Agroenterprise Guidebook

THE CLUSTERING APPROACH TOAGROENTERPRISE DEVELOPMENTFOR SMALL FARMERS:The CRS-Philippines Experience

A Guidebook for Facilitators

About the cover Organized clusters can be the key to successful agroenterprise development. The illustration on the cover represents the eight-step participatory process where clusters of small scale farmers become active players gainfully engaging in the dynamic market. Innovated by CRS-Philippines Agri/NRM Program from the CRS-CIAT Learning Alliance on Agroenterprise Development, the process continues and progresses towards the empowerment of the clusters and the building of new ones.

Catholic Relief Services was founded in 1943 by the Catholic Bishops of the United States to assist the poor and disadvantaged outside the country.

It is administered by a Board of Bishops selected by the National Council of Catholic Bishops and is staffed by men and women committed to the Catholic Church's apostolate of helping those in need. It maintains strict standards of efficiency and accountability.

The fundamental motivating force in all activities of CRS is the Gospel of Jesus Christ as it pertains to the alleviation of human suffering, the development of people and the fostering of charity and justice in the world. The policies and programs of the agency reflect and express the teaching of the Catholic Church. At the same time, Catholic Relief Services assists persons on the basis of need, not creed, race or nationality.

Catholic Relief Services gives active witness to the mandate of Jesus Christ to respond to human needs by:

• Responding to victims of natural and man-made disasters; • Providing assistance to the poor to alleviate their immediate

needs; • Supporting self-help programs which involve people and

communities in their own development; • Helping those it serves to restore and preserve their dignity

and to realize their potential; • Collaborating with religious and nonsectarian persons and

groups of goodwill in programs and projects which contribute to a more equitable society; and

• Helping to educate the people of the United States to fulfill their moral responsibilities in alleviating human suffering, removing its causes and promoting social justice.

THE CLUSTERING APPROACH TO AGROENTERPRISE DEVELOPMENT FOR SMALL FARMERS: The CRS-Philippines Experience

A Guidebook for Facilitators

Catholic Relief Services ‒ USCCB Philippine Program

2007

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Correct Citation CRS-Philippines. 2007. The Clustering Approach to Agroenterprise Development for Small Farmers: The CRS-Philippines Experience. A Guidebook for Facilitators. Davao City, Philippines.

Published by Catholic Relief Services – USCCB Philippine Program

ISBN 978-971-93973-0-4

For further information and feedback, please contact: Catholic Relief Services – USCCB Philippine Program CBCP Building, 470 Gen. Luna Street Intramuros, 1002 Manila Philippines

Tel. (63 2) 527 8331 to 35 Fax (63 2) 527 4140 E-mail: [email protected] Website: www.crs.org

This Guidebook is considered as an international publicgood. Any part of it may be quoted or reproduced providedthe source is acknowledged and the purpose is non-profit.

CRS-Philippines will appreciate receiving feedbacks on thisGuidebook and copies of any publication which draws on it.

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Guidebook Review and Oversight Committee

Pedro Terry R.Tuason - Chair Program Manager, CRS Ph Agriculture and Natural Resource Management Program

Donato Romulo C. del Castillo – Vice Chair Program Advisor, CRS Ph Agriculture and Natural Resource Management Program

Jessan S. Catre - Member Marketing Project Coordinator, CRS Ph Agriculture and Natural Resource Management Program

Floro T. Israel - Member Marketing Project Coordinator, CRS Ph Agriculture and Natural Resource Management Program

Lionel D. Mendoza - Member Marketing Project Coordinator, CRS Ph Agriculture and Natural Resource Management Program

Joan Cua Uy - Member Marketing Consultant, CRS Ph Agriculture and Natural Resource Management Program Vice President for Marketing, Northern Mindanao Vegetable Producers Association, Inc. (NorminVeggies)

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Guidebook Writing Team

CRS-Philippines

Jessan S. CatreMarketing Project Coordinator, Agriculture and Natural Resource Management Program

Floro T. Israel Marketing Project Coordinator, Agriculture and Natural Resource Management Program

Lionel D. MendozaMarketing Project Coordinator, Agriculture and Natural Resource Management Program

Joan Cua UyMarketing Consultant, Agriculture and Natural Resource Management Program Vice President for Marketing, Northern Mindanao Vegetable Producers Association, Inc. (NorminVeggies)

External Writers

Dinah Q. Tabbada Formerly Community and Institution Development and Extension Specialist of the EU-GOP Upland Development Project in Southern Mindanao and Development Communication Specialist of the World Agroforestry Centre (ICRAF-Philippines).

Alexander U. TabbadaFormerly Senior Programme Specialist and NRM Research Officer of the World Agroforestry Centre (ICRAF-Philippines) and Agribusiness Specialist of the USAID-Growth with Equity in Mindanao Program – Phase 1.

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Contents Acronyms ix Glossary of Terms xi Preface xiv Forewords xvi Messages xix About this Guidebook xxii How to Use this Guidebook xxiv Acknowledgements xxv Part I Agroenterprise as a Strategy to

Improve Well Being 1

The Integral Human Development Framework

2

The Agriculture/Natural Resource Management Framework

3

The Agroenterprise Development Approach

3

Part II The 8-step Clustering Approach to Agroenterprise Development

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Step 1 Site selection, partnership building and formation of Working Group

13

Step 2 Product supply assessment and product selection

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Step 3 Market chain study 49Step 4 Cluster formation 73Step 5 Cluster plan formulation 89Step 6 Test marketing 109Step 7 Scaling up 119

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Step 8 Cluster strengthening 127Part III Cluster Stories to Tell 141 Story 1 Reaping the fruits of improved timing and

quality of deliveries 144

Story 2 The cluster of hat makers in Maguindanao

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Story 3 Organizing and training for the strawberry market

154

Story 4 Testing the waters with dried fish 157Story 5 The cluster moves forest coffee (and

other farmers) to the market 160

Story 6 Missing the boat, missing the market 165Story 7 Small, steady steps to build a marketing

enterprise for Maguindanao’s organically grown, traditional rice

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Story 8 Small Impasugong squash farmers moving into the market with the vegetable industry group in Northern Mindanao

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Part IV Lessons Learned 177References 184

List of Figures Figure 1 The CRS framework for Integral Human

Development2

Figure 2 The Agri-NRM Development Framework and Processes of CRS-Philippines

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Figure 3 An illustration of the 8-step process of the clustering approach to agroenterprise development, CRS-Philippines experience

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Figure 4 Example of a sociogram used to identify leaders among 10 pre-identified community members

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Figure 5 A sample of market chain showing the different stages and the corresponding business support services

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Figure 6 An example of a value chain for calamansi, Siay, Zamboanga Sibugay

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Figure 7 The ANSOFF Matrix used in assessing risks when deciding for new products & markets

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Figure 8 Sample of a market chain for green coffee beans

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Figure 9 Market chain map drawn from a corn market chain study using the RMA

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Figure 10 Market chain map drawn from a vegetable market chain study using the RMA

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Figure 11 Example of a value chain for dried coffee beans

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Figure 12 Another way of presenting the margins along the chain

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Figure 13 Matrix for Buyer Comparison summarized by the farmers after market survey and visits

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Figure 14 A graph of the Nestle Coffee Buying Price over a 1 -year period

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Figure 15 Projected Marketing Costs & Returns from Various Buyers in the Coffee Market Chain

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Figure 16 Basic structure of a group of clusters 79 Figure 17 Structure of Clusters covering 3 municipalities

in 3 provinces collaborating to supply one market

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Figure 18 Cluster Map of Saranga Coffee Farmers 88 Figure 19 Coffee harvest and product delivery calendar

of Saranga Cluster88

Figure 20 The framework of Agroenterprise Development

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Figure 21 Illustration of a sample PQMP that each cluster member must follow to ensure quality of produce

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Figure 22 Example of a Cluster Map 105 Figure 23 Operational Plan of Maragusan Coffee

Clusters107

Figure 24 Activity Operational Plan five days before delivery

107

Figure 25 Diagram showing the elements of agroenterprise implementation

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Figure 26 An illustration of the transformation process of a cluster as an organization

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Figure 27 An illustration of the strengthening of the marketing position of a cluster

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Figure 28 An illustration of the development of a stable product supply base within a cluster

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Figure 29 An illustration of the improvement of the business management capacity of a cluster

135

Figure 30 An illustration of the growth of a cluster from assisted to sustainable

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List of Tables Table 1 The steps, features, and outputs of the

clustering approach to agroenterprise development as developed by CRS-Ph

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Table 2 Effect on profit of different levels of production, prices, sales and costs

26

Table 3 Sample matrix used in comparing the values offered by buyers

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Figure 22 Example of a Cluster Map 105 Figure 23 Operational Plan of Maragusan Coffee

Clusters107

Figure 24 Activity Operational Plan five days before delivery

107

Figure 25 Diagram showing the elements of agroenterprise implementation

114

Figure 26 An illustration of the transformation process of a cluster as an organization

130

Figure 27 An illustration of the strengthening of the marketing position of a cluster

131

Figure 28 An illustration of the development of a stable product supply base within a cluster

133

Figure 29 An illustration of the improvement of the business management capacity of a cluster

135

Figure 30 An illustration of the growth of a cluster from assisted to sustainable

137

List of Tables Table 1 The steps, features, and outputs of the

clustering approach to agroenterprise development as developed by CRS-Ph

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Table 2 Effect on profit of different levels of production, prices, sales and costs

26

Table 3 Sample matrix used in comparing the values offered by buyers

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Acronyms

AE Agroenterprise AMAD Agricultural Marketing Assistance

Division A/NRM Agriculture/Natural Resource

Management BAS Bureau of Agricultural Statistics BLGU Barangay Local Government Unit CAG Cluster Advisory Group CDO Cagayan de Oro City CIAT Centro Internacional de Agricultura

Tropical (a.k.a. International Centre for Tropical Agriculture)

COPAR Community Organizing through Participatory Action Research

CRS-SEAPRO Catholic Relief Services – Southeast Asia Pacific Regional Office

DA Department of Agriculture DAR Department of Agrarian Reform DTI Department of Trade and Industry GEM-USAID Growth with Equity in Mindanao

Program - USAID IHD Integral Human Development Kasilak Kasilak Development Foundation, Inc. Kaanib Kaanib Foundation, Inc. Kadtuntaya Kadtuntaya Foundation, Inc. KRA Key Result Area LGU Local Government Unit

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MCS Market Chain Study NFTS Natural Farming Technology System NGO Non-Government Organization NSO National Statistics Office PCEEM People Collaborating for Environmental

and Economic Management in Davao Foundation, Inc.

PME Participatory Monitoring and Evaluation PSA Product Supply Assessment PQMP Product Quality Management Plan RMA Rapid Market Assessment SFMP Small Farms Marketing Project SWOT Strengths, Weaknesses, Opportunities

and Threats USAID United States Agency for International

Development USDA United States Department of Agriculture WG Working Group XAES Xavier Agricultural Extension Service

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Glossary of Terms

Agroenterprise - refers to a business venture, typically small-scale, that can be undertaken either on-farm, or a service that can be used to support other businesses (CIAT ERI Guide 2). An agroenterprise operates in a defined territory which may be a barangay (village), municipality, or group of municipalities.

Agroenterprise Plan – a business plan which contains the Market, Supply, Management and Financial Plans of the cluster. The AE Plan serves a guide for the cluster and its members in their production and marketing activities.

Cluster – a group of 5-15 farmers who are committed to establish a market-linked agroenterprise within a defined territory.

Cluster Advisory Group - formerly the Working Group at post cluster formation. The WG farmer-members who joined the cluster are no longer included in the Cluster Advisory Group.

Facilitator – refers to Community Organizer, Marketing Facilitator, Marketing Officer, Agricultural Technologist, Development Facilitator, and similar change agents charged with the task of assisting farmers in the areas of organizing, extension, technical assistance, marketing linkage, and AE development.

Financial Plan – the component of the AE Plan which reflects the capital requirements and the projected costs and returns of the cluster’s business.

Management Plan – the component of the AE Plan which indicates the management structure, tasks, responsibilities

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and compensations, and policies and procedures of the cluster.

Market Plan – the component of the AE Plan which indicates the product/s to produce and market, the sales targets, the payment arrangements and procedures, and the promotion strategies.

Marketing - the process of moving products from the point of production to the point of consumption to satisfy the needs and wants of customers or buyers at a profit.

Small-scale farmer – refers to a farmer who falls in any of the following three types of poor as qualified by CRS-Philippines:

1. Resourceful poor - consistently able to sustain at least a small margin above a minimum livelihood , have sufficient resources to fall back on when there are extraordinary economic or environmental shocks and to “grow” their livelihood options.

2. Poor - vulnerable to extraordinary economic or environmental shocks but otherwise able to sustain a livelihood that meets their basic needs and to minimally improve their livelihoods.

3. Chronic or ultra poor - resources are at or below a bare minimum for daily survival, they are extremely vulnerable all or most of the time and have the greatest difficulty of all three groups in improving their situation.

For purposes of developing clusters that can initiate and pump-prime more AEs, CRS-Philippines worked with resourceful poor farmers.

Supply Plan – the component of the AE Plan which shows the suppliers (of the products to be marketed), the estimated volumes of supply, the quality management processes and

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requirements, the product operational flow, and the materials, equipment and other needs.

Territorial Approach - a participatory and an area-defined scheme in rural enterprise development developed by the International Center for Tropical Agriculture. The territory may be a barangay (village), municipality, or group of municipalities.

Working Group – composed of farmers, NGOs, Local Government Units, local business sector, and Peoples Organizations. The Group is tasked to conduct Community-Based Market Research and Product Selection and other relevant activities. The WG may also be called the Local Planning Team or the Local Research Team.

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Preface

Over the past several years, a new trend in the marketing of agricultural produce has emerged driven by the increasing population of urban consumers with higher incomes and dynamic lifestyles. The increase in the demand for high quality and safe produce, coupled with the want for leisure and convenience, gave rise to the rapid growth of supermarkets, quick service restaurants and food manufacturers/processors. Globalization, which made it easier to move a variety of high quality products across geographical areas, has fueled this demand and contributed to this dramatic change in the markets.

With funding support from the United States Department of Agriculture – Food for Progress Act of 2004, Catholic Relief Services (CRS) Philippines started implementing in mid 2004 the Small Farms Marketing Project (SFMP) in the following provinces of Mindanao: Bukidnon, Compostela Valley, Maguindanao, Zamboanga Sibugay and the upper watershed of Davao City. All CRS agriculture and natural resource management programs are guided by the following six principles: [1] Work with farmers as partners; [2] Treat farming as a family business, acknowledging that rural communities are linked to markets and that farm families need income for off-farm products and services; [3] Focus on farming systems, supporting diverse production - crops, livestock, trees and fish; [4] Promote agricultural practices that do not deplete or damage resources, linking production to conservation; [5] Use watershed approaches, fostering cross-community collaboration for resource protection, natural disaster mitigation, and upstream/downstream cooperation to meet competing water needs; and [6] Ensure immediate benefits; invest in long-term production.

CRS Philippines, through the Small Farms Marketing Project, has organized small farmers into marketing clusters

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to enable them to equitably participate in the opportunities of evolving dynamic markets. Through the clusters, farmers can proactively plan their production in cooperation with the big consolidators servicing these high value markets, manage quality, and consolidate significant product supply. The clustering strategy has enabled farmers to introduce reforms in the marketplace, gradually replacing adversarial relationship with some traders into collaborative arrangements with product consolidators and institutional buyers. This has resulted in innovative supply chains that cut layers towards the dynamic markets and gave small farmers, acting collectively, the benefits of more stable markets and/or higher returns.

This guidebook, “The Clustering Approach to Agroenterprise Development for Small Farmers, the CRS – Philippines Experience,” has been designed for Field Facilitators who have adequate field experience in community development work. The production of this guidebook was also made in response to the request of other development organizations to assist them on how to adopt, adapt and implement Agroenterprise Development in linking small farmers to modern markets.

PEDRO TERRY R. TUASON Program Manager Agriculture and Natural Resource Management Program Catholic Relief Services - Philippines

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Foreword

In recent years, CRS programs in Africa, Latin America and Asia have promoted market driven strategies for poor, marginalized small farmers. This manual, The Clustering Approach to Agroenterprise Development for Small Farmers, the CRS-Philippines Experience, is an exciting new addition to the best practice guides being developed by CRS.

The manual is a Guidebook for Field Facilitators. It provides a stepwise practical approach to understanding markets, identifying market opportunities and then preparing farmers to supply selected market types. The guide uses novel methods for clustering farmers and linking them into higher value market chains that would not have been open to individual farmers.

This guidebook is valuable for all practitioners. It builds on existing knowledge, is grounded in a local situation, and adds new concepts on setting up farmer groups for marketing and clustering groups to achieve high volume for sales. The process of developing this guide comes through a strong partnership between CRS, research, farmer associations and traders. These partners are essential to make markets work for the poor farming communities.

A critical part of CRS’ work is finding sustainable solutions for the poor that provide livelihood pathways out of poverty. This process includes engaging with markets and playing an active and innovative role in market chains. This guide provides us with the stepwise approach to that goal of sustainability. All of this takes much time and effort but through these types of

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guides CRS staff and partners are better able to facilitate the process of positive change.

We congratulate the CRS and partner agribusiness team in The Philippines for the excellent guide. It’s important to document our work and share it with the broader CRS community and others engaged in similar work.

Agroenterprise approaches are proving successful mechanism to lift poor farmers out of subsistence living and into sustainable livelihoods. This manual is a significant contribution to CRS’ work with the poor and marginalized.

MARY HODEM Regional Director CRS-Southeast Asia and Pacific Region Office (SEAPRO)

SUSAN HAHN Deputy Regional Director, Program Quality CRS-SEAPRO

SHAUN FERRIS Senior Technical Advisor, Agriculture and Livelihood

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Republic of the Philippines DEPARTMENT OF AGRICULTURE

Office of the Secretary Elliptical Road, Diliman, Quezon City 1100

ForewordThe task of teaching small farmers and fishers modern and sustainable technologies and convincing them to organize themselves into associations or cooperatives so they could expand into processing and marketing enterprises are enormous challenges that the Department of Agriculture family cannot perform and bankroll alone. Thus, we continuously seek the support of concerned groups and institutions, here and abroad.

In this case, we wholeheartedly appreciate the initiatives of the Catholic Relief Services and the United States Department of Agriculture in the packaging and publication of this valuable document.

Indeed, this guidebook will serve as a valuable reference for community organizers and facilitators, agriculture technicians and extension workers in helping organize small farmers into groups or clusters, link them directly with the markets, and pave the way to establishing their respective agro enterprises.

We therefore commend the men and women of CRS-Philippines, its partner NGOs and farmer-leaders who shared their respective experiences and spent painstaking hours to complete this book, which we expect will serve its purpose well in transforming farmers into market-oriented producers and entrepreneurs.

Mabuhay ang CRS at USDA! Maraming salamat sa inyong patuloy na tulong!

ARTHUR C. YAP Secretary

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Message The production of “The Clustering Approach to Agroenterprise Development for Small Farmers, the CRS –Philippines Experience”is the result of years of experience and effort by CRS staff and partners in Mindanao. It started over ten years ago with the idea of assisting farmers in Mindanao to increase productivity through improved environment-friendly farming techniques.

As the interaction grew between CRS, the farmers and the other project stakeholders, the focus of the project evolved from “farmer-to-farmer” training to “integrated pest management” to “landcare” to “marketing” to the “clustering approach to marketing”. The current program continues to incorporate all of these aspects but with an emphasis on the “clustering approach”. The manual is an attempt to share this learning process.

Many talented and dedicated people were involved in this effort starting with the farmers groups and the local government units. Archbishop Antonio Ledesma actively supported the first successful “calamansi” projects in the Ipil Prelature. Paul Hicks and Terry Tuason of CRS led the transformation of the idea into a concrete proposal and initiative. Joan Uy provided the intellectual framework for the “clustering” approach which was indispensable to the program. Danny Ocampo provided steady management support through rough periods. Our NGO partners - Kasilak, Kaanib, Kadtuntaya, XAES, and PCEEM - were instrumental in leading the process of inclusion of and consultation with government at the local and provincial levels. Senator Ting Paterno and Bobby Ansaldo helped promote the program among the business community.

Finally, the program could not have succeeded without the support and encouragement of the Department of Agriculture of the Republic of the Philippines and the United States Department of Agriculture.

Michael J. Frank CRS Ph Country Representative

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MessagePhilippine agricultural development is key in moving the country forward and it is widely known that sustained expansion of the national economy will likewise require sustained growth in the agricultural sector. Various economic and sophisticated developmental models have been designed for this although many times, they remain as such, all theory and speculation.

Translating theory into reality is easier said than done and this is usually the case in developing countries whose agricultural sectors are predominantly in the hands of small-scale farmers. As the world rapidly changes and the dynamics of rural social systems continue to shift, identifying the appropriate mix of developmental interventions require patience and innovation.

The Clustering Approach to AgroEnterprise Development for Small Farmers: The CRS-Philippine Experience goes beyond identifying the tools for change by integrating, among others, certain essential management disciplines in the development process.

Drawing from proven and tested countryside developmental experience, the guidebook is not only deliberate, determined and instructional; it is also practical, realistic and concise. It is the perfect companion for the field-extension worker and rural development planner.

I would like to congratulate all those involved in the preparation of this excellent guidebook and I assure you of my continued support

Emiko Purdy Agricultural Counselor

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Message

Throughout Mindanao, on a seasonal or even daily basis, countless rural households sell their produce at the farmgate to middlemen for immediate cash, but at relatively low prices. These products range from the traditional crops of rice, corn, and coconuts to the more diversified and location-specific commodities like vegetables, rubber, seaweed, calamansi, coffee, and rural handicraft. At the end of the day, the products of small farmers and fishermen reach the tables of consumers through a multi-linked marketing chain that channels most of the profits to middlemen rather than to the primary producers.

It is this anomalous situation that the eight-step clustering approach explained in this CRS guidebook tries to remedy. From actual experience in pilot areas, this clustering approach has reaped dividends for many small farmer households—helping them to gradually transform their production areas into entrepreneurial and self-reliant communities.

Much study, discipline, and self-organization, however, are required. The eight steps focus on these prerequisites which can be viewed more as guideposts for the planned and conscious development of rural households—clustered together.

+ ANTONIO J. LEDESMA, S.J. Archbishop of Cagayan de Oro

Office of the ArchbishopArchbishop’s HouseP.O. Box 113Cagayan de Oro City9000 Misamis Oriental, PhilippinesTel. Nos. (08822) 72-63-04; 72-23-75 (088) 857-1357 • Fax No. (08822) 72-63-05E-mail address: [email protected]

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About this Guidebook

This Guidebook is published by the Catholic Relief Services – Philippines primarily, but not exclusively, for Facilitators who are tasked in assisting small farmers interested to organize themselves into marketing clusters and to develop their own agroenterprises linked with the market. It provides the 8-step process clustering approach that guides Facilitators in equipping farmers with innovative methods so they become market oriented in their farming and can actually engage the markets.

This book has four parts. Part I provides an overview with the discussion of the CRS Integral Human Development framework that helps the reader understand the holistic dimensions of an enabling development process for the poor. Part II describes the clustering approach comprising a set of eight activities within a stepwise process that provides facilitators with knowledge and skills in participatory methods that enable them to effectively assist farmers build agroenterprises and engage the market. Tool kits are included in Steps 1 to 6 to guide facilitation. Part III shares stories from different clusters, and Part IV presents the lessons distilled from program experiences and recommendations for future course of action that can build on the current work.

The contents of this Guidebook are based mainly on the experiences of CRS-Philippines in assisting farmers develop markets for their produce and build their agroenterprises, under its Agriculture/Natural Resource Management Program with its partner non-governmental organizations (NGOs) and Local Government Units (LGUs).

This Guidebook took shape in a span of two years during which time CRS-Philippines and its partners gathered several times in knowledge-sharing sessions called the learning alliance. Through these joint learning activities, the steps in

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the clustering approach for agroenterprise development were clarified and simplified under different situations.

The clustering approach to agroenterprise development for small farmers is a work in progress. CRS-Philippines hopes that this Guidebook can lead or contribute to the development of approaches and strategies towards sustainable agroenterprises, especially among the small farmers.

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How to Use this Guidebook

This Guidebook is for use by Facilitators of development service providers such as government agencies, NGOs or other private sector actors including businesses, cooperatives and farmers associations that assist small farmers organize themselves, assess their market opportunities, establish links with markets, and build their own agroenterprises. The steps in clustering for agroenterprise development are presented with accompanying informational materials and tools to guide Facilitators in the conduct of training and market visits for farmers, and through the actual “learning by doing” process in enterprise operations. The approach is designed to be followed from Steps 1 to 8 in a systematic process as the farmers go through the market preparation and engagement for the first time. The sequence of activities is planned so that the results of the previous step lead to the next. When farmers gain marketing experience and move to the expansion stage (i.e. working with more producers, new products or higher value markets), they may skip certain steps and proceed to those appropriate to their immediate needs. For instance, when an organized cluster decides to market a new product, it can immediately proceed to Step 3, Market Chain Study. The scenarios presented and options taken emphasize the realities of uncertainty and risk inherent in a business, and therefore the user of this Guidebook should be flexible in following the steps according to the needs, capacities and resources of the farmers and the development service provider. The user of this Guidebook is encouraged to innovate. Feedback on its use is welcome.

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Acknowledgements The publication of this Guidebook has been made possible through the generous sharing of resources, time and information by a number of benefactors and partners, the encouragement from the business sector, and the trust and confidence of the participants on the CRS process. CRS-Philippines is especially grateful to the following:

International and National PartnersUnited States Department of Agriculture Food for Progress, benefactor of the Small Farms Marketing Project; CRS-Southeast Asia Pacific Regional Office; International Centre for Tropical Agriculture; The Philippine Department of Agriculture and its Regional Field Units

Non-Government OrganizationsKaanib Foundation, Inc.; Kadtuntaya Foundation, Inc.; Kasilak Development Foundation, Inc.; People Collaborating for Environmental and Economic Management in Davao Foundation, Inc. and Xavier Science Foundation – Xavier Agricultural Extension Service

Local Government Units Davao City; Impasugong, Bukidnon; Maragusan, Compostela Valley Province; Paglat and Gen. SK Pendatun, Maguindanao and Siay, Zamboanga Sibugay

Business Sector Northern Mindanao Vegetable Producers Association, Inc.; Vegetable Industry Council of Southern Mindanao and the institutional buyers, wholesalers/traders and supermarkets and business service providers for believing in and supporting the capability of small farmers to do business with them

The Working Groups and the Agroenterprise Clusters and their Leaders who journeyed with the staff of the CRS-Agri/NRM and its partners in evolving the 8-step process in the clustering approach for agroenterprise development.

The Guidebook Committee and the Writing Team who put all the significant experiences into this handy, practical and useful form.

THE CLUSTERING APPROACH TO AGROENTERPRISE DEVELOPMENT FOR SMALL FARMERS: The CRS-Philippines Experience1

Part I. Agroenterprise Development as a Strategy to Improve Well Being

THE CLUSTERING APPROACH TO AGROENTERPRISE DEVELOPMENT FOR SMALL FARMERS : The CRS-Philippines Experience

1

IMPROVED WELL BEING

ANRM Framework

IHD Framework

Agroenterprise Development

Agricultural Extension

Good Governance

Part I

Agroenterprise Development as a Strategy to Improve Well Being

INTRODUCTION

Part I of this Guidebook presents the emergence of Agroenterprise Development as a strategy to improve human well being. It traces the anchorage of this strategy which was adopted by CRS-Philippines through its Agriculture and Natural Resource Management Program to the Integral Human Development Framework of CRS.

