Yael Schwartzman DigitalICS: applications for smallholders’ internal control and certification

1. Yael SchwartzmanDigitalICS:applications for smallholders’ internal control and certification

2. Coffee is the second most traded commodity in the world… However, small rural producers have not seen the benefits: - Market is flooded - Vietnam & Brazil - Small lands - Limited financial capacities - Infrastructural limitations - Lack of enforceable production standards - Lack of efficient marketing channels

3. Coffee producers obtain Third-Party certifications in order to gain a premium for their products, access a niche market and maintain environmental and socialstandards • Fair Trade: Improve the living condition of marginalized producers by creating consumer awareness, ensuring a dignified wage and promoting long-term trading relationships • Organic : ensures chemical-free sustainable farming practices • Bird Friendly: ensures that native shade trees are retained on coffee parcels, preventing sun damage and soil erosion and providing shelter to migratory birds

4. Cooperatives have an Internal Control System (ICS) in order to achieve and maintain these certifications. • Group Organic Certification: • Made for smallholders to afford organic certifications. • Requires cooperatives to have an Internal Control System • Internal inspection of 100% of the coop’s members • External inspection (by third-party organic certifiers) of 10-20% of the coop’s members • Establishes and maintains: • Quality standards • Multiple certification requirements

5. Cooperatives form Internal Control Systems (ICS) to maintain these certifications. Inspection Evaluation Report Generation • Evaluator decides producer’s outcome based on internal inspection: • Approved • Sanctioned • Expelled • Data is collected in FileMaker and reports are generated: • Certification Agencies • Internal Records • Producer’s Records • Extensionists (follow up) • Internal Inspectors • monitor producer’s: • Parcels • Equipment • Neighboring crops • Substances used • Records

6. Internal Control System (ICS)Challenges • Efficiency: • Inspections, evaluations and reports are all generated by hand • Inspectors carry one paper form per producer • 6 documents per evaluation • Verifiability: • Little evidence of “in-parcel” inspection and breaches of standards • Quality: • Problems in standardization of inspection answers • Errors due to illegibility of hand-writing, dirt and rain • Not all the inspection data is captured on proper databases

7. Digital ICS Inspection Evaluation Report Generation • The cooperative’s staff use mobile phones to monitor the producer’s: • Parcels • Equipment • Neighboring crops • Substances used • Records

8. Digital ICS Inspection Evaluation Report Generation • Evaluators use a web application to decide the producer’s outcome • Approved • Sanctioned • Expelled

9. Digital ICS Inspection Evaluation Report Generation • Reports are generated automatically • Certification Agencies • Internal Records • Producer’s Records • Extensionists (follow up)

10. Digital ICS Inspection Evaluation Report Generation Evaluators use a web application Reports are generated automatically Internal Inspectors use mobile phones

11. The Digital Internal Control System allows internal inspectors to: Automate and standardize internal inspection data collection Reducing by 30% the inspection time

12. The Digital Internal Control System allows internal inspectors to: 2. Use audio and pictures to document and provide visual and auditive evidence of unacceptable farming practices, recommendations and presence on the parcel

13. The Digital Internal Control System: 3. Automates data collection and report generation, to help evaluators do their job Reducing by 71% the evaluation time

14. The Digital Internal Control System: 4. Uses captured data to create parcel’s visual history and market the produce

15. Our partner: CEPCO • CEPCO (Oaxacan State Coffee Producers Network) • Coffee cooperative created in 1989 to: • reduce producers transaction costs • increase their market access and information access • give technical advice and training • deliver social, women and public policy projects to address poverty and marginalization in indigenous communities • Largest cooperative of small-scale coffee producers in Mexico (2683 producers in 33 producer groups around Oaxaca state, Mexico) • Good altitude, high quality • coffee • Clients in Europe and North • America • Certifications: OCIA Organic, • Naturland Organic, Certimex, • FLO Fair Trade

16. DigitalICS Status • 2007: • Pilot DigitalICS inspection and evaluation for two producer communities at CEPCO • 2008: • Inspection and Evaluation of ~2600 productores en 32 comunidades • Reduced inspection time by 30% • Reduced evaluation time by 71% • Reduced internal control costs by 80% (preliminar) • 2009: • Fully Implement DigitalICS at CEPCO and at any other interested organization. • Pilot project for a delivery processing system at CEPCO

17. Agriculture: Delivery processing Organization Commercialization Microfinances: Credit Applications Socioeconomic forms Human Rights Documentation of human rights violations Other applications

18. 90% of the 400,000 coffee producers in Mexico own less than 2 hectares of land. In 2001 coffee prices dropped drastically: Coffee pickers with malnourished children had to beg for food and farmers had to abandon their land or switch to growing drug crops (Economist 2001) Many coffee farmers lost their lives attempting to migrate illegally into the U.S. in search for work (Dow Jones Newswire 2001) Certified markets are promising: Since 2000, TransFair USA has channeled $75 million in additional income to smallholders. However, coffee farmers have found these premiums insufficient to seek development (Culture and Agriculture 2008) The USDA’s National Organic Program almost discontinued group organic certification in 2006, when they found a soy producer using pesticides going undetected by his group’s internal control (NOSB-USDA 2007) Need