term paper
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Term Paper
BHUPESH MANOHARAN
(0086/49)
ACNOWLEDGEMENT
I would like to express my special thanks of gratitude to Professor Nimruji Prasad J. for
providing me with this opportunity and helped me in doing this term paper.
It was her able guidance and constant appraisal of the paper that led me to have holistic view
of the subject and improvise the paper.
Table of Contents
ABSTRACT ...................................................................................................... 3
INTRODUCTION: ............................................................................................ 4
ORGANIC AGRI-BUSINESS: HOW IS IT DIFFERENT?............................ 4
METHODOLOGY ............................................................................................ 5
LIMITATIONS OF THE METHODOLOGY .................................................... 5
SUSTAINABILITY ISSUES IN ORGANIC AGRIBUSINESS ........................ 5
ENVIRONMENTAL/ECOLOGICAL SUSTAINABILITY ........................... 5
ECONOMIC SUSTAINABILITY: ................................................................. 6
SOCIAL SUSTAINABILITY: ....................................................................... 7
OPPORTUNITIES & CONSTRAINTS IN ORGANIC AGRIBUSINESS ........ 7
OPPORTUNITIES ......................................................................................... 7
CONSTRAINTS ............................................................................................. 8
SUSTAINABLE PRINCIPLES OF ORGANIC INTEGRATED
AGRIBUSINESS – GOALS/KEY FEATURES OF THE ORGANISATION . 10
DESIGNING THE ORGANIC PRODUCTION SYSTEM .............................. 12
MANAGING THE CONVERSION TO ORGANIC FARMING.................. 13
CHALLENGES IN CONVERSION PROCESS ........................................... 14
VALUE CHAIN ANALYSIS OF A TRADITIONAL AGRICULTURE
SYSTEM ......................................................................................................... 16
PLANNING AND MANAGING ORGANIC AGRIBUSINESS ..................... 16
MODEL 1: ....................................................................................................... 19
MODEL 2 ........................................................................................................ 21
MODEL 3 ........................................................................................................ 23
ORGANISTIONAL FIELD ANALYSIS ......................................................... 24
REFERENCES ................................................................................................ 26
ORGANISATIONAL STRUCTURE AND PROCESSES
AMENABLE FOR A SUSTAINABLE ZERO BUDGET
ORGANIC AGRIBUSINESS ENTERPRISE
ABSTRACT
In today’s world of rapid industrialisation and aggressive growth, sustainable practices
become extremely important in all fields. Modern industrial agriculture may yield excellent
results in short term but they raise the question of sustainability from both the human and
environmental perspective.
“Organic agriculture is a production system that sustains the health of soils, ecosystems
and people. It relies on ecological processes, biodiversity and cycles adapted to local
conditions, rather than the use of inputs with adverse effects. Organic agriculture
combines tradition, innovation and science to benefit the shared environment and promote
fair relationships and a good quality of life for all involved.”1
This paper tries to explore the advantages and sustainability standards of organic agriculture
over conventional agriculture. It also focusses on the design of an integrated organic
agriculture system and tries to identify the different models of organisational structure and
processes that are amenable for a sustainable zero budget organic agribusiness enterprise.
The paper limits the types of organisational design to three basic models, farmer entrepreneur
owned organisation model, farmer producer organisation model (cooperative model),
individual entrepreneur (non-farmer) owned organisation model.
1 Source : IFOAM
INTRODUCTION:
ORGANIC AGRI-BUSINESS: HOW IS IT DIFFERENT?
An organic agri-business shares many features of modern/industrial agri-business. Its
production processes should be efficiently managed, it is competitive, and financials and risks
should be under control. Yet, there are few aspects that are specific to organic agri-business.
Sustainability Standards
Organic agribusiness incorporates principles of sustainability in each of its business
decisions. It integrates environmental considerations into its business planning and
decision making processes.
It supplies environment friendly products that can replace the demand for non-green
products. It decreases the environmental harm caused due to the production and
consumption of its products. It also decreases the carbon foot print in the
environment.
It identifies, assesses and manages environmental risks associated with its operations
and products throughout their life cycle, to reduce or eliminate adverse consequences.
It complies with all applicable legal and regulatory requirements
Changes in primary production
The main differences from modern agri-businesses at the farmer level are the following:
The producer base is a fixed group of farmers who are certified organic farmers. The
produce can be bought only from the approved farmers, and from no one else. So
there is a mutual interdependence between farmers and sellers.
