Organic Business Guide/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.
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 "Financial planning and management"). 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.
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).
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.
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.
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.
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?
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).
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
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 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 concepts, and to have a look at some examples .
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 students from a national or foreign 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!
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.
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
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. 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?
- 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.
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.
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.
There can be benefits on the political level (see chapter "Building partnerships along the chain") 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.
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 (http://www.ifoam.org)
- Organic Exchange - a business network of the organic fibre and textile industry (http://www.organicexchange.org)
- FLO - Fair trade Labelling Organisations (http://www.fairtrade.net)
- WFTO - World Fair Trade Organization (http://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 (http://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.
- Useful websites on impact assessment in general are http://www.iaia.org, and for environmental and social impact in particular http://www.isealalliance.org (Standards Tools → Assessing Impacts)
- Examples of impact studies in organic farming are available on the following web sites: http://www.epopa.info; http://www.organicandfair.org; http://www.fibl.org