THE CLUSTERING APPROACH TO AGROENTERPRISE DEVELOPMENT FOR SMALL FARMERS: The CRS-Philippines Experience 2



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THE INTEGRAL HUMAN DEVELOPMENT FRAMEWORK

The Catholic Relief Services or CRS is the official international relief and development agency of the Catholic community of the United States of America. As a general approach, it builds capacities to improve integral human development and people’s environment as it aims to: (1) alleviate human suffering, (2) promote integral human development, (3) change unjust structures, and (4) promote solidarity. (See Figure 1 for the CRS IHD Framework.)

Figure 1. The CRS framework for Integral Human Development.

As a pro-poor organization, CRS seeks to enable people to protect and expand the choices they have to improve their lives, meet their basic human needs, free themselves from oppression and realize their full human potential. As pro-environment, it promotes responsible stewardship of the resources through support for programs and activities that are ecologically sustainable and are in harmony with the local environment. These have guided the development of the Agriculture/Natural Resource Management (Agri/NRM) Program of CRS – Southeast Asia Pacific Regional Office.




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THE AGRCULTURE/NATURAL RESOURCE MANAGEMENT DEVELOPMENT FRAMEWORK

As a guide in implementing its program, CRS-Philippines conceptualized an Agri/NRM Development Framework and Process that is anchored on the IHD Framework. The goal of the Framework is to improve the quality of life of farm families through improved livelihood supported by (1) agricultural development interventions, (2) good governance, and (3) viable agroenterprise development services (Figure 2).

Figure 2. The Agri/NRM Development Framework and Process of CRS-Philippines.

THE AGROENTERPRISE DEVELOPMENT APPROACH

As defined by Chambers and Conway (1992), livelihoodcomprises “people, their capabilities and their means of living, including food, income and assets.” A livelihood is held to be

Policy advocacy

Good Governance & Peace Building Creation

of genuine POs and alliances

Acquisition & control of

critical resources

Crop & livestock

improvement

Improve the well-being of farm families (the people we

Serve)

Community based Market

Research

Enterprise Design and

Implementation

Cluster Development

& strengthening

AgroenterpriseDevelopment

Service Participatory Farm

Planning

Participatory NRM

Landcare Approach

Agricultural Extension Services




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sustainable when “it can cope with and recover from stresses and shocks and maintain or enhance its capabilities and assets, both now and in the future, while not undermining the natural resource base”. In line with this definition and qualification, CRS adopted the Agroenterprise Development (AED) Strategy to sustainable livelihood development.

Agroenterprise refers to a business venture, typically small-scale, that can be undertaken either on-farm, or a service that can be used to support other businesses (CIAT ERI Guide 2). The AED Strategy brings small holder growers together and guides their activities towards market-oriented and competitive farm business operations without necessarily forming a formal organization as a prerequisite. It combines good farming practices and business skills for farmers to develop sustainable production system that can respond to the need for food security, increased income, and sustainable resource base.

The CRS-Philippines experience in agroenterprise development stemmed from the 10-year experience of the International Centre for Tropical Agriculture (CIAT) in many collaborative projects in Latin America, Africa and Asia. The CIAT model which guided the first implementation stage of the CRS-SFMP uses the “territorial approach” as it develops community-based agroenterprises operating within defined geographical areas.

In an analogy presented at the introduction of Part I, agroenterprise development is one of the branches of the Agri/NRM tree that is anchored on the IHD Framework. The other branches of Agri/NRM are (1) agricultural extension, with emphasis on sustainable farm practices, and (2) good governance that promotes peoples’ participation in policies and programs that directly affect their livelihood. These three branches provide nourishment to the fruits, which represent the improved well being of the poor.


Part II. The 8-Step Clustering Approach to Agroenterprise Development


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Part II

The 8-Step Clustering Approach to Agroenterprise Development

INTRODUCTION

Part II presents the eight steps in the clustering approach to agroenterprise development that evolved in the course of the implementation of the USDA-assisted Small Farms Marketing Project (SFMP) that started in December 2004 and implemented in five pilot sites in Mindanao by CRS-




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Philippines in partnership with local NGOs and Local Government Units (NGOs).

The sharing of experiences and the refinement of the clustering approach were facilitated by the gatherings of CRS-Philippines with its development partners and farmer leaders for joint learning called the Mindanao Agroenterprise Learning Alliance (MAELA). These interactions captured the rich experiences of CRS-Philippines in developing agroenterprises in the light of emerging and growing markets, and the challenge to assist small farmers to become competitive and significant market players.

CLUSTERING FOR SMALL FARMERS

The highlight of the CRS-Philippine agroenterprise development strategy is the innovative method of organizing farmers into small groups called “clusters” within a defined territory or geographical coverage. This geographical focus facilitates the partnership building work with local development partners, like the LGUs, for sustainability. In a defined territory, the planning and monitoring processes for a particular farm production system are more focused and more efficient.

The territory of a cluster can be a sitio (sub-village) barangay(village), group of barangays, or the whole municipality. In due time, clusters may expand in membership or coverage, or may form a network or federation of clusters and cover more barangays or municipalities, and so on.

Forming clusters signifies a new development in farmer organizing and marketing set-up. The members in a cluster agree to develop an agroenterprise and proactively plan farm production according to a marketing objective. As product supply units catering to specific quality and delivery requirements of the buyers, the clusters offer a focus to attract buyers.




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Being small groups, clusters are better able to keep pace with continuously changing market opportunities that require constant innovations from them in production and postharvest practices. Moreover, the chance for each member to actively participate and be heard in meetings is greater than in large groups.

The clustering method provides a concrete mechanism where farmers can exercise ownership and control of their agroenterprise, benefit from it, and thus facilitate the farmers’ empowerment process. The clusters provide the learning ground for self and group management, a maturation process that is necessary for farmers to transition successfully into formal business entities and effectively relate with other market players and partners.

The clustering approach for agroenterprise development is a sequential process involving eight steps that prepares farmers to link with the market, assist them to be effectively organized into small groups or clusters, and guides them to




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engage the market with favorable arrangements that improve their incomes and livelihood.

The first five steps comprise the preparatory activities. This emphasizes the need for farmers to learn new skills, access new information, and adopt innovative methods to be able to identify and respond to market demands and opportunities given their capacities. Adequate preparation during this critical business preparation and organizing stage ensures that a higher degree of success is attained when their actual marketing starts to take place in Step 6 (Test Marketing).

As shown in Figure 3, the process does not end with the development and strengthening of the cluster. The cluster may either return to cluster plan formulation (Step 5) and review its agroenterprise plan, or initiate the formation of new and additional cluster (Step 4). Table 1 presents the features and outputs of the different step.

Figure 3. An illustration of the 8-step process of the clustering approach to agroenterprise development, CRS-Philippines experience.




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Table 1. The steps, features, and outputs of the clustering approach to agroenterprise development as developed by CRS-Philippines.

The Farmers

“Journey” Step Dura-

tionActivities/Tasks

“The Work” Outputs

“The Milestones”

Getting started

(1)

Site selection, partnership building, andformation of Working Group(WG)

2 to 4 weeks

• Identify project site • Develop partnerships

with stakeholders (government, other NGOs & development organizations, local business sector, farmers

• Organize a working group (WG)

• Convene orientation sessions and planning meetings

• Identified project site for development support

• Established partnership with stakeholders with their representatives constituting a working group (WG)

• WG provided with orientation on the development project, marketing basics, participatory research

• WG with a plan to conduct research

Knowing our product supply capacity

(2)

Product Supply Assess-ment (PSA) and Product Selection

4 to 6 weeks

• Assist the WG to organize a local research team

• Provide training on PSA

• Conduct PSA • Undertake a

participatory analysis of research results, then select product(s)

• WG/local research team trained on PSA and the use of the tools

• Research results (info on farm assets, skills, products, production & marketing conditions, problems, etc)

• List of existing dominant products and farmers producing them

• Selected products for further research (i.e. market chain study)

Understand-ing our market opportunities

(3)

Market chain study (MCS)

4 to 6 weeks

• Provide training to WG on MCS

• Conduct market visits (in immediate commercial areas) and undertake MCS

• Undertake a participatory analysis of research results and consolidate findings into a report with analysis of product supply capacity matched with market opportunity

• WG trained on MCS and the use of tools

• Diagrams of market chains for selected products linking to potential buyers with costs and margins along the chain

• Initial market negotiation with potential buyers

• Research report




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Table 1 continued… The

Farmers “Journey”

Step Dura-tion

Activities/Tasks “The Work”

Outputs “The Milestones”

Deciding to work together and to organize for market competitive-ness

(4)

Cluster formation

2 weeks • Invite farmers growing the selected products for orientation meeting; present research report

• Provide orientation on marketing basics and clustering

• Initiate the formation of clusters, identification of cluster leaders, conduct organizational planning

• Report presented • Identified farmers

interested to join the cluster

• Cluster formed with cluster leaders

• Basic cluster agreement – to pool products and collectively market

• Objectives set relative to agroenterprise

Preparing to engage the market

(5)

Cluster PlanFormula-tion

2 weeks • Review commitment of cluster members (product supply, etc)

• Discuss in detail production programming (technologies like NFTS, support services, infra)

• Facilitate an interactive process of agroenterprise planning with operational planning

• Cluster planting calendar or product harvest calendar

• Product quality management plan

• A cluster agroenterprise plan consolidating market, supply, management and financial plans

• An operational plan for test marketing

Taking a leap (6)

Test Marketing

4 weeks • Undertake test marketing activities

• Call cluster meetings to assess performance after every product delivery, implement adjustments in the plan for improvements

• At least 4 trial product deliveries

• Performance report to the clusters of every delivery relative to cluster plan

• Expanded cluster agreements, as needed

Moving forward to build up our business

(7)

Scaling Up

Continu-ing (after test market-ing)

• Revisit cluster plan for scaling up

• Establish business operating systems

• Implement regular product deliveries to the established markets; pursue new markets

• Call monthly cluster meetings to assess performance

• Regular product deliveries to buyers

• Innovations (product and/or market development)

• Written business policies and systems

• Monthly financial and operational reports in the cluster meetings




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Table 1 continued…The

Farmers “Journey”

Step Dura-tion

Activities/Tasks “The Work”

Outputs “The Milestones”

Making it continue and grow.

(8)

Cluster strengthen-ing

Continu-ing (from cluster formation to 2 years)

• Ensure that cluster leaders convene regular cluster meetings and undertake cluster assessment

• Facilitate periodic capability building support: trainings, team building activities, cluster cross-visits, exposure trips, reflection sessions, etc.

• Promote networking of clusters and business links

• Organize formal business entity (e.g. cooperative)

• Knowledge and skills in agroenterprise operations (in the fields of leadership and organizational development, market strengthening, product supply and financial management)

• Clusters progressing in higher level of maturity

• Networking of clusters; formalization

• Networks in the business community

It is worth noting that the market environment of clusters is dynamic and CRS experiences suggest that the best results are attained when the key ideas in the approach and their application is adjusted to the local circumstances, including the resources of the farmers and the development service providers.

The succeeding sections of this Guidebook describe the eight steps in more detail.

Benefits of Clustering:

To the farmers

1. Better access to markets and better bargaining power (as an effect of quality, volume, variety and regularity)

2. Lower cost of doing business 3. Diversified and more predictable markets 4. Better income (as a result of higher price, reduced

losses and higher recovery, more stable markets)




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5. Better relations among growers as a result of working together and helping one another

6. Good image in the business community 7. Organized way of relating to resource providers

(government, non- government, business groups)

To the buyers

Buyers are always particular about quantity, quality and delivery reliability. This is where transacting with clusters can be beneficial due to these reasons:

1. Better compliance with quality agreements through the cluster’s Product Quality Management Plan it has formulated and must implement

2. Traceability of both cluster and grower through product labeling procedures

3. Easier product consolidation work 4. Immediate rewards & sanctions (discipline) 5. Flexibility to provide product preferences 6. Quick response to market feedback/complaints 7. A cluster can give in advance notice of impending

changes in shortages of product to be delivered

To the donors and implementing agencies

1. Efficient use of resources (including services) 2. Wider coverage 3. Equity of participating communities 4. Enhanced production-oriented livelihood,

agriculture and NRM projects 5. Sustainability (post-project)


Step 1. Site Selection, Partnership Building and Working Group Formation


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Site Selection, Partnership Building and Working Group Formation

1.1 PROCESS OBJECTIVES

Through the help of the Facilitator, Step 1 aims to enable the project to:

1. Determine the specific site for the agroenterprise; 2. Identify and engage institutional partners, such as

Local Government Units, Regional and National




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Government Agencies, Non-Government Organizations, and Peoples Organizations;

3. Form and orient a Working Group (WG); and 4. Assist the WG in formulating a plan for community-

based research.

1.2 INTRODUCTION

Site Selection, Partnership Building and Working Group Formation is a community process where appropriate site or sites and partners for the agroenterprise project are identified, and a Working Group (WG) composed of producers, local government units (LGU), non-governmental organizations (NGO), business sector and other relevant representation is constituted.

This is also the phase where potential farmer leaders are identified through rapid appraisal. These leaders are invited to be part of the Working Group (WG) and to participate in the upcoming initial activities.

1.3 SELECTING THE SITE

Basis for selection

In many cases, sites for the agroenterprise endeavor can be pre-identified from among existing project areas, or on the basis of donor preferences.

Ideally, a potential site for the agroenterprise project should have the following facilitating or enabling factors:

1. Responsive LGU 2. Presence of good extension services 3. Willing producers 4. Surplus farm products




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5. Favorable social conditions (peace and order, community awareness)

6. Presence of potential partners or related projects such as agriculture, natural resource management, landcare, or community development

The presence of more of these factors would facilitate the development of an agroenterprise.

At the minimum, willing farmers who have products that can be marketed can let an agroenterprise endeavor begin. However, this will require so much facilitation for clustering, capacity building, operationalizing and networking.

Geographical Focus

The site can be a sitio (sub-village), barangay (village), municipality, or a group/combination of each.

In a small area, like the sitio or barangay, the focus can be on understanding the local marketing system and identifyingproblems and bottlenecks that can be addressed through interventions in the local economy.

Rapid Area Assessment

In order to have a good grasp of the current situation of the site, a quick survey of the resources, institutions and their predominant business and production activities will be of help to the Facilitator. Knowing what and who are in the community will help him/her in carrying out the assigned tasks.

The following information can serve as a starting point for the Facilitator in making a rapid assessment of the area prior to a more extensive information gathering and analysis:

1. Physical resources (land and its use, water resources, soil, climate, rainfall patterns, cropping seasons, vegetation)




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2. Community profile (gender, age distribution, number of farmers, other sectors, household size, social groupings, educational level, history of collective action)

3. Infrastructure (roads/accessibility of farm areas, communications, electricity, water systems)

4. Business activities/services (business establishments, markets, business service providers, credit services both formal and informal)

5. Development assistance (NGOs, political structure, government policies and programs for the agriculture sector).

The above information can be generated by direct observation or by reviewing secondary sources such as the barangay or municipal profiles and development plans, LGU reports such as those in the Municipal Planning & Development Office (MPDO), the Municipal Agriculture Office (MAO), the Municipal Economic Enterprise Development Office (MEEDO), the Municipal Engineering Office (MEO), and other relevant offices.

1.4 BUILDING PARTNERSHIPS

This is the continuing process of linking with and engaging relevant institutions or organizations to support the agroenterprise development undertakings. For example, the Barangay Development Plan (BDPs) of Barangay Local Government Units (BLGUs) can be the entry point for agroenterprise projects especially when these are consistent with, or part of the agricultural development component of the BDP. Moreover, barangay officials, such as the Barangay Chair and the Committee Chair on Agriculture, can provide for the relevant local policy and program support.

At the level of the Municipal LGU, partnership can yield more support and counterparts, such as human resources, infrastructure, logistics (i.e., hand-held radios and transportation services), and policies. These can be provided




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by the office of the Local Chief Executive, the MAO, the MEEDO, the MEO, the MPDO, and the offices of relevant Sangguniang Bayan (Municipal Council) Committees. Links with other institutions and organizations operating in the barangay, municipal and provincial territories (such as producers, business sector and church) can also be established.

The process of building partnerships can be initiated through courtesy calls and meetings leading towards a consultation among identified partners. The active partnership begins with the establishment of a Working Group (WG).

1.5 FORMING A WORKING GROUP

During the community consultation, the Facilitator draws out the current situation related to farmers’ production and marketing, available resources, and existing programs of NGOs and LGUs. From the discussions, he/she leads the participants to a consensus on issues pertaining to farm productivity and incomes.

Addressing the above issues realistically needs a multi-pronged approach which can be led by the WG.

Role and lifespan of the WG

The WG is an adhoc body organized to provide leadership in the gathering of information that can help in product selection (Step 2), in conducting market chain studies (Step 3), and in forming cluster (or clusters) of farmers for agroenterprise development (Step 4). Immediately after cluster formation, the WG transforms itself into a Cluster Advisory Group (CAG) that will provide assistance in formulating and implementing an agroenterprise plan (Steps 5-7).

Beyond the above tasks, the WG (and eventually the CAG), can take an active role in utilizing the partnership as a mechanism to promote and develop the sharing, coordination




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and complementation of local programs and resources towards a common goal.

Composition of the WG

A WG may be composed of representatives from the MAO, MEEDO, NGOs, business sectors, farmers and people’s organization (PO). WG membership ranges from 10 to 15 individuals, at least two-thirds of which are farmers.

Members of the WG should meet at least once a month to discuss updates and coordinate activities.

To ensure the representation of farmers in the WG, the Facilitator must take extra effort to identify potential farmer-leaders.

(Refer to Facilitator’s Tool Kit No. 1 for the standards used in identifying farmer-leaders to be involved as members of the WG.)

Identifying local leaders for the WG

The Sociogram method can be used to identify indigenous leaders (male and female key persons and/ or opinion




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leaders) in the community who can facilitate the change process.

(Refer to Facilitator’s Tool Kit No.1 for a guide in using the sociogram.)

1.6 ORIENTING THE WORKING GROUP ON MARKETING

Immediately after its formation, the WG undergoes an orientation on the basics of marketing. This includes the definition and importance of marketing to the farmers, the concept of supply and demand, marketing strategies/mix (the 4 Ps), types of market, and the market chain.

(Refer to Facilitator’s Tool Kit No. 1 for the Session Guide for the Orientation on Marketing.)

After the orientation on marketing, the WG agrees on the schedule of the training on product supply assessment that will be undertaken in Step 2.




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Facilitator’s Tool Kit No. 1

A. IDENTIFYING LOCAL LEADERS

Standards used in selecting farmer-leaders

Selection standard for leaders, men and women, may include, but not limited to the following:

1. Farmer producer 2. With experience in marketing farm products 3. Respected 4. Aware and concerned about the community issues and

needs 5. Believes in the stake and power of communities

through participation 6. Good communicator: good listener, can express well

and open to ideas

Using the Sociogram Method in identifying local leaders

How to Use the Sociogram

The sociogram is especially useful in analyzing social or peer relationships. It gives the Facilitator an idea of how a member of a community or cluster is viewed by her/his peers in terms of leadership, trustworthiness, approachability and in other similar qualities. Spot potential leaders you can invite later to join the Working Group, following the basic steps below. You may revise these steps depending on specific or bulk of information needed and the number of respondents you can manage. Just make sure you maintain gender inclusiveness.

1. Gather at least 20 respondents, 10 men and 10 women. Give each one two (2) small sheets of paper. Make sure each has a pencil or ballpen.

2. Ask them to write their names on the topmost part of each paper provided to them.

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3. Ask them to discreetly write on one piece of paper the names of one (1) man and one (1) woman from the community whom they mostly approached for advice or opinions. Please emphasize that their choices should come only from their community.

4. Collect the answers and proceed to the next question. 5. Ask them to discreetly write on one piece of paper the

names of two people (one man and one woman) from their community whom they trusted most. Emphasize that their choices should come only from their community.

6. Collect the answers and thank the respondents for cooperating.

7. Classify the responses corresponding each of the two questions asked.

8. Make a sociogram of the responses to show who among the names were frequently most approached,or most trusted (and other qualities).

9. Make a sociogram of the results. (Refer to Figure 4 for the example.)

10. Spot the two most approached men and women and list down their names. Similarly, spot the two most trusted men and women and list down their names. This gives you eight potential leaders. In case a person is chosen as most approached and most trusted by a respondent, give him/her a point for each quality.

11. Develop a tool to further assess the above potential leaders in terms of leadership behavior (may be a matrix of leadership qualities or standard using a 3- or 5-point-scale from poor to excellent.

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Most approached: Man – Armand; Woman – Bilma Most trusted: Man – Ramon; Woman - Teresa

Figure 4. Example of a sociogram used to identify leaders among 10 pre-identified community members.

Woman Teresa

Woman Lisa

Man Rolando

Man Nicasio

Man Armando

Man Ramon

Man Mario

Woman

Woman Minerva

Woman Mila

Woman Bilma

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B. SESSION GUIDE FOR THE ORIENTATION ON MARKETING

Session Objectives

At the end of the session, the members of WG will be able to:

1. Define marketing; 2. Articulate the effects of market related factors on

farmer’s profit; 3. Explain the relationships of supply and demand and

the factors affecting them; 4. Describe the market chain and the participants/actors

involved; 5. Discuss value chain and how farmers earn from value

addition through participation in the chain; 6. Articulate the 4 P’s of marketing, competition and

market positioning; and 7. Demonstrate positive attitude towards marketing

Time Duration

2.0 hours

Resources Needed

Visual aids, marking pens, newsprint/manila paper, cartolina (for meta cards), adhesives, session and activity guide, and energizers

Session Procedure

1. Draw out participants’ understanding of Marketing. Open participation with this statement:

“One enjoyed a cup of brewed coffee this morning during breakfast because marketing made it

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possible to move coffee beans from the farmers and transform it into brewed coffee for your consumption.”

Ask participants to individually write on the meta cards what comes into their mind on marketing based on the statement. Then synthesize the answers into a definition. (It will help to arrange the meta cards with suppliers and buyers on opposite ends, then product, actors and activities/functions in between).

2. Present a matrix for computation where farmers can appreciate increase in income that is substantial from market related factors such as price increase of product, more volume sold/reduced damage, etc. (Refer to Table 1.) The red figures are the ones the participants are asked to compute. Deepen participants with discussion.

3. Give lecture and facilitate discussion on supply and demand with the factors that affect them or are affected by them.

4. Give lecture and facilitate discussion on Market Chain and Value Chain. Present an example of a value chain. (Refer to the example on page 29.) Draw out from participants the ways in which product value increases as it moves in the chain. Distribute meta cards for their individual answers, and synthesize by putting together the cards with similar ideas.

5. Give lecture and facilitate discussion on Marketing Strategy. Draw out from participants what kinds of questions will be helpful in strategizing using the marketing mix of product, price, placement and promotions. (Helpful questions as guide provided under the topic on Marketing Strategy, pages 31-33.)

6. End the session with an input on competition and product positioning.

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Session Content/Topics

1. What is Marketing 2. Farming Profitability by being Market Oriented 3. Supply and Demand 4. Market Chain, Value Chain, Value Addition 5. The Marketing Strategy (Target Market and the

Marketing Mix) 6. Competition and Market Positioning

Topic: WHAT IS MARKETING?

Marketing is the set of activities in moving a product from the point of production to the point of consumption at a profit. It is satisfying customers’ wants.

Given this definition, the work of marketing involves:

a. Understanding what the buyer wants in terms of products and the manner of supply to them;

b. Undertaking post-harvest activities such as packaging, transport, storage, and sale that add value to the product as it flows from the producer to the buyer

c. Establishing a production-market linkage and managing communications in between for market information and feedback

Topic: FARMING PROFITABLY BY BEING MARKET-ORIENTED

Improving production and yields has positive effect on income. But increases in price, being able to sell the product and reducing costs have an even higher impact to farmers’ incomes than just increasing production yield. Farmers’ concern is to earn profits from their sales to be able to cover the farm costs and to generate earnings for the household’s

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consumption needs. To be able to do this, farmers should have a basic understanding of the market related factors that influence profits: price, volumes sold and costs. Table 2 shows how changes in these factors affect a farmer’s profit.

Table 2. Effect on profit of different levels of production, prices, sales and costs. (Adapted from FAO publication, Horticultural Marketing)

Squash BaseCase

Yield (+10%)

Half Sold

Price (-10%)

Price (+10%)

Mktg Cost (-20%)

Yield (kg) 1000 1100 1000 1000 1000 1000 Quantity sold (%) 80% 80% 50% 80% 80% 80% Quantity sold (kg) 800 880 500 800 800 800 Price per kg 5 5 5 4.50 5.50 5.00 SALES 4000 4400 2500 3600 4400 4000Production costs 1000 1100 1000 1000 1000 1000 Marketing costs 1600 1760 1000 1600 1600 1280 Total costs 2600 2860 2000 2600 2600 2280 MARGIN 1400 1540 500 1000 1800 1720% of base case +10% -64% -29% +29% 23%

Note: marketing cost reduction can also apply for production cost reduction. Base case is farmer produces 1,000 kg of squash; 80% is sold, price is PhP 5/kg, production cost is estimated at PhP 1,000 and marketing cost packaging, transport, marketing fees) estimated at PhP 1,600.

Topic: SUPPLY AND DEMAND

The quantity of produce that consumers want to purchase is affected by these main factors: price, tastes and preferences of the consumers, number of consumers, incomes of consumers, prices of competing produce, range of products available to the consumers.

The quantity of that producers supply is affected primarily by: price of products, cost of production, technology available, climate and post-harvest capacities.

The price of a produce is determined mainly by supply and demand. The lower the price, the tendency is the higher will be the demand. However, as the price goes down eventually

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less will be supplied. Conversely, the higher the price, the higher is the supply.

1. Supply – is what producers are prepared to sell at a certain price

2. Demand – is how much buyers are prepared to buy at the market price

The relationship between what is demanded and what farmers are prepared to produce leads to a balance between supply and demand (referred to as the equilibrium). In practice, this point is difficult to attain because the workings of the market is very dynamic. Many factors influence supply and demand. Example, farmer’s supply is affected by climate, seasonality, road condition, etc. and not just the price.

However challenging is the situation of farmers, it is important for them to understand how the market works. And their objective should be: to be market demand oriented. This means: producing what they can sell instead of trying to sell what they have produced. This implies the importance of farmers understanding demand, supply and price movements/trends.

Topic: THE MARKET CHAIN AND VALUE CHAIN

A market chain refers to a set of linkages between actors involved from production to the consumers. Actors are those involved in various functions such as producing, processing, trading or consuming a particular product, and including those who provide various services. Figure 5 shows the functions as the product moves in the market chains with the various business support services.

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Figure 5. A sample of market chain showing the different stages and the corresponding business support services.

As the product moves from the production point to any point along the chain towards the consumers, there is value addition (i.e. an increase in worth). When various actors work together for value addition, the resulting relationship among the actors is referred to as the value chain.

Farmers as producers are part of the market chain but they are not even aware of this crucial role they have. Helping them to understand market chains and value chains will open their minds that they can benefit by being active players in the chain with other actors.

The Value Chain presents how the value of a product is increased as it passes through different stages or links in the chain by way of the example in Figure 6.

