Smallholder Producers

1. Who is this guide for? „Organic business“ Smallholder Producers Cooperative or Company Processors, Traders Final consumers

2. Economic and non-economic benefits of organic & fairtrade Simplified income model: Net income = ( Harvest  Price ) – Production costs Stabilized yields Organic, fairtrade and quality premium Reduction of input costs + less financial and production risk, less indebtedness + diversification of crops and income, more food security + environmental benefits (soil, water, bio-diversity) + health benefits (no pesticides, better food)

3. Sustainability triangle Organic Fair Trade Other sustainability initiatives Quality and social standards in conventionalproduction Level of sustainability „Business as usual“

4. „You can‘t push a chain…“  Start from the market! Which products are in demand? (where? when? prices? trends?) Potential products What can we produce?(farming systems, technology) Can we meet the requirements? (quality, volume, timing, packaging) Which products are profitable?(production costs, margins) Can we compete with others?(price, quality, added value)

5. Local vs. regional vs. global markets Mainly fresh produce for urban centres; possibly with some organic premium Mainly staple food (rotation crops), with little or no organic premium Mainly export of commodities, with formal certification, organic and/or fairtrade premium Regional urban markets Local rural markets Global markets Logistics, quality requirements, premium, competition

6. Value chain chart Business environment Provision of inputs Production Bulking Cleaning Grading Trade Processing Packaging Retail Services (financial, certification, advice etc.)

7. Organic cotton value chain map Prod. Rotation crops Industrial textiles Handmade textiles Supporters Consumers local / abroad Consumers abroad Consumers local / abroad Cons. Donors / Investors Retailers Retailers Boutiques Retail Brands Development NGOs Traders Textile processor Traders Government agencies Cotton trader Certification agencies Bulking / processing / trade Ginning Factory Workshops Financial service providers Producer Coope-rative / Company Research Institutes Cotton farmers Production Input suppliers

8. Downstream integration Present business scope Downstream integration Provision of inputs Production Bulking Cleaning Grading Processing Packaging Export Retail

9. SWOT Analysis of the organic business Analysis of markets and trends Strengths Opportunities Weaknesses Threats Analysis of competitors Analysis of the business environment

10. Organisational structure of an organic business Governing body Executive director Administration Extension & ICS Processing unit Trade department • Accountant • HRD manager • Field officers • Internal inspectors • Processing staff • Quality manager • Logistics staff • Marketing staff Lead farmers

11. Specialisation or diversification? • Specialisation • sufficient know-how of production methods, processing technology, markets • professional manage- ment of business relations • making use of econo- mies of scale • Diversification • reducing risks (production risk, price risk) • opening up new development oppor- tunities • making use of syner- gies (farming system, infrastructure, certifi- cates, management systems etc.)

12. Breaking even $ second break even point first break even point costs profit investment for up-scaling or diversification revenues loss years

13. Monthly liquidity

14. Typical producer organisation set-up Retailer 3 Retailer 1 Retailer 2 Trader Processor / Trader Organic business • Producer organisation • Management and Administration • Extension and ICS • Bulking • (Processing) • Marketing Farmer Group 1 Farmer Group 2 Farmer Group 3 Farmers Farmers Farmers

15. Roles and functions of extension and ICS Extension service Internal Control System Head of extension Head of ICS Training and supervision of field officers Training and supervising of internal inspectors Field officers Internal inspectors Note: Field officers of one zone can be internal inspectors in another zone Training and supervision of lead farmers Lead farmers Inspection of farms Training and technical advice of farmers Farmers Mutual exchange Mutual control extension ICS technical advice internal control collaboration

16. Fair trade pricing $ organic premium Fairtrade organic price Fairtrade minimumprice market price time

17. What is the Internal Control System (ICS)? Consumers Retail External Certifier Trust Processing & Trade Internal Control System (ICS) (adapted from IFOAM)

18. Actors, functions and tools in the ICS Key tools Actors Functions Decision on sanctions and exclusions Sanction catalogue Approval committee Operating manual,data base Management of the ICS; checking its functioning Head of ICS Internal inspection report Internal inspection of farms Internal inspectors Support farmers in documentation; report non-conformities ICS forms Lead farmers ICS forms Documentation of farm activities; mutual control Farmers field visits

19. Data handling and management External certification agencies (organic & FT) Management of the project Distribution of inputs Database - lists (farmers etc.) - data tables - calculations - reports - forms - checks Commercial transactions Purchase and payments Training and extension Farm documents - farm data - field data Internal Inspection reports Decisions of Approval Committee

20. Marketing mix Target Market Fibre: Top sustainability (Organic & Fairtrade), clients committed to poverty reduction in Africa Final Product: Retailers or wholesalers with Corporate Social Responsibility policy Medium to high quality/price market segment

21. Pricing Quality Low High Low Economy Penetration Price High Skimming Premium