The farmers need to be trained in organic practices, about the inputs they are allowed/
not allowed to use. The training is a prerequisite for certification.
The farms and the farmer groups need to be certified by an approved certification
body. Once certified there is a need to maintain certification. So an organic agri-
business must be closely involved with the primary production.
Different buying, storage, packaging requirements
The produce must be bought from same farmers (as the farmer base that practice
organic agriculture is small).
The traditional middle men cannot cope with this change. There should be a high
level of transparency.
The organic products must be kept separately and identified as organic in a clean store
which should not be fumigated against storage pests (fumigation requires usage of
chemicals).
There are some specific requirements for packaging and correct labelling.
Different business model
An organic agribusiness is more complex than a normal buying and selling operation.
It requires a higher management capacity to deal with farmers, the certification body,
and the consumers.
Different markets, different exposure
In organic markets quality is a more important issue than in conventional markets. As
organic products command a premium price2 in the market, consumers expect a
higher quality product.
The organic premium is for the combination of certification and for having a good
quality product.
A firm involved in organic production will be always under scrutiny. Inspection from
the certification body can happen unannounced any time.
METHODOLOGY
To get insights about Organic farming and present trends in it, I worked on the resources
available from the secondary sources.
Secondary research was conducted using published reports from FiBL survey The World of
Organic Agriculture Government of India, Centre for Science and Environment Green
Farming etc. I have also used sources available on the internet and the Library e-resources.
Apart from these secondary resources I also studied the organisational structures of various
sustainable start-ups and tried to incorporate the features of the start-up in the report.
LIMITATIONS OF THE METHODOLOGY
The major limitation was I did not have any access to primary data. All the interpretations are
based on the secondary sources, so the validity of these cannot be explicitly verified.
Another major limitation was the inability to find any model agricultural start-up
organisational structures. This is due to the reason that, organic agribusiness is done in an
informal manner in most parts of the world rather than in an organised formal structure.
SUSTAINABILITY ISSUES IN ORGANIC AGRIBUSINESS
ENVIRONMENTAL/ECOLOGICAL SUSTAINABILITY
Most of the conventional farm practices are ecologically unsustainable for natural resources
and soil fertility. They enhance soil erosion and increase the greenhouse effect.
Sustainable agricultural practices are closely linked with ecological sustainability in terms of:
2 Source: ICAR
improved soil fertility
increased ability of top soil to retain organic matter, nutrients and water
increased diversity of crops, microbes and other plants and animals in and around
the field,
reduced use of hazardous chemicals including pesticides
minimized soil erosion, landslides and improved green cover to conserve soil
increased carbon sequestration
Reduced energy demand.
Soil Fertility Stability
In agriculture, soil fertility declines over time due to continuous extraction of nutrients with
crop harvest and soil acidification and when the replenishment with fresh nutrients is
inadequate, over application is inevitable. Global fertilizer consumption has drastically
increased over the years. However, despite use of new and improved crop varieties and
chemical fertilizers, crop yield began to slow down from an average of 2.2 percent in the
1970s to 1.1 percent in the 2010s3.In many parts of the developing world sufficient
availability of inorganic fertilizers is an important constrain for food production and farm
income
Nutrient management through organic farming helps stabilizing soil fertility via improving
nitrogen fixation. Soil microbes are among the most important components to regulate soil
organic matter decomposition and nutrient cycling. Organic supplements are easily recycled
by microbes and increase other soil properties maintaining fertility stability.
ECONOMIC SUSTAINABILITY:
Agriculture can be sustainable only if it has a long-term economic viability. Conventional
agriculture, which follows the principle of diminishing return, poses long-term economic
risks than sustainable agriculture.
Debt: The green revolution raised India’s grain production by many folds. At the
same time, a large number of small-scale farmers got trapped into debt. They took
loans to raise production and on failure in re-paying, about 40,000 farmers4
committed suicide.
Market risk: Concentrating on specific commodities in conventional agriculture is
vulnerable to market risks. Market fluctuates quickly and an increase of low priced
international agricultural produce into the national market, increase farmers risk.
Employment: Agriculture is the main source of employment for rural people.
Specialized and mechanized practices reduce rural employment. Sustainable
agriculture, as witnessed through organic farming system, being labour-intensive
helps overcome such problems.
3 Source: FiBL Survey
4 Source: Wikipedia
Export Orientation: From economic perspective, an export-oriented production
system is considered more important than those that supply domestic demands. The
Indian organic produce market is mainly export oriented.