Research

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Market information & intelligence

Financial services

Techical & business training & assistance

Production input supply

Communications

Government policy& regulation

Transportation

Production

Post-harvestHandling

Trading

Processing

Trading

Retailing

ConsumptionThe Market Chain

(Adapted from CIAT ERI Guide 2)




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Figure 6. An example of a value chain for calamansi, Siay, Zamboanga Sibugay.

Farmers can gain from active participation in the market chain and in being part of a value chain in two ways.

• First, farmers can perform more value addition functions beyond the farm such as the post-harvest functions of drying, sorting, grading, processing, transporting, packaging with labels. Undertaking these activities is what is called vertical integration.

• Second, farmers can actively be involved in how decisions are made affecting them in the exchange or buy and sell function, such as pricing, terms of payment, definition of quality standards, targeting of preferred buyers and the like. In all these efforts for value addition, farmers have to be organized to have influence in the chain and the capacity to undertake the activities.

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Siay Growers’ PricePhp370.00

(23kg/crate or Php16.08/kg.)

Note: Trader ’s Buying Price isphp370 per Buriki @ 27kg content or

Php13.70/kg.

• Transport: Php40.00• Misc.: Php5.00• Mgt. Fee Php25.00• Margin: Php60.00

Manila WholesalerPhp500.00

CDO Market Facilitator’s Fee Php20.00/crate

•CDO Pier Loading: Php10.00•Shipping Cost: Php50.00•Manila Pier Unloading: Php10.00•Trucking to Buyer: Php10.00•Allow. for Losses: Php50.00•Margin: Php120.00

Manila Wet Market RetailerPhp780.00




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The farmers may choose a long or a short chain and how far their participation in it. It depends on the type of product, the capacity of the farmers as well as the risks involved.

Important Market Chain Actors

1. Barangay Traders – the small traders who visit the barangays to buy either from agents or directly from farmers.

2. Assembly Traders – the traders who buy from the barangay traders, agents or directly from the farmers. They are normally operating at the rural markets or towns.

3. Wholesalers – the traders who deal with bigger volumes from the barangay and assembly traders. They serve the needs of larger markets (like the processors and institutional buyers) or other bigger wholesalers operating in the towns or cities. They also cater to the retailers.

4. Retailers – the ones who take care of the distribution to the products to the consumers. Retailers can be the sellers operating in small shops, roadside market outlet, and the high-end supermarkets.

5. Processors – the individuals or firms who transform products into different forms. Examples are the processors for fruit juices or the rice millers. They can either be small household businesses or large firms.

Topic: MARKETING STRATEGY

A Marketing Strategy has two interrelated elements: the Target Market and the Marketing Mix. The target market is a person, group of people or a business organization that the seller wishes to be the buyer of the product. This enables the

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seller to focus on a target for both the product and the communication work.

The marketing mix which is commonly referred to as the 4 P’s in marketing, is a set of controllable and interrelated variables comprised of the product, place, price and promotions that the seller puts together to be able to satisfy the target market(s) better than its competitors. The marketing mix is the source of much of the content of the marketing plan.

The marketing mix variables are as follows:

1. Product – refers to the product offered for sale. The type and characteristics of the product will depend on what the target market wants. These questions may help:

• Who buys the product? • For what and how will it be used? • What does the buyer look for in the product?

(quality, size, packaging, and other characteristics) • What is unique about the product offered?

The following trends in consumption may serve as additional guide in determining what products to produce and market:

• Preference for convenience products • Preference for natural, organically grown, healthful

and nutritious products – fruits, vegetables, low-calorie products

• Interest in ethnic or regional products (niche / nostalgia)

• Interest in exotic products • Increase in meals outside of home (ready to cook

or ready to eat products) • Concern for production conditions – social equity,

conservation, etc.

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2. Price – refers to the amount at which the product is sold, the decision of which is influenced by what the target market can afford and is willing to pay for the kind of product that is being sold. Helpful questions:

• What is the price? What is the payment term and arrangement?

• Is the price competitive?

Main considerations in determining the price offer:

• Production cost • Marketing cost • Other costs • Profit margin

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3. Placement or distribution – refers to the channels of distribution or the physical flow of the product from the time it is produced until it is bought. Normal channels include wholesalers, retailers, distributors, etc.

The choice of the channel is influenced by the buying behaviour of the target market because the objective is to make the product conveniently available to the target market consistent with their purchase preference. Helpful questions:

• Where do the buyers normally buy? Why? • Where do the competitors sell their products? • Who can help in the transfer in the distribution of

the product to the buyer?

Considerations in placement:

• Area covered and supplied • Transport • Storage (inventory) • Channel (players involved)

4. Promotions – refers to the ways and means to build awareness of the product and to improve the demand of the target market. The use of promotion depends on the target markets’ attitudes and behavior. Helpful questions:

• What makes the customers buy the product? • What makes the customers prefer the product to

the competitors?

Some means of promotion:

• Advertisement (informing and persuading) • PR (good image of product/supplier) • Sales promotion (discount or sample)

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• Direct marketing (bringing the product to the potential buyer)

Product and Placement are considered the strategic Ps of the marketing mix because they need long-term planning. Promotions and price which can be changed easily are considered the tactical Ps of the marketing mix.

Topic: COMPETITION AND MARKET POSITIONING

Competition is a “given” in marketing, especially when there are good and big markets. It usually happens when many suppliers with the same product have a common market.

Market positioning is making the product offer unique or different in the mind of the target market. This is attained through a good marketing mix, i.e. the best grouping of marketing activities that a seller undertakes to make the market buy the product and at a level where profit is maximized.

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Step 2. Product Supply Assessment and Product Selection


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Product Supply Assessment and Product Selection


Through the help of the Facilitator, Step 2 aims to design and implement Product Supply Assessment that will allow the Working Group (WG) with the community to:

1. Gather information on resources, products, production and marketing practices in the community; and




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2. Identify the main products for agroenterprise development and analyze the farmers’ capacity to supply them for the market.

2.2 INTRODUCTION

Engaging in an agroenterprise, or any enterprise for that matter, requires careful analysis, plan and decisions based on realistic, timely, comprehensive and reliable information about the producers, their supply and the market environment. This is where research is most useful.

The research process involves several activities with the participation of farmers and other partners. Working with the participation of the community is critical because the aim is to empower them with the capacity to identify their resources and their market opportunity, and for them to have ownership of the agroenterprise plan which is based on the research findings.

The Facilitator acts as a catalyst, making available the participatory tools as a means for the community’s “learning by doing” process. He/she assists the Working Group (WG) plan the research work which starts at the community level and extends beyond it where marketing-related activities continue.

This Step largely covers two activities, namely: Product Supply Assessment (PSA) and Product Selection for Agroenterprise Development

2.3 UNDERSTANDING PSA

PSA is a participatory study done at the barangay level on the community’s resources, products, production and marketing practices that have a bearing on agroenterprise planning.




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PSA leads to the selection of product or products for agroenterprise development.

As mentioned in the previous step, a WG is organized to handle the PSA. In Step 2, the WG members undergo training on PSA which culminates with planning for its conduct.

Key elements studied in the PSA include:

1. Farm production (farm sizes, land tenure, farm tools/equipment, labor utilization, products, yields, production methods, problems)

2. Marketing practices (farmers’ and buyers’ practices, problems)

The PSA starts with the collection of relevant secondary data, and then proceeds with primary data gathering only as a means to fill up important data gaps.

2.4 COLLECTING PRIMARY DATA

In collecting primary data mainly on production, Focus Group Discussion (FGD) is the method that involves the shortest time and the least cost. (Refer to Facilitator’s Tool Kit No. 2 for tips in conducting FGD.)

FGD is complemented by interviews using a survey questionnaire to collect farmer- or household-specific information. (Refer to Facilitator’s Tool Kit No.2 for a sample of a survey questionnaire.)

Date gathered has to be summarized so they can be easily analyzed by the WG. Collating the information on production and marketing practices can be facilitated by using simple tables. If resources and time allow it, the WG may seek the assistance of a research practitioner in data handling.




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FACILITATION GUIDE FOR PRIMARY DATA GATHERING

Collecting Data on Farm Production

The main objective in the PSA is to come up with an analysis on the farmers and their supply capacity. Therefore, it is important to get in-depth knowledge on the farmers so that information for agroenterprise planning will not be too general or vague.

To gain a good understanding on the farmers’ current production and marketing practices, including the problems or constraints they perceive or have encountered, the WG conducts a community consultation.

Basic Steps in Arranging and Conducting a Community Consultation by the WG:

1. With the assistance of barangay officials and LGU staff (e.g. the agricultural technicians assigned in the particular barangay), arrange for a community consultation.

2. Prior to the consultation, advise the Agricultural Technologist of the LGU to prepare secondary information on the main products in the barangay and who are producing them. This will facilitate the pre-identification of farmers who will be invited to the consultation.

3. In the community consultation, the WG explains the project’s objectives in terms of agroenterprise development and the purpose of conducting the PSA.

4. Using the FGD method, the Facilitator and the other WG members lead the participants to a discussion on the following topics:




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• Farm management practices and crop/livestock production performance

• Production costs and returns (KII with at least 5 farmers before FGD)

• Sources of information/advice related to farming and marketing

• Sources of credit and credit arrangements • The buyers and the marketing arrangements • Problems in farm production and in marketing

(See Facilitator’s Tool Kit No. 2 for helpful questions during the FGD.)




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For farmer- and household- specific information, a survey is administered among the consultation participants. This is done by the WG or local enumerators (people to conduct the survey) who are enlisted for assistance. Important specific information includes the following:

• crops grown and expected harvest schedules • areas planted or plant population • expected yields based on past performance • previous buyers

These above information are very useful in determining the relevance of the crop during product selection and serve as valuable input to the agroenterprise planning, particularly the formulation of the product supply plan.

(Refer to Facilitator’s Tool Kit No. 2 for survey questionnaire.)

In addition, a Key Informant Interview with five (5) farmers who are knowledgeable about the community and their farming practices can be conducted. The data gathered will provide a benchmark for the cost and returns with information on break-even points (volume and price) that will guide the farmers when they negotiate with the market for their products. On the other hand, the data on cultural management can help the Facilitator in identifying the good practices, gaps and the appropriate interventions.

(Refer to Facilitator’s Tool Kit No. 2 for the sample of questions for the KII and the table on cost & returns summary.)

Collecting Data on Marketing Practices

During the consultations, as farmers relate about their present buyers and marketing practices, they will be asked to draw the market chain map showing how their products flow out from their farms to their buyers.




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It is mainly a “telling a story” process with this graphic tool that provide details of the buyers involved and their market locations, the distances from the farms to the markets, the packaging and transport means, the prices and the costs, and more importantly, the major problems as they move their products in the market chain.

In this exercise, farmers will expectedly be familiar only with a part of the entire market chain since their products are commonly sold locally. But this exercise is continued to fill in the gaps in the market chain map (i.e. trace the products beyond the community) when the WG can do the market visits in the nearby commercial areas as will be explained in the next step (Market Chain Study).

2.5 SELECTING THE PRODUCT FOR THE MARKET

From the products identified in the PSA through FGD and the survey, the WG proceeds to select one to three among them which are produced mainly for income and those that are produced by the majority of the farmers.

Working with existing products at the start for new or inexperienced groups offer these advantages:

1. The WG can delve on priority options in a relatively shorter timeframe

2. Farmers are already familiar with the production technology, thus, can focus more on marketing aspects

When new products will be chosen, usually when they have more capacity to venture into new enterprises, it is important for the WG to set evaluation criteria. Important considerations in choosing new products are as follows:




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Area of consideration

Key Question

Market Is there a favorable market? (i.e., continuing and/or growing market demand)

Production Can we produce it? (i.e., agro-climatic conditions relative to the production requirements)

Financial Do we have financial resources to produce it? Will it be profitable relative to investment? Is the level of risk appropriate to the farmers?

In selecting new products, it is important that the decision making is participatory because the choice should be based significantly on the participants’ own experiences, capacities and risk assessment.

A tool to guide farmers to assess risk relative to their decision on new products and markets is the Product-Market Growth Matrix also known as the Ansoff Matrix (Figure 7).

In the Matrix, risk is shown to be lowest at Box 1 (Market Penetration) and highest at Box 4 (Diversification). Evaluation done above based on demand and profitability is often associated also with high risk options. It is advisable for farmers to start with existing products based on Market Penetration strategies.

When they have more experiences and more resources, they can proceed to higher risk options that bring the potentials of higher returns.




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Figure 7. The ANSOFF Matrix used in assessing risks when deciding for new products and markets.

Existing products

New products

1Low Risk

(Market Penetration)

Existing markets

New markets

4High Risk (Diversification)

2(Market

Development)

3(Product

Development)

ANSOFF MATRIX (Source: CIAT, 2006)

ExistingProducts

ExistingMarkets

NewMarkets

1Low Risk

(Market Penetration)

4High Risk

(Diversification)

2(Market

Development)

3(Product

Development)

New Products

ANSOFF MATRIX(SOURCE: CIAT, 2006)




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INFORMATION TO BE GATHERED BY FGD

1. What are the three (3) main products in the barangay? (Note: Ranked according to the most number of producers)

2. Where do you avail credit and what are the arrangements in financing?

3. Who are the main buyers of the products mentioned? (Note: From within and outside the barangay)

4. Do you have problems with production? 5. Do you have problems with marketing?

TIPS IN CONDUCTING FGD

1. For effective handling and documentation, the number of participants should not exceed 15, if possible.

2. Group the participants according to dominant products in the community (i.e., the products that give the highest economic values to the farmers). These focus groups are referred to as the crop assemblies. The advantage of a crop assembly is that the discussions are more focused on a particular product and analysis is more easily facilitated.

3. Using a prepared set of guide questions, facilitate discussions and keenly note and record responses.

4. Synthesize the proceedings focusing on their strengths and their constraints (weaknesses) that will need to be addressed for effective product supply in the joint marketing in the future.

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INFORMATION TO BE GATHERED BY KII WITH SELECTED FARMERS

Name of Farmer _________________ Location _________________ Product _________________ Area _________________ Crop Period _________________

1. Crop Management

1.1. Nutrient Management

Kind of Fertilizers Quantity

(unit/tree)

Application Frequency Per

Year Schedule of Application

Chemical (Inorganic) 1. 2. Organic/Natural Method 1. 2.

1.2. Crop Protection Against Pests and Diseases

Kind Used Quantity (unit/tree)

Application Frequency/

Year Schedule of Application

Chemical 1. 2. Organic/Natural Method 1. 2.

1.3 Soil and Water Conservation Practices Technology/Practice Description

1. 2. 3.

1.4 Other Farm Technologies and Practices: Kind of Technology/Practice Description

1. 2. 3.

2. Do you have problems with your product? ____1. Yes ___2.None

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3. If yes, what are your problems?_____________________________

4. Summary of Cost and Returns per crop production cycle:

Item Amount (PhP)

Labor Hired Family Inputs Equipment Rental Marketing Costs Packaging Transport Loan Interest Other Expenses TOTAL COSTS Yield Sales (Yield x Price) NET INCOME (Sales – Total Costs)

SAMPLE OF A SURVEY QUESTIONNAIRE

SURVEY AMONG COFFEE FARMERS IMPASUGONG, BUKIDNON

1. Personal Information

1.1. Name of respondent_______________________ 1.2. Age_____

1.3. Name of spouse____________________ 1.4. Age_____

1.5. Residence (address)__________________________________

1.6. No. of years in residence: _____

1.7. Number of children______

1.8. Total number of household members (including farmer) _____

2. Information on Land, Tools and Farming

2.0 How many farmlots are you cultivating (owned, rented, leased, others)? ___ ___

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2.1. Information on Land

Lot Location Area (ha) Dominant

Slope? 1. Flat, 2.

Gentle, 3.Steep

Land Status? 1. Owned, 2. Rented (fixed payment), 3. Rented (Share

of yield), 4. Borrowed; 5. Others (describe)

1 2

2.2. Farm Tools Owned: Kind Quantity Kind Quantity

1. Draft Animal 6. Weeder 2. Plow 7. 3. Harrow 8. 4. Cart 9. 5. Sprayer 10.

2.3. Number of years in farming? _____ years

2.4. Crops planted? Ranking: 1. __________ 2.___________ 3.____________

3. Coffee Information

3.1. Area planted to coffee? ___________ (hectare)

3.2. Total number of coffee trees? _______________

3.2.1. Number of coffee trees bearing?____________

3.2.2. Number of non-bearing coffee trees?______________

4.1.1.1 For bearing trees, what is the average yield (kg) per tree ? ____

4.1.1.2 How many times do you harvest in one cropping season? _____

4. Marketing

4.1 Over the past 12 months, what is the quantity of coffee sold?

4.2 Quantity of Coffee Beans Sold the Past Year Month Quantity Sold

(In kg) Price

January February March April May June

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July August September October November December

TOTAL

4.3 Source of Capital

What is your capital source? Howmuch?

Purpose of Loan?

Terms of Payment?

1. Own 2. Financier (name: ) 3. Trader (name: ) 4. Bank (name: ) 5. Others (specify: )

4.4. Buyer Who were

your buyers? Address? Place of

delivery? Type of buyer?

Reason for choosing the buyer? Indicate

Code*1. 2.

* Code – reason for choosing the buyer:

1. High price 3. Usual buyer (suki) 5. Others (specify 2. No other buyer 4. Have loan with the buyer (pay to crop)

4.5. Method of Selling 4.6.1 Packaging 4.6.2. Mode of delivery (delivered or picked up) 4.6.3. If delivered, method of transportation 4.6.3.1. Point of delivery? 4.6.3.2. How much is the transport cost?

4.6.4 How much is the labor cost (loading/unloading) 4.6.5. Mode of payment (cash, installment, others)

5.0 Problems in Marketing 5.1. Do you have problems in marketing? ___ 1. Yes ____ 2. No

If yes, what are your problems? ________________________

____________________________ _____________________ Interviewer Date

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Step 3. Market Chain Study


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Market Chain Study


Using the rapid market appraisal method, the Facilitator together with the WG shall:

1. Conduct a market chain study for the products selected during the PSA;

2. Identify several market chains for each product and analyze the farmers’ position in them;

3. Select the best market chain(s) to work on and the buyer(s) that offer the most benefits;




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4. Come up with strategies to assist the farmers participate in specific market chain(s) with the attendant costs and margins in their participation, as well as the development support they will need; and

5. Report the findings back to the farmers for goal setting in agroenterprise development

3.2 INTRODUCTION

Having selected product(s) for agroenterprise development (Step 2), the next activity is market chain analysis which is done to get in-depth market-related information on the chosen product(s). Some definitions will help simplify the understanding on market chain analysis.

Market Chain

Market chain refers to a set of linkages between actors involved from production through processing, distribution and retailing to the consumers. Actors are those involved in producing, processing, trading or consuming a particular agricultural product, and including those who provide various financial and non-financial support services such as the truckers, suppliers (inputs, packaging materials, etc.), market research groups, and others. See Figure 8 for an example of a market chain.

Farmers produce and sell products but are not even aware that in doing so they are a crucial part of the market chain. This lack of understanding constrains them to recognize and carry out their position in the chain (i.e., how they perform, what their advantages and constraints are, and what their opportunities are if they “engage” the market or work together with other actors in the product movement).




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Figure 8. Sample of a market chain for green coffee beans.

Value Chain

As a product moves from the production point to any point along the chain towards the consumer, there is addition of value or worth. Technically, this is known as value addition.

When the actors involved work together for value addition (i.e., to increase efficiency and quality of product supply, satisfy market needs, and as a result, earn more), the resulting relationship is referred to as the value chain.

Helping farmers understand market chains will open their minds to new knowledge that will empower them. It points at the opportunities they can tap or constraints they can address to strengthen their position in the market chain, and gain stable markets and/or higher incomes.

The objective of market chain analysis is to understand the actors, activities, costs and margins, constraints and

FARMER

CONSUMERS

TRADER

NESTLE PHILS., INC.

AGENT

SERENITY COFFEE CORP.

FARMER

CONSUMERS

NESTLE PHILS., INC.

CLUSTERS

THEN NOW

TRADERS

Market Chain of Green Coffee Beans




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opportunities related to the movement of the product starting with the farmers and ending with the buyers and/or consumers. These information help in the identification of the best market chain to work on, and the key buyers for the farmers. Thus, market chain analysis is an activity for strategic thinking in designing agroenterprises.

3.3 RAPID MARKET APPRAISAL

Rapid Market Appraisal or RMA is the most practical, popular and preferred approach to market chain studies. Based on its user-friendly qualities, RMA is defined as a quick, flexible and effective market research method.

Advantages of RMA:

1. Quick (uses rapid appraisal methods: focus groups, key informant interview, semi-structured interview)

2. Flexible (RMAs can be designed according to purpose and resources)

3. Effective (can generate detailed understanding of marketing systems, including constraints and opportunities, leading to design of interventions)

Limitations of RMA: As a quick process, the findings of RMA may apply only to its defined purpose. Seasonality of relevant factors cannot be captured owing to its very short time frame.

Relying on key informants, the results are largely dependent on the openness and active participation of prospective groups or participants. It will matter if there will be a good and skillful facilitator and a good documenter for the activities.




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3.4 FACILITATION GUIDE FOR THE RAPID MARKET APPRAISAL

Facilitate the following activities in the conduct of RMA by the WG:

1. Design of the study 2. Implementation of the study 3. Analysis of data and information 4. Options for farmers and development support needed 5. Report writing

Activity 1. Design of RMA-Market Chain Study

In the PSA, most of the marketing-related information gathered by the WG from the farmers are confined to the immediate vicinity of the community. The Market Chain Study links the market data in PSA with relevant industry and buyer information beyond the community.

1. Create a RMA-Market Chain Study Team with members coming from WG earlier formed in Step 1. A good size is at least 10, two-thirds (6-7) of which are farmers. Subdivide the Team into smaller groups of 3-4 members each to share the market chain study activities.

Depending on the complexity of the market chain being studied or the extent of geographical coverage of the study, the team may invite a marketing practitioner who possesses the following:

• Exposure or experience in market research • Technical knowledge (including production, post-

harvest and processing issues) • Contacts in the trading community




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Then the RMA Team will:

2. List down possible key issues for investigation in RMA/Market Chain, such as but not limited to:

• Product characteristics (variety, grade, moisture, and other quality specifications)

• Demand patterns (growth and seasonality) • Supply situation (origin, production volume,

seasonality of supply) • Price (trends) • Actors in the chain (market channels) and their

activities • Marketing infrastructure (roads, market places,

facilities, communication)

3. Review available literatures or get secondary data to clearly identify gaps that need to be filled in by primary data.

The following are the possible sources of secondary information for the study:

Offices Materials • LGUs (barangay, municipal &

provincial) • DA (including BAS and AMAD) • DTI • NSO • NGOs • Academe & research

institutions • Industry associations

• Newspapers • Reports • E-publications

(internet) • Socio-economic

profiles

4. Select markets and key informants

For primary data gathering, the RMA / Market Chain Study team must start with the five most mentioned community traders in the PSA and trace their




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immediate buyers to be included as informants in the individual interviews. Because of their influence in their marketplace, make sure to include the top five buyers in the nearest commercial center.

Augment the activity with interviews with the various points in the chain of the products identified in the PSA to capture information at different points of the market chain. Get at least two informants at each point and cross check answers.

5. Prepare a checklist of questions or process guides

Prepare appropriate set of questions or process guides for key informants/interviewees to elicit respective information outlined below:

Respondents/ Informants/

Actors In Market Chain Data/Information

• Wholesalers • Retailers • Institutional buyers

(processors, supermarkets, food service establishments)

• Product requirements with the quality specifications

• Supply sources • Destination of products • Experiences in demand & supply

movements • Prices • Marketing practices • Marketing costs • Support services • Support infrastructures • Openness to buy directly from farmers

The information outlined above are presented in a more detailed interview guide.

(Refer to Facilitator’s Tool Kit No. 3 for the interview guide in English and in Filipino.)




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Activity 2. Implement the RMA - Market Chain Study

1. Prepare for data gathering

a) The RMA Team may break up into smaller teams of 3 members each (1 of them is a farmer) for efficiency.

b) Assign each member a role during the interview process (main interviewer, assistant interviewer who makes sure that all questions are covered, and recorder of responses)

c) Check all tools: checklists or interview/discussion guides, pen/pencil, notebook, tape recorder, camera, registration or attendance sheet, and other necessities.

d) Rehearse or familiarize with the interview questions and the manner of recording the responses before the actual market visit and data gathering.

2. Gather the information a) Semi-structured interviews with key informants

(traders/ retailers/ Institutional Buyers, processors, supermarkets, food service establishments)

b) Trace the product flow from the farmers to the intended buyers for information needed for the Market Chain diagram.

The RMA team will get data on costs and margins by direct observation and informal interview of key informants (traders and the service providers like the transporters) during the tracking of activities as the product moves in the market chain.




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In the of product flow, the RMA takes note not only of the market chain that gives the highest returns to the farmers but also the work that the farmers need to undertake with the additional costs involved as well as the risks when they decide later to take a more active participation in the chain.

3. Cross-checking data and information

To ensure the reliability of the data that the team is gathering, the members should ask the same set of questions to informants within and at different stages of the market chain then check the consistency of answers. The RMA team can also observe the behavior or practices (such as post harvest handling, sorting and grading and storage technologies) and analyze the process as the product flows to the various actors in the chain.

Activity 3. Facilitate the analysis of RMA data and information by the RMA Team

Tools and Methods for Analysis

1. Illustration of the Market Chain Map

This gives a picture of the elements of the market chain, such as the producers, post-harvest handlers, consolidators, traders, buyers, processors, retailers and consumers. See Figures 9 and 10 for examples.




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Figure 9. Market chain map drawn from a corn market chain study using the RMA.

Figure 10. Market chain map drawn from a vegetable market chain study using the RMA.




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2. Value chain (margins along chains)

As shown in Figure 11, expenses are incurred as the product moves from one point to another along the chain. These have to be considered so as to be able to determine later the possible or actual margin like the one reflected in Figure 12.

Figure 11. Example of a value chain for dried coffee beans.

Figure 12. Another way of presenting the margins along the chain.

Maragusan Price P44.00/kg

Milling Fee P2.50/kg

Honorarium of Escort P0.13/kg

Labor-Hauling P0.06/kg

Labor-Drying P0.11/kg

Other Expenses P0.17/kg

Trucking Cost P1.28/kg

Nestle Buying Price P62.00/kg

Total Expenses P4.24/kg

- 10.00 20.00 30.00 40.00 50.00 60.00 70.00

Maragusan Price

Milling

Trucking

Labor-Hauling

Labor-Dry ing

Cluster Escort Honorarium

Other Ex penses

Nestle's Grade 1 Price

Farmer's Margin:

P13.76/kg

Buying Price:

P44.00/kg

Maragusan PriceP 44.00/kg

Milling FeeP 2.50/kg

Trucking CostP 1.28/kg

Labor-HaulingP 0.06/kg

Labor-DryingP 0.11/kg

Honorarium of EscortP 0.13/kg

Total ExpensesP 4.24/kg

Nestle Buying PriceP 62.00/kg

Farmer’sMargin:

P 13.76/kg

Other ExpensesP 0.17/kg




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3. Buyer comparison for market opportunity assessment

A buyer comparison table provides information about buyers and their conditions and requirements. It gives the grower and idea on where to sell products for maximum profit.

Market chain study must be designed well to really include all relevant buyer information to guide decisions and production plan of farmers.

A buyer comparison matrix like the one shown in Figure 13 is used to guide the WG in deciding which buyer can offer the best value. This can still be improved or enriched to include information such as quality index (like moisture content), frequency, preferences for organic or inorganic products, and prescribed packaging.

