Smallholder Producers

Who is this guide for?

„Organic business“

Cooperative or Company

Processors, Traders

Final consumers

Economic and non-economic benefits of organic & fairtrade

Net income = ( Harvest Price ) – Production costs

+ less financial and production risk, less indebtedness

+ diversification of crops and income, more food security

+ environmental benefits (soil, water, bio-diversity)

+ health benefits (no pesticides, better food)

Simplified income model:

Reduction of input costs

Organic, fairtrade and quality premium

Stabilized yields

Organic Fair Trade

Other sustainability

initiatives

„Business as usual“

Quality and social standards in conventional

production

Leve

l of s

usta

inab

ility

Sustainability triangle

„You can‘t push a chain…“

Which products are in demand? (where? when? prices? trends?)

What can we produce?(farming systems, technology)

Can we meet the requirements? (quality, volume, timing, packaging)

Which products are profitable?(production costs, margins)

Can we compete with others?(price, quality, added value)

Potential products

Start from the market!

Local vs. regional vs. global markets

Local rural markets

Regional urban markets

Global markets

Logistics, quality requirements, premium, competition

Mainly staple food (rotation crops), with little or no organic premium

Mainly fresh produce for urban centres; possibly with some organic premium

Mainly export of commodities, with formal certification, organic and/or fairtrade premium

Provision of inputs

Production Bulking

Cleaning Grading

Trade Retail Processing Packaging

Value chain chart

Services (financial, certification, advice etc.)

Business environment

Cotton farmers

Boutiques

Traders

Consumers local / abroad

Certification agencies

Research Institutes

Financial service

providers

Development NGOs

Rotation crops

Supporters

Organic cotton value chain map

Retailers

Input suppliers

Producer Coope-rative / Company

Industrial textiles Handmade textiles

Brands

Traders Textile processor

Retailers

Prod

uctio

nB

ulki

ng /

proc

essi

ng /

trad

eR

etai

lC

ons.

Government agencies

Cotton trader

Ginning Factory

Consumers abroadConsumers local / abroad

Donors / Investors

Prod.

Workshops

Provision of inputs

Production Bulking

Cleaning Grading

Export Retail Processing Packaging

Downstream integration

Present business scope Downstream integration

SWOT

Strengths Opportunities

Weaknesses Threats

Analysis of the organic business

Analysis of markets and trends

Analysis of competitors

Analysis of the business environment

Organisational structure of an organic business

Processing unitExtension & ICS

• Field officers• Internal inspectors

Lead farmers

Trade departmentAdministration

Executive director

Governing body

• Accountant• HRD manager

• Logistics staff• Marketing staff

• Processing staff• Quality manager

Specialisation or diversification?

Specialisation

• sufficient know-how of production methods, processing technology, markets

• professional manage- ment of business relations

• making use of econo- mies of scale

Diversification• reducing risks (production risk, price risk)• opening up new development oppor- tunities• making use of syner- gies (farming system, infrastructure, certifi- cates, management systems etc.)

Breaking even

first break even point

second break even point$

revenues

costs

investment for up-scalingor diversification

years

profit

loss

Monthly liquidity

-20'000

-10'000

0

10'000

20'000

30'000

40'000

50'000

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

Cash demand

Total income

Liquidity

US$

month

Typical producer organisation set-up

Retailer 1

Producer organisation

• Management and Administration

• Extension and ICS

• Bulking

• (Processing)

• Marketing

Farmer Group 3

Retailer 3

Farmers

Farmer Group 2

Farmers

Farmer Group 1

Farmers

Organic

business

Processor / Trader Trader

Retailer 2

Roles and functions of extension and ICS

Head of ICSHead of extension

Extension service Internal Control System

Field officers

Lead farmers

Farmers

technical advice internal controlextension ICS

Inspection of farms

Mutual control

Training and supervision of field officers

Training and supervision of lead farmers

Training and technical advice of farmers

Mutual exchange

Training and supervising of internal inspectors

Internal inspectors

collaboration

Note: Field officers of one zone can be internal inspectors in another zone

Fair trade pricing

Fairtrade organic price

Fairtrade minimumprice

organic premium

market price

$

time

Internal Control System (ICS)

ExternalCertifier Processing

& Trade

Retail

Consumers

Trust

(adapted from IFOAM)

What is the Internal Control System (ICS)?

Actors, functions and tools in the ICS

field visits

Internal inspection of farms

Support farmers in documentation; report non-conformities

Documentation of farm activities;mutual control

Head of ICS

Internal inspectors

Lead farmers

Farmers

Approval committee

Management of the ICS; checking its functioning

Decision on sanctions and exclusions

Actors Functions Key tools

Internal inspection report

ICS forms

Operating manual,data base

Sanction catalogue

ICS forms

Data handling and management

Database - lists (farmers etc.) - data tables - calculations - reports - forms - checks

Farm documents

- farm data - field data

Internal Inspection

reports

Decisions of Approval

Committee

Commercial transactions

Distribution of inputs

External certification agencies (organic & FT) Management of the project

Purchase and payments

Training and extension

Product Organic fairtrade cotton fibre for textile industry Fairtrade certificate (FLO-Cert) and organic certificate (EU,

NOP, certified by Ecocert) Quality:

Staple length: 27-32 mmMicronnaire: 4.8

Producer: smallholders associated with producer organisation (certificate holder) Country of origin: XXXXX Packaging: in bales of 220 kg, wrapped in cotton tissue

Price Producer price based on FLO minimum price for organic seed cotton Fibre: premium price level Price differentiation (discounts) based on volumes, readiness to enter into long-term partnership, and provision of pre-financing

Place (Distribution) Direct export to spinning mills or via cotton trader (exporter); Small volumes sold to local handmade processing units

Promotion Personal selling: getting in contact with potentially interested final distributors Linking with potential clients through partner NGOs Participation in organic and fairtrade fairs Inviting potential clients to field visits Promotional materials for clients and/or consumers After-sales follow up on client satisfaction with spinning mills and distributors

Target MarketFibre: Top sustainability (Organic & Fairtrade), clients committed to poverty reduction in Africa Final Product: Retailers or wholesalers with Corporate Social Responsibility policyMedium to high quality/price market segment

Marketing mix

Pricing

Economy Penetration

Skimming Premium

Low HighQuality

Lo

wH

igh

Pri

ce