SOCIAL SUSTAINABILITY:
The social sustainability of farming techniques focuses on social acceptability and justice.
The issues that concern include:
Inclusiveness: Development cannot be sustainable unless it is inclusive reducing
poverty for the broad masses of people. This is particularly important for a country
like India having very large gap between rich and poor. Sustainable agriculture
explores ways to enable rural poor to get benefit from agricultural development.
Local acceptance: Sustainable agricultural practices consider local social customs,
traditions and norms. This local acceptance enhances harmony, fulfil needs and
promote sustained growth and yield.
Indigenous knowledge: Sustainable agriculture often focuses on the use of traditional
knowledge and local innovation. Locally adapted breeds and crop varieties strengthen
stability in agriculture in India.
Gender: In modern conventional farming men often benefit the most by controlling
what to grow and how to spend the resulting income. Sustainable agriculture ensures
that the benefits are shared equitably between men and women.
Food security: Modern farming approaches in India consider few crops only and fail
to provide variety and a balanced diet. Sustainable agriculture ensures food security
by improving the quality and nutritional value of food with greater range of crop
varieties and produce.
OPPORTUNITIES & CONSTRAINTS IN ORGANIC AGRIBUSINESS
OPPORTUNITIES
Cost-benefit Issues
Agriculture is the major driver of national economic growth and poverty alleviation in a
developing country like India. The industrial agriculture that increased grain production and
farmers profit by a large margin is driven by significant externalities with hidden cost such as
loss of natural resources, effects on human health and on agriculture itself.
Organic farming has become important for not only minimizing externalities but also for its
cost effectiveness. Organic methods have the potential to produce enough food to sustain
current human population and an even a larger population without increasing the agricultural
land area while reducing the detrimental effects of conventional agriculture .Organic farming
can reduce pesticide use by 50% to 65%5 without sacrificing crop yields and quality along
with 50%6 lower expenditure on fertilizer and energy use.
Cost-benefit analysis compares the total expected costs of each option against the total
expected benefits, to asses if the benefits outweigh the costs and with what margin.
For agriculture sector, the component of cost estimate includes fixed costs, variable cost and
other costs.
Fixed cost includes land, land revenue, depreciation of farm implements and interest
on fixed capital.
Variable cost includes cost of planting materials, organic inputs, pesticides, irrigation,
bullock, tractor and cost of labour and irrigation
Other costs include cost of marketing, power consumption, storage and packing.
In organic farm, although the average cost of cultivation per acre is lower only marginally,
the net return increases by over 40% which suggests that a properly planed organic farming is
beneficial not only from environmental point of view but also from economic margin.
The cost of cultivation under organic farm is about 21 %7 lower than that under conventional
farm mainly due to no use of chemical fertilizers and insecticides. An increase in price
margin subject to market demand of organic produce status further substantiates total
benefits.
Employment Opportunities
Organic farming requires over 15% more labour than traditional farming and therefore
provides rural job opportunities. Some of the commonly used organic farming techniques
such as strip farming, non-chemical weeding, and production, collection and transportation of
organic supplements all requires significant labour.
Organic farming can generate employment opportunity for a vast section of rural
communities. In India, women constitute an important component of labour work force in
agriculture.
Thus, the variations in nature of works and in planting and harvesting schedules may provide
more work opportunities for rural women and a more evenly distributed and stabilized
employment opportunity for male labour.
5 Source: Organic Certification Directory
6 Source: Organic Certification Directory
7 Source: Organic Certification Directory
CONSTRAINTS
Environmental Constraints
Our country supports approximately 16%8 of the world’s human population and 20%
9of the
world’s livestock population on merely 2.5%10
of the world’s geographical area. The steady
growth of human population and developmental activities exerts heavy pressure on India’s
limited land resource and has caused severe land degradation.
Due to the overuse of synthetic fertilizer and pesticides, the agricultural productivity in our
country reduced from 234.5 million tons in 2008-09 to 218.2 million tons in 2011-1211
due to
soil quality degradation and nutrient mining. Conversion to organic agriculture will require a
minimum period of three years to due this environmental impact caused over the years.
Certification
Access to certification, cost involved therein and a time lag of three years (conversion stage)
often constrain farmers especially small land holders in India from adopting organic farming.
Organic produce needs certification to ensure that all synthetic inputs are prohibited and soil
building approaches are followed.
