Session 3: Strengthening Development Oriented Rural Enterprises

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Building Development Oriented Rural Enterprises
Training and Project Development Workshop
Session 3 Strengthening Development Oriented
Rural Enterprises
Workshop Presentation
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DOCUMENT OVERVIEW
INTRODUCTION MANAGING ACQUIRING
SERVICES QUALITY CERTIFICATION MARKET
INFORMATION SYSTEMS PROFITABLE GROWTH GROUP
ACTIVITY
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INTRODUCTION
Once a Development-Oriented Rural Enterprise has
been established
There is still a lot of work to do to make it
healthy and sustainable

• A full intermediary type DORE will
• Buy farmers produce
• Pack, sort and process it
• Sell produce in the market
• Have some infrastructure
• Have a management team
• Have some basic organization and performance
  management

• But at first it might not
• Have consistent and reliable sources of
  extension, credit, etc
• Have good enough quality to serve best customers
• Have proper market information
• Be profitable or growing as quickly as it could

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DOCUMENT OVERVIEW
INTRODUCTION MANAGING ACQUIRING
SERVICES QUALITY CERTIFICATION MARKET
INFORMATION SYSTEMS PROFITABLE GROWTH GROUP
ACTIVITY
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ACQUIRING AND MANAGING SERVICE PROVIDERS
What to use?
What for?

• Improve marketability of farmers produce
• Increase yield and production so business can
  sell more

Agricultural extension

• Allow farmers to get inputs for the agricultural
  cycle
• Give farmers funds for investment

Credit

• Solve production or handling problems that the
  business cannot solve itself
• Reduce costs or improve product characteristics

Research

• Give the management team advice and ideas on
  strategy, operations, marketing, organization,
  etc
• Build the capacity of the management/governance
  groups to run the business with no outside support

Management support
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CASE STUDY RED ECOLSIERRA, COLOMBIA

• Red Ecolsierra is a DORE working in the northern
  tip of the Sierra Nevada, near the city of Santa
  Marta in Colombia
• This is a coca growing area with a very strong
  influence from the recently disbanded AUC
  (right-wing militia)
• It was set up by Accion Sociale/Presidential
  Program Against Illicit Crops
• The area also has the controversial Forrester
  Families where farmers are given a subsidy in
  exchange for not growing coca
• The DORE was set up to commercialize cocoa,
  honey, coffee and cocoa and also to provide
  eco-tourism

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RED ECOLSIERRA SERVICE PROVIDER STRATEGY
Cocoa
Coffee
Ecotourism

• Social Action

• National Coffee Federation

• Ministry of Industry, Trade and Tourism

Extension

• Ministry of Agriculture
• Emsolmecs rotating fund

• Emsolmecs microcredit service

• Emsolmecs rotating fund

Credit

• Forester Families program

• National Coffee Federation

• Social Action - UNODC

Inputs
Management support

• Dansocial /Social Action

• Compañía Nacional de Chocolates

• Cafimag (export arm of NCF)

• Aviatur / UNODC

Marketing
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CASE STUDY MAINSTREAMING IN THE ROAYAL PROJECT

• Probably worlds first AD project, established
  in 1969 by Thailands King
• Introduced over 150 crops (mainly horticultural
  crops) to smallholders in opium-growing areas
• Provides research, development and marketing
  services to 100,000 beneficiaries in 38 project
  areas in 5 provinces in Thai highlands
• Managed by independent Foundation, but uses
  government for many key services

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ROYAL PROJECT SERVICE PROVIDERS
Government
Non-Government

• Internal staff
• HRDI

• Department of Agriculture

Extension

• Department of Land Development
• Department of Irrigation
• Royal Forestry Department