Figure 13. Matrix for Buyer Comparison summarized by the farmers after market survey and visits.




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Table 3: Sample matrix used in comparing the values offered by buyers. (Derived from Figure 13.)

Criteria Nestle Trader 1 Trader 2

Contact information Davao City Davao City Nabunturan Growth in demand High High High Time of year scarce May-Oct May-Oct May-Oct

Price/kg G1 P54.00 G2 P52.50 G3 P50.50

P48.00 P44.00

Quality required Less than 12%

Triage, Less than 12% MC, acceptable

cup taste All in All in

Delivery Needs Delivery Delivery Delivery Volume purchased/week No limit No limit No limit Minimum Purchase Volume 1 kg 1 kg 1 kg Packaging Required Sacks Sacks Sacks Largest Buyer for this product Nestle Nestle Nestle

Frequency of Purchase Daily Daily Daily Terms of Payment Claim from bank Cash Cash Interested in buying from a Farmers Group? Yes Yes Yes




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4. Price trends

Price trends traced from and to a particular time can be interestingly presented using graphs. This set of information will guide farmers in preparing their production plans as determined by expected or projected price, and as affected by the agro-climatic condition at a particular time.

Figure 14 presents a price trend for coffee in a 1.5 year period.

Nestle Coffee Buying Price Jan '06-Jun '07

-

10.00

20.00

30.00

40.00

50.00

60.00

70.00

80.00

90.00

100.00

1/10

/200

6

2/10

/200

6

3/10

/200

6

4/10

/200

6

5/10

/200

6

6/10

/200

6

7/10

/200

6

8/10

/200

6

9/10

/200

6

10/1

0/20

06

11/1

0/20

06

12/1

0/20

06

1/10

/200

7

2/10

/200

7

3/10

/200

7

4/10

/200

7

5/10

/200

7

6/10

/200

7

Figure 14. A graph of the Nestle Coffee Buying Price over a 1 -year period.

5. Projections on marketing costs & returns based on buyer comparison

Based on the PSA and the Market Chain Study information, the farmers are guided to make financial projections if they undertake the marketing. This will help the farmers choose the buyers they will connect




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to in the marketing, and what it means in terms of price and net incomes for them in the marketing.

Figure 15 shows the projections made by a cluster on the marketing costs and returns for coffee with a number of identified buyers.

Figure 15. Projected Marketing Costs & Returns from Various Buyers in the Coffee Market Chain.

Activity 4. Options for Farmers and Development Support Needed

To facilitate the agroenterprise planning by the clusters of farmers (refer to Steps 4 and 5), the RMA team with the WG shall summarize the options that farmers can undertake to strengthen their position in the market chain and increase incomes.

Options for farmers to increase income can come from:

• Better price with the choice of a better market in the supply chain

• Higher price with product quality management (i.e. sorting, good packaging that will give the buyers less




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damage and higher recovery, thus warrants their giving a higher price, etc

• Good organization of farmers and buyer’s trust in their delivery and quality reliability

• Good management of production related activities such as good product quality from the field, minimal deterioration during harvest, more efficient use of inputs and labor, thus lowering costs, etc.

• Good management of market related activities such as procurement and distribution of packaging of materials, better packaging, transport, receiving and invoicing, etc.

• Favorable program and policies (e.g. infrastructure development support from the local government)

These will be the basis for the development interventions to be extended to them. These interventions can include:

• Technology innovations that strengthen improve production yields and quality, lower production costs, provide value added opportunities and specific points in the market chain

• Enterprise design, implementation and management assistance

• Organizational mobilization through cluster formation • Various areas of business support such as market

information, extension services, market linkage, etc.

Activity 5. RMA- Market Chain Study Report

A concise report on the results of the PSA and the Market Chain Study must be prepared and presented to the farmers as input to agroenterprise planning (Step 5). The whole write-up should not take more than 10 pages and should revolve on the two main analyses of market opportunity and how the farmers will take advantage of them given their product supply capacity, assets and constraints.




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The RMA team leader spearheads the report writing work, putting clear emphasis on the following minimum parts and topics:

I. Background A. The farmers’ project, objectives, the site and the

development partners B. Rationale for the PSA and Market Chain Study

II. How the Study Was Conducted A. PSA B. Market Chain Study C. Methods and Tools

• Direct observation • Semi-structured interviews • Focus groups • Formal questionnaires (if applicable)

III. Results

A. Product • Product features

B. Demand analysis • Market types/size, • Demand conditions and prospects • Market opportunities by market type • Volume Trends

C. Supply analysis • Supply sources • Principal supply channels and constraints • Supply Trends • Production conditions (technology, costs, etc)

D. Prices and margins • Price trends • Margin analysis (gross, net and break-even)

E. Principal Market Chain and the most promising buyers F. Strengths, weaknesses, opportunities and threats

(SWOT) related to production and marketing (See Facilitator’s Tool Kit No. 3 for a sample of SWOT analysis.)

IV. Strategies for the farmers V. Conclusions




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Facilitator’s Tool Kit No.3

A. CONDUCTING A KEY INFORMANT INTERVIEW (KII)

Information to be gathered by KII:

1. Demand-Supply conditions • Seasonality and price responses

2. General Business Information • Type of business, kinds of activities handled

(vertical integration done?)

3. Pricing Mechanisms • Months of lowest price and highest price over the

past 12 months • Months of lowest demand and highest demand

over the past 12 months • Months of lowest supply and highest supply over

the past 12 months • Quality /Grading • Procurement Practices (terms, frequency, source)

4. Trading Information • Products handled • Purchase Data over the past 12 months, (purchase

frequency, volume/purchase, month of highest purchase, month of lowest purchase, highest purchase price, lowest purchase price)

• Source of Products (suppliers, who is the preferred source and why)

• Procurement Practice (method of procurement – suppliers come or go to source, Mode of purchase – picked up or delivered? Manner of payment – cash or terms)

• Basis of Buying Price (prevailing, quality specs, time and season, credit obligation from supplier)

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• Market Outlets (who are the outlets for his/her traded products, type of outlet, reason for choice of outlet, location)

• Selling Practice (price, volumes, grading/standardization done before selling)

5. Marketing Investments (Facility/Equipment and Capacity)

6. Market Share Protection (provides financing, undertake own production, give price incentives, months of lowest demand and highest demand over the past 12 months)

7. Openness to future supply/volume in the next 12 months (what products and what estimated volume requirements, frequency of supply)

8. Problems Perceived and/or encountered in his/her marketing business

Tips on conducting KII:

1. Introduce yourself and your organization. 2. Be clear about the purpose and timing of the interview. 3. Stress confidentiality. 4. Be friendly and relaxed, use humor. 5. Ask simple and clear questions. 6. Follow a logical sequence. 7. Avoid leading questions. 8. Ask most sensitive questions last. 9. Be prepared to listen and learn. 10. Engage the respondent (don’t be afraid to challenge

the accuracy of the information provided, use diagrams to assist discussions).

11. Investigate new areas of interest as they arise. 12. Avoid very lengthy interviews, follow up if necessary. 13. Use the information to improve the next interview.

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Sample of a Buyer Interview Guide

English Filipino

1. What is your name? 1. Ano ang inyong pangalan?

2. What is your complete address?

2. Ano ang inyong address?

3. What is your cell phone and landline number?

3. Ano ang inyong cellphone at landline number?

4. What quality do buyers look for?

4. Ano ang mga katangian o kalidad na hinahanap ninyo sa mga binibiling produkto?

5. How frequent do you buy? How much or what volume do you buy?

5. Gaano kadalas ka namimili? Gaano karami ang inyong binibili?

6. What container is appropriate? 6. Anong ang maayos na paglagyan ng produkto?

7. How much is your buying price at present? How much was the highest and the lowest price you offered or gave in the past 12 months?

7. Magkano ang bili ninyo ngayon?Magkano ang pinaka mataas na presyo na presyo ng nakaraang 12 na buwan? Ano naman ang pinaka mababa?

8. What is the payment arrangement, cash or terms? If “in terms”, how long?

8. Paano ang bayaran? Cash o terms? Kung terms, gaano katagal (ilang araw, linggo, buwan)

9. Do you pick up, or is the product delivered to you?

9. Pick-up po ba o delivery?

10. What is the minimum and maximum volume that you buy at a time?

10. Gaano karami and kaya ninyong bilhin? Gaano kakonti naman ang pwedeng ibenta sa inyo?

11. Where do you sell the product? 11. Saan ninyo ibinebenta and produkto?

12. In the past 12 months, what were the 3 months of highest demand from your buyer?

12. Anong buwan and pinaka maraming kailangan ang inyong buyer?

13. In the past 12 months, what are the 3 months of lowest demand from your buyer?

13. Anong buwan and pinaka kaunti na kailangan ang inyong buyer?

14. Where do you get the products you are selling? Who is/are your preferred suppliers and why?

14. Saan galing ang mga produkto na ibinebenta nyo? Sino ang paboritong ninyong supplier? Bakit?

15. Would you be interested to buy from us?

15. Interesado ka bang bumili mula sa amin?

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TO THE TEAM: Through direct observation, note down the facilities, equipment other assets used by the buyer in marketing, as well as the marketing set up and operations, that can be indicative of the buyer’s capacity.

B. CONDUCTING SWOT ANALYSIS

Below is a portion of a report on a SWOT Analysis conducted for the Coffee Clusters in Maragusan, Compostela Valley. The report shows the strengths, weaknesses, opportunities and threats inside and outside of the enterprise. These served as bases in determining marketing strategies and the development interventions.

This sample report can serve as guide in conducting SWOT Analysis

SWOT Analysis Coffee Cluster Maragusan, Compostela Valley

Objective: Grade 1 Green Coffee Beans sold directly to Nestle Philippines, Inc., Davao City Buying Station

Strengths

• Maragusan used to be a major coffee-producing area in Southern Mindanao and farmers have been growing coffee for several decades

• Coffee trees grow well in the municipality due to its high elevation and cool climate

• Absence of typhoon • Farmers are predominantly self-financed, they can

decide on their product independently because they are not tied up with the traders

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Weaknesses

• Coffee is a seasonal crop- farmers neglect their coffeetrees and tend to it only when they are about to bear fruits

• Poor quality as farmers seldom practice selective harvesting of berries thus producing low-quality beans

• Coffee trees are old- most of them are more than 10 years and fruiting has started to decline

• Difficulty in drying beans due to high rainfall especiallyduring months of coffee harvesting

• Lack of drying facilities • Minimal agricultural extension services that can inform

the farmers on the proper management, harvesting and processing of coffee

Opportunities

• Domestic consumption and local demand for coffee is constantly increasing thus prompting the major instantcoffee producers to import from Vietnam & Indonesia

• There is an increasing demand for brewed coffee which is spurred by the growing specialty coffee shops and processors

• Farmers can be taught to harvest their berries selectively to improve the quality of their product and thus fetching higher prices from their buyers, and to rejuvenate their ageing coffee trees

• Opportunity for the farmers to plant the higher value variety of coffee (Arabica) due to its high elevation requirement

• The biggest coffee buyer in the Philippines is providing free training on coffee production and processing and has a multitude of coffee buying stations nationwide

• There is a development project (CRS- assisted in partnership with Kasilak Development Foundation, Inc.) that currently assists the farmers in conservation farming by way of proper land use.

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Threats

• Coffee farmers have begun to convert their coffee areas into short-term crops such as corn, rootcrops and vegetables to finance their daily needs

• The recent price slump (early 2000s) of the global coffee prices has discouraged traditional coffee farmers and forced them to look for other profitable crops.

• Because it is the second most traded commodity in the world, coffee prices are subject to sudden and dramatic price fluctuations in a short period of time

• Coffee trading in the municipality has been handled by a handful of traders which have been buying ‘all-in’ at one price regardless of quality and moisture content- which de-emphasizes the need for better quality

Marketing Strategies

1. Introduce and emphasize the need for value-adding activities such as selective harvesting, sorting and proper drying to the farmers

2. Sell to Nestle through its Coffee Buying Station to earn bigger margins for the farmers.

3. Identify other buyers near the Nestle Coffee Buying Station which can absorb the coffee beans which may be rejected

4. Identify other higher-value markets which may be interested in procuring good quality beans directly from the farmers

Suggested Development Interventions

1. Introduce the clustering strategy in marketing so that the farmers can acquire capability to meet the requirements of the market for quality deliveries

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2. Organize farmers into clusters so that they can be grouped effectively to consolidate product volume and to immediately address market feedback.

3. Extend trainings and exposure related to marketing.

4. Work on the quality management program starting at the field and up to post-harvest, with the Agri-extension component. Avail of the free training provided by Nestle to enhance the cultural management and post-harvest practices of the farmers;

5. Provide assistance in market opportunity identification, business planning and in the actual run of the first marketing moves.

6. Install basic operating systems (i.e. recordings, financial management, delivery monitoring, etc).

7. Provide assistance in market linkage to both the wholesalers and the processors market.

8. Extend business coaching especially in the first marketing activities so that critical gaps are immediately addressed and the marketing project can take off.

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Step 4. Cluster Formation


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Cluster Formation


Through competent facilitation, the Facilitator with the Working Group can:

1. Present the findings of the PSA and Market Chain Study;

2. Provide marketing basics and orientation on the clustering method of business organizing to the farmers;




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3. Provide farmers with informed choices by discussing the benefits of clustering as a business group;

4. Facilitate the formation of agroenterprise clusters and leader identification, as well as the cluster basic agreements.

4.2 INTRODUCTION

Clustering is a general term that refers to the goal-oriented cooperation of stakeholders in an industry. In 1999, the government through the Department of Trade and Industry (DTI) introduced industry clustering as a development strategy to build industries at the sub-regional and regional levels (e.g. food production industry in the province of Bukidnon, fisheries and eco-tourism in the Panguil Bay area in Region X). This strategy was conceived as a response to the challenge of competition resulting from globalization that allowed the open movement of products across geographical boundaries.

Four years after, the vegetable industry association in Region X called the Northern Mindanao Vegetable Producers Association Inc. (NorminVeggies) adopted the clustering strategy focusing on the cooperation among the small and medium scale producers for a strategic move towards high value markets like supermarkets and fastfoods. Thus, NorminVeggies called its vegetable clusters as marketing clusters. In this endeavor, NorminVeggies received competence enhancing support from its partners: the DA, DTI and the GEM-USAID.

In 2005, CRS-Philippines studied the NorminVeggies experience on clustering. Its lessons on market and industry moves were valuable but CRS project implementors saw the importance to undertake the basic work first. This is the adequate preparation of farmers so they will be ready to engage the market in the first place. This has not been easy given the farmers’ challenges: poor productivity, infrastructure




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gaps, poor logistical capabilities, a lack of understanding on how markets work, fragmented locations and farming activities. All these problems impede on the farmers’ ability to effectively participate in the market and gain from the clustering method of market organizing.

In undertaking the SFMP, CRS-Philippines tried out innovative development interventions guided by the NorminVeggies experience and by the informational materials drawn from the CRS-SEAPRO and CIAT Learning Alliance. It achieved a promising process in farmers organizing appropriate to their circumstances for market preparedness and effective market participation. And it called the farmer clusters formed as agroenterprise clusters.

4.3 AGROENTERPRISE CLUSTERING

1. The Starting Point: Motivating Farmers for Collective Action

Organizing farmers for collective marketing is a decision that should result from a need felt by farmers to work together for a common market. It should not be imposed on them. The Facilitator’s task is to organize farmers into clusters and empower them to carry out collective marketing, not to be the one to undertake the marketing for them. The first step towards this process is for them to understand the benefits of working together in a joint marketing enterprise.

Participatory involvement through a consultation attended by farmers producing the selected products is conducted. In the consultation, the PSA and the market chain study results are presented to them by the WG, highlighting the analysis and options for improvements that bring income increase.

Discussion follows wherein the Facilitator points out how it is not possible to take advantage of and benefit from the market




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opportunities if the farmers are not organized, and to explain how the group needs to organize itself to carry out whatever plan it will come up with.

This discussion sets the stage to introduce the approach of organizing agroenterprise clusters that will be the vehicle of farmers to strengthen their position in the market chain and gainfully participate in marketing.

2. What is Clustering?

Farmers often help one another be it in farm activities like planting and harvesting, or in the exchange of information about how best to grow their crops and who their buyers are, and also in social activities like the celebration of a feast day. These are good starting points of cooperation but they need to be carried further to bring them the advantages in the markets.

The type of cooperation where farmers are organized into small groups or clusters and actually consolidate their products, coordinated with a common plan, and directed at the agreed market(s) is what is referred to as agroenterprise clustering.

An agroenterprise cluster is a small group of individual farmers who, under a shared agroenterprise plan, commit to work together for collective marketing.

This definition presupposes that the farmers in a cluster bring not just their person into the group but also their products because in a cluster, they are formed as a product supply unit for an identified market(s). And they come together to actualize their business potentials through collective action.

A cluster may come from a sitio (sub-village), barangay(village), or municipality. At these levels, the clusters can seek interventions in the local economy for problems and bottlenecks in their production and marketing activities. When




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clusters join for linkage at the municipal or even provincial level, they can impact not only on temporary or village based agroenterprise related issues but also on policies and programs that will have long term and encompassing benefits in the environment where clusters undertake their business.

4. Types of Agroenterprise Clusters

One product cluster

As the name implies, this type of cluster commits to the joint marketing of one product. An example is the Coffee Cluster of Impasugong in Bukidnon.

Diversified product cluster

This type of agroenterprise cluster handles the marketing of two or more commodities produced by the cluster members and combined for the needs of buyers. One good example is the Diversified Vegetable Cluster of Maragusan, Compostela Valley that is a preferred supplier of the assorted vegetable needs of a supermarket.

5. Cluster Size

Based on experience, successful collective marketing is generally carried out by a cluster of five (5) to 15 members. For the collective marketing to succeed, all the farmers should meet regularly to discuss their problems and plan for the future. The bigger a group is in a meeting, the more difficult it is to ensure that everyone’s voice is heard.

The advantage of small groups is that the members can be gathered more easily, and they can get to know the group members well. It is recommended therefore that in most cases, the membership of a cluster is kept at below 20.




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Farmers need to be able to talk regularly with each other and to establish the essential trusting environment among cluster members that have a big bearing on whether they will also entrust their products into the joint marketing. In the case of 30 farmers in a barangay for example who want to form a cluster, it is recommended that the 30 farmers will be organized into two (2) clusters.

6. Features of an Agroenterprise Cluster

• A cluster can be composed of 5-15 members from the same sitio or barangay.

• The cluster is product based and is a product supply unit.

• A cluster is headed by a cluster leader. The cluster can opt to choose also an assistant cluster leader, a secretary and a treasurer.

• The cluster is guided by an agroenterprise plan with each cluster member following common product quality management procedures.

• The cluster adheres to the practice of market facilitation in the marketing of the products so the cluster members continue to own their products up to the buyer’s end.

• There is strong emphasis for the core values of sharing, discipline and joint responsibility to consolidate the quality and quantity as negotiated with the market

• A cluster may start as an informal organization and later establish its formal structure as a business entity such as a cooperative; or it may exist within a cooperative or association as special structures for product consolidation and marketing.

Figure 16 shows the basic structure of a group of clusters operating as a small network in a barangay.




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Figure 16. Basic structure of a group of clusters.

6. Scope of Agroenterprise Cluster Agreements

On the minimum, cluster members agree to help one another to:

1. Consolidate a particular product volume; 2. Attain agreed quality;3. Deliver as promised or scheduled; 4. Follow the agreed product operational flow (from farm

to consolidation point and labeling for traceability of supply source); and

5. Plan and implement group agreements such as regular meetings, the payment of facilitation fees, particularly management fee and marketing fee, and the mobilization of savings

The above agreements are usually verbal when the clusters are just new and they are still going through trial marketing (refer to Step 6). But it is recommended that agreements be written when the clusters undertake commercialization operations (refer to Step 7).

Buyers

Council of Cluster Leaders

Cluster Leader

Cluster Leader

Cluster Leader

Cluster Advisory Group

(NGO/CRS/ Government)

Cluster Members

Cluster Members

Cluster Members

Cluster Members

Cluster Leader




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7. Clustering – Not for All Farmers

The Facilitator has to be prepared that there will be farmers who will decide not to take part at all in the clusters for a number of reasons:

• They are satisfied with their own local markets such as a roadside market or the barangay market day (also called tabo) giving them satisfactory prices; or they have good relations with a trader.

• They are not comfortable working in a group. • They are physically isolated that makes collective

marketing activity difficult to establish. • Their production is just for basic needs that they

may not yet have surplus for marketing and other types of development assistance are needed.

8. The Concept of Market Facilitation by the Cluster

In marketing through the clusters, a key concept is market facilitation. This means that the cluster only acts as the “bridge” to connect the farmers to the market as well as to link them to the business service providers like the truckers, package suppliers, etc. There is no “trader” between the farmers and the buyers to whom the ownership of the product changes hands.

The farmers in a cluster own the product up to the buyer’s end and so they get the price offered by the buyer. With the ownership of the product is also the corresponding accountability for the product in terms of quantity, quality and delivery reliability.

The mechanism to trace product supply to a farmer, and accordingly impose discipline in following the cluster agreement on product quality and delivery reliability, is product labeling by cluster and by cluster member.




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As product owners, the farmers in a cluster, through representation by the cluster leaders, interact with the buyers face-to-face. The commitment to supply therefore is given to the buyer by the clusters themselves, not the Facilitator. From experience, this practice has made the clusters directly responsible for problems that they experience, which is expected in a fluid market environment; and not to blame the Facilitator when a problematic situation arises.

To operate a collective marketing successfully, the cluster needs people devoting their time and efforts in the activities such as the cluster leaders, the productconsolidators who may be assigned, and others. Their expenses have to be compensated, hence the farmers while they get the buyer’s price must also shoulder the market facilitation cost by paying service fees based on the products that they have marketed through the cluster.

9. Cluster Leadership and Management

Successful clusters need the basic skills of group management and decision making to make them functional. At the minimum, the cluster must have a common goal for collective marketing. This is the reason why clusters are formed from farmers who are ready to bring in their products because this is the starting point of a goal that is simple and that can be broken down into responsibility or accountability each one in the cluster can take up.

The cluster must use democratic methods to make decisions in order to give every member a feeling of full participation and ownership in the cluster’s marketing venture. No one should be allowed to dominate the cluster’s decision.

The focal person in the group management is the cluster leader. The type of leadership required in an




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agroenterprise cluster needs to be elaborated. The cluster leader need not be the biggest producer in the cluster. What is important is he/she has the personality and the skills to mobilize the members of the cluster. He/she is tasked to convene and facilitate cluster meetings, and to coordinate activities related to collective marketing.

The cluster may recognize one or more sub-leaders to share the responsibilities. The cluster leader may take responsibility for market related activities while a sub-leader can handle the production related concerns. A secretary writes down meeting proceedings and agreements, while a treasurer ensures that a record and report of the marketing transactions are made.

10. Communication – The Importance of Regular Cluster Meetings

This Guidebook stresses the importance of holding regular cluster meetings (i.e. once a week during trial marketing, and every month subsequently). The meeting is the venue to assess performance versus targets in the plan made. Only by regularly reviewing activities, identifying good practices and analyzing the bad ones can the cluster develop the systems that work best.

With the opportunity that a meeting provides for each one to be informed and involved, trust is built. This is of utmost importance considering that marketing is a difficult process, and not all transactions will turn out to be a success. This high level of trust ensures that members will persevere and work out the problems together.

At the start, the Facilitator convenes and facilitates the cluster meetings until the cluster leaders are chosen and they are phased in with guidance, and also when the meeting schedules and basic cluster agreements are tackled.




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The cluster meetings actually serve to ensure that the development interventions are carried out in a participatory manner; and that the farmers are not just passive clients but are active participants of the whole process, actually learning the business by doing it.

11. Collaboration of Clusters and Linkages

The farmers must be able to produce enough product quantity at the right quality and time to interest the buyers in the first place. This is the basis for the clustering approach that brings together individual farmers to jointly market their products.

More advantages of collective marketing are realized when the clusters form a network among themselves and marketing a significant quantity of products. For example, barangay-based clusters working together as a municipal level network can fill up a truckload of product for a bigger market. The higher the level of networking, as in the case of municipal level clusters working together, the more is the bargaining influence towards higher value markets.

The cluster leaders acting together will become the prime movers of the enterprise. Later when the clusters transform into a formal organization like a cooperative, representative leadership can be practiced with the cluster leaders taking up the position of the board. Refer to Step 8 for cluster strengthening.

Clusters are more likely to succeed if they not only cooperate among themselves but are also linked to other organizations. These include national government agencies, local government units, financing institutions, transport groups, farm input suppliers, school/academe, other farmer organizations and industry association. It may take sometime to build these linkages but they should be sought because the clusters will need many kinds of support.




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Figure 17. Structure of Clusters covering 3 municipalities in 3 provinces collaborating to supply one market.

Which groups to connect to? The Facilitator can assist in the linkage building process by analyzing the needs of the cluster. The most important connections needed by the clusters are with the business sector (i.e. other suppliers like them who have bigger production scale and have influence in the market, and the buyers).

12. Cluster Strengthening

It is recognized that in working with farmers, there is a maturation period required wherein they are gradually trained and primed for agroenterprise operations. The role of the Facilitator is to assist this maturation process through training, coaching, facilitation of cluster activities and group development, leadership development, installation of business policies and system.

Serenity Coffee Corp.

Coffee Task Force

Davao City Clusters

Maragusan, ComVal Clusters

Council of Leaders

Council of Leaders

Cluster Leaders

Cluster Leader

Cluster Leader

Cluster Leader

Cluster Members

Cluster Members

Cluster Members

Cluster Leaders

Cluster Members

Council of Leaders

Impasugong, Bukidnon Clusters

Cluster Members




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Cluster development takes time. It is an investment in group learning and doing. Cluster strengthening will be elaborated in Step 8.

4.4 FACILITATION GUIDE FOR AGROENTERPRISE CLUSTER FORMATION

1. Conduct a consultation in the barangay, inviting the farmers growing the products selected for agroenterprise development. This is done right after the PSA and the market chain study, the WG has analyzed the results and is ready to present them to the farmers for validation in the consultation.

Emphasize the following information during the consultation:

• Market opportunities as revealed in the market chain study will remain beyond the reach of farmers if they are not organized and cannot consolidate a significant product quantity for the market.

• Agroenterprise clustering is the tried strategy to transform the farmers acting independently and with fragmented farm areas into valued suppliers with consolidated products.

• Important information for the farmers are: definition of a cluster, types of cluster, structure, key features, leadership and management, advantages in forming clusters, networking of clusters, and cluster strengthening, benefit of clustering.

• Membership in the cluster will require farmers to commit a certain quantity of their products into the cluster for collective marketing. Also, the cluster agreements bind the farmers in a cluster.




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2. At this stage, it is helpful if experiences and lessons from organized clusters can be shared. (It is best handled if the sharing comes directly from a local, promising/successful agroenterprise cluster). Allow the participants to freely interact with the resource persons and with each other. And give time for reflection. Then ask those who are interested in clustering to group together.

3. Proceed to the formation of the agroenterprise cluster/s.

• Gather expressions of interest to work together for common marketing

• Facilitate listing of members and election of cluster leader

• A participatory tool to facilitate cluster formation is the cluster map that communicates the components of the cluster (adaptation of the DTI Industry Cluster Map). It identifies the farmers and their planned product commitment, the agreed markets, the supporting businesses on which the farmers rely on, and the strategic partnerships from the public and private sector i.e. NGO, national government, and others.