Certification authenticates organic produce for consumers and validate price margin of the
product in the market. The certification process aims at converting the growing area to
comply with requirements of standard within a period of 3 years. For this reason, farmers
who adopt organic management need to wait for up to three years under certification
procedures that requires purging of chemical residues.
In India, the export of organic produce is permitted only with a valid organic certificate
issued by a certification agency accredited by an accreditation agency designated by the
Government of India.
However, lack of knowledge, rationale capital and access to certification discourage small
farm holders in India. To overcome these constraints the government of India is providing
extension services, training and institutional demonstration, fiscal incentives to encourage
organic farm sector to strengthen nation’s economy and sustainability.
Social acceptance
Indian agriculture system is under a transition stage. The increasing demand for organic
produce has created new opportunities and a small sector of farm holders are aspiring
economic boom with lucrative export markets.
On the other hand, majority of small farm holders are still dependent on government
incentives to meet the cost of input and are striving for a profit margin for their produce in
8 Source : Organic Agri consortium
9 Source : Malarum Bhoomi
10 Source : Malarum Bhoomi
11 Source : FiBL Survey
indigenous market. Small farm holders in India therefore, are unwilling in adopting this
agricultural practice.
Other constraints
Major issues that constrains farmer’s acceptance in India include: cost benefit
anomalies, access to certification, non - availability of organic supplements and lack
of appropriate knowledge.
Our country lack indigenous lucrative market for locally grown organic produce.
Further, under conversion stage, economic viability depends on the status of the farm.
Yield declines during first year of conversion and steadily increases in subsequent
crop cycle. Once the farm is established organic, the yield enhances and the cost of
production declines. Accordingly, there may be a deficit in net income under organic
farming compared to conventional one up to third year. The three initial year deficit
coupled with certification associated constraints often make small farm holders
apprehensive.
One other major constraint is the availability of labour. In India after the introduction
of MGNREGA, availability of farm labour has considerably decreased. Being a
labour intensive work, organic farming faces this important constraint.
Major issues that need to be considered to resolve farmers’ apprehension in India
include: to distinguish the benefit-cost ratio of different crops in organic and chemical
farming practice, to understand the difference of production cost under organic and
chemical farming, to assess whether net profits are higher in organic farming system
and with what margin for considering conversion of conventional land to organic land
and, to enhance appropriate government incentives and extension services to support
farmers capital input and knowledge base and to ease certification access.
SUSTAINABLE PRINCIPLES OF ORGANIC INTEGRATED
AGRIBUSINESS – GOALS/KEY FEATURES OF THE ORGANISATION
PRINCIPLE OF HEALTH: Organic Agriculture sustains and enhances the health of
soil, plant, animal, human and planet as one and indivisible.
The role of organic agriculture, whether in farming, processing, distribution, or
consumption, is to sustain and enhance the health of ecosystems and organisms from
the smallest in the soil to human beings.
Organic agriculture intends to produce high quality, nutritious food that contributes to
preventive health care and well-being. It avoids the use of fertilizers, pesticides,
animal drugs and food additives that have adverse health effects
PRINCIPLE OF FAIRNESS: Organic Agriculture should build on relationships that
ensure fairness with regard to the common environment and life opportunities.
It emphasizes that the organization involved in organic agriculture should conduct
human relationships in a manner that ensures fairness at all levels and to all parties –
farmers, workers, processors, distributors, traders and consumers.
Organic agriculture should provide everyone involved with a good quality of life, and
contribute to food sovereignty and reduction of poverty. It aims to produce a
sufficient supply of good quality food and other products.
This principle insists that animals should be provided with the conditions and
opportunities of life that accord with their physiology, natural behaviour and well-
being.
Natural and environmental resources that are used for production and consumption
should be managed in a way that is socially and ecologically just and should be held
in trust for future generations. Fairness requires systems of production, distribution
and trade that are open and equitable and account for real environmental and social
costs.
PRINCIPLE OF ECOLOGY: Organic Agriculture should be based on living ecological
systems and cycles, work with them, emulate them and help sustain them
This principle roots organic agriculture within living ecological systems. It states that
production is to be based on ecological processes, and recycling. Nourishment and
well-being are achieved through the ecology of the specific production environment.
For example, in the case of crops this is the living soil; for animals it is the farm
ecosystem; for fish and marine organisms, the aquatic environment.
