Organic Business Guide/From field to market
From field to market[edit | edit source]
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.
The importance and value of quality[edit | edit source]
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.
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).
As quality can often be improved with some simple measures (see chapter "Getting quality produce from farmers"), 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.
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.
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 "Developing an internal control system") 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 Point). 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.
Getting quality produce from the farmers[edit | edit source]
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 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 "Designing the organic production system". 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 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.
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. 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.
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.
Transport and storage of raw material[edit | edit source]
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 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 administration, and they may not want 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.
Processing and value addition[edit | edit source]
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 "Different sorts of standards and certification"). Still, through simple processes 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.
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.
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 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 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. 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.
Exporting[edit | edit source]
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 of general information available on how to organize exports. 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. This obviously cannot be done for organic 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.
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.
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 preferences than packaging bulk. You would not be the first 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 Centre has various on-line publications on the topic, even a special email address for enquiries.
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 regulations. 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
- 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 websites 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 information.
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. 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.
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).
Footnotes[edit | edit source]
- See http://www.haccpalliance.org
- E.g. Burkinature in Burkina Faso, http://burkinature.ifrance.com and BioFresh in Uganda, www.biofreshltd.com
- See for example the CBI Export Planner, A comprehensive guide for prospective exporters in developing countries, http://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, http://export-help.cec.eu.int, and to the US, www.aphis.usda.gov/ppq/preclearance
- See www.iccwbo.org/incoterms