(Refer to Facilitator’s Tool Kit No. 4 for an example of a cluster map).

Use of meta cards or strips is recommended so that during the process, if a farmer changes his/her mind in joining the cluster, he/she can easily remove the card. If a farmer wishes to add information, additional meta cards can be pasted.

• Cluster members will then set a schedule for enterprise planning. As an assignment, the cluster members are ask to review their farm




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• activities and bring with them the information on the quantity of the product they can commit into the joint marketing and the schedule of delivery. A tool to use for this information is the harvest calendar, which the Facilitator introduces to the newly-elected cluster leader and members. The calendar contains an estimate of the total production capacity of the cluster members.

(Refer to Facilitator’s Tool Kit No. 4 for an example of a harvest and delivery calendar).

4. Before the next meeting of the newly formed clusters for the clusters’ enterprise planning, it is recommended that the chosen cluster leaders can be introduced to the local officials/leaders. Each cluster leader will also reach out to farmers who are interested but were absent during the cluster orientation and formation. They are advised to give time for farmers who joined the consultation but were not immediately prepared to join with the others and commit their products for the joint marketing.




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Figure 18. Cluster Map of Saranga Coffee Farmers.

Figure 19. Coffee harvest and product delivery calendar of Saranga Cluster.

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Step 5. Cluster Plan Formulation


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Cluster Plan Formulation


With the help of the Facilitator and the Cluster Advisory Group (CAG), Step 5 aims to enable the newly formed clusters to:

1. Appreciate the value of understanding markets in making an agroenterprise plan;

2. Utilize the findings of the PSA (Step 2) and MCS (Step 3) and validate the SWOT analysis, objective




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and strategy in agroenterprise development done by the WG;

3. Translate the strategy into an agroenterprise plan that will guide the clusters when they set up the selected agroenterprise; and

4. Formulate an operational plan for the product deliveries in the test marketing.

5.2 INTRODUCTION

An agroenterprise plan is a “road map” that guides the farmers market their products, increase income and attain sustainable livelihood. As a plan, it helps prepare the clusters before they make that “leap,” their first product supply to the buyer.

A good agroenterprise plan depends on the following:

• The clusters’ understanding of how markets work and on an informed choice on how they can possibly participate in various market chains that offer them opportunities for income

• Good data gathering in Steps 2 and 3 (i.e. PSA and MCS) that provides the clusters with essential information to analyze their strengths, weakness, opportunities, threats, and which guides them towards a good strategy to be able to match the market opportunities with their product supply capacity.

Objective setting is an important activity in this Step. It is a decision to undertake a specific agroenterprise in a selected market chain. An example is the objective of the coffee clusters in the municipality of Maragusan, Compostela to be able to supply coffee beans to a chosen market chain which will bring their product to the buyer, Nestle Philippines, Inc.




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5.3 FRAMEWORK OF AGROENTERPRISE DEVELOPMENT

The development of an agroenterprise follows a basic framework of identification and planning, implementation, and performance evaluation (Figure 19).

The planning component involves stages of work as discussed in Steps 1 to 4, the results of which are used in the design of the agroenterprise plan (Step 5).

The implementation component operationalizes the agroenterprise plan through the test marketing (Step 6) and the scaling up of marketing operations (Step 7).

The third component, enterprise performance evaluation, provides the feed backing that serves as the basis for continuous improvements and innovations necessary for the success of the agroenterprise.

Figure 20. The framework of Agroenterprise Development.

Feedback

THE AGROENTERPRISE DEVELOPMENT FRAMEWORK

Agroenterprise performance evaluation

Agroenterprise implementation

Agroenterprise identification &

planning




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5.4 THE AGROENTERPRISE PLAN

An agroenterprise plan has four basic components, namely: the market plan, the supply plan, the management plan,and the financial plan. The agroenterprise plan puts substance into a desired objective through the integration of the four component plans.

A framework containing basic information per component is the guide to make an agroenterprise plan. These sets of information are organized like a jigsaw puzzle. The absence of any information will render the puzzle incomplete and may make it hard for the player or players to appreciate and articulate the picture in its completeness.

Below is a general guide for agroenterprise planning:

GUIDE FOR AGROENTERPRISE PLAN

Market Plan • Buyer • Product • Quality specifications • Price • Sales target • Payment terms • Promotion

Supply Plan • Suppliers • Estimated supply volume • Product Quality management • Operational flow • Materials/facilities needed

Management Plan • Management set up/arrangement • Compensation • Policies and procedures

Financial Plan • Financial requirements • Estimated cost and returns




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A business begins and ends with a market, and so the first plan to make is the market plan.

The MCS (Step 3) provides the basis for choosing a buyer(s) for the market plan as well as the cost and returns projection in the financial plan. The PSA (Step 2) with information on the farmers, the harvest calendar that the clusters will make after cluster formation (Step 4) supports the information needs to draw up a product supply plan. The cluster formation with its network and linkages (Step 4) can be a basis for the management set-up.

Tools to Support the Agroenterprise Plan

These are the basic tools that guide each cluster member effectively support the agroenterprise plan and its implementation.

1. Cluster Map – To show the farmers who joined the cluster with corresponding product volume commitment, the buyer(s) agreed by the cluster, the supporting businesses in their marketing activities and the alliances (LGUs, NGOs, resource agencies, and others.

Usually, several clusters help one another to pool a considerable quantity of products for the market. A cluster map can also be drawn for a network of clusters.

(Refer to Facilitator’s Tool Kit No. 5 for an example of a cluster map.)

2. Cluster Agreement - To guide the members on the agreement that binds them in the supply of their product and the performance of their functions. Its form can be agreed upon by the cluster members.




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Basic content of a Cluster Agreement:

• Committed product volume and delivery schedule

• Product quality • Contingency supply (in case of deficiency) • Operational flow (from farm to consolidation

point and labeling) • Management fee • Marketing fee • Meetings

(Refer to Facilitator’s Tool Kit No. 5 for an example of a Cluster Agreement form.)

3. Planting Calendar or Harvest Calendar - To guide the cluster member in scheduling the planting activity in respect to the target time to harvest and the committed product quantity to be delivered to the buyer.

(Refer to Facilitator’s Tool Kit No. 5 for an example of a cluster harvest calendar.)

If several clusters work together to supply a particular market with a consolidated product volume, a summary of commitment per cluster is made to guide all the clusters to aggregate the supply for the buyer.

(Refer to Facilitator’s Tool Kit No. 5 for an example of a cluster commitment form.)

4. Product Quality Management Plan (PQMP) – This is agreed upon by the cluster members and distributed to them as guide, together with the Operational Plan. In the PQMP, the “must do” work in harvest and postharvest to ensure the homogeneous quality from the cluster. (See Figure 20 for an example of a PQMP).




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Figure 21. Illustration of a sample PQMP that each cluster member must follow to ensure quality of produce.

5.5 OPERATIONAL PLANNING AND TASKING

After preparing the agroenterprise plan, the cluster proceeds to undertake two more activities: (a) make an operational plan, and (b) list the critical tasks leading to the test marketing.

An operational plan contains the logical moves and the tight coordination needed as the product flows out from the farms to the intended buyers. This product flow process shown in a diagram is what guides each cluster member of the sequence of activities and the things to prepare (e.g. packaging materials, product labels, etc) in the joint marketing. The

CULTURAL MANAGEMENT

HARVESTING

DRYING/ MILLING

SORTING

TRANSPORT FOR CONSOLIDATION

MARKET

Pruning, weeding, rejuvenation

Selective harvesting

De-pulp, solar dryer, milling facility

Sort defects from good beans

Consolidation area, transport

Road Communications system

Financing

Post-harvest Quality Management Plan




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following basic accompanying documentation will be needed for tracking the product flows:

• Farm labels on packaging • Cluster receiving form • Buyer receiving form

(Refer to Facilitator’s Tool Kit No. 5 for a sample of an operational plan.)

The list of the Critical Tasks Leading to the Test Marketingspells out the tasks per components that are needed to be done before the actual product delivery. An assignment of tasks is done together with the timeframe. Examples of these critical tasks are: (a) Confirmation of delivery to the buyers, (b) Negotiation and confirmation with the transport service provider, (c) Checking of shipping schedules and bookings, and (d) Procurement of packaging materials.

An example of a Matrix for Critical Tasks Leading to Test Marketing

Component Task Respon-sible

Timeframe/Date Remarks

Quality ControlQuality & moisture check of beans

Cluster Leader

March 10

Consolidation Consoli-dation of coffee beans

Cluster Leaders

March 12

MarketingDelivery to Nestle

Facilitator & Cluster Leaders

March 13




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5.6 CONTINGENCY DECISIONS

After the plans with the tools are made, it is important to emphasize to the clusters that plans at best can only anticipate results. Marketing is a dynamic activity and caution must be given to the cluster that no matter how much planning is done to foresee activities ahead; allowance must be provided for variances that can happen.

In the implementation of the plan, certain unexpected outcomes with the challenges can arise which call for quick decisions from their cluster leaders. Clusters must then choose leaders that they highly trust so that their leaders, together with the Facilitator or whoever is tasked to oversee the whole marketing operations, can confidently make these urgent “contingency” decisions that in many cases can spell the success or failure of the marketing moves.

5.7 MONITORING AND ASSESSMENT

The test deliveries are a way to try out if the plans made are appropriate or if they need adjustments. During the test marketing, the performance is monitored right after each product delivery so that the problems are immediately corrected before the next delivery. To assist the clusters in the monitoring is a delivery monitoring form.




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5.8 FACILITATION GUIDE FOR AGROENTERPRISE PLANNING

1. Undertake several preliminary activities.

• Provide inputs on Marketing Basics. (Refer to Facilitator’s Tool Kit No. 1, in Step 1.)

• Present the results of PSA and MCS. (Refer to Facilitator’s Tool Kit No. 3, in Step 3, for the format of the report.)

• Validate the result of SWOT analysis in the same report. Get consensus from among the cluster members.

• Provide input on the options in the same report.

• Facilitate objective setting and strategy formulation by the cluster

2. Handle an interactive process of agroenterprise planning.

• Begin with the following guide statement that helps simplify understanding of agroenterprise planning.

“An agroenterprise plan can be better understood and appreciated by way of the following statement, which when answered, actually constitute a simple and doable agroenterprise plan.”

• Related to the Market: “We plan to sell 10 tons of coffee beans to Nestle".

• Related to Supply: “We, 4 clusters with 40 members, will produce 10 tons of coffee beans in 5 months (October to March)”.




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• Related to Management: “We shall organize this way: Cluster Leaders coordinated by the Marketing Facilitator and assisted by local consolidators”.

• Related to Finance: “We target to earn a gross income of Php 200,000 for distribution to cost payment including management and marketing fees and marketing income rebates to cluster members”.

• Then, deepen this by presenting the framework containing the essential information for each component in the agroenterprise plan. Draw out answers from the clusters by posing questions for discussion per component (marketing, production/supply, management and finance). Use the framework as guide in asking the questions.

• After the general planning of the enterprise, facilitate the compilation by the cluster of the basic tools that guide each member in the delivery of his/her product and bind them in the cluster activities, particularly in the preparation of (a) cluster map, (b) cluster agreements, (c) farm plan and budget, (d) planting or harvest calendar, and (e) product quality management plan.

(Refer to Facilitator’s Took Kit No. 5 for a sample of a cluster agroenterprise plan with the supporting tools.)

3. Discuss the importance of an operational plan for the product deliveries. Guide the clusters to formulate an operational plan detailing the sequence of activities from the time of harvest until the product reaches the intended buyer.




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(Refer to Facilitator’s Took Kit No. 5 for a sample of an operational plan.)

4. Guide the clusters to fill up a checklist of critical activities for the test market deliveries. It enumerates the work per component (i.e. marketing, production, management and finance) that has to be done, together with the person responsible and the timeframe.

(Refer to Facilitator’s Took Kit No. 5 for the matrix to be filled up for the critical work to be done before test delivery.)




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AGROENTERPRISE PLANNING A. PLANNING WITH SWOT ANALYSIS

SWOT Analysis should be conducted only when cluster and agroenterprise objectives are clearly stated. This is to enable the cluster to make an effective analysis and identify interventions or strategies in carrying out the plan.

The cluster members are assisted by the other members of the CAG in conducting a SWOT Analysis. (Refer to Tool Kit No. 3 for a sample of the results of a SWOT Analysis, including the suggested interventions.)

After conducting a SWOT Analysis, the cluster then proceeds with the formulation of its agroenterprise plan with the assistance of the CAG. Below is a sample of an AE Plan.

AGROENTERPRISE PLAN Coffee Cluster Maragusan, Compostela Valley Plan for the Third Delivery (February 24, 2006)

Basic Element/ Information

PARTICULARS

A. Marketing Plan

1. Target Market

• Nestle Philippines, Inc. and other coffee buyers • Test deliveries for the first month then regular

deliveries in the succeeding months until the end of the coffee season

2. Product • Product form – Green Coffee Beans • Quality specs – moisture content (MC) not more

than 12%, sorted coffee beans with minimal defects

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and can be accepted either as Grade 1, Grade 2 or Grade 3 by the Buying Station

• Packaging – clean synthetic sacks labeled with the name of the farmer and cluster

• In case of rejects – deliver to other coffee buyers identified in the market survey

• The staff of Nestle will gather samples from all the sacks and conduct Quality Control inspection using Cup Tasting, Triage and Moisture Content Analysis

3. Target Sales • Target of 3,000kgs to be consolidated • Price per unit –Based on the prevailing Nestle

Coffee Buying Price at the time the delivery arrives at the Buying Station

• Projected sales – Based on price for the week (Refer to attached financial format for computation)

B. Production/Supply Plan

1. Supply Source

• 5 clusters (comprised of 28 farmers from 5 barangays: Mahayahay, Parasanon, Saranga, Magcagong & Tupas)

• Total committed volume of the 5 clusters: 2,590kgs • One week before the scheduled delivery, the

Cluster Leaders finalize their plan based on actual capacity to supply. Those with less harvest than their commitment shall be supplemented by the other clusters

2. Operational Flow (from the farm to the buyer)

Two weeks before delivery (Last week of February)• Start of harvesting of coffee berries • Start of pulping & drying

Five days before delivery (March 8, 2006)• Start of milling of dried cherries • Volume check by the Cluster Leaders • Start of bean sorting/quality improvement • Contact truck

Three days before delivery (March 10, 2006)• Check if the coffee beans are dry • Quality check by the Cluster Leaders

One day before delivery (March 12, 2006)• Storage of coffee beans at the Kasilak Office

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• Loading in the afternoon (assisted by Cluster representatives and Marketing Officer)

Delivery Day (March 13, 2006)• Departure of truck at 3 o`clock in the morning

3. Materials, Facilities & Equipment Needed

• Materials – synthetic sacks • Facilities/Equipment – truck with 5 metric tons

capacity

C. Management Plan

1. Organiza-tional & Manage-ment Set Up

• Farmers are organized into clusters. The cluster is a supply unit.

• Each cluster has a cluster head and an assistant cluster head.

• Decisions are done with the 9 clusters heads constituting the leadership of the group guided by the Marketing Officer of the implementing NGO.

• Cluster Leaders are responsible for checking their members if their coffee is ready and to check the quality of their coffee

• Since the Tupas Cluster has no prior experience in test delivery, the Cluster Leader who has participated in the first two deliveries will accompany the truck

2. Operations • Cluster leaders are responsible for supply

consolidation, and product flow as well as the quality management on field.

• Cluster leaders shall be supported by the project staff

3. Finance & Admin

• The Cluster Leaders will be assisted by the Marketing Officer in dividing the expenses as well as the net proceeds from the sales

4. Recording & Controls

• Policies and procedures – to be finalized after the one month trial

• Forms to be used: • Estimated harvest for the whole coffee season • Delivery Monitoring Form

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D. Financial Plan

Target volume (in kg) 3,000Price offered by Nestle (PhP/kg) 46.00Expected Total Gross (in PhP) 40,500.00

Operating costs (in PhP): Trucking 6,000.00Milling 7,500.00Labor- Hauling 288.00Labor-Drying 500.00Wages (2 representatives) 600.00Meals (4 persons including driver) 600.00Miscellaneous 200.00Total expenses 15,688.00Gross Profit (in PhP) 24,812.00

B. TOOLS FOR ENSURING SUCCESSFUL PLAN

In ensuring a successful implementation of an AE Plan, the following tools can be used to guide the cluster members:

1. Cluster Map 2. Cluster Agreement 3. Planting Calendar or Harvest Calendar (per cluster

and for all the clusters) 4. Product Quality Management Plan

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Cluster Map

Figure 22 shows the different stakeholders and their responsibilities in the agroenterprise through a cluster map.

Figure 22. Example of a Cluster Map.

Agreement

Below is a basic form of Cluster Agreement used to document the commitment of each member to deliver a specific volume or quantity of a product in a specific frequency.

MARKETS Nestle JM Agro

Clusters

Maragusan Coffee

SUPPORTING BUSINESS

CMJ Trading (Sacks)

MAVADECO (Coffee Mill)

MAVADECO (Trucking Services)

PARTNERSLGU Maragusan (Consolidation

Area, Infra support

CRS & Kasilak (FMR, Trainings, Organizing, Mgt

Support

Saranga Magcagong Tupas Mahayahay Parasanon

MAO (Training & Extension Services)

A.Jacob D. Regidor C. Zamora D. HaguhayR. delaPenaJ. Ventura

E. Garcia J. Dagundon D.Arriesgado R. Navarro C. Nopal G. Lebarios R.Tonjoc D. Ducog F. Taunes

L. Cavanes B. Silanova D. Dumalagan R. Sambinigan R. Mordan A. Dayo A. Tude L. Patnugot L. Jucoy J. Taran R. Saromines S. Lagura

To be finalized by the Cluster Leader

To be finalized by the Cluster Leader

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Operational Plan

A sample Operational Plan diagrammatically presented is shown in Figure 23. This supports the narrative operational plan in the agroenterprise plan.

1. Preparing Activity Operational Plans

Using the General Operational Plan as reference, Activity Operational Plans are prepared. An activity represents a time element before, during, or after harvest.

Cluster Agreement

I, (farmer’s name), of legal age and a resident of (address), am willing to become part of the (cluster’s name) Cluster and committo:

1. Contribute (indicate volume) kilos/pieces of (product) to the cluster every (indicate frequency);

2. Follow the production and marketing protocols of the cluster;3. Pay the Management Fee (indicate %) and the Marketing

Fee (indicate %) based on Sale Value every delivery; 4. Attend all the cluster meetings; 5. Provide more products to cover the deficiency of the other

members due to unforeseen reasons; and 6. Abide by the decisions and policies set forth by the cluster.

I have affixed my signature below as a sign of my commitment tothe cluster. ___________________ Member

___________________ Cluster Leader

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Figure 23. Operational Plan of Maragusan Coffee Clusters.

General Operational Plan for the Test Delivery of Coffee Beans

Day Activity

Before Delivery

Day

• Harvesting pulping, drying & milling of coffee berries • Volume check • Quality improvement (appearance & moisture content) • Contact truck

DeliveryDay

• Truck departs for Davao City at 3:00 am • Arrives at Nestle Buying Station at 8:00am

Figure 24. Activity Operational Plan five days before delivery.

Start of milling of

dried cherries

Volume check by

theCluster Leaders

5 days before delivery

1 day before deliveryDelivery Day

Check if the coffeebeans are

dry

Storage of coffee beans at

theKasilak Office

Check quality of

beans

Labelling & Loadingof sacks

intotrucks

Departureof truck

3 days before delivery

3:00 AM

Start of harvestin

g of coffee berries

Start of pulping &

drying

2 weeks before delivery

Start of quality

improvement

Contact truck

Arrival in Nestle Buying Station

8:00 AM

Volume commitments per

member

Nestle Quality Control Standard

Delivery Monitoring Form

List of Farmers & Volume Delivered

Maragusan Coffee Clusters Product Flow & Forms Used

• Milling facility

Start of milling of dried berries

Verify available volume

Farmer members Cluster Leaders

Start of bean sorting/quality improvement

Contact truck

Farmer members

Cluster Leaders assisted by Marketing

Officer

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2. Getting the volume capacity and commitment of each cluster and for all the clusters working together for a delivery

Cluster Commitment Form 3rd delivery of coffee beans Maragusan, Compostela Valley

Cluster/Cluster Leader No. of Members

Commitment (in kg)

Mahayahay / R. Balucos To be finalized by the Cluster Leader

To be verified by the Cluster Leader

Parasanon / A. Rosel To be finalized by the Cluster Leader

To be verified by the Cluster Leader

Saranga / A. Jacob 7 800 Tupas / J. Banag 13 620 Magcagong / D. Arriesgado 9 1,170

Total 29 2,590

Magcagong Coffee Cluster Volume Committed (in kilograms)

Name of Member Nov Dec Jan Feb Mar Total

E. Garcia 50 100 200 100 50 500

J. Dagundon 20 40 80 40 20 200 D. Arriesgado 10 20 40 20 10 100 R. Navarro 5 10 20 10 5 50

C. Nopal 2 4 8 4 2 20

G. Lebarios 2 4 8 4 2 20

R. Tonjoc 3 6 12 6 3 30

J. D. Ducog 20 40 80 40 20 200

B. F. Taunes 5 10 20 10 5 50 Total 117 234 468 234 117 1,170

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Test Marketing

6.1. PROCESS OBJECTIVES

Through the help of the Facilitator and the Cluster Advisory Group (CAG), Step 6 aims to enable the newly formed clusters to:

1. Undertake the trial marketing moves; 2. Assess the performance of the trial product deliveries

and come up with contingency plans to address the




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immediate needs for adjustments using the tools prepared in Step 5; and

3. Review the clusters’ agroenterprise plan and revise as needed for the scaling up of trial marketing into the next step, the commercial marketing operations.

6.2. INTRODUCTION

In this Step, the cluster implements its agroenterprise plan starting with test marketing undertaken in preparation for a bigger scale. Included in this Step is Participatory Monitoring and Evaluation (PME), a cross-cutting component of the 8-Step process of clustering for AE development.

6.3. PREPARING FOR THE TRIAL DELIVERIES

At least four trial deliveries are usually conducted to enable the cluster to have a good assessment of its capacity and the market. The number of trial deliveries to be undertaken depends much on the cluster’s capacities, resources, and response of the market.

As indicated in Step 5, a number of preparatory activities have to be done at least a week before the delivery. The Facilitator convenes a meeting with the cluster leader and the CAG to review the status of preparations based on the checklist prepared in Step 5.

6.4. CONDUCTING AND DOCUMENTING THE TRIAL DELIVERY

Guided by the general AE and activity operational plans, the cluster conducts the trial delivery. Documentation of the activities, outputs and outcomes related to the delivery should be done as an aid to monitoring and assessment. Photo-documentation may also be done if the cluster has the




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facilities. During test marketing stage, a member of the CAG is designated as responsible for the documentation in preparation for post-delivery assessments.

Good practices:

• The cluster leaders, assisted by the Facilitator, directly negotiate and enter into agreement with the buyer/s.

• Cluster leader and Facilitator are jointly responsible for the delivery starting from the consolidation to the acceptance of the product by the buyer

• Facilitator maintains close coordination/contact with cluster leaders

• Cluster leaders take turns in accompanying the deliveries (with the Facilitator) as part of the “learning by doing” process

• If resources allow, photo-documentation is done and shared with clusters members

• The minimum forms that support the transfer of responsibility from the farmer to the cluster leader, then to the buyer are implemented, in particular, product label per cluster per grower and the accompanying receiving forms.

• Right after each delivery and prior to the next one, financial transactions are reported to the cluster members and payments due to the members, as well as the service providers, are completely settled. This is part of the “learning by doing” process in setting the standards of accountability and discipline essential to the success of an agroenterpise.

6.5. EVALUATING THE TRIAL DELIVERY

Immediately after each trial delivery, an assessment is done to determine whether the cluster has to proceed with the succeeding deliveries or stop for a while and make some adjustments or changes. The assessment is done by




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comparing the outcomes vis-à-vis the plan and using tools such as the SWOT Analysis (see Step 5).

Monitoring of the trial deliveries is focused more, but not exclusive, on the market and supply relationship which is critical in terms of trust and confidence building.

A basic requirement in monitoring is information on product delivered by the clusters and received by the buyers. To gather this information, forms are prepared which can be simple or very detailed depending on the type of product and the requirements of the buyer. (See Facilitator’s Tool Kit No. 6 for samples of monitoring forms.)

6.6. ASSESSING AGROENTERPRISE PERFORMANCE

Aside from assessing the performance of each delivery, assessing or evaluating the overall performance of an agroenterprise should also be done in order to know whether business is doing well as planned or otherwise. The cluster may design its own tools basing on the components of the enterprise plan, namely: market, supply, management and finances. See example of plan in Step 5.

As shown in Figure 20, monitoring the activities of an enterprise for the purpose of assessing its performance follows the following stages:

1. Reporting

Documentation of activities and the corresponding costs and gains involved is very critical. Reporting the results of documentation is equally critical particularly in respect of accuracy and timeliness.

Reports have to be prepared and submitted immediately after completion of each delivery to




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enable the cluster to compare actual against planned results.

2. Comparing actual against planned results

Results obtained from monitoring forms are compared with the relevant components (market, supply, management, financial) of the enterprise plan. Differences between actual and planned results of deliveries indicate how an enterprise is performing.

3. Determining possible adjustments in the plan and the possibility of preparing a contingency plan

Results may reflect the areas where the enterprise is weak and/or strong. They may also indicate threats and opportunities for growth. In short, results of monitoring serve as guides in making changes in targets and strategies, or in preparing a contingency plan if there is a need. These must be agreed upon by the members before translating them into changes in the agroenterprise plan.

Figure 25. Diagram showing the elements of agroenterpris implementation.

Periodic reporting

ENTERPRISE PLAN

Planned vs. Actual results

Adjustments/ Contingency

Planning

THE PROCESS OF ENTERPRISE PERFORMANCE MONITORING AND ASSESSMENT




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4. Revising the enterprise plan/preparing a contingency plan

The members of the cluster (or the Working Groupduring the initial steps) meet to make the necessary revisions in the plan as identified and agreed upon. If necessary, a contingency plan may be formulated to serve as an alternative.

Participatory Monitoring and Evaluation (PME) should be done regularly in order for the cluster to be able to respond to problems and opportunities in a prompt and systematic manner. Until ready with minimum or no assistance at all, the members should be aided by project staff or the Facilitator.




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Facilitator’s Tool Kit No. ___

CONDUCTING AND DOCUMENTING TRIAL DELIVERIES

A. DOCUMENTING THE TRIAL DELIVERY

Part of the pre-delivery activities is the preparation of the forms that will be used to document the delivery.

Below is a sample of a simple Delivery and Receiving Forms that is used to document the supplier, the quantity and the acknowledgement of buyer with the remarks.

Cluster Delivery and Receiving Form Cluster:_____________

Name of Member No. of boxes

Remarks Other Comments

1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

Prepared by: ____________________

Cluster Leader

Received by: ______________________ Partner NGO Finance Staff

Received by: __________________

Truck Driver

Received by: __________________ Market/Port Facilitator

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Below is an example of another delivery form that is used in documenting the vegetables from the cluster to the market. It includes quantities, values and sales, and costs and returns.