Organic farming should fit the cycles and ecological balances in nature. These cycles
are universal but their operation is site-specific. Organic management must be adapted
to local conditions, ecology, culture and scale. Inputs should be reduced by reuse,
recycling and efficient management of materials and energy in order to maintain and
improve environmental quality and conserve resources.
Organic agriculture should attain ecological balance through the design of farming
systems, establishment of habitats and maintenance of genetic and agricultural
diversity. The organization which produce, process, trade, or consume organic
products should protect and benefit the common environment including landscapes,
climate, habitats, biodiversity, air and water.
PRINCIPLE OF CARE: Organic Agriculture should be managed in a precautionary
and responsible manner to protect the health and well-being of current and future
generations and the environment
Organic agriculture can enhance efficiency and increase productivity, but this should
not be at the risk of jeopardizing health and well-being. Precaution and responsibility
are the key concerns in management, development and technology choices in organic
agriculture.
Scientific knowledge is necessary to ensure that organic agriculture is healthy, safe
and ecologically sound. Practical experience, accumulated wisdom and traditional and
indigenous knowledge offer valid solutions, tested by time.
DESIGNING THE ORGANIC PRODUCTION SYSTEM
The basis of organic agribusiness is the farmers, and their production. The farmers use
fertilisers and pesticides for the reason that it would increase the yield. But the money they
get from possibly increased yields hardly covers the costs of the inputs, and there is a risk that
they will lose more money or become indebted in case the crop fails.
In organic farming, farmers get the organic premium precisely because they are not using
agrochemicals. They need to find organic ways to increase and maintain their yields. An
“organic by default” approach ( non-usage of fertilisers due to lack of availability), without
training farmers on how to improve their (organic) farming practices, is thus not very likely
to succeed in the long run. If farmers stop using chemical inputs, without proper organic
management yields are likely to remain low.
Sustainable farming systems
Without proper organic management that enhances improvement of soil fertility and eco-
system stability, an “organic by default” production is not sustainable. Organic farming
involves more intensive farming (active soil fertility management and pest management,
application of manures etc.). So farmers must get appropriate training and technical advice on
how to do productive organic farming.
Although an organic business may start from an “organic by default” situation, within two to
three years it is crucial to shift to active sustainable organic farming. Otherwise organic
certification will make poor farmers only more susceptible.
Commodity approach versus crop diversity
Many organic farming initiatives start with a focus on one commodity or value chain. This
seems correct from a specialisation point of view – having a focus on being efficient,
knowing the production technology, the business, the market. On the other hand, there are
several reasons why organic projects should think of crop diversification from the beginning:
Crop rotation and intercropping are important strategies in an organic farming system
to keep soils fertile and prevent pest populations from building up.
Crop diversity helps farmers to reduce risk - if one crop fails or market prices drop,
other crops can compensate for the loss.
Crop diversity is an important factor in improving food security.
If the business can sell several crops, the overhead cost share (for extension,
certification, management etc.) for each crop is reduced, making the products more
competitive in the market.
Even if the project is built around one lead crop, it is important to include suitable
rotation or associated crops that can ideally be marketed as organic.
Ways to good organic farming
Some common features of good organic farming systems
Crop diversity in time (crop rotation) or space (intercropping), involving leguminous
plants. An important issue to note in this aspect is the different marketing chains for
the selling of different crops. This may prove as a major constraint.
Use of sufficient volumes of organic manure such as farm yard manure, compost or
green manure, ideally produced on the farm itself
Integration of animal husbandry in the farming system
Recycling of all kinds of biomass and crop residues, instead of burning it
Careful soil cultivation that does not lead to soil erosion and that preserves soil
moisture
Preventive measures to manage pests, diseases and weeds
Absence of any synthetic fertilizers, pesticides, growth regulators and GMO
MANAGING THE CONVERSION TO ORGANIC FARMING
While beginning an organic production initiative, the most important challenges is to
motivate farmers to convert their farms to organic management. They positive benefits for the
farmers are organic premium for not using chemicals, the benefits for soil fertility, health and
environment, advantage of lower input costs. But the farmers will have to put in some work
to improve their system and to maintain soil fertility, and therefore will have to change their
way of farming. The main question for the farmers will be whether the conversion is
economically viable, in the short and in the long term.
Working on sustainable soil fertility and nutrient management is the biggest challenge for any
organic farmer, bigger than the challenge of crop protection. During the conversion period,
technical advice is needed for farmers to adapt their farming system. Bottlenecks like the
availability of organic manures, and leguminous crops in the rotation, need to be addressed
Coping with initial drop in yields
When farmers convert from intensive conventional farming in which fertilizers and pesticides
are frequently used, yields are initially likely to be lower, at least during the first 2-3 years of
the conversion process.