• Community-driven programs

Farm landscape improvement

• Bank of Agriculture and Cooperatives

• Cooperative revolving funds

Credit

• Ministry of Agriculture
• Thai Public Universities

• Internal staff
• HRDI
• International research organizations

Research

• Ministry of Health
• Ministry of Education

• Internal staff
• Volunteers

Social
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DOCUMENT OVERVIEW
INTRODUCTION MANAGING ACQUIRING
SERVICES QUALITY CERTIFICATION MARKET
INFORMATION PROFITABLE GROWTH GROUP ACTIVITY
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INSTITUTIONAL QUALITY CONTROL
PRODUCTION
Cultivation, chemical management, pest control,
harvesting
Training, Resources, Monitoring
Resources, Monitoring
POST-HARVEST PROCESS (I)
STANDARD SPECIFICATION AND COMPLIANCE
SYSTEM PERFORMANCE MANAGEMENT
Harvest, local storage, transportation to
collection centre
POST-HARVEST PROCESS (II)
Record-Keeping
Record-Keeping
Sorting, grading, packing, processing, storage,
distribution
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MANAGEMENT OF Q.C. LAB ORO VERDE, PERU
Professional tasters taste sample of each batch
according to international standards
Problems with batches
Technical support to solve problems identified by
Q.C.
Extension Staff
Q.C. Lab
Share information on customers and batch quality
Tested produce
Farmers
Customers
Produce for testing and distribution
Sales Marketing
Feedback on quality
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CERTIFICATION SYSTEMS ORGANIC
Profile
Example

• No agricultural chemicals are used in production
  of crop
• Crop was not contaminated during processing,
  handling and packing

Warrants

• Price premium (20)
• Substitute labour for other inputs
• Basic condition of access for many export markets

Benefits
3 villages in Chiang Rai, Thailand produce
organic rice under an agreement between the
farmers, a local rice mill, the Department of
Agriculture and Capital Rice in Bangkok. Training
is given by the Department of Agriculture, and
Capital Rice pays the cost of having the farmers
get internationally-accredited certification from
BioAgriCert, an Italian certification agency.

• Farmers must endure conversion period (1-3 years
  without using chemicals but with no
  certification)
• Farmers must master technical skills and
  record-keeping
• Some party must pay certification costs

Requirements
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CERTIFICATION SYSTEMS FAIR TRADE
Profile
Example

• No unfair or exploitative labour practices
• A fair price for produce
• Marketing done through a Farmers Group

Warrants

• Price premium/controlled price
• Condition of market access for some buyers of
  specialty coffees and cocoas in Europe

Benefits
The Federacion del Campesina del Cauca in
Southern Colombia promotes Fair Trade
certification for its farmers. As a result, FCC
gets a higher price (1.24/lb compared to
1.07/lb last year). Of this extra, 80 is used
to raise the farmgate price and 20 is used to
fund social projects by FCC. At least 5 cents per
pound must also be paid into a Social Fund for
the coffee farmers.

• Farmers association or cooperative in place
• Party to bear inspection cost

Requirements
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CERTIFICATION SYSTEMS GAP
Profile
Example

• The most dangerous agricultural chemicals are
  not used
• Agricultural chemicals that are used are used
  within safe limits

Warrants

• Price
• Marketing benefit where there are concerns about
  food safety
• Basic condition of access for exports to EU

Benefits
All of the vegetables sold by the Royal Projects
Doi Kham Food Company are GAP certified. In order
to do this, over 3000 vegetable farmers who
supply Doi Kham have been trained in the GAP
system. The Royal Project provides training and
internal inspectors who visit each certified farm
every month. This ensure that the farmers are
complying with GAP, and lets them keep their
certification when inspectors from the Department
of Agriculture visit the farms.

• Farmers must master compliance (record keeping,
  storage skills)
• Party must bear certification cost

Requirements
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DOCUMENT OVERVIEW
INTRODUCTION MANAGING ACQUIRING
SERVICES QUALITY CERTIFICATION MARKET
INFORMATION PROFITABLE GROWTH GROUP ACTIVITY
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MARKET INFORMATION SYSTEM TYPES
Narrow
Broad
Price information only
Price information and also other- market news,
marketing information, etc
Formal
Informal
Created for purpose, e.g. government price lists
Not created for purpose, e.g. calling personal
contacts
IT-driven
Non-IT driven
Uses computers, telecoms and electronic media,
e.g. SMS services
Doesnt use computers, telecoms and electronic
media- e.g. hand-delivered price lists
Non-continuous
Continuous
Comprises regularly updated information, e.g.
weather, prices
Comprises one-off information, like contact
details for traders or agricultural information
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MARKET INFORMATION INFORMATION TYPES
Marketing Information
Market Information