MARAGUSAN VEGETABLE CLUSTER DELIVERY MONITORING FORM

Delivery No.:_____ Market: _________________ Date: __________

Vegetable Quantity Maragusan

Price/kg (PhP)

Total Value (PhP)

Quantity x Maragusan

Price

CDOPrice (PhP)

Total Sales (PhP)

Quantity x CDO Price

String Beans (kg)

Bitter Gourd (kg)

Sweet Pepper (kg)

Chayote (sack)

Eggplant (kg)

Squash (kg)

Tomato (crate)

Sweet Potato (kg)

TOTAL

Costs and Returns Amount (PhP)

Sales (Total Quantity x CDO Price)

Cost of Goods (Total Quantity x Maragusan Price)

Gross Income (Sales – Cost of Goods)

Expenses

Trucking

Fuel

Management Fee (__% of Gross Income)

Packaging Materials (sako, crates, twine, etc.)

Other Expenses

Net Income (Gross Income – Total Expenses)

Cost per Kilogram (Total Expenses / Total Quantity)

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Below is an example of a more detailed receiving report form based on the buyer’s requirement for product quality data and traceability as to origin or source.

Delivery No.

COFFEE GREEN BEANS RECEIVING REPORT Date

Supplier: Address:

Variety: Robusta Arabica No. of bags

Gross Weight

Sack weight (No. of bags x

0.2)

Net Weight (Gross wt –

sack wt)

Type : Dry Wet

DEFECT BEAN COUNT Coefficient Equivalent

Black beans ÷ 5.0

Moldy beans ÷ 5.0

Dried cherry ÷ 5.0

Broken ÷ 15.0

Immature ÷ 25.0

Insect-damaged ÷ 35.0

Admixture ÷ 5.0

Foreign matter ÷ 5.0

GOOD BEANS ÷ TOTAL DEFECTS

TOTAL BEANS ÷ 8.0

Triage: Grade 1 (0-8), Grade 2 (9-12) Moisture: More than 12% - Reject

Triage (A / B) Grade Total Amt. (Price/kg x Net wt) Balance (Total amt – Partial payment)

% Moisture Price/kg Farm gate price Expenses (transport, labor, fees)

Partial payment (Farm gate price x Net wt.)

Final Payment (Balance – Expenses)

Remarks Partial payment received by / Date

Full payment received by / Date

The above forms may be modified to include more information which the cluster thinks need to be documented also.

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B. MONITORING DELIVERIES

Following is a form for monitoring trial deliveries as used by the calamansi clusters. It provides for a comparison of the actual vis-à-vis the planned, and for suggested corrective measures in case some things went wrong.

Delivery Monitoring Form Calamansi Cluster Siay, Zamboanga Sibugay

Enterprise Component Planned Actual

Corrective Measures Tasking

1st delivery

SUPPLY PLAN • Operational

Flow

Arrival at the port at 6 AM

Truck arrived late (10 AM), the boat already left

Clockwork in consolidation to be followed; new truck has to be hired

Cluster Leader to doclockwork check; Hire truck

2nd delivery

MARKET PLAN • Market

(quality)

SUPPLY PLAN • Materials,

equipment & facilities

23 kg/crate Buyer complained of varied weights of product (21-25 kg/crate)

Weighing scale to be used during packaging

NGOMarketing Staff to procure weighing scale; Cluster Leaders to explain to members the use of scales

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Step 7. Scaling Up


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Scaling Up


With the help of the Facilitator and the Cluster Advisory Group, Step 7 aims to enable the clusters to:

1. Assess the performance of the test marketing activities in preparation for scaling up;

2. Document scaling up marketing activities and periodically assess their operations;


Step 7. Scaling Up


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3. Review the Cluster Agroenterprise Plan, and make the needed adjustments; and

4. Determine the support systems needed for the success of the scaled up marketing operations.

7.2 PREPARING FOR SCALING UP

After several test marketing when the clusters will have learned lessons from experience, made appropriate adjustments in their plan, and built confidence, they may be ready for scaling up.

The Facilitator reviews the performance of the first four test product deliveries before discussion with the clusters on their next moves. It will help if a matrix is used to summarize the main problems addressed in the first four product deliveries, with the corrective measures.

(Refer to Facilitator’s Tool Kit No. 6 in Step 6 for Summary of Problems with Corrective Measures in the Test Marketing)

At this point, the clusters are asked to reflect on their experiences and then to decide if they want to go on with their agroenterprise. They can either stop or continue it. And if they decide to continue, they will be asked if they want to continue with more test marketing or are confident to move to the next stage of agroenterprise planning and implementation, the scaling up.

Scaling up means bigger resources being invested in an agroenterprise resulting from:

o Higher product supply to match the increasing demand of existing buyers (example: more coffee supply to Nestle from additional clusters)

o Higher product supply to respond to a more, diversified market (example: a supermarket buyer in

•

•


Step 7. Scaling Up


121

addition to the wholesaler buying vegetables from the clusters)

o Same products, same markets but more market chain activities being performed (example: rice farmers undertaking forward integration moves and selling milled rice instead of just wet palay)

o New products handled in addition to the existing ones (example: an additional variety of coffee for the same market).

Success in marketing that builds confidence on both the buyers and the clusters propels the farmers into scaling up. The potentials for higher income however come with the higher risks. And so, it is prudent to proceed carefully with scaling up, assessing first the preparedness of the clusters.

7.3 ASSESSING THE PREPAREDNESS OF CLUSTERS FOR SCALING UP

More income potentials with bigger resources in a scaled up agroenterprise also bring with it certain risks. Entering this next stage of business operations require that plans are reviewed for existing products; and a market chain study is done for new products before agroenterprise planning.

How fast test marketing can progress to scaling up stage is influenced by these factors: (a) past enterprise performance in the test marketing, (b) the supply base of the clusters to come up with more and/or new products, (c) resources for investments needed, and (d) access to business support services.

There is no point of scaling up unless the clusters are confident to do it, and there are gains from the trial deliveries that are worth scaling up. A framework to ascertain preparedness that includes other considerations will guide the

•

•


Step 7. Scaling Up


122

reflection process that the Facilitator will handle with the clusters prior to scaling up.

Reflection tool for self-assessment of the cluster’s preparedness for scaling up

Key Element Guide Question

Cluster Members wiling to proceed from test marketing to scaled-up operations?

Supply Is the product supply considerable? Is this coming from an increasing number of farmers?

Can delivery reliability be assured?

Market Is the current market regular and growing?

Are there new market opportunities?

Management Can cluster leaders and members perform tasks as expected?

Are cluster meetings done regularly? Are policies and procedures written and followed?

Financial Did the test deliveries yield increasing levels of net incomes or decreasing levels of losses?

Is there a reducing trend in subsidies extended by the service providers during the test marketing?

For clusters that are ready for scaling up, the process they follow in planning is the same provided in Step 5. They integrate their market, production or supply, management and financial plans, formulate their operational plans and list the critical activities to marketing of their product(s). What will matter in scaling up success is how integrated are the plans and how tightly coordinated are the needs and activities.


Step 7. Scaling Up


123

The critical factor is the supply capacity of the farmers. At production stage, technologies to be followed should be in place and verified. Very detailed operational planning is necessary putting together specific tasks, with dates, names and areas as well as back up documentation.

Roles and responsibilities should be clear. Particular attention needs to be given that the management set up is in place, backed up with written business policies and operating systems refined from the previous test marketing, and imposed by the clusters with a signed agreement.

In the financial projections, assumptions and calculations regarding yield, sales, costs and margins should be very conservative. They should also factor in when making harvest calendars the fluctuations in product supply due to climatic factors or some cluster members not performing as expected.

With the higher financial investments needed in scaled up marketing operations, it is important for the clusters to determine their capital sources, particularly: what can be done with existing sources of funding, what is possible with cluster savings, what can be tapped from business partners, and what else needs to be generated from external sources.

At this stage, the clusters should be able to mobilize resources and should depend less from the financial support given by development projects during the test marketing stage. Project funds may still be provided at scaled up stage to support experimentations, verify innovations, undertake market related studies, and assist clusters in training and capability building activities. Continuing financial assistance depends on the available resources of the development service provider.


Step 7. Scaling Up


124

7.4 ASSESSING AGROENTERPRISE PERFORMANCE

A key role of the Facilitator is to guide the clusters to set up a monitoring system so that the cluster can periodically review progress, and know whether the business is doing well as planned or otherwise. During the test marketing (Step 6), monitoring is done after every product delivery and is reported immediately, and this is before the next product delivery. In the scaled up agroenterprise stage, results of continuing monitoring can be reported periodically during the monthly cluster meetings.

Much of the business learnings by the clusters result from the monitoring process which shows them the progress of their agroenterprise as well as the problems that need their action. Monitoring can be done best if there are records on the following:

• Production performance per cluster member • Product supply of the cluster members through the

cluster relative to commitment • Financial transactions (sales, costs, returns, service

fees, savings, loans, capital, etc) • Loan records (if the cluster borrows or lends) • Marketing, production, financial and management

outputs relative to targets (i.e. the agroenterprise plan revisited)

• Problems encountered and solutions done • Minutes of meetings

These records will help enormously the clusters in assessing their agroenterprise performance. Clusters that have no records on their product supply, market deliveries, and finances will not be able to objectively study their decisions and actions. The information in their records is what is organized in the reports given to the cluster members every month.


Step 7. Scaling Up


125

7.5 RISK MANAGEMENT

Despite all the preparations with good planning and monitoring systems, it should be recognized that every business has a certain degree of risk because not all factors affecting the business can be controlled, especially those that are external to the cluster. However, clusters can devise ways and strategies to reduce risk.

When the clusters are asked to produce new varieties of the same crop, it is prudent to thoroughly test its production management in several sites to determine the best way of producing it for the market.

This practice of experimentation is good to develop especially when the clusters plan to move into diversified production in response to the expanding needs of the growing market. Experimentation, not just in production but also in the marketing, opens the clusters to the opportunities for innovations which make them competitive in the marketplace. It also opens options, thus reducing risks and uncertainties.

When new products are to be handled in the scaling up, the Facilitator guides the clusters to undertake market chain study (Step 3), and conduct a new round of cluster planning (Step 5) and test marketing (Step 6). This will test the business decision made with reduced risks. The best lessons will come from the actual producers, so the clusters should explore ways to get first hand, reliable information on how a particular product is being produced and/or processed by visiting existing producers.


Step 7. Scaling Up


126

7.6 GOOD PRACTICES FOR SCALING UP

Below are some tips for clusters that intend to scale up their operations:

1. Form a network of clusters to build economies of scale (i.e., coffee)

2. Link network of clusters with apex organizations (like industry associations)

3. Work with partners to draw support from government and other sources (initially through and with the WG)

4. Establish linkages for market information 5. Link with institutions engages in research for

technology development (i.e., fish product development)

6. Develop business linkages (markets that can be part of the market chain)


Step 8. Cluster Strengthening

THE CLUSTERING APPROACH TO AGROENTERPRISE DEVELOPMENT FOR SMALL FARMERS 127

Cluster Strengthening


Through competent facilitation, Step 8 aims to enable the cluster members to:

1. Appreciate the importance of self-assessment of the strength of their cluster and their agroenterprise; and

2. Determine the level of maturity of their cluster in a combination of key areas for improvement.




8.2 INTRODUCTION

The Facilitator is a catalyst in building agroenterprise capacities in the clusters. In this role, he/she is called to guide them through participatory processes that provide the “learning by doing” opportunities for farmers. This task is not easy because there is a maturation period needed for farmers to take in new knowledge, new skills, new values and new organizing methods through the clusters.

In the context of an agroenterprise project, the level of maturity of a cluster is determined by increasing levels of experiences and a gain of capacities in key areas. From CRS experiences, learnings built in a combination of five areas will move the clusters forward to viability and sustainability.

It is in these five areas that the Facilitator guides the learning process, and implements capacity building interventions.

8.3 KEY AREAS FOR CAPACITY BUILDING IN CLUSTER STRENGTHENING

The Facilitator guides the learning process and implements capacity building interventions (i.e. trainings, reflection sessions, hands-on learning activities, observation visits, etc) in five key areas:

1. Organizational Development 2. Market Position 3. Supply Capacity 4. Financial Resources 5. Management Capacity

These key areas are interrelated. CRS experiences point to the observation that effectiveness in the cluster’s engagement to the market and the establishment of its agroenterprise




requires a combination of capacities, or a balanced maturation process.

8.4 GUIDE FOR SELF-ASSESSMENT OF LEVEL OF CLUSTER MATURITY

As part of the cluster’s learning process, its level of maturity is assessed in a participatory way in a continuing monitoring program. The clusters periodically assess themselves and their collective effects in the agroenterprise. To assist them, a set of indicators describe the stages of maturity that they aspire for. A scale of 1 to 5 enables the cluster to appreciate their progression.

Organizational Development

In an agroenterprise, a cluster is envisioned to transform from a dependent to an enabled, and finally, to an empowered entity as illustrated in Figure 26.




Figure 26. An illustration of the transformation process of a cluster as an organization.

The level of maturity in this key area can be determined using the following matrix as guide:

Indicators of the maturity level of a cluster in terms of organizational development

Maturity Level

Indicator

1 Core group of 5 producers with at least 1 lead producer. NGO staff primarily organizing group activities.

2 Cluster formed with cluster leader (s). Cluster has: a) Meetings b) Common production and market plans c) Verbal agreements

3 Cluster has regular meetings called by its cluster leaders, with written agreements, and written policies

4 The cluster is functioning independently; able to: a) Implement enterprise plans (marketing and

supply) b) Have regular assessments c) Have written financial reports

5 The cluster is in a network with other clusters; able to work with other clusters as part of a common business entity.

ENABLED EMPOWERED DEPENDENT




Suggested Interventions in the form of trainings, reflection sessions, meetings, exposure visits, and observations should lead to the following:

• Leaders can facilitate meetings where members can express their views and decisions are arrived at with consensus

• The cluster can formulate its objectives and strategies • The cluster can review their performance relative to

their plans; can tackle and resolve problems • There is transparency (clusters have records and

reports) • There is mutual trust and respect among the members • Clusters recognize their interdependence with other

clusters and partners in their agroenterprise

Market Position

An agroenterprise is desired to have a market position graduating from small sized market to big-sized, from low to high bargaining influence, and from random/spot to arranged/negotiated buyer as illustrated in Figure 27.

Figure 27. An illustration of the strengthening of the marketing position of a cluster.

SMALL MARKET SIZE BIG

LOW BARGAINING INFLUENCE

HIGH

RANDOM / SPOT BUYER ARRANGED/ NEGOTIATED





Indicators of the maturity level of a cluster in terms of market position

Maturity Level

Indicator

1 Market penetration with trial deliveries a) At least 50% of market plan accomplished in

target product volume. b) Getting to know stage with the buyer(s)

2 Market is strengthened a) Markets are maintained and product volume is

scaled up. b) There is build up of buyer relations.

3 Market is developed with more buyers who can offer stable arrangements.

a) More buyers tapped. b) Markets entered into are for longer term

agreements. c) Special pricing negotiations done.

4 Markets are diversified a) New products (value added) b) Clusters pursue market research for higher value

markets

5 Network of support is established (business services in the chain).

Suggested interventions should lead to:

• Awareness on the role of the cluster in the market chain and how it can increase participation

• Understanding of market opportunities that come with stable supply base, value addition with quality management or new products, improvements in




postharvest activities, links to various market types and partners

• Skills in market negotiation and market development towards higher value buyers

Supply Capacity

The capacity of a cluster to supply its markets should move from quantity to quality (form), and eventually to value orientation; from sustainable production system to distinct preferred products; and from quality supply to quality supplier. This process of development is illustrated in Figure 28.

Figure 28. An illustration of the development of a stable product supply base within a cluster.

The level of maturity in this KRA can be determined using the following matrix as guide:

QUANTITY QUALITY (FORM)

VALUE SALES

SUSTAINABLE PRODUCTION SYSTEM

DISTINCT PREFERRED PRODUCTS

QUALITY SUPPLY QUALITY SUPPLIER




Indicators of the maturity level of a cluster in terms of supply capacity

Maturity Level

Indicator

1 Product supply coming out from the cluster for the jointmarketing

a) At least 50% of planned supply is accomplished b) Production calendar

2 • Regular product supply coming out based on theenterprise supply plan.

• Cluster members can supplement each other’ssupply in times of deficit. (coordination for back-upsupply, farm records)

3 • Production technologies are in place for reliablequantity and quality standards of at least 80% ofthe cluster members

• Production protocols (best practices), supplydelivery monitoring system

4 Value addition in the supply: a) Value added existing products (packaging,

labelling) b) New products, new markets c) Value addition measures implemented; better

logistics in place

5 Distinct products a) Preferred products with the buyers b) Products carry the name of the supplier c) “Quality is in our growers”


• Cost effective production technologies that ensure stable product supply

• Quality management practices that will address the market demand

• Production programming for continuous supply




• Experimentation for continuous innovations in production method (reduction of costs, soil and water conservation, natural farming methods like NFTS, etc).

Business Management Capacity

The capacity of the cluster to manage its agroenterprise must progress from being assisted to co-managed, and finally to independent, as illustrated in Figure 29.

Figure 29. An illustration of the improvement of the business management capacity of a cluster.

ASSISTED CO-MANAGED INDEPENDENT





Indicators of the maturity level of a cluster in terms of management capacity

Maturity Level

Indicator

1 Enterprise plan and operation plan are formulated. (80%)

a) NGO facilitated the process. b) Product consolidation & market facilitation

procedures tried out.

2 Cluster leaders and assigned management people are functioning. (60%)

a) Roles and responsibilities spelled out. b) Task related trainings done. c) Agreed scheme of remuneration tried out.

3 Operational plan review is routinely done. (40%) a) Agreed scheme of remuneration established. b) Business operating systems in place.

4 • Enterprise plan enhanced to address new opportunities. (20%)

• Performance based incentives

5 • Institutionalization • Structure, management set up, policies and

systems to ensure high performance of business activities

Suggested Interventions should lead to:

• Understanding the functions of enterprise management comprised of: planning, organizing, implementation, monitoring and evaluation

• Installed policies and system in enterprise operation including incentives and sanctions




• Clear roles and responsibilities of the cluster members and officer

Financial Resources

The resources of a cluster in operating its agroenterprise, particularly financial, should evolve from assisted to earning, then to sustainable as illustrated in Figure 30.

Figure 30. An illustration of the growth of a cluster from assisted to sustainable.

ASSISTED EARNING SUSTAINABLE





Indicators of the maturity level of a cluster in terms of financial resources

Maturity Level

Indicator

1 With external financial support a) Trainings, capability building b) Market operating funds

2 Cluster start to experience marketing earnings (not regular yet).

a) Enterprise transactions are recorded. b) Service fees (management and/or marketing are

initially paid)

3 Marketing earnings are more predictable (and regular). a) Financial reports are done and discussed in the

cluster meetings. b) Service fees pay part of the marketing &

management costs. c) Financial systems are in place.

4 Capital build-up scheme from joint marketing is established.

a) Individual b) Organizational c) Service fees are used to pay in full the marketing

and management costs.

5 Clusters have generated funds for business investment.


• Understanding the need for transparency and accountability

• Installation of policies and procedures related to cash management, internal controls, financial recording and reporting (i.e., accounting reports,




• Increase in responsibility to pay for services provide by the cluster (i.e., management and marketing fees)

• Generation of individual and organization savings

8.5 THE OBJECTIVE FOR BALANCED MATURITY

Assessing the level of cluster maturity may be done every six (6) months to coincide with the assembly of cluster members for agroenterprise evaluation and planning activity.

The levels of maturity may vary among the key areas depending on internal and external assets of the enterprise, and the performance of the cluster members. This means that interventions should be directed more on the less mature key area so that the growth and development of the cluster and its agroenterprise is balanced.

Using the Summary Matrix of Key Areas, Levels and Indicators of Maturity, the Facilitator provides a holistic view of the maturation process to the clusters. The Facilitator familiarizes the clusters on the tool, and then leads them to self-assess their level of maturity. Assessment is a continuing activity because clusters can progress or retrogress across the levels. And it will help them to be always critical of their performance and progress.



THE CLUSTERING APPROACH TO AGROENTERPRISE DEVELOPMENT FOR SMALL FARMERS 140Mat

uri

ty

Lev

elO

rgan

izat

ion

al

Dev

elo

pm

ent

Mar

ket

Po

siti

on

Su

pp

ly C

apac

ity

Bu

sin

ess

Man

agem

ent

Cap

acit

yF

inan

cial

Res

ou

rces

1

Co

re g

rou

p o

f 5

pro

du

cers

wit

h

at le

ast

1 le

ad p

rod

uce

r. N

GO

st

aff p

rimar

ily o

rgan

izin

g gr

oup

activ

ities

.

Mar

ket

pen

etra

tio

n w

ith

tri

al

del

iver

ies:

a.)

At l

east

50%

of

mar

ket p

lan

acco

mpl

ishe

d in

ta

rget

pro

duct

vol

ume.

b.)

Get

ting

to k

now

sta

ge w

ith th

e bu

yer(

s)

Pro

du

ct s

up

ply

co

min

g o

ut

fro

m t

he

clu

ster

fo

r th

e jo

int

mar

keti

ng

: a.

) At l

east

50%

of

plan

ned

supp

ly is

acc

ompl

ishe

d b.

) P

rodu

ctio

n ca

lend

ar

En

terp

rise

pla

n a

nd

op

erat

ion

p

lan

are

fo

rmu

late

d. (

80%

): a

.)

NG

O fa

cilit

ated

the

proc

ess.

b.)

P

rodu

ct c

onso

lidat

ion

& m

arke

t fa

cilit

atio

n pr

oced

ures

trie

d ou

t.

Wit

h e

xter

nal

fin

anci

al s

up

po

rt:

a.)

Tra

inin

gs, c

apab

ility

bui

ldin

g b.

) M

arke

t ope

ratin

g fu

nds

2

Clu

ster

fo

rmed

wit

h c

lust

er

lead

er/s

. Clu

ster

has

: a.)

Mee

t-in

gs b

.) C

omm

on p

rodu

ctio

n an

d m

arke

t pla

ns c

.) V

erba

l agr

ee-

men

ts

Mar

ket

is s

tren

gth

ened

: a.

) M

ar-

kets

are

mai

ntai

ned

and

prod

uct

volu

me

is s

cale

d up

. b.)

The

re is

bu

ild u

p of

buy

er r

elat

ions

.

Reg

ula

r p

rod

uct

su

pp

ly c

om

ing

o

ut

bas

ed o

n t

he

ente

rpri

se

sup

ply

pla

n. C

lust

er m

embe

rs

can

supp

lem

ent e

ach

othe

r’s

supp

ly in

tim

es o

f defi

cit.

(coo

r-di

natio

n fo

r ba

ck-u

p su

pply

, far

m

reco

rds)

Clu

ster

lead

ers

and

ass

ign

ed

man

agem

ent

peo

ple

are

fu

nc-

tio

nin

g. (

60%

): a

.) R

oles

and

re

spon

sibi

litie

s sp

elle

d ou

t. Ta

sk

rela

ted

trai

ning

s do

ne. b

.) A

gree

d sc

hem

e of

rem

uner

atio

n tr

ied

out.

Clu

ster

sta

rt t

o e

xper

ien

ce

mar

keti

ng

ear

nin

gs

(no

t re

gu

lar

yet)

: a.

) E

nter

pris

e tr

ansa

ctio

ns

are

reco

rded

. b.)

Ser

vice

fees

(m

anag

emen

t and

/or

mar

ketin

g ar

e in

itial

ly p

aid)

3

Clu

ster

has

reg

ula

r m

eeti

ng

s ca

lled

by

its

clu

ster

lead

ers,

w

ith

wri

tten

ag

reem

ents

, an

d

wri

tten

po

licie

s

Mar

ket

is d

evel

op

ed w

ith

mo

re

bu

yers

wh

o c

an o

ffer

sta

ble

ar

ran

gem

ents

.: a

.) M

ore

buye

rs

tapp

ed. b

.) M

arke

ts e

nter

ed in

to

are

for

long

er te

rm a

gree

men

ts.

c.)

Spe

cial

pric

ing

nego

tiatio

ns

done

.

Pro

du

ctio

n t

ech

no

log

ies

are

in

pla

ce f

or

relia

ble

qu

anti

ty a

nd

q

ual

ity

stan

dar

ds

of

at le

ast

80%

of t

he c

lust

er m

embe

rs.

Pro

duct

ion

prot

ocol

s (b

est p

rac-

tices

), s

uppl

y de

liver

y m

onito

ring

syst

em.

Op

erat

ion

al p

lan

rev

iew

is r

ou

-ti

nel

y d

on

e. (

40%

): a

.) A

gree

d sc

hem

e of

rem

uner

atio

n es

tab-

lishe

d. b

.) B

usin

ess

oper

atin

g sy

stem

s in

pla

ce.

Mar

keti

ng

ear

nin

gs

are

mo

re

pre

dic

tab

le (

and

reg

ula

r):

a.)

Fin

anci

al r

epor

ts a

re d

one

and

disc

usse

d in

the

clus

ter

mee

tings

. b.

) S

ervi

ce fe

es p

ay p

art o

f the

m

arke

ting

& m

anag

emen

t cos

ts.

c.)

Fin

anci

al s

yste

ms

are

in p

lace

.

4

Th

e cl

ust

er is

fu

nct

ion

ing

ind

e-p

end

entl

y; a

ble

to: a

.) Im

plem

ent

ente

rpris

e pl

ans

(mar

ketin

g an

d su

pply

) b.

) H

ave

regu

lar

asse

ss-

men

ts c

.) H

ave

writ

ten

finan

cial

re

port

s

Mar

kets

are

div

ersi

fied

: a.

) N

ew p

rodu

cts

(val

ue a

dded

) b.

) C

lust

ers

purs

ue m

arke

t res

earc

h fo

r hi

gher

val

ue m

arke

ts

Val

ue

add

itio

n in

th

e su

pp

ly:

a.)

Val

ue a

dded

exi

stin

g pr

oduc

ts

(pac

kagi

ng, l

abel

ling)

b.)

New

pr

oduc

ts, n

ew m

arke

ts c

.) V

alue

ad

ditio

n m

easu

res

impl

emen

ted;

be

tter

logi

stic

s in

pla

ce

En

terp

rise

pla

n e

nh

ance

d t

o

add

ress

new

op

po

rtu

nit

ies.

(2

0%):

a.)

Per

form

ance

bas

ed

ince

ntiv

es

Cap

ital

bu

ild-u

p s

chem

e fr

om

jo

int

mar

keti

ng

is e

stab

lish

ed:

a.)

Indi

vidu

al b

.) O

rgan

izat

iona

l; c.

) S

ervi

ce fe

es a

re u

sed

to p

ay

in fu

ll th

e m

arke

ting

and

man

age-

men

t cos

ts.

5

Th

e cl

ust

er is

in a

net

wo

rk w

ith

o

ther

clu

ster

s; a

ble

to w

ork

with

ot

her

clus

ters

as

part

of a

com

-m

on b

usin

ess

entit

y.

Net

wo

rk o

f su

pp

ort

is e

stab

-lis

hed

(b

usi

nes

s se

rvic

es in

th

e ch

ain

).

Dis

tin

ct p

rod

uct

s: a

.) P

refe

rred

pr

oduc

ts w

ith th

e bu

yers

b.)

P

rodu

cts

carr

y th

e na

me

of th

e su

pplie

r c.