Soils need time to re-build fertility, diverse agro-ecosystems need to be established, and
farmers need to gain know-how and experiment with organic farming methods. Over time,
yields usually increase in organic farming systems. Whether they are eventually lower than,
on par with or even higher than in the conventional system depends on the intensity of the
production system.
When there is a drop in yields, this is a severe obstacle to conversion, especially for resource-
poor farmers. During the conversion period usually only a small organic premium can be
obtained. There is not much of a market for in-conversion products. The early availability of
an organic premium is a stimulus to pay more attention to farming.
Reducing the conversion period
For organic certification, the conversion period is between one and three years. Most
standards require that crops have been under organic management and monitored by a
certification body before the harvest can be sold. Some certification bodies consider the
starting point of the organic management the moment farmers register with a project or
company, others from the time farmers sign a contract, again others from the first inspection.
Many certification bodies require two inspections before the first certification, one at the
beginning of the cropping cycle and one before the first harvest. Choosing plots that have not
received fertilisers or pesticides for some years has the advantage that the production can
sometimes be certified organic from the first harvest onwards. Initiatives pursuing a quick-
conversion strategy risk ending up with comparatively low yields. Farmers may then drop out
if yields continue to decline. It therefore pays off in the long term to engage in real
conversion of formerly conventionally farmed land.
Success factors in the conversion process
Adequate training in organic agriculture and organic production methods
Develop strategies to cope with initial drop in yields and higher labour requirement
Competent and timely advice on organic crop management
Regular exchanges with experienced organic farmers (role models) adapting the
production system:
Try out organic technologies on small plots to gain experience
Identify suitable crop rotation and intercrops
Ensure sufficient input of organic manure (if necessary from outside the farm) or
other materials (like oil cakes)
Gradual conversion
Organic farming initiatives should make farmers to convert gradually to organic farming,
enabling them to reduce the risk involved in conversion. New farmers could, for example, be
encouraged to try out organic methods on part of their land before registering with the
certification agencies. Although this will prolong the period until the farm can be certified
organic, it might be more feasible and sustainable than converting in one single step.
CHALLENGES IN CONVERSION PROCESS
Organic production may face a number of challenges that need to be addressed. Conversion
to organic farming requires extra effort, and so working with the available labour can also be
difficult.
Access to farm inputs and equipment
Organic production initiatives need to ensure that farmers get access to appropriate
production inputs like seeds, pest management items and fertilisers that are permitted
in organic production. It can be difficult for farmers to obtain seeds that are suitable
for organic production.
For soil fertility management, sufficient application of organic matter is crucial,
especially for achieving satisfying yields and good product quality. Many organic
businesses therefore require farmers to produce the inputs on-farm.
Input supply should ensure that farmers receive the inputs in time and at an affordable
price. The farmers need to know how to use them in the most efficient way. Extension
services therefore need to train and advice farmers on when and how to apply the
respective inputs.
Farmers may also need specific equipment for successful organic production, like
sprayers for bio pesticides, carts to transport organic manure, or infrastructure to
produce good quality compost
Organised supply of inputs and equipment may keep farmers from trying out new
techniques on their own. Support should be designed in a way that farmers still have
options from which they can choose, and should stimulate innovation.
Financial services for farmers
Costs for inputs in organic farming may be lower than in conventional farming, but
many farmers find it difficult to pay for inputs at the beginning of the cropping
season.
So organic businesses can therefore provide inputs on a loan basis. They can deduct
the value of the input at the time when the farmers deliver the product.
Organic business can provide micro-credit to farmers for buying inputs, seeds,
equipment or animals, or for paying hired labour.
The organic business can be involved in linking farmers with micro-credit schemes,
and negotiate favourable conditions for them.
Managing co-existence with conventional farming
In locations where organic farms are located amidst conventional farms that use
pesticides, fertilisers the organic farming initiative needs to take precautionary
measures to avoid contamination from neighbouring farms.
Contamination can be in the form of surface irrigation water passing through
conventional fields and thus potentially carrying fertilisers or pesticides, wind drift
from spraying pesticides, or pollen carried by wind or insects from genetically
modified organisms to organic crops. According to organic regulations, operators
need to ensure that there is no contamination..