• Current prices
• Bids and offers
• Transaction volumes
• Future prices
• Historical prices

• Market-relevant current affairs
• Weather forecasts
• Market structure and dynamics

• Contact details for traders and service
  providers
• Packing and grading standards
• National regulations
• Market locations
• Agricultural extension information
• Export requirements

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MARKET INFORMATION CASE STUDIES
Oro Verde Coffee Company, Peru
Sayabouli Province, Laos PDR
Kind of information
Kind of information
Recent prices of maize, contact details for maize
traders
Current prices for organic and fair trade coffee
Origin of information
Origin of information
Agricultural office in Loei Province, Thailand
Website of New York Commodities Exchange
User of information
User of information
Individual farmers in 14 villages
General Manager of Oro Verde
Purpose of information
Purpose of information
Prevent farmers from being deceived by traders,
allow them to plan production
Find best buyer for batches of coffee, allow
General Manager to monitor market and avoid price
crashes
Method of dissemination
Method of dissemination
Faxed to Sayabouli from Loei and then posted on
notice board of 14 villages under management of
District Commerce Officer and project staff member
Accessed directly from computer in office of
General Manager
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MARKET INFORMATION BEST PRACTICES

• Decide who the user is, and what they need, and
  provide only what they need
• Use what is already available if possible
• Ensure distribution mechanism is appropriate for
  user
• Assess the needed and actual reliability
• Ensure system sustainability

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DOCUMENT OVERVIEW
INTRODUCTION MANAGING ACQUIRING
SERVICES QUALITY CERTIFICATION MARKET
INFORMATION PROFITABLE GROWTH GROUP ACTIVITY
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OVERCOMING BOTTLE NECKS TO GROWTH
Common barriers
Solution
Producer productivity

• Use of traditional and participatory
  agricultural research

Low supplier cultivated areas

• Increase cultivation areas

Low number of producers

• Get technical and financial support to bring up
  new suppliers to market

Shortage of processing capacity

• Increase labor productivity (training),
  equipment investment

Low number of producers
Transportation and storage

• Improve logistical management

Lack of demand or customer

• Strengthen customer relations and develop
  marketing strategies

Lack of working capital

• Improve management of working capital or get cash

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CASE STUDY ACOPAGRO, PERU
Bottleneck
Description
Strategy

• Source as much technical support/extension as
  possible from agricultural organizations and
  donors (e.g. USAID, Accion Agraria, CARE, UNODC)

• Not enough farmers with sufficient skill to
  produce specialty cocoa

Quality

• Invest in drying areas and research effective
  low-cost technologies from other cocoa-producing
  countries (e.g. better fermentation system from
  Ecuador)

• Not enough capacity to ferment and dry all of
  the cocoa being produced by current members

Processing Capacity

• Tap additional funds for working capital from
  donors and philanthropic banks (e.g. RaboBank)
• Negotiate speedy payment from best customers

• Not enough funds to purchase cocoa from members
  due to very long lead times between purchase and
  payment by customer (working capital 60 of
  sales)

Working Capital
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DOCUMENT OVERVIEW
INTRODUCTION MANAGING ACQUIRING
SERVICES QUALITY CERTIFICATION MARKET
INFORMATION PROFITABLE GROWTH GROUP ACTIVITY
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BREAKOUT GROUP ACTIVITY

• The breakout group work will concentrate on
  service providers
• Each group will be assigned either agricultural
  extension, research, credit or market
  information
• For your assigned area, make a list of possible
  providers
• For each possible provider, identify
• Strengths
• Weaknesses
• Some of your own experiences with these providers

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EXAMPLE BREAKOUT GROUP ACTIVITY
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Thank you