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

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) 2

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

„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)

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

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

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 Bulking / processing / trade Certification agencies Ginning Factory Workshops Financial service providers Producer Coope- rative / Company Research Institutes Cotton farmers Production Input suppliers

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

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

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

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

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

Monthly liquidity

Producer organisation Typical producer organisation set-up Retailer 1 Retailer 2 Retailer 3 Processor / Trader 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

Roles and functions of extension and ICS Internal Control System 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

Fair trade pricing $ organic premium Fairtrade organic price Fairtrade minimum price market price time

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

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

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

Marketing mix Product Organic fairtrade cotton fibre for textile industry Fairtrade certificate (FLO-Cert) and organic certificate (EU, NOP, certified by Ecocert) Quality: Staple length: 27-32 mm Micronnaire: 4.8 Producer: smallholders associated with producer organisation (certificate holder) Country of origin: XXXXX Packaging: in bales of 220 kg, wrapped in cotton tissue Price Producer price based on FLO minimum price for organic seed cotton Fibre: premium price level Price differentiation (discounts) based on volumes, readiness to enter into long-term partnership, and provision of pre-financing Place (Distribution) Direct export to spinning mills or via cotton trader (exporter); Small volumes sold to local handmade processing units Promotion Personal selling: getting in contact with potentially interested final distributors Linking with potential clients through partner NGOs Participation in organic and fairtrade fairs Inviting potential clients to field visits Promotional materials for clients and/or consumers After-sales follow up on client satisfaction with spinning mills and distributors Target 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

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