Different certifiers handle this in different ways. Most require that irrigation water
shall not have passed through conventional farm land on which fertilisers have been
used. In order to prevent contamination from the drift of pesticide sprays, usually
buffer zones of some metres are required. However, selling off part of the crop as
non-organic is a painful exercise. It is better to work with a buffer crop or hedge.
Agreements with neighbours or within communities for not spraying the areas
adjacent to organic plots, or only when wind is away from organic land are also
options to solve the problem.
VALUE CHAIN ANALYSIS OF A TRADITIONAL AGRICULTURE SYSTEM
In the traditional agricultural practice the small producer has minimal sources to sell his
produce. In India he is majorly dependent on primary cooperatives or the local middlemen.
The produce is usually sold in the local market. Much of it is also used for domestic
consumption. All the process costs of storage transport, processing and grading is usually
incurred by the farmer. So the margins the farmer gains are very less.
This becomes important when the farmer practices commodity agriculture when he is fully
dependent on the middlemen for selling the produce. This problem can be overcome by using
the integrated approach.
Only in case of large farmers, they have the ability to negotiate with the traders. The value
chain can be broadly divided as Input Supply, Production, Collection, Processing and
retailing. In the traditional method the farmer is involved only in the first three steps. But in
Organic integrated Agriculture he is involved in all the steps.
PLANNING AND MANAGING ORGANIC AGRIBUSINESS
SWOT Analysis of Organic Agriculture
Developing an organisational model
Elements of the organic business
Element Functions
Farms/Farmer • Active organic agricultural production
• Participation in extension, ICS and quality management
• Responsible for organic quality
Extension system • Awareness, training of farmers, information sharing
• Technical advice, experimentation with farmers
• Develop extension tools, incentives
Inspection system • Internal control -> managing group certification
• Separation, traceability
• Quality management in primary production
Trade
• Providing inputs to farmers (optional)
• Selling / marketing the produce
Finance • Organising trade finance
• Buying raw material from farmers
Logistics • Logistics, storage
Processing • Cleaning, grading
• First level processing (e.g. drying, grinding, pulping)
• Quality management in processing
• Packaging
Administration • Accounting
• • Human resource development
Management • Strategic development
• Financial management
• Representation, networking
MODEL 1:
STRUCTURE OF A FARMER ENTREPRENEUR OWNED ORGANIC
AGRIBUSINESS
SWOT Analysis of the model
FARMER ENTREPRENEUR MODEL
In case of a farmer entrepreneur model, most important functional unit is the farm labourers.
They usually perform all the semi-skilled jobs of dairying, agricultural activities, aquaculture,
packaging, grading etc. The farmer is responsible for all the logistics and distribution and
quality control. As there is absence of middle men he must also take care of the sales and
marketing .So there must be a sales and marketing team which may be store operated or door
to door sales. There must be an accountant/ IT professional that can keep track of the records.
STRENGTHS
Land Access
Own capital
Experience in Innovation
Absence of middlemen
Increased value addition
Low cost of production
Absence of seasonality
WEAKNESSES
Availability of market
Government regulations
Increased time of conversion to organic land
Increased marketing costs
Availability of capital
Increased labour costs
OPPORTUNITIES
Increased market
Premium price
Consumer awareness
Export opportunities
THREATS
Increased risk
Dependent on weather
Government regulations like APMC Act
Less availability of labour force due to MGNREGA
As the model is owned by the farmer, financing becomes an important issue. So it may be
self-financed or capital may be raised through microcredits and banks.
There must be a operations team comprised of farm labourers itself who can help in input and
output logistics.
A farmer entrepreneur model is mostly family operated and the farm labourers are used
interchangeably for different jobs.
A model of the integrated organic system model is depicted below.
A INTEGRATED ORGANIC SYSTEM MODEL
MODEL 2
STRUCTURE OF AN ENTREPRENEUR OWNED BUSINESS (NON FARMER)
The core of an organic business is the buying of raw materials from approved farmers on the
one side, and the selling on of that product after some cleaning, processing and packaging on
the other. In addition to dealing with the product, some businessmen also provide inputs to
the farmers, such as seeds, natural fertilizers. The buying and selling activities include
securing trade finance, logistics and storage.
Most organic businesses also engage in some kind of processing of the raw product as
delivered by the farmers. This may range from simple cleaning and grading, up to the
production of finished products. Proper quality management at this level is crucial for being
successful. Processing also includes the packaging of the product into units for sale (bags,
containers, boxes etc.).