) “Q

ualit

y is

in o

ur

grow

ers”

Inst

itu

tio

nal

izat

ion

: S

truc

ture

, m

anag

emen

t set

up,

pol

icie

s an

d sy

stem

s to

ens

ure

high

per

for-

man

ce o

f bus

ines

s ac

tiviti

es

Clu

ster

s h

ave

gen

erat

ed f

un

ds

for

bu

sin

ess

inve

stm

ent.

SUM

MA

RY M

ATR

IX O

F K

EY A

REA

S, L

EVEL

S O

F M

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Part III. Cluster Stories to Share


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Part III

Cluster Stories to Tell

Part III compiles and shares the experiences of the different clusters through stories of the good and bad events that occurred especially during their infancy. Their experiences served as worthwhile lessons to the members as these made them more responsible and more forward-looking agroentrepreneurs.

It is hoped that these Cluster Stories can give some insights to those who intend to adopt the clustering approach to agroenterprise development. A story may find importance in one or more of the eight steps in the process.




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The reality of developing an agroenterprise is complex but they can be grasped by way of the stories that highlight the experiences of the different clusters as their members work together to prepare for a market, access and develop it under different situations. Part III presents some cluster stories that tell not only of the opportunities but also the challenges to eliminate the roadblocks to farmers’ access and hold on the market.

The initiative of the Maguindanao local traders of sayap(native hat) to link with the weavers show how two actors in a market chain can work together. The efforts in tilapia fish processing is to develop more attractive products so the farmers can access a higher value market as they take advantage of seasonal, abundant fish supply from the Ligawasan Marsh.

The Farmers Field School for Maguindanao rice farmers shows a first step in market development by improving farming skills in natural farming methods and reducing production costs. This will enable farmers to produce and supply organically grown rice that will be an attractive product to consumers. In a short market chain wherein the clusters link directly to the consumers, they can bypass the entrenched local traders and avoid a situation of conflict in an already volatile peace and order environment.

The Strawberry Clusters’ story in Sitio Epol (in Davao City) highlights the experience of farmers working on their existing market at the roadside for travelers, but confronting the challenge to come up with more strawberry products available in regular supply, and without which, their marketing enterprise will not take off.

The Maragusan Clusters’ story (in Compostela Valley) relate the perseverance of the farmers to consolidate vegetables per truckload to make it an economical move given the distance and the difficult infrastructure constraints. But this learning from the challenges experience has also given them the




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confidence to scale up by gradually moving into an additional market under a partnership arrangement with a supermarket.

In the Siay Calamansi Cluster story (in Zamboanga Sibugay), we see the example of clusters that have formalized into a cooperative after a build up of organizational fund from marketing. It also presents the reality that success in product consolidation for markets brings with it its own challenges one of which is the resistance of the traders who see their hold threatened if farmers start to participate actively in marketing.

The Impasugong Coffee Cluster story (in Bukidnon) provides a glimpse of how a cluster is managed for a high value market like Nestle and Serenity Coffee Corporation, types of markets that require high discipline because quality, traceability and delivery reliability are demanded in exchange for high price. An interesting story is that of the Impasugong Squash Clusters that demonstrate that through the support of bigger producers and the influence of an industry group like the vegetable association, farmers can immediately secure a hold on the markets that otherwise are reluctant to take in supply from small farmers.

In all the above stories, we can picture how dynamic is a market condition, what innovations are called for from the farmers so that they can respond and cope with the market situations, and what development interventions from intermediary organizations can be provided to support farmers’ needs in their agroenterprise development.




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Cluster Story No. 1

REAPING THE FRUITS OF IMPROVED TIMING AND QUALITY OF DELIVERIES

On June 27, 2007, 133 farmer-members from six communities in Maragusan, Compostela Valley Province gathered once again to assess the performance of their vegetable clusters. By that time, the clusters have already sold more than 150 tons of assorted vegetable worth about PhP 800,000. The members discussed the milestones, the good relations with their buyers in Cagayan de Oro, then planned how they could supply a new market opportunity that opened for them: a major supermarket in Tagum City located some 90 kilometers away.

A year earlier, six cluster leaders together with the staff from Kasilak Development Foundation, Inc., CRS and the Municipal Agriculture Office went to Tacloban City on May 20 to 23, 2006




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to verify the prospective vegetable markets. This market was considered first because it was the place where most of the local market agents sent their vegetables. Accompanying them in the trip was a vegetable market facilitator based in Cagayan de Oro City but who has market contacts in Sogod, Southern Leyte. The facilitator was interested in establishing a market in Sogod as a dropping point of vegetables on the way to Tacloban City.

In the analysis done after the Tacloban trip, the group saw the big potential of the Sogod-Tacloban markets in terms of price margins and volume capacity given that the region is not a vegetable producing area. However, they were concerned about the high risk of this particular market given its distance. The group, instead, decided to undertake trial runs to Cagayan de Oro to enable them to go through the experience of actual consolidation and delivery in a wet market. The choice of Cagayan de Oro was made considering the presence of NorminVeggies, a potential support system from the vegetable industry group that could be tapped.

Over the next four weeks after the Tacloban trip, the cluster leaders with the Kasilak marketing officer met weekly to discuss the preparations for the test delivery. The plan was a delivery scheduled to arrive in Cagayan de Oro in the morning of June 28. This date of arrival was targeted because it coincided with the peak market day in the City when majority of the “viajeros” from Visayas, Luzon, and the provinces of Butuan, Surigao and Zamboanga would procure the highest volume for the weekend market in their respective areas. Plans were made and reviewed by the group including the logistics, pricing, operational flow and financial analysis. The test delivery involved clusters from six barangays, namely: Magcagong, Saranga, Mahayahay, Parasanon, Tupas and New Albay.

During the consolidation

On the day of consolidation, the leaders confronted several daunting challenges. The wooden tomato crates that were




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supposed to be delivered to the members were sold by the manufacturer to another buyer. So the leaders had to look for other sources of crates.

The road leading to the upper barangays of Mahayahay and Parasanon were rendered impassable due to continuous rains for the past several days. The truck driver recommended that all vegetables be consolidated at the roadside in barangay Saranga, several kilometers away from the source of the vegetables. The implication was that instead of the truck passing by the different barangays to pick up the vegetables, the growers had to bring their products from their areas to the suggested consolidation site by way of motorcycles or carabaos and horses.

Then there was a heavy downpour starting at 1 o’clock in the afternoon which continued throughout the evening. So instead of the truck departing for the other three barangays at 11 o’clock in the morning as originally scheduled, it left the roadside consolidation area for these barangays at 6 o’clock in the evening. Thirty minutes after, the truck got stuck in the muddy road and it took volunteers five hours to get it out. In effect, the truck arrived at Magcagong, the next barangay, around 11 o’clock in the evening to pick up the vegetables from the clusters. By this time, based on the plan, the truck should have traveled half the distance to Cagayan de Oro.

At dawn, the truck proceeded to the two remaining barangays, New Albay and Tupas. Unfortunately, the squash at New Albay were not yet packed in sacks and weighed. So the leaders had to work together to facilitate so that it could be done fast.

By the time the group got to Barangay Tupas, the last barangay, it was already 4 o’clock of June 28 and there was another delay as the cluster leader had left after waiting for the truck the whole night. He was located and arrived at the meeting place after about an hour. It should be noted that by this time, the vegetables should have already arrived in Cagayan de Oro.




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Finally, at 6 o’clock in the morning, the group finally departed for Cagayan de Oro with the consolidated vegetables.

Along the road in Montevista, Compostela Valley, the inner rear tire of the truck got flat. The driver and his crew took about an hour to get the truck on its way. This was followed by another breakdown in Rosario, Agusan de Sur, caused by the damage of the rim of the outer rear tire. Altogether, this was a delay of another four hours.

At the buyer’s stall in the wholesale market

The group finally arrived in Cagayan de Oro at midnight on June 28. The contracted buyers had waited from 6 in the morning to 12 noon. By the time the delivery arrived, the buyers had procured from other sources because the vegetables were to be “outshipped” to other provinces as there was a cut-off time. The vegetables could be marketed only the next day, June 29, or a 24-hour delay from the negotiated delivery time. So the market facilitator in Cagayan de Oro had to look for new buyers in the local spot market.

Other buyers came but the price was subjected to the supply-demand conditions in the spot market for the day. By this time, tomatoes from the other supply sites in Bukidnon and Misamis Oriental were arriving and the price was reduced from PhP 180.00 in the morning to only PhP 110.00 per crate later in the day. A buyer negotiated for the price of PhP 140.00 but upon close inspection, he did not pursue the transaction as he noticed mixed sizes, ripened fruits, and presence of fruit damage.

This was the same case with the squash - several buyers had already negotiated at PhP 7.00 per kilo but upon close inspection when some sacks were opened, they did not continue with the purchase. For squash, the problems were: mixture of small with the big-medium sizes, mechanical damage with some having molds, and over maturity. In all, reduction of value was about half of the original intended price.




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On the other hand, the five other vegetables, Baguio beans, ampalaya, sweet pepper, sayote and eggplant, were easily sold in the spot market at good prices mainly because they were of good quality.

Assessment

The necessary plans were made by the clusters and the arrangements with the outshipment buyers were done by a market facilitator two days before the vegetable delivery in the Agora wet market of Cagayan de Oro. For this reason, the market facilitator already gave a price to the Kasilak Marketing Officer on the basis of her negotiated sale to the outshipment buyers.

There are two kinds of buyers in the Agora wet market. One is the group of outshipment buyers who are the “viajeros” from the other provinces in Mindanao, Visayas and Manila. They negotiate a price through an Agora-based market facilitator based on an agreed time of delivery, quality and volume. The other one represents the spot buyers - the local buyers who distribute in the neighboring provinces and whose price is dependent on the prevailing conditions of supply and demand for the day.

It was unfortunate that the vegetables did not arrive on time. The outshipment buyers stretched their waiting time from morning to noontime just to accommodate the request of the market facilitator. But during the cut-off time at noon in June 28, there was no way the clusters could deliver the promised vegetables as they were still in San Francisco, Agusan del Sur, about halfway to Cagayan de Oro. The outshipment buyers procured from other sources and when the clusters’ vegetables were finally unloaded the next day, the market facilitator had to look for new buyers and had no option but to undertake spot selling where the prices would fluctuate depending on the actual supply and demand situation.




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The Baguio beans, ampalaya, sweet pepper, sayote, and eggplant were of good quality so they were immediately sold within the day but at a slightly lower than negotiated outshipment price because the prices had to be pegged on the spot wet market price already. But it was a different case with the squash and the tomato. Several buyers (both outshipment and spot) were interested to purchase but because of quality issues, they did not pursue the transaction. In one case, the buyer had already paid but called off the deal when the she found out about the extent of the quality problem in the squash.

Eventually, the clusters had to settle at a price that the buyers would be willing to pay for all the remaining stocks or risk not getting any sale at all because the marketing time may catch up with the deteriorating vegetables. Also, fresh stocks were coming in every five to ten minutes.

On analysis, the problems can be grouped into two: timing and quality. Had the vegetables arrived on the agreed time, the clusters could have gotten the price agreed with the outshipment buyers. More importantly, had the quality been good, there would have been bargaining power during negotiations to sell in the wet market despite a spot market condition. There were several buyers who had wanted to buy the squash and tomato to add to their volume of procurement but their common feedback was the poor quality of the squash and tomato.

The participating cluster members were immediately convened to discuss the results of the test marketing where the circumstances and results were presented objectively. It was pointed out that most of the challenges like quality control, timing of harvesting, consolidation and coordination with suppliers and service providers can be addressed. The rest of the assessment was devoted to a planning session for the next delivery where all the improvements and adjustments in the operational plan were made. It was emphasized to the members that while agri-marketing is particularly challenging, they were able to bring a truckload of vegetable out of their




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farms to a major trading hub in Mindanao – not a small feat for small farmers in the uplands.

If the clusters had stopped after the first market delivery given the challenges they had to go through, they would not have celebrated their first year of anniversary with 150 tons of vegetables unloaded to the market. They would not be able to even consider a new market avenue, the supermarket. A year after their first market move, they started to enter J.S. Gaisano Supermarket and are into their 16th weekly delivery to this higher value market.

Contributed by: Lionel Mendoza, Vicente Gualberto, Ronnie Fruto, Danylle Ann Pascual, Lily Naldoza and Albert Ventura




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Cluster Story No. 2

THE CLUSTER OF HAT MAKERS IN MAGUINDANAO

Keting Acob is a Maguindanaon trader who lives in SK Pendatun in Maguindanao Province. For almost two years, he has been buying sayap, the native hat produced by his Maguindanaon neighbors, and then selling them in the neighboring city of Tacurong every Wednesday and Sunday, the designated market days in this capital city.

For each market day, Keting buys 200 pieces of sayap at PhP 5.00 each and then sells them at PhP 6.00. He and his fellow sayap buyers organized an informal group of their own, and they connect to the various sayap makers to whom they supply the raw material needs. Each trader has a group of sayap makers. As an agreement, the indebted sayap makers can sell their sayap only to the traders who financed their




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respective raw material requirements. The former sets the buying price.

One day in December 2006 Keting learned that a respected Community Organizer of the Kadtuntaya Foundation, Inc was organizing the sayap makers into a cluster under a project supported by CRS. Keting decided to attend the first meeting. He saw this as an opportunity for him and his fellow buyers to be better linked with the suppliers’ end.

The Magungaya sa Ligawasan Multi Purpose Farmers Association (MALIMU) was formed with Keting and the other traders joining the sayap makers. With more women members, MALIMU is composed of clusters, each of which is led by a trader-member.

Now, Keting and the other trader-members buy sayap at PhP 6.00 a piece, thus, increasing the income of the other members by PhP 1.00. With this development, the makers of sayap are increasing in number as children and other community members are joining the trade. This may not be a big income but the other benefits are as important: how the small producers can start to get their acts together and relate with other market actors such as Keting in the local trade.

CRS and KFI are trying to build on this local initiative. As part of product support, they have explored the possibility of the raw material of sayap, which is the leaf of the romblon plant, to be semi-processed for the needs of the exporters in the furniture industry capital of the country in the Visayas island of Cebu. Also, they are studying how Keting’s and other sayapbuyers’ role can be transformed from a trader into a business service provider, organizing the product supply consolidation and the quality control for a service fee which could be generated from the addition earnings from a higher value market.

Short term objectives have to be secured with long term concerns. Thus, the project assistance also includes as part




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of the Natural Resource Management, the continued planting of the romblon plant for the sustainable supply of raw materials for the budding handicraft business in the community. This effort was foreseen by MALIMU to be a key in the sustained business. Full of hopes, the sayap clusters sent their first sample of dried romblon leaves to a Cebu furniture exporter for product development and designing. And the effort to plant more romblon is also ongoing.

Contributed by: Marynisa S. Paglala, MALIMU Marketing Officer, Hai Arap and Floro Israel




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Cluster Story No. 3

ORGANIZING AND TRAINING FOR THE STRAWBERRY MARKET

Baganihan is an upland Barangay of Davao City near the boundary with Bukidnon Province. Its cool climate supports the growing of semi-temperate crops which puts this area and its neighboring barangays in a competitive advantage. Some of the crops grown are strawberry, potato, crucifers, tomato, sweet pepper and cutflowers. The asphalting of the national highway that passes by Baganihan some seven years ago greatly enhanced the marketing of farm products.

One of the sitios or sub-villages of Baganihan is Epol which is home to farmers belonging to the B’laan and Matigsalog tribes. Bilma Fuertes, a Matigsalog, and an elected member of the Barangay Council, is one of the farmers. Her membership in the Council gave her the name as Kagawad Bilma.




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With her strong leadership, Bilma paved the way for the organization a group of women-farmers producing strawberries in Epol. The group expanded its farming activities and eventually became the Baganihan Agri-Eco Venture Cooperative or BAVC. The members decided to produce and market vegetables, strawberries and ornamental plants. Through the leadership of Bilma, BAVC received assistance from different projects.

One of the crops that benefited from external assistance was strawberry. The trainings provided by the projects initiated a small strawberry jam processing endeavor.

In 2005, the People Collaborating for Environmental and Economic Management in Davao (PCEEM) Foundation and the Catholic Relief Services (CRS) – Philippines through the Timely Intervention and Natural Approaches to Watershed (TIN-AW) Management Project provided production assistance to BAVC and formed clusters among the members. Upon the approval of the cooperative's Board of Directors, three clusters were developed representing three farm commodities to be produced and marketed, namely: vegetables, cut flowers and strawberries. BAVC also benefited from institutional development assistance and has signed a Memorandum of Agreement with PCEEM for a grant for strawberry production. Thirty one members were able to avail of the production assistance.

PCEEM and CRS-Philippines also provided training to BAVC on Biodynamic and Natural Farming Technology Systems or NFTS. The members also underwent a series of lectures that gave them helpful tips including study of different types and climatic requirements of strawberries. They were also taught the basics of land preparation, strawberry runner segregation, establishment of nurseries, planting, fertilization, irrigation, mulching, pruning and disease and pest control, proper harvest and post-harvest practices, and farm record management.




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Prior to the trainings provided by PCEEM and CRS, the members were trained by SDC-Asia on the clean and acceptable ways of processing jams, marmalades and syrups through a special training on Good Manufacturing Practices or GMP. They were also given processing equipment for group use.

With the integration of NFTS in their production practices, Bilma observed marked improvements in the fruiting patterns of the strawberry plants even during days of heavy rains.

”Our trainings have made a great difference for our group from planting to processing. Our products are fast gaining popularity after they have been introduced in trade fairs. Motorists plying Davao-Bukidnon route now make it a habit to stop by and buy strawberry jam, marmalade, syrup, or fresh strawberries." Bilma proudly said.

Currently, fresh and processed strawberries are in demand at the roadside in Epol. These products are also becoming popular during festivals and other celebrations such as Kadayawan and Araw ng Davao. Other institutional markets like hotels, restaurants and supermarkets are also lining up at BAVC’s door asking for consistent supply.

Kagawad Bilma shares that finding a market for strawberry is not a problem, but rather a challenge to produce it in a continuous manner in order to respond to the needs of their buyers not only along the highway but in the expanding and more stable institutional markets.

Contributed by: Bilma Fuertes, Linus Miranda and Lionel Mendoza




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Cluster Story No. 4

TESTING THE WATERS WITH DRIED FISH

At certain months of the year (May to August), tilapia fish supply from the Ligwasan Marsh in the Province of Maguindanao is abundant. Prices would drop, and the small producers would have to take in whatever prices were given to them by the local traders. If only tilapia fish could be processed at the peak supply months. During the community based research activities conducted as part of the development support of Catholic Relief Service (CRS) with its partner, Kadtuntaya Foundation, Inc. (KFI), tilapia fish in processed form surfaced as a product with an untapped opportunity.

Twenty (20) small producers decided to pursue this window of opportunity for processed dried tilapia, tapping an available product from its natural resource, the Ligwasan Marsh. They formed a cluster after which the members agreed to




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consolidate a portion of their tilapia catch to be dried as their new product for the market.

CRS and KFI facilitated that appropriate skills and knowledge in fish drying through hands-on demonstration could be extended to the cluster from the Department of Agriculture through its Agricultural Training Institute (ATI) and the Bureau of Fish and Aquatic Resources). Specific improvements introduced were the manner of cleaning the fish and the hygienic handling during processing. It was emphasized during the training that for processed products, it is extremely important to assure the customers with food safety.

The first test market was the Kadtuntaya Foundation, Inc. (KFI) staff and their friends. In the test marketing done, KFI helped assess the quality of the product in terms of palatability and pricing. From the assessments done, it was determined from customer feedback that the visual quality of the dried product was well received. But the dried fish was found to be too salty, which necessitated adjustments in the brine solution (i.e. salt in water) used. Also, the price that the product was offered at PhP 150/kg was rated by customers as too high relative to competition.

A careful review led the cluster members to make adjustments in their fish procurement practice and in the processing activities to bring down the selling price to only PhP 125/kg. Then an innovation was discussed to come up with a diversified product that would be higher value for the high end market: marinated-deboned-dried tilapia fish and for which product development assistance was requested from the Food Technology Center of the Xavier University College of Agriculture in Cagayan de Oro City. The new product was also well received during the food tasting activity done.

In anticipation of the abundant tilapia coming up in a few months, these two directions for dried fish, one that would be affordable and the other a special, niche product for the high end market will be pursued. In the meantime, CRS and KFI




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have been assisting the community in building awareness of the ways to protect the ecology of the Ligwasan Marsh for sustainable supply of fish and other products.

Contributed by: Hai Arap, Jim Dalgan and Floro Israel




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Cluster Story No. 5

THE CLUSTER MOVES FOREST COFFEE (AND OTHER FARMERS) TO THE

MARKET STREAM

Dumalaguing is a highland barangay in Impasugong town, Province of Bukidnon. It is where Romeo Saplian lives. Popularly known as Mimi, Romeo is one of the Higaonon tribe farmers who are growing coffee in the forest.

The hilly terrain and poor roads of Dumalaguing, as well as the Tagoloan River that divides the barangay from Poblacion, or the center of the town, make transport of goods into and out of the community difficult and expensive.

Given this situation, Mimi and over 100 other coffee farmers in his barangay opted to just sell unsorted coffee beans to the barangay traders at whatever price is given to them. These




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traders in turn transport the coffee across the river on a raft and bring them to the nearby Poblacion trader. The coffee is then sorted and re-dried to meet the requirements of Nestle Philippines located in the nearest commercial center of Cagayan de Oro City, about 80 kilometers away from Impasugong. This has been the market chain until the Catholic Relief Services, or CRS, in partnership with Kaanib Foundation, Inc., or KFI, and the Local Government Unit extended development support for these producers and linked them directly to high value markets.

Mimi is now a coffee cluster leader of Dumalaguing where 25 farmers formed two clusters. Their clusters, together with those of the neighboring barangays of Guihean and Sayawan, consolidated 6,600 kilograms of coffee beans during the recent harvest season, December 2006 to March 2007. The coffee delivered were all of Grade 1 quality, earning for the cluster members an additional price per kilogram as incentive.

As cluster leader, Mimi makes sure that his members have a cluster plan for an agreed market and volume each harvest season, and that each member has filled up a product commitment form which he summarizes into a matrix called the harvest calendar. He convenes several meetings before the first harvest for the cluster’s agreements on quality, pricing and payment procedures. He makes them understand that joining the cluster is a voluntary decision but once a member; they must abide by their agreements. He makes sure that they can have regular meetings to discuss their activities.

The high price that Serenity Coffee Corporation offered in the recent coffee season, December 2006 to March 2007, was 28 percent higher than the barangay trader. The offer came with stringent quality standards and procedures for coffee traceability per farmer. To ensure quality coffee delivery, a Coffee Consolidator was assigned in each barangay. He/she is tasked to accept only Grades 1 and 2 coffee, and manage the physical consolidation and the payments. For marketing




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capital, KFI got a PhP 500, 000 short term loan from the Federation of People’s Sustainable Development Cooperative of which it is a member. The marketing is operated like a business, with the Consolidator getting paid with a management fee equivalent to five percent of the net sale value.

Given his long experience in coffee and the high trust in him, Mimi was chosen by the cluster as the barangay’s Coffee Consolidator. His residence became the collection area and housed the weighing scale, sacks, needles and twine, marking pens for labeling and coding, and the receiving forms that contain information on the quality and sale computation.

Having reached Grade 4 only of formal education, Mimi found it difficult to compute using the calculator and coefficients for quality determination. Fortunately, his family can help him. His daughter who reached high school does the computations, while his wife acts as the cashier. Mimi focuses on segregating a sample from each farmer’s delivery and subjecting it to quality evaluation as he, together with the Consolidators of other barangays, was trained to do.

Mimi and all the other cluster leaders for coffee, abaca and vegetables in the municipality are assisted by KFI’s project staff, the CRS Agroenterprise Coordinator and the Agricultural Technologists of the local government. Their role in the project is clear to Mimi. They are just facilitators helping the clusters do the actual marketing themselves. And this is why the cluster leaders had to meet the buyers and directly transact with them.

After assessing their coffee agroenterprise, Mimi reported to the members their combined sales, costs covering transport, labor, consolidator’s fee, management fee, and the resulting net income. Of the net income, 80 percent was returned to the clusters while the remaining 20 percent was retained as the cluster fund. Reflects Mimi, “When we think of our total




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sales at over half million pesos, then we begin to feel that our clusters can be as big as the trader.”

Compared to unorganized farmers, Mimi and all the other farmers in the coffee cluster enjoy more benefits because they actively participate in the market chain. They are involved not only in producing coffee but also in value adding activities like drying, grading, sorting, and labeling before selling their product. In addition, they are taking more control over the management of the chain itself by seeking new markets, controlling product quality, negotiating for a better price, and building trust through a good track record in product supply.

The results are encouraging. During the first coffee season, November 2005 to March 2006, 25 farmers organized in three clusters in three barangays and agreed to test joint marketing. Altogether they delivered two tons of Grade 1 quality coffee to Nestle. In the next season, November 2006 to March 2007, they increased their membership to75 with a corresponding three-fold increase in product volume consolidated. These were of Grade 1 quality and delivered to Serenity Coffee Corporation. In the coming coffee season, more farmers are expected to join the clusters with estimated volume of no less than 15 tons.

It is a long journey of possibilities as the clusters feel confident to engage in more economic activities. They are now studying their market moves with new products, namely: semi-processed non-timber forest products for the Cebu furniture exporters, and vegetables for the supermarkets. According to them, this will further diversify and strengthen their income base. Moreover, they hope that their stories will echo to other farmers who are still unorganized and realize that they need not feel so helpless with their “smallness” and their constraints because clustering can simply make them big.




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Contributed by: Dennis Pace, KFI Project Coordinator; Lou Ann Gomez, KFI Marketing Officer; and Juanito Barsomo, CRS Agroenterprise Coordinator for Bukidnon




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Cluster Story No. 6

MISSING THE BOAT, MISSING THE MARKET

Calamansi (Citrofortunella microcarpa) is a popular economic crop in the municipality of Siay in Zamboanga Sibugay Province. Located in Western Philippines, Sibugay has the climate favorable for year round production of calamansi. Sometime in October 2005, a group of 94 calamansi growers formed themselves into seven clusters distributed in three barangays. Their objective was to find access to the buyers in the demand center of Manila market that could absorb their substantial production from the area. From the clusters, calamansi volume was as much as 15 tons weekly which they intended to consolidate for the Manila buyers through a Cagayan de Oro-based Market Facilitator.

The formation of clusters for common calamansi marketing was assisted by the Xavier Agricultural Extension Service of




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the College of Agriculture Complex of Xavier University and the Catholic Relief Services - Philippines. Majority of the cluster members are Visayan growers, predominantly women. But about 20 percent of the cluster membership was comprised of an indigenous group, the Subanens.

Despite the extensive planning done, the first four product deliveries to Cagayan de Oro City, a 10 to 12-hour travel from Siay, were challenged by problems. During the first delivery, the truck that the cluster hired was not able to catch the boat at the Cagayan de Oro port. So discouraged were the clusters because their calamansi arrived at the port just as the ship for Manila was departing. The clusters were compelled to unload the calamansi at the local wholesale market at only 60 percent of the agreed price with the market facilitator.

The Facilitators made sure to immediately convene an assessment because the clusters had doubts they could make it. A few weeks before their first test marketing, the local agents and assemblers of the long established trader in the community had told them it would be too complicated for the farmers to undertake it. The cluster leaders realized from the assessment that the main problem was the operational flow, i.e. the agreed time for the truck departure from Siay at eight o’clock in the evening was not followed. And this was traced that not all the clusters could comply with the agreed consolidation time of six in the evening. The clusters made improvements in their operational flow that is part of their clusters’ supply plan.

While the operational flow was improved, the second delivery a week after was confronted by another problem. The buyers complained that not all the calamansi sent to them was not standardized at 25 kg/wooden crate as agreed. This was costly on their part because they were the ones who paid for the ship freight from Cagayan de Oro to Manila. Again, the clusters addressed the problem by ensuring that all cluster members use a weighing scale to standardize wooden crate




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content, and that a label traceable to each grower and cluster should be implemented to impose discipline because an agreement with the buyer is a promise to deliver on a commitment.

On the third delivery, another problem surfaced. The truck hired broke down in transit. A rescue truck had to be immediately hired. While the calamansi still arrived in time at the Cagayan de Oro port, the trucking cost was 50 percent higher which affected significantly the net returns of the growers. So in the assessment before the next delivery, a cluster leader was assigned to survey the different truckers and ensure that the truck hired would be in good condition.

By the time the clusters made the fourth delivery, most of the problems were resolved. But a different one came up. The local trader had reacted with a price war. By this time, the clusters had already become confident to confront the new problem. The regular assessments had taught the clusters that marketing is such a dynamic activity and they would succeed if their management would be that of constant improvements. Their early experiences made the cluster more forward-looking and proactive in its agroenterprise activities.

About two years after the first delivery, the clusters had delivered a total of 482 tons of calamansi and accumulated a total of PhP 278,700 organizational funds from the management fees and the savings. The growers organized a formal cooperative called Zamboanga Sibugay High Value Crop Marketing Cooperative (ZASHIVAC) to be able to enter into business agreements with the institutional market, the processors. In the course of their marketing experiences over the past two years, the clusters realized that the wholesalers’ market is not stable because it was always determined by the market forces of demand and supply. The institutional market would be a predictable market and they are willing to come up with two annual “lock in” prices (for the dry and the wet seasons) as well as commit to a regular supply by adjusting their farm activities to be able to address the need of this type




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of market. And they are hopeful that their organization, the systems they have installed and their track record of supply would convince the institutional buyers that they need not worry in having to deal with small growers.

Contributed by: Earl Villota, Bert Sabar, Mirza Rivas, Analiza Digdigan and Floro Israel




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Cluster Story No. 7

SMALL, STEADY STEPS TO BUILD A MARKETING ENTERPRISE FOR MAGUINDANAO’S

ORGANICALLY GROWN, TRADITIONAL RICE

The rice farmers of Maguindanao have been growing their traditional rice varieties, mostly the Kawilan and Tibi-tibi varieties but have depended entirely on rains as their source of water. In this condition, they have been so disadvantaged in the market. Traditional rice varieties are not considered “premium rice” compared to the new so-called “high yielding” varieties. Although better tasting, they are assigned a lower price by the traders compared to the new “high yielding” varieties. Also, rice millers say that the palay (i.e. the rice in raw form) from rainfed farms yield low milling recovery compared to those from the irrigated fields when converted to milled rice.

Exacerbated by other limitations such as lack of adequate postharvest facilities like solar dryers, storage building and transportation, and being unorganized, the farmers are forced




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to sell their wet palay during the peak harvest times when the prices are at their lowest. Without good returns, farmers have had little incentive to improve production.

In Year 2005, with the support of the Catholic Relief Services (CRS), Kadtuntaya Foundation, Inc. through the Peace and Agricultural Development for Sustainable Livelihood in Central Mindanao (PADSLCM) extended production improvement and marketing assistance to the rice farmers. The farmers from 6 barangays (Bulod, Damalusay, Adsoy, Damakling, Poblacion and U. Idtig), all in 2 municipalities (Paglat and SK Pendatun) of predominant Muslim Maguindanao Province were organized into clusters. In this small group, farmers went through the learning process of understanding their production and marketing conditions, and then proceeded to establish improvements in their production practices. This was a basic important step recognized before the actual joint marketing is to be done.

The Farmers’ Field School (FFS) was set up using a 1 hectare demo farm. Twenty five farmers representing the clusters in the 6 barangays involved in the project got practical knowledge and skills on the Natural Farming Technology System (NFTS) approach. They were guided by the CRS Agri Extension Staff from land preparation to post harvest activities, incorporating the formulation & applications of organic concoctions as fertilizer, insecticides & pesticides for crop care and protection.

The learnings in the FFS were applied by the participants in their own family rice fields that in effect became also the demonstration sites for other farmers in the community. So far, of the 34 clusters formed involving 444 rice farmers distributed in 6 barangays, close to 65 percent have already adopted NFTS technologies. For the NFTS adoptors, their production costs have reduced dramatically and they have also reduced their dependence on outside financing for inorganic inputs from the traders/financiers. This core of independently producing rice farmers was envisioned to pave




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the way for a collective marketing effort to have more chances of success.

While the NFTS technology adoption was fast, the marketing activities were done with much caution. Maguindanao is an area with well-entrenched traders and it was difficult for a project to introduce a situation of tension in an area that was already experiencing a volatile peace and order situation. Thus, the marketing chain favored in the strategizing was to work with existing “friendly” traders and market chain actors to be able to sell the bulk of the wet palay produced by the clusters, but to also gradually build the market chain of processing the palay into milled organically grown rice directed at consumers so that Maguindanao rice as premium product could be communicated to the consumers.

In the first harvest season of joint marketing last September to October 2006, only 11,500 kilos (230 sacks) of palay was consolidated as majority of the farmers are still tied up with the traders that provided them inorganic inputs. This quantity of rice was facilitated by KFI to be processed into milled rice marketed, and were then sold under test marketing to in Cotabato City where KFI holds its office. The financial performance of this first marketing venture was however a loss. CRS staff then assisted that a value chain analysis could be done to pinpoint the bottlenecks in the marketing activities that needed to be addressed, as well as to understand the cost and returns in every product move from the farms to the consumers.

With the confidence gained from the lessons of the earlier marketing experience, the cluster leaders for the current harvest season (September to October 2007) set a higher target of 2,000 sacks of consolidated palay (with a modest contribution of about 5 sacks from each cluster member into the joint marketing venture). This volume targeted would be 10% of the member’s potential harvest but it was a good target in terms of working out a transition for marketing in a community long dominated by traders.




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Operationally, the 30 clusters are organized into 6 Peoples Organizations or POs who carried out the purchasing and consolidation of fresh palay in their respective barangays. The palay is picked-up by KFI for postharvest processing utilizing the facility available in the nearby city of Tacurong. For now, the well-milled rice marketing activity is principally managed by KFI but along the process, as efficiency levels are established, the PO Marketing Officer from the barangay of Adsoy, Marynisa Paglala, is learning the business together with the KFI staff in preparation for the eventual transfer of functions to the POs.

In the future, federating the six POs is the logical step to take to consolidate and market with efficiency, invest economically in joint postharvest facilities, as well as cater to the demand of buyers for quality and delivery reliability. On the part of KFI facilitating market outlets, it has developed its own market strategy for the fast turn-over of the milled rice. CRS has also provided small infrastructure support such as solar dryers, shallow tube wells for water supply, modest storage buildings, and trailers.

In the midst of challenges, the assessment and reflection activities on the various activities have been helpful in KFI staff with the cluster leaders being able to come up with the necessary improvements. Indeed, teamwork is at work and this is one of the strengths recognized in the partnership. It is half way the harvest season, and the clusters have so far consolidated 30,077 kg (601 sacks), looking ahead that they can reach their 2000 sack target level of marketable palay. Small gains but moving towards a clear positive direction in bringing the farmers actively involved in the market up to the consumers’ end.

Contributed by: Hai Arap, Nonita Alim, Jim Dalgan and Floro Israel




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Cluster Story No. 8

SMALL IMPASUGONG SQUASH FARMERS MOVING INTO THE MARKET WITH THE

VEGETABLE INDUSTRY GROUP IN NORTHERN MINDANAO

The Municipality of Impasugong in Bukidnon is a highland blessed with cool temperature suitable for vegetable production. Twenty five (25) small farmers in the municipality have organized 4 squash clusters in 4 barangays. The cluster members take turns planting squash beside their corn plants. Each cluster member is assigned a particular week when to plant based on a planting calendar so that there is a weekly harvest. So that the farmer has his farm requirements at the time of planting, he can borrow production capital for farm inputs from the local cooperative, the Kauyagan Savers Cooperative (KSC).




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The Catholic Relief Services (CRS) in partnership with Kaanib Foundation, Inc.(KFI) and the local government through its Municipal Economic Enterprise Development Office (MEEDO) has collaborated to assist small farmers in production and marketing support. CRS provided a fund deposit in KSC which is used as leverage fund, and KSC directly lends production capital to the farmers equivalent to two times the leverage fund.

Every Wednesday morning, a cluster member harvests squash. This is brought to the nearby City of Cagayan de Oro, about 2 hours drive from Impasugong. The squash is unloaded at the consolidation center of the Northern Mindanao Vegetable Producers Association, Inc. (NVCC). KFI is a member of the NorminVeggies that owns the facility established with counterpart support from the vegetable association’s development partners, particularly the Department of Agriculture (DA) and the Growth with Equity in Mindanao Program (GEM-USAID). As member, KFI gets an allocation of NorminVeggies market for its assisted farmers not only for squash but for 4 other vegetables, namely: sweet pea, eggplant, ampalaya and spring onions and for which clusters have been formed.

Every Thursday, the cluster member’s squash is marketed by NorminCorp (the marketing group for NorminVeggies’ members) together with 10 other items to a supermarket in the neighboring island of Cebu. It is loaded in the boat and upon arrival in Cebu, the supermarket representative withdraws the vegetables from the port and brings them to the supermarket’s warehouse where Normincorp’s representative will have them received, and then will issue a charge invoice that is the basis for the admin staff to work on the payment transfers by bank a week after the vegetables are received. Normincorp forwards all payments to KFI that facilitates that KSC’s loans are paid and net payments are given to the cluster members.




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For its marketing service, Normincorp charges a service fee at the rate of 5 percent of the sale value. With the marketing fee, the cluster member is also charged another 5 percent of the sale value for the management fee provided by the cluster in consolidating the product. Based on experience, the cluster members are willing to pay the fees as long as they can be covered by the additional earnings generated from organized marketing to targeted buyers. Normincorp uses its bargaining influence in handling high volumes of assorted vegetables to get the best price possible for the supermarket and wholesale market where price is pegged weekly and daily, respectively.

On October 11, 2007 when the price of squash negotiated with the Cebu supermarket reached PhP 9.50 per kilo, the price of the Cagayan de Oro spot market traders was only at PhP 5.00 per kilo Deducting Cebu shipping and handling costs at PhP1.50 per kilo plus the Normincorp marketing fee (5 percent of sale value) at PhP 0.48 per kilo, as well as that of the cluster’s management fee at PhP 0.48 per kilo, the cluster member still has a net price of PhP 7.04 per kilo which is way above the trader’s price of PhP 5.00 per kilo at the Cagayan de Oro wholesale point.

Only 2 tons of squash with weight of a minimum of 2 kilos are sent to the Cebu supermarket. The rest are sold by Normincorp to its network of 30 wholesaler/buyers from the neighboring provinces in Mindanao that are not vegetable producing. At times when the clusters cannot deliver due to weather problems, Normincorp taps from other NorminVeggies’ members so that its market supply agreements to the supermarket can be complied. This back-up support has been very helpful that the Impasugong clusters can sustain and hold the markets.

Only about a year ago, the cluster members were individual producers with no bargaining influence relative to the markets. Lacking information on market players, and an understanding of how markets can work to their advantage,




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they just involved themselves up to production and sold their vegetables to the local assemblers or agents of the wholesaler/traders in the nearby Agora wholesale market in Cagayan de Oro City.

With the CRS program support where farmers could be organized into clusters and could undertake production programs, they have become a part of a value chain. But while there is benefit in being part of the value chain, there is also the work, the problems and the risks. And it has not been easy complying with the supply commitments when some farmers got affected with the white fly problem that reduced the yields and when there was too much rain in September that affected production. These challenges encountered made it necessary that the clusters work within a vegetable association where back-up supply could be provided as the farmers were still learning about their production systems and when uncontrollable factors like the climate adversely affected yields.

As part of the chain moving to the supermarket with other suppliers in NorminVeggies, the Impasugong cluster farmers could undertake various activities (planting, crop management, harvesting, sorting, grading, packaging, shipping, selling to choiced markets) that give them higher earnings which individually would be difficult for them all to do. And the more the value chain is studied and discussed with them, the more incentive is for them to work together to earn more through joint marketing.

Contributed by Denis Pace, KFI Project Coordinator; Lou Ann Gomez, KFI Marketing Officer and Juanito Barsomo, CRS Agroenterprise Coordinator for Bukidnon


Part III. Lessons Learned


Part IV

Lessons Learned

The clustering strategy for agroenterprise development is a simple approach to assist small farmers to be organized and produce based on market demands and opportunities. It can be adopted by development service providers such as NGOs and government agencies interested to undertake projects that build the entrepreneurial capacities of farmers. It can also be used to enhance projects focused on farmers.

Here are some valuable lessons of CRS-Philippines in its SFMP pilot project experiences. It is hoped that they can help development service providers reflect on roles and

Part IV. Lessons Learned




competencies in the complex and dynamic work of enabling farmers to undertake marketing as a group enterprise.

1. Initial benefits are attained without too much risk if projects start with what the farmers have and build on available opportunities.

For farmers engaging in marketing for the first time, it is less risky to improve existing products and enter new markets, rather than to work with new products with new markets. New products can bring higher earnings but they also carry high risks. In the design of projects, new products can be part of the expansion phase.

2. Securing the product supply base of a core of farmers is the prerequisite for engaging the market.

Farmers’ capability to produce and to supply the products the buyers want, even in small quantities at the start but in a reliable and sustainable manner, is what determines if the marketing venture is ready to scale up commercially, remain at pilot/testing stage, or fold up. Effective and timely extension services facilitate the development of a core of farmers who serve as models to other farmers on improved farm management practices and sustainable production technologies.

3. Understanding marketing and market opportunities is the key to a market-oriented, profitable farming.

The challenge for development organizations is to assist farmers not only to increase farm yields but also to farm profitably. This calls for a shift in development interventions from just production-focused to a market-oriented approach that emphasizes production according to market opportunities and for income.





4. Helping farmers analyze market opportunities and their product supply capacity relative to opportunities opens their minds to new knowledge that empower them.

Tools in participatory research that lead farmers to arrive at this type of analysis enable them to realize that they are a crucial part of the market chain. They also let them think of what they can do to gainfully participate in it. This analysis relates directly to a practical challenge and objective for them: “How to supply their product to the buyer that interests them?”

5. Clustering is the new mode of organizing where farmers can be competitive in the market, become attractive to the buyers, and exercise ownership of their agroenterprise.

The clusters are product supply units, proactively planning production for the intended market. Being small groups, they can keep pace with continuously changing market conditions that require innovations from them. The cluster is also the mechanism where each farmer’s voice is heard and he/she can actively participate in decision making as owner of the agroenterprise.

6. Guiding the clusters to go through an interactive enterprise planning is a powerful process that starts farmers to think in an entrepreneurial way.

This process “demystifies” business and guides farmers to break up plans into pragmatic “doables” in marketing, supply, management and finance. When farmers make their financial plan, they will go through profitability analysis and will recognize that they must pay costs and service fees. Involving farmers will make them feel ownership of the plan and widen their opportunity to readjust them based on need.





7. Cost payments, savings and organizational fund build-up should already be integrated even at an early stage.

This will enable the farmers to have a realistic view of business operations to make it succeed. This will also emphasize to the farmers the importance to maintain financial records and methods of financial management which are basic skills needed in operating a business.

8. Development facilitators should only initiate the market linkage. A market commitment which is a promise to supply to a buyer must be made by the clusters themselves.

Commitments are made by farmers because they are the ones to weigh the opportunities with the risks on the basis of their experiences, circumstances and resources. In so deciding, they will own whatever is the result and not blame the development providers for any problem.

9. The clusters’ relationship is direct to the buyer. There should be no layer in between them and the buyer.

This implies that the farmers in the cluster will get the buyer’s price for the product that is promised to the buyer. Marketing is through facilitation services and for which they pay marketing service fees. This practice of market facilitation ensures that farmers own the product and will take responsibility for product quality and delivery reliability up to the buyer’s end.

10. Test marketing will put a severe test on the clusters. It is a period of steepest learning curve. At the heart of viability is an assessment after every market transaction and fast corrective measures.

Problems are expected. It does not matter what problem will arise; what is important is that the clusters





understand the problem and they can make the decision to correct it fast. Documentation of activities and assessment of every product delivery is essential; otherwise the farmers can get discouraged and lose confidence.

11. It is alright for small failures and setbacks to happen, and development organizations must not readily subsidize the losses or costs.

In business, every product delivery is not necessarily profitable. Computations are done across a period of time and what matters is that the resulting income is positive. Interventions become necessary though when the survival of the enterprise is at stake. But clusters can more likely cope with the rigors of business if they have gone through adequate preparation before marketing.

12. “Enabling” subsidies or grants may be required for the clusters to undertake innovative practices or address certain bottlenecks especially during the test marketing stage.

But farmers have to be informed that these are only short term support during the incubation stage of their enterprise. It is important for the clusters to generate organizational capital for investments in continuous innovations.

13. When credit is needed, it is better to provide them through organizations that have the expertise for credit management.

The development organization’s role is just to reduce risks through ensuring that technologies for productivity are in place, the loan is used for its intended purpose, field monitoring with technical advice is provided, and





built-in schemes of loan payment from product sales can be installed.

14. Good monitoring, assessment and documentation guide the clusters towards the needed innovations and provide progress of clusters from test marketing towards scaling up.

Business is unforgiving of inefficiencies. At scaled up operations, enterprise operating policies and systems have to be written. Records and reports have to be regularly done. The advantage of scaled up operations is that the clusters can move with lower costs which allow farmers to feel the real benefit of their marketing enterprise.

15. Linkages and partnerships will matter. The wider the network, the more the support.

Involving the private sector, especially the business sector, and the government translates into faster results and practical solutions to challenges. Government partnerships ensure that development support is mainstreamed. In market linkage, considerable benefits are attained if clusters can work alongside with bigger producers or in partnerships with buyers.

16. Development service providers play an important role in the initial stage of establishing the sound foundation for agroenterprise.

Development investments are required in trainings, capacity building (in the areas of production improvement, business planning and management, cluster organizing and strengthening), value addition technologies, market research, partnership and linkage building, and management support from business practitioners or specialists.





Agroenterprise development should not be rushed. At least a 2-year timeframe is needed for farmers to go through a maturation process. It takes time for farmers to learn new knowledge, new skills, new values, and to build their organization and enterprise. It is largely a learning-by-doing process for both the farmers and the development facilitators.

CRS-Philippine experiences demonstrate that the clustering approach is a promising participatory, integrated capacity building assistance to prepare small farmers for market engagement. The development facilitator starts with a certain number of farmers formed into a cluster. Then the market “drives” its expansion as the farmers try to come up with more supply of a given product for the market demand. At this stage, the clusters take up their own dynamics for growth as they pass on their experiences and skills to a bigger group and then network for more advantages in the market.

What lies ahead for the clusters? Cluster development should lead to formal business organizing. The cooperative may still be the best business type. It is owned by members who control and benefit from it. Unfortunately, their advantages have been outweighed by financial losses due to mismanagement that have made farmers wary of them.

Clusters linked with one another in a network, able to work with markets and finances, generate savings and organization funds, keep records and practice transparency, accountability, and participatory decision making, can serve as good building blocks for a strong farmers’ cooperatives or other types of business entities, or even movements that can advocate for development changes that bring lasting improvements: good governance with policies and programs that favor sustainable development of the farming sector.



References


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References Research Report

Digal, L.; Concepcion, S.; Cua Uy, J. Keys to the Inclusion of Small Farmers in the Dynamic Vegetable Market: The Case of NorminVeggies in the Philippines. Regoverning Markets Program. Philippines. 2006.

Books

Catholic Relief Services. Preparing Farmer Groups to Engage Successfully With Markets. A field guide for five key skill sets. A product of the CRS and RII-CIAT Agroenterprise Study Tour Group: Catholic Relief Services, Baltimore, USA and The Rural Innovation Institute, CIAT, Cali, Colombia. July 2007.

Department of Trade and Industry. Industry Clustering: Inspiring Ways to Competitiveness. A documentation project done by C.L. Follosco, J.P. Tabbada, M.C. Garcia, A.M. Maghirang, G.T, Mirasol and G.S. Recio. Export Development Council. Philippines. June 2007.

Food and Agriculture Organization of the United Nations. Horticultural Marketing. Rome. 2005.

Ferris, S.; Best, R.; Ostertag, C.; Lundy, M.; Gottret, M. A Participatory and Area-Based Approach to Rural Agroenterprise Development. Centro Internacional de Agricultura Tropical. Colombia. 2006.

Ferris, S.; Kaganzi, E.; Best, R.; Ostertag, C.; Lundy, M.; Wandschneider, T. A Market Facilitator’s Guide to Participatory Agroenterprise Development. Centro Internacional de Agricultura Tropical. Colombia. 2006.

Robins, P.; Bikande, F.; Ferris, S.; Kleih, U.; Okoboi, G.; Wandschneider, T. Guide to Collective Marketing for Small-Scale Farmers. Undated.

Wandschneider, T.; Ferris, S.; Lundy, M.; Ostertag, C. A Guide to Rapid Participatory Methods for Analysing Markets. CIAT Rural Agro-enterprise Project. 2006.

CRS Presentations and Workshop Proceedings

Catre, J. Community Processes. Paper presented during the Agroenterprise Development Training and Workshop. Malaybalay, Bukidnon, Philippines. May 21-26, 2007.

References


References


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CRS Philppines. Proceedings of the Agroenterprise and Marketing Manualization Workshop. Talomo, Davao City, Philippines. June 19-23, 2006.

CRS Philppines. Proceedings of the 1st Agroenterprise Mindanao Agroenterprise Learning Alliance (MAeLA) . Malaybalay, Bukidnon, Philippines. 2005.

CRS Philppines. Proceedings of the 2nd Agroenterprise Mindanao Agroenterprise Learning Alliance (MAeLA) . Maragusan, Compostela Valley, Philippines. 2006.

Israel, F. Cluster Formation and Enterprise Planning. Paper presented during the Agroenterprise Development Training and Workshop. Malaybalay, Bukidnon, Philippines. May 21-26, 2007.

Mendoza, L. Coffee Quality Control Procedures. Paper presented during the Coffee Buying Training and Workshop. Malaybalay, Bukidnon, Philippines. January 15-19, 2007.

__________. The Territorial Approach & CRS Innovations. Paper presented during the Agroenterprise Development Training and Workshop. Malaybalay, Bukidnon, Philippines. May 21-26, 2007.

__________. Rapid Market Appraisal. Paper presented during the Agroenterprise Development Training and Workshop. Malaybalay, Bukidnon, Philippines. May 21-26, 2007.

__________. The Experience of CRS in Clustering Small Farmers. Paper presented during the 3rd Mindanao Vegetable Congress. Cagayan de Oro City, Philippines. October 25-27, 2006.

Uy, J. Marketing Concepts. Paper presented during the Agroenterprise Development Training and Workshop. Malaybalay, Bukidnon, Philippines. May 21-26, 2007.

__________. Cluster Formation and Enterprise Planning. Paper presented during the Agroenterprise Development Training and Workshop. Malaybalay, Bukidnon, Philippines. May 21-26, 2007.

__________. Cluster Enterprise Performance Monitoring & Development. Paper presented during the Agroenterprise Development Training and Workshop. Malaybalay, Bukidnon, Philippines. May 21-26, 2007.

__________. Cluster Formation and Enterprise Planning. Paper presented during the Agroenterprise Development Training and Workshop. Malaybalay, Bukidnon, Philippines. May 21-26, 2007.


Credits

Design and layout: Dinah Q. Tabbada, Alexander U. Tabbada and Lionel D. Mendoza

Front cover and computer graphics: Xavier Aurelio Q. Tabbada and Linus T. Miranda

Artworks: Joselito T. Jimenez

Photos:CRS-Philippines Agriculture/NRM Program


SFMP

The Small Farms Marketing Project (SFMP) is a three-year program (2004-2007) funded through the USDA Food for Progress Program monetization. The SFMP aims to improve the livelihoods of 3,500 resource-poor upland farmers in Mindanao by increasing the productivity of marketable horticultural crops in small farms and by improving the efficiency of domestic market chains for these products. CRS will support farmers through (a) agriculture extension, (b) marketing assistance, (c) infrastructure projects, and (d) by funding natural resource conservation projects to promote the sustainability of agricultural development efforts.

The overall objectives of the program are: [1] Increased on farm incomes for rural households; and [2] Community-based environmental and conservation initiatives that lead

to improved natural resource management.

Program Components and Strategy

1. Agricultural Extension: Enhancement of farm productivity through extension services assisting farmers to reduce their production costs and risks and to maximize the production of quality marketable produce.

2. Marketing Assistance: Identification of crops meeting consumer demand and preferences through a farmer generated Productivity Agenda; Marketing assistance in research and farmer-to-market training designed to link farmers more efficiently to the domestic fruit and vegetable supply chain.

3. Rural Infrastructure: Access to rural infrastructure inputs including post-harvest handling and other equipment for activities promoting the economic potential of farmer communities.

4. NRM/Landcare for Watershed Management: Improvement of on-farm conservation in critical watershed areas allowing for sustainable production and support to livelihoods.

CRS, its partners, and rural people are engaged in advocacy initiatives for favorable agriculture and NRM policies at the local, national and international level; and collaboration among diverse groups to clarify and uphold shared rights and responsibilities over public and private resources thru good local governance.

Approaches The Agri/NRM program and its partners continue using well-tested participatory rural and agro-enterprise development methodologies such as COPAR (Community Organizing through Participatory Action Research), the Territorial Approach to agroenterprise development and Integrated Watershed Management.

About the cover Organized clusters can be the key to successful agroenterprise development. The illustration on the cover represents the eight-step participatory process where clusters of small scale farmers become active players gainfully engaging in the dynamic market. Innovated by CRS-Philippines Agri/NRM Program from the CRS-CIAT Learning Alliance on Agroenterprise Development, the process continues and progresses towards the empowerment of the clusters and the building of new ones.

Catholic Relief Services was founded in 1943 by the Catholic Bishops of the United States to assist the poor and disadvantaged outside the country.

It is administered by a Board of Bishops selected by the National Council of Catholic Bishops and is staffed by men and women committed to the Catholic Church's apostolate of helping those in need. It maintains strict standards of efficiency and accountability.

The fundamental motivating force in all activities of CRS is the Gospel of Jesus Christ as it pertains to the alleviation of human suffering, the development of people and the fostering of charity and justice in the world. The policies and programs of the agency reflect and express the teaching of the Catholic Church. At the same time, Catholic Relief Services assists persons on the basis of need, not creed, race or nationality.

Catholic Relief Services gives active witness to the mandate of Jesus Christ to respond to human needs by:

• Responding to victims of natural and man-made disasters; • Providing assistance to the poor to alleviate their immediate

needs; • Supporting self-help programs which involve people and

communities in their own development; • Helping those it serves to restore and preserve their dignity

and to realize their potential; • Collaborating with religious and nonsectarian persons and

groups of goodwill in programs and projects which contribute to a more equitable society; and

• Helping to educate the people of the United States to fulfill their moral responsibilities in alleviating human suffering, removing its causes and promoting social justice.

Self Improvement

Agroenterprise Guidebook