Organic Business Guide/Roles for facilitators, governments and donors
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.
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 "Who plays which role in the value chain").
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 "Creating a conducive environment for organic business").
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.
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 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 policies. 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
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.
What role for donors and development agencies?
Various donors and development agencies support organic initiatives in low and middle-income countries. 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 "Gender issues in organic value chains").
- 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.
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 "Financial planning and management"). 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).
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 "Financing your organic business"). 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.
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).
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.
- 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.
- 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 "Donors and development agencies supporting organic value chains"