The activities and transactions within the above mentioned business elements require
administration and management. An organic business requires a higher level of management
than in a conventional agri-business of the same type and size. There is a lot more to manage
as there is an annual inspection for certification.
The management has responsibility to ensure that the system works; the plan is implemented
and is also responsible for the enterprise’s strategic development. The management also
represents the business to the outside world, and develops linkages and alliances with other
stakeholders
STRENGTHS
Less capital
Non dependence on land facilities
No direct involvement in agri practices
Economies of scale
Premium price
WEAKNESSES
Absence of Supply chain efficiency
Convincing farmers
Less farmers involved in organic agriculture
Providing credit facilities
OPPORTUNITIES
Increased market
Premium price
Consumer awareness
Export opportunities
THREATS
Government regulations
Risk due to climate conditions
Initial certification
Niche market
Less availability of labour force due to MGNREGA
A detailed structure of the above specifying the roles is given below.
MODEL 3
STRUCTURE FOR A FARMER PRODUCER ORGANISATION MODEL
(cooperative model)
STRENGTHS
Economies of scale and scope
Collective effort
Premium price
Easy to mobilise inputs
Bigger market
Absence of middlemen
WEAKNESSES
Coordination of farmers
Unwilling farmers
Credit availability
Market availability
Certification issues
OPPORTUNITIES
Premium price
Increased consumer awareness
Govt.schemes
Increased value addition
THREATS
Weather dependent
Government regulations
Small size of the market
Less availability of labour force due to MGNREGA
ORGANISTIONAL FIELD ANALYSIS
Organizational field are those organizations that in aggregate constitute a recognized area of
institutional life: key suppliers, resource and product consumers, regulatory agencies, and
other organizations that produce similar services or products.
Once disparate organizations in the same line of business are structured into an actual field,
powerful forces emerge that lead them to become more similar to one another. Organizations
may change their goals or develop new practices and new organizations enter the field.
In case of organic agriculture the farmer groups/ individual farmers, the certification agencies
and the niche market consumers become the major players in the organizational field.
ALTERNATIVE MARKET STRATEGY
It takes at least 3 years by government/external agencies to provide organic certification for
farmers who practice organic farming. This process of certification is an external looking
strategy and the two prime players involved are the certification body and the niche market
that drives a demand for the organic products.
The farmers undertake organic farming for the price premium offered by the niche market.
The underlying factor in this practice is the major part of the risk factor is borne by the
farmers. As conversion takes 3 years and continuous monitoring by the agency after
certification is necessary to continue this practice, the farmers re under constant pressure and
a higher risk. The benefits of the premium price are subjected to the external niche market
conditions which increase the risk further.
One of the alternative strategies the farmer could implement low cost mass market strategy
for organic production systems rather than the niche market strategy. The way by which the
farmer entrepreneur or the producer organisations can go about doing this is by taking the
certification agency out of the value chain. The farmers can sell the organic produce at mass
market low cost price than at premium price.
ADVANTAGES
The farmer can focus on the cost reduction by lowering the input costs (Fertiliser and
pesticide)
The price premium can be substituted by the low input cost for production and thus
the system becomes sustainable.
The farmer can reduce the risk as the control shifts out from the certification agency
directly to the farmers
It leads to crowding of the market from the farmers perspective and the farmer will
not be at the whims and fancies of the niche market consumers.
REFERENCES
FiBL survey The World of Organic Agriculture – Statistics and Emerging Trends , Published
by IFOAM
Government of India, (2001) National Programme for Organic Production: Accreditation
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A Survey of Sustainable Development – Social and Economic Dimensions (2001) (Eds.)
Jonathan M.H, Timothy A.W, Kevin P.G and Neva R.G, ISLAND Press, Washington D.C
Centre for Science and Environment Green Farming: A directory of individuals and
organizations, involved in sustainable agriculture in India, New Delhi
Government of India, National Programme for Organic Production: Procedures for
Accreditation (New Delhi)
Government of India, National Programme for Organic Production: Formats and
Application Forms (New Delhi)
Government of India, National Programme for Organic Production: Accreditation Criteria
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Government of India, Ministry of Commerce and Industry, “National Programme for
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IFOAM Criticisms and Frequent misconceptions about Organic Agriculture: The counter
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ILEIA/ETC-India, ILEIA/LEISA Network in India: A Register of Indian Organizations
Indebtedness of Farm household Survey in India, NSSO 59th Round, 2013
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