Organic Business Guide/Designing the organic production system
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.
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 resources. 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.
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 soil fertility and nutrient management 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 "Developing the business step by step"). 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.
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 way. Practical guides on the production of specific crops are available for free at the IFOAM Training platform. The United Nations Environmental Program UNEP is developing an e-learning course on organic farming.
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 in detail in chapter "Building up an extension system". The implementation of certain organic farming practices can also form a part of the agreement that the farmer signs with the cooperative or company.
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. There is a growing market for these products in the body care, cosmetics and natural medicine industry.
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 production and Fair Trade markets has the potential to help the poorest of the poor, but organising them for reliable quality collection may not be 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.
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 restructure their system and maintain soil fertility which leads to drastic changes on 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. 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 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 "Challenges of organic production"). 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 "The importance and value of quality") 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". 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.
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.
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.
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 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 "Building an extension approach").
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 can choose, and should stimulate rather than hinder 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. 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 "Handling pricing, premiums and payments for farmers"). The farmers are able to take out a little credit instead.
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 mass spraying of specific crops, solutions need to be sought with the local authorities (see chapter "Building partnerships along the chain").
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.
- 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
- Check http://www.unep-unctad.org/cbtf → Organic agriculture
- E.g. FairWild certification, see http://www.fairwild.org
- See IFOAM/ITC, 2007. Overview of World Production and Marketing of Organic Wild Collected Products. http://www.intracen.org/Organics
- A simple tool to calculate gross margins is available from http://www.organicandfair.org/oftcc/Publications/Publications.php
- According to the EU regulation, for annual crops a conversion period of two years prior to sowing is required; see Article 36 in http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2008:250:0001:0084:EN:PDF
- Links to micro-finance institutions are provided at http://www.mixmarket.org/networks and http://www.microfinancegateway.org.