Price 18, 25, 56f, 66f, 79ff, 96,
Fair trade 2, 7ff, 34, 86, 117, 123 100, 110f

Fair trade market 18, 114 Processing 17, 28, 31f, 50, 54, 101ff

Fair trade prices 7, 18, 42, 80f Products 19, 110

Farmers 11, 72ff, 80, 150 Quality management 25, 94, 96ff, 100

Field staff 49, 77f, 90, 143f Risks 21, 38f, 43, 54, 59, 65ff, 106

Finance 32, 44, 55ff, 61ff, 76 Samples 21, 68, 110, 107

Gender 3, 33ff, 120, 127 Scale 52ff, 94, 118f

GMO 45 Side-selling 79f

Government 32, 125ff Storage 13, 66, 100f

Impact 10, 119ff, 127f Subsidies 126, 129

Industry Support 33, 64, 116f, 127ff, 135f

standards 15, 149
Sustainability
Inputs 6, 11, 38, 43f standards 14, 149

Internal control Traceability 28, 31f, 88, 90f

system 49, 86ff, 93f, 151ff
Trade fairs 113ff, 117
Labelling 6, 83, 105f
Value chain 27ff, 31, 124f
Local markets 7, 16, 22ff, 79
Wild collection 41

157
 Proud to be Part!
Transform your passion for Organic Agriculture into meaningful
action - join IFOAM today!
IFOAM represents the interests of the Organic sector on an international level and is
the only worldwide umbrella organization responsible for the creation and revision of
the basic standards for Organic Agriculture.
The tangible benefits of IFOAM membership are extensive. From discounts on
publications, conferences and events, to exclusive advertising opportunities and the
wealth of information you receive, your business or organization will get all the tools it
needs to grow and develop internationally.
IFOAM also offers significant political and structural benefits, playing a leading role
in the social and political development of Organic Agriculture worldwide. IFOAM has
among others official status with ECOSOC, FAO, IFAT, UNCTAD, UNEP, Codex Alimentarius
ans ISO. For more information, contact: [email protected]

Or apply online via www.ifoam.org/application.

IFOAM Head Office
Charles-de-Gaulle-Str. 5 Be Part of the Solution!
53113 Bonn
Germany
Phone: +49 - 228 - 92650 - 10
Fax: +49 - 228 - 92650 - 99
[email protected]
www.ifoam.org
 Sales of organic products are steadily increasing, and so is organic production in
low and middle income countries. For good reason: for farmers it is an opportunity
to increase their income and manage their land in a more sustainable way. Getting
the produce from the field to the market requires a certain level of organisation,
management and finance; a well-functioning organic business. Whether set up
in the form of a producer cooperative or a private company, the organic business
needs to be efficient, well structured and profitable.

This guide is written for those who are actively engaged in setting up or managing
organic businesses with groups of smallholders. It provides practical know-how
and essential information for planning, managing and expanding such a business.
Covering topics from designing production and internal control systems to
business planning and marketing, it attempts to be a comprehensive reference
book for organic entrepreneurs, cooperatives and facilitators.

The guide was developed in a participatory process involving people who are active
and experienced in managing or supporting organic businesses in Africa, Asia,
and Latin America. It draws on a wide range of practical examples and provides
links to useful resources available on the internet